Nintendo Companys Disruptive Strategy and External Environment - Case Study Example

Executive summary Nintendo Company has been a major competitor in the video gaming industry. It has employed certain strategies that has enable it maintain its position in the industry. This paper has analyzed the disruptive strategy of the company by focusing on various issues that in one way or the other affect the company. It has started by giving a brief history of the company. These issues include the external environment, industrial environment, competitive rivalry, the resources capabilities and competencies, internal environment including value chain, the SWOT analysis as well as the generic strategies. In addition the paper gives the recommendations that would help the company maintain its competitive advantage as well continue succeeding in the future. Nintendo’s Disruptive Strategy Introduction Nintendo company was founded by Fusajiro Yamauchi back in the year 1889 where he started by manufacturing cards. In 1907, this company started creating Western playing cards and became the Nintendo playing card company in 1951 (Colbert, 200). By 1961 the company had gained popularity across the universe and then it acquired its present name. Between the period of 1970 and 1985, the company started manufacturing electronic toys and it entered into the video game field. As soon as the company entered the field, it began facing challenges. It faced the challenge of conflict with its competitors such as Sony. However the leader of Nintendo brought in a new view point for the company’s future development. Innovative strategies like developing the double screen (DS) which was a hand held gaming device (Colbert, 2007). Later the company launched the Wi-FI Connection which allowed the DS players to be able to play along with other users via a wireless network. The aim of this was to help the company maintain a competitive advantage over its rivals. This paper seeks to analyze Nintendo's Disruptive Strategy: Implications for the video game industry External Environment By external environment it means the elements such as the sociocultural, demographic, political, economic, technological, physical and demographic which affect the market that Nintendo operates in Iwata, 2006. The presence of the company in the globe gives it an opportunity to produce products for, a number of markets (McGregor, 2008). Technology is of paramount to the success of the company. In addition it presents a number of opportunities for the company. Technology is ever changing and since the company deals with the production of a technological product, it needs to continually integrate new technology in its products. Nintendo operates in a demography that was neglected in the past (John, 2001). That is the non-gamers of all genders and ages. From the social cultural point of view, the company is geared towards a family friendly ideology and this greatly limits the kind of games it produces. In addition due to the focus on non-gamers to produce simple and easy to use equipment, it could greatly threaten future game console designs. Furthermore, the economic environment seems to be growing steadily (McGregor, 2008). However despite the tremendous increase in the number of people who are playing video games, the company still experiences a decline in the sales of the game consoles for instance the Wii (John, 2001). Moreover the company experiences reduced net profits due to the instability of the economy. Inflation could also have a significant impact to the operation especially the sale of the video games. The company operates under government’s regulations on video games which prohibit the outright banning of video games as well as the production of morally unacceptable video games (John, 2001). Apparently the company faces few if any legal restrictions as it takes into consideration the laid down regulations. On political, any political instability that faces the country always has a negative effect on the company’s operations. Nintendo firm however has faced no political restrictions. The industry environment Nintendo functions in a more specific industrial environment which can be analyzed on the basis of the bargaining power of buyers, the threat of new competitors into the industry, bargaining power of buyers, the intensity of rivalry in the industry as well as the bargaining power of suppliers. The video game industry does not have frequent new entrants because console and video game development, marketing and production are expensive (McGregor, 2008). Nintendo is well established and is among the strongholds and hence it enjoys large economies of scale. The industry environment the firm operates in provides patented, unique, technological product and hence the suppliers are moderately powerful. The companies in the video gaming industry depend on the effective parts of the consoles for example video cards. The industry faces the threat that the suppliers of the hardware components could start creating their own gaming consoles (McGregor, 2008). Nintendo’s buyers have a bargaining power unlike for the other firms’ buyers. If the buyers chose not to buy from the company then its incomes depreciate. The industry faces substitute’s threat. Though the video games are differentiated, consumers see them as similar. To solve this problem, the competitors work on switching costs (John, 2001). This acts as an advantage to Nintendo since the Wii console is the cheapest in the industry. The rivalry in the industry is intense and the companies have to differentiate themselves. Competitive rivalry Nintendo faces competition from Sony and Microsoft firms. The actions of these two competitors’ determine the ultimate reactions of Nintendo (Michelle et al., 2008). Nintendo understands its rivals by analyzing their future goals and objectives, strengths and weaknesses, current strategies as well as assumptions. This the firm can achieve by speculating on the current strategies such as Sony lowering its prices and introduction of new technology (McGregor, 2008). In addition it can also assess the strengths and weaknesses of these firms and as a result work producing video games and consoles that will enable it maintain its competitive advantage. Internal environment including value chain Internal environment entails all the