STRATEGY FORMULATION AND IMPLEMENTATION
TERM PAPER:
Internal Factor Analysis Summary on Nintendo
BY: P.HARSHA VARDHAN 10MBI0105
Abstract: This paper mainly deals with the internal factor an alysis summary where Nintendo‟s internal
factors are taken into consideration. Analysis is done on Nintendo using the sources. Using this the analysis of the Nintendo‟s business. This is an ex tension of SWOT analysis. What are the
strengths and weakness and exploring them and trying to solve them. Some factors are taken into consideration and analysis is done on the present condition of Nintendo. This will help in developing the organization‟s mission and vision. There will rating given for every factor.
According to the rating the analysis and according to the results the interpretation is done. Introduction:
The Video Games industry develops, publishes, manufactures, distributes, and sells electronic gaming devices, software, and accessories. Traditionally the video g ames industry referred to gaming on „raster‟ display devices where resolution was determined based on the number of pixels the image contained. However, with the development of more advanced technologies, such as the breakthrough of 3D polygon imagery pioneered by the Silicon Graphics Institute, it now refers to any type of display device (Lysenko, 2007). There is evolution of technology in the whole market and industry. Previously the companies have specific games for their own gaming stations. Now the games are used in any gaming station by converting them into desired format. But now there are many other substitutes for the gaming stations. Mobile phones, personal computers, and external graphic cards which will turn your laptop into a gaming machine. The video games industry can be segmented into two additional sectors. Firstly the software sector, which constitutes the games themselves; and secondly the infrastructure and technology sector, which encompasses the support necessary to distribute and the improved technology offerings needed to play the games. Combined these three sectors make up the video games industry. Again within software sector there is a wide variety of sco pe of game offerings, such as but not limited to: First Person Shooter Games (FPS), Role Playing Games (RPG‟s), Mass Multiplayer Online Role Paying Games (MMORPG‟s), or Platform Level Games (PLG‟s). With so many
game offerings catering to consumer preferences on a multitude of platforms the infrastructure and technology sector is of obvious strategic importance to competitors within the industry and will be explored in greater detail throughout this report.
Introduction of Nintendo:
Nintendo was founded over 100 years ago in 1889 by Fusajiro Yamauchi in Kyoto/Japan as a simple card manufacturing company. Nintendo started with simple, hanafunda translated to flower cards and became market leader in this segment. Before manufacturing hardware‟s and software‟s for the game industry several business units were tried. Nintendo‟s most known hardware products are Gameboy, Nint endo DS and
Wii including their software games. In 1985 Nintendo entered the market by introducing home video game console, the Nintendo entertainment system (NES). It introduced its game Mario super bros. into the market. Super Mario bros. became the biggest hit in the industry. Till date many will be interested in playing Mario super bros. this game lead the industry for a long period of time because of its high quality game play. This made a rapid shift in the industry. Consumers are switching to high quality gameplay games. Evolution of Nintendo’s technology:
In 1985 Nintendo‟s NES had an 8 bit processor with 2kB of video RAM, however just 6 years
later it had doubled its processor to 16 bits and increased its video RAM to 32 times that of its 1985 offering with video RAM of 64 kB‟s. This incredible growth supports the hypothesis made by Gordon Moore, co-founder of Intel. He famously proposed in his 19 65 paper “Electronics” that „the number of components on computer chips will double every eighteen months to two years‟ (Brock.D, 2006). Increasing the number of components on computer chips increases the
storage capacity available to game makers. This in turn enables games to be longer and more complex, with higher sound and music quality. The latest product from Nintendo is Wii. A new style of game play has been incorporated with fully motion sensing controllers, dubbed “wiimotes.” Software is targeted towards a wide variety of ages and many markets. Nintendo
recognized internal advantages of software development aimed at multi-player settings to be enjoyed by all age groups and certain niche markets. Furthermore, Nintendo successfully incorporated a low cost strategy that has helped to encourage massive unit sales. Released at $250 in North America making it the most affordable console of the three, the Wii has sold the most units today (Gruener , 2006). Perhaps more impressive the Wii is the only console of the
generation to be sold above production cost at release. A potential threat arises further down the product life cycle as the consoles technical specifications lack compared to its competition. Review of Literature:
Internal factor analysis deals with all the internal factors analysis and the rating is given to each factors and the weighted average is taken and the analysis summary is given to the organization. By using this the organization will try to improve itself where it finds very weak. This will help in not repeating the same mistakes which are made in the past.
