Case study: Assignment Question Part 1
Freakomon develops an unconventional game console
Ryotaro Kurosawa, president of The Freakomon Company (Freakomon), strode from the conference room with a smile on his face. It was late 2004, and he was tremendously excited with what his engineers had just demonstrated — a video game controller that was not a variation of the joystick, but rather a stubby rod that a gamer could manipulate with one hand. Not only did it enable the creation of games that mimicked real-world movements like throwing, hitting, or aiming, Kurosawa believed it could help open up video games to a vastly different audience than the boys and young men who traditionally bought video game consoles.
Expanding the gaming industry’s customer base was key to Kurosawa’s vision of a next-generation console codenamed “Rashomon.” Despite the fast growth of the industry (at a Compound Annual Growth Rate of about 15%), the customer base of the gaming industry has narrowed around young, die-hard fans, mostly teens and young men who generally like fighting, sports and online play. Products had coalesced around sophisticated user interfaces and functionality based on higher hardware performance and functionality based realistic graphics. But in Rashomon, the idea was to bring tens of millions of new customers into the gaming realm, people who had never played video games before or saw them as mere toys. Kurosawa believed that a new take on gaming might even attract mothers — an influential household constituency, thanks to their influence over household spending — through a combination of hardware design, game-play, and price. What better way to attract them than through a controller that had a form factor similar to a TV remote control?
But Kurosawa’s enthusiasm for the controller prototype was tempered by a number of real-world considerations. First, no other company had ever released such a controller. How would the marketplace react to such a vastly different model? Second, some of his employees were becoming very sensitive to the reaction of the gaming industry and the existing gaming population to a non-traditional product aimed at a non-traditional audience. Freakomon had a long history of video game success, epitomized by the popular Peppa-pigs franchise invented by Freakomon’s game design guru Toshiyuki Tonomura in the 1980s. However, the company’s last console, the PlaySphere, was unable to get sufficient traction after it was launched in 2001. In 2002, sales forecasts for the PlaySphere had been off by 44% and the company had been forced to cut revenue targets by ¥100 billion. Gamers much preferred Sony’s PlayStation 2 console and Microsoft’s Xbox console, which were characterized by flashy graphics and hard-core fighting and sports titles. Kurosawa needed a home run to put Freakomon back on its feet. Could Rashomon’s radical hardware design help turn the company’s fortunes around?
Competitive trends in the early 2000s
By the early part of the 2000s, video games were firmly entrenched in youth culture. A report published by the Pew Internet and American Life Project noted that in 2002, 60% of U.S. residents aged six and older played video games and more than 221 million games were sold.1 Clearly, games were a big business. To enter the industry of console games, companies needed huge initial financial investments. Another challenge was to mobilize and sustain a community of third-party game developers, who would develop games for the platform. Other forms of interactive multimedia used for entertainment that could attract gamers were the arcade games that were in constant decline, and online and mobile games that were becoming very popular.
Freakomon had fared well, outliving all of its early console competitors. But, Sony and Microsoft, two relative newcomers, threatened Freakomon’s future in console gaming. The console gaming industry was now dominated by Sony and Microsoft who led the trend of targeting die-hard young fans with high capital investments, large distribution networks, larger existing user bases and strong relationships with hardware suppliers. Sony dominated with its PlayStation 2 (which could play DVDs as well as game titles). Launched in 2000, it was designed to be backwards compatible with all games from the original PlayStation console. This meant it launched with a massive base of players, which expanded to million within three years as new titles were built for the PlayStation 2’s superior graphics. Sony was also battling Freakomon in mobile gaming.
Meanwhile, Microsoft was attempting its own aggressive push into gaming. In the 1980s and 1990s, Microsoft’s gaming efforts centred on support for PC game publishers and its own Flight Simulator franchise. That changed with the launch of the original Xbox in 2001. The Xbox went head-to-head with Sony’s PlayStation. Both consoles competed for hard-core gamers on hardware performance and graphics — popular titles like Madden and Half-Life 2 tried to immerse players in realistic 3D environments, and depended on heavy-duty processing power and a constant stream of new titles to keep players hooked. In-game scenarios were getting longer and more sophisticated and, like their PC counterparts, they let players perform a wide range of functions using various combinations of input buttons on the controller. The games were clearly aimed at a hard-core audience of regular players.
