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Alex Stroup, Editor

Downsizing

Bit by bit, Disney eliminates hundreds of positions

Wednesday, September 14, 2005
by Mark Goldhaber, staff writer

Recently, bit by bit, Disney has been downsizing. One area after another has seen their jobs outsourced, with the employees either being redeployed elsewhere or given their walking papers outright. Custodial, information technology, and even core businesses such as animation and Imagineering have seen major cuts of late. What's the deal?

Let's take a look at the overall trend and the possible reasons for this, look at each area and see what the effects of the downsizing might be, then consider what this means for Disney and its future.

Why is Disney doing all of this outsourcing? Don't they realize that the people are what makes the company so successful? Aren't they going to destroy the company by getting rid of all of the people?

Let's start with the simple one first. Disney isn't getting rid of all of the people. Yes, many are being let go, but there are quite a few more who are not going anywhere. And, to some extent, I believe that they do know the value of the employees. However, in many cases, the people that are let go are continuing to do the same or similar work for the company, only as contractors instead of employees.

So if Disney is keeping a lot of these people around as contractors, why are they let go in the first place? Well, this is the 21st century. Business has changed quite a bit from when Walt was running the company. Long gone are the days where 50 years and a gold watch were the norm, replaced by job mobility, with most people now working for a half-dozen or more employers during their career. Disney is just adopting standard business practices.

In many cases, it is cheaper to hire a contractor or consultant than a permanent employee. In slow periods, you renew fewer contracts and spend less. Contractors are paid a flat fee, allowing a company to avoid the complicated work of providing benefits such as health insurance, paying payroll taxes or carryyin liabilities such as employee vacation on the books, or even worry about pension funds. In addition, you can point to the lower employee head count when people (such as shareholders) ask how you're saving money.

But is that the best idea? Let's take a look at the four areas of downsizing that I mentioned before, one at a time.

Custodial

As reported in this week's Walt Disney World Park Update on MousePlanet, effective next month third-shift custodial positions at all resorts at Walt Disney World are being outsourced. Current third-shift custodial workers will be given other positions at Walt Disney World at the same salary that they currently earn.

So what is the net impact? A number of people who perform manual labor in the middle of the night will be able to perform other jobs, perhaps during normal business hours, with their former jobs contracted out to “leaders in the field” who will be held to the same standards as the employees had been held to. The employees will now be able to be deployed to help with the critical shortage of workers at other positions around the property.

How will this affect resort guests? Since the positions are third-shift, most guests never saw these people in the first place. And if they did, they most likely did not interact with them, as they were busy cleaning the hotel lobbies and other areas. Since Disney says that the contractors will be held to the same high standards, it is likely that guests will not notice any changes at the resorts. In the locations where the employees are redeployed, there will be less of the understaffing that is currently plaguing Walt Disney World.

While the union representing the workers is protesting and planning to file an unfair labor practices charge against Disney, I'd say that this really looks like a decision that will likely have a positive effect when implemented, assuming that they can successfully redeploy these people into jobs that they are capable of performing.

Information Technology

We reported a few months back that a large portion of Disney's corporate Information Technology (IT) work was being outsourced to two companies. IBM took over the back-end systems, while Affiliated Computer Services took on the end-user support and front-end devices. Affected IT workers were given the opportunity to hire on with the two firms.

Does this decision make sense? More and more companies and government agencies are contracting out IT services, either in part or in full. This cuts costs and lowers employee head count while still having the same people work for them. However, this ignores potential knowledge base and contributions of permanent employees who know the business inside and out by sheer virtue of their loyalty to the company and their wish to make things better. In this case, Disney is more likely counting on suggestions for system improvements to come from end users.

This decision will likely benefit Disney without too many ill effects. And for outsourced employees, they will likely have more options in their employment with the larger IT firms.

Animation

Over the last few years, Disney shuttered animation facilities around the globe, selecting a few hand-picked animators to labor at the one remaining facility in Burbank with the target of one CGI-animated feature per year. All other animated films released by Disney will be drawn (or rendered) by outside companies. In some cases (like the Asian animation studios that are replacing DisneyToon Studios), they will create inexpensive animation that will be released under the Disney banner. In others (like Vanguard Animation, creators of Valiant), the pictures will be “presented by” Walt Disney Pictures.

Is this a good thing? There's not much downside looking at the latest animated releases from Disney. Story and character depth have lately been meticulously smoothed out by marketing “geniuses” who try to make decisions on plotlines and character development based on the potential of selling merchandise. The result is bland entertainment that rarely inspires the repeat viewing necessary to make a blockbuster. The rare exception to this was Lilo and Stitch, which was created in Florida and somehow escaped the attention of the marketeers until the film was already completed.

So now, Disney believes in buying cheaper work from outside. The problem with this is that the legendary Disney attention to detail will likely slip, and the issues of a lack of coherent story—due to the meddling by the who are more concerned with selling product than a good story—will persist.

