Although their expertise lies in creating games, it’s definitely serious business for the video game industry. The computer and video game industry has struggled over the last couple of years as game makers looked for new sources of revenues and worked to hold down costs. And nipping at the industry’s heels were companies like Zynga that saw the opportunities and jumped in on the burgeoning social gaming revolution. One company, Electronics Arts (EA), exemplifies the challenges of this industry, where customers are fickle and demanding and competition is intense. As one of the world’s top three interactive entertainment software companies, EA lives and dies by its innovations. Its product lineup includes more than 100 titles such as Battlefield, Madden NFL, FIFA Soccer, Rock Band, Need for Speed, and The Simpsons. The company has created more than 50 best-sellers (each with more than 1 million copies sold) since 1998. In 2011, revenues were almost $3.6 billion—a decrease of almost 2 percent from the previous year—and the company had a net loss of $276 million. The last three years have been quite challenging as the company lowered its sales and profit projections because of changes in the behavior of consumers and retailers. In addition, EA missed the initial social gaming trend, but is now pushing hard to develop digital platforms for many of its popular games. As a result, its Sims Social is the number 2 game on Facebook, behind Zynga’s CityVille.
EA continues to look for ways to prosper. Paranoia has been a critical part of EA’s strategy for success. A top game title takes anywhere from 12 to 36 months to produce and costs between $5 million and $10 million. That’s a significant investment risk riding on the company’s ability to be innovative. John Riccitello (former president and chief operating officer who left the company in 2004 to start a private equity firm but then returned in 2007 as CEO) has guided much of the company’s game design accomplishments. He said, “The forgotten aspect of creativity is discipline.” The hard part, and the part that EA pursues relentlessly, “is identifying the right idea, assembling the best development team, solving the inevitable technical problems, creating a game that people want to play, getting all of the work done on schedule, getting it to market at the right time, and knowing how to generate buzz about it in an increasingly crowded market.” How does EA do it?
It starts with the discipline of understanding ideas. Game designers try to identify the creative center of a game—what they call the “creative x”—so they understand what the game is about. Then, it’s the discipline of understanding the customers by using focus groups to pinpoint desires and likes and dislikes. And it’s the discipline of sharing best practices and technologies through the company’s intranet library. As one employee said, “If somebody develops a better blade of grass in one game, that grass will be in somebody else’s game the next day.” Then, there’s the discipline of developing the next generation of creative leaders. The company’s “emerging leaders” program gives participants firsthand experience in departments outside their own. And there’s the discipline of studying the competition. Employees are encouraged to know the features of competitors’ products. Then, it’s disciplined project management. Riccitello, known for his strict discipline, said, “If you’re working on a game and you miss your deadlines, you won’t be working here very long.” Although the discipline of creativity is important at EA, you can’t overlook the passion of the company’s game designers. Nearly everyone at EA grew up playing games. They love what they do and are inspired to look for new and creative challenges not only for the hard-core gamers, but for the casual gamers as well.
Describe EA’s competitive advantage from each of the three perspectives on competitive advantage.
Does EA exhibit the critical success factors for the new business context? Explain.
Describe the types of resources EA appears to have. Do you think any of these resources might be unique? Explain.
What ethical and social responsibility issues might EA face as it develops new games? What would be the best approach for dealing with those issues?
What stakeholders might EA have to be concerned with, and how might those stakeholders affect EA’s strategic decisions and actions?
Being successful in this kind of turbulent environment means not only being tolerant of change, but also seeking it out and embracing it with open arms. Change can bring opportunities to exploit but can also bring challenges in dealing successfully with the changes. Having the ability to change is just one of the critical success factors a company must possess. The other two success factors that a company must possess involve creativity and innovation capabilities along with being a world-class organization.
With this information in mind and after conducting research, complete the following:
- Read Case Study #3: “Game Not Over, Not Yet” at the end of Chapter 2
- Briefly answer the questions from the text in reference to Case Study #3 and explain the rationale behind your answers (use supporting information as needed)
Tip: Use APA style to cite and reference your sources of information such as the textbook and other external sources.