978-1259278211 Case 24 Solution Manual Part 2

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Tangible Resources:

Financial: large holdings in cash & equivalents, but total income and asset value has declined

from 2010.

Physical: presumed adequate.

Technological: access to state-of-the-art technology tools, support for independent research

Organizational: team-based approach to management structure further encouraged creativity.

Intangible Resources:

Human: creative culture may have given Nintendo developers the initial opportunity to acquire a

Innovation and creativity: culture of experimentation appeared to encourage innovation without

Reputation: strong brand loyalty due to the legacy games such as Donkey Kong, Zelda, and

Determining whether the internal resources are valuable, rare, difficult to imitate, or difficult to

substitute (VRIN) can help a firm sustain a competitive advantage. See Exhibit 3.6. Applying the

VRIN concept, Nintendo had resources that were both valuable and rare. Its approach to

NOTE – ADDITIONAL READING, WEB LINKS, VIDEO:

Regarding the operations issue around adequate supply, in November 2008 there was speculation

that Nintendo had not calculated demand properly, and that the previous shortage of Wii consoles

would now turn into a glut:

http://www.pcworld.com/businesscenter/article/153796/nintendo_wii_shortage_turning_into_a_g

lut_for_the_holidays.html

What points does this article make about the necessity of managing technological supply chains?

Which components of this supply chain should Nintendo worry about the most?

Arguably, one of the most valuable, rare, and inimitable resources Nintendo has is its video game

designer Shigeru Miyamoto, Nintendo’s Senior Managing Director and General Manager,

Entertainment Analysis & Development Division. See an overview here:

and report from June 2009 on his new ideas at that time:

And view a video interview at a gaming conference in 2007 where Shigeru Miyamoto discusses

the new version of Super Mario Brothers and the origins of the Wii:

http://www.youtube.com/watch?v=RR9_rBjRGR0

Here’s a story about how Miyamoto’s genius emerged:

http://www.newyorker.com/reporting/2010/12/20/101220fa_fact_paumgarten

Regarding the Wii U, in 2012 Miyamoto did not appear concerned about the possible coming

competition from Microsoft and Sony. When asked if the Wii U will stand alongside whatever

Nintendo pays attention not only to how much hardware will cost to build but how much its

customers will pay, and whether the console can adapt to what’s in the customer’s living room.

For instance, Miyamoto said, “We also think about the environment that we’re designing for. So

Nintendo appears to want to fundamentally change the relationship between the television and

the game console in a way other hardware makers can’t.…Nintendo also views the move from

standard definition to high definition as a key moment for its own development, regardless of the

Regarding decisions about how the Wii U console was developed, Miyamoto described the

communication with Nintendo designers: “In order to maintain a consistent development

Also in 2012, Miyamoto discussed and addressed the potential schism in video games –

acknowledged by Nintendo during its E3 presentation – between more traditional, in-depth

gaming experiences and the rise of casual games. While he stressed the company’s commitment

to the former, he also expresses an interest in opening up one of Nintendo’s most important

In 2013, Nintendo’s President Satoru Iwata discussed the lack of Wii U’s sales, and admitted that

the only solution is to bring out “a number of quality software titles.” However, other gaming

analysts believed the small size of the Wii U’s memory – only 32GB – might keep both

What do you think is the appeal of the classic Nintendo products, and what can Nintendo do to

retain and further develop their human resources, such as Miyamoto? Will the company be able

to make good decisions in the future to keep the innovation going in the right direction?

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

competitive advantage?

Referencing Chapter 5: Formulating Business-Level Strategies –

A competitive strategy is linked to the value chain, and supported by intangible assets. Nintendo

has great strengths in its human resource and technological support activities, and in its

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

contend with other gaming console companies. The question of how to compete in a given

business to attain competitive advantage requires an assessment of the types of competitive

strategies, including the three generic strategies that are used to overcome the five forces and

achieve a 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

Overall Cost Leadership: With the overall cost leadership strategy, a firm dissects each

component of the value chain in an effort to trim costs in each area. The cost leader uses its

Differentiation: A firm differentiates itself by creating a product or service that is unique and

valued by customers. Differentiation can be achieved through brand image, technology,

Focus: A focus strategy is based on choosing a narrow competitive scope within an industry. A

firm achieves competitive advantage by tailoring strategy to serve a segment or group of

Nintendo’s strategy for the Wii was to create a video game system that would successfully

compete with the Play Station and the Xbox. Nintendo’s engineers created low-cost leadership

Nintendo’s engineers also created differentiation by developing an innovative motion sensor

controller that let the player become a physical part of the game. Nintendo redeveloped the

controller to make it an extension of the player’s body, enabling a player to use body motion to

