What the heck is “Strategy”?
You have 5 minutes to cross a river. If you don’t, you’ll be eaten by a tiger. If you try to simply swim across, you’ll drown. How do you do it? That’s strategy.
If we think about business strategy, crossing the river is your goal, your business growth. The tiger is the competition. If you are not quick enough, the competition will catch up and eventually take you down. The river is the market and your own costs. If you try to just “go with the flow”, you will eventually face stagnation.
In other words, business strategy is a plan. It is how you will get from point A to point B, using whatever means you have available.
Let’s go into a little more depth for a minute. Having already established that strategy is nothing but a plan, the details of said plan can be many. And here is where strategy starts becoming interesting as well as complicated.
If we continue using the example above, many would say “To go from A to B” is the plan. However, that’s not really the plan. That is your goal. The plan would be how you would do it. You could say, I’ll get from A to B by cutting down a tree and using it as a bridge. This would be a reasonable strategy indeed.
However, now all the little details start coming into play. Do we actually have the tools to cut down the tree? Will we be able to cut it down, place it, cross it and then push it off, before the tiger gets us? Are we strong enough to move the trunk?
All these things have to be considered before actually building the strategy and here is where a lot of people underestimate the effort, complexity and value of Strategy. The strategy we build has to suit us and our capabilities.
Quickly said, to build a strategy, you need to analyze who you are, where you are at, where you want to be, what tools, capabilities and/or means you have available and how your surroundings can affect (positively or negatively) your efforts to go to your desire point.
What a Strategy is not.
I believe it is equally helpful to continue talking about strategy as it is to talk about what it is not. Let’s go into the business world and forget for a second our wilderness example. Unfortunately I have had to face CEOs saying their “strategy” is to increase sales or a to be more profitable. All these points are very valid business goals, objectives or even results of a strategy, but they are not strategies per se.
The mission and vision of a company is not a strategy either. It might affect the strategy in some ways, but it is not and will never be a valid strategy.
Finally, projects, action plan, new products or services, etc. are also not a strategy, even though they can be an important part of one.
It is really important to stay away from false and wrong meanings of strategy. Claiming to have a strategy in place when we are actually talking about goals or objectives will lead to confused employees, inefficient implementation, higher costs and potentially complete and utter failure to achieve these goals. At best, this will be a (very) expensive mistake, and at worst, this can lead to the company having to close down.
The importance of Strategy
The last paragraph leads us into why strategies are so important. If applied right, this can mean huge advantages but if applied wrong (or not applied), this can mean irreparable damages.
Of course, life’s not black and white and neither is Strategy. I’m sure you all can think of small businesses that have been doing fine without a strategy. Surely there are some cases like that. Nonetheless, this is mostly due to these businesses being something very local and for a very specific product (i.e. a village bakery or butcher). This means, that either the “lion” is very far away, or the “river” is very shallow.
There are particular conditions that enable operating that way. But these days are coming to an end. Digitalization and logistics to a scale never seen before (Amazon, Rakuten, etc. using DHL, Fedex, UPS, etc.) are forcing even these small and local businesses to adapt or end up closing. IN other words, the “lion” is coming closer.
Having said that, let’s go into the reasons why having the right strategy is so important.
In the world we live in, we have to work with limited resources such as time, money, products, people, information, etc.
Furthermore, we do not live in a static world. Around us, everything is constantly moving. While we sleep, someone on the other side of the world is working. While we take one day to produce a screw, someone is working to do it in half a day. In other words, no matter if we like it or not, we are in an endless race. This means that even if things are looking pretty good for us right now, if we don’t keep moving, soon we will be behind our competitors.
If we can agree that we live in a constantly moving world, with limited resources, we will also agree that using our resources efficiently is essential. As is to make sure we find ways to stay ahead of our competitors (we can do so for instance with being different, better, holistic, specialized, etc.). Here is where Strategy is essential.
Another key element of Strategy that is often times overlooked, is communication. Once your strategy stands, it will serve as a clear route-map. Everyone in the company will know what needs to be done, why it needs to be done and how it needs to be done. This will not only serve to make sure the big picture is clear, but also everyone is rowing in the same direction.
When building a Strategy, you will analyze what resources you have, how you can use them, what the market is doing, what the customers actually want, how you can differentiate yourself from the competitors and how you can keep growing, whilst still being profitable.
And that is the ultimate goal of Strategy: Profitable Growth.
