Unit VIII Case Study Politics at Walt Disney

Walt Disney Instructions
Unit VIII Case Study Politics at Walt Disney Read the case study, Politics at Walt Disney, on
page 414 of the course textbook, and write a 1000-1500 word essay with the following two levelone section headers: 1. Conflict, Politics, and Conflict Resolution (In this section, answer the
questions on page 414.) 2. Effects of Power on Organizational Structure (In this section, include
discussion that: a. identifies sources and effects of power on organizational structure, and b.
recommends how to evaluate organizational design/strategy in a global operations environment.)
Your paper should be 1000-1500 words in length, not including the title page or reference page.
You are required to cite Chapter 14 and various other chapters in your textbook and at least one
article from the CSU Online Library. All sources used, including the textbook, must be
referenced; paraphrased and quoted material must have accompanying in-text citations in the
proper APA format.

Case Study-page 414
CASE FOR ANALYSIS Politics at Walt Disney
From Jones, G. R. (2013), Organization Theory, Design and Change (7th Ed).
In the early 2000s, Walt Disney CEO Michael Eisner came under increasing criticism for the
company’s falling performance and for the way that he had centralized decision making so that
all important decisions affecting the company had to have his approval. He began to lose the
support of the board of directors, especially of Roy Disney, who as a member of the founding
family commanded a great deal of support. However, the majority of Disney’s board of directors
had been handpicked by Eisner, and he was able to control the agenda until the company began
to incur major losses in the mid 2000s. Poor performance weakened Eisner’s position, but so did
his personal relationship with Steve Jobs, who was the CEO and major owner of Pixar, the
company that had made most of Disney’s recent blockbuster movies such as Toy Story, Cars, and
so on.
After Jobs threatened to find a new distributor for Pixar’s movies when its contract with Disney
expired in 2007 because of the personal antagonism between himself and Eisner, Disney’s board
decided to act. Eisner was encouraged to become chair of Disney and to allow his handpicked
successor, Bob Iger, assume control of the company as its CEO. Iger owed his rapid rise at
Disney to his personal relationship with Eisner, who had been his mentor and loyal follower. Iger
had always suggested new ways to improve Disney’s performance but had never confronted
Eisner—always a dangerous thing to do if a manager wants to become the next CEO!
Once Iger became CEO in 2006, pressure was applied to Eisner, who soon decided to resign as
Disney’s chair; then Iger negotiated the purchase of Pixar by Disney that resulted in Steve Jobs
becoming its biggest stockholder. Disney was still performing poorly, but now that Iger was in
total control and no longer under the influence of Michael Eisner, he adopted a plan to change
the way Disney operated.
As COO of Disney under CEO Michael Eisner, Iger recognized that Disney was plagued by slow
decision making that had led to many mistakes in putting its new strategies into action. Its
Disney stores were losing money; its Internet properties were flops; and even its theme parks
seemed to have lost their luster as few new rides or attractions were introduced. Iger believed

one of the main reasons for Disney’s declining performance was that it had become too tall and
bureaucratic under Iger, and its top managers were following financial rules that did not lead to
innovative strategies.
One of Iger’s first moves to turn around Disney’s performance was to dismantle its central
“strategic planning office,” which was composed of several levels of top managers who were
responsible for sifting through all the new ideas and innovations sent up by Disney’s different
business divisions, for example, its theme parks, movies, and gaming divisions. After a lengthy
decision-making process, they then decided which proposals should be presented to Eisner.
Iger saw the strategic planning office as a bureaucratic bottleneck that reduced the number of
ideas coming from below; he dissolved the office, reassigned the best managers back to their
different business units, and retired the rest.50 The result of cutting out these unnecessary layers
in Disney’s hierarchy has been that more new ideas are generated by its different business units
and the level of innovation has increased. Divisional managers are more willing to speak out and
champion their ideas when they know they are dealing directly with CEO Iger and not with an
office of bureaucrats concerned only with the bottom line.51 Disney’s performance has improved
steadily under Iger; in 2010, it announced much improved revenues and profits and a new
venture—Disney acquired Marvel, the company that owned the rights to such characters as
Spider-Man, X-Men, and the Hulk—so many new kinds of rides and movies may be expected in
the future.52 In 2011, it announced new agreements with Apple and other companies such as
Google and Amazon to stream its huge video library to customers online and to make them
available for download using cloud computing so that users can access them using any mobile
computing device.

