Chapter: One

INTRODUCTION

Introduction:
A strategic vision is a broad term used to describe one of the essential elements of an overall
strategic planning endeavor. Essentially, a vision is the identification of the ultimate aim or
purpose for a business. Within this context, the strategic vision helps to set the parameters for
the development of planning specific steps to go about making that vision come true.

Scope of the study:

This report has been prepared as a requirement of the Management practice program of the
course Management Principles and Practices of East west university instructed by our course
instructor Tamanna Parvin Eva. Our team is very glad to get the opportunity to solve a case
study. From this report we learn, the use of SWOT Analysis to identify strengths, weaknesses,
opportunities, and threats of any company, organizations differentiation, overall cost leadership,
focusing strategy at the business level, the best way to maintain a leadership, seeking out new
markets and new opportunities.

Objectives of the study:

Broad Objective: The only objective is solving a case study.
Specific Objectives: This study will focus on the following specific objectives:

The main objective is to gain practical knowledge.

To solve the problem about the case.
To utilize the solutions of problems.

Source of information:
Source refers to the origin from where we have collect all the information. The reliability of the
report depends on the source of the information. Secondary source has been used for solving the
case study.

Secondary sources: The following secondary sources are used:

Text book
Internet
Related Articles

Limitations of the study:

There are some limitations those we face while going through the report writing.

Time frame is a significant limitation for us.

Financial limitations.
Lack of practical ideas and information according our need.
Secondary source of data was too limited.

Chapter: Two

Data Collection, Analysis and Findings

4

Literature review:
We solved case study on the basis of 8 th chapter of our text book which is Management Principles
and Practices written by Ricky W. Griffn. For solving our case we used those contents are- SWO
analysis, Porters generic strategies and Miles and Snow typology theory.

SWOT analysis:
A SWOT analysis is a structured planning method used to evaluate the strengths, weaknesses,
opportunities, and threats involved in a project or in a business venture. A SWOT analysis can be
carried out for a product, place, industry or person. It involves specifying the objective of the
business venture or project and identifying the internal and external factors that are favorable and
unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a
convention at the Stanford Research Institute (now SRI International) in the 1960s and 1970s
using data from Fortune 500 companies. The degree to which the internal environment of the
firm matches with the external environment is expressed by the concept of strategic fit.
Setting the objective should be done after the SWOT analysis has been performed. This would
allow achievable goals or objectives to be set for the organization.

Strengths: characteristics of the business or project that give it an advantage over

others.

Weaknesses: characteristics that place the business or project at a disadvantage

relative to others

Opportunities: elements that the project could exploit to its advantage

Threats: elements in the environment that could cause trouble for the business or
project

Identification of SWOTs is important because they can inform later steps in planning to achieve
the objective. First, the decision makers should consider whether the objective is attainable,
given the SWOTs. If the objective is not attainable a different objective must be selected and the
process repeated.

Figure 1: SWOT analysis

Porters generic strategies:

Porter wrote in 1980 that strategy target either cost leadership, differentiation, or focus. These are
known as Porter's three generic strategies and can be applied to any size or form of business.
Porter claimed that a company must only choose one of the three or risk that the business would
waste precious resources. Porter's generic strategies detail the interaction between cost
minimization strategies, product differentiation strategies, and market focus strategies.
Porter described an industry as having multiple segments that can be targeted by a firm. The
breadth of its targeting refers to the competitive scope of the business. Porter defined two types
of competitive advantage: lower cost or differentiation relative to its rivals. Achieving
competitive advantage results from a firm's ability to cope with the five forces better than its
rivals. Porter wrote: "[A]achieving competitive advantage requires a firm to make a
choice...about the type of competitive advantage it seeks to attain and the scope within which it
will attain it." He also wrote: "The two basic types of competitive advantage [differentiation and
lower cost] combined with the scope of activities for which a firm seeks to achieve them lead to
three generic strategies for achieving above average performance in an industry: cost leadership,
differentiation and focus. The focus strategy has two variants, cost focus and differentiation
focus." In general:

If a firm is targeting customers in most or all segments of an industry based on offering

the lowest price, it is following a cost leadership strategy;

If it targets customers in most or all segments based on attributes other than price (e.g.,
via higher product quality or service) to command a higher price, it is pursuing a
differentiation strategy. It is attempting to differentiate itself along these dimensions
favorably relative to its competition. It seeks to minimize costs in areas that do not
differentiate it, to remain cost competitive; or

If it is focusing on one or a few segments, it is following a focus strategy. A firm may be

attempting to offer a lower cost in that scope (cost focus) or differentiate itself in that
scope (differentiation focus).