Actual elements of Strategy
As just explained, when building a Strategy, you look into many different elements. Luckily, we are not the first to do so, so we have some helpful tools at our disposal.
A good way to get started is using the famous Osterwalder Business Model Canvas. This framework will have you ask yourself the most basic questions about yourself (key activites, value proposition, key resources), the market (customer relationships, customer segments and channels), as well as who your allies (Key Partners) are or could be. All these questions talk about value creation. Once you have created value, the other two remaining questions are how you are going to capture it (revenue streams) and what will be your costs (Cost Structure) which you need to take into account.
Certainly there’s a lot to digest here. And even though this is generally accepted as the starting point for any start-up, doing this from time to time in seasoned companies can also help.
There are alternative models that try find out even more information. An example is Vives and Svejenova’s, 2014 Business Model Canvas, where they also ask for the motivation or driver, which is a very important question to ask. And while there are different approaches to the Canvas, there are also a huge list of other useful tools to analyze internally or externally, such as:
- Porter’s 5 Forces Analysis
- PESTEL Analysis (Political, Economic, Socio-Cultural, Technological, Environmental & Legal)
- SWOT (Strenghts, Weaknesses, Opportunities & Threats)
- Sources of Competitive Analysis
- Ansoff Growth Matrix
- The Delta Model
- RATs & CATs
Today we are just listing a few examples. In another posts, we will explain the different frameworks, how to use them and what information they provide.
All in all, the purpose of these tools is just to provide a guideline to ask and answer the right questions. Ultimately, answering these questions, you will realize what you are lacking, or perhaps, what your key competitive advantage is. In other words, you will be able to improve your weaknesses and exploit your strengths.
“This is all very nice, but I thought we were talking about gaming here…” – Right! Let’s get into why Strategy matters so much in the video game industry.
Strategy & Video games
If you just didn’t jump to this point, by now you will have a good understanding of the very basics of Strategy, the consequences of using it right and wrong and some of the elements that can help you build one.
Why is Strategy so important, especially, in the video games industry?
The video game industry has grown drastically in the past 20 years. It has surpassed any other entertainment industry, generating more revenue than movies & music combined.
It is a very competitive industry. There are millions of games available, looking to grab the attention of the gamers, which has proven to be not only extremely difficult, but also very expensive.
The market has experienced huge disruptions in the past decades. Development, the product itself and how and where it is played has changed drastically. The costs have also changed considerably and present many different structures, depending on what you want to do. It’s not the same developing a simple game for an App store in a few weeks, than a AAA game with hundreds of developers over the course of 5 or 10 years. And even mobile games are becoming more and more complex, blurring the line with console games even more. And let’s not even get into Marketing, which is now where many companies spend the most money nowadays.
It is also one of the industries that present the most options to monetize the same type of product. You can sell your game one-time, you can offer subscriptions, freemium with in-game purchases, you can offer DLCs, Pre-Purchase, Early access, etc. or combine everything said so far anyway you please.
The above is just the tip of the iceberg. The reach, complexity and speed of the video games market makes it essential to build a strategy. And to do it right. We have seen companies almost go under, and also get back up on their feet. Let’s finish with a great example: Nintendo.
Nintendo was fighting with Sony and Microsoft in the early 2000s. It was a fierce war to see who could get the most users out of very limited pool. Instead of fighting for the same already half-eaten pie, Nintendo decided to open up the market and basically create their own pie (or how it is called in strategy, a blue ocean). Instead of fighting with Sony and Microsoft in the console wars to offer the best graphics and quickest processors, Nintendo opened up the video-game market to the casual gamers. They launched the Wii, attracting kids, elders and everything in-between. This was a brilliant strategical decision.
In other words, what Nintendo did here is they decided to stop investing their limited resources in something which was already being contested by others, and instead focused on doing something else, that would cater to a different audience, for which they would not have to fight for with the other two key players in the market.
This is just one of the thousands of examples we can find in the video game industry. Understanding and answering all the important questions, analyze the answers and build a strategy that will move the company into a favorable position is something many companies have done or should have done.
Steam, Activision-Blizzard, King, Rovio, Epic Games, etc… are all cases of great strategic thinking. It is equally important to analyze the big failures of the industry, too, for which are many, some that still survived (Nintendo or Microsoft) and some that went under (THQ or Pandemic Studios) or were forced to be acquired by others in unfavorable positions.
In future articles we will cover strategic analysis of companies and their choices, news and trends of the industry and really anything related vide game viewed from a strategic perspective.
Until next time!