Business Strategy: Video Game Console Industry 2012 - Case Study Example

Business Strategy: Video Game Console Industry Introduction Nintendo was successful in dominating the videogame console industry between 1985 to 1995 (Grant 604). Between 1999 to 2005, Sony publicly launched its PlayStation 2 (PS2) whereas Microsoft was focused on improving its technology used for Xbox (Grant 605). To compete with Sony’s PlayStation 3 (PS3) and Microsoft’s Xbox 360, Nintendo purposely created and marketed its Wii in 2012 (Grant 605-606). In 2012, Nintendo is still active in the game console industry. However, Nintendo’s Wii game console was overshadowed by Sony’s PS3. Even though Nintendo’s sales unit was higher as compared to Sony PS3 and Microsoft’s Xbox 360, the revenue of both Sony and Microsoft was higher as compared to Nintendo between 2009 to 2010 (Grant 606). Due to financial and technological resources, both Sony and Microsoft became more appealing in the eyes of the public consumers (Grant 606). As a consequence, Sony’s total sales during the year ending March 31 has reached 6,403 billion yen as compared to Nintendo’s 648 billions of yen during the same period (Grant 611). Analysis of the Case Case Analysis Using the Life Cycle Model The case of Nintendo can be fully analyzed using the evolution of industry structure based on the life cycle model. Upon analyzing the case of Nintendo, it is pretty clear that this particular game console company has already reached its maturity stage. Unlike the Nintendo Wii game console, Sony’s PS3 and Microsoft’s Xbox 360 can be used as a multifunctional home entertainment platform (Grant 602). It means that not unless Nintendo will do something about its technological or product innovation, this particular company is at risks of reaching the decline stage. When this happens, Nintendo would definitely loss a large of its existing customers to its close competitors which include Sony and Microsoft Company. The problem with reaching the decline stage is that Nintendo Wii brand may eventually become obsolete within the game console market. The only innovative feature of Nintendo Wii includes the fact that this particular game console is capable of using a remote controller that is very sensitive to the hand movements (Grant 606). Therefore, people can easily use this particular game console for sports and exercise activities (Grant 606). However, it is unfortunate that Nintendo Wii cannot offer its end-users or repeat buyers the benefit of being able to enjoy high quality graphics and speed offered by both Sony and Microsoft (Grant 606). As compared to Sony PS3 and Microsoft Xbox 360, Nintendo’s Wii cannot be used with an Ethernet, DVD player, or a hard drive (Grant 606). Within the game console industry, there has been a close business competition with Nintendo, Sony, and Microsoft Company. To effectively compete with Nintendo, both Sony and Microsoft decided to continuously invest a large sum of money for its future technological advances (i.e. Ethernet, DVD player, and hard drive) (Grant 606). As a result, these two particular game console companies are both enjoying the business advantages of being at the growth stage. Using the modern features of both Sony PS3 and Microsoft’s Xbox 360, these two companies are able to easily sell the items by educating the end-consumers about the differences between Sony PS3, Microsoft Xbox360, and Nintendo’s Wii. Basically, product innovation clearly explains why Sony PS3 was able to win the attention of most people as compared to the time when Nintendo decided to launch its Wii game console last November 2006 (Grant 606). Case Analysis Using the Johnson and Scholes’ Criteria Using the Johnson and Scholes’ Criteria, Nintendo’s business strategy does not seem to be suitable or aligned to where the market is exactly heading. For instance, even though there is still a fast growing market for the gaming industry (Grant 606), the use of game consoles as well as personal computers is expected to decrease over the next few years (Grant 607). Instead of having a very high demand for game consoles and personal computers, the use of mobile devices is expected to increase more rapidly (Grant 607). Furthermore, instead of using software games, the future gamers are expected to be directly downloading their preferred games online either for free, cloud access, or with payment subscription (Grant 607). In fact, there is a strong possibility wherein the future gamers would gradually shift to the use of hardware or mobile devices such as the tablets or smartphones (Grant 602). Considering all these reasons, it makes a lot of sense that Nintendo’s current business strategy is literally not viable for its future endeavor. Considering the possible shift in the market demand of game console industry, one