978-1259278211 Case 15 Solution Manual Part 2

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Referencing Chapter 5: Business-Level Strategy

A competitive strategy is supported by intangible assets. Zynga had great strengths initially in its

In order to achieve a sustainable competitive advantage, Zynga had to assess its ability to

contend with other game developers. The question of how to compete in a given business to

competitive advantage:

●Overall cost leadership

oLow-cost-position relative to a firm’s peers

●Differentiation

oCreate products and/or services that are unique and valued

●Focus strategy

oNarrow product lines, buyer segments, or targeted geographic markets

Generic strategies are plotted on two dimensions: competitive advantage and strategic target. The

Zynga adopted a focus strategy, by targeting buyer segments that were composed of heavy social

networkers, specifically Facebook users. As a first mover in this market, Zynga was able to

create a unique product that quickly became valued for its ease of play, yet was challenging

NOTE – ADDITIONAL WEB LINKS, EMBEDDED VIDEO:

See a video from 2009, “Inside Zynga” about how the company works, from people who work

there, including Mark Pincus – note that this is a positive spin on the working

environment…”relaxed, but focused on getting things done”, a “meritocracy”, “all about

performance, all about what works”:

https://www.youtube.com/watch?v=MeRfnXbKbko

For an explanation of how addictive game play can be on a Zynga game such as Farmville, see

the following story from 2011 about Mark Pincus and his secret to success. As detailed in the

Securities. “The answer is both. But the truth is that it’s a delicate eco-system.”

And in a section describing how Pincus came up with the idea for his game business model, it

says the following (this is a direct quote from the article): [Pincus] started to think about what

would happen in games if you could, essentially, pay for a coach. Why couldn’t you gain an

advantage in games by paying for it? “I was addicted to this online game, Rise of Nations, where

you move your nation through civilizations, to the point that it really hurt a relationship I was

And in another section, the article describes how Mark Pincus’s personal relationship with Mark

Zuckerberg was critical to the two company’s continued business relationship (the importance of

Regarding the essentially “unethical” nature of online social gaming, see the article from 2009,

making the point that “game developers who monetize the best (and that’s Zynga) make the most

money and can spend the most on advertising. Those that won’t touch this stuff (Slide and

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?

Referencing Chapter 9: Strategic Control and Corporate Governance

Once strategy is formulated, the firm must implement it and monitor its effectiveness. Strategic

control involves the process of monitoring and correcting a firm’s strategy and performance. In a

traditional control system, top management formulates strategies and sets goals. These strategies

This approach utilizes two different types of strategic control: informational control and

behavioral control. These two types of control play a role in the formulation and implementation

of strategies. Informational control is a method of organizational control in which a firm gathers

Informational control is concerned with whether or not the organization is “doing the right

things,” while behavioral control is concerned with whether or not the organization is “doing

Chapter 9 emphasizes the importance of aligning both informational and behavioral control

systems with organizational strategy. The information gained from the internal and external

environment is reviewed against the firm’s strategy and goals. If the results are not what was

Both the informational and behavioral components of strategic control are necessary, but not

sufficient, conditions for success. What good is a well-conceived strategy that cannot be

Zynga appears to practice a contemporary control system using informational control via

feedback from the marketplace. Although not stated specifically in the case, it’s assumed that

Regarding behavioral controls, especially under Pincus, it’s obvious that employees, specifically

game developers, were punished, rather than rewarded, for not copying code from other

Even though the presence of these strategic controls, both informational and behavioral, lead to

Zynga’s profitability, it’s hard to say these controls were effective. Chapter 9 discusses the

importance of a strong, positive culture and reward systems that rely more on achievement of

An organization can get into problems when it uses one component of behavioral control as a

substitute for the other. In case of Zynga, there WAS a strong culture – one that emphasized the

need to “do evil” in pursuit of profit – and the role model was there in the person of Mark Pincus

(after all, he DID win an award for his entrepreneurial activities), but the rewards and incentives,

Referencing Chapter 11: Strategic Leadership

Part of implementation requires leadership to make sure the firm is staying true to its original

vision, mission, and strategic objectives. See the concept of leadership, the process of

transforming organizations from what they are to what the leader would have them become.

Leadership is proactive, goal oriented, and focused on the creation and implementation of the

creative vision. This definition implies dissatisfaction with the status quo, a vision of what

should be, and process for bringing about change. Leaders are change agents whose success is

measured by how effectively they formulate and implement a strategic vision and mission. See

Chapter 11, Exhibit 11.1. This involves:

●Setting a direction

The interdependent nature of these three activities is self-evident. Consider an organization with

a great mission and a superb organizational structure, but a culture that implicitly encourages

Leaders need to set the direction for the organization by continually scanning the environment to

develop knowledge of all stakeholders and knowledge of salient environmental trends and

Leaders are responsible for designing the organization: a strategic leadership activity of building

structures, teams, systems, and organizational processes that facilitate the implementation of the

Leaders play a key role in changing, developing, and sustaining an organization’s culture. An

excellent and ethical organizational culture is an organizational culture focused on core

