978-1259278211 Case 24 Solution Manual Part 1

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Teaching Note: Case 24 – Nintendo’s Wii U

Case Objectives

1. To examine how external and internal forces affect competitive strategy.

See the table below to determine where to use this case:

NOTE: There are both PRIMARY and Secondary chapters that can be used for this case. The

Teaching Note gives guidance for the PRIMARY use chapters and provides suggestions if the

instructor wants to use the case to illustrate concepts from the optional Secondary chapters.

Chapter Use Key Concepts Additional Reading and/or

Exercises

PRIMARY

2: External

Environment

Industry competition five forces; general

NOTE industry report

3: Internal Analysis Value-chain analysis; resource-based

NOTE additional reading,

SECONDARY

CONCEPT

5: Business-Level

Strategy

Competitive strategy; generic strategies NOTE web article

Case Synopsis

In 2006, Nintendo had introduced its blockbuster next generation video game console – the Wii.

This new console introduced an innovative motion sensor game controller that enabled a user to

swing it in the air when playing video games, for example to mimic the motions of a batter,

In late 2012 Nintendo released its newest game controller/console, the Wii U, and initial sales

were not what Nintendo had anticipated. While it did bring some intriguing improvements to the

table, it didn’t appear to be innovative enough to once again allow Nintendo to leap ahead of its

competition the way it did with the Wii. One problem may have been the lack of new games

Nintendo had been a very successful company. Yet Nintendo sat in the midst of two potentially

dominating firms: Sony with its PlayStation and Microsoft with Xbox. In 2008 Nintendo had

been in the lead in video console sales growth and second to Microsoft in overall units sold.

Within two years of its 2006 release, Nintendo Wii had become the market leader of the

generation. However, by 2013 both Microsoft and Sony had not only copied the motion-sensing

technology, but they had started to invade Nintendo’s key casual family-user market, and in 2014

Teaching Plan

The Nintendo case relies on a good understanding of how internal assets and the forces in the

external environment drive competitive strategy, especially in a fast-moving industry. Therefore,

the instructor could position this case toward the beginning of the course, as students are

considering strategic analysis and formulation.

The instructor may also wish to use this case as a complement to the Apple case, since both rely

on strategic implementation to maintain competitive advantage. In both companies, although

innovation had allowed them to beat the competition, sustaining that innovative advantage, at

least in Nintendo’s case, was proving difficult to do.

ICEBREAKER

Since probably all students have at least heard of the Nintendo Wii, and probably some of them

have either used or own one, it might be illustrative to ask:

How many of you have used the Wii? Even if you haven’t used it, what’s your opinion?

How many of you have also used a Sony Play Station or Microsoft Xbox? How does the Wii

compete with these?

How many of you have used the Wii U? What do you think about this product?

The instructor might want to list student’s opinions about the Wii on the board. This will

illustrate Nintendo’s initial competitive advantage over competitors, a well as point out any

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

1. What were key forces in the general and industry environments that affected Nintendo’s

choice of strategy?

2. What internal resources and assets did Nintendo have that gave it a competitive

advantage?

3. OPTIONAL QUESTION: How did Nintendo compete? Could Nintendo sustain a

competitive advantage?

Discussion Questions and Responses

1. What were key forces in the general and industry environments that affected

Nintendo’s choice of strategy?

Referencing Chapter 2: Analyzing the External Environment –

Organizational leaders must become aware of factors in the overall environment that might affect

their ability to create a competitive advantage. So how do managers become environmentally

Environmental scanning involves surveillance of a firm’s external environment to predict

environmental changes and detect changes already under way. It is a BIG PICTURE viewpoint

Environmental monitoring is a firm’s analysis of the external environment that tracks the

evolution of environmental trends, sequences of events, or streams of activities. Leaders need to

What factors or trends might be most important to Nintendo? To assess how the external

environment might affect Nintendo’s strategy, it’s necessary to take a look at the factors in the

Political-Legal: Political-legal issues, especially the issues around copyrights, product safety,

Demographic: Certainly the demographics had changed. Baby boomers were getting older, while

the youngest generation was much more “wired”. But U.S. potential consumers were also living

Sociocultural/Global: Customers were growing increasingly sophisticated. They knew what they

wanted and didn’t want to pay a lot for it, but they could be seduced by a “sexy” design.

