Business Case Review
Zynga is an American game company that provides numerous virtual games to its customers. They use social media to attract customers and achieve high revenue. The company struggled to achieve relevance in 2017 following a rise in industrial rivalry, management challenges, and compliance concerns amongst stakeholders. Between2015 and 2017, Zynga had new CEO annually, revealing leadership inconsistency (Dess, 2019). Although it posted a revenue increase between 2014 and 2016, its net margin reduced significantly, threatening the institution’s sustainability. The founding CEO was accused of stifling innovation and creativity by encouraging employees to engage in unsustainable work practices that involved copying other companies’ products and failing to reveal the use or protect clients’ data. The increased public criticism affected the institution’s brand equity, threatening its sustainability and growth.
Most Critical Issues
The first critical issues in the Zynga case study are the importance of innovation in establishing a sustainable working environment. In the initial period, Zynga had a significant market reputation and accounted for the top five market leaders in the gaming industry. However, the lack of innovation and the Company’s management decision to copy competitors’ products affected its sustainability. Secondly, the case reveals the importance of differentiation in attracting customers (Reeves, 2015). Zynga adopted a unique value proposition in the initial period that attracted new customers. However, its reactive strategy to imitate competitors reduced its brand equity, leading to low revenues. The last critical issue in the case study is the importance of environmental scanning in achieving sustainability. Zynga could have adopted stakeholders’ analysis, SWOT, and Porter’s five forces to analyze the operating environment to achieve sustainability.
Relevant lessons
The first relevant lesson in the case study is the importance of leadership stability in fostering corporate’s growth and competitiveness. The continuous changing of the CEO contributed to the decline of Zynga’s sustainability. Stable leadership fosters the implementation and realization of strategic vision and mission (Hitt et al., 2018). The second lesson is the importance of developing products with unique value propositions to achieve higher sustainability. Companies need to embrace the VRIO framework by developing valuable products that cannot be imitated to achieve competitiveness. Zynga’s decision to imitate rival products than initiate innovative brands contributed to its downfall. Lastly, Companies must encourage innovative culture by allowing employees to experiment with their ideas to achieve sustainable growth. Zyngas performance declined when CEO Mark Pincus regularly shot down employees’ innovative suggestions because they were not tried and tested. An ideal organization should create a culture and incentives that promote critical and innovative thinking.
Three Best Practices
First, organizations must undertake regular environmental scanning to identify current trends, competition levels, and other volatilities that may impact business practices. Understanding market volatility enables companies to adopt proactive means of managing threats and opportunities. Zynga would have managed high competition and shift in customers’ preferences if they had conducted elaborate environmental scanning. Secondly, Companies must ensure stable transformative leadership to bolster growth and sustainability. Zynga’s influence in the virtual gaming industry declined because the leadership did not promote innovation and critical thinking. Employees were expected to copy rival practices rather than develop new products to attract and expand the market segment. Transformative leadership fosters growth by inspiring employees with an idealized vision, encouraging knowledge transfer, and encouraging multi-stakeholder collaboration (Kennedy, 2020). Companies must embrace the last best practice of undertaking market research and development. Companies should allocate sufficient resources to market research and development to understand customers’ demands, market niches, current trends and preferences, and project market shifts to adopt proactive practices that protect and expand the company’s revenue streams.
Business Case Analysis
Industry Macro Environmental Analysis: PESTEL Analysis
Government actions and policies drive the political factors, integrating aspects like trade disputes, anti-rust, anticompetition regulations, and corporate taxation (Dess, 2019). The political factor that affected Zynga’s operations was consumer data protection concerns by the Norwegian Consumers council. The Norwegian Consumer Council filed a complaint against Zynga’s terms which did not elaborate on how they could protect the consumer data they collected from their online clients. Organizations are expected to comply with the ethical regulation of the host country. The second political factors are compliance with anti-competition and anti-counterweight regulation. Zynga was reported for violating anti-competition regulations that led to of court settlement of between $7 million and $9 million by Mob Wars.
