Page 1 Executive Summary
Contrary to what people often believe, the worldwide game industry is not all the time about laughs and giggles. The managers that are part of Small to Medium Enterprises (SME’s) often have a hard time successfully penetrating this creative and saturated market. The competition within the videogame industry is severe and ruled by large corporates such as Electronic Arts, Sony and Blizzard-Activision. Having an impact in this industry as an SME where the distance from the developer to the gamer is minimal is actually hard to achieve. On top of this, the computer gaming industry is one of the fastest growing industries on a global scale with global sales of videogames expecting to reach $111.1 billion by the year 2015. It makes common sense that all of the participants need a solid business strategy aligned with the right forms of decision making to stay in course of its objectives while controlling its scare resources. The findings of this paper will portray how often the actual implementation of decision-making behavior and business strategy is misaligned with that of the actual world.
This paper will look at a small Dutch Indie game developing company named KeokeN Interactive and will use the case analysis in order to extrapolate its findings to a more general sense. The approach of this paper includes interviews with employees at all business levels and the application of several business theories, tools and frameworks. The combination of the findings will provide an overall conclusion about entrepreneurial business strategy dynamics and the effects on agency behavior theory.
The analysis will also explain why certain forms of decision-making are so dominant in SME’s within these type of markets. Furthermore, it will look at what the sources of origin are and which market factors inhibit the dynamic capabilities of these SME’s. Finally, the paper will conclude with a short explanation which steps a manager is able to undertake to improve the execution of the initially proposed decision making.
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Preface/Acknowledgements ... 4
I. Introduction ... 5
II. Case Description ... 5
A. The Research Question. ... 6
III. The World Gaming Industry: Digital Entertainment Galore. ... 7
IV. The Dutch Gaming Industry: A Smaller Piece of the Gaming Pie. ...10
V. The Company: KeokeN Interactive ...11
VI. Conceptual Framework: Theories, Tools and Frameworks. ...15
A. The Intuitive Decision Making Approach... 15
B. The Rational Decision Making Approach... 16
C. Misalignment in Employee Behavior: The Agency Theory ... 16
D. Startups, Strategy and Creativity: The Entrepreneurial School of Strategy ... 17
E. Managing Project Life-Cycles: The Product Life-Cycle Theory ... 17
i. Stage 1: Research & Development ... 18
ii. Stage 2: Introduction ... 18
iii. Stage 3: Growth ... 18
iv. Stage 4: Maturity ... 18
v. Stage 5: Decline ... 19
F. The SWOT Analysis ... 19
G. Porter’s 5 Forces Model ... 20
H. The Resource-based View and the VRIN/O Framework. ... 21
I. Porter’s Generic Strategies... 22
J. The BCG Matrix ... 23
VII. Analysis and Discussion ...26
A. Interview and Analysis... 26
B. Scope and Business Hierarchy ... 26
C. The Interviews: Findings and Feedback ... 27
i. Koen Deetman (Founder and Managing Director) ... 27
ii. Johan Terink (Co-Founder and Agile Scum Process Master) ... 27
iii. Remco Dazelaar (Lead Programmer) ... 28
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v. Anna Udding (3D Artist Intern) ... 29
vi. Brian van Bentem (3D Artist Intern) ... 30
D. Overall Conclusion of Interview Feedback... 30
VIII. Business Theories and Framework Application ...31
A. Porter’s Generic Strategies ... 31
B. SWOT Analysis ... 32 i. Analysis ... 34 C. The BCG Matrix ... 34 ii. Analysis ... 37 D. Porter’s 5 Forces ... 38 iii. Analysis ... 39
E. The Resource-based view and the VRIN/O Framework. ... 40
iv. Analysis ... 40
F. The Reaction of the Founders and Their Internal Discussions. ... 41
IX. Conclusion ...43
X. Further Research Recommendation ...46
XI. Reference List ...47
XII. Websites ...50
Page 4 Preface/Acknowledgements
This company research document is written as a final contribution to my Master of Business Management (MBA) degree at the University of Amsterdam - Amsterdam Business School (ABS). It contains finalized research omitted in the period of June until September 2015.
Firstly, the development and finalization of this case study could have not been done without the iron support of all the people working at KeokeN Interactive, in particular Koen Deetman and Johan Terink, both providing me with a rare and extremely open culture while giving me the opportunity to execute this company project at their firm. Their trust has provided me with the ability to explore this organization internally to its fullest without facing constraints in any form. This freedom has granted this research the room it needed in order to deliver the best quality of research possible.
Furthermore, the continuous support of my supervisor, Prof. Dr. John Cullen and the MBA courses guided by Johan Lindeque, Jeroen Kraaijenbrink and Martyn Rademakers were vital to the execution of this research project.
As a rare experience, I had the ability to work alongside a close MBA classmate of mine during the complete period of this research. His constant review and discussion of my research has lifted this research to a completely new level. Since his research has also been conducted at KeokeN Interactive during the same period, I highly recommend consulting the final research paper of Jordy Velasquez to fully grasp the content of the research conducted at this company.
Finally, I would like to thank my family, friends, colleagues and the faculty of the MBA program for their encouraging support throughout the development of this research.
Christopher Jambor September, 2015
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I. Introduction
Many innovative small and medium enterprises (SME’s) are founded by entrepreneurial visions that serve as strong guidelines through their most difficult stages of early business development. In order for these SME’s to successfully “cross the chasm” (G. A. Moore, 1991), they need to rely on their current know-how and past (work) experiences. Practice shows that these entrepreneurial SME’s often tend to lack individuals in their management teams who have obtained a solid business background to properly function as a supportive decision maker. This situation generates dominant space for intuitive decision making versus rational decision making when these firms are being managed. The aim of this research is to address intuitive versus rational decision making and how they affect the agency conflict theory and thus affect the dynamic capabilities of an SME’s business strategy implementation. This analysis will serve as an analytical research tool in order for these innovative and entrepreneurial SME’s to develop a more stable and controllable business environment with regard to strategy implementation.
II. Case Description
This research will commence within an entrepreneurial and innovative Dutch SME called KeokeN Interactive, which provides digital coding solutions for their clients and develops unique video games for the public. This research will focus on all business levels (business level, functional level) within KeokeN Interactive as every department within this firm is being addressed. Employees at KeokeN Interactive have stated that their business strategy is far from optimal due to the fast developing pace of the national and global gaming market. This constant environmental change brings a vast variety of challenges with regard to short and long term strategic planning and its implementation. KeokeN Interactive believes that a strong vision is present within their management but that the core business values and ways of individual behavior are not always aligned with what their business focus should be (strategic perspective). The management believes that when their business strategy is able to take form of a more concrete and controllable manner, they would achieve the capability to functionally align the people with the envisioned strategy. The management is aware that, in fact, the entire firm lacks the support of an individual with a solid business background with who this process of developing a concrete strategy could be developed. A brief preliminary research discussion with the management has also shown that clear agency conflicts are present and that their intuitive behavior might affect the way of developing a
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clear business strategy. This research paper will apply multiple business strategy tools, theories and frameworks and will combine the outcomes with the individual research with the employees of KeokeN Interactive in order to develop a tailored strategic solution.
The gaming industry has grown to become one of the most dominant entertainment industries, generating $93 billion in sales in 2013 with an estimated 2015 worldwide industