978-1259278211 Case 15 Solution Manual Part 1

subject Type Homework Help
subject Pages 9
subject Words 3900
subject Authors Alan Eisner, Gerry McNamara, Gregory Dess

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Teaching Note: Case 15 – Zynga: Room for a Final Round or Is the Game Over?
Case Objectives
1. To investigate how human capital assets can be used to craft a strategic advantage.
2. To examine the role of strategic controls and leadership in implementing strategy.
3. To discuss the choice of competitive strategy, and options for growth.
See the table below to determine where to use this case:
Chapter Use Key Concepts Additional Reading and/or
Exercises
4: Intellectual Assets Intellectual and human capital;
NOTE additional articles
5: Business Level
Competitive strategy; generic
NOTE additional articles,
8: Entrepreneurial
Strategies
Opportunity recognition NOTE additional articles
9: Strategic Control Informational vs. behavioral
11: Strategic Leadership Leadership; learning
NOTE updated news, video
12: Managing Innovation Innovation; scope of
NOTE optional advanced
Case Synopsis
Zynga, located in San Francisco, California, had become a dominant player in the online gaming
field, almost entirely through the use of social media platforms. The company name was
established by the founder and original CEO, Mark Pincus, to pay tribute to his late beloved pet
Zynga had been a dominant force, but had lost market share in recent years due to the absence of
Zynga’s financials may be at risk because of what may be considered questionable decision
making. Many of Zynga’s competitors, and even some partners, were displeased with the
company’s actions and have begun to show it in the form of litigation. Agincourt, a plaintiff of a
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As Zynga looks to the future, where will its next big hit come from? With all of the acquisitions
surrounding Zynga’s past games, will it continue on the same path it has become so notoriously
known for today and reap further accusations of imitating its competitors’ existing games? Or
Teaching Plan
The Zynga case is a good example of the role of entrepreneurship in maintaining the pace of
innovation within an industry with a volatile product life cycle. This case can be used toward the
end of the semester to review strategy formulation and implementation.
Used to encourage more advanced analysis among exceptional students, the instructor may
suggest possible external research sources, and possible supplemental assigned reading. It may
be especially interesting to initiate a discussion among advanced students to consider the lengths
to which an entrepreneur might go to establish and maintain a competitive advantage by
assigning Lumpkin & Dess’s 1996 “Clarifying the entrepreneurial orientation construct”. This
can help students get a fuller picture of the challenges facing Zynga’s leadership.
ICEBREAKER
It’s possible that some students might have been enticed to play Zynga’s Farmville or other
games as part of their Facebook activities. If so, students may be able to comment on how these
online games attract users, and how the gaming companies might be able to make money off of
this activity. It might be interesting to ask the following:
How many of you have played Farmville, or any other online game? What is its attraction?
How many of you have spent actual money on virtual merchandise? Why?
The answers to these questions can provide insight into Zynga’s strategy, especially its business
model. The instructor can also visit Zynga’s website at http://zynga.com/ to show students how
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Summary of Discussion Questions
Here is a list of the suggested discussion questions. You can decide which questions to assign,
and also which additional readings or exercises to include to augment each discussion. Refer
back to the Case Objectives Table to identify any additional readings and/or exercises so they can
be assigned in advance.
1. What internal resources and assets does Zynga have that may give it a competitive
advantage?
2. What issues did Zynga face in formulating its initial strategy, and how did Zynga choose
to compete?
3. What challenges did Zynga face as it implemented strategy, and what choices does
leadership have to make now in order to attain and sustain a competitive advantage?
Discussion Questions and Responses
1. What internal resources and assets does Zynga have that may give it a competitive
advantage?
