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Planning and Strategic Management chapter | FIRST THINGS FIRST The Video Game Wars CHAPTER OUTLINE L. Planning and Organizational Goals Organizational Goals kinds of Organizational Plans "We think gamers will be spending most of their time...playing with others and with characters that they care about.". --HOWARD MARKS, CEO, VIDEO GAME MAKER ACCLAIM "II. The Nature of Strategic Management The Components of Strategy Types of Strategic Alternatives Video games often portray war-fighting action, but there are also many different kinds of war. One example today is the strategic war for dominance in the video game industry. As the industry matures, the number of competitors gets smaller because larger firms absorb smaller ones. Those remaining are more powerful, yet competition is more intense. Electronic Arts and Sony are the largest players in this industry and want has .dopted a different strategy for success. Electronic Arts (EA) is the number one video game producer, making games for just about every game console, handheld game, PC, PDA, and mobile phone. Until this year, the compuny's strategy has been to develop games around popu- lar movies or sports, such as Lord of the Rings and Madden NFL. EA's strategy II. Using SWOT Analysis to Formulate Strategy Evaluating an Organization's Strengths Evaluating an Organizations Weaknesses IV. Formulating Business-Leve! Strategies Porter's Generic Strategies Strategies Based on the Product Lie Cycle V. Formulating Corporate-Level Strategies Single Product Strategy Related Diversification Unrelated Diversification NBALIVE F MADDEN TIGER WOODS VI. Tactical Planning Developing Tactical Plans Executing Tactical Plans WIN a $500 Best Buy Gift Card Visit VII. Operational Planning Single-Use Plans Standing Plans Contingency Planning and Citis Management video zares ike these are helped zaka Electronic Arts one of the leading firms in the industry ERANG OBJECTIVES sludying this chapter, you should able to Summa the planning process and describe organizational goals. Discuss the components of strategy and the types of strategic alternatives Describe how to use SWOT analysis in formilating strategy Identify and describa various alternative approaches to business- level strategy formulation. Identily and describe various alternative approaches to corporate- level strategy formulation Discuss how tactical plans are developed and implemented. Describe the basic types of operational plans used by organizations minimizes the huge risk of creating a vidio game, it takes dozens of staff, millions of dollars, and 12 to 18 months to produce one new game. Sales revenues are unpredictable and some expensive games have fizzled. EA, under pressure from entrepreneurial rivals, must increase innovation, shift- ing to more internal development. However, developers are rotated freely among projects, helping out wherever they are needed. This increases productivity bui hurts teamwork. In contrast, the teams at many small studios work on one game from start to finish. Small companies created many of gaming's biggest suc- cesses, including Grand Theft Auto and Halo. EA is switching to dedicated teams that can more readily improve just one segment of programming, for example, how weapons fire or how characters show emotions. Sony is the number two video game producer and makes games solely for its PlayStation platforms. Video game hardware, not the games themselves, has always been their priority. Sony's approach is not focused on blockbust- ers. Instead, the company tries to manage the risky video game production process by investing less, which has led to lower expenses but also to fewer of the cutting-edge effects and graphics that video game fans love. Some of their top-selling games include The Da Vinci Code, Field Commander, and Untold Legends While both EA's new strategy and Sony's strategy could lead to success EA's seems to be more in tune with industry changes. One important develop ment is the growing popularity of massive multiplayer online games, known as MMOs. These games network thousands of players into an online commu- nity, where members interact through a role-playing scenario. One of the most widely known MMOs is World of Warcraft. This game allows individual play, group play, and individual or group play with online members. Writing MMO games is more difficult than writing games for individuals or smail groups. EA's new emphasis on innovative concepts and increased use of teams should make it easier for them to develop MMOs, while Sony's emphasis on value will not help it do so Which strategy is superior? It may be neither, because new strategies are evolving. Small studio Acclaim is developing high-quality games that it gives away for free. Product endorsement fees for items highlighted within the game cover the cost. Acciaim hopes that users will understand that the ads pay for the game, much as TV advertising pays for broadcasts. Acclaim also sells virtual items, for real money. The users can resell the items when they are finished using them in the game. Acclaini's games are primarily MMOs. "We think gamers will be spending most of their time... playing with others and with characters that they care about," says Acciaim CEO Howard Marks. Instead of relying on medi- eval Dungeons and Dragons settings, the company offers games for all ages and with a wide variety of settings. Finally, Acclaim's games at ovable of online downlcacs. The games wo or any platform that bles downloaded gams. Thus far, only the Microsoft Xbox does so, but Acciain: hope other game conse I makers will follow suit CHAPTER 3 Planning and Strategic Management 63 In a rapidly changing and complex environment, with competitors who have very different resources and weaknesses, using a technology that is still evolving, there are a number of possible strategic responses. Only time will tell which company adopted the correct approach.! YOU MAKE THE CALL The Video Game Wars 1. If you ran Electronic Arts, what changes, if any, would you make in the firm's strategy? 2. If you ran Sony's video game business, what changes, if any, would you make in the firm's strategy? 3. If you ran a smaller video game start-up like Acclaim, how might you go about developing a strategy to more effectively compete with EA and Sony? 4. If you play video games now, what aspects of the strat- egies used by EA, Sony, and Acclaim tend to cause you to play more or fewer of each company's games? 5. If you do not currently play video games, what strate- gies, if any, might EA, Sony, and Acclaim adopt to increase your interest in playing