Economic factors refer to financial aspects that influence business operations, including interest rates, inflation, and exchange rates (Dess, 2019). The first economic factor that affected the company was the rise of price-conscious customers who made purchase decisions based on the product price. The virtual game users were enticed to price-cut, which reduced the company’s margin and market competition. Secondly, The company considered trading in NASDAQ to achieve financial independence. The $121 million loss reduced the corporate’s financial sustainability, forcing them to trade on NASDAQ.
The social factors focus on the shift in stakeholders’ lifestyles and how it impacts the corporates’ commercial activities (Kennedy, 2020). The rise of the sedentary lifestyle encouraged most people to embrace virtual gaming to pass the time. The ubiquity of the internet and smartphone technology encourages people to play games regardless of location. Secondly, Zynga also developed games to reduce professionals’ work-related stress as an improvement from conventional alcoholic beverage shelves and green dartboards.
The technology analyzes how factors like internet technology, cybersecurity, and technology infrastructure influence business operation. The rise of 3D technology has significantly impacted the gaming industry. Gaming companies that utilize 3D and AI technology attract more customers than companies that do not. Besides, most gaming companies are developing mobile applications to accommodate the rising number of smartphone users. Smartphone users account for at least 73% of the game users; thus, developing a mobile application is vital in attracting a larger market share (Dees, 2019).
The environmental factors analyze the need for ecological sustainability. The first environmental factor is the need to manage e-waste through recycling and reusing. Zynga produces different gaming hardware, so they should develop an elaborate policy to ensure effective disposal. The last environmental factor is reducing carbon footprint by utilizing renewable and green energy in production.
The legal factor analyses how changes in the regulatory environment influence organization’s sustainability. Zynga was accused of intellectual property violation for using the Nissan trademarks without consent. Secondly, Zynga violated the patent application by copying another company’s products. Mob War accused Zynga of copying their products with Mafia War Zone leading to a lawsuit and out-of-court settlement of $ 7 million.
Porters Five Forces
Porter’s five forces analyze the business operating environment regarding competitiveness, suppliers’ and buyers’ influence, and the impact of substitutes (Reilly & Williams, 2016). The first Porter’s force is the industrial rivalry which focuses on the number and capability of competitors. First, Zynga operates in the market with numerous competitors with a significant market reputation. Companies such as Machine Zone, Supercell, EA Mobile, and Maxi have greater brand equity and generate greater revenues. Secondly, the intense industrial rivalry forces the company to undertake aggressive marketing campaigns, which are more costly to the business. The intense rivalry caused Zynga to invest $183,000 in sales and marketing in 2016 from $169,000 in 2014.
The second force is the suppliers’ powers, which define suppliers’ influence on product prices. First, the company operates in an industry with low supplier power because they only need different individuals with IT and Virtual reality competency to develop their products. Secondly, the company can easily switch from one supplier to another without incurring greater costs. The third force is the buyer’s power which dictates the ability of customers to influence the company’s price. First, the buyers in the virtual gaming industry have low bargaining power. Thus, they cannot dictate companies’ prices (Reilly & Williams, 2016). However, virtual gaming companies offer a market-based pricing approach to attract price-conscious customers. Secondly, the customers can easily switch from one product to another without costs. For instance, Zynga customers can switch to EA mobile and supercell at no cost.
The fourth force is the threat of substitutes which analyses the ability of consumers to access substitutes (McDonald, 2016). First, numerous substitutes exist in the market, giving customers various choices. For instance, Zynga customers can also access the game of wars, Mobile strike from Machine zone, Clan of Crash from Supercell, and Monster Strike from Maxi. Secondly, customers have low switching costs as they can move from one brand to another without incurring any expenses. The final force is the threat of market entry. First, there are no market restrictions in the gaming industry, allowing numerous investors and entrepreneurs to start gaming enterprises. Secondly, the gaming industry is less capital intensive, allowing people with IT skills and knowledge in 3D and VR technology to start their operations.
