Blue Ocean Strategy at Nintendo - Case Study Example

Running header: The Blue Ocean Strategy Student’s name: Instructor’s name: Subject code: Date of submission: Blue ocean strategy at Nintendo Strategy is often described as making the choice of how to compete. In developing corporate strategy, organizations may be forced to alter their current structures in a bid to arrive at a strategy that guarantees the company a competitive edge. In formulating strategy therefore, organizations ought to analyze their environment while assessing their weaknesses and strengths as well as those of their competitors. This should help them carve a distinctive strategic position where they can maximize their performance and hence relevance in the market. There are two types of strategies that organizations can adopt i.e. the red ocean strategy and the blue ocean strategy. The red sea strategy involves focusing on beating the existing competition, capturing consumers, winning market share and outselling the competition. On the other hand, the blue ocean strategy (BOS) entails creation of new demand where there is none and hence enlarging the pie as opposed to fighting over who gets the biggest slice. This paper mainly focuses on the blue ocean strategy. In so doing, the paper uses Nintendo to evaluate the work of Kim and Mauborge (2005) in examining the ways in which choices about strategy require changes in the organization to effectively create competitive advantage. Brief overview of the blue ocean strategy As stated above, the blue ocean strategy is about reinventing the business. In this regard, companies strive to create uncontested market space which renders the competition irrelevant as opposed to competing within the confines of their industry. They create new customers who were traditionally customers of the industry. The strategy is about creating demand as opposed to fighting for it through focusing on the unknown market space which has not been tainted by competition. This provides an ample opportunity for growth that is rapid and profitable. Companies create blue oceans in a number of ways including; i) Companies giving rise to completely new industries as was the case with eBay’s creation of online auction industry. ii) In most cases, Blue Ocean is created from within a red ocean where a company alters the boundaries in its current industry. A blue ocean strategic move is involves avoiding use of competition as a benchmark but instead creating a leap in value both for the customers and the companies themselves. As such, organizations have to break away from the fundamental tenet of conventional strategy by pursuing both differentiation and low cost at the same time. In so doing, the organization is able to achieve a leap in value both for the customers and for itself. This is because customer value emanates from the utility and the price the company offers on its products while the company generates own value through cost, structure and price. As such, the organization is only able to create a blue ocean when it properly aligns its whole system of utility, price and cost activities. The whole system approach makes the blue ocean creation sustainable through integration of the range of the organization’s functional and operational activities. In other words, the blue ocean strategy adopts a Reconstructionist view that market boundaries and industries can be reconstructed through actions and beliefs of industry players. An organization creates a blue ocean in the region where its actions favorably affect its structure as well as its value proposition to buyers. The organization saves cost through elimination and reduction of the factors it competes on while the customer value is improved through raising and creation of factors that the industry has never offered before. Eventually, overtime costs decline while economies of scale kick in owing to increased sales resulting from superior value. Benefits of blue oceans can be reaped for 10-15 years without credible challenges since the strategy gives rise to considerable economic and cognitive barriers to imitation. The Nintendo case background For many years, the video game industry was looked into a red ocean where the main focus was that of beating competition. Capturing customers, outselling the competition and winning market share. However, Nintendo launched the Wii and started taking steps forward that are seen to have rendered the competition irrelevant. Before the move by Nintendo, it would be hard to imagine that Nintendo would be in the top ten most innovative companies list in the 2008 business week/BCG. This is especially so bearing in mind that for many years, it was just a follower in the console arena with its biggest hit being the GameBoy in portable entertainment while in the main console arena, it continually leaned behind with its SNEs and GameCube. This was to change after creating a blue ocean by launching the Wii. Before launching the Wii, Nintendo’s main business segment continued to lag behind others. For instance, while its competitor Sony’s PS2 sold more than 115 million copies in 2005/6 the Nintendo’s GameCube had not even sold 20 million units. This called for a radical change in Nintendo owing to the technological advancement of the competition which was proving hard for Nintendo to catch up. As such, Nintendo’s management saw the need for a radical surgery to its market focus and strategy. This change was enacted as follows; Launching the Nintendo Wii: Change of concept with new Game-play, new consumers and new approach It has been noted that prior to 2006, Nintendo had been lagging behind the competition. While the Sony’s PlayStation 2 and Microsoft’s Xbox were winning the competition, Nintendo’s GameCube had been lagging behind the competition. This was since Nintendo had all along been fighting the wrong battle. While Nintendo’s competitors were already targeting more mature lucrative gaming audience, Nintendo’s GameCube targeted the less lucrative 7-16 years segment. Though the GameCube had better graphics, it had avoided some interesting features with its greatest strategic mistake being targeting the under 18 market that represented just a third of the total market hence putting a cap into its success. Its competitors had strong differentiation with higher price while targeting an older audience that had higher purchasing power. With Nintendo creating the Wii, it recognized the above mistakes and hence made a radical change to its strategy as follows; Game-Play –The Wii had improved playability with a more user oriented strategy. Notably, it had a wireless controller that liberated gamers while opening endless options. It had accessories that made the controls more realistic while making the Wii’s overall