Strategic Management of Nintendo Electronics †Free Samples

Question: Discuss about the Strategic Management of Nintendo. Answer: Introduction Strategy is the decision which a company takes to achieve an organisational objective after assessment of various factors affecting the firm(Alkhafaji, 2013).Strategic management is a business function which involves the formulation of strategic objectives of a firm and creating plans to achieve those objectives(Forgang, 2015). Nintendo is a Japanese multinational consumer electronics company positioned in the video game console industry(Nintendo, 2017) A video game console is an electronic or a digital system which produces sound and video signals to create a game(Sloan, 2011). Wii and Wii U are the latest 7th and 8th generation consoles of Nintendo. By market value of shares Nintendo is one of the largest video games companies with a capitalisation of 36710 JPY (ycharts.com, 2017). The Company was set up in 1889 as a card company(Nintendo, 2017). The company has gone through a series of product changes to evolve into a modern video game company. It is headquartered in Kyoto(Nintendo, 2017). Nintendo has dominated the video game console industry since it started with its first generation video games in 1972. Industry Analysis of Nintendo An analysis of various factors in the industry like micro environment, macro environment and competitor analysis helps a firm in formulating adequate strategies for objective achievement(Harrison, 2013). Following is an analysis of the industrial factors pertaining to Nintendo. Company profitability- Nintendo is a large and dominant firm in a growing industry(Wesley Barczak, 2012). Video games are rising in popularity with rising use of digital devices for the purpose of entertainment. However, there has been a steady decline in Nintendos profits over the years. The company saw its greatest success in 2004 but the firm has been loosing in terms of revenue and market share since then(Nintendo Annual Report, 2016). The sales revenue has fallen from US$18 Billion in 2004 to US$ 4 Billion in 2016. The firm has fallen to the third position in terms of company size behind Sony and Microsoft(Dillon, 2016). The reason of decline in profitability is attributed to changing trends of gaming such as shift of people from console gaming to mobile gaming(Dillon, 2016).Therefore, Nintendo has to form new strategies to recapture the market. Potters Five Forces analysis Potters five forces analysis is a tool to assess the specific factors which affect a firms business(Ferrell Hartine, 2012). Following is a five forces analysis of Nintendo in the video game market. Revelry among existing firms- Major competitors of Nintendo are Sony and Microsoft. Competition between these firms is very high and each tries to capture the market with new and innovative products(Nichols, 2016). All the major competitors have good brand name. Hence, rivalry among existing firms is high. Threat from new entrants Nintendo and its two major competitors have been around the market for many years and hold a good reputation(Dillon, 2016). Capital requirement of entering into the video game console market is very high and it is difficult to establish due to existing brand names. Thus, threat of new entry is low. Threat of substitutes- Major substitute of video game consoles are individual game developers who develop games for the internet and local consumers(Dillon, 2016). Additionally, Apple, Facebook and Google are also coming up with new digital application based games which are capturing the imagination of the audience(Dillon, 2016) Therefore, threat of substitute is high. Bargaining power of suppliers- Nintendo has suppliers for both hardware and software components of games(Nintendo, 2017). Suppliers have contracts with the firm to supply the raw material. As Nintendo has a reputation of a profitable firm, suppliers would like to remain with them(Stroh, 2014). However, two main competitors have equal reputation and they can offer a better price to suppliers(Wesley Barczak, 2012). Therefore, bargaining power of suppliers is medium. Bargaining power of customers- Switching cost in the video game console market is high and choice is limited to the three main competitors(Wesley Barczak, 2012). Additionally brand name makes the customers stick to the choice they have made. Therefore, bargaining power of buyers is low Hence, through an assessment of various specific factors in the five force analysis Nintendo can generate a strategy regarding current and future business decisions. Macro Analysis of Nintendo Macro environment analysis helps in understanding the external environment pertaining to a firms business(Schermerhorn, 2012). PESTLE (Political, social, economic, legal and environment) analysis is a way of understanding the macro environment of business(Ebner, 2013). Following is a PESTLE analysis of Nintendo pertaining to Australian markets Political- There have been political controversies over the impact of video games on the mental health of the youth (Orygan2017, 2017). Many political organisations demand a ban over violent video games. Economic- Video games consoles are expensive and as these games are part of the entertainment industry; therefore, during economic downturn the sales of games is affected negatively(Wesley Barczak, 2012). This results in loss of revenue for the firm. Social- Maximum users of video games are young males and the interest in gaming is increasing. It is becoming a social trend due to digitisation and easy access(Wesley Barczak, 2012). Additionally, it is considered as a fashionable pass time by the younger generation. Technical- Highly sophisticated technology is required for creating a video game console (Dillon, 2016). Innovation and research in both hardware and software is required, which results in heavy expenditure. Therefore, cost of production rises for video game firms like Nintendo. Environmental- A lot of plastic and metal is used in video games which has an adverse impact on environment(Starosielski, 2016). Non-biodegradable waste is also created during video game creation(Wesley Barczak, 2012). This should be properly disposed by Nintendo to avoid environmental disaster. Legal- As video game designing is a matter of intellectual property rights; the firm has to control copying of designs(Wesley Barczak, 2012). Therefore, it has to take patent and copyrights under the copy rights regulation(Nintendo, 2017). Additionally, the firm has to abide by environmental regulations and the labour laws of the country