The video game industry is the economic sector involved with the development, marketing and sale of video games. It encompasses numbers of job disciplines and employs a lot of people worldwide. It includes video game consoles, game software, handheld devices, mobile games and online games. Console is the largest segment in the industry. In recent years, the video gaming industry has been growing rapidly and it may grow in the future.
The three main competitor companies in this industry are Microsoft, Sony and Nintendo. Microsoft is a multinational computer technology corporation that specialize in software such as Microsoft Windows operating system and the Microsoft Office suite. But what is more important they are best known for their consumer products Xbox. Sony is one of the biggest manufacturers of electronics, video, communications, video game consoles, and information technology products for the consumer. The latest generation of its console game products is the Playstation 3 which replaced Playsation 2.Finally Nintendo is one of the largest Japanese technology companies well known for its console games. Its latest and the most successful console Wii was able to outshine Microsoft’s’s Xbox and Sony’s PS3.
Analysis of the competitive industry
Organizations view competition in an industry as a crucial issue that needs to be analyzed. In terms of economic theory (cited by Johnsons et al.) industry may be defined as “a group of firms producing the same principal products” p. 59.
According to Lynch (2006) analyzing a particular industry starts with general examination of the forces that have an impact on the organization. The main objective is to reach competitive advantage of the organization and therefore it would be able to defeat the rival companies. In terms of gaming industry, Microsoft, Sony, and Nintendo with their respective hardware’s MS Xbox 360, PS 3 and Nintendo Wii illustrate the first tier competitors in U.S. as well as globally.
The majority of analyses is made by Porter. His Five Forces Model in the strategic management viewpoint is used to identify how attractive is an industry in terms of competitive forces.(Johnsons et al. 2008). It includes five forces within an organisation.
The threat of new entrants
The power of suppliers
The power of buyers
The threat of substitutes
Threat of new entrants
Bargaining power of buyers
Bargaining power of suppliers
Rivalry amongst existing firms in the industry
Threat of subsitutes
According to Campbell et al. during the analysis of Porter’s forces the key forces have to be found. Therefore in order to have effective strategic analysis it is needed to focus on those forces which are identified as the key forces of the industry at any time.
The degree of competition is clearly influenced by the entry of an industry. The new entrants have to overcome different barriers of entry.
Clearly Nintendo was the first video game on the market. Therefore Nintendo was able to reach economies of scale before Sony in 1990s entered the market with its PS and later Microsoft with its Xbox console. In this case the newcomers should be prepared to achieve comparable economies of scale. Sony and Microsoft were able to reach a strong position in the video game industry through new technologically developed consoles. Xbox made the equivalent contribution to that made by Nintendo’s Game Cube and PS2 become the market leader.
The power of buyers and suppliers
In every industry the power of buyers and suppliers should be controlled by companies because when these powers are high it causes cost increase for suppliers and price decrease for the customers.
The key buyers for in the video games industry may be people in different ages. Nintendo with quite different strategies focused all its products more on children and dominantly female. On the other hand Sony and Microsoft designed their products for older mostly male customers. The companies try to consider the relationship with its customers in order to retain their loyalty.
The three companies try to retain good relationship with its suppliers that are mostly common in the industry. These are for example Dell, Hewlett Packard, Twentieth Century Fox, Disney Corporation, or Toshiba etc. Closer relationship with suppliers may lead to cost reductions.
Substitutes are products or services that offer a similar benefit to an industry’s products or services but by a different process. Obviously these the products of Nintendo may be regarded as substitutes for Sony or Microsoft. This existence helps to identify the elasticity of demand of the products. It is price sensitive. For instance people who are not allowed to buy Xbox decide to buy the cheaper Wii. Thus PS3 is more expensive than the other products its technological capabilities give it an advantage on the other side. So the reason that Nintendo lost sales may be that customers wanted to buy products with better technology.
As it can be seen on the figure the four forces are directed to the competitive rivalry. That means that low barriers of barriers to entry and buyers with bargaining power force suppliers to increase of the numbers of rivals. The video game industry is a very competitive industry where all companies have different competitive strategies.
PS3 is attracting customers with its technological capabilities such as huge speed, power and graphics because it uses Cell Processor and Blue Ray. Nintendo has an advantage in price and focuses on gaming experience. It exploited the Wii successfully with different approach. Customers are not sitting in front of television playing games but instead it makes them exercise on the balance board. Xbox 360 strategy is based on the thing that it was the first console on the market from the 7th generation. All these companies have to invest to try and create differences between each other as well as pricing competitively.
In conclusion Nintendo was able to surprise and become successful with unusual strategies as it was mentioned before. Nintendo believed that reaching new gamers is more about ease of use than processor muscle and high-end graphics. These capabilities drove up manufacturing costs and Playstation3 retails twice as high as Wii. However the high price and scarcity of strong game titles have caused the Playstation3 to lag far behind the Wii in unit sales since their launches in 2007.
In line of Johnsons et al. 2008 Porter tried to emphasize that in the case that forces are high the industry is not attractive to compete in. It is because there would be numerous competitors and the pressure will not allow reasonable profits.
