The RadicalCarly Fiorinas Bold Management Experiment At HPBUS.docx

The Radical
Carly Fiorina's Bold Management Experiment At
HPBUSINESSWEEK ONLINE : FEBRUARY 19, 2001 ISSUE
Since taking over as chief executive of Hewlett-Packard Co.
(HWP) 18 months ago, Carleton S. ''Carly'' Fiorina has pushed
the company to the limit to recapture the form that made it a
management icon for six decades. Last November, it looked like
she might have pushed too hard. After weeks of promising that
HP would meet its quarterly numbers, Fiorina got grim news
from the finance department. While sales growth beat
expectations, profits had fallen $230 million short. The culprit,
in large part, was Fiorina's aggressive management makeover.
With HP's 88,000 staffers adjusting to the biggest
reorganization in the company's history, expenses had risen out
of control. And since new computer systems to track the
changes weren't yet in place, HP's bean counters didn't detect
the problem until 10 days after the quarter was over. ''It was
frantic. The financial folks were running all around looking for
more dollars,'' says one HP manager.
One might expect a CEO in this spot to dial down on such a
massive overhaul. Not Fiorina. After crunching numbers in an
all-day session on Saturday and offering apologies for missing
the forecast to HP's board at an emergency meeting Sunday,
Fiorina told analysts she was raising HP's sales growth target
for fiscal 2001 from 15% to as much as 17%. ''We hit a speed
bump--a big speed bump--this quarter,'' she said in a speech
broadcast to employees a few days later. ''But does it mean,
'Gee, this is too hard?' No way. In blackjack, you double down
when you have an increasing probability of winning. And we're
going to double down.''

The stakes couldn't be higher--both for Fiorina and for the
Silicon Valley pioneer started in a Palo Alto garage in 1938.
Just as founders Bill Hewlett and David Packard broke the mold
back then by eliminating hierarchies and introducing
innovations such as profit-sharing and cubicles, Fiorina is
betting on an approach so radical that experts say it has never
been tried before at a company of HP's size and complexity.
What's more, management gurus haven't a clue as to whether it
will work--though the early signs suggest it may be too much,
too fast. Not content to tackle one problem at a time, Fiorina is
out to transform all aspects of HP at once, current economic
slowdown be damned. That means strategy, structure, culture,
compensation--everything from how to spark innovation to how
to streamline internal processes. Such sweeping change is tough
anywhere, and doubly so at tradition-bound HP. The
reorganization will be ''hard to do--and there's not much DNA
for it at HP,'' says Jay R. Galbraith, professor at the Institute for
Management Development in Lausanne, Switzerland.
Fiorina believes she has little choice. Her goal is to mix up a
powerful cocktail of changes that will lift HP from its slow-
growth funk of recent years before the company suffers a near-
death experience similar to the one IBM (IBM) endured 10
years ago and that Xerox (XRX) and others are going through
now. The conundrum for these behemoths: how to put the full
force of the company behind winning in today's fiercely
competitive technology business when they must also cook up
brand-new megamarkets? It's a riddle, says Fiorina, that she can
solve only by sweeping action that will ready HP for the next
stage of the technology revolution, when companies latch on to
the Internet to transform their operations. ''We looked in the
mirror and saw a great company that was becoming a failure,''
Fiorina told employees. ''This is the vision Bill and Dave would
have had if they were sitting here today.''
At its core lies a conviction that HP must become

''ambidextrous.'' Like a constantly mutating organism, the new
HP is supposed to strike a balance: It should excel at short-term
execution while pursuing long-term visions that create new
markets. It should increase sales and profits in harmony rather
than sacrifice one to gain the other. And HP will emphasize it
all--technology, software, and consulting in every corner of
computing, combining the product excellence of a Sun
Microsystems Inc. (SUNW) with IBM's services strength.
To achieve this, Fiorina has dismantled the decentralized
approach honed throughout HP's 64-year history. Until last
year, HP was a collection of 83 independently run units, each
focused on a product such as scanners or security software.
Fiorina has collapsed those into four sprawling organizations.
One so-called back-end unit develops and builds computers, and
another focuses on printers and imaging equipment. The back-
end divisions hand products off to two ''front-end'' sales and
marketing groups that peddle the wares--one to consumers, the
other to corporations. The theory: The new structure will boost
collaboration, giving sales and marketing execs a direct pipeline
to engineers so products are developed from the ground up to
solve customer problems. This is the first time a company with
thousands of product lines and scores of businesses has
attempted a front-back approach, a strategy that requires laser
focus and superb coordination.
Just as radical is Fiorina's plan for unleashing creativity. She
calls it ''inventing at the intersection.'' Until now, HP has made
stand-alone products, from $20 ink cartridges to $3 million
Internet servers. By tying them all together, HP hopes to sniff
out new markets at the junctions where the products meet. The
new HP, she says, will excel at dreaming up new e-services and
then making the gear to deliver them. By yearend, for example,
HP customers should be able to call up a photo stored on the
Net using a handheld gizmo and then wirelessly zap it to a
nearby printer. To create such opportunities, HP has launched

three ''cross-company initiatives''--wireless services, digital
imaging, and commercial printing--that are the first formal
effort to get all of HP's warring tribes working together.
Will her grand plan work? It's still the petri-dish phase of the
experiment, so it's too soon to say. But the initial results are
troubling. While she had early success, the reorganization
started to run aground nine months ago. Cushy commissions
intended to light a fire under HP's sales force boosted sales, but
mostly for low-margin products that did little for corporate
profits. A more fundamental problem stems directly from the
front-back structure: It doesn't clearly assign responsibility for
profits and losses, meaning it's tough to diagnose and fix
earnings screwups--especially since no individual manager will
take the heat for missed numbers. And with staffers in 120
countries, redrawing the lines of communication and getting
veterans of rival divisions to work together is proving
nettlesome. ''The people who deal with Carly directly feel very
empowered, but everyone else is running around saying, 'What
do we do now?''' says one HP manager. Another problem: Much
of the burden of running HP lands squarely on Fiorina's
shoulders. Some insiders and analysts say she needs a second-
in-command to manage day-to-day operations. ''She's playing
CEO, visionary, and COO, and that's too hard to do,'' says
Sanford C. Bernstein analyst Toni Sacconaghi.
Fiorina gets frosty at the notion that her restructuring is hitting
snags. ''This is a multiyear effort,'' she says. ''I always would
have characterized Year Two as harder than Year One because
this is when the change really gets binding. I actually think our
fourth-quarter miss and the current slowing economy are
galvanizing us. When things are going well, you can convince
yourself that change isn't as necessary as you thought.'' Fiorina
also dismisses the need for a COO: ''I'm running the business
the way I think it ought to be run.''

If Fiorina pulls this off, she'll be tech's newest hero. The 46-
year-old CEO already has earned top marks for zeroing in on
HP's core problems--and for having the courage to tackle them
head-on. And she did raise HP's growth to 15% in fiscal 2000
from 7% in 1999. If she keeps it up, a reinvigorated HP could
become a blueprint for others trying to transform technology
dinosaurs into dynamos. ''There isn't a major technology
company in the world that has solved the problem she's trying to
address, and we're all going to learn from her experience,'' says
Stanford Business School professor Robert Burgelman.
Fiorina needs results--and fast. For all its internal changes, HP
today is more dependent than ever on maturing markets. While
PCs and printers contributed 69% of HP's sales and three-
fourths of its earnings last year, those businesses are expected
to slow to single-digit growth in coming years, with falling
profitability. Last year, HP was tied with Compaq (CPQ) as the
leading U.S. maker of home PCs and sold 60% of home printers,
according to IDC. Those numbers make it hard to boost market
share. In corporate computing--where the company is banking
on huge growth--HP has made only minor strides toward
capturing lucrative business such as consulting services,
storage, and software. And the failure of Fiorina's $16 billion
bid to buy the consulting arm of PricewaterhouseCoopers LLP
leaves her without a strong services division to help transform
HP from high tech's old reliable boxmaker into a Net
powerhouse, offering e-business solutions.
CAREENING. With the tech sector slowing, this may be the
wrong time to make a miracle. In January, HP said its revenue
and earnings would fall short of targets for the first quarter, and
Fiorina cut her sales-growth estimates to about 5%--a far cry
from the mid-teens she had been promising. In late January, the
company announced it was laying off 1,700 marketing workers.
HP's stock, which has dropped from a split-adjusted $67 in July
to less than $40, is 19% below its level when Fiorina took the

helm.
It's not just Fiorina's lofty goals that are so radical, but the way
she's trying to achieve them. She's careening along at Net speed,
ordering changes she hopes are right--but which may need
adjustment later. That goes even for the front-back management
structure. ''When you sail, you don't get there in a straight line,''
Fiorina argues. ''You adjust your course to fit the times and the
current conditions.'' Insiders say that before the current
slowdown, she expected HP to clock sales growth of 20% in
2002 and thereafter--a record clip for a $50 billion company.
Fiorina won't confirm specific growth goals but says the
downturn doesn't change her long-term plan.
Her overambitious targets have cost her credibility with Wall
Street, too. While she earned kudos for increasing sales growth
and meeting expectations early on, she has damaged her
reputation by trying to put a positive spin on more troubled
recent quarters. HP insiders say that while former CEO Lewis E.
Platt spent a few hours reviewing the results at the end of each
quarter, Fiorina holds marathon, multiday sessions to figure out
how to cast financials in the best light. Not everyone is
impressed. ''I grew up with HP calculators, but they don't work
right anymore,'' jokes Edward J. Zander, president of rival Sun
Microsystems. ''Everything they mention seems to be growing
50%, but the company as a whole only grows 10%.'' Fiorina
says HP has accurately reported all segments of its business and
that she makes no special effort to spin the results. ''The
calculators still work fine,'' she says.
Fiorina was well aware of the challenges when she joined HP,
but she also saw the huge untapped potential. She had grown to
admire the company while working as an HP intern during her
years studying medieval history at Stanford University. Later,
as president of the largest division of telecommunications
equipment maker Lucent Technologies Inc. (LU), she learned