However, this Wii innovation could be copied, and subsequent innovation has not yet appeared to

further differentiate Nintendo in the marketplace. Although the original Wii was designed not

only to be innovative but also cost-effective to produce, the Wii U doesn’t seem to be that cost

effective. (Not in the case: the Wii U was initially offered at a price that represented a loss on

This means Nintendo’s business strategy of differentiation wasn’t working, and low-cost

leadership was no longer an option with the Wii U. Should Nintendo try to create a focus strategy

by further targeting a specific niche customer, such as the family?

http://www.forbes.com/sites/patrickmoorhead/2013/03/25/new-game-console-success-isnt-a-

foregone-conclusion/

NOTE – ADDITIONAL READING, EMBEDDED VIDEO:

Here’s a review by CNET that has some videos demonstrating the first Wii device, and then

discussing the difference between the Nintendo, Sony and Microsoft products, and demonstrating

accessories:

http://www.cnet.com/nintendo-wii.html (scroll down for videos, let them play one after another)

For a review of the original Wii U that shipped at the end of 2012, see the video at

http://cnettv.cnet.com/unboxing-nintendo-wii-u/9742-1_53-50136166.html where the reviewer

says there’s no doubt the Wii U is an innovative game system, but the game pad is clunky, hard

Here’s the full CNET review of the Wii U: http://reviews.cnet.com/nintendo-wii-u/?

tag=mncol;AlwaysOn The bottom line: Despite some clever dual-screen gaming mechanics, the

The introduction of the Wii and Wii Fit opened up a whole new class of user, and a whole new

set of applications for the gaming system: psychological research into the connection between

To further understand Nintendo’s global strategy, download the most current Annual Report from

http://www.nintendo.com/corp/annual_report.jsp

In the 2007 report, Nintendo said it would continue into 2008 to “offer brand new entertainment

that takes root in our daily lives”. Regarding the Wii, “Wii will encourage communication among

family members as each of them can feel something relevant to themselves and be motivated to

turn on the power everyday in order to enjoy ‘the new life with Wii’.” Do you think Nintendo

succeeded with this vision?

One commentator in May 2009 argued that the Wii’s hype may have worn off, especially given

its drop in sales (down 52 percent year over year). Citing criticism of the low resolution graphics,

“gimmicky controls, and limited selection of good games”, the suggestion is to drop the price to

boost sales:

However in May 2009 Nintendo also reported a 10% rise in sales and a 14% gain in operating

profits overall, partly because of the release of the new portable Nintendo DSi. Forecasts were

for a 12 percent reduction in profit, presaged by a 47 percent drop-off in Wii sales in Japan:

View the current stock information at:

A related article from July 2009 points out that female gamers are on the rise, partly because of

the Wii:

http://www.forbes.com/2009/07/06/video-games-girls-markets-equities-technology.html?

partner=yahootix and an update for the industry in March of 2013

opines that because of advances in smartphone, HDTV, and computer video card technologies,

the gaming consoles “will now, for the first time, share living room gaming space with a new

foregone-conclusion/

In August 2013 one analyst wondered about the entire gaming console business as a whole – that

Microsoft and Sony have just as big a problem as Nintendo does, going forward, with the entry

of new competitor products and devices from the likes of Amazon, Ouya, and Nvidia’s “Shield”,

using Google’s Android gaming code:

How does Nintendo stock performance seem to compare to other consol creators such as Sega,

Sony, and Microsoft, or to game designers such as Electronic Arts, and conglomerates such as

Activision Blizzard? What about competition coming from Amazon and Google?

From a 2007 article in Business Week: Nintendo is currently riding high on the Wii, but the

picture hasn’t always been rosy. How has it been able to bounce back? For one thing, when faced

with decline, it takes a risk:

http://www.businessweek.com/stories/2007-06-27/nintendos-winning-waysbusinessweek-

business-news-stock-market-and-financial-advice

Several people have commented that Nintendo appears to have utilized Kim & Mauborgne’s

These articles suggest that Nintendo’s continued ability to be profitable is based in its frugality,

its single-minded focus on its core, and its desire to “make the competition irrelevant”. Do you

think Nintendo has been lucky, or has it operated successfully by using a clear strategy?

Nintendo continued to refine the motion sensing properties of the Wiimote. In June 2009 the Wii

MotionPlus remote was introduced to “create a true one-to-one correspondence between your

actions and those onscreen.” Electronic Arts produced two games to go along with this new

In September 2015 Tatsumi Kimishima took over as Nintendo’s president, replacing Satoru

Iwata, beloved former leader of the company, who tragically died in July. Kimishima has a lot to

deal with: “Nintendo’s current place in the market has been minimized,” Christine Arrington,

senior analyst for Games at IHS Technology told Fortune. “While it still holds the interest of its

core young gamer demographic, the Wii U was not a big enough change to create upgrade

With the dismal results so far for the Wii U, and change at the top, does this mean the leading

edge of innovation is over for Nintendo?