Acting on strategic Vision

Established as Amazin Software in 1982 by an ex-Apple marketing executive

names Trip Hawkins, Electronic Arts (EA) was a pioneer in the home-computer-games

industry. From the outset, EA published games created by outside developers- a strategy

that offered higher profit margins and forced the new company to stay in close contact

with its market. By 1984, having built the largest force in the industry, EA had generated

revenue of $18 million. Crediting its developers as software artists, EA regularly gave

game creators photo credits on packaging and advertising spreads and, whats more

important, developed a generous profit-sharing policy that helped it to attract some of the

industrys best development talent.

By 1986, the company had become the countrys largest supplier of entertainment

software. It went public in 1989, and net revenue took off in the early 1900s, climbing

from $113 million in 1991 to $298 million in 1993. In the next 13 years, the company

continued to grow by developing two key strategies:

Acquiring independent game makers ( at the rate of 1.2 studio per year

between 1995 and 2006

Rolling out products in series, such as John madden Football, Harry

Potter, and Need for Speed.

Activisions path to success in the industry wasnt quite as smooth as EAs.

Activision was founded in 1979 as a haven for game developers unhappy with prevailing

industry policy. At the time, systems providers like Atari hired developers to create games

only for their own system; in-house developers were paid straight salaries and denied

credit for individual contributions, and there was no channel at all for would-be

independents. Positioning itself as the industrys first third-party developers, Activision

began promoting creators as well as games. The company went public in 1983 and

successfully rode the crest of a booming market until the mid-1980s. Between 1986 and

1990, however, Activisions growth strategies- acquisitions and commitment to a broader

product line- fizzled, and it had becomes, as Forbes magazine put it, a company with a

sorry balance sheet, but a storied history.

Enter Robert Kotick, a serial entrepreneur with no particular passion for video

games, who bought one-fourth of the firm in December 1990 and became CEO two

months later. Kotic looked immediately to Electronic Arts for a survey of best practices in

the industry. What he discovered was a company whose culture was disrupted by internal

conflict namely, between managers motivated by productivity and profit and developers

driven by independence and imagination. It seems that EAs strategy for acquiring and

managing a burgeoning portfolio of studios has slipped into a counterproductive pattern:

Identify an extremely popular game, but the developer, delegate the original creative

team to churn out sequels until either the team burned out or the franchise fizzled, and the

close down or absorb what was left. On the other hand, EA still sold a lot of video games, and to kotick, the basic

tension in EA culture wasnt entirely surprising: Clealy the business of making and

marketing video games succeeded when the creative side of the enterprise was supported

by financing and distribution muscle, but it was equally true that a steady stream of

successful games came from a companys creative people. The key to getting Actvision

back in the game, kotick decided, was managing this complex of essential resources

better than his competition did.

So the next year Kotick moved the company to Los Angeles and began to recruit

the people who could furnish the resources that he needed most creative expertise and a

connection with the passion that its customers brought to the video-game industry.

Activision, he promised prospective developers, would not manage its human resources

the way EA did: EA, he argued, has commoditized development. We wont absorb you

into a big death star culture

Between 1997 and 2003, Kotick proceeded to buy no fewer than nine studios, but

his concept of a video-game studio system was quite different from that of EA, which

was determined to make production more efficient by centralizing groups of designers

and programmers into regional offices. Kotick allows his studios to keep their own

names, often lets them stay where they are, and further encourages autonomy by

providing seed money for Activision alumni who want to launch on their own. Each

studio draws up its own financial statements and draws on its own bonus pool, and the

paychecks of studio heads reflect company-wide profit and losses.

The strategy paid off big time. For calendar year 2007, the company, now known

as Activision Blizzard, estimated compiled, now known as Activision Blizzard, estimated

compiled revenues of $3.8 billion- just enough to squeeze past EAs 3.7 billion and sneak

into the top spot as the best-selling video game publisher in the world not affiliated with a

maker of game consoles (such as Nintendo and Microsoft). Revenues for calendar year

2010 were $4.4 billion, up more than 20 percent over 2009, making Activision the

number one video-game publisher in North America and Europe. Today, its market

capitalization of $13.3 billion is nearly twice that of EA

Kotick attributes the firms success to a focus on a select number of proven

franchises and genres where we have proven development expertise We look for ways

to broaden the foot prints of our franchises, and where appropriate, we develop

innovative business models like subscription-based online gaming. Questions:

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

video-game market? 2. How might Porters generic strategies theory help to explain why Electronic Arts lost

its leadership in the video game market to Activision Blizzard/

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.

4. If you ran a small- video game start-up what would be your strategy for competing

with EA and Activision Blizzard?

5. If youre not a video-game player, what aspects of Activision Blizzards strategy might

induce you to try a few of its games?

6. Electronic Arts was recently voted Worst Company in Americafor the second year in a row. You have been hired as a consultant for six months

in response to this prestigious award. Suggest three strategic goals for EA

to repair their image, and support your suggestions. Then pick one of your

suggestions and outline a six-month tactical plan to accomplish this goal.