In Part 1 of this article I discussed the strategic reasons why Disney decided to launch Disney English, the chain of learning centers in China that it has recently closed. In this part, I’ll discuss some of the issues of structuring the business and execution of this strategy.
Structuring
At the outset we had great ambitions for Disney English. China’s particular demographic and spending patterns forecast a strong market for English Language Learning (ELL) services: a rising urban consumer class motivated to spend on education, a demonstrated connection between English proficiency and earning potential, and the lasting impact of a single-child-policy that channeled 3 households’ worth of spending into each child.
And the scale of China’s urban markets is staggering – it contains over 100 cities with a population of over 1 million, compared to 10 in the US. With a target enrollment of 750-900 children per center, we saw over 200 centers as a goal within reach.
A key concern of Corporate was that whatever happened at Disney English would echo through all of the company’s business in China. I’ll focus on three things about which Disney had to take particular care: the legal niceties of operating the centers, managing child safety, and maintaining control of our brand. These proved challenging in different ways.
Legal challenges. In China the business regulatory structure is localized and in many places not well-developed. We went down the traditional path of forming a Wholly Foreign Owned Enterprise (WFOE) to maintain control of the business. That entity procured a license for English language training at the national level. However, this license didn’t cover the centers—each of which required a locally-granted license to engage in training activities. And the law required construction permits to fit out our leased spaces on high streets or in shopping malls. In many cases these proved challenging to get because very few businesses actually bothered with them. My construction manager reported at one point that a local office didn’t even know how to approve a construction permit since it had never gotten a request for one.
Disney’s scale had positives and negatives here. On the one hand Disney was going to cut no legal corners—in addition to being the right thing to do, we were too big a target to take the business and reputation risk of a center being shut down on a technicality. On the other, Disney has enormous prestige that would accrue to a local official when a Disney English center opened in their district. By leveraging this—as well as focusing relentlessly—we were able to avoid questionable practices and get centers opened more or less on time.
Child safety. At Disney English children were going to be taken into the care of Disney employees, without their parents, for the duration of class. The only other Disney business that had done this was the Disney Cruise Line, which did so in a far more controlled environment. To do so in a center inside a mall—and grapple with the logistics of busy child pickups, drop-offs, and bathroom breaks—was much more challenging. And the possibility that a single child could be lost, sent off with the wrong parent, or be perceived to be mistreated in any way was intolerable for Disney.
Leveraging Disney’s top level experts in security and crisis management, this risk was addressed through design. First, physical design: the Disney English centers were designed with a secure perimeter in the waiting area, splitting reception and parent seating (in front of the perimeter) from the Clubhouse, an area into which kids were checked and engaged in play while they waited for their class. Classrooms and bathrooms were with the perimeter, behind the clubhouse. Classrooms had windows in the door so there were no blind spots. Second, process design: operating procedures prescribed how check-ins and drop-offs were to be done to ensure every child was matched with their proper caretaker, and no group of children could be left in a room with fewer than two employees. Finally hiring design: a rigorous background screening for new hires.
Brand control. Even before we launched, there were fake Disney English centers operating in China using the old licensed materials. In China’s loose intellectual property protection regime, it was difficult to prevent this. The only time it really made sense to go after a pirate center was when we were planning to open a center in the same city, when cannibalization of our student base would have a measurable financial impact. But investment in new curriculum would open an opportunity for pirates to copy the materials, seize the brand and open fake, low quality centers throughout the country.
Again, we addressed this problem though design—in this case, integration of the classroom, curriculum, and materials. Interactive whiteboard / smartboard technology was still new but we did something very different with it: in each classroom we placed smartboards on adjacent walls to create an interactive corner that could deliver not only instructional content but interactive depth. The audio, video and interactive material our trainers wove into the rest of their instruction was authored for this unique format and delivered to centers over the web. Parents had access to a learning portal, which was integrated back into the learning management system where they could track their child’s progress. By creating systems that locked together in specific ways, we made Disney English hard to pirate without replicating the whole system at great expense—and created an experience that was so authentically Disney that it made the pirate centers far more obvious for what they were.
Execution
As I discussed in Part I of this article, the truth is that Disney had never operated this sort of business in China – in fact it had never operated this type of business at all. The solid offensive and defensive strategic and design work would have not amounted to more than ideas on paper without a team with the vision, skills, and resilience to execute them in an unfamiliar environment.
Disney was able to attract an extraordinary team to turn this work into a reality. The list is long but obviously has to be headed by General Manager Andrew Sugerman, who came to Disney directly from the ELL service space. His dynamic leadership—in particular, his skillful and relentless focus on architecting and scaling the marketing and sales funnel and organization, building a strong operating culture, and driving every function from curriculum design and production to center expansion and operations to hit our marks—was critical. I urge you to read his own moving reflections on the passing of Disney English.
The first Disney English center opened on Mao Ming Road in Shanghai in late September 2008, concurrent with the onset of the global financial crisis – had we not already enrolled our first class, I believe this little venture have been mothballed before we opened. After that we followed a classic hub and spoke expansion strategy. By September 2009 we had six centers in Shanghai, seeded with leaders from our first center following increasingly standardized operating practices, and were building our second regional cluster in Beijing. By September 2010—when I returned from my expat assignment leading Disney English’s finance, accounting, IT, and site development functions—we were up to 17 centers, including locations in the satellite cities Hangzhou and Tianjin, educating hundreds of students.
This article has been long—in Part 3 I will make this more personal, discussing what I learned as an executive along the way, and give some final thoughts on its shutdown.