Chapter 14
CHAPTER 14 Managing Conflict, Power, and Politics
Learning Objectives
From Jones, G. R. (2013), Organization Theory, Design and Change (7th Ed).
This chapter focuses on the social and interpersonal processes that affect the way managers make
decisions and the way organizations change and adapt to their environments. Specifically, it
examines the causes, nature, and consequences of organizational conflict, power, and politics.
After studying this chapter you should be able to:
1. Describe the nature of organizational conflict, its sources, and the way it arises between
stakeholders and subunits.
2. Identify the mechanisms by which managers and stakeholders can obtain power and use that
power to influence decision making and resolve conflict in their favor.
3. Explain how and why individuals and subunits engage in organizational politics to enhance
their control over decision making and obtain the power that allows them to influence the change
process in their favor.
4. Appreciate the importance of managing an organization’s power structure to overcome
organizational inertia and to bring about the type of change that promotes performance.

What Is Organizational Conflict?
As noted in Chapter 2, an organization consists of different groups of stakeholders, each of
which contributes something valuable to an organization in return for rewards. Stakeholders
cooperate with one another to contribute jointly the resources an organization needs to produce
goods and services. At the same time, however, stakeholders compete with one another for the
resources the organization generates from these joint activities.1 To produce goods and services,
an organization needs the skills and abilities of managers and employees, the capital provided by
shareholders, and the inputs provided by suppliers. Inside and outside stakeholders, such as
employees, management, and shareholders, however, compete over their share of the rewards
and resources that the organization generates.
To grow, change, and survive, an organization must manage both cooperation and competition
among stakeholders. As Figure 14.1 suggests, each stakeholder group has its own goals and
interests, which overlap somewhat with those of other groups because all stakeholders have a
common interest in the survival of the organization. But stakeholders’ goals and interests are not
identical, and conflict arises when one group pursues its own interests at the expense of other
groups. Organizational conflict is the clash that occurs when the goal-directed behavior of one
group blocks or thwarts the goals of another.
Organizational conflict
The clash that occurs when the goal-directed behavior of one group blocks or thwarts the goals
of another.
Because the goals, preferences, and interests of stakeholder groups differ, conflict is inevitable in
organizations.2 Although conflict is often perceived negatively, research suggests that some
conflict is good for an organization and can improve organizational effectiveness. Beyond some
point (point A in Figure 14.2), however, extreme conflict between stakeholders can hurt
organizational performance.3
Research suggests that there is an optimal level of conflict within an organization. Beyond that
point (point A), conflict is likely to be harmful.
Why is some conflict good for an organization? Conflict can be beneficial because it can
overcome organizational inertia and lead to organizational learning and change. When conflict
within an organization or conflict between an organization and elements in its environment
arises, the organization and its managers must reevaluate their view of the world. As we saw in
Chapter 12, conflict between different managers or between different stakeholder groups can
improve decision making and organizational learning by revealing new ways of looking at a
problem or the false or erroneous assumptions that distort decision making. For example, conflict
at AT&T between the board of directors and top managers about the slow pace at which the
company was being restructured led to the appointment of a new CEO and top-management
team. The new CEO, Randall Stephenson, has made many radical changes to the way the
company operates and has taken major risks, including his 2011 decision to acquire T-Mobile for
$39 billion. If the attempted acquisition fails for antitrust reasons, AT&T will have to pay T-