To start with, the instructor might want to position the discussion by reviewing what strategic
management really is:
Referencing Chapter 1: Strategic Management
Strategy is all about the ideas, decisions, and actions that enable a firm to succeed. See Chapter
1, Exhibit 01: Strategic management consists of the analyses, decisions, and actions an
organization undertakes in order to create and sustain competitive advantages:
strategy directs the organization toward overall goals and objectives;
includes multiple stakeholders in decision making;
Leaders face a large number of complex challenges. Leaders must be proactive, anticipate
change, and continually refine changes to their strategies. This requires a certain level of
See Chapter 1, Exhibit 1.3 for a depiction of the strategic management process. During strategic
analysis, the leader does “advance work” to anticipate unforeseen environmental developments,
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In strategy implementation, depending on the type of organization structure, the leader might
include key individuals in a discussion around selecting which strategies might be best to
The basic question strategic management tries to answer is: How can we create competitive
advantages in the marketplace that are not only unique and valuable but also difficult for
competitors to copy or substitute?
When formulating strategy, a decision must be made about the firm’s strengths and capabilities –
what assets does the firm have that can help it create this competitive advantage? These assets
Referencing Chapter 4: Recognizing a Firm’s Intellectual Assets
See the concepts of intellectual capital, human capital and social capital, all of which are
intangible assets that a company such as Zynga needs to have in order to compete successfully.
Intellectual capital is a measure of the value of a firm’s intangible assets, its reputation,
Human capital involves the individual capabilities, knowledge, skills, and experience of the
company’s employees and managers. This knowledge is relevant to the task at hand, as is the
Success in retaining human capital could also be attributed to the nurturing of the “social ties” or
social capital. Social capital is a function of the network of relationships that individuals have
throughout the organization and beyond. Relationships are critical in sharing and leveraging
Dynamic capabilities involve a firm’s capacity to build and protect a competitive advantage,
which rests on knowledge, assets, competencies, complementary assets, and technologies.
Dynamic capabilities include the ability to sense and seize new opportunities, generate new
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Intellectual assets or intangible resources are critical to organizational success. The growing
importance of knowledge, coupled with the move by labor markets to reward knowledge work,
Human capital: does the organization effectively attract, develop, and retain talent? Does the
organization value diversity?
Social capital: does the organization have positive personal and professional relationships
among employees and alliance partners?
Technology: does the organization effectively use technology to transfer best practices across the
organization, codify knowledge, and develop dynamic capabilities for competitive advantage?
Presence of Organizational Capabilities/Specific Competencies or Skills:
Developing social capital through relationships with alliance partners: Zynga was one of the
first companies to partner with Facebook in developing online games. With Facebook as an
Attracting, developing and retaining human capital: Initially, Zynga seemed to be able to take
advantage of the “newfound abundance of software developers” in the early 2000s. Probably
these developers were eager to investigate the creative possibilities of the social network
Dynamic capabilities: Since dynamic capabilities are derived from the ability to learn, innovate
and adapt to changing conditions using technology, existing competencies and assets, it’s
Intellectual capital: Since intellectual capital comes from reputation, employee loyalty and
commitment, customer relationships, company values, brand names, and the experience and
skills of employees, Zynga doesn’t appear to have much to show here. The reputation of the
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NOTE – ADDITIONAL WEB LINKS:
Regarding intellectual capital, here’s an article about the quote attributed to Mark Pincus, “I
don’t f***ing want innovation. “You’re not smarter than your competitor. Just copy what they do
and do it until you get their numbers.” This story from 2012 talks about Zynga’s copycat
strategy, and quotes Pincus justifying the company’s actions by pointing out, “Google didn’t
create the first search engine. Apple didn’t create the first mp3 player or tablet. And, Facebook
However, this article’s author doesn’t buy it – “Yes, every product and IP on the market is
generally a derivative of some other concept in almost all cases, but what Zynga’s doing is a step
beyond. The company scavenges through the most popular titles on the social market and
harvests them for their own…. Pincus would have us believe he’s just continuing in the great
tradition of all tech pioneers, drawing on past products to make future ones, but there’s
something different with Zynga. Something wrong. And to have a brand that is this creatively
bankrupt does not bode well for its long term prospects.” See
https://www.reddit.com/r/gamingnews/comments/p7s8y/leaked_zynga_memo_justifies_copycat_
strategy/ and click on the header “Leaked Zynga Memo Justifies Copycat Strategy”.
2. What issues did Zynga face in formulating its initial strategy, and how did Zynga
choose to compete?
