TECH 6032

Managing Innovation

Case Study Analysis 2

201894077 Tsolmonbaatar Batbileg

20 November 2021
 Executive Summary

Nintendo is one of the leading electronic video gaming companies in the world. The
company first started the business in 1889, and founder Yamauchi was manufacturing and
selling playing cards in the early days. Since then, Nintendo has taken a strong position in the
video game industry. It has released many successful consoles, such as NES and GameCube.
However, it is based on its recent years success in the latest innovative DS and Wii consoles.
Nintendo faced stiff competition from Xbox (Microsoft) and PlayStation (Sony) consoles in the
early 2000s. Nintendo launched its Wii consoles in 2006, and later on that they began to
recapture the video game capabilities with previous programs, as the first NES system was
released in 1985. The Wii was one of the disruptive gaming consoles for people who are
considered non-players or casual gamers. The console (Wii) was not as technologically
innovative as the Xbox 360 and PS3, but its success provided new ways to play video games.
The new design of the Wii controller, which had built-in motion sensors, created a new game
experience for users, which attracted a much wider audience. Nintendo can sell the Wii console
at a lower price than its competitors, such as Xbox and PS while making a profit on each console
by avoiding complex and expensive hardware. The new gaming console of the Wii seems to have
significantly impacted the gaming industry. For instance, its rivals Microsoft and Sony responded
to implement similar technology such as motion sensors. Therefore, Nintendo needs to continue
to develop and improve the design and functionality of the Wii. The company may consider
evaluating relationships with software and hardware providers to develop the gaming industry
further to improve performance as of now. The company has successfully disrupted the market,
but Nintendo should not sit back on this competitive market.
Problem Identification

Nintendo is a video game company that operates in a competitive gaming industry where
primary product cycles average every five to six years. The company was struggling in the
marketplace that was controlled by Sony's PlayStation 2 (PS2) and Microsoft Xbox in the early
2000s. In 2006, Nintendo announced to debut its Wii console, and at the same time, Nintendo
rivals released the Microsoft Xbox 360 and Sony PlayStation 3 (PS3). However, the Wii turned
the market upside down with its disruptive technology, such as motion sensors. That disruptive
technology clearly describes a process or strategy that allows a new product to take a lower
position in the market and ultimately gain tremendous momentum in the market so that it
removes other established competitors. Nintendo's disruptive new design/technology turned out
to be a big sensation for the gaming industry. Now that Nintendo has managed to change the
situation with its Wii console, it needed to decide how it can continue to ride the wave of success
in the future. Its rivals were probably driven by the success of the Wii and its ability to enter new
markets. However, these powerful companies will likely try to emulate the newest feature of the
Wii. Nintendo started introducing many new games in these markets and needs to use this to
their advantage as they decide the best way to move forward and continue the success of the Wii.
Nintendo needs to articulate its goals clearly and must have strategies to improve its design and
technology, and most importantly, constantly innovate in this competitive market.

5
Data Collection

Nintendo has had many successes in the video gaming market since the release of its
products. For instance, successful consoles include Game Boy, Super Game Boy, Super NES,
and GameCube. However, the gaming market has been highly competitive, and rivals Sony
PlayStation, and Microsoft's Xbox released their new gaming consoles in recent years. The
gaming industry usually has new consoles introduced every five to six years. In the early 2000s,
the cycle included a GameCube console from Nintendo, a Play Station 2 (PS2) program from
Sony, and an Xbox from Microsoft. The PS2 has been a clear winner among those three consoles
and sold more than 140 million units worldwide in 2008. Sony's success was its compact console
back to the original PS games and its ability to play media and video content on CDs and DVDs.

The new era was started in 2002 when Nintendo's new president Iwata was appointed. The
new president, Iwata, would bring new and innovative changes to the company using his years of
experience and market knowledge. His strategy was to expand the gaming market to include
non-gaming players such as mothers, fathers, and family members. Simple games would delight
all customers. From this strategy to achieve this, Nintendo's DS and Wii gaming consoles were
introduced.

The company developed a Nintendo DS handheld gaming device to expand the video game
industry beyond television. They previously introduced Game Boy in 1989, Super Game Boy in
1994, and Game Boy Color in 1998. Nintendo has continued to maintain its 90% market share in
the mobile video industry by launching innovative products during their release year of DS. The
Nintendo DS introduced new concepts such as touch screen and Wi-Fi capabilities and had many
creative games, including Dragon Quest V, Guitar Hero, and Pokemon Mysterious Dungeon.
However, Sony introduced its PlayStation Portable (PSP) as a direct competitor to Nintendo's DS
device in 2005.