experience more pleasant. New consumers –Nintendo set out to remedy its past mistake of targeting a younger audience. The Wii went beyond the regular target age groups hence entering a whole new dimension. It taped into the casual gamers category that reached beyond the hardcore gamers targeted by PS3 and Xbox 360. The blue ocean strategy classifies noncustomers into three categories that companies like Nintendo can reach out to; a) Soon-to-be non customers on the edge of the market that are waiting to jump ship b) Refusing –who have chosen against the market consciously c) Unexplored noncustomers -who are in distant markets As such, the Wii offered the first tier and third tier non customers a leap of value that attracted them. To make it better, the Wii was even recommended as a means of recovery for physiotherapy by physicians for helping patients regain strength and rehabilitate certain injuries. New approach – through its Wii, Nintendo took the industry hostage with a completely new holistic videogame approach. Owing to the Wii, gamers can now play with their families and not alone as before. The new approach has in no doubt found favor with not just consumers but also non consumers. Analysts term the Nintendo Wii strategy as disruptive where the company broke past paradigms and wrote a new one. It’s true that Nintendo’s Wii predecessors had all introduced incremental modifications to the company’s original entertainment system. Nintendo’s Wii did change several laws and assumptions which truly made it a rule changing experiment. Unlike its predecessors, the Wii made no attempt to emulate competitors or marginally improve the gaming experience. Instead, it introduced a change in all orders of things and set new standard for other consoles. How Nintendo created a Blue Ocean and hence introduced changes into its operations In the words of Nintendo’s CEO, the strategy change above was not accidental. He states that “while some people put their money on the screen, we decided to put ours into the game experience”, in an attempt to “not just improve the market but disrupt it.” In executing such a strategy, organizations carefully consider not only on the product and buyer experience but also on the intent and the comparative performance the product will have among the peers. Prior to the introduction of Nintendo Wii, a number of factors used to define the video game industry. They include DVD/HD Integration, processor quality and graphics, appealing game titles , hardware accessories, social gaming, sports and fitness, backward compatibility, web downloads and online gaming, wireless controllers, price, character customization and motion sense controller. These factors explain the strategic direction taken by companies such as sonny, Microsoft and Nintendo adopt. Each of the factors involves resource allocation as well as investment and is arrived at after years of strategic thinking and development. They are the factors the companies differentiate themselves in the market in a bid to Satisfy demand. Nintendo chose a completely different from the norm of better technology and developed a product that was technically inferior yet aimed at capturing a considerable market share. This achieved by focusing its firepower on factors besides technical prowess. When consumers compare the Wii with its competitors, they perceive value. This led to more and more sales for Nintendo. The figure below depicts the eliminate –raise-reduce- create Grid for the Nintendo’s Wii. Eliminate DVD/HD-DVD Playback Raise Hardware accessories Wireless controller Social gaming Fitness and sports Backward compatibility We Downloads and Online play Reduce Processor quality and Graphics price Create Motion-sense controller Character customization The above grid was the key to breaking the tradeoff between lowest and differentiation thus creating a value curve that catapulted the Wii to success. This was done by eliminating the most expensive components which guaranteed lower price to the customer as well as profit to Nintendo. The raise strategy implied the customer purchasing more peripherals hence increasing overall system revenues. On the other hand, the fitness and social trend as well as the general social gaming enjoyed by Wii also meant revenue generation. The Wii also contained web downloads and online play. it also had the weather forecast and the news and was Wi-Fi equipped. This meant that customers could download traditional games from Wii while inviting friends to share in the games. The results of the above strategy were improved revenue as the company’s customer base improved due to the increased quality as well as the reduced price. Furthermore, the company’s profit improved due to the reduction in the unnecessary but expensive features. Conclusion The development of the Nintendo Wii and the subsequent products by Nintendo could be described as creation of a blue ocean. It did not happen by accident but it was a deliberate move by the company to break away from the industry’s norm to create something completely different and hence create a new set of customers rather than fighting for the existing ones. The development of the Wii came as a result of Nintendo realizing that their efforts at modifying their existing products in an effort to beat competition were not being successful. In developing the Wii, Nintendo created a reap in value. The company was not only able to make a better product for the market but the product also came at a lower cost than its original products as well as those that existed in the market. This is because the company analyzed all factors that went into its original production and eliminated those that were expensive yet unnecessary thus breaking away from the norm and achieving lower cost of producing a higher quality product. This helped the company save on costs while improving on their profits which was not only beneficial to the company but also to the customers. In addition, the Wii changed the rules of videogames thus creating a new group of unchallenged customers for Nintendo. Based on the work of Kim and Mauborge (2005), Blue ocean strategy is about creation of new demand where it did not exist as opposed to focusing on competition. In producing the Wii, Nintendo effectively created a Blue Ocean through coming up with a strong innovation for new customers while achieving cost reduction through elimination of such factors as HD/DVD, Dolby 5.1 and low processor speed. This is a clear indication that choices about strategy require changes in the organization to effectively create competitive advantage as Nintendo did. References: Kim, W. C., & Mauborgne, R. (2005). Blue ocean strategy: From theory to practice. California Management Review, 47(3): 105-121. Read More