CASE 17
Zynga INC. (2011): Whose Turn Is It?
17-12
5. Human Resource Management (HRM)
a. Zynga is determined to acquire the most skilled gaming developers,
program managers, and engineers. It offers above average benefits
and autonomy. HR has a Chief People Officer (CPO) and hires skilled
workers through acquisitions (S/W).
i.i. This is clearly stated.
ii.ii. This is consistent with growth and innovation strategy.
b. The main challenge for HRM is the ability to integrate employees
hired through acquisitions into Zynga’s competitive culture. As of
2011, 54 percent of employees had worked for Zynga less than one
year and 84 percent for less than two years. Some reports from
innovation. High turnover will limit innovation (W).
iv.iv. HRM DOES NOT provide a competitive advantage (W).
c. N/A
d. HRM has developed strong autonomous work teams but there is no
evidence of strong training or orientation programs for newly
acquired employees (S/W).
e. N/A
f. N/A
g. It is implied that the CPO plays a main role in the strategic
management process, but there is no evidence (W).
6. Information Systems (IS)
a. Zynga’s IS objectives, strategies, policies, and programs are
designed to increase innovation and develop monetized games.
i. This is clearly stated and validated with a high R&D
budget.
CASE 17
Zynga INC. (2011): Whose Turn Is It?
17-13
However, Zynga has now developed its own website (Zynga.com: Zynga
With Friends) to serve customers directly (S).
i. The contract with Facebook limits control of launching
games and requires players to have Facebook accounts. The
growth or decline of revenue is closely tied to Facebook. The
new IS infrastructure will enable Zynga to control user data
(S).
ii. The ability to own and control all IS capabilities should
reduce costs (S). The five–year contract (2010–2015) with
c. The stage of development for Zynga’s Information Systems, compared
to competitors, is above average (S).
d. It is unclear whether Zynga’s IT professionals are using
appropriate concepts and techniques to evaluate and improve corporate
D.(SEE IFAS TABLE)
Core Competencies:
1. Ability to develop multiple games at one time.
Distinctive Competencies:
1. Ability to re–engineer existing products quickly.
The most important factors for Zynga, in relation to competitors, are its
highly–skilled employees, strong IS system, and position for international
growth. Zynga’s ability to quickly design, develop, and launch its new
games, across the globe, will be important in the future.
V. Analysis of Strategic Factors (SWOT)
A. Situational Analysis—see SFAS table
Most important internal factors:
CASE 17
Zynga INC. (2011): Whose Turn Is It?
17-14
● Position for international growth (S)
Most important external factors:
● Advancing technology (O)
B. Review of Mission and Objectives
1. Zynga is in the business of developing online social games. This
mission does not need to be changed or adjusted. However, the
company’s objectives will need to be adjusted.
2. Zynga is focused on increasing the amount of players and overall
growth of the company. At this point, it should move away from
3. These changes will reduce expenses and increase revenue. A
singular, short–term, objective of monetizing games will limit
wasteful spending. All decisions and goals should be aligned
with increasing revenue from players.
VI. Strategic Alternatives and Recommended Strategy
A. Strategic Alternatives
1. Yes, Zynga’s objectives can be met by fine–tuning their strategies.
For example, only acquiring companies that can help or already
2. Alternative strategies are:
● Changing the free access Zynga allows users by developing a fee–
based business model (start with a free trial, then charge a
monthly or annual fee for playing the games).
CASE 17
Zynga INC. (2011): Whose Turn Is It?
17-15
Cons: innovation loss (from potential acquired companies), hurt
international expansion by reducing acquisitions, reduce
revenue.
a)
i. Cost Leadership—N/A
b)
i. Growth—charge platform partners for the right to build games
on zynga.com platform, plus future royalty fees for any games
built.
Pros: increase revenue
c)
i. If Zynga only concentrates on a small number of games, then
marketing dollars would have to be re–allocated.
ii. Zynga will need to cut R&D, operations, finance, and HR
budgets.
B. Recommended Strategy
1. The strategic alternatives that we are recommending are the fee–
based business model, which would include charging platform
partners for using zynga.com and the retrenchment strategy.
2. The fee–based business model would be a long–term strategy, along
with the development of new revenue streams (e.g. mobile
3. In order to implement the fee–based business model, Zynga will have
4. Our recommendations may hurt their brand, their ability to have a
game for every genre, and take away their technological
leadership.
VII. Implementation
A. Types of Programs Needed:
Organizational Structure
CASE 17
Zynga INC. (2011): Whose Turn Is It?
● Restructuring from centralized to decentralized.
Marketing and R&D Programs
● Marketing should focus on fee–based games.
● R&D should focus on enhancing existing games.
1. The CEO and top management should develop these programs.
2. The VP of business and corporate development, along with individual
studio managers, will be in charge of the programs.
B. Yes, the programs are financially feasible. The recommended strategies
VIII. Evaluation and Control
A. It is not clear if Zynga’s information system is capable of providing
sufficient feedback on implementation activities. The case discusses the IS
as a user capability rather than an internal/monitoring capability.
B. It is not clear if Zynga has adequate control measures in place to ensure
conformance of the recommended strategic plan.