Figure 2: Porters generic strategies

Miles and Snow typology theory:

Miles and Snow explain in their book Organization Strategy, Structure, and Process, that all
organizations and companies have a tendency to adapt their strategies depending on the trends of
the market. However, they all do it from different points of view because there are four main
types of organizations:

Defenders

Prospectors

Analyzers

Reactors

"Defenders are organizations

Which have narrow product-market domains?

Top managers in this type organization are highly expert in their organizations limited
area of operation

But do not tend to search outside their narrow domains for new opportunities.
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"Prospectors are organizations

which almost continually search for market opportunities, and

They regularly experiment with potential responses to emerging environmental trends.

Thus, these organizations often are the creators of change and uncertainty to which their
competitors must respond.

"Analyzers are organizations

Which operate in two types of product-market domains, one relatively stable, the other
changing?

In their stable areas, these organizations operate routinely and efficiently through use of
formalized structures and processes.

In their more turbulent areas, top managers watch their competitors closely for new ideas,
and then rapidly adopt those which appear to be the most promising."

"Reactors are organizations

in which top mangers frequently perceive change and uncertainty occurring in their
organizational environments

But are unable to respond effectively.

Because this type of organization lacks a consistent strategy-structure relationship, it

seldom makes adjustments of any sort until forced to do so by environmental pressures.

Prospector

Is innovative and growth

oriented, searches for new
markets and new growth
opportunities, encourages
risk taking

Defender

Protects current markets,

maintains stable growth,
serves current customers

Analyzer

Maintains current markets

and current customer
satisfaction with moderate
emphasis on innovation

Reactor

No clear strategy, reacts to

changes in the environment,
drifts with events
Figure 3: Miles and Snow typology theory

Case Summary:
EA was a pioneer in the home computer industry. EA was the largest supplier of entertainment
software, while Activision was far behind. In the past EA successfully used overall cost
leadership strategy and differentiation strategy. EA was able to affectively use cost leadership
strategy by acquiring new studios and putting one of their managers in charge of those studios.
This strategy aloud EA to increase profit margins and stay in close contact with its market.
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However the downside of this strategy was unhappy developers. That was due to a conflict of
interests between EA managers and game developers. EA managers were profit and efficiency
oriented whiles the developers were creativity and intendants driven. So EA management style
would eventually deplete developers of their creativity and independence. So many of them left
to work for Activision, and along with them they brought their best expertise and talents, making
Activision a leading star. When new CEO MR Kotick took over Activision Blizzard he first
identified EAs weaknesses of the managerial strategies and improved upon them. Kotick saw the
conflict of interest between managers and game developers. He implemented less invasive
managerial strategies leaving the original developers in control of their studios as well as
improved upon profit shearing strategy. The bonuses were assigned to the teams based on
success of it product and not based an equally assignment of bonuses to everyone. The team with
more successful product would receive higher bonuses. Now suddenly Activision became a
better company to work for. Many of the creative developers were driven to Activision. That is
how EA lost its leadership in the video-game market to Activision Blizzard.