the frustrations of buying products from highly decentralized
HP. When HP's board asked her to take over, she jumped at the
chance to show off her management chops. While she had
spearheaded the company's spin-off from AT&T in 1996, then
CEO Richard A. McGinn got all the credit.
''PERFECTLY POSITIONED.'' Soon after signing on, Fiorina
decided the front-back structure was the salve for HP's ills.
With the help of consultants, she tailored the framework to HP's
needs and developed a multiyear plan for rejuvenating the
company. Step One would be to shake up complacent troops.
Next, Fiorina set out to refine a strategy and ''reinvent'' HP from
the ground up, a task she expected would take most of 2000.
Only then--meaning about now--would HP be ready to unleash
its potential as a top supplier of technology for companies
revamping their businesses around the Web.
That's where the cross-company initiatives come in. So far, HP
has identified three. There's the digital-imaging effort to make
photos, drawings, and videos as easy to create, store, and send
as e-mail. A commercial-printing thrust aims to capture
business that now goes to offset presses. And a wireless
services effort might, say, turn a wristwatch into a full-function
Net device that tracks the wearer's heart rate and transmits that
info to a hospital. ''All the great technology companies got great
by seeing trends and getting there first--and they're always
misunderstood initially,'' says Fiorina. ''We think we see where
the market is going and that we're perfectly positioned.''
The first chapters of Fiorina's plan came off as scripted. When
she replaced 33-year HP veteran Platt on a balmy July day in
1999, Fiorina swept in with a rush of fresh thinking and made
headway--for a time. She ordered unit chiefs to justify why HP
should continue in that line of business. And she gave her
marketers just six weeks to revamp advertising and relaunch the
brand. After a few days on the job, she met with researchers

who feared that Fiorina--a career salesperson--would move HP
away from its engineering roots. She wowed them. In sharp
contrast to the phlegmatic Platt, Fiorina moved through the
crowd, microphone in hand, exhorting them to change the
world. ''There was a lot of skepticism about her,'' says Stan
Williams, director of HP's quantum science research program.
''But she was fantastic.''
If she was a hit with engineers, it took a bit longer to win over
HP's executive council. For years, these top execs had measured
HP's performance against its ability to meet internal goals, but
rarely compared its growth rates to those of rivals. In August,
Fiorina rocked their cozy world when she shared details of her
reorganization--and of her sky-high growth targets. She went to
a whiteboard and compared HP with better-performing
competitors: Dell Computer (DELL) in PCs, Sun in servers, and
IBM in services. She issued a challenge: If the executives could
show her another way to hit her 20% growth target by 2002, she
would postpone the restructuring, insiders say. Five weeks later,
the best alternative was a plan for just 16% growth. The
restructuring would start by yearend.
She dove into the details. While Platt ran HP like a holding
company, Fiorina demanded weekly updates on key units and
peppered midlevel managers with 3 a.m. voice mails on product
details. She injected much needed discipline into HP's computer
sales force, which had long gotten away with lowering quotas at
the end of each quarter. To raise the stakes, she tied more sales
compensation to performance and changed the bonus period
from once a year to every six months to prevent salespeople
from coasting until the fourth quarter. While some commissions
were tied to the number of orders rather than the sales amount
and contributed to the earnings miss, Fiorina has fixed the
problem and accomplished her larger goal of kick-starting sales.
''You can feel the stress her changes are causing,'' says Kevin P.
McManus, a vice-president of Premier Systems Integrators,

which installs HP equipment. ''These guys know they have to
perform.''
This play-to-win attitude has started to take root in other areas.
Take HP Labs. In recent years, the once proud research and
development center made too many incremental improvements
to existing products, in part because engineers' bonuses were
tied to the number, rather than the impact, of their inventions.
Now, Fiorina is focusing HP's R&D dollars on ''big bang''
projects. Consider Bob Rau's PICO software, which helps
automate the design of chips used in electronic gear. Rau had
worked for years on the project, but the technology languished.
Last spring, Rau told Fiorina that the market for such systems
was projected to grow to $300 billion as appliance makers built
all sorts of Net-enabled gadgets. Within days, Fiorina created a
separate division that operates alongside the two back-end
groups and has grown to 250 people. Besides Rau's software, it
will sell other HP technologies such as new disk drives to
manufacturers. ''It was like we'd been smothered for four years
and someone was finally kind enough to lift the pillow off our
face,'' says Rau.
ROUGH EDGES. With Phase One of her transformation behind
her, Fiorina launched a formal reinvention process last spring.
First up: cutting expenses. Over nine days, a 12-person team
came up with ways to slash $1 billion by fiscal 2002. HP could
save $100 million by outsourcing procurement. It could trim
$10 million by letting employees log their hours online rather
than on cardboard time cards. And the company could revamp
its stodgy marketing by consolidating advertising from 43
agencies into two. That would save money and, better yet, focus
HP's campaigns on Fiorina's big Web plans rather than on its
various stand-alone products.
But when the big changes really started to kick in, Fiorina's
plan started to bog down. In the past, HP's product chieftains

ran their own operations, from design to sales and support.
Today, they're folded into the two back-end units, leaving
product chiefs with a far more limited role. They're still
responsible for keeping HP competitive with rivals, hitting cost
goals, and getting products to market on time. But they hand
those products to the front-end organizations responsible for
marketing and selling them.
The arrangement solves a number of long-standing HP
problems. For one, it makes HP far easier to do business with.
Rather than getting mobbed by salespeople from various
divisions, now customers deal with one person. It lets HP's
expert product designers focus on what they do best and gives
the front-end marketers authority to make the deals that are
most profitable for HP as a whole--say, to sell a server at a
lower margin to customers who commit to long-term consulting
services. ''You couldn't miss how silly it was the old way if you
were part of the wide-awake club,'' says Scott Stallard, a vice-
president in HP's computing group. ''A parade of HP salesmen
in Tauruses would pull up and meet for the first time outside of
the customer's building.''
These advantages, though, aren't enough to convince
management experts or many HP veterans that a front-back
approach will work at such a complex company. How do back-
end product designers stay close enough to customers to know
when a new feature becomes a must-have? Will executives, now
saddled with thousands of HP products under their supervision,
give sufficient attention to each of them to stay competitive?
And with shared profit-and-loss responsibility between front
and back ends, who has the final say when an engineer wants to
take a flier on expensive research? ''You just diffuse
responsibility and authority,'' says Sara L. Beckman, a former
HP manager who teaches at the Haas Business School at the
University of California at Berkeley. ''It makes it easier to say,
'Hey, that wasn't my problem.'''

Indeed, the front-back plan is showing some rough edges. While
HP cited many reasons for its troubling fourth-quarter results,
the reorganization is probably front and center. Freed from
decades-old lines of command, employees spent as if they had
already hit hypergrowth. In October alone, the company hired
1,200 people. Even dinner and postage expenses ran far over the
norm. Such profligate spending was rare under the old structure
where powerful division chiefs kept a tight rein on the purse
strings. ''They spent too much money on high-fives and setting
themselves up to grow the following quarter,'' says Salomon
Smith Barney analyst John B. Jones.
That situation could improve over time. Fiorina rushed the
reorganization into place before the company's information
systems were revamped to reflect the changes. Before Fiorina
arrived, each product division had its own financial reporting
system. It was only on Nov. 1 that HP rolled out a new uber-
system so staffers could work off the same books. Although it's
too soon to say whether it's a winner, HP claims the system will
let it watch earnings in powerful new ways. Rather than just see
sales for a product line, managers will be able to track profits
from a given customer companywide or by region. That way
they can cut deals on some products to boost other sales and
wind up with a more lucrative relationship.
Another restructuring red flag is the way Fiorina now sets
strategy, a big departure from ''The HP Way''--the principles
laid out by the founders in 1957. Based on the belief that smart
people will make the right choices if given the right tools and
authority, ''Bill and Dave'' pushed strategy down to the
managers most involved in each business. The approach worked.
Not only did HP dominate most of its markets, but low-level
employees unearthed new opportunities for the company. ''HP
was always the exact opposite of a command-and-control
environment,'' says former CEO Platt. Although Platt wouldn't

comment on Fiorina directly, he says, ''Bill and Dave did not
feel they had to make every decision.'' HP's $10 billion inkjet
printer business, for example, got its start in a broom closet at
HP's Corvallis (Ore.) campus, where its inventors had to set up
because they had no budget.
EYES ON THE PRIZES. Fiorina isn't waiting for another
broom-closet miracle. Since the halcyon mid-'90s, the old HP
way hasn't worked quite as well. The last mega-breakthrough
product HP introduced was the inkjet printer, in 1984. Growth
had slowed to just 4% in the six months before Fiorina took
over. To give HP better direction, Fiorina has created a nine-
person Strategy Council that meets every month to allocate
resources, set priorities, and advise her on acquisitions and
partnerships. ''This is a company that can do anything,'' Fiorina
says. ''But it can't do everything.''
Again, the move makes sense on paper. By steering the entire
company, the council can focus HP on a few big Internet prizes
rather than myriad underfunded pet projects. But this top-down
engine could backfire. Experts point out that except for
visionaries like Apple Computer's (AAPL) Steve Jobs or IBM's
Thomas J. Watson Jr., it's rare for the suits in the corner office
to be able to predict the future--especially in a market as fast-
changing as the Net. ''If we were to go too far toward top-down,
it would not be right for this company,'' acknowledges Debra L.
Dunn, HP's vice-president of strategy.
To be sure, Fiorina is quick to embrace ideas from below if she
thinks they'll solve a problem. This spring, Sam Mancuso, HP's
vice-president of corporate accounts, proposed a team-based
plan that advances the front-back approach. Time was, PC
salespeople weren't allowed to sell, say, printers. Mancuso has
fixed that by pulling together 20-person teams to concentrate on
the top 75 corporate customers. The teams create an
''opportunity map'' for each customer, tracking the total amount

of business HP could possibly book. Then the team analyzes
what deal would maximize earnings for HP. Mancuso says his
operation has boosted sales to top customers by more than 30%
since May. ''We're taking the handcuffs off, so now we can be
more aggressive,'' Mancuso says.
The shackles may be off, but HP still lags its competitors in
many areas. For all HP's talk of becoming a Net power, in the
fourth quarter, Sun held 39% of the market for Unix servers
preferred by e-businesses, according to IDC. HP is in second
place with 23% share, a slight improvement over the year
before. But it faces growing competition from third-place IBM,
which just introduced a product line that many analysts say
handily outperforms HP's servers. ''HP is just not making much
headway,'' says Ellen M. Hancock, CEO of Exodus
Communications Inc. (EXDS) Her company uses 62,000 servers
in its Web hosting centers, virtually none of them from HP. And
most of HP's Net schemes, such as Cartogra, a service that lets
consumers post pictures on the Web, have failed to catch on.
Even fans of Fiorina acknowledge she has a ways to go. While
wireless juggernaut Nokia Corp. (NOK) just signed a deal to use
HP software, Chairman Jorma Ollila questions how successful
Fiorina's turnaround is likely to be. ''Carly is very impressive,''
he says. ''But the jury is still out on HP.'' Says Cisco Systems
Inc. (CSCO) CEO John T. Chambers, who named Fiorina to his
board on Jan. 10: ''I'd bet that Carly will be one of the top 5 or
10 CEOs in the nation. But she has still got to get them running
faster.'' Fiorina wouldn't disagree and says she plans to keep
upping her bets. ''The greatest risk is standing still,'' she says.
She should hope she has picked the right cards, because she's
gambling with Silicon Valley's proudest legacy.
By Peter Burrows in Palo Alto, Calif.
PAGE