can easily say that Nintendo’s business strategy is not consistent with what is being expected by the stakeholders. Assuming that Nintendo will not invest in product or technological innovation, this particular game console company can be at risks of losing all of its market shares to its other future business competitor such as Apple. Case Analysis Using the Rumelt’s Criteria The term ‘consonance’ is all about determining whether or not Nintendo’s business strategy could directly address current external environment within the 2012 game console industry. Basically, the answer is ‘no’. First of all, despite the innovative features of Nintendo Wii game console, the selling of Sony’s PS3 and Microsoft Xbox 360 was more than enough to prevent Nintendo from being able to dominate the market or benefit from a very high financial return (Grant 609). Assuming that the business strategy of Nintendo has been effective in terms of controlling the market, this particular company could have had earned excessively high revenues despite the presence of both Sony and Microsoft in the market. The business strategy used by Nintendo has been effective in terms of creating a short-term advantage as compared to its close competitors. This explains why Nintendo managed to enjoy higher sales in unit as compared to Sony and Microsoft (Grant 609). However, using the same business strategy is more than enough to make Nintendo lose its entire market shares to other game console companies such as Sony and Microsoft. Specifically the goal of Nintendo is to become the leader in the new generation of game consoles (Grant 602). However, Nintendo’s business goal is not consistent with the future market trend for game consoles. Recommended Strategies or Action Plan for Nintendo, Sony, and Microsoft 1. Heavily invest in research and development (R&D) to invent a new gaming technology that is not yet available in the market; and 2. Adopt with the current technology being used by the younger generation today. To create future competitive advantage, the top management of Nintendo, Sony, and Microsoft has to redesign their future plan based on where gaming technology is heading. Basically, the first alternative plan is viable given the fact that Nintendo, Sony, and Microsoft can invent a new gaming technology that no other gaming console company can provide. By using IP rights law, Nintendo, Sony, and Microsoft can enjoy long-term benefit for its new technological invention. As a common knowledge, new product invention will require huge monetary investment on the part of Nintendo, Sony, and Microsoft. Since most people are now making assumptions that the future direction of gaming console is the use of hardware such as tablets or smartphones (Grant 602), the second action plan is for Nintendo, Sony, and Microsoft to regain their position within the global gaming console industry is to adopt with the current technology being used by the younger generation today. For instance, knowing that the young generations are more accustomed with the use of tablets, perhaps Nintendo, Sony, and Microsoft should come up with a new gaming console design that can offer better technological advancement as compared to what most common tablets can offer. Assuming that Nintendo, Sony, and Microsoft Company can create a tablet that can be used for better gaming purposes (on top of the usual Internet access for e-mail, chatting, browsing, and connecting to social networking sites), these three major game console companies can maintain their current position within the global gaming console industry. To determine which among these two action plan is best to choose, it is necessary to measure a set of criteria based on weighted factor. Basically, using criteria such as time requirement, capital requirement, and ROI, the total section average for alternative 1 is 3.2 whereas the total section average for alternative 2 is only 2.9. Assuming that the process of gaining higher ROI is more important for Nintendo, Sony, and Microsoft as compared to time and capital requirements, it is best to choose alternative 1 which requires the company to invest in research and development (R&D) to invent a new gaming technology that is not yet available in the market. (See Table I – Criteria for Choosing Alternative Options on page 6) Table I – Criteria for Choosing Alternative Options Criteria Weight factor Alternative 1 Alternative 2 Numerical Rating Section Average Numerical Rating Section Average Time requirement 30% 1 0.3 5 1.5 Capital requirement 20% 2 0.4 2 0.4 ROI 50% 5 2.5 2 1 Total 100% 3.2 2.9 Total Number of Words: 1,500 Reference Grant, Robert M. Case 12. Video game console industry in 2012: The next round. In Grant, Robert M. (eds) Contemorary strategy analysis: Text and cases. 8th Edition. 2012. Print. Read More