Referencing Chapter 8: Entrepreneurial Strategy and Competitive Dynamics
When formulating strategy, entrepreneurship involves the creation of new value by an existing
organization or new venture that involves the assumption of risk.
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For an entrepreneurial venture to create new value, three factors must be present – an
entrepreneurial opportunity, the resources to pursue the opportunity, and an entrepreneur or
Entrepreneurs need to understand the concept of opportunity recognition: the process of
discovering and evaluating changes in the business environment, such as a new technology,
socio-cultural trends, or shifts in consumer demand, that can be exploited. Changes in the
Resources are an essential component of a successful entrepreneurial launch. The most important
resource is usually money, but human resources, strong and skilled management, is also an
essential asset. Social capital, or entrepreneurs who have extensive social networks or well-
Launching a competitive venture requires a special kind of leadership involving courage, belief
in one’s convictions, and having the energy to work hard. Three characteristics of entrepreneurial
leaders are:
Vision
To achieve excellence, venture founders must understand the customer, provide quality products
With Mark Pincus as the founding entrepreneur, the competitive advantage offered by the
resources he acquired and developed, and the opportunities present in the external environment,
how did Zynga exploit those factors to achieve a sustainable competitive advantage? Certainly
Pincus saw an opportunity based on the growth of social networking, and he tested his skills via
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Although the new venture took advantage of an opportunity where there was demand (the
interest in easily accessible, fun, and interactive online games), where the product development
was easily achievable (talented individuals could write code in the newly available Facebook
New entry into markets, whether by start-ups or by incumbent firms, nearly always threatens
existing competitors. This will likely provoke a competitive response. Competitive dynamics
intense rivalry among similar competitors – has the potential to alter a company’s strategy. New
entrants may be forced to change their strategies or develop new ones to survive competitive
challenges by incumbent rivals. Companies launch competitive responses to:
Improve market position
Capitalize on growing demand
When Zynga began, it had obtained a first mover advantage. However, the firm had not been
able to protect that advantage. Certainly the online gaming industry creates very few barriers to
entry for new competitors, but sustainable growth may be difficult without additional innovation.
NOTE – ADDITIONAL WEB LINKS:
As of 2011 Zynga had made 14 acquisitions, many of which were dubbed “acqui-hires,”
acquisitions of only a company's team and not its assets. See
http://mashable.com/2011/05/18/zynga-dna-games/ One more recent acquisition, of Spooky
Cool Labs in June 2013, brought talent in the person of Joe Kaminkow, who brought a “vast
knowledge of real money gaming” to Zynga. As the analyst says, “Who better to design online
slot games based on Zynga games than one of the most recognizable names in the history of
slots? Kaminkow holds patents and contacts that will help Zynga get a leg up on the
competition.” See http://seekingalpha.com/article/1528402-zyngas-latest-acquisition-of-spooky-
cool-labs-all-about-talent
This came after Zynga shut down the acquisition it made in 2012, OMGPOP, which Zynga had
acquired in order to get the game Draw Something. According to this article, the game quickly
lost users “shortly after the Zynga acquisition. The game might have been a huge hit for the first
couple of weeks, but as with a lot of games, they start to lose their lasting appeal after a while,
and that’s probably what happened with Draw Something.” This illustrates how acquisitions need
to be carefully assessed for their durability and ability to generate profit instead of just adding
cost. See http://www.slashgear.com/zyngas-omgpop-studio-shut-down-14-months-after-
acquisition-04284917/
Zynga had also tried to develop something in the online gambling market (real money gaming!)
by filing an application for a Nevada gaming license in December 2012. The company started
offering online gambling in the U.K. in April, 2013, but by July 2013 Zynga “made the focus
choice” not to pursue online gambling in the U.S. See
http://money.cnn.com/2013/07/26/technology/zynga-online-gambling/index.html
See more financial news about Zynga (ZNGA) at
http://finance.yahoo.com/q?s=ZNGA
and visit the company’s website at http://zynga.com/ to see the current game offerings. Visit
http://investor.zynga.com/ to find out more about the business.

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