Question Answer Session:

Question no 1: How might a SWOT analysis have helped Electronic Arts assess its slippage in
the video game market?
Explanation:
The use of SWOT Analysis could have helped Electronic Arts (EA) to identify its strengths,
weaknesses, opportunities, and threats. Particular, if EA used the SWOT analysis they would
identify the weaknesses in their management style. The EA managers are profit and productivity
driven while the developers are driven by creativity and freedom. EA managers often demand
unrealistic deadlines, set up unfair bonus distribution system and deprive the original developers
of freedom and creativity. All of these conditions make many of their developers quit. However
EA managers didnt care so much about this because they could always move on. That is because
one of their managerial strategies was to acquire as many studios as they could. Even though, EA
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managers strategies used to work for EA in the past, with rising power of Activision, these
strategies had to be revised. That is because Activisions raising power and preferred
management style gain over many of EA developers depriving EA of its best people. The SWOT
analysis would help EA to identify their weakness in managerial tactics when facing the rising
power of rivals.
The SWOT analysis would also help the EA to anticipate the threats of Activision rising
marketing power. For example, in the past EA was the largest supplier of entertainment software,
while Activision was far behind. Activision had an impressive history; however their sales
figures were not so impressive. That clouded EAs judgment about Activision. However, after
the new CEO Robert Kotick came in December 1990 the Activision market capitalization started
to climb. According to the Book Management, today Activision Blizzards market capitalization
consists of 13.3 billion which is nearly twice that of EA.

Growing popularity of Activision,

created the scarcity of good developers.

Question no 2: How might porters generic strategies theory help to explain why Electronics
Arts lost its leadership in the video game market to Activision Blizzard?
Explanation:
According to Michael Porter, organizations may pursue a differentiation, overall cost
leadership, or focus strategy at the business level. In the past EA successfully used overall cost
leadership strategy and differentiation strategy. EA was able to affectively use cost leadership
strategy by acquiring new studios and putting one of their managers in charge of those studios.
This strategy aloud EA to increase profit margins and stay in close contact with its market.
However the downside of this strategy was unhappy developers. That was due to a conflict of
interests between EA managers and game developers. EA managers were profit and efficiency
oriented whiles the developers were creativity and independence driven. So EA management
style would eventually deplete developers of their creativity and independence. More over when
the developers were all burn out the EA would just abandon them instead of restructuring. As
CEO of Activision Mr Kotick put it EA has commoditized development. We wont absorb you
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into a big Death Star culture. EA didnt treat its human recourses very well. So many of them
left to work for Activision, and along with them they brought their best expertise and talents,
making Activision a leading star.
The weakness in the cost leaderships strategy wasnt the only reason EA lost its
leadership in the vide-game market to Activision Blizzard. Another reason was the lost of
differentiation strategy. When new CEO MR Kotick took over Activision Blizzard he first
identified EAs weaknesses of the managerial strategies and improved upon them. Kotick saw the
conflict of interest between managers and game developers. He implemented less invasive
managerial strategies leaving the original developers in control of their studios as well as
improved upon profit shearing strategy. The bonuses were assigned to the teams based on
success of it product and not based an equally assignment of bonuses to everyone. Now the
incentives to work harder were in place. The team with more successful product would receive
higher bonuses. Now suddenly Activision became a better company to work for. Many of the
creative developers were driven to Activision. In fact the best of EA talent chose to go to work
for Activision. That is how EA lost its leadership in the video-game market to Activision
Blizzard. In other words EA managers werent quick enough to address the managerial issuers
that they had while Activision was becoming a better place to work.

Question no 3: How would you use the Miles and Snow typology theory to advise Activision
Blizzard on the best way to maintain its leadership in the video game market?
Explanation:
The best way to maintain a leadership, Activision should use a Miles and Snow prospector
strategy. According to the book Management, a firm that follows a prospector strategy is a
highly innovative firm that is constantly seeking out new markets and new opportunities and
oriented toward growth and risk taking. Software development business is constantly evolving.
Technology is moving forward at a fast speed. Activision should always be in search of new
technology or they can become obsolete. Also they have to look for new opportunities because
there are many competitors that can easily take away Activision leadership in the industry. In
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addition, people actually get bored with the same game relatively quickly and will be looking for
new games. The company with the most technological advantages and interesting ideas for the
game will be in the lead. Activision mast be at the lead to deliver new technological innovations
and ideas if they what to maintain its leadership in the video-game market. There prospector
strategy suits them the best.