Mobile $6 billion! Similarly, conflict between Ford’s new CEO and top divisional managers
resulted in a major change in organizational focus that produced major improvements in the
carmaker’s performance by 2011.
The conflict that arises when different groups perceive the organization’s problems in different
ways and are willing to act on their beliefs is a built-in defense against the organizational inertia
produced by a top-management team whose members have the same vision of the world. In
short, conflict can improve decision making and allow an organization to better change and adapt
to its environment.4
Beyond a certain point, however, conflict stops being a force for good and becomes a cause of
organizational decline. Suppose, for example, conflict between managers (or between other
stakeholders) becomes chronic, so that managers cannot agree about organizational priorities or
about how best to allocate resources to meet organizational needs. In this situation, managers
spend all their time bargaining and fighting, and the organization gets so bogged down in the
process of decision making that organizational change is slow in coming. Innovation, of course,
is more or less impossible in such a setting. In a somewhat vicious cycle, the slow and ponderous
decision making characteristic of organizations in decline leads to even greater conflict because
the consequences of failure are so great. An organization in trouble spends a lot of time making
decisions—time that it cannot afford because it needs to adapt quickly to turn itself around. Thus,
although some conflict can jolt an organization out of inertia, too much conflict can cause
organizational inertia: As different groups fight for their own positions and interests, they fail to
arrive at consensus, and the organization drifts along; failure to change makes the organization
go from bad to worse.5
Many analysts claim that both AT&T and Ford faced this difficult situation. Top managers knew
they had to make radical changes to their organization’s strategy and structure, but they could not
do so because different groups of top managers lobbied for their own interests and for cutbacks
to fall on other divisions. Conflict between divisions and the constant fight to protect each
division’s interests resulted in a slow rate of change and worsened the situation. In both
companies, the boards of directors removed the CEO and brought in newcomers who they hoped
would overcome opposition to change and develop a strategy that would promote organizational
interests, not just the interests of a particular group. The way in which John Mackay achieved
this at Pfizer illustrates these issues, as discussed in Organizational Insight 14.1
Pfizer is the largest global pharmaceuticals company, with sales of almost $50 billion in 2011. Its
research scientists have innovated some of the most successful and profitable drugs in the world,
such as the first cholesterol reducer, Lipitor, that used to earn Pfizer $13 billion a year.6 In the
2000s, however, Pfizer encountered major problems in its attempt to innovate new blockbuster
drugs, while its blockbuster drugs like Lipitor lost their patent protection. Pfizer desperately
needed to find ways to make its product development pipeline work. And one manager, Martin
Mackay, believed he knew how to do it.
When Pfizer’s longtime R&D chief retired, Mackay, his deputy, made it clear to CEO Jeffrey
Kindler that he wanted the job. Kindler made it equally clear he thought the company could use
some new talent and fresh ideas to solve its problems. Mackay realized he had to quickly come