Technological: Technology, especially the growth of the Internet, had created new opportunities

and challenges for delivery of content and for promotion. The pace and direction of change

Help students apply Porter’s Five Forces of Competition to the video game console industry by

drawing a diagram on the board similar to the following and having students fill in the details:

Rivalry

Very High

Substitutes

Buyers’

Power

Suggested: The three major

rivals compete for market share.

Quest for lower prices pushes

the end consumer has

little economic power,

Suggested: Depending on the

commodity, lots of competition

among suppliers keeps supply up

Suggested: Within the

video game industry the

threat of substitute

New

Suggested: With three companies

Based on the external environmental factor analysis, the video gaming business has three strong

competitors trying to carve out a piece of the “profit” pie. The rivalry is very strong in the video

game industry. Each company tries to be the first company to introduce the latest generation of

NOTE – ADDITIONAL WEB LINK TO INDUSTRY INFORMATION:

Global business requires assessment of many factors. This special report from October of 2007

highlights some of the challenges facing the video gaming industry:

http://www.businessweek.com/innovate/di_special/20070813thepowerof.htm

The Entertainment Software Association published “Essential Facts about the Computer and

Video Game Industry” in 2013, available at http://www.theesa.com/wp-

content/uploads/2014/10/ESA_EF_2014.pdf Several interesting facts emerge; for instance, in the

U.S., women age 18 or older represent a significantly greater portion of the game-playing

population (31 percent) than boys 17 age or younger (19 percent). Some of the top reasons

What are some of the external environmental factors highlighted in this collection of reports that

Nintendo should consider?

2. What internal resources and assets did Nintendo have that gave it a competitive

advantage?

Referencing Chapter 3: Analyzing the Internal Environment –

When one firm outperforms others by a wide margin over a long period of time, it’s important to

figure out how this could be. The answer may lie in how that firm arranges its activities and

Remember, value-chain analysis is a strategic analysis of an organization that uses value-creating

activities. Value is the amount that buyers are willing to pay for what a firm provides them and is

Every activity should add value. Take a look at Exhibit 3.1 to see the value chain activities.

Based on the relationships between these elements, Nintendo can make a choice of how to

proceed to craft a competitive advantage. Nintendo’s value chain is captured visually in the

following diagram:

Value chain activity How did Nintendo create value for the customer?

Primary:

Inbound logistics (distribution

Not in the case: Poor assessment of initial Wii product

Operations (efficient work flow

Appears to be a cost efficient production process for the

Outbound logistics

scheduling, finished goods

processing)

Significant delays producing games to play on the

Marketing and Sales (motivated

sales people, innovative

Developed a product for all ages, effective and creative

promotion of the original Wii via TV, Internet, and

Service (ability to solicit

customer feedback & respond)

Presumed good, due to presence of loyal customers.

Secondary (or support):

Procurement (win-win

reduced dependence on single

supplier)

Relationships with third-party developers appear to be

Technology development (state

personnel)

Open-ended, team-based approach to innovation, access

Human resource management

& retention mechanisms)

Excellent recruitment and retention of key talent was

General Administration

Poor planning, lack of anticipation of product

access to capital, effective top

stakeholders)

Wii brought more profit per console than the Microsoft

Primary Activities

In terms of primary activities, the key to Nintendo’s ability to differentiate itself in the market

appeared to reside in its operational choices and marketing. However, lack of finished goods

Support Activities

With regards to support activities, a competitive advantage is achieved by developing a strong

general administration that is built around visionary leadership and a culture that pushes for

In addition, see the concept of the resource-based view of the firm, and the three key types of

resources: tangible resources, intangible resources, and organizational capabilities. A firm’s

strengths and capabilities – no matter how unique or impressive – do NOT necessarily lead to a

An important issue to focus on here is the importance of intangible resources like innovation and

reputation. Especially in mature brands like Nintendo (well-known for the NES, DS, and