Introduction
Electronic Arts Inc. (EA) is an American organisation that is one of the key players in the video game industry. EA carries out the development, marketing and sales of some of the most popular video game franchises. Along with this, the two most popular gaming consoles presented by the organisation include the Nintendo 64 and the PlayStation. EA was founded in the year 1982 and has its headquarters located in Redwood City, California. Having a workforce of about 9300 people, the organisation is catering to more than 300 million people registered with EA from all across the globe. The net revenue of the organisation for the financial year 2018 was reported to be $5.15.
The organisational structure of EA comprises of five distinct divisions. The EA Worldwide Studios that was formerly known as EA Games is responsible for the production and marketing of the adventure, combat, racing and role-playing games produced by the organisation. EA Sports was the division that was introduced in the year 1991 and is responsible for publishing all the sports games produced by the organisation. EA All Play is a label of the organisation that is focused on developing the mobile-oriented games. EA Competitive Gaming Division (CGD) was established in the year 2015 and is the division of the company that organises global competitions on the most famous giving labels for EA. The Search for Extraordinary Experiences Division (SEED) is another division of EA that is responsible for carrying out technology-based research on the latest developments taking place in the gaming sector (Electronic Arts Inc., 2019).
The resources and capabilities of the organisation are considered to be the primary source of profitability. It is important that the organisation identifies the available resources and capabilities that help in defining the competitive advantage of the business that can be further strengthened with the support of the primary and secondary activities carried out by the organisation. EA is one of the global leaders when it comes to offering the customers with software that provides digital interactive entertainment. The organisation is facing intense competition from the several leading players in the industry and has managed to generate good financial results with strong returns to all its stakeholders. However, this multi-billion dollar organisation is facing a lot of challenges due to the increasing competition and strategy adopted by the organisation to generate more revenue by promoting the customers to make micro-transactions during all the games. Although this provides the business organisation with an opportunity to create a continuous flow of income that adds to the primary income, it is unfair to the customers who have already invested heavily when purchasing the games. Because of this, EA has been consistently detested by the customers and rated as one of the worst organisations in the United States of America (Tassi, 2017).
Research objectives
This research report is compiled for carrying out the investigation of the present resources, capabilities and competitiveness of EA as an organisation. The discipline of this research report is the strategic management analysis of the organisation and it is compiled to facilitate effective strategic planning for EA so that the organisation can improve its competitiveness in the industry and maximize the advantages enjoyed because of the available resources and capabilities with the business. The specific objectives that will be fulfilled with the help of this research include:
To analyse the available internal and external resources for EA.
To identify the capabilities of the organisation.
To assess the correct level of competitiveness of EA.
Represent the organisation with recommendations for strategic planning improvement.
Literature review
This section of the research report summarises the major contributions of the academic literature on the topics of the competitive strategies, strategic planning and its implementation for the organisations so that the information gained from this literature review can be applied to analyse and understand the competitive position and strategic plan of EA.
Competitive strategies
There are numerous factors that influence the working of a business organisation. Developing and understanding of these factors and manipulating them result in creating inequalities that allow the organisations to gain a competitive advantage that is sustainable. It also allows them to achieve long-term business success. The strategic planning view of competitive strategy only focuses on the top-down approach. However, there are numerous internal and external factors that interact and animal the organisations to take key strategic decisions providing the organisations the right direction. The influences on the competitive strategy of a business organisation are presented in the image below (McGee & Sammut-Bonnici, 2014).
Figure: Factors influencing competitive strategy
Michael Porter describes the competitive strategy as the actions taken by an organisation to create a position in the industry that is defendable. The strategy of an organisation can either be categorised as defensive or offensive when it comes to addressing the several forces that arise because of competition. The defensive strategies are designed by the organisations to face the existing forces of the industry and to ensure that the strengths and weaknesses of the business are identified and utilised in strategic planning. In contrast, the offensive strategies are designed to enable the organisation to take actions that are not just for coping up with the existing forces of the industry but impact the cause of these forces resulting in a significant change in the competitive environment itself (Porter, 2012). The three broad strategies identified by Michael Porter include:
Cost leadership
Differentiation
Niche or focus strategy
The cost leadership strategy is adopted by the organisations who price their product or service as the lowest in the industry as compared to the rivals. This is a defensive strategy adopted by the organisation by pricing the product or service at its lowest per-unit cost in the hopes that the increase in the sales will ensure profits and returns for the company that are higher than the competitors and the organisation is also able to maintain a stronghold in the market. This allows the organisation to defend itself against the buyers who are able to impact the prices of the products or services by influencing the organisations and also against any powerful competitors and suppliers enabling the organisation to maintain cost leadership in the industry.