up with a convincing plan to change the way Pfizer’s scientists worked to develop new drugs to
gain Kindler’s support and get the top job. So Mackay created a detailed plan for changing the
way its thousands of researchers made decisions to make sure the company’s resources, its talent
and funds, would be put to their best use. After Kindler reviewed the plan, he was so impressed
he promoted Mackay to the top R&D position. What was Mackay’s plan?
As Pfizer had grown over time as a result of mergers with other large pharmaceutical companies,
Mackay noted how decision-making problems and conflict between the managers of Pfizer’s
different drug divisions had increased. As it grew, Pfizer’s organizational structure had become
taller and taller and the size of its headquarters staff grew. With more managers and levels in the
hierarchy there was a greater need for committees to integrate across their activities. However, in
these meetings different groups of managers fought to promote the development of the drugs
they had the most interest in and they increasingly came into conflict in order to ensure they got
the resources they needed to develop them. In short, Mackay felt that too many managers and
committees resulted in too much conflict between managers who were actively lobbying other
managers and the CEO to promote the interests of their own product groups—and the company’s
performance was suffering as a result. In addition, although Pfizer success depended on
innovation, this growing conflict had resulted in Pfizer developing a bureaucratic culture that
reduced the quality of decision making, making it more difficult to identify promising new drugs.
Mackay’s bold plan to get rid of this increasing conflict involved slashing the number of
management layers between top managers and scientists from 14 to 7, which resulted in the
layoff of thousands of Pfizer’s managers. He also abolished the scores of product development
committees whose wrangling he believed was slowing down the process of transforming
innovative ideas into blockbuster drugs. After streamlining the hierarchy he focused on reducing
the number of bureaucratic rules scientists had to follow, many of which were unnecessary and
had promoted conflict. He and his team eliminated every kind of written report that was slowing
down the innovation process. For example, scientists had been in the habit of submitting
quarterly and monthly reports to top managers explaining each drug’s progress; Mackay told
them to pick which one they wanted to keep, and the other would be eliminated.
As you can imagine, Mackay’s efforts caused enormous upheaval in the company as managers
fought to keep their positions and scientists fought to protect the drugs they had in development.
However, Mackay was resolute and pushed his agenda through with the support of the CEO who
defended his efforts to create a new R&D product development process that empowered Pfizer’s
scientists and promoted innovation and entrepreneurship. Pfizer’s scientists reported that they
felt “liberated” by the new work system, and the level of conflict fell and new drugs started to
move faster along the pipeline. By 2011, Pfizer had won FDA approval for a major new
antibacterial drug, and several potential new blockbuster drugs in its pipeline were on track.7
However, Mackay left Pfizer to join AstraZeneca in 2011 as its new head of drug product
development when Pfizer passed him over and appointed an outside manager as CEO.
On balance, then, organizations need to be open to conflict, to recognize the way it both helps
managers to identify problems and promotes the generation of alternative solutions that improve
decision making. Conflict can promote organizational learning. However, to take advantage of
the value-creating aspects of conflict and avoid its dysfunctional effects, managers must learn

how to control it. Louis R. Pondy developed a useful model of organizational conflict. Pondy
first identifies the sources of conflict and then examines the stages of a typical conflict episode.8
His model provides many clues about how to control and manage conflict in an organization.
Pondy’s Model of Organizational Conflict
Pondy views conflict as a process that consists of five sequential episodes or stages, summarized
inFigure 14.3. No matter how or why conflict arises, managers can use Pondy’s model to
interpret and analyze a conflict situation and take action to resolve it—for example, by
redesigning the organization’s structure.
Stage 1: Latent Conflict
In the first stage of Pondy’s model, latent conflict, no outright conflict exists; however, the
potential for conflict to arise is present, although latent, because of the way an organization
operates. According to Pondy, all organizational conflict arises because vertical and horizontal
differentiation lead to the establishment of different organizational subunits with different goals
and often different perceptions of how best to realize those goals. In business enterprises, for
example, managers in different functions or divisions can generally agree about the
organization’s central goal, which is to maximize its ability to create value in the long run. But
they may have different ideas about how to achieve this goal: Should the organization invest
resources in manufacturing to lower costs or in R&D to develop new products? Five potential
sources of conflict between subunits can be identified: subunits’ interdependence, subunits’
differing goals, bureaucratic factors, incompatible performance criteria, and competition for
resources.9
INTERDEPENDENCE
As organizations differentiate, each subunit develops a desire for autonomy and begins to pursue
goals and interests that it values over the goals of other subunits or of the organization as a
whole. Because the activities of different subunits are interdependent, subunits’ desire for
autonomy leads to conflict between groups. Eventually, each subunit’s desire for autonomy
comes into conflict with the organization’s desire for coordination.
In terms of Thompson’s model of technology, discussed in Chapter 9, the move from pooled to
sequential to reciprocal task interdependence between people or subunits increases the degree to
which the actions of one subunit directly affect the actions of others.10 When task
interdependence is high, conflict is likely to occur at the individual, functional, and divisional
levels. If it were not for interdependence, there would be no potential for conflict to occur among
organizational subunits or stakeholders.11
DIFFERENCES IN GOALS AND PRIORITIES
Differences in subunit orientation affect the way each function or division views the world and
cause each subunit to pursue different goals that are often inconsistent or incompatible. Once
goals become incompatible, the potential for conflict arises because the goals of one subunit may
thwart the ability of another to achieve its goals. As we discussed in Chapter 12, top managers
often have different goals and priorities that may cause conflict in the decision-making process.

