Any organization would need to make sure it is on solid ground before taking a chance on growth and return. Strategically the initiative would be to build a relationship between three solid areas; sell the strategic need first, operational development, and financial planning. Our team paper will illustrate a strategic initiative for the Disney organization as well as identify an initiative discussed in Disney’s Annual Report. The focus will look at how the initiative affects Disney’s financial planning and explain how the initiative can affect the costs as well as sales within this organization.
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Last but not least, our paper will describe the risks associated with the initiative and financial effects the risks may have to the organization. The conclusion will recap the importance and value of the relationships between the strategic and financial planning initiatives within The Walt Disney Company. Strategic Planning Initiative The Walt Disney Company Annual Report provides financial information with a solid structure plan; to develop a creative market and sell to consumers.
However, a major concern for Disney would include inaccuracies and risk to operate the business. Because of the volatility of the world’s economy Disney cannot always accurately predict the corporations’ future successes or failures. Disney does use a value and risk model (VAR) at a 95% confidence level to estimate the one-day loss in interest rate, foreign exchange, or market sensitive equities. These financial objectives are important because they affect the corporations’ working capital daily.
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The goal of this paper is to address the inaccuracies of the projected earnings and create a more confident and accurate process of planning financial gains or losses. When planning the financial outlook for the corporation, the accounting department needs to observe different financial attributes for a past period. They must confidently predict what the change for that timeframe will be. The strategic planning initiative is to determine whether the confidence level will increase to 98% or 99% or should the retrospective financial trends be looked into for a greater period.
Determining what the best route to confidently and accurately predict the financial future is the strategic plan. The Initiative Effect on Cost When a company develops a strategic planning initiative, the company needs to take into account how the initiative is going to affect the costs that drive the company. The Walt Disney Company’s strategic planning initiative is no different. The Walt Disney Company needs to take the cost drivers into account when developing an initiative, specifically the costs that will affect the working capital.
The organization does use the VAR model for the initiative, but if the organization does not develop a financial plan in the strategic planning process, the company will not be able to forecast when an outside source of financing is needed. The costs of the company can rise higher than the sales creating illiquidity. This is from an excess of outside financing (Keown, Martin, Petty, & Scott 2005). By calculating the VAR, the Walt Disney Company will be able to estimate the levels of loss that will occur based on low profitability.
If the organization can use this to take into account an increase in the organization’s sales, Walt Disney Company can predict what the inventory and accounts receivable will be to keep the company going strong. The organization will know when the different projects of Walt Disney Company will need to expand or cutback on inventory, accounts receivables, and investments. The assets of Walt Disney Company will most likely need to be financed, so projecting the organization’s assets level is imperative to the financial strength of the organization.
In addition, The Walt Disney Company takes into account the costs, so the shareholders obtain a vast return (Mayo, 2007). Disney takes into account the borrowing rates when the organization is developing the initiative. By obtaining lower rates, the company helps to reduce the cost of capital creating more of a return for the shareholders (Keown, Martin, Petty, & Scott 2005). The Initiative Effect on Sales A major element in any business is the importance of increasing sales revenue, and Disney is no exception to the rule.
Disney’s strategic plan is to “create[e] great entertainment that people want to experience; using new technology to maximize the quality and reach of that entertainment; and growing the businesses in promising international markets to extend the impact of that entertainment” (Fiscal Year 2010, Report, 2011, p. 3). An ambitious goal; however, Disney has proven capable in increasing sales revenue. Disney witnessed a decrease in sales of about 4%, or $1. 7 billion from 2008 to 2009. By implementing this strategic plan, Disney’s sales performed well with a nearly two billion dollars increase from 2009 to 2010.
As part of its strategic plan, Disney set out to expand, update, and revitalize its brand. Disney expanded and updated its amusement parks and hotels. Blockbuster hits like Tangled and rebooted Tron: Legacy came out in theaters in 2010. To top it off, Disney acquired Marvel Entertainment Inc. , including a collection of some 5,000 Marvel characters. Disney displays one of its greatest attributes entertain in new and innovative ways, translating into increased sales. These increased sales have proven to serve the company well and should continue to serve them well into the future.
Risks Associated with the Initiative and Financial Effects The Initiative and financial risk that Disney currently faces is in intellectual property protection, the recent decline in demand of the products due to the U. S. , Global, and regional economic conditions, changes in consumer tastes, and technology. According to Disney SEC filing 2010 in ITEM 1A: Risk Factor, it states that, for an enterprise as large and complex as the company, a wide range of factors could materially affect future developments and performance.
Therefore, Disney has a risk management department to research, analyze, and produce prevention planning against future risks for existing and future projects. This is administered to obtain an action plan prior to the risk unfolding causing a negative financial impact. Establishing such a plan prior to a devastating result this is put in place to correct the risks to move forward with the development. According to the textbook, Financial Management states, “risks from economic and currency problems abroad can be devastating” (Keown, Martin, Petty, & Scott, Jr, 2005).
Disney’s risk effect in the area of financial initiatives occurred within the reconstructing and impairment charges. The closures totaling $132 million in impairment charges, which consisted of write-offs of capital costs related to film projects that were abandoned such as ESPN Zone locations and studio production facility closures. These establishments are created to increase revenue and resulted in costing Disney quite a bit of money due to the decline in the economy’s health. This was a result of taking a risk with a huge loss.
This is one of the mishaps experienced by Disney; however, it did not cause a business wide closure. Conclusion Within this strategic initiative paper, the focus was on the relationship between strategic and financial planning. The Walt Disney Company stayed focused on their long-term strategy, efficiently managing costs as well as sales to deliver future growth within the organization. The Walt Disney Company, following the vision of founder Walt Disney, has embraced technology change insight of risk and maintained an unwavering commitment to their business, employees, and consumers.
Concerning quality, no name shines more brightly in family entertainment than Disney. . References Financial Management: Principles and Applications, Tenth Edition by Arthur J. Keown, John D. Martin, J. William Petty, and David F. Scott, Jr. Published by Pearson PrenticeHall. Mayo, H. (2007). Basic Finance. Retrieved from https://ecampus. phoenix. edu/content/eBookLibrary2/content/TOC. aspx? assetdataid=19fd9e7c-34ba-4899-be1f-e0b1abd2951a&assetmetaid=4b986427-68cc-4529-b585-c9e333284405. The Walt Disney Company (2010). Annual Reports. Retrieved from http://corporate. disney. go. com/investors/annual_reports. html
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