Introduction
Every company that intends to make a profit will decide to diversify its investments. It would like to increase its profit and control a more significant market share. However, before that is fully executed, the company must consider several challenges that come with diversification and develop a strategy for mitigating them. Diversification can also help counter the risks a company may face by scaling them down into a manageable ratio.
The Background of The Case
The case is drawn from the third quarter Walt Disney Company entered in 2018, when the previous one was awe-inspiring. However, the company was facing some strategic challenges. The company’s core parks and resort business had continued to excel well, while the media network business had seen minimal growth and operating profits (Gamble, 2023). The company’s studio entertainment was also not doing well financially; it struggled to be stable. This is what led the company to find a way in which it will boost its performance.
The Problems the Company Has to Address
Walt Disney Company has to address many problems when it is widely invested in different sections. One of the biggest challenges is managing the risk associated with investing in media, content production, and real products. It was prudent for it to spread the investment in order to reduce risk; however, the risk of having a very diverse portfolio is that not all investments may perform well at the same time.
Another issue for a company with a highly diversified portfolio is the complexity of management. A significant number of investments requires more time and effort to track and manage. This can be a challenge for companies with limited resources. Additionally, with a more extensive portfolio, it can be challenging to stay on top of changes in the market and make informed decisions (Oladimeji & Udosen, 2019). Tracking and evaluating performance will also be a challenge the companies must address. With a broader range of investments, it cannot be easy to accurately measure performance.
Additionally, investment performance can be closely related, making it difficult to determine which investments are performing well and which are not. Since the company had a highly diversified portfolio, it must also consider the tax implications of the investments. Different types of investments can have different tax implications, and managing the tax burden of a large and diverse portfolio can be difficult. By doing so, a company can ensure that its portfolio is managed correctly and that its investments perform optimally.
Potential Solutions to Solve the Problems
A widely diversified portfolio can be beneficial because it allows investors to spread their risk across different asset classes and securities. However, this type of portfolio also presents some challenges for Walt Disney Company. One of the main challenges of investing is the potential need for more focus. Since the portfolio comprises many different investments, it may be difficult for the company to keep track of all the different holdings and their performance (Garrido-Prada et al., 2019). This can lead to a portfolio that is unfocused and may not be able to generate the desired returns.
There are a few potential solutions that can address this issue. First, investors should consider using a financial advisor and managers to help them manage their investments. A financial advisor can help the company create a focused portfolio tailored to its goals and risk profile. The manager can also provide ongoing advice and monitor portfolio performance.
Secondly, it should consider using various tools to help them better manage the portfolio. These tools can include portfolio management software, allowing it to track the performance of its investments in real time (Garrido-Prada et al., 2019). In addition, the company should also consider utilizing index funds, which can provide a more passive approach to investing. This can reduce the time it has to spend actively managing its portfolio while still allowing it to maintain a diversified portfolio.
Finally, the company should ensure they are familiar with the portfolio and its different investments. This can help better understand the portfolio’s performance and individual investments and make more informed decisions about when to buy, sell, or hold.
Overall, a widely diversified portfolio can offer many benefits but presents some challenges (Garrido-Prada et al., 2019). By using a financial advisor or asset manager, utilizing portfolio management software, and gaining a better understanding of investments, the company can be better equipped to manage its portfolio and achieve desired returns.
The Implementation of the Chosen Solution
The solution that I recommend will solve this challenge: the company rebalancing the investments. This is one of the most effective ways to ensure that the investments are adequately diversified and that your risk levels remain in check. Rebalancing involves periodically checking on the portions of investments that are overweight and buying more investments that are underweight.
I will also recommend using a target date to curb the challenge. This is an investment vehicle that automatically adjusts the asset allocation of its holdings to match the company’s desired time horizon and risk tolerance (Garrido-Prada et al., 2019). The fund gradually adjusts its holdings as it approaches its intended achievement. I would use a target-date fund to implement this solution; I would research the available funds, select one that best meets the company’s needs, and invest in it. I would also monitor the fund regularly to ensure that it continues to meet my needs and to make any necessary adjustments.
Conclusion
Diversifying a company’s operations can take time and effort. However, when done correctly, it can provide a company with various benefits, including increased profits and market share. When considering diversification, it is essential to carefully assess the potential risks and how they can be managed. Additionally, a comprehensive business plan should be developed to ensure successful implementation. With careful planning and execution, diversification can be a successful and rewarding strategy for a company.
References
Garrido-Prada, P., Delgado-Rodriguez, M. J., & Romero-Jordán, D. (2019). Effect of product and geographic diversification on company performance: Evidence during an economic crisis. European Management Journal, 37(3), 269–286. Web.
Oladimeji, M. S., & Udosen, I. (2019). The effect of diversification strategy on organizational performance. Journal of Competitiveness, 11(4), 120–131. Web.
Gamble E. John. (2023). Walt Disney Company. Its diversification strategy in 2018.