The profitability of the company will be higher if there are weak suppliers, weak customers, high entry barriers, few possible substitutes, little rivalry between the other competitors. Lynch
The greatest obstruction for profitability in this industry may be the rivalry between these competitors. Especially Sony and Microsoft that have similar strategies and try to outsell and out-design each other since they first came to the market. In the future they might have to invest more into new technologies and that may cause that people will go rather for games with lower graphics, lower processing power and choose that kind of gaming experience as Wii offers.
Key success factors of the industry
“The key factors for success are those resources, skills and attributes of the organisations in the industry that are essential to deliver success in the market place”(Lynch, 2006, p. 92). These factors are the same for every company in one particular industry.
After a few years of leadership Sony has lost its position in the market and now Nintendo is selling more Wii’s on the market. Nintendo’s aim is to stay in the industry and on the other side Sony’s and Microsoft’s goal is to strengthen their position on the entertainment market that is constantly growing. In order to gain competitive advantage these companies have to consider several key success factors. These key success factors are based on the satisfying the requirements of the stakeholders especially customers and suppliers. In this industry it is for example good marketing of their consoles, providing huge range of new games, well developed distribution and product performance. In the changing industry they have to be always innovative and think about improving their customer services. As the market segmentation increases it is also important to consider new target groups and persuade as much new customers as possible. In these companies everyone need to be aware of these key factors in order to sustain a match with the changing environment.
EVR analysis is used to find the framework for the strategies of the organisation and also the faults in its strategies (Thomson, 2000). It includes three factors as environment, values and resources. In case Nintendo would like to achieve organisational effectiveness and success it is crucial to find the overlap between the key success factors and the core competencies and capabilities. Moreover the environmental needs and key success factors need to match the values of the organisation.
Firstly it is important to determine how the environment is a source of opportunities and threats of the company. The issues of threats should not be ignored. On the other side the number of opportunities show what effort is put into improvement of strategic vision of the company by the managers.
focusing only on gaming experience
attracted younger customers
change in consumer lifestyles
opportunity to expand to other markets
The resources consist of the strengths and the weaknesses of the organisation. The number between the strengths and weaknesses is quite balanced in this company. The strengths of Nintendo show how powerful is the company from inside. The errors of the company are displayed by the number of weaknesses.
strong brand name
market leader for hand-held machines
low cost hardware and software
uniqueness of motion sensing controller
cost advantage over competitors
limited selection of software
lack of games produced for Nintendo consoles
dependence on contract manufacturers
having low earnings per share
design of the products
Furthermore the values of the organisation may be determined by the leadership and the culture of the business. The culture of Nintendo is based purely on the gaming experience and that playing with Wii maximises the fun and minimises the fuss. Moreover this is not diversified. This characteristic differentiates Nintendo from its rivals. Leadership is another issue that needs to be considered. The first leader of Nintendo was Yamaauchi, who was the creator of the video gaming industry, was not able to push the company reaching high profits. Later the new leader Iwata came with an idea of creating new and exciting game play and that made the company more successful.
From the analysing the above issues it may be concluded that the model of EVR for Nintendo is the consciously incompetent organization. Where it loses touch with the resources as it can be seen on the figure. The strengths and the weaknesses of Nintendo are completely different than those of Sony and Microsoft therefore the resources are not in touch with values and the environment. Consequently the management need to strengthen the resource base in order to reach EVR congruence.
Nintendo is now a market leader outselling Sony. Therefore it is important that the strategic leader of the company plan a strategy to strengthen the company’s position on the market and to insure the future of the company. In this case the timing of the strategic change is also very important, because sometimes it takes more time to achieve a plan than the managers expect. Moreover in video game industry Nintendo should be able to react to changing forces in competing environment as soon as possible. After the strategic change is decided it should be implemented. In line of Olsen et al. (1999, p. 65) the “implementation means bringing all resources into alignment so that there is no compromise in achieving the mission of the firm” p. 65
According to Campel et al. (2002) it is crucial to mention that strategy is accomplished at three different levels of the organisation such as corporate, business and functional levels.
This is at the level of the entire organisation and it reflects a period from one to five years. This strategy “is directed toward the achievement of the firm’s overall objectives and the scope of operation” (Olsen et al., 1999, p. 48). Managers in the organization should increase the concept of measuring the success of the organization. Furthermore there should be developed a strategic plan and a clear idea about the mission and vision of the strategic goals. And also new strategies should be prepared in case the last one fails.
The time range is from 5 to 10 years. In the business level unit the company is dealing with the problem how to compete in the industry to reach a strategic advantage (Olsen et al. 1999).In this case it would be recommended to have different products than the products of competitors which Nintendo has achieved so far. But useful could be that they improve the design of their products so it could attract more customers.
This is the most detailed level of strategy and takes time up to one year. It consists of issues such as finance, marketing, human resources, administration, operations, research and development (Olsen et al., 1999). It would be recommended to work out a better marketing strategy for the products. Organisational behaviour should be managed and the communication should be improved too. In terms of the financial issues it is important to invest carefully to the development of the products. The company should have managers with specific qualification to manage each functional area.