of operation. Thus, there are a range of external factors which affect Nintendo and strategy needs to be made with a deep knowledge of these factors. Competitor analysis Competitor analysis helps in understanding strengths of the other major players in an industry(Hill Schilling, 2016) Nintendo specialises in gaming consoles for home users(Dillon, 2016) It had experienced a remarkable success in this sector due to its focus on console games and an understanding of customer demand. Nintendos major competitors are Sony and Microsoft(Wesley Barczak, 2012). In 2007 Nintendos Wii console was considered extremely superior over Sonys PS3 and Microsoft Xbox. However, recently due to changing trends Nintendos sales have been dropping(Dillon, 2016). The company has now dropped to third position among the top three in terms of market sales. Its latest product Wii U has failed to capture the market(Wolf, 2016). Sony and Microsoft are now providing more user-friendly products. Additionally, the trend is changing from console gaming to digital hand held device gaming like games on mobile(Wolf, 2016). Therefore, Google, Apple and Facebook are new potential competitors of the firm(Dillon, 2016). Hence, the firm needs major strategic changes to improve its position among the competitors. Company Analysis Resources and Capabilities Core competencies Nintendo is an internationally reputed brand name in video gaming(Wolf, 2016). It has been a global leader in video game consoles since 1972 when first generation of video games was launched(Dillon, 2016). Its reputation and brand name is one of its major resources. Nintendo is synonymous for gaming and is only known for video games unlike its major competitors who have various other products(Nintendo, 2017). This leads to greater trust for Nintendo. The firm has very skilled developers and software experts. This gives an edge to its capabilities(Nintendo, 2017). The firm also generates its core competencies from its research and innovation department which provides innovations in gaming on a sustained basis(Nintendo, 2017). The firm has financial power due to which it can invest in latest technology and marketing activities(Wesley Barczak, 2012). Therefore, Nintendo has various resources which if utilised well can create competitive advantage. Corporate Strategy of Nintendo Corporate strategy is the direction taken by a business to attain long term objectives(Frynas Mellahi, 2015). Due to dwindling profits the company CEO has come up with a new corporate strategy. In his message to stakeholders the CEO mentioned that Nintendo would come up with new gaming products for smart devices(Nintendo, 2017). This is a change of strategy from console gaming to digital devices in order to attain long term success and profits. As the basic technology used in console gaming machines differs from smartphones, the company is planning a big investment in the smart phone technology so that it can come up with new smart phone based games(Nintendo, 2017). Therefore, the corporate strategy of Nintendo is in keeping with changed environment of video game industry. Business Strategy of Nintendo Business strategy helps in formulating business objectives and making plans to achieve these objectives(Henry, 2011). The business strategy of Nintendo is to produce best quality gaming consoles for the customer(Nintendo, 2017). Nintendo also aims to be customer sensitive and treat each customer with respect. Nintendos strategy is to hire the best software developers so that the needs of the customers can be fully satisfied. The business strategy of Nintendo is also to keep the business model simple and have few gaming titles(Wolf, 2016). This helps in generating more attention and helps the firm to focus on these few titles. Nintendo uses blue ocean strategy and believes in focusing on content of the games for its niche customers(Dillon, 2016). Therefore, Nintendo uses a customer focused strategy and concentrates on its target market and few gaming products for growth in the market. Strategic leadership at Nintendo A good business leader is one who can help an organisation to sustain itself in the time of difficulty(Deal Bolman, 2013). A good leader also understands the need of changing industry dynamics. Nintendo has been facing falling sales because of their emphasis on gaming consoles. Additionally, their new product Wii U has failed to generate the success of the older times(Nintendo, 2017). In view of this the CEO of the firm announced a launch of new gaming platforms for smart devices. This is a good move in the wake of increasing use of digital hand held devices for gaming(Nintendo, 2017). The leadership also merged research and development and systems department so that they can work in sync(Nintendo, 2017). Therefore, leadership is showing an initiative to change with time Current Position of the company The company is positioned third in terms of sales revenue behind Sony and Microsoft(Nintendo Annual Report, 2016). The firm is facing a serious financial crisis because of the failure of its latest console Wii U. Nintendos major reason for drop in sales is due to its emphasis on gaming consoles(Dillon, 2016). The firm experienced its first loss of UD$ 5 Billion in the first quarter of 2016(Nintendo, 2017). Currently the firm is making new business strategies to contend with Microsoft Xbox 360 which is becoming highly popular and Google and Facebook which are coming up with new games(Dillon, 2016). The firm needs to find new ways and make new strategies to sustain in the market for a longer period of time. Conclusion Nintendos future depends on its adaptability of the changing times. In the past the firm had concentrated on video game machines and consoles. However times have changed and the firm needs to adapt to increasing popularity of digital hand held platforms for video games. The firm has now come up with Nintendo Switch, a hybrid game which can work on both a hand held device like a smartphone and a home console(Nintendo, 2017). This new product innovation is a very good strategy which can lead to upward movement in sales for Nintendo. This hybrid system could be the future of video gaming industry and could bring a revolution in how video games are played. References Alkhafaji, A., (2013) Strategic Management: Formulation, Implementation, and Control in a Dynamic Environment. New York: Routledge. Deal, T. E. Bolman, L. G., (2013) Reframing Organizations: Artistry, Choice, and Leadership. New Jersey: John Wiley Sons. 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