The fault with this logic is immediately seen in the success of Monsters, Inc. merchandise. Pixar was able to do its own development work on the movie without interference from marketeers. Is it likely that a market research specialist would think that a Mike Wazowski doll would sell? C'mon, the guy is a big eyeball. But because the story was endearing and the character was so well-conceived, Mike merchandise flew off of the shelves. Story and character sell merchandise, not marketing.

Another issue is that all of these talented animators that Disney had amassed and trained are now out there, available to work for Dreamworks, Pixar and all of the other competing animation studios. So while Disney goes with “the lowest bidder,” these guys—assuming the competitors let them develop stories and characters without meddling—will be helping beat Disney at its own game.

We'll call this one a mild negative. While the downsizing will likely negatively impact the quality of Disney animated releases and boost competitors' works, chances are that the meddling by Disney's marketeers would have done much of the same damage, anyway.

Imagineering

This is the decision that has caused the greatest furor. Disney fans across the Internet are discussing stories posted at Jim Hill Media and D-Troops.com, lamenting the layoffs as the end of quality at Disney theme parks and the beginning of the theme park Apocalypse.

Walt Disney Imagineering (WDI) has been expanding and contracting based on project loads for a long time. After huge projects such as EPCOT Center, Tokyo Disneyland, Euro Disney, Tokyo DisneySea and others, large numbers of Imagineers have been laid off as the projects wound down and there was less to do around the WDI offices in Glendale, California. With Hong Kong Disneyland opening on Monday, many new attractions at Walt Disney World being completed and Expedition: Everest moving toward the final stages of completion, this appears to be just another situation of getting rid of people who would have nothing to do otherwise.

But what about who they're choosing to let go, you might ask. Bruce Gordon literally wrote the book on Imagineering. Nina Rae Vaughn even drew the big 50th anniversary map for Disneyland. That's true. But even bigger names have been let go or encouraged to resign or retire. People like Marc Davis. Like Bob Gurr. Like Herb Ryman. Sometimes, it might be internal politics. Sometimes, it might be because Imagineering management wants to try a different direction. Sometimes, it might be a way to cut costs by letting high-priced, long-tenured folks go in favor of younger, cheaper recruits. But this is something that has been going on for a very long time, and it is not really out of character at WDI. Were the current layoffs due to reductions in force, internal political issues, budget cuts, or something else? Does it really matter? A large number of Imagineers are losing their jobs.

Of course, there are always long-timers still there. And many of those let go do come back as contractors or consultants. However, the former Imagineers, just as with the former animators, are also free to work for other companies. So, while it may or may not hurt to have fewer long-term Imagineers that understand Disney culture and the storytelling ethic that makes Disney “Disney,” Disney will definitely suffer from the increased quality of storytelling by many of the competitors.

For example, many people say that they enjoy Universal's Islands of Adventure park in Orlando, Florida, as much as they like the Disney parks. And why not? The park was designed by former Imagineers let go as work on Disney's Animal Kingdom wound down.

General Electric is considered a breeding ground of quality executives. And while many go on to lead other companies, including its competitors, GE retains its strength because many of its executives do stay with the company, and it grooms more executives everyday.

Similarly, WDI is considered a breeding ground of creative attraction developers. However, as with GE, WDI needs to keep a strong bench and groom more top-notch Imagineers after the layoffs. One might question how many top Imagineers are being retained, and that's a question that I don't have an answer to. However, it is certain that the competition is gaining access to a horde of quality folks.

Of course, even that has gone on for a while. Examples include Kirk Design, Inc. (link), formed by Tim Kirk, Steve Kirk and Kathy Kirk when they were laid off following the construction of Tokyo DisneySea. Entertainment Engineering, Inc. (link: http://www.entenginc.com/index.html) is headed by Kent Bingham, with a staff that includes Bob Gurr and George McGinnis. These companies are available for contract work from Disney, but also from Disney's competitors.

So is this a good decision? WDI has done a lot of good work following previous layoffs, so the current purge doesn't necessarily mean that quality will go down. More importantly, when does Disney stop cutting, who will be left when that's done, and how much creative freedom will the remaining Imagineers be given? As with animation, if misguided decisions are allowed to compromise the quality of attractions beyond Disney standards, that will be a problem regardless of who is on staff.

Disney has always trimmed “extras” from attraction concepts during the development process. The key for Disney will be to challenge the remaining Imagineers to provide innovative new concepts in entertainment within a budget, without damaging show quality. As with animation, we'll have to wait to see the results on this one.

Reflection

So we've got two smart moves and two moves that will require some time to evaluate. In the meantime, let's hope that the animators and Imagineers who are getting their walking papers find new jobs that give them the opportunity to create more entertainment for everyone to enjoy.

In the meantime, Disney bosses will proudly point out the reduced head count and lowered overhead costs to the institutional investors and brokerages as a reason for Disney stock to be a good investment and for the executives to be allowed to keep their jobs.

What the long-term effects will be are anybody's guess.


Thoughts, questions, or comments? Contact Mark here.


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