BUREAUCRATIC FACTORS
The way in which task relationships develop in organizations can also be a potential source of
conflict. Over time, conflict can occur because of status inconsistencies between different groups
in the organization’s bureaucracy. A classic type of bureaucratic conflict occurs between staff and
line functions.12 A line function is directly involved in the production of the organization’s
products. In a manufacturing company, manufacturing is the line function; in a hospital, doctors
are the line function; and in a university, professors are the line function. Staff functions advise
and support the line function and include functions such as R&D, accounting, and purchasing. In
many organizations, people in line functions come to view themselves as the critical
organizational resource and people in staff functions as secondary players. Acting on this belief,
the line functionconstantly uses its supposedly lofty status as the producer of goods and services
to justify putting its interests ahead of the other functions’ interests. The result is conflict.13
INCOMPATIBLE PERFORMANCE CRITERIA
Sometimes conflict arises between subunits not because their goals are incompatible but because
the organization’s way of monitoring, evaluating, and rewarding different subunits brings them
into conflict. Production and sales can come into conflict when, to achieve the goal of increased
sales, the sales department asks manufacturing to respond quickly to customer orders—an action
that raises manufacturing costs. If the organization’s reward system benefits sales personnel (who
get higher bonuses because of increased sales), but penalizes manufacturing (which gets no
bonus because of higher costs), conflict will arise.
The way an organization designs its structure to coordinate subunits can affect the potential for
conflict. The constant conflict between divisions at CS First Boston, a U.S. investment bank,
shows how incompatible reward systems can produce conflict. CS First Boston was formed by
the merger of two smaller banks: First Boston (based in New York) and Crédit Suisse (based in
London). From the beginning, the two divisions of the new bank were at odds. Although the
merger was formed to take advantage of synergies in the growing transatlantic investment
banking business, the divisions could never cooperate with one another, and managers in both
were fond of openly criticizing the banking practices of their peers to anybody who would listen.
As long as the performance of one unit of the bank did not affect the other, the lack of
cooperation between them was tolerated. When the poor performance of the European unit began
to affect the American unit, however, conflict started to build. First Boston made record profits
from issuing and trading debt securities, and its managers were expecting hefty bonuses.
However, those bonuses were not paid. Why? The London arm of the organization had incurred
huge losses, and although the losses were not the fault of the Boston-based bank, the company’s
top managers decided not to pay bonuses to their U.S. employees because of the losses from
Europe.
As you can imagine, this inequitable decision, punishing U.S. employees for an outcome that
they could not control, led to considerable conflict within the organization. Relations between the
U.S. and European arms of the bank became even more strained; the divisions began fighting
with top management. And, when employees decided that the situation would not change in the
near term, they began to leave CS First Boston in droves. Many senior managers left for

competitors, such as Merrill Lynch and Goldman Sachs.14 Clearly, redesigning the reward
system so it does not promote conflict between divisions should be one of a company’s
management’s major priorities.
COMPETITION FOR SCARCE RESOURCES
Conflict would never be a problem if there was always an abundance of resources for subunits to
use. When resources are scarce, as they always are, choices about resource allocation have to be
made, and subunits have to compete for their share.15 Divisions fight to increase their share of
funding because the more funds they can obtain and invest, the faster they can grow. Similarly, at
the functional level there can be conflict over the amount of funds to allocate to sales, or to
manufacturing, or to R&D to meet organizational objectives. Thus, to increase access to
resources, functions promote their interests and importance often at one another’s expense.
Together, these five f...