In nurturing a culture dedicated to excellence and ethical behavior, managers and top executives

must accept personal responsibility for developing and strengthening appropriate behavior;

consistently demonstrate that such behavior is central to the vision and mission; develop and

Through Mark Pincus’ vision and the example he set for his firm, he did set a direction for the

firm that was proactive. He also designed a process that appeared to get the product to the

customer quickly, therefore achieving the desired end of maximizing profitability. It seems likely

Leaders, especially those who have responsibility for some degree of public trust, must also

maintain at least the outward appearance of an ethical business culture. See the definition of

organizational ethics toward the end of Chapter 11: organizational ethics are the values,

attitudes, and behavioral patterns that define an organization’s operating culture and that

Organizational ethics helps to define what a company is and what it stands for. The ethical

orientation of the leader is a key factor in promoting ethical behavior, promoting an ethical

orientation. A strong ethical orientation can have a positive effect on the organization’s

The ethical organization is characterized by a conception of ethical values and integrity as a

driving force of the enterprise. Ethical values shape the search for opportunities, the design of

organizational systems, and the decision-making process used by individuals and groups. They

As evidenced by the multiple legal challenges and bad press, Mark Pincus did not demonstrate

an ethical orientation. This was also evident in the firm’s poor human capital. Ethical values and

NOTE – CASE UPDATES, ADDITIONAL WEB LINKS, EMBEDDED VIDEO:

In October 2012, Zynga’s third-quarter results reported a net loss of between $90 million and

$105 million, a new all-time low for the company. At that time, analysts suggested shareholders

See http://www.pcmag.com/article2/0,2817,2410638,00.asp Shareholders subsequently sued,

alleging “that Zynga failed to warn them about declining revenue ahead of the company’s

earnings report.” See http://www.pcmag.com/article2/0,2817,2407931,00.asp

By 2013, Zynga had taken steps to correct its slumping business by laying off 18 percent of staff

(520 employees in June, 2013) with the action taken reportedly to reduce costs – The move was

See a video overview of Zynga’s troubles, including a description of Zynga’s “creative

bankruptcy,” at https://www.youtube.com/watch?v=XcRWOP1u-cE , and read the comments!

In July of 2013, Mark Pincus was replaced as CEO by Don Mattrick, formerly president of

Microsoft’s Interactive Entertainment unit, responsible for X-Box gaming at Microsoft. Pincus

was to remain chief product officer and chairman of the board. See

However, in April 2015 Mattrick resigned and Mark Pincus was back in charge, even though

reports were that the company was “beginning to move in the right direction under Mattrick.”

See http://www.reuters.com/article/2015/04/09/us-zynga-ceo-idUSKBN0MZ28B20150409 In

May Pincus announced he was laying off 18 percent of Zynga’s staff, in an attempt to “return

Zynga to its more nimble roots:

I’ve been encouraged in my first few weeks by the level of talent and commitment throughout

our company. But, I’ve also heard teams express frustration. They want to move faster and take

more shots on goal. In order to win, we need to return to our entrepreneurial roots with leaders

Referencing Chapter 12: Managing Innovation and Fostering Corporate Entrepreneurship

Innovation involves using new knowledge to transform organizational processes or create

commercially viable products and services using the latest technology, experimentation, creative

For instance: There are “five disciplines” for creating what customers want:

●Identify important customer needs

●Create solutions that fill those needs

Zynga appeared to be able to do the first two, and certainly the last one (value as in profitability),

Before proceeding, firms must first define the scope of the innovation efforts, and must ensure

A strategic envelope defines the range of acceptable projects. Strategic envelope means a firm-

specific view of innovation that defines how a firm can create new knowledge and learn from an

innovation initiative even if the project fails. The strategic envelope also gives direction to a

In defining the innovation scope, a firm should answer several questions:

●How much will the innovation cost?

●How likely is it to actually become commercially viable?

●How much value will it add; that is, what will it be worth if it works?

●What will be learned if it does not pan out?

Referring back to Mark Pincus’s statement about innovation, one of the most important things he

wanted Zynga to do was to copy the success of others. It could be argued that Pincus did give

direction to the firm’s innovation efforts, separating the “seeds from the weeds” by focusing only

The challenges of innovation involve:

●Choosing when and how to continue to innovate

●The scope and pace of future innovation

In addition, it helps if leadership can embrace the entrepreneurial orientation – autonomy,

innovativeness, proactiveness, competitive aggressiveness, and risk taking – necessary to sustain

the pace of innovation. A culture of entrepreneurship means a search for venture opportunities

The interesting thing about this case is that Pincus did appear to “embrace the entrepreneurial

orientation” – he did take risks by ignoring intellectual property boundaries, he was certainly

competitively aggressive and proactive in sustaining his company’s profitable product design and

It remains to be seen what Zynga will become after the recent leadership shift. Will Zynga truly

be able to be innovative in the future?

For advanced students, the instructor might want to assign the 1996 article by Lumpkin & Dess,

References

Lumpkin, G.T. & Dess, G.G. 1996. “Clarifying the entrepreneurial orientation construct and

linking it to performance”. The Academy of Management Review, 21(1): 135-172.