Although Microsoft had never disclosed how much it spent developing the Xbox, analysts estimated it lost £1.5 billion to establish the console in the market. In terms of the two consoles’ installed bases, Sony had a market share of 66% while Microsoft had just 22%. Squeezed in-between these two aggressive competitors, Freakomon had to think through how to fight back. In 2001, Freakomon released the PlaySphere console. Inside, it featured an IBM-designed “Gekko” processor and ATI “Flipper” GPU, and had an optical disc drive. Freakomon maintained long term contracts with chip vendors and other suppliers, and major components were outsourced to fit the design requirements of console manufacturers. Developing a product with a simpler user interface and more accessible functionality, it could use cheaper processors. While adequate for basic 3D games, the hardware failed to measure up to the PlayStation 2 or the Xbox. Freakomon dismissed the criticism, saying that the simple design and emphasis on fun-to-play software like Android Rhyme and Dungeon of Delphi was an asset, and would help attract new gamers who were turned off by long, complex console games.
The video game industry was a business based on positive externalities and feedback loops. The more consoles that were sold, the more independent gaming studios were incentivised to develop new titles. This in turn increased console sales. Console makers could also sell their own titles, a tactic that had worked very well for Freakomon and its Peppa-pigs franchises. As the video game market was growing, hardware was typically sold at a loss right after launch in order to build a customer base. Once the customer base was established, software could be sold at a higher price and/or volume to make a profit. Average console costs dropped over time, as manufacturing scaled up, component costs declined, and the learning curve kicked in. Sony lost an estimated £75 – £120 per PlayStation 2 when it was first launched, but reportedly made up for the loss with profits generated by selling game titles and accessories. Microsoft also sold consoles at a loss, in order to establish a presence in the new industry.
But the positive feedback loops required to make a successful console were hard to maintain. First, a constant stream of new game titles was required to preserve the value of the console hardware, and convince gamers not to switch. If a platform failed to preserve a steady stream of new titles, negative feedback loops would kick in as gamers and developers abandoned the platform. Second, game development had become far more complicated in terms of game-play scenarios and technology requirements. In 1996, a typical PlayStation game cost £750K to develop and sold for £40. By 2003, PlayStation 2 and Xbox games still cost £40, but development costs had risen to between £4 million and £5 million per game. The high costs meant console companies, major game publishers and independent studios had to rely on a high degree of collaboration. These requirements dissuaded smaller studios from producing lots of titles, which created an additional drag on the network externalities that powered successful platforms. Third, independent game studios did not want the console market dominated by only Sony and Microsoft, as it reduced their bargaining power in profit sharing negotiations. This dynamic was actually a boon to Freakomon — many third-party publishers wanted to help Freakomon with its next console effort, which served as an additional positive network effect for Freakomon.
Periodic Market Cycle
The video game industry had a five-year hardware cycle. Once a new game console was released, new game titles would be launched on their own cycles over the five-year period. Many were one-off titles that were nominally successful or, in some cases, lost money. Others were popular and generated sequels every two or three years. Some, such as popular sports titles, had new releases or expansion packs every year. Since there were a limited number of developers or game publishers, early mover advantage existed for console manufacturers. And once software developers devoted resources to building game titles for one hardware platform, it was difficult for them to switch to another platform owing to different staffing or technical requirements. Furthermore, once gamers invested in one console, they were less likely to switch consoles owing to the additional cost. These factors made it difficult for new hardware manufacturers to enter the market. By the end of 2004, the competition was starting to approach the end of their respective five-year cycles. Sony and Microsoft would be launching replacements for the PlayStation 2 and Xbox in time for the 2005 holiday shopping season. Following this same five-year hardware cycle, Freakomon would have a new console hitting the market in 2006.
Kurosawa’s leadership
Kurosawa, an experienced game developer and former president of WickedGames, became president of Freakomon in 2002. After becoming CEO, Kurosawa pushed for several changes in Freakomon’s organizational culture. First, he asked Freakomon executives to think about what made initiatives succeed or fail. In his mind, the process was more important than the result. He pressed executives and employees over why certain business results had occurred. Even if sales were great, executives couldn’t sit back and bask in their success — Kurosawa would demand to know the factors that had led to the positive outcome. This emphasis on understanding led to improved communication across departments. The company’s strategy became better understood among the 1,300 rank-and-file employees, which resulted in more autonomy across the organization.
Coming from outside of Freakomon, Kurosawa made it a rule to talk with staff and persuade them of his vision for the company. This practice created a culture of discussion in an organization that had previously been managed in a top-down way. This culture of discussion reinforced coordination among the company’s software and hardware divisions. This culture proved beneficial as the Rashomon project got underway.