8
BUAD 6400
Leadership Practices Inventory
JAMES M. KOUZES & BARRY Z. POSNER
CONTENTS
The Five Practices of Exemplary Leadership®1
The Five Practices Bar Graphs2
Leadership Behaviors Ranking3
Model the Way Bar Graphs4
Inspire a Shared Vision Bar Graphs6
Challenge the Process Bar Graphs8
Enable Others to Act Bar Graphs10
Encourage the Heart Bar Graphs12
Percentile Ranking14
Suggested Reading15
William Blackman August 29, 2015

© Copyright 2013 by James M. Kouzes and Barry Z. Posner.
Published by The Leadership Challenge, A Wiley Brand. All
rights reserved. www.leadershipchallenge.com.
www.leadershipchallenge.com.SELFREPORT
PAGE1
The Five Practices of Exemplary Leadership®
Created by James M. Kouzes and Barry Z. Posner in the early
1980s and first identified in their internationally best-selling
book, The Leadership Challenge, The Five Practices of
Exemplary Leadership approaches leadership as a measurable,
learnable, and teachable set of behaviors. After conducting
hundreds of interviews, reviewing thousands of case studies,
and analyzing more than two million survey questionnaires to
understand those times when leaders performed at their personal
best, there emerged five practices common to making
extraordinary things happen. The Five Practices are:
The Leadership Practices Inventory (LPI) instrument is an
essential tool to help you gain perspective into how you see
yourself as a leader and what actions you can take to improve
your use of the Five Practices, which research has
demonstrated, year after year, make for more effective leaders.
ABOUTYOURLPIREPORT
The LPI measures the frequency of 30 specific leadership
behaviors on a 10-point scale, with six behavioral statements
for each of The Five Practices. You rated how frequently you
engage in each of these important behaviors associated with The

Five Practices. The response scale is:
RESPONSESCALE
1-Almost Never
2-Rarely
3-Seldom
4-Once in a While
5-Occasionally
6-Sometimes
7-Fairly Often
8-UsuallyVery FrequentlyAlmost always
William Blackman August 29, 2015
© Copyright 2013 by James M. Kouzes and Barry Z. Posner.
Published by The Leadership Challenge, A Wiley Brand. All
rights reserved. www.leadershipchallenge.com.
www.leadershipchallenge.com.SELFREPORT
PAGE1
In the following report pages, you’ll see your responses
presented in various manners.
The Five Practices Bar Graphs
These bar graphs, one for each leadership Practice, provide a
graphic representation of your total rating. Total responses can
range from 6 to 60, which represents adding up the response

score (from 1—Almost Never to 10—Almost Always) for each
of the six behavioral statements related to the Practice.
Model the Way
051015202530354045505560
RATING
54

Inspire a Shared Vision
051015202530354045505560
RATING
43

Challenge the Process
051015202530354045505560
RATING
40

Enable Others to Act
051015202530354045505560
RATING
49

Encourage the Heart
051015202530354045505560
RATING
54

Leadership Behaviors Ranking
This page shows the ranking, from most frequent to least
frequent, of all 30 leadership behaviors based on your self-
rating. Horizontal lines separate the 10 most and the 10 least
frequent behaviors from the middle 10. The response scale runs
from 1—Almost Never to 10—Almost Always.
MOSTFREQUENTLEADERSHIPPRACTICERATING
5.
I praise people for a job well done
Encourage
10
11.
I follow through on the promises and commitments that I make
Model
10
14.
I treat others with dignity and respect
Enable
10
26.
I am clear about my philosophy of leadership
Model
10
30.
I give the members of the team lots of appreciation and support
for their contributions
Encourage
10
1.
I set a personal example of what I expect of others
Model
9
2.
I talk about future trends that will influence how our work gets

done
Inspire
9
4.
I develop cooperative relationships among the people I work
with
Enable
9
8.
I challenge people to try out new and innovative ways to do
their work
Challenge
9
10.
I make it a point to let people know about my confidence in
their abilities
Encourage
9
19.
I support the decisions that people make on their own
Enable
9
20.
I publicly recognize people who exemplify commitment to
shared values
Encourage
9
21.
I build consensus around a common set of values for running
our organization
Model
9
3.
I seek out challenging opportunities that test my own skills and
abilities
Challenge

8
Model8
6.I spend time and energy making certain that the people I work
with adhere to the principles and standards that we have agreed
on
9. I actively listen to diverse points of viewEnable8
15. I make sure that people are creatively rewarded for their
contributions to the success of our
projects
16.
I ask for feedback on how my actions affect other people's
performance
Model
8
22.
I paint the "big picture" of what we aspire to accomplish
Inspire
8
25.
I find ways to celebrate accomplishments
Encourage
8
27.
I speak with genuine conviction about the higher meaning and
purpose of our work
Inspire
8
29.
I ensure that people grow in their jobs by learning new skills
and developing themselves
Enable
7
7.
I describe a compelling image of what our future could be like

Inspire
6
12.
I appeal to others to share an exciting dream of the future
Inspire
6
17.
I show others how their long-term interests can be realized by
enlisting in a common vision
Inspire
6
18.
I ask "What can we learn?" when things do not go as expected
Challenge
6
23. I make certain that we set achievable goals, make concrete
plans, and establish measurable
milestones for the projects and programs that we work on
24.
I give people a great deal of freedom and choice in deciding
how to do their work
Enable
6
28.
I experiment and take risks, even when there is a chance of
failure
Challenge
6
13. I search outside the formal boundaries of my organization
for innovative ways to improve
what we doChallenge
5

Challenge6
LEASTFREQUENT
RESPONSESCALE
1-Almost Never
2-Rarely
3-Seldom
4-Once in a While
5-Occasionally
6-Sometimes
7-Fairly Often
RATING
8

Model the Way Bar Graphs
Clarify values by finding your voice and affirming shared
values Set the example by aligning actions with shared values
RATING
9

The set of bar graphs for each of the six leadership behaviors
related to this Practice provides a graphic representation of your
responses for that behavior. Responses can range from 1–
Almost Never to 10–Almost Always.
0
1
2
3
4
5
6
7
8
9
10
1.
Sets a personal example of what he/

2
3
4
5
6
7
8
9
10
6.
Spends time and energy making
certain that the people he/she works

with adhere to the principles and
standards that we have agreed on
0
1
2
3
4
5
6
7
8
9

10
11.
Follows through on promises and
commitments he/she makes

0
1
2
3
4
5
6
7
8
9
10
16.
Asks for feedback on how his/her

actions affect other people's
performance
0
1
2
3

4
5
6
7
8
9
10
21.
Builds consensus around a common
set of values for running our

organization
0
1
2
3
4
5
6
7
8
9
10
26.

Is clear about his/her philosophy of
leadership

RESPONSESCALE
1-Almost Never
2-Rarely
3-Seldom
4-Once in a While
5-Occasionally
6-Sometimes
7-Fairly Often
Reflections:
What is your immediate reaction to viewing your Model the
Way ratings? Why?
Please describe anything in your Model the Way ratings that is
confusing or
contradictory:
(Remember to review your Leadership Behaviors Ranking page
to consider the individual behaviors that relate to this practice.)
Suggestions for Becoming a Better Leader

At the end of every day, ask yourself, "What have I done today
that demonstrated one of my key values? What have i done
today that might have sent the signal that I wasn't committed to
the key value? What can i do tomorrow to live out a key value?
Answer the question, "What are the values that should guide my
decisions and actions?"
Do something dramatic to demonstrate your commitment to a
team value. For instance, if customer service is a value, spend a
day answering the phones in the call center, working behind the
counter at a store, or visiting customers at their locations.
Inspire a Shared Vision Bar Graphs
Envision the future by imagining exciting and ennobling
possibilities Enlist others in a common vision by appealing to
shared aspirations
RATING
9

2.Talks about future trends that will influence how our work
gets done
012345678910

7.Describes a compelling image of what our future could be like
012345678910
RATING
6

12. Appeals to others to share an exciting dream of the future
012345678910
RATING
6

17. Shows others how their long-term interests can be realized
by enlisting in a common vision
012345678910
RATING

8
22. Paints the "big picture" of what we aspire to accomplish
012345678910

27. Speaks with genuine conviction about the higher meaning
and purpose of our work
012345678910
RESPONSESCALE
1-Almost Never
2-Rarely
3-Seldom
4-Once in a While
5-Occasionally
6-Sometimes
7-Fairly Often
Reflections:
What is your immediate reaction to viewing your Inspire a
Shared Vision
ratings? Why?
Please describe anything in your Inspire a Shared Vision ratings
that is
confusing or contradictory:

Become a Futurist. Join the World Futures Society. Read
American Demographics or other magazines about future trends.
Use the Internet to find a "futures" conference that you can
attend. Make a list of what reputable people are predicting will
happen in the next ten years.
Every week interview one of your constituents—a direct report,
peer, manager, or customer—and ask, "What are your
aspirations for the future?"
Be positive, upbeat and energetic when talking about the future
of your team and organization.
Challenge the Process Bar Graphs
Search for opportunities by seizing the initiative and by looking
outward for innovative ways to improve
Experimentandtakerisksbyconstantlygeneratingsmallwinsandlear
ningfromexperience
RATING
8

0
1
2
3
4
5
6
7
8
9
10
3.
Seeks out challenging opportunities

that test his/her own skills and
abilities
0
1
2
3
4

5
6
7
8
9
10
8.
Challenges people to try out new and
innovative ways to do their work

0
1
2
3
4
5
6
7
8
9
10
13.
Searches outside the formal

boundaries of his/her organization for
innovative ways to improve what we
do
0
1

2
3
4
5
6
7
8
9
10
18.
Asks "What can we learn?" when
things don't go as expected

23. Makes certain that we set achievable goals, make concrete
plans, and establish measurable milestones for the projects and
programs that we work on
012345678910
RATING
6

28. Experiments and takes risks, even when there is a chance of
failure
012345678910
RATING
9

RESPONSESCALE
1-Almost Never
2-Rarely
3-Seldom
4-Once in a While
5-Occasionally
6-Sometimes
7-Fairly Often
Reflections:
What is your immediate reaction to viewing your Challenge the
Process
ratings? Why?
Please describe anything in your Challenge the Process ratings
that is