Later on, Nintendo focused on capturing non-gamers to recapture its market share and
developed the Wii consoles in 2006. At the same time, Microsoft and Sony also released their
new consoles, such as Xbox 360 and PS3. However, the Nintendo console had built-in moving
sensors that could translate the movement into the in-game action. Moreover, the Wii enables
users to connect to the internet to access their region's latest news or weather conditions. The Wii
sales increased sharply and sold 600,000 units in just the first eight days, generating nearly $
190M in company sales. In June 2008, Nintendo had recorded a total of 10.9 million Wiis sold in
the US. It was about 500,000 units more than the Xbox 360, released a year before the Wii.

Nintendo was well-positioned for gross profit margin compared to other competitors. The
company has been making a profit on each console sold since its first release. Nintendo
accounted for about $ 50 per console, while Sony lost more than $ 300 and Microsoft lost $ 125
per console sale.

Figure 1 Gross Profit Margin per Console

The Wii also developed and sold quality games to users. For instance, Nintendo's exclusive
release of the Super Smash Bros Brawl sold 2.7 million copies for that month alone. That same
month, Nintendo sold more Wii than PS3 and Xbox 360.

Nintendo has established several partnerships with other companies in some of its products.
For example, the company formed a design partnership with Silicon Graphics to release Super
Game. Also, Nintendo had a brief relationship with Sony in the 1990s with installing a CD-ROM
in the Super NES; However, differences of opinion led to divisions between the two companies.
The Super NES was based on cartridge technology, but an additional device was available with a
high-volume optical compact agreed with Philips.

Based on the financial report, Microsoft and Nintendo's profit margins have gradually
declined since 2005, but they are still higher than Sony. Moreover, Microsoft and Sony have
significantly lower gross margins than Nintendo between 2005 and 2008. However, Sony and
Microsoft earn profits from various other products such as Sony laptops, Microsoft Office
software, and more. In the case of Nintendo, they do not have a wide range of products.
Analysis on data

Nintendo's DS and Wii consoles allowed the company to take a new step in the market. The
innovative program has helped to increase the quality and quantity of game titles built into the
Nintendo. Moreover, Nintendo has been able to identify new markets for gamers - casual or non-
gamers through this innovation.

Nintendo introduced their handheld device DS in 2004, and this disruptive innovation helped
encourage developers to develop games on the Nintendo platform. Nintendo has targeted new
gaming classes such as families, women, and various age groups with the Nintendo DS. Moreover,
Nintendo may catch casual customers, including the whole family, through the Wii Sports and
Family games.

Quality console games can increase the sale of the games that are a consistent deviation from
console sales. When Nintendo introduced their particular game named Super Smash Bros Brawl,
they sold more Wii consoles than Xbox 360 and PS3 in the same month. Therefore, it clearly
shows that the consoles have a sound system and the quality games that go with it. It will help
drive sales and encourage new users to use the console.

The Nintendo Wii can be considered a disruptive innovation; even Wii could not compete
with Xbox 360 and PS3 for graphics capabilities and speed. So, its poor performance did not
affect its ability to regain power in the video game market. The Wii's game controls and in-game
interaction have made the game easier to understand and opened the industry to many people.
Also, the use of motion sensor technology provided an entirely new way to play a video game.
 This allowed Nintendo to direct a group of people who had never experienced before as casual
players.

Nintendo focused on the pricing and affordability of the Wii console, and it might be one of
the critical factors for success. Wii was cheaper than the Xbox 360 and PS3 because its technical
capabilities were inferior to other consoles. In the case of price competition, Sony and Microsoft
had to lower the price of their consoles to compete with Nintendo's market. In contrast, Nintendo
made a profit of nearly $50 by selling each console. So, this low price of Wii consoles enabled
Nintendo to regain its previously lost market share and make huge profits.

Microsoft and Sony had to rely on their ability to generate sales to sell additional accessories
and games. Sony and Microsoft had a partnership with third-party developers on their games. In
that case, they would only get a 10 to 15 percent reduction in selling price. On the other hand,
Nintendo made in-house games (physical games) such as family, sport, and fitness games, which
positively impacted total revenue. It opened the door to those who like to live a healthy and
active lifestyle. The motion sensor is technology-enabled to encourage people and families to get
on their feet, dance, throw a baseball, and even swing tennis rackets. So, Nintendo made all
profits from in-house gaming. They also provided independent software development with an
online channel where games could be distributed through the internet. This has given Wii users
access to games created by gaming developers. All these disruptive innovations and business
models targeted more than casual gamers. Sony and Microsoft may copy the features of their
business model to open the doors to this new market. The company should take the lead in the
market, adding continuous development and innovation.

Solution Development

Nintendo's Wii console brought the wave to shake the video gaming industry. Nintendo needs
to improve its Wii system's current hardware and software performance features for the following
release products to maintain the lead. Moreover, Nintendo will have to find ways to keep those
consumers attracted to the consoles' innovation. Nintendo needs to continue to test with other
innovations that target additional markets and bring more diverse gamers.

The company is seemingly well-positioned to benefit from continued success in the video
gaming industry based on previous experiences and successes.

SWOT Analysis

STRENGHT WEAKNESSES

Simple processes and efficient performance Low profits that could affect investment in a
management - Nintendo Disrupted is one of new project - Even if Nintendo's financial
the most efficient companies in its category. statements are stable, going forward,
Performance credit goes to efficiency and Nintendo has disrupted 5-7% profits could
effective performance management. lead to a lack of investment in new projects.

High customer loyalty and recurring Limited international market experience -

purchases among existing customers - Old Although a major player in the local market,
Nintendo Disturbed customers are still loyal Nintendo Disrupted has little experience in
despite its limited success over a thousand international markets. According to Ali
years. I believe Nintendo Disrupted can make Farhoomand, Shiu Kau Wong, Nintendo
a difference even by keeping these people on Disrupted needs international talent to enter
board. emerging markets.

OPPORTUNITIES THREATS

Profitable Opportunities in International The domestic market marketing method will

Markets - Globalization has led to not work in new markets like India and
opportunities in global markets. Nintendo China, where the rate is more valued than
Disrupted is in an excellent position to take profitable.
advantage of those opportunities and increase
Nintendo Disrupted's age and life cycle show
market share.
that the company has not yet entered the
E-Commerce and social media Oriented market for a thousand years.
Business Models - The E-commerce business
model can help Nintendo Disrupt connect
with local providers and transport providers
in the international market. The growth of the
communications platform could help
Nintendo Disrupt reduce the cost of entering a
new market and reaching customers with a
much lower marketing budget.

Findings and Managerial Recommendations

Nintendo has successfully gained momentum in the video game industry through its
innovative new products and games. However, many areas need to be an improvement.

First, Nintendo should continue to build on the success of the DS and Wii systems, which are
likely to result in significant improvements in reputation. With the launch of friendly and active
family games, Nintendo has gained the trust of many families across North America and around
the world. Nintendo should build on this trust and focus on improving the range of game titles that
enhance the technological capabilities of the Wii controller's motion sensor technology, but also
build on training and educating the gaming industry.

Another possible area of continuous development for Nintendo is the vigorous promotion of
additional in-house game titles. This business model seems to be very profitable for Nintendo as
they earn all the revenue from game sales, unlike the titles of third parties, where only a tiny
portion of the profits. Nintendo may also consider additional investment in its Wii Ware, making
private-developed software available in the US and the EU. The company may consider
expanding to Asian markets through this service. As the content available on the Wii system
grows, it may encourage more users to purchase from the system.
 Nintendo's management team should consider making additional investments in developing
exercise or fitness games or motion sensors in the Wii. The United States skyrocketed last year,
leading to obesity that leads to high blood pressure due to a lack of physical activity. Nintendo
should also consider setting up relationships with health agencies, reputable health agencies, and
national sports organizations to develop more advanced and proven clinical strategies to combat
diseases caused by lack of exercise. It will promote healthy and active lifestyles for all age groups
and people.

Nintendo's success with the DS and Wii indicates that the effort to combine these technologies
into a coherent product can reap many rewards. Integrating the new environment of motion sensor
controls, touch screens, and Wi-Fi capabilities can incorporate the best of console and handheld
gaming consoles. Nintendo should also start focusing on improving image performance and other
hardware-related functionality for its programs. Sony and Microsoft have already done this with
their previous systems, and they have this advantage over Nintendo. They can create many heavy
games that attract strong players.

Another recommendation of Nintendo management would be to move away from using

excessive proprietary and limited media technologies, such as GameCube game disks and N64
cartridges. Nintendo's rivals, Microsoft and Sony, rely on standard media solutions such as CDs,
DVDs, and Blu-rays to find their media solutions. These days, Sony and Microsoft's users can
download games from their online store through the internet.

Conclusion

Nintendo has introduced a new field of gaming. It was great disruptive innovation that brought
considerable profits to the company. Moreover, Nintendo's s Wii consoles cover all family
members who have never experienced video games with in-house and fitness games. Nintendo
implemented new innovative technology, a motion sensor that helped users comfortable play and
interacts with games. However, both Microsoft and Sony have entered into this market, which may
affect Nintendo's profits. Therefore, Nintendo needs continuous improvement for their next and
current consoles, such as video gaming graphic performance, developing more in-house games,
moving away from using cartridges for games, and building an ecosystem between handheld and
consoles.

References
Farhoomand, A., Joshia, H., & Tsang, S. (2009). Nintendo's disruptive strategy: Implications for
the video game industry. HKU814. Pokfulam, Hong Kong, China: The University of Hong Kon