The differentiation strategy requires the organisation to create a product or service that is unique and different from the products currently being offered in the market. The organisations create their own market through this strategy. There are several different approaches that can be adopted by organisations when it comes to differentiation. This includes the development of different product design, increasing the number of features presented with the product or service, innovation or changing the brand image. Differentiation is again a defensive strategy enabling the organisation to achieve it and mitigating the power of the buyers to influence the market (Porter, 2017).
The focus strategy required the organisation to focus on a specific group of comprising of a narrow customer segment ensuring that the specific customers are served very well by the company. This requires the adoption of either cost leadership or differentiation strategy while focusing on the target customer segment (Arshed & Pancholi, 2016).
Competitive strategy summary discussion
The competitive strategy designing is the process through which an organisation is able to maintain a position in the market that allows it to earn revenues above the average revenue earned by the competitors and provide better returns to its stakeholders. The effective management of the resources, capabilities and competencies of the business allows it to acquire and maintain a competitive advantage. However, the response to the opportunities and threats that constitutes the external environment of a business is also important. The organisations have to navigate through a set of complicated factors that help in defining the strategic direction and also understand how each of these factors influences the competitive strategy. The resources of the business organisation limited and there are numerous opportunities available for them to exploit. Therefore, it becomes important that these resources are effectively allocated so that the organisation is able to distinguish itself from the competitors and outperform them (McGee & Sammut-Bonnici, 2014).
The structure of the industry and the positioning of the organisation by deciding the right strategy are the two distinct factors that define the economic performance of the business. It is important that the strategy of the organisation is designed by addressing both these areas and the overall factors that influence the industry are also taken into consideration instead of simply focusing on the position of the organisation. The value chain of a business organisation comprises of all the primary and support activities that contribute to creating the final value of the product or service offered by the company. It is important of the organisation creates a unique value proposition for developing a successful competitive strategy. The valuation of the company should also be tailored to the specific and unique value proposition that the organisation wishes to create in the industry making the right choices and allocating the resources and capabilities of the business accordingly (Porter, 2012).
Strategic planning and implementation
Strategic planning encompasses the formal and informal measures taken by the organisation for enhancing its position in the industry and for improving profitability. Strategic planning involves decision making which enables the organisation to take the right actions that have an enduring effect and are able to impact the performance of the business (Kaufmanw, 1993). It is considered to be a very important management practice and the implementation of the designed strategic plan inculcates the tactical and operational planning by the decision-makers of the organisation as well (Rojas-Arce, et al., 2012).
With the operating environment of the organisations becoming extremely competitive and dynamic, it has become even more important to develop the right strategic plan and implement it with success. The strategy implementation stage brings the strategic plan designed by the organisation to life and makes it a part of everyday processes and decision making for the business. Strategic implementation is as important as the planning stage as it helps in translating the policies and planning into reality. The strategic planning is a supporting step that results in the coordination of the process of strategic plan development and enables the successful implementation of the designed strategy. There are some basic principles that can anyone organisation to successfully carry out strategic implementation. These include the effective communication of the strategy throughout the organisation and the divisions, the involvement of the members of the organisation in the implementation stage for addressing and eliminating any resistance and defining the responsibilities and assigning them successfully. It is important for the entire organisational structure is in sync with the strategy design for the business and the decision-makers also develop and implement effective controls for the implementation. Successful implementation of the strategic plan can benefit your organisation in several ways enabling long term competitive advantage and profitability (Mišankova & Kočišová, 2014).
Research methodology
Research methodology for a study presents the entire process adopted for the collection of data and information that helps in facilitating the decision-making and for fulfilling the objectives of the study (Zukauskas & Vveinhardt, 2018). This section of the report presents the research design and discusses the approach followed for the collection and analysis of the data for this study. Also addresses the several ethical considerations that have guided this research, the data analysis process and the presentation of the results.