At least once a month, set aside time to think about what
challenging opportunities-new experiences, job assignments,
tasks- you could seek to test your skills and abilities. Look for
opportunities for tough assignments.
At least once a month, identify something you can do to
challenge the way things are done—the status quo—at work. For
example, think about what product or process innovations would
help your organization improve. Then take the initiative to
make change happen.
Once a week at a regular meeting, ask each team member to
answer this question: "What have you done in the last week to
improve so that you are better this week than you were a week
ago?"
Enable Others to Act Bar Graphs
Foster collaboration by building trust and facilitating
relationships
Strengthenothersbyincreasingself-
determinationanddevelopingcompetence

RATING
9
4.Develops cooperative relationships among the people he/she
works with
012345678910

9.Actively listens to diverse points of view
012345678910
RATING
10

14. Treats others with dignity and respect
012345678910
RATING
9

19. Supports the decisions that people make on their own
012345678910
RATING
6

24. Gives people a great deal of freedom and choice in deciding
how to do their work
012345678910
RATING
7

29. Ensures that people grow in their jobs by learning new skills
and developing themselves

012345678910
RESPONSESCALE
1-Almost Never
2-Rarely
3-Seldom
4-Once in a While
5-Occasionally
6-Sometimes
7-Fairly Often
Reflections:
What is your immediate reaction to viewing your Enable Others
to Act ratings?
Why?
Please describe anything in your Enable Others to Act ratings
that is confusing
or contradictory:

Think about the ways in which projects are planned and
decisions made in your organization. Then come up with several
actions you can take to involve others in the planning and
decision-making process.
Before every interaction, regardless of length, ask yourself this
question: "What can I do in this interaction to make this person
(or persons) feel more capable and powerful?"
Talk one-on-one with your team members to find out what kind
of support and coaching they would like from you and what
training opportunities they need. Find ways to connect people to
the resources they need—other people, materials, funding,
training, information, and so on.
Encourage the Heart Bar Graphs
Recognize contributions by showing appreciation for individual
excellence Celebrate the values and victories by creating a spirit
of community

RATING
10
5.Praises people for a job well done
012345678910

10. Makes it a point to let people know about his/her confidence
in their abilities
012345678910
RATING
8

15. Makes sure that people are creatively rewarded for their
contributions to the success of projects
012345678910
RATING
9

20. Publicly recognizes people who exemplify commitment to
shared values
012345678910
25. Finds ways to celebrate accomplishments
012345678910
RATING
10

30. Gives the members of the team lots of appreciation and
support for their contributions
012345678910

RESPONSESCALE
1-Almost Never
2-Rarely
3-Seldom
4-Once in a While
5-Occasionally
6-Sometimes
7-Fairly Often
Reflections:
What is your immediate reaction to viewing your Encourage the
Heart
ratings? Why?
Please describe anything in your Encourage the Heart ratings
that is
Think of ten small ways in which you can reward people who
have done something especially well. Then reward those

extraordinary efforts. Don’t let them go by unnoticed.
Identify those constituents who best embody your values and
priorities and think of three ways to single them out in the
weeks to come, to praise and reward them.
Tell a public story about a person in your organization who
went above and beyond the call of duty.
Percentile Ranking
The leaders and observers who make up the LPI database
include a mix of males and females at all levels, from all types
of organizations, and from all over the world. This page
compares your responses to more than one million Observer
responses for other leaders who have taken the LPI. The
horizontal lines at the 30th and 70th percentiles divide the
graph into three segments, roughly approximating a normal
distribution of scores. Each line on the graph shows what
percentile your response falls into for each Practice. For
example, if your score for Model the Way is at the 50th
percentile, half of the leaders in the entire LPI database were
rated higher (by their Observers who also rated them on the
Practice), and half were rated lower.
MODEL THEWAY

100
INSPIRE A SHAREDVISION
CHALLENGE THEPROCESS
ENABLE OTHERSTOACT
ENCOURAGE THEHEART
MOSTFREQUENT
90
80
70
60

FREQUENT
50
40
30
LEASTFREQUENT
20
10
0
Suggested Reading
GENERAL LEADERSHIP
Kouzes, J. M., and Posner, B. Z. ALeader'sLegacy.San
Francisco: Jossey-Bass, 2006.
Kouzes, J. M., and Posner, B. Z.
TheLeadershipChallenge:HowtoMakeExtraordinaryThingsHappe
ninOrganizations.5th Edition. San Francisco: Jossey-Bass, 2012.
Kouzes, J. M., and Posner, B. Z. The Truth About Leadership:
The No-Fads, Heart-of-the-Matter Facts You Need to Know.
San Francisco: Jossey-Bass, 2010.
MODEL THE WAY
Conant, D., and Norgaard, M. TouchPoints: Creating Powerful
Leadership Connections in the Smallest of Moment. San
Francisco:Jossey-Bass, 2011

Kouzes, J. M., and B. Z. Posner.
Credibility:HowLeadersGainandLoseIt,WhyPeopleDemandIt.(2n
d ed.). San Francisco: Jossey-Bass, 2011. Kraemer, H. M. J., Jr.
FromValuestoAction:TheFourPrinciplesofValues-
BasedLeadership.San Francisco: Jossey-Bass, 2011.
Rhoads, A., with Shepherdson, N. Built on Values: Creating an
Enviable Culture That Outperforms the Competition. San
Schein, E. OrganizationalCultureandLeadership.(4th ed.). San
INSPIRE A SHARED VISION
Geary, J.
IIsanOther:TheSecretLifeofMetaphorandHowItShapestheWayWe
SeetheWorld.New York: Harper, 2011. Schuster, J. P.
ThePowerofYourPast:TheArtofRecalling,Recasting,andReclaimi
ng.San Francisco: Berrett-Koehler, 2011. Sinek, S.
StartwithWhy:HowGreatLeadersInspireEveryonetoTakeAction.
New York: Portfolio, 2010.
Spence, R. M. It'sNotWhat You Sell,It'sWhat You
StandFor:WhyEveryExtraordinaryBusinessIsDrivenbyPurpose.N
ew York: Portfolio, 2010.
Sullenberger, C. B. Making a Difference: Stories of Vision and
Courage from America's Leaders. New York: William Morrow,
2012. Ulrich, D., and Ulrich, W.
TheWhyofWork:HowGreatLeadersBuildAbundantOrganizations
ThatWin.New York: McGraw-Hill, 2010.
CHALLENGE THE PROCESS
Amabile, T. A., and Kramer, S. J.
TheProgressPrinciple:UsingSmallWinstoIgnite Joy,
Engagement,andCreativityatWork.Boston: Harvard Business
Review Press, 2011.
Johnson, S. Where Good Ideas Come From: The Natural History
of Innovation. New York: Riverhead, 2010.
Seligman, M.E.P.

Flourish:AVisionaryNewUnderstandingofHappinessandWell-
Being.New York: The Free Press, 2011. Sims, P.
LittleBets:HowBreakthroughIdeasEmergefromSmallDiscoveries.
New York: The Free Press, 2011.
ENABLE OTHERS TO ACT
Brooks, D.
TheSocialAnimal:HiddenSourcesofLove,Character,andAchievem
ent.New York: Random House, 2011.
Burchell, M., and Robin, J.
TheGreatWorkplace:HowtoBuildIt,HowtoKeepIt,andWhyItMatte
rs.San Francisco: Jossey-Bass, 2011. Hurley, R. F.
TheDecisiontoTrust:HowLeadersCreateHigh-
TrustOrganizations.San Francisco: Jossey-Bass, 2012.
Merchant, N. TheNewHow:CreatingBusiness
Solution
sThroughCollaborativeStrategy.San Francisco: O'Reilly Media,
2010.
Shockley-Zalabak, P. S., Morreale, S. and Hackman, M.
Building the High-Trust Organization: Strategies for Supporting
Five Key Dimensions of Trust.San Francisco: Jossey-Bass,
2010.
Wiseman, L.
Multipliers:HowtheBestLeadersMakeEveryoneSmarter.New
York: HarperCollins, 2010.
ENCOURAGE THE HEART

Achor, S.
TheHappinessAdvantage:TheSevenPrinciplesofPositivePsycholo
gyThatFuelSuccessandPerformanceatWork.New York: Crown
Books, 2010.
Gostick, A., and Elton, C.
AllIn:HowtheBestManagersCreateaCultureofBeliefandDriveBig
Results.New York: The Free Press, 2012.
Kouzes, J. M., and Posner, B. Z.
EncouragingtheHeart:ALeader'sGuidetoRewardingandRecognizi
ngOthers.San Francisco: Jossey-Bass, 2003.
Rath, T., and Harter, J. Well-
Being:TheFiveEssentialElements.New York: Gallup Press,
2010.
Seligman, M. E.
Flourish:AVisionaryNewUnderstandingofHappinessandWell-
Being.New York: The Free Press, 2011.
Green Business March 19, 2007, 12:00AM EST
Ethanol's Growing List of Enemies
As demand for the alternative fuel drives corn prices up, an
unlikely assortment of groups are uniting with the hopes of

cutting government support
by Moira Herbst
Paul Hitch has spent his entire life raising cattle and hogs on a
stretch of the Oklahoma panhandle he says is "flat as a billiard
table." His great-grandfather started the ranch in 1884, before
Oklahoma was a state, and now Hitch, 63, is preparing to pass
the family business on to his two sons.
But he worries that they'll face mounting pressures in the
industry, particularly because of the soaring price for corn,
which the business depends on to feed the livestock. In the past
year, corn prices have doubled as demand from ethanol
producers has surged.
"This ethanol binge is insane," says Hitch, who's president-elect
of the National Cattlemen's Beef Assn. (NCBA). "This talk
about energy independence and wrapping yourself in the flag
and singing God Bless America—all that's going to come at a
severe cost to another part of the economy."
The ethanol movement is sprouting a vocal crop of critics.
While politicians including President George W. Bush and
farmers across the Midwest hope that the U.S. can win its
energy independence by turning corn into fuel, Hitch and an

unlikely assortment of allies are raising their voices in
opposition. The effort is uniting ranchers and environmentalists,
hog farmers and hippies, solar-power idealists and free-market
pragmatists (see BW Online, 02/2/07, " Ethanol: Too Much
Hype—and Corn").
They have different reasons for opposing ethanol. But their
common contentions are that the focus on corn-based ethanol
has been too hasty, and the government's active involvement—
through subsidies for ethanol refiners and high tariffs to keep
out alternatives like ethanol made from sugar—is likely to lead
to chaos in other sectors of the economy.
"The government thinks it can pick a winner, but they should
allow consumers to pick their own," says Demian Moore, senior
analyst for the nonprofit Taxpayers for Common Sense. "Corn
ethanol has failed to prove itself as a reliable alternative that
can exist without huge subsidies."
Ethanol has plenty of support in Washington. Besides Bush's
call for sharply boosting output during his State of the Union
(see BusinessWeek.com, 1/24/07, "Salesman In Chief"), Hillary
Clinton, senator from New York and Presidential contender, has
reversed her previous position to support ethanol subsidies.