Question no 4: If you ran a small video game start-up, what would be your strategy for
competing with EA and Activision Blizzard?
Explanation:
If I would run a small video-game start-up, I would make sure I have brilliant and creative
people on my team. Creative people have more chances to come up with a good story line that
could become a hit. Also because the EA and Activision are both well established companies, the
only way I would be able to compete is to seek sponsorship. It is very difficult for a small studio
to compete with larger corporations such as EA and Activision. Since I would need a contract
with Microsoft to play my games anyway, I would seek a sponsorship from them as well. If
Microsoft would like my story they could become my profit sharing sponsors. Microsoft
sponsorship will provide me with a much needed advantage to be able to compete with AE and
Activision. Even though small companies have advantages in being flexible and creative, they
are in need for financial support. To conclude, creativity can be my best chance for competition.
Also I could use the Michael Porter overall cost leadership strategy in order to reduce my cost.
Keeping the cost low will improve my start-up company competitive advantage. I could easily
do so by not employing a CEO or high compensated managers. When the company is in its
infancy there are fewer things to be managed. I could also choose to target a different market
group if there are enough people who would be interested.

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Question no 5: If you are a video game player, what aspects of Activisions strategy have led to
your playing more of its games? If you are not a video game player, what aspects of Activision
Blizzards strategy might induce you to try a few of its games?
Explanation:
The fact that Activision Blizzard treats their human recourses well is an appealing aspect for me
to try some of their games. They value creativity which gives me the idea that I will be getting
the best, most interesting, most innovative games. However, I cant simply buy a game. I also
have to buy an x-box to play it on. Buying an x-box is not in my planes. So it is unlikely I
would buy their games even though I would like to try one.

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Chapter: Three

16

Conclusion and Recommendation

Conclusion:
Strategy is the most important thing in an organization. If any organization cant select proper
strategy for its operation it cant manage its operation effectively. What we have seen in above
case study, EA lost its leadership in the video-game market to Activision Blizzard because of
some strategic fault. If EA used the SWOT analysis they would identify the weaknesses in their
management style. By following Porters generic strategies and Miles and Snow typology theory,
EA can get back their position. Activision Blizzard achieved their today position by selecting
proper strategy and successfully implementing them. So every organization should manage their
strategic planning effectively.

Recommendations:
As outsider, its very difficult to recommend or suggest something to a running company,
when they are doing well amongst their target market. But still, we are able figure out something
based on our report which Electronic Arts and Activision Blizzard should reconsider:

Strategy EA can choose that can help them to improve their reputation is to stop

acquiring new studios.

Sponsoring new studios instead of buying them can help EA to draw away negative

attention.
If EA wanted to improve its reputation, they should have little involvement in the
structure of the studios such as- they can leave the original studio manager in control of

the studio.
EA can use the Michael Porter overall cost leadership strategy in order to reduce their
cost.

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Activision should always be in search of new technology because people actually get

bored with the same game relatively quickly and will be looking for new games.
Activision must have to look for new opportunities because there are many competitors
that can easily take away Activision leadership in the industry.

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References:

Griffn W. Ricky, Management Principles and Practices 11th edition, Page no.185,187,189
Griffn W. Ricky, Management Principles and Practices 11th edition, case study ,Page no.621622

http://en.wikipedia.org/wiki/Strategic_vision
http://en.wikipedia.org/wiki/Porter%27s_generic_strategies
http://dsmgt310.faculty.ku.edu/SuppMaterial/MilesSnowTypology.html
http://www.kulzick.com/milesot.htm
http://en.wikipedia.org/wiki/SWOT_analysis

Appendix:
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 Questions collected from case study:

How might a SWOT analysis have helped Electronic Arts assess its slippage in

the video game market?

How might porters generic strategies theory help to explain why Electronics Arts

lost its leadership in the video game market to Activision Blizzard?

How would you use the Miles and Snow typology theory to advise Activision

Blizzard on the best way to maintain its leadership in the video game market?
If you ran a small video game start-up, what would be your strategy for

competing with EA and Activision Blizzard?

If you are a video game player, what aspects of Activisions strategy have led to
your playing more of its games? If you are not a video game player, what aspects
of Activision Blizzards strategy might induce you to try a few of its games?

20