elements that affect a firm from the inside. This includes the value chain which is a chain of activities for any operating firm. Each activity gives the product more value than the total sum of individual activity value (Michelle et al., 2008). The Nintendo’s Wii console passes through a number of activities. At each stage the product gets some added value that makes it more unique. The Nintendo Company enjoys coordination and collaboration, competent employees right from the top management to the lower staff, as well as organizational attitudes and culture. This has had significant contributions to the success of the firm (McGregor, 2008). Resources capabilities and competences Nintendo’s most important resources are the marketing team, research and development team, the company’s management and manufacturing process. It is evident that these resources provide valuable capabilities for instance the ability to envisage the future of the video gaming industry (Michelle et al., 2008). Nintendo’s research and development gives it the capability in game concepts and innovative technology. In addition, the marketing has given the company an opportunity to produce an effective brand. Their effective manufacturing process has enabled them produce their product at a lower cost due their large economies of scale (Ehrenberg, 2007). The firm’s competencies are within their capabilities. The firm’s research and development and Iwata’s vision gave rise to in- house development and Wii console department. The company’s competencies are core since they are rare, valuable as well as temporarily substitutable. Strengths weaknesses, opportunities and threats Strengths The company opened the gaming doors to all ages. Their products are affordable to people of different economic classes Innovative as well as simple game –play using aiming device, Wakabayashi, 2008 Weaknesses As a result of their failure in Nintendo 64 and GameCube, the company became more cautious when producing the Wii console and this saw them producing less Wii’s as compared to the demand. Though the Nintendo sells at an affordable price than the Sony’s Play station 3, there has been complains that the two game systems have different graphics. The Sony has close to real life graphics (256MB GDDR3) and the Wii (64MB GDDR3), McDougall, 2008, The company’s desire to cut the costs is a major weakness. Nintendo’s attempt to solve its issues with Third Party Company has greatly affected the support of the Wii by the third party game, McDougall, 2008, Opportunities Nintendo has succeeded from the spread of video game across all the age groups. A great opportunity lies ahead if the firm is able to retain the fun factor in its next game system. The company stands a chance to grow further since its close competitor; Sony is facing dip due to its high tags and reduced sales of play station 3. Threats Due to the unbalanced nature of the economy, people could experience increased oil prices and they would reduce their movement. This would mean that the sales of games would reduce. In addition, the shipping costs would increase and since the Wii is being sold at a reduced cost, this could make the company go into the red (Pigna, 2008). Identify the generic strategies The company employed certain strategies that helped them maintain their competitive advantage. The company had price leadership in the industry. It sold its products at a lower cost and this saw them making huge sales especially for the Wii, Bower and Christensen, 1995. The company is the cost leader, and this makes its products more accessible. Further, the company used innovative hardware devices to release to release innovative supportive Wii. Lastly, they targeted the non-gamers and as a result were able to reach a large market. Recommendations In order for the company to maintain its competitive advantage, it requires to consider many possible courses of actions such as producing a more varied selection of video games. In addition the company needs to continue creating innovative game technology. They should ensure that through their research and development team they are able to look into the future of video gaming. Finally, the company needs to enlarge its ability to reach to people through mobile devices and social networks. This way they can expand their market. Conclusion Nintendo Company should keep up the spirit of innovative technology as well as game concepts. Despite the intense competition, the company should maintain its competitive advantage through its many options. Furthermore, a consideration of the environment it is operating on and its current strategies, will lead to a sustainable competitive advantage strategy and consistent success. References Colbert, C. 2007. Nintendo Co. Ltd, Hoover's Company Information; Playing a Different Game. The Economist. Ehrenberg, P., 2007, Game console wars II: Nintendo shaves off profits, leaving competition scruffy, Seeking Alpha, retrieved on September 15, 2011, http:// seekingalpha.com/article/34357-game-console-wars-ii-nintendoshaves-off-profits-leaving-ompetition-scruffy Iwata, S. 2006. GDC keynote address, Nintendo World Report. Retrieved on September 15, 2011 http://www.nintendoworldreport.com/newsArt.cfm, John, S. 2001. Effects The effects of violent video games on aggression_A meta-analysis. Human Communication Research, vol. 27, pp. 409-4319 McDougall, P. 2008. Nintendo Wii sales trounce Xbox 360, Playstation 3, Information Week. Retrieved on September 15, 2011, http:// www.informationweek.com/ news/hardware/ McGregor, J. 2008. The world’s most innovative companies, Businessweek. Retrieved on September 15, 2011 from http://www.businessweek.com/magazine/content/08 Michelle C., 2008 J., Coles, C., and Keane, J. ‘2009. Upgrading along value chains: Strategies for poverty reduction in Latin America. London, UK: COPLA Global - Overseas Development Institute. Pigna, K., 2008. Bizarre Nintendo Wii Patents Surface. Retrieved on September 15, 2011 www.1up.com Wakabayashi, D., 2008, Xbox 360 sales surpass Wii, PS3, Reuters, retrieved on September 15, 2011http://www.reuters.com/article/technologyNews Bower, L., J., and Christensen, C., 1995, Disruptive technologies: Catching the wave, Harvard Business Review, retrieved on September 15, 2011, http://www.hbsp.harvard.edu/bOl/en/common/item_detail.jhtml, Read More