Barack Obama, another Democratic Presidential hopeful, is on
board. Even John McCain, a vocal critic for years, is
reconsidering his opposition as he tries to snare the Republican
nomination. Archer Daniels Midland (ADM), the agribusiness
giant and the largest ethanol producer, is a formidable lobbying
force in the capitol, after having handed out millions of dollars
in political contributions over the last three decades.
Abundant Crops
Yet while the influence of ethanol's enemies isn't great now,
their cohesiveness, and their power, is growing. For two days
earlier this month, the NCBA, the National Chicken Council,
the National Turkey Federation, and the National Pork
Producers' Council testified before Congress, calling for the end
of corn ethanol subsidies.
Left-leaning economists such as Princeton University's Paul
Krugman are joining free-market fundamentalists at the Cato
Institute in pointing out the economic pitfalls of ethanol. And
green groups worry that aggressive production of corn could
have dire consequences for the environment, because of the
heavy use of pesticides, fertilizer, and machinery that burns
fossil fuels. "There's great concern," says Doug Koplow, who
analyzes energy policy for Earth Track, a Boston consultancy.

The opposition groups haven't worked together before this year,
but Hitch says the NCBA is now beginning to reach out to other
groups in an effort to coordinate lobbying and other activities.
On Mar. 16, representatives of the ranchers, chicken farmers,
pork processors, and milk producers held a joint conference call
to discuss strategies for addressing the ethanol issue. They
agreed to form an ad hoc group, which has not been publicly
announced, to launch an informational Web site and to work
toward the inclusion of measures to eliminate domestic ethanol
subsidies and tariffs on Brazilian ethanol in the Farm Bill
expected later this year.
Ranchers and other opponents say they're determined to get the
government to change its policies, however long it takes. "This
ethanol thing is driving everybody half nuts," says Hitch. "As
far as presenting a united front on this issue, we certainly can
and will."
Ethanol's quick growth dates back only two years, to the 2005
Energy Policy Act. The law mandates that 7.5 billion gallons of
the nation's annual gasoline consumption—or roughly 5%—
come from renewable fuels by 2012.
In this year's State of the Union, Bush proposed quintupling that

figure. That comes on top of the 51¢-per-gallon subsidy, which
started in 1978. The result is a wave of ethanol plant
construction, with 113 ethanol distilleries now in operation and
an additional 78 in the works. That has pushed up demand for
corn to the point that last year ethanol took up about one-fifth
of the country's corn supply (see BusinessWeek.com, 2/5/07,
"Food vs. Fuel").
Livestock Losses
More corn for ethanol producers, of course, means less for
livestock. Ranchers in wide-open Western states and pig
farmers in the rural stretches of the South and Midwest are
finding their businesses slammed by policies cooked up in
Washington.
Hitch says the feedstock that's primarily made from corn is the
single biggest expense for his business. As corn costs have
doubled, meat packers and processors like Tyson Foods (TSN)
and Smithfield Foods (SFD) have to pay more for the animals
they buy.
"The current approach and pace is full of risks to traditional
users of feedgrains," Matthew Herman, a Tyson Foods manager,
told a House subcommittee earlier this month. "Without

adequate safeguards for the unintended consequences, the future
of U.S. animal agriculture is put in great jeopardy."
Earth, Wind, and Fuel
Economists argue that making ethanol from corn wouldn't make
any sense without the government's help. The mix of federal and
state subsidies to corn ethanol amounted to a conservative
estimate of $5 billion to $7 billion in 2006, says Koplow of
Earth Track. A considerable chunk of that money comes from
the 51¢ tax refund for each gallon of ethanol refiners blend with
gasoline to make fuels that can power flexible-fuel cars.
At the same time, the government imposes a 54¢-per-gallon
tariff on ethanol from Brazil, which is a cheaper and more
energy-efficient product made from sugar cane. Some
economists say American politicians are subordinating smart
energy policy for political support in key states like Iowa.
"What's this idea that Brazilian ethanol is dirty, foreign fuel?"
says Jerry Taylor, senior fellow at the free-market Cato
Institute. "The government should stay out of energy markets
and let the best fuels win."
If the government is going to play a role in energy markets,

there are other players who would like more attention.
Supporters of solar and wind energy make the case that if the
government is going to hand out subsidies and mandate use, in
the name of energy independence, they should get the same kind
of treatment as ethanol.
"Why are we supporting ethanol with a mandate, but not wind
and solar?" says Randy Swisher, executive director of the
American Wind Energy Assn. "There's a lack of consistency in
policy."
The economics may be even more attractive for some of the
alternatives. Advocates for plug-in hybrid vehicles, including
wind and solar producers, as well as utilities, argue that they
can produce the electric equivalent of a gallon of gas for less
than $1, less than half the cost of ethanol-based fuels.
"The amount of subsidies provided for ethanol could easily be
used to switch this country to plug-in hybrid vehicles, and
ultimately have a much greater impact on reducing oil
dependency," says Jigar Shah, CEO of SunEdison, a solar power
company.
Ground-Breaking Ceremony

Ethanol producers say they offer a viable alternative to
traditional fossil fuels that is becoming more affordable over
time. "We're producing a clean domestic renewable fuel that
stands on its own in value and price," says Gordon Ommen,
CEO of US BioEnergy (USBE), which just surpassed VeraSun
Energy (VSE) to be the second-largest producer of corn-based
ethanol after Archer Daniels Midland.
US BioEnergy had a ground-breaking ceremony at its Dyersville
(Iowa) ethanol plant on Mar. 16. With three plants in production
and five more under construction, US BioEnergy currently has a
capacity of 300 million gallons per year.
Bush's point man on alternative energy, Andy Karsner, predicts
that the opposition to ethanol will fade over time. Karsner says
that while the government is now supporting ethanol made from
corn, by 2012 there will be technology to make ethanol from
garbage, switch grass, and other nonfood products.
This so-called "cellulosic" ethanol will relieve the pressure by
decreasing demand for corn. "Corn ethanol is a necessary
precursor to larger scaling of ethanol and alternative fuels in
general," says Karsner, whose official title is assistant secretary
of the Energy Dept.'s Office of Energy Efficiency & Renewable
Energy (see BusinessWeek.com, 3/2/07, "The Point Man for

Bush's Green Push").
In the meantime, ranchers like Hitch are concerned that there
hasn't been enough thought given to the unintended
consequences of the ethanol boom. He's worried that the U.S.
could be developing another addiction with some serious side
effects of its own.
"It's become a mania, and everyone needs to settle down, catch
their breath, and look at what's really feasible," he says. "For
now, it's just runaway."
Herbst is a reporter for BusinessWeek.com in New York.
1
Module 10 . Learning Across Bord.ers: Disneyland on the Motte
MI0-35
Disney Goes to Paris
Cnossing the Atlantic

o
+.
o
z
o
o
-g
o
Euro Disney, now Disneyland Paris, opened to
great fanfare in April 1992.It is located in Marne-
la-Vall6e, 32 kilometers east of Paris and, on the
surface, is much less a duplicate of Disneyland in
its design than Tokyo. Part of its diflbrences are
due to the insistence of the French government
that the park have some "decided French touches"
and partly to Disney's own market research and
best guesses as to what would play well to the 310
million Europeans within a two-hours' flight of
the park. In short, the kind of cultural sensibility
operating in Disneyland Paris is different from in
Tokyo Disneyland such that the cultural contrasts)
blends, and conflicts are more noticeable in France
than in Japan. This distraction is all rather ironic
given the long and more or less peaceful) coopera-

tive, and relatively close relations between the
Frerrch and Americans.
The cultural sensibiliry on the part of both the
French and the Americans is, however, anything
but gentle or generous. Nor is it modest. The
European Disney story is in fact still playing out,
but a good part of the tale unfolds as a result of
what can only be considered a rough beginning.
The unprecedented success of Tokyo Disneyland
led Disney's senior managers to believe they had a
sure-fire global winner (a golden goose) on their
hands, and Europe seemed the most appropriate
and potentially most lucrative place to locate the
next Disneyland. And this time Disney executives
were determined not to let others reao most of the
profits.
Following Walt's example of always trying ro
negotiate a deal with at least two parties at once
(Foglesong, 2001, p. 46), Disney's management
team played two country bidders ofTone another:
Spain and France . The Spanish side put forth a site
in Barcelona. Although it had weather better
suited for an all-seasons resort, it was farther from

tl-re affluent population centers of northern
Europe than Paris and less easily accessible to
major transportation hubs. More critically how-
ever the French government, as eager as their
Spanish counterparts to attract the jobs and the
development spillovers of Disneyland, offered
what the Suits at Disney took as a more attracrive
deal: 4,800 acres of land at below-market prices,
land Disney could resell to other developers at any
price it could command; major long-term prop-
erry and employer tax breaks; low-interest loans
from state-owned banks; major new construction
for a high-speed highway, other traffic and local
roadway improvements around the park; and an
extension of the national high-speed rail network
to a Disneyland station. All was to be accom-
plished at government expense (Toy et al., 1990).
The choice of the French site was announced in
1985. After extensive negotiations, the final con-
tract for the $2 billion park-whose costs eventlr-
ally ballooned to $5 billion-was signed in 1987
by Prime Minister facques Chirac and Disney
CEO Michael Eisner. In anticipation of the imple-

mentation of the Maastricht Treaty, which wai to
fbrmally change the European Community to the
European Union in the year the park was to open,
1992, the highly visible development was named
Euro Disney.
Although the Walt Disney Company was eager
to reap the potential profits from the enterprise, the
Suits were no more enthusiastic than they had ever
been about assuming much of the risk. Therefore
the structure for the new park was a complicated
one. A finance company was set up as the owner of
the park, in which Disney took a l7 percent stake
(this arrangement is described in greater detail in
the article "Mouse Trap" that appears at the end of
this Class Note). A separate company, Euro Disney,
was formed to operate the park, of which 49 per-
cent was owned by the Walt Disney Company. The
parent Disney made arrangements to collect royal-
ties and licensing fbes from Euro Disnel, on admis-
sions, fbod, beverages, and souvenirs, similar to
those of Tokyo Disneyland. To help raise capital,
the rest of the shares of Euro Disney were listed on
the Paris stock exchange and available to the public
at an opening share price of $II.50 (quickly rising

to its all-time high of $f 8). Disney paid about
$1.50 for each of its shares. a fact that. when it
became known in the wake of a falling share price
in the 1990s, caused considerable public criticism
(Solomon, 1994). Foreshadowing the discussion
to follow, Euro Disney shares were selling on the
Bourse in the summer of 2003 at about $0.60 a
share (a level held for many years).
The business press began to carry stories about
possible problems fbr Euro Disney as early as 1989
when the launch of Euro Disney shares in Paris was
met by a group of egg-throwing protesters who
managed to pelt Michae I Eisner in full view of the
press. Potato farmers and local residents in Marne-
la-Vall6e staged a number ofwell-attended protests
and generated a good deal of public sympathy for
MIO.36 ANALYTICS . TEAMS . OFGANIZATIONS . SKILLS
what they claimed was a governmental giveaway of
their lands and way of life. 4/hen Disney began hir-
ing stafffor the park, the press carried stories about

the demanding conduct and dress code on which
Disney insisted to the dismay of its employees. The
comparry ran into some highly publicized disputes
with I6 of its French contractors, which threatened
to delay the scheduled opening and were sent to
arbitration. Construction costs escalated, largely a
result of Disney's desire to build an "architectural
masterpiece" in Europe with no frills spared.
The eagerness of the French government to
attract Disney was not matched however by
French intellectuals. As cultural historian Richard
P e l l s ( 1 9 9 7 , p p . 3 l I - 3 1 2 ) p u t i t :
When the pnrh opened. in April 1992, writers com-
peted with zne a.nzthet/ to see whose d.enwnciations
were the ,nlst hyperbllic. A "cwltwral Chernobyl"
exclairned the theater d.irector Arinne Mnowchkine.
"A terrifiiing giant's step toward. world. hornoge'
nization," the philosopher Alain Finhielkrawt
d.eclared.. To another clncwenta.tzr, Ewro Disney
wa.s "A. horror rnade of cnrd,board., plaxic, and.
nppalling colors, a cznstrtuctizn of hard.ened. chew-
ing gwrn nnd id.iotic folhlore tahen straight owt of
comic boohs written for obese Arnericans.tt Accord.-

ing to tbe French intellectwals, Disney cornruercinl-
ized the fniry tales of child.ren euerywhere, thereby
sttfling their d.reayns and. preparing them. to becorne
lnere spectators and. c7nsuwer' . . . WorX of all,
Disneyland. wa.s n0 longer ouer there, ncross tbe
ocenn, in Arnerica, the borue of rnnss cwbwre. Now
it was right here, in the heart of Frencb ciuilization,
pra.ctica.lly tuitbin the bownd.nries of Pnris itself.
Such criticisms were not abated by Disney's
efforts to make the park more varied and "Euro-
pean" than its counterparts elsewhere. Several inno-
vations in Disneyland traditions appear in the park.
Tomorrowland is gone, replaced by Discoveryland
(and later imported back to the original-without
the name change-as part of the 1998 renovations
in Anaheim). The shift was a result, in part, of Dis-
ney market survevs showing that Europeans hold an
ambivalent and skeptical attitude toward the won-
ders of modern science and technology (Sassen,
1989). Discoveryland draws on the imagery of Jules
Verne, Leonardo da Vinci, and H. G. Wells to find
the fliture in the past and abandons the gleaming,
crisp, militaristic Tomorrowland look of other
parks. The Jungle Cruise is no longer around in the

European park to remind visitors of their colonial
past. Perhaps Disney surveys showed that Third
World "natives" are less amusing to the French,
English, or Dutch than to the Americans or fapan-
ese. Identifications for the origins ofthe various nar-
ratives and fairy tales presented in the park, absent
elsewhere, are prominent in Paris where the corpo-
ration agreed (reluctandy) to acknowledge the
rightful authors-but not the imagery--of its
expropriated children's tales (Glover, 199I, pp.
L9l-I92). And, in Paris, Snow White now speaks
German, Sleeping Beaury rests in her French
chateau (k ChAteau de la Belle au Bois Dormant),
Pinocchio reclaims his Italian heritage, and Peter
Pan flies not from L.A. but from London again.
The critics have not been charmed or silenced
by Disney's face work and expensive and some-
times rather elaborate revisions in the park design.
Some still regard the project as a form of "creeping
Americanism" and are disturbed less with the
attractions and look of the park as with, for exam-
ple, the tasteless fast food available on the grounds
and having to eat it from tables and chairs bolted

to the floor. In what has turned out to be alto-
gether clairvoyant, local politicians and commu-
nity leaders in the region voiced their concerns
early on about "externalities" and the possible
Orlando-ization of the region-the traffic and
crowds the development would attract as well as
the potential buildup of unwanted urban problems
in the region.
The troubles inside the park seemed only to get
worse after the opening. Although the expected
number of paying guests came to the park (about
I I million the first year), they complained about
the lack of restaurant space, the disorderly and
lengthy qlreues, and the lack of the friendly service
that the park's advertising and their experience of
the Disney parks in the United States led many of
them to expect. Vigilant and veteran Disney
observers were not impressed either with the
park's performance. Brannen and Wilson (1996,
p. I0a) were apparently shocked when they visited
Disneyland Paris in 1995, almost three years after
the opening.
On tbree owt of five visits we noticed. bathroorn

stall d.oors to be broh.en nnd the bathroorus thern-
selves wntid.y, srniles frorn seruice people a.t restnu-
ra.nts 0n the parh were nlt only uncornrnon bwt in
one instance a food. server got into a sqwabble with
a. castlrner over whether she hnd. paid. or not, and.
tbe ground.s thernselyes were littered., with few side-
wnlh sweepers in sight (a notable fixture a.t lther
Disney parhs).
The relative ease with which the Disney service
culture of "the happiest place on earth" was trans-
ferred to Tokyo did not prepare the company for
the challenges of implementing it in France . One
early press story (Toy et al., 1990) carried the fol-
lowing revealing anecdote:
Disney Uniuersity, a featwre of all cornpany parhs,
hns lownched. the standard. d.ay-nnd.-n-half course
in Disney cwltwre, plws job trnining that can last
weehs.
((We

bnve to d.o rwore explaining in clnssrtt
adrnits Dnvid. I(annlly, d.irector of the wniver-
sity's Pnris brnnch. Sessions often erupt into
d.ebates. One group of Frencb stwdents spent 20
rniruwtes d.iscwssing bow to d.efine "fficiency." Says
I(anally: "That wowld.n't hnppen in Orlando."
The angry employee reaction to the dress and
conduct code and the public protests voiced in the
press forced Disney to eventually relax some of its
restrictions. But even so, in 1995, the park was
charged with violating Frer-rch labor law in its efforts
to impose its dress code on its French employees.
French labor law has thus far oroved to be an unan-
ticipated impediment for Disney in other ways for it
contains far more limitations on the use ofpart-time
and contingent workers than Disneyland is accus-
tomed to in the United States or Japan. Of Disney's
some 15,000 employees in the European park
today, only about 3,000 are part-timers (close to a
reversal of the ftill-time/part-time ratios of other
parks). The French courts also consider illegal some
of the major control tools much flvored by Ameri-
can managers: the allocation of valued overtime
work to the most ef'fervcscent and reliable workers

and the speedy dismissal of those who fhil to meet
the Disney standards.
All has not been entirely antagonistic however.
Although trade unions in France have often been
difficult for Disney management, they do occa-
sionally surprise. After the "storm of the century"
blew through the Ile de France during tl-re Christ-
mas holidays in 1999 causing extensive damage, a
bitter work stoppage ir-rvolving 10,000 Disney
employees was suspended by union leaders so that
Cast Members could get back to work restoring
the park. "Given the disastrous state of the park it
would be unreasonable to continue the protest,"
said a union leader at the time (Internatiorual Her-
ald. Tribune, December 31,1999).
Customers are not unmindful of the on-stage
(and backstage) debates occurring at the park. But
it is doubtful that such matters are of overriding
concern to them. Certainly, as noted, attendance
targets have been met for most of the park's his-
tory. Indeed, Disneyland Paris is now-and has
been for almost 10 years-the most popular Euro-
pean tourist destination by a large measure. But

the company continues to lose money. Part of the
problem is the accumulated debt that the company
faces. In 2003, for example, reacting to a tourist
slowdown from the Iraq war, the SARs scare, and
the economic slump in Europe, Disney agreed to
forgo licensing fees and royalties for the year and
the company cautioned investors for the third time
in the past decade that it might not have enough
cash to pay debts owed to its banks (New Torh
Tirnes, August 1, 2003). Even though the little
Module 1O c Learning Across Borders: Disneyland' on the
Mope MLO-37
likelihood is small that Disney will ever face insol-
vency in France, given the continuous and strong
political backing it gets at the national level in
France and its role as an important employer in the
Paris region; the company has yet to fully come to
terms and manage its way out of the troubling
conditions it faces.
Many of these difficulties reflect cultural mis-
takes and misunderstandings. Visitors do not
spend as much time or money in the park as their

colrnterparts in the United States or ]apan. During
the early years ofthe enterprise, they did not stay
in the six (now seven) expensive themed hotels
that Disney owned, primarily because pe ople
found few reasons to linger at a park that could
easily be seen in a day or less. The crowds spent far
less on souvenirs and food because many of them
were "day-trippers" who preferred to spend their
time and money in Paris or elsewhere . Americans
and lapanese, it turns ollt, are willing to spend
much more on their relatively short vacations than
were Europeans, who enjoy much longer-and,
for that reason, cheaper-vacations. Moreover, the
French (and Europeans generally) and are much
less willing to pull the ir children out of school for
special vacation trips (as in the United States) or to
see school trips to Disneyland as an appropriate
educational experience (as in Japan).
Disney exacerbated these problems by its pric-
ing policies. Staying at one of the Disney hotels
was for years more expensive than staying at a
cor.nparable hotel in Paris. Souvenirs were of the
low-qualiry high-price variety. And admissions
charges were for some time considerably higher

than in the U.S. parks. It seems that Disney pricing
policies were based initially on the costs of build-
ing and running a larger than necessary complex
rather than based on what customers were willing
to bear. The ambitions of Disney were, in retro-
spect, rather unattainable if not foolish. To wit, a
company spokesperson said to the French press in
l99I: "We aim to make Paris a side trip."
Almost from the beginning, it was clear Euro
Disney was in quite serious trouble. Massive losses
were costing the park about $l million a day and
ferv believed that the early- 1990s recession was the
sole cause. A new chief executive, Philippe Bour-
guignon, was appointed in 1994 to Euro Disney
to stem the financial bleeding. The first rescue
package proposed by the Suits from Walt Disney
headquarters was indignantly rejected by the most
important French stakeholders, the banks. A res-
cue package was finally approved, one that pro-
vided a moratorium on the royalties going to
Disney as well as on the interest payments to the
banks (Tbe Econoru.ist, April 13, ).996,pp.66-67).
A step in Bourguignon's turnaround effort was