Business Analysis: Swot Analysis
Strengths are positive factors that businesses can utilize to advance their competitiveness. The first corporate strength is high brand equity, as most customers recognize the company’s virtual games. The high brand equity resulted in a high turnover of $53 million in 2015 (Dess, 2019). The second strength is developing quality products that entice consumers. The company developed several products like Dawn of Titans in 2016, which attracted numerous consumers.
Weaknesses are negative factors within a business that reduces a corporate’s sustainability. The first weaknesses are poor leadership and inconsistency (Dess, 2019). The CEO did not encourage autonomy and critical thinking, discouraging employees from developing quality products. Secondly, the company engaged in illegal and unethical practices such as violating intellectual property rights and patent protection that compromised its market reputation.
Opportunities are factors within the business that can stimulate growth and development. First, Zynga can utilize 3D, Augmented, and virtual reality technologies to improve its virtual gaming value proposition. Secondly, the company can form a strategic alliance and collaborate with other gaming partners like Supercell, Mixi, and Com2uS to develop high-quality virtual games and bolster their market competitiveness (Dess, 2019).
Threats are the negative aspect that inhibits organizations from realizing their strategic goal. The first threat is intensive market rivalry following the establishment of numerous sporting companies (Dess, 2019). Numerous gaming companies offer similar services to Zynga, threatening its sustainability. The second threat is the rise in price-conscious customers, who may force companies to reduce their product prices, leading to low revenues.
Financial Analysis
The first strategic issue is the rise of price-conscious customers who wants the organization to sell products at lower prices (Steenkamp, 2017). The company should embrace a cost leadership strategy by embracing area-based pricing to attract price-conscious customers. The implementation plan will involve conducting market research to understand customers’ price concerns and behavior, analyze the competitor’s pricing approaches, evaluate the organization’s production costing, and establish ideal market-based pricing. Tools like activity-based costing can be used to analyze consumers’ competitiveness.
The second problem is reducing net income to a $121 million loss. The company can adopt differentiation or product-extension strategies to increase revenues and attract more customers. Product extension involves introducing new products to a renowned brand. Diversification improves existing brands’ value propositions (Steenkamp, 2017). The implementation and execution plan will involve conducting a market survey, identifying customers’ niche or improvement concerns, hiring competent gaming specialists to improve the value of existing brands or develop new games, and launching the product to achieve higher margins.
The last strategic financial issue is increasing legal expenses due to non-compliance. Zynga was forced to pay Mob Wars $7-$9 million for violating their intellectual property and patent rights. The company can develop a creative workplace culture that results in quality products or establish a compliance department that ensures all due processes are followed. The implementation plan can involve restructuring the organogram and creating a department, hiring compliance officers, and linking the virtual game production process to the compliance department (Steenkamp, 2017).
Conclusion
The business operates in a complex, volatile, ambiguous, and uncertain environment that requires constant innovation to appeal to customers and achieve a competitive advantage. Case analysis involves analyzing how the macro and micro environmental factors influence the company’s stability and the approaches that the institutions adopted to mitigate the challenges. Tools like PESTEL and Porter’s five forces are used to evaluate the business macro-environment, while SWOT analysis evaluates both the internal and external environment. Zynga should embrace a differentiation strategy to develop products with unique and quality value propositions. The company must ensure compliance to avoid lawsuit expenses and protect its brand equity.
References
Dess, G. (2019). Strategic management: Text and cases (9th ed.). McGraw-Hill.
Hitt, M., Ireland, D., & Hokisson, R. (2018). Strategic Management Concepts & Cases Competitiveness and Globalization. (12th Ed.). Centage Learning
Kennedy, R. (2020). Strategic management. Virginia Tech Publishing.
McDonald, M.. (2016). Strategic marketing planning: theory and practice. In The marketing book (pp. 108-142). Routledge.
Reeves, M., Haanaes, K., & Sinha, J. (2015). Your strategy needs a strategy: How to choose and execute the right approach(1st ed.). Harvard Business Press.
Reilly, P., & Williams, T. (2016). Strategic HR: Building the capability to deliver. Routledge.
Steenkamp, J. B. (2017). Global brand strategy: World-wise marketing in the age of branding. Springer.
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