Nintendo Switch Case 22 Strategic Management

Nintendo Wii U
What were key forces in the general and industry environments that affected Nintendo’s choice of strategy?
What internal resources and assets did Nintendo have that gave it a competitive advantage?

1. CASE 22 Nintendo ’ s Wii U Alan B. Eisner Saad Nazir Eshai J. Gorshein Eric S. Engelson Copyright Anatoli Styf/Shutterstock

2. How many of you have used the Wii or Wii U? Even if you haven ’ t used it, what ’ s your opinion? How many of you have heard of the Switch? How many of you have also used a Sony Play Station or Microsoft Xbox? How do Nintendo’s products compete with these? Questions

3. Discussion Questions What were key forces in the general and industry environments that affected Nintendo ’ s choice of strategy? What internal resources and assets did Nintendo have that gave it a competitive advantage?

4. External Environment Q1: What were the key forces in the external environment that affected Nintendo? External Scanning Surveillance of a firm ’ s external environment: Predict environmental changes to come Detect changes already under way Proactive mode External Monitoring Track evolution of: Environmental trends Sequence of events Streams of activities

5. The General Environment The general environment is composed of factors that are both hard to predict and difficult to control. Technological Economic Global Demographic Sociocultural Political/Legal

6. External Environmental Forces Political-Legal - Copyrights, product safety, trade regulations Demographic – Baby boomers getting older, youngest generation much more “ wired ” ; U.S. consumers living longer, staying active Sociocultural /Global - Customers increasingly sophisticated; knew what they wanted, didn ’ t want to pay a lot; seduced by design; social networking, family involvement important Technological – Internet & availability of mobile devices created opportunities & challenges for delivery of content & promotion

7. The Competitive Environment Segments of the competitive environment include: Competitors Customers/Buyers Suppliers Sometimes called the task or industry environment Porter ’ s five forces model

8. Five Forces of Competition Rivalry Very High Substitutes Threat High Buyers ’ Power Low Suppliers ’ Power Med-Low Suggested: The three major rivals compete for market share. Quest for lower prices pushes down margins. High technology obsolescence puts a premium on innovation. Suggested: Although the end consumer has little economic power, all three companies have achieved strong brand identification, and present switching costs to customers. Suggested: Depending on the commodity, lots of competition among suppliers keeps supply up and prices down. Game developers preferred creating for multiple vendors – the Wii was not compatible, meaning a potential shortage of game supplies. Suggested: Within the video game industry the threat of substitute products is high. Computer or mobile gaming is the greatest threat, especially with online sites offering free games, free downloads, and the ability to play games with other people from all over the world at any time of day or night. Threat of New Entrants Low Suggested: With three companies dominating the market place a newcomer to the industry would face high barriers to entry, such as economies of scale, product differentiation, capital requirements, switching costs, distribution channel access, and cost disadvantages. Based on the external environmental factor analysis, the video gaming business has three strong competitors trying to carve out a piece of the “ profit ” pie. Nintendo has a unique product line – able to compete in many consumer segments and create customer switching costs – which should give it the innovation advantage. Jump to Appendix 1 for long description.

9. Internal Analysis Value-Chain Analysis : Sequential process of value-creating activities Amount buyers are willing to pay for what a firm provides them Value measured by total revenue Firm profitable to the extent the value it receives exceeds the total costs involved in creating its product or service Q2: What internal resources and assets did Nintendo have to give it a competitive advantage?

10. Value Chain Activities Exhibit 3.1 The Value Chain: Primary and Support Activities Source: Reprinted with permission of The Free Press, a division of Simon & Schuster Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by The Free Press. All rights reserved. Jump to Appendix 2 for long description.

11. Value Chain: Primary Activities Value Chain Activity Primary : How did Nintendo create value? Inbound logistics Not in the case: Poor assessment of product popularity could create shortage of materials. Operations Cost efficient production process. Outbound logistics Difficulty meeting shipping schedules, distribution to retail centers. Game development delays. Marketing and sales Developed a product for all ages, effective and creative promotion via TV, Internet, and word-of-mouth, encouraged product trial and purchase by all. Some concern that products were mainly for children. Service Presumed good due to loyal customers.

12. Value Chain: Secondary Activities Value Chain Activity Secondary : How did Nintendo create value? Procurement Relationships with third-party developers appear to be essential for console sales. Technology development Not in the case: Open-ended, team-based approach to innovation, access to state-of-the-art technology, created culture of creativity. Human resource management Excellent recruitment and retention of key talent was assumed by firm performance. General administration Poor planning, lack of anticipation of product popularity, but product development decisions kept profit margins in excellent shape. Communication between key decision-makers seemed fluid and productive.

13. Resource-Based View Resource-Based View of the Firm: Two perspectives: Internal analysis of phenomena within a company External analysis of the industry and its competitive environment Three key types of resources: Tangible resources Intangible resources Organizational capabilities

14. Tangible Resources Tangible Resources: Financial: Large holdings in cash & equivalents, but total income & asset value has declined Physical: Assumed adequate Technological: Access to state-of-the-art technology tools, support for independent research created new technological development opportunities in the past Organizational: Not in the case: Team-based approach to management structure further encouraged creativity; decisions to keep it simple (no advanced graphics) gave clear direction to developers

15. Intangible Resources Intangible Resources: Human: Creative culture gave Nintendo developers the initial opportunity to acquire a unique skill set, thereby attracting and retaining talent. Innovation & Creativity : A culture of experimentation encouraged innovation without fear of failure. Reputation: Legacy games such as Donkey Kong, Zelda, Mario created strong brand loyalty.

16. VRIN Analysis Model Firm Resources and Sustainable Competitive Advantages Is the resource or capability… Implications Valuable? Neutralize threats and exploit opportunities Rare? Not many firms possess Difficult to imitate? Physically unique Path dependency (how accumulated over time) Casual ambiguity (difficult to disentangle what is or how it could be re-created) Social complexity (trust, interpersonal relationships, culture, reputation) Difficult to substitute? No equivalent strategic resources or capabilities Exhibit 3.6 Four Criteria for Assessing Sustainability of Resources and Capabilities

17. VRIN Analysis VRIN analysis: Nintendo had resources that were both valuable and rare. Its approach to managing its human resources – the path dependence of its history, the social complexity of its team-based development – had made Nintendo ’ s reputational and creative resources inimitable for a while. In an industry where innovation created a competitive advantage, it was no wonder Nintendo was so successful. BUT Microsoft & Sony were able to copy the technology, perhaps even improve on it.