MTO-38 ANALYTICS . TEAMS . ORGANIZATIONS . SKILLS
taken when the ill-fated name Euro Disney was
abandoned in favor of "Disneyland Paris." But, as
most analysts pointed out, the rescue package and
the new name would work only if the park was able
to draw more customers, get them to spend more,
arrd at the same time cut its operating costs.
The reorganization story in Paris is a continu-
ing one. Disney is by no means out of hot water
yet. Opening the second gate in 2002, Walt Dis-
ne)/ Stlldios Park, certainly helped boost atten-
dance sorne and pushed hotel revenues up due to
more reasons for visitors to spend more time (and
money) on the grounds. Disney has also been
increasing the nr.rmber of attractions in the park
and trimming thc worklbrce where possible. They
have also been adding to the number of experi-
enced Frencl-r ar-rd European managers involved in
running Disneyland Paris. This issue has been a
problem fbr some tirne. Michael Eisner (1998, p.
176) alludes to the matter ir-r his autobiography:

Dut ing the developrnent of Ewro Disney the com-
pan1, had. n owble fl.nd.ing switnble execwtives for
the project. Those urho spoke French were nzt neces-
sarily hnon,led.geable abowt the ltnrhs and those
n,ho were sa.y!)t a.blut the parhs refwsed. to leatn
French.
Eisncr of course was looking for French-
speaking American managers who would locate to
France. Bourguignon solved the problem largely
by hiring knowledgeable European managers who
also spoke English. Slowly he and his successors
have tried to Er.rropeanize the manag€ment of the
park, and relations with contractors, local resi-
dents, guests, and various employees groups have
in-rproved considerably.
Other small changes have occurred as Disney-
land Paris continues to localize and hence learn
across borders. Advertising, originally fbllowing
the Euro Disney intention to "reach out to all of
Europe" has increasingly focused on national mar-
kets. Features ofthe park that appeal, say, to Ger-
mans are not the same ones that draw Dutch or

British visitors. This customization turned out to
bc vital because only about 40 percent of the
park's visitors to date are from France, with 17
percent from Belgium, Luxembourg, and the
Netherlands, l5 percent from Britain, and l0 per-
cent from Germany. Wine was added to the menu,
a much-remarked on omission that annoyed the
French for its display of an apparent disregard for
the country's taste and culture and its none-too-
subtle assurnption that whatever works in the
United States would work in France.
Perhaps most important, ticket prices were
reduced and discounts, special promotions, and
events (e .g., Bastille Dag Christrnas, and Oktober-
fest celebrations) now play an important role in
attracting customers. Seasonal fluctuations are
more extreme at Disneyland Paris than at the other
parks, so boosting attendance during slack winter
months (or paring back operations) is crucial. The
local population remains Disney's trump card and
nurturing this customer base will make or break
the park in the long run. Integrating a visit to
Disneyland Paris into the leisure "routines" of

French families within driving distance of the park
will provide the repeat visitor foundation-
"France fi1s1"-6n which sizeable and predictable
revenues depend. Experience, experiments, and a
willingness to innovate are crucial here as is guid-
ance from regional and community leaders in both
public and private sectors.
The rise in occupancy rates at its big hotels in
the late I990s and early 2000s buoyed the com-
pany some. From the abysmal 40-50 percent rates
in first few years of operation (when some hotels
were shut down for months at a time) to what are
now (typically) 70-80 percent rates, the park
seems on its way to hard-won stability and
economic gain. But, as has been historically the
case at Disneyland Paris, there are flies even in this
seemingly soothing ointment.
So successful has the park been at attracting
crowds in the past few years (1999 onward) that a
number of residents and local politicians in the
Marne-la-Vall6e region (and a fbw national figures
as well) are now anxious and angry-intensifying
public concerns that were raised over a decade ago.

The company is in a growth period and is pushing
hard to increase the returns on the land it bought
in the early stages ofthe project. It opened, along
with Walt Disney Studios Park, a mega-mall built
by an outsider developer in Serris, the town next
door to the resort. Highways leading to the park
and mall are now frequently blocked off by traffic
and continuous gridlock is a down-the-road possi-
bility (Internntionnl Hernlcl Tribane, February 18,
2000). This issue, along with heightened concern
for the "chewing gum jobs" the company provides
(low pay, low skill, and rapid turnover) and the
deeper penetratior-r of American products and
images in an environment already saturated with
such commercial goods and symbols, will surely
extract their toll on the company.
At the moment) it does seem that Disney has
shrunk the size of its American flag a bit and tried
with some success to put aside a few of its more
homebound cultural assumptions. But much fine-
tuning remains. It is also a tricky matter of degree,
for certainly a part of Disneyland Paris's appeal
remains its American look and feel. however loathe
some Europeans may be to openly express such

desire. In sum, cross-border learning at Disneyland
Modufe 10 . Learning Across Bord.ers: Disneyland on the Move
Mf 0-39
Paris has been slow and irregular, marked by peaks
and valleys and associated more with the shifting
mix of managerial personnel and their whims than
with a gradual accumulation of useful orgariza-
tional memory and culturally sensitive practices.
The bottom-line is that some distance remains
before Disneyland Paris and the people who visit
and work there feel entirely comfortable and on
their way to achieving the kind of success both the
French and Americans who first entertained the
project had imagined.
A litany of the problems the company faced in
France several years after Disneyland's European
debut follows. Importandy, as this Class Note
emphasized, many of these difficulties are still
troubling the company today. The article comes

from The Wall Street Jowrnnl and nicely captures
the way the Euro Disney to Disneyland Paris story
was covered by the business and popular press in
the United States. As one might expect, the press
in Europe was generally far more mocking and dis-
missive. At times, the European press seemed
downright elated with Disney's woes. Of course,
whatever Disney does-good, bad or indifferent-
never fails to attract attention. It is the company's
curse as well as blessing.
Fleferences
Brannen, Mary Yoko, and J. M. Wilson IIL f 996. "Re
contextualization and Internationalization: Lessons
in Transcultural Materialism from the Walt Disney Company."
CEMS (Cornrnwnity of Ewropean Mannge-
rnent Schools) Bwsiness Review. vol. l, lst ed.
Michael Eisner (with Tony Schertz). 1998. Work in Progress.
New York: Random House.
Foglesong, Richard E. 2001. Married to the Mowse: Walt
Disney World. and. Orland.o. New Haven, CT:
Yale University Press.

Grover, Ron. 1997. The Disney Towch: Disney, ABC, (, the
Qtest for tbe World. Grentest Med.ia Erupire
(rev. ed.). Chicago: Irwin Professional Publishing.
Pells, Richard. 1997. Not Lihe Us: How Ewropeans Hnve
Loved., Hated., and. Trnnsformed. Aynerican Cwl-
twre Since World. War 1L New York: Basic Books.
Sassen, John. 1989. Mickey Mania. International Manngernerut
November,324.
Solomon, Judy.1994. Mickey's Trip to Trouble. Newsweek
(February L4,1994), pp. 34-38.
Toy, Stewart, Marc Marmot, and Ronald Grover. 1990. An
American in Paris: Can Disney Work Its Magic
in Europel Business Week (March 12,1990), pp. 34-38.
Mouse Trap
by Peter Gumbel and Richard Turner
Europe got its first taste of the management style
of Walt Disney Co. when loe Shapiro started kick-

ing in a door at the luxury Hotel Bristol here.
It was ).986, and Disney was negotiating with
the French government on plans to build a big
resort and theme park on the outskirts of Paris. To
the exasperation of the Disney team, headed by
Mr. Shapiro, then the company's general counsel,
the talks were taking far longer than expected.
Jene-Rene Bernard, the chief French negotiator)
says he was astonished when Mr. Shapiro, his
patience ebbing, ran to the door of the room and
Source: "Mouse Trap" by Peter Gumbel and Richard Turner,
Wall Street Journal, March 10, 1994. Copyright
1994by Dow Jones & Co., Inc. Reproduced with permission of
Dow Jones & Co., Inc. in the format Textbook
via Copyright Clearance Center.
MIO-40 ANALYTICS . TEAMS . OBGANIZATIONS . SKILLS
began kicking it repeatedly, shouting, "Get me
something else to break!"

Mr. Shapiro says he doesn't remember the inci-
dent, though he adds with a laugh, "There were a
lot of histrionics at the time." But Disney's kick-
down-the-door attitude in the planning, building,
and financing of Euro Disney accounts for many of
the huge problems that plague the resort, which
currently loses $l million a day because of its sky-
high overhead and interest payments on loans.
The project is in danger less than two years after
opening, as Disney and creditor banks try to work
out a costly rescue. The sides are believed to be
coming closer to an agreement by a deadline of
M a r c h 3 1 .
Mickey's Misfines
The irony is that even though some early French
critics called the park an American cultural abomi-
nation, public acceptance hasn't been the prob-
lem. European visitors seem to love the place. The
Magic I(ngdom has attracted an average of just
under a million visitors a month) in line with pro-
jections, and today it ranks as Europe's biggest
paid tourist destination.