Internal Analysis: Core Competencies:
The company is noticed as a timeless leader in video gaming, which is a worthy and rare ability for Nintendo. The marketing departments enables Nintendo to become an efficient brand. The research and development department reach a capability in innovative technology and game plans. By that, efficient manufacturing processes make possible that Nintendo reach economies of scale and to produce their products at a lower cost than the production of competitors game systems. The development department produces a Wii-console and in-house games, which are very valuable, rare and momentary irreplaceable core competencies. Therefore, the games give the company temporary competitive advantage until competitors produces comparable imitations. Nintendo is a strong competitor, difficult to reach. Microsoft and Son y already launched comparable products of Nintendo‟s game play. The company has experience with
portable systems with games, which have a funny history with populated characters with names like Mario and Yoshi that bring so many competitors to imitate these figures. These characters almost universally recognized even by those, who don‟t often play games of Nintendo. Financial Overview:
The net profit margin of Nintendo was -4.1% in 2014. The company should come out of loses. When compared with past 5years net profit ratio there is a huge fluctuations in the ratios. In 2010 the net profit margin was 15.9%. This was a very good year for Nintendo. But in 2011 it fell to 7.7% where this showed the company‟s performance came down by 50%. In 2012 it saw a net
negative profit of 6.7%. Again in 2013 it pushed itself and made very little profits and net profit was 1.1%. But before 2009 recession the Nintendo was holding nearly 27% of the market share in the gaming industry. Suddenly Nintendo came into decline stage which led them to change
their strategies. When it comes to current ratio the present condition o f Nintendo is very strong. They are able to pay their debts in any condition. They are financially strong. The debt ratio has also been in control. They dropped nearly 10% from 2010. The present debit ratio is 14%. This indicates the company is concentrating less on the liabilities. The inventory turnover ratio is very low @ 2.54%. It has been gradually decreased heavily by nearly 4%. This shows the company has poor sales in the market. Total asset turnover ratio has come down nearly by 50% in the past 5 years. In 2001 it was 81% but in 2014 it was 44%. This shows how the company failed in the market in gaining the sales and capturing the market. It failed to hold its stake in the gaming industry. SWOT analysis: Strengths:
Nintendo produces high quality and stylish products. The management takes decisions which will help the brand to sustain the competition in the market.
The company is having strong financial backup.
Their current ratio shows that the organization is in debt free status.
Weakness:
Dependent on outsourcing the microprocessors.
Dependent on the outsiders.
No particular target market for Nintendo.
Competitive advantage.
Sated not competing with the players in the market.
Opportunities:
There is chance in growth in the software industry.
Growth in gaming console.
Innovation of new technology.
Online gaming/Online multiplayer gaming.
Rapid growth in female gamers globally.
Rapid growth in consoles in developing countries like INDIA.
Re-engage core customers.
Threats:
Volatile exchange rates.
Short product life cycles.
Weak, recovering economy in developing countries.
Sony‟s market share.
Competition in smart phones.
With regard that Nintendo has an advantage of an early head-start of manufacturing hardware‟s for the gaming industry. Besides competitors like Sony or Microsoft were not able to keep a software developer for 30 years or a better notoriety of their games (of their consoles) compared to Nintendo‟s software‟s. Although this is one of Nintendo‟s unique resource‟s however vice versa it might be one of Nintendo‟s largest weakness. Summary:
In general, however, Nintendo has done a great job in drawing up a well-known brand image in the video and gaming industry. The Nintendo Wii was the first, with new technological a dvanced console and unique system, with controls that have sensors and where you have to play with your own movements. A good sign is that the high price does not bring off the customers from the console. Nintendo should preparing well for the release of systems and planning forward so that there will be not a higher demand than the supply. The way they thinking is maybe the key to their success – Nintendo keeps doing, what they can do best – and that‟s making quality software, outstanding hardware and a healthy profit. This could be the clue what kept Nintendo in business the years ago, than most other companies, and could keep for years to come. Many businesses tried it this way, but went out of business because they couldn‟t find the way to make
money on it. Nintendo will not fast giving up the business, in opposite; Nintendo will succeed in the new digital media environment because that company can just fit in the labor market and the president of Nintendo does not excluded to creating a Nintendo phone on which you were able to play games on it. There are two booming market right now stands in front of Nintendo. Conclusion:
Nintendo is a well-known gaming company, and that should be enough to put every possible effort to remain strong or even better. As mentioned, Nintendo is a focused company where it could be easier for its R&D to innovate and impress the world with brilliant technologies in the gaming market. The social and economic impacts should be turned to be one of Nintendo's
advantages. For example, it should remain in the low-price strategy. Also, it should remain as family oriented gaming company. Today, most adults are into games and preferring to share that with their kids to ensure it is appropriate, even if they are passionate about it. Also, the female gamers are now becoming a new trend, where Nintendo can take that niche into account. In addition, the SOWT analysis provided variety of opportunities that are ready to take advantage of. Not to mention, the strength of the company can be considered as an opportunity. Finally, the internal analysis showed that Nintendo did not have its best in the last four years. Most of ratios applied to its financial statements were decreasing every year, or b etter being steady in unloved level. Nintendo uniqueness is one of its strong arms, where they can focus their R&D in to create unexpected/cool technologies lie the motion controllers. References: https://www.agecon.purdue.edu/extension/sbpcp/resources/IFASdirections.pdf last accessed on Sept 27 2014, 20:00. http://holgerlanglotz.de/downloads/BU4510_VideoGamesIndustry_LanglotzEtAl.pdf last accessed on Sept 27 2014, 20:30. http://www.nintendo.co.jp/ir/pdf/2012/annual1203e.pdf last accessed on Sept 27 2014, 21:15. http://www.studymode.com/essays/Thaddeus-Fotos-38946004.html last accessed on Sept 28 2014, 19:40. http://www.studymode.com/course-notes/Nintendo-38913427.html last accessed on Sept 28 2014, 20:45. http://www.scribd.com/doc/92627812/Nintendo-Strategic-Management-Plan last accessed on Sept 28 2014, 22:30. http://www.scribd.com/doc/174797552/Nintendo-Strategy-in-2009-by-Dwitya-Aribawa last accessed on Sept 28 2014, 23:55. http://www.scribd.com/doc/86911595/Strategic-Management-Nintendo-s-Strategy-in2009-Includes-Marking-Scheme-91#download last accessed on Sept 29 2014, 01:15. http://www.termpaperwarehouse.com/essay-on/Nintendo/294890 last accessed on Sept 29 2014, 01:45. http://www.termpaperwarehouse.com/essay-on/Nintendo-Strategic-Analysis/52429 last accessed on Sept 28 2014, 11:40.
