978-1259278211 Case 15 Solution Manual Part 1

Unlock access to all the studying documents.

View Full Document

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

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

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,

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

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

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.

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

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.