Euro Disney's troubles, instead, derive from a
different type of culture clash. Europe may have
embraced Mickey Mouse, but it hasn't taken to
the brash, frequently insensitive and often over-
bearing style of Mickey's corporate parent. Overly
ambitious, Disney made several strate gic and
financial miscalculations. It relied too heavily on
debt-just as interest rates started to rise-and
gambled, incorrectly, that the I980s boom in real
estate would continue, letting it sell off assets and
pay down the debt quickly. It also made uncharac-
teristic slips in the park itself, from wrongly think-
ing Europeans don't eat breakfast to not providing
enough toilets for the hundreds of bus drivers.
Disney Knows Best
Disney executives declined to comment for this arti-
cle. In the past, the company has blamed its prob-
lems on external factors, including an unexpectedly
severe European recession, high interest rates, and
the devaluation of several currencies against the
French franc. And Disney supporters note that
many of the same people now complaining about

Disney's aggressiveness were only too happy to sign
on with Disney before conditions deteriorated. But
Disney's contentious attitude exacerbated the diffi-
culties it encountered by alienating people it needed
to work with, say many people familiar with the sit-
uation. Its answer to doubts or suggestions invari-
ably was: Do as lve say, because we know best.
"They were always sure it would work because
they were Disney," says Beatrice Descoffre, a
French construction-industry official who dealt
with the U.S. company.
If Euro Disney had been a financial success, few
would have cared. In the project's early days,
banks and private investors fell over one another to
help finance the deal. S. G. Warburg & Co., a
British investment bank that arranged Euro Dis-
ney's equity offering in the United Kingdom, put
out a brochure describing the project as "relatively
low-risk." As of December 31, Euro Disney, which
opened in April 1992, had a cumulative loss of
6.04 billion francs. or $1.03 billion.
Tarnished lmage

Now, just when it needs it most, Disney seems to
have lost the goodwill it found when it first arrived
in Europe-and along with it an unblemished rep-
utation for success. "Tonya Harding just got her
first endorsement," comedian Gary Shandling
joked at this month's Grammy Awards, referring
to the U.S. skater. "They go,
'Where are you
going?' She says, 'I'm going to Euro Disney.'"
In practical terms, Disney's image problem
could prove costly. To rescue its 49%-owned affili-
ate, Disney last October quietly proposed a $2 bil-
lion restructuring to the 60 creditor banks, and
offered to pick up half the tab. People familiar with
the proposal say Disney would have contributed
three billion French francs ($520 million) in cash
to a rights issue, and waived enough future man-
agement fbes and royalties to bring its total contri-
bution to $l billion.
But the banks, feeling they were being steam-
rolled by Disney, rejected the offer. "They had a

formidable image and convinced everyone that if
we let them do it their way, we would all have a
marvelous adventurer" says a top French banker
involved in the negotiations. "The Walt Disney
group is making a major error in thinking it can
impose its will once more ."
People familiar with the debt negotiations say
Disney and its banks have struck a much more
conciliatory tone in just the past couple of weeks,
raising hopes that a solution may be at hand.
If an agreement is reached, analysts say, Dis-
ney's cash-generating powers are such that it could
absorb the blow of spending more than $L billion
in cash and deferred fees to save Euro Disney.
More important will be to avoid more write-offs
and losses in the future, so Disney can meet the
ambitious growth targets it promises its sharehold-
ers, and preserve its future fee-earning power if
Euro Disney turns around. The alternative for
Disney-to walk away-likely would trigger a host

Modufe 10 t Learning Act"oss Bord,ers: Disneyland. 0n the
Mlre Ml0-41
of time -consuming lawsuits in France and cause an
immeasurable loss ol'prestige.
Few believe Disney will allow the European
resort to fall, even though it has threatened to cut
off funding at the end of this month unless it can
reach a deal with the banks. Too much rides on
the future of Euro Disney for the U.S. company, the
creditors, and the French government, which pro-
vided $750 million in loans at below-market rates,
built road and rail networks to the park, and allowed
Disney to buy up huge racts of land at l97I prices.
Already, Euro Disney has brought in new man-
agement and made other changes to save the
project. Even detractors say they have been
impressed by the way the company is changing
tack, cutting prices, and reducing costs.
Gonporate Hubris
The initial overconfidence of Disney, a company

already known for corporate hubris, is perhaps
understandable. The current management team of
Chairman Michael Eisner and President Frank
Wells arrived in late 1984 and immediately began
tapping into the theme-park, film, and merchan-
dising riches unmined by their predecessors. In the
seven years before Euro Disney opened, they
transformed Disney into a company with annual
revenues of $8.5 billion-up from $I billion-
mainly through internal growth.
"From the time they came on, they had never
made a single misstep) never a mistake, never a fail-
ure," says a former Disney executive . "There was a
tendency to believe that everything they touched
would be perfect."
Forged in the go-go culture of California and
Florida, where growth seemed limitless, the new
Disney team determined it wouldn't repeat two
mistakes of years past: letting others build the
lucrative hotels surrounding a park, as happened at
Disneyland in Southern California, and letting
another company own a Disney park, as in Tokyo,
where Disney just collects royalties from the

immensely profitable attraction.
But this determination exported poorly to
Europe, particularly when combined with Mr.
Eisner's vow to make Euro Disney the most lavish
project Disney had ever built. Though tight with a
buck in many ways, Mr. Eisner was almost
obsessed with maintaining Disney's reputation for
quality. And his designers-the "creative" people
with whom he identified-convinced him that in
Europe, home of great monuments and elaborate
cathedrals, Euro Disney would have to brim with
detail. Unlike the Japanese, Europeans wouldn't
accept carbon copies of Disneyland and Florida's
Walt Disney World, Disney reasoned.
Ballooning Costs
In argument after argument, executives say, Mr.
Eisner sided with the designers and architects-
who had direct access to the chairman's office-
and piled on more detail. Even the centerpiece
casde in the Magic I(ngdom had to be bigger and
fancier than in the other parks. So the cost of park
construction, estimated at 14 billion francs ($2.37

billion) in 1989, rose by $340 million to l6 billion
francs before the opening in April 1992. Con-
struction of the hotels, estimated at 3.4 billion
francs, rose to 5.7 billion.
One measure of Disney's overconfidence was a
belief that it could predict future living patterns in
Paris. Invited to the apartment of French negotiator
Mr. Bernard in the western part of the city, where
most of the French establishment has long lived,
Mr. Eisner one evening boasted, "You live in the
west of Paris, as do your friends, but your children
and grandchildren will live in the east of Paris" near
Euro Disney, Mr. Bernard says. Similarly, Disney
executives believed, wrongly, that they could
change certain European habits, such as a reluc-
tance to yank their children from school in mid-
session as Americans do, or their preference for
longer holidays rather than short breaks.
With hindsight, some former executives,
bankers, and other say Disney's biggest mistakes
were its overambitior,rs plans to develop the site,
plus Euro Disney's financial structure itself, which
depended on a highly optimistic financial scenario

with little room for glitches. Both were creations of
Gary Wilson, then the chief financial officer, a man
known fbr his larack for creating financing packages
that placed the risk for many Disney projects on
outside investors while keeping much of the upside
potential for the company. Mr. Wilson, now co-
chairman of Northwest Airlines Corp. and still a
Disney director, declined comment.
Mr. Wilson set up a finance company to own the
park and lease it back to an operating company. This
ownership vehicle, in which Disney kept just a 17%
stake, was to provide tax losses and borrow huge
sums at relatively lou'rates. Disney would manage
the resort for hefty fees and royalties, while owning
49% of the equity in the operating company, Euro
Disney SCA. The rest was sold to the public.
The park, moreover) was just the cornerstone of
a huge and growing real-estate development by
Disney in the area. The initial number of hotel
rooms-at 5.200. more than in the entire city of
Cannes, was expected to triple in a few years as
Euro Disney opened a second theme park to keep
visitors at the resort for a longer stay. There would

also be oftrce space, which would grow 20 times to
a stunning 70,000 square meters, or just slightly
MLO-42 ANALYTICS . TEAMS . ORGANIZATIONS . SKILLS
smaller than France's biggest olfice complex, La
Defense, in Paris. And the plan called for shopping
malls, apartments, golf courses and vacation
homes galore. Euro Disney would tightly control
the design and build nearly everything itself, sell-
ing off the properties in due course at a big profit.
At first, all seemed to work beautifully. Disney's
initial equity stake in Euro Disney was acquired for
about $150 million, or l0 francs a share, com-
pared with the initial price to investors of 72 francs
a share. After the public offbring, the value of the
company's stake zoomed to $l billion on the
magic of the Disney name, and later to $2.3 billion
when the stock peaked just before the park's open-
ing. Today it is u'orth about $550 million. The
company's shares closed at 36.15 francs yesterday
on the Paris Stock Exchange.

Dozens of banks, led by France's Banque
Nationale de Paris and Banque Indosuez, eagerly
signed on to provide construction loans. Euro Dis-
ney's total debt stands at about 2l billion francs, or
about $3.5 billion. Several European financial insti-
tutions, including Lazard Freres-Disney's own
adviser-worried that the plan was too clever,
according to people familiar with the financing.
"The company was overleveraged. The strr-rc-
ture was dangerous," says one banker who saw the
figures. The public offering price seemed high,
and the proposed financing appeared risky because
it relied on capital gains from ftiture real estate
transactions) critics charged.
But Disney's attitude , current and former exec-
utives say, was that those views reflected the cau-
tious, Old-World thinking of Europeans who
didn't understand U.S.-style free-market financ-
ing. Those who defend the deal point out that fbr
more than two years after the offering, the stock
price continued to swell, and that the initial loans
were at a low rate. It was later cost overruns, they

say, and the necessity for more borrowing, that
handcuffed Euro Disney.
As the European rece ssion started to bite,
though, the French real-estate market tumbled,
taking with it Disney's hopes that it could quickly
sell many of the park's assets, especially the six big
hotels. The company also passed up the chance to
lessen its burden. "Disney at various points could
have had partners to share the risk, or buy the
hotels outright," says a Disney executive. "But it
didn't want to give up the inside ."
Good Attendance
Disney's early worries mainly concerned atten-
dance. If Euro Disney could only meet its target of
11 million visitors in the first year. it reckoned.
money would roll in. The target was met) but the
reality turned out to be very different. And that
helps explain why the park is doing reasonably well
while Euro Disney is racking up huge losses.
The cost of building was simply too high. In his

pursuit of perfection, Mr. Eisner himself ordered
several last minute budget-breakers. For example , he
removed two steel staircases in Discoveryland
because they blocked a view ofthe Star Tours ride;
that cost $200,000 to $300,00, a Disney official esti-
mates. Disney built expensive trams along a lake to
take guests from the hotels to the park. People pre-
ferred walking. Minibars were placed in economy
hotel rooms; they lost money. Disney built an 18-
hole golf course, then added nine holes, to adjoin
600 new homes. The homes haven't been built, and
the golf courses, which cost $15 million to $20 mil-
lion, are underused, says a fbrmer executive.
Disney and its advisers failed to see signs of the
approaching European recession. "We were just try-
ing to keep or,rr heads above water," says one former
executive. "Between the glamour and the pressure
of opening ar-rd the intensity o[the project itself, we
didn't realize a major recession was coming."
European creditor banks feel they have been vic-
timized by poor communications, too, and resent
not being properly appraised of the resort's diffi-
culties, some salr. Until last fuly, Disney continued

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