Research design
An exploratory approach to research is adopted to carry out a detailed investigation of the research problem for clearly defining it and for finding the answers to the research questions. This research also follows the exploratory research design where the study begins presenting a general idea of the resources, capabilities and competitive advantage of the organisation EA by carrying out a detailed analysis of the internal and external factors that influence them. The exploratory study is used for revealing new insights about the subject and to carry out a preliminary study with a grounded theory approach (Reiter, 2017). It is used when there is little information available about the research topic and the exploratory design does not provide any conclusive or definite answers but can help in highlighting the specific aspects of the research subject that can be used as a focus for conducting further study.
Data collection
The primary sources of information include the data that is personally collected specifically for the purpose of the research. Secondary sources of information include the sources that provide the analysis and synthesis of the primary data that was collected and compiled for some other purpose. This study makes use of secondary research gathering the required information from the previously published primary sources of data (Martins & Serra, 2018). This method of data collection is adopted to address the limitation that comes with the limited availability of time and resources for the study. The digital academic and non-academic sources of information utilised for gathering the secondary data for this study include the scholarly reports, articles, journals, annual reports of EA, industry reports and researches conducted on this subject (Johnston, 2014).
Data analysis
A qualitative approach to data analysis is adopted for this study that is a reflexive and iterative process identifying the meanings of the phenomena instead of quantifying them. The qualitative data analysis is carried out for this study because of the lack of specific categories of analysis and the direction of research in advance. This approach to data analysis also focuses on uncovering the context of the data instead of seeking generalizations that are universal. The qualitative data analysis presents the findings with a rich description instead of the specific measurement and quantification of the variables of the study.
Ethical considerations
It is important to address the ethical concerns that govern for study and that may have impacted the findings and inferences drawn with the help of research. This study is also governed by the general ethical considerations applicable to the researchers including the principle of beneficence, obtaining consent and respecting the intellectual property. Any participants or the people impacted by the findings of the study are not subjected to any harm because of it in any way. There is no reception or exaggeration in the form of the research methodology, objectives and findings of the study and Research does not present any types of misleading information or misrepresentation of the data. The works of other authors have been duly acknowledged throughout the research by following the proper referencing system presented by the university (Fouka & Mantzorou, 2011).
Analysis and discussion
The identification of the resources and capabilities of EA is important to find out the competitive advantage developed and maintained by the organisation in the industry. The two tools of strategic management adopted for assessing the resources, capabilities and competitive strategy of the organisation include the SWOT analysis and the five forces analysis developed by Michael Porter. The competitive strategy of the organisation is then identified by making use of the tool that highlights the five generic strategies for the organisations.
SWOT analysis
The SWOT analysis provides an explanation of the current situation for an organisation analysing the internal strengths and weaknesses and opportunities and threats for the business that comprise the external factors influencing its strategic position. It is a very famous tool for strategic management used for conducting the audit and analysis of the factors that provide an organisation with a competitive advantage. The analysis of the external factors allows the organisation to identify any critical threats that may make the working more challenging for the organisation and any opportunity is coming its way. The internal strengths of the business can be utilised for further consolidating the position of the business in the industry and weaknesses will provide the organisation with guidance on the areas that need to be improved and worked upon. The SWOT analysis for EA is presented in the table below.
Strengths
Weakness
A wide variety of games for people of every preference and on multiple platforms.
The excellent digital presence of the company.
Global recognition of the brand name.
A lot of investment in the research and development department.
Strong brand position in the market.
Decent growth and financial performance of the company.
The very high cost of production.
Most games focused on a specific segment.
The weak strategy of customer acquisition.
Numerous versions of the games resulting in confusion and market cannibalization (Gude, et al., 2018).
Opportunities
Threats
Growth and development in technology.
Development of games that provide stimulation training for the forces.
Creating business ties with the organisations providing gaming consoles.
Interactive products engaging more customers.
Intense rivalry and competition among the existing firms.
Video game piracy reducing sales.
Changes in customer buying behaviour.
Seasonal nature of business.
The effective identification of the various elements of the SWOT metrics can help in building the personal and organisational strategy of EA. EA can use the identified significant factors and also establish a relationship between the internal and external features of the organisation to opt for the right strategy that can help in overcoming any potential warnings in the business functions. The competitive advantage will be recommended for EA in the following section that will allow the organisation to match the strengths to the appropriate opportunities and convert the weaknesses into opportunities and strengths (Rihan, 2017).
Five forces analysis
The five forces analysis tool by Michael Porter is used to analyse the different forces that shape the working of an organisation in industry and is also useful for strategic decision making. The five forces analysis for EA is presented in this section.
The Threat of New Entrants
EA carries out the production and sales of video games and any new entrant in the industry brings with it newer technology and innovation. The organisation faces a very high threat of new entrants because of the low barriers to entry and not much regulation in terms of government rule and regulations. The development and programming associated with the designing of a new video game does not require very expensive equipment and can be done by any individual with the right Intellectual capacity. Any new organisation can easily stylish itself with one game that has a brilliant Idea and innovation behind it. Therefore, the threat of new entrants for EA in the industry is high (Schatz, 2019). The threat of new entrants can be reduced by EA by taking care of intellectual property rights and creating alliances with the organisations selling the gaming consoles. They can also tie-up with the suppliers and distributors and develop the right retaliation tactics for it.
Bargaining Power of Suppliers
EA is an organisation responsible for the production and sales of graphics software and multimedia software. The raw material required for the manufacturing is sourced from several different suppliers and therefore, it becomes difficult for the suppliers to exert any pressure on the organisation. The diversification of the suppliers ensures that the bargaining power of the suppliers is kept in check and the brand is able to obtain the required hardware, software, network and infrastructure support from the different sources. Therefore, the bargaining power of suppliers of EA is low and does not impact the organisations operating in the industry. Since this force is already low in strength, the organisation does not have to take any measures for its management at present.
Bargaining Power of Buyers
Every organisation and industry tries to ensure that it is able to Cater to the needs and demands of the buyers. The buyers are also looking for best deals and offerings with maximum features by paying the minimum price. The purchase of a video game is a discretionary decision and the customers take into consideration numerous factors when making these decisions. The people purchasing video games generally follow a pack mentality and therefore, there is a significant power with the buyers that they can espouse over EA. The initial buyers of the games are also responsible for providing feedback and reviews that result in further sales of the products. If the buyers find the product to be disappointing, they can easily control the sentiment and opinion of the rest of the buyers towards the game and the gaming organisation at large. Therefore, the bargaining power of buyers is significantly high for EA. The high bargaining power of the customers can be managed by effective supply chain management and increasing the value and the incentives offered with the products and services. EA can also cut down on any powerful intermediaries and build on brand loyalty for addressing this issue.
Threat from Substitute Products
A substitute product can only prove to be a threat if the value proposition of the substitute is is uniquely different or much higher than the original product. There are numerous products available in the market that can meet similar customer needs as those of the video games offered by EA. With the popularity of mobile gaming, the customers can easily get a substitute for the PC games provided by EA. Most of these mobile app-based games are considerably cheaper and sometimes even free. However, since the gaming experience offered through the computers and gaming consoles is much better than the experience offered by the mobiles and tablets, the threat of substitutes for EA is moderate to low (Shulz, 2018).
Rivalry among the existing players
Intense rivalry among the existing organisations in a sector results in price wars and reducing the profitability of all the players. The multimedia, video games and software industry is extremely competitive and therefore the profitability of all the organisations operating in the industry including EA is driven down because of it. The users do not demonstrate very high loyalty to the brand and are only looking for the best gaming experience at optimum prices. The high industry competition requires EA to develop a strategy through which it can practice sustainable differentiation and dominate the market without relying much on the brand name. The competitive rivalry between the existing players in the industry can be reduced by differentiating the products offered by EA and buying out any major competitors. The organisation should also avoid getting into price wars as it results in cutting down the profitability of the business (FTMS, 2014).
Generic strategy identification
EA enjoys very high brand recognition. However, this is only restricted to a few targeted segments of the company. There are numerous existing and emerging players that have resulted in intensifying the competition and the success and profitability of EA are being threatened because of it. The SWOT analysis of the organisation and the five forces analysis indicate that the organisation is struggling to maintain the leadership position in the market and is unable to increase its market share because of the high competition (Sheppard, 2012). The competitive positioning of the brand is based on the critical factors that define the internal and external environment of the business and industry. Applying the generic strategies presented by Michael Porter to determine the competitive strategy of EA, it can be stated that the organisation makes use of a combination of three different strategies to address the increasing pressure and to ensure that the market share and profitability is maintained for the company.
Cost leadership
The cost leadership strategy requires the organisation to maintain a competitive advantage by offering the products and services at a lower cost as compared to the competitors. EA makes use of the competitive strategy of cost leadership to ensure that the current market share and leadership position of the organisation is maintained. This is done by practising efficient management of the value chain of the company and by focusing on increasing the accessibility to the products provided by the organisation by making affordable. EA also offers additional coupons and discounts for purchasing the company products during the promotional campaigns so that the consumption and sales can be increased while ensuring that the popularity and the brand value of EA are maintained at the same time.
Differentiation
The differentiation strategy enables an organisation to maintain a competitive advantage by standing out from the competitors and presenting the brand of the products as different from the ones offered by them. EA practices the differentiation strategy by innovating and bring about changes in the products after understanding the changes in customer expectations and interests. EA always tries to position its products as different from the available alternative products in the market and for reducing the pressure created by the competitors. EA invests heavily in advertising and marketing and also makes use of celebrity endorsement to increase brand recognition. EA also makes use of the company logo for differentiation while offering innovative products with extensive research and development and collaboration with the latest technology (Clairfield International, 2018).
Focus strategy
The strategy of focus requires the organisations to identify specific segments and target them bi narrowing down and understanding their requirements. EA regularly revises the strategies of branding and promotion and also make changes in the product packaging and designing strategies. The organisation tries to keep up with the ever-changing psychological expectations and requirements of the customers in terms of value received for the money that they have paid for the products.
Conclusion
EA is an organisation that is facing a lot of competition and a decline in the positive sentiment that the customers hold towards the brand. The popularity of mobile app-based gaming has resulted in a decline in the PC based gaming industry. The average financial performance of the organisation is also an indicator of the same. However, despite the underperformance in the industry, EA continues to maintain a strong position among its competitors and has a significant market share. The several studios owned by EA and the extensive investment in the research and development demonstrate the ability of the organisation to explore the changing expectations and sentiments of the customers and innovate the products with creativity. The SWOT analysis of the organisation indicates that the study growth in the financial performance of the company can be linked with the focus on quality and correct market segmentation and targeting of the company. The heavy investment of EA in the research and development also pays off enabling the organisation to maintain the position in the industry. The five forces analysis of the industry indicates that it is not very attractive to perform business in. Since EA is an established brand with the mass following and global recognition, the organisation can continue to operate profitably in the near future as well. However, the industry is not attractive for any new players because of the intense competition, high bargaining power of the buyers and the threat of substitutes. After analysing the strategic measures taken by EA for maintaining a competitive advantage, it can be stated that the organisation applies a combination of cost leadership and differentiation strategy for preserving the market share and the position maintained by the brand.
Recommendations
The great success of the organisation in the industry has increased the expectations of the customers. EA cannot afford to fail in living up to these expectations. The recent challenges faced by the company because of the Complaints on the customers and being named one of the worst companies in America needs to be handled immediately. The three recommendations presented for the organisation on the basis of the strategic analysis of the resources, capabilities and competitive position are presented below.
Managing customer expectations
The organisation should ensure that the ongoing transformation of the business should be done at a moderate pace. The rampant acquisition strategy adopted by EA should be put in check and the organisation should focus on managing the current intellectual capital possessed by the company.
Embracing innovation
EA needs to continue focusing on the research and development to maintain the stronghold in the industry and cater to the demands and expectations of its customers. There is a possibility to generate future success if the organisation make use of the latest technology like virtual reality and augmented reality.
Diversification
EA needs to diversify and focus more on the management of the studios and the latest movie titles. This will ensure that the organisation is also diversifying the sources of revenue and not rely on a single franchise or segment for running the entire business.