1. N/A
Exhibit 1. External Factor Analysis Summary (EFAS)
External Factors
Weight
Rating
Weighted
Score
Comments
CASE 17
Zynga INC. (2011): Whose Turn Is It?
17-17
Opportunities:
Advancing
Technology
0.25
5
1.25
With technology advancing, Zynga
can develop more advanced games,
like they did with mobile gaming.
Growing Popularity
of Online/Mobile
Games
0.05
4
0.2
More and more people are
interested in joining the online
gaming world.
Growing Popularity
of Interacting
Online
5
Playing games online with friends
is another form of social
Threats:
Lack of Patent
Regulations
0.1
1
0.1
Zynga has been in violation of
copying competitor games, which is
commonly found in the industry.
Advancing
Technology
0.05
2
0.1
The advancing technology can be a
threat if competitors take
advantage of it before Zynga.
High Threat of
Substitutes
2
0.4
Zynga needs to divert attention
away from substitutes in order to
stay afloat.
Exhibit 2. Internal Factor Analysis Summary (IFAS)
Internal
Factors
Weight
Rating
Weighted
Score
Strengths:
CASE 17
Zynga INC. (2011): Whose Turn Is It?
Highly–
Skilled
Workers
.1
4
.4
Global
Presence
.15
5
.75
.1
3
.3
De–
2
.1
Strong Brand
Recognition
.1
5
.5
Weaknesses:
High
Operating
Costs
.15
5
.75
High
Employee
Turnover
.05
2
.1
Decreasing
Revenue
Growth
.15
5
.75
Reliance on
4
CASE 17
Zynga INC. (2011): Whose Turn Is It?
17-19
TOTAL
1.00
4.15
Exhibit 3. Strategic Factor Analysis Summary (SFAS Table)
Strategic
Factors
Weight
Rating
Weighted
Score
Short
Medium
Long
Comments
Brand
Recognition
.15
5
.75
X
The company’s brand
is an important
competitive
advantage. It will
need to support and
increase brand
recognition for long–
term success.
retention of existing
employees.
High
Operating
Costs
.2
1
.2
X
X
X
Expenses are out of
control. It is one of
the most important
factors and is not
being addressed.
Zynga should focus on
a short, medium and
long–term strategy.
CASE 17
Zynga INC. (2011): Whose Turn Is It?
strategies.
Advancing
Technology
.05
3
.15
X
Technology changes
rapidly. Strategy for
updating technology
and innovation has a
one–to–three year
horizon.
High Threat
of
Substitutes
.1
3
.3
X
Offering a higher
perceived value,
compared to
substitutes, requires
a long–term strategy.
Exhibit 4. Financial Ratio Analysis–Profitability—using net profit and net sales
2. Profitability Ratios
2011
2010
2009
Net Profit Margin
(35.46%)
15.16%
(43.49%)
Gross Profit Margin
71.05%
70.53%
53.31%
ROI
(16.07%)
2.15%
(20.41%)
ROE
(23.11%)
5.78%
245.94%
EPS
$0.11
Financial Ratio Analysis–Profitability—using bookings and EBITDA
2. Profitability Ratios
2011
2010
2009
CASE 17
Zynga INC. (2011): Whose Turn Is It?
17-21
Net Profit Margin
26.25%
46.82%
51.27%
Gross Profit Margin
71.44%
79.01%
33.98%
ROI
12.05%
35.30%
64.98%
ROE
17.33%
81.44%
(783.07%)
EPS
1.05
1.75
(0.31)
Exhibit 5. Financial Ratio Analysis—Activity—using standard revenues and net
income
3. Activity Ratios
2011
2010
2009
Notes
Inventory Turnover
N/A
N/A
N/A
No inventory
listed
Days of Inventory
N/A
N/A
N/A
No inventory
listed
Net Working Capital
Turnover
0.84
1.55
–9.73
0.45
0.54
0.47
Fixed Asset Turnover
4.62
7.97
3.49
Average Collection Period
43.42 days
8.41
7.47
16.97
Accounts Payable Period
7.50 days
5.27 days
2.64 days
Days of Cash
506.58
days
114.75
days
382.64
days
Exhibit 6. Financial Ratio Analysis—Liquidity—using standard revenues and net
income
Liquidity Ratios
2011
2010
2009
Notes
Current Ratio
3.03
1.74
0.95
Quick Ratio
3.03
1.74
0.95
Inventory to Net Working Capital
Cash Ratio
2.37
0.36
0.54
CASE 17
Zynga INC. (2011): Whose Turn Is It?
17-22
Exhibit 7. Financial Ratio Analysis—Leverage
NOTE: Zynga does not carry any short or long–term debt.
4. Leverage Ratios
2011
2010
2009
Debt to Asset Ratio
30.48%
56.66%
108.30%
Debt to Equity Ratio
43.85%
130.71%
–1305.21%
Long–Term Debt to Capital Structure
0%
0%
0%
Current Liabilities to Equity
38.22%
107.97%
(1,092.45)%
Exhibit 8. Financial Ratio Analysis—Other
5. Other Ratios
2011
Price/Earnings Ratio
N/A
Dividend Payout Ratio
N/A as Zynga’s IPO did not come out until 2010.