Rashomon
Kurosawa relished rolling up his sleeves for the Rashomon and diving into the problems with his top engineers. “We brainstormed with each other from square one,” Kurosawa recalled. “We were all running into the same walls, and we made the critical decisions together. I talked with a lot of people, such as Furuyama-san and Tonomura-san, along the way at each juncture.” As planning began on Freakomon’s next-generation gaming console, the team began to think about the core concepts that would underlie the project. Furuyama described the typical development process for a new console: As soon as we complete one system, we start thinking about the next one. Needless to say we don’t design new components or technologies from scratch. Rather, we have to base our designs on existing technologies. By 2003, the team had identified several basic concepts for the console:
? Rashomon was not just a toy for children. The console had to be familiar enough to be played by all family members, right in the living room.
? It had to be designed in a way that it would be acceptable to mothers, as they have control over the living room in most households. This meant a small, polished design.
? The console should be inexpensive compared to rival products such as Sony PlayStation and Microsoft’s Xbox. Ideally, the price should be less than 10,000 yen (about £75).
? The software should be easy enough to play so that every family member can play, even for a short time.
? The console would need to stay on for 24 hours, consume little electricity, and make little sound.
There were other requirements, as well. Besides appealing to mothers, Freakomon had to entice partners, particularly developers. Further, Rashomon had to be backwards compatible with older PlaySphere games. This would help the Rashomon launch with a back catalog, and would also appeal to loyal Freakomon’s customers who had invested in PlaySphere games. But within the team, there were debates about what the controller should look like. Console gaming had been based on a two-handed experience since the first joysticks were developed in the 1970s.
Kurosawa eagerly entered the conference room and looked at the new rod-shaped device on the table. He had tried pointer-based prototypes before, but this single-handed design appealed to him: “From the moment I picked it up, it just felt right. I had handled other pointer devices before, but they are not normally responsive and leave you feeling more frustrated than relaxed. The pointer idea itself was also good, but in this case it was the sense of control, the finish of the product, that was particularly good.”
Kurosawa and his team had little time. At the 2005 YouGame gaming exposition in Los-Angeles, Freakomon planned to announce the Rashomon, and maybe even demonstrate the console and controller. Industry buzz was pointing to both Microsoft and Sony announcing their own next-generation consoles at YouGame. But would Freakomon be able to deliver?
……….end of case study………
QUESTIONS:
You must complete following question:
1. You are part of a team on a strategy work force that has been assigned to explore the strategic position of Freakomon, based on the case study at the end of the question section (see section B). You have been asked to evaluate the competitive environment and to suggest ways to improve Freakomon’s strategic position. Your report should provide the following:
a. A short executive summary of your report (5 marks). Roughly 300 words.
b. A visual map or a diagram of the relevant stakeholders and the relationships between them. Connect stakeholders to signify relevant relationships and annotate your diagram with brief comments (5 marks), roughly 100 words.
c. An evaluation of Freakomon’s competitive position given the information from the case study and any additional supporting evidence acquired through research using journal articles. You will need to take into account the unique context in which Freakomon operates and include a diagram using Porter’s 5 forces model that illustrates your answer. (30 marks). Roughly 1100 words.
d. One specific recommendation for a change in the information systems (IS) or information technology (IT) that could support Freakomon’s competitiveness in the market. Provide a justification for your recommendation supported by reference material from appropriate journals. (15 Marks). Roughly 600 words.
part 2
1. Cloud based technology is being used more extensively by business from SMEs to larger organisations. You are part of a project team that has been asked to research whether a cloud based Customer Relationship Management (CRM) system could improve business performance for your organisation. Research a range of companies that have introduced cloud based CRM using articles and case studies from academic sources such as Athens and Google Scholar. From your research you have been asked to contribute to a briefing document that provides some insight into the implications of moving to a cloud based system for your organisation. Your document is for the project leader and your contribution should provide:
a. A short introduction outlining what is in the document (5 marks), roughly 200 words
b. Explanation of what you consider to be three of the key challenges for successfully introducing a cloud based CRM system into your organisation. You should provide supporting examples from your research to strengthen your discussion. Assume 5 marks for each challenge. (15 marks). roughly 600 words
c. Suggest how managers within the organisation could respond to each of the three points raised in part 1b to reduce the impact of each of the challenges that you have raised. You should provide supporting examples from your research to strengthen your discussion and state any assumptions you have made. Assume 5 marks for each response to the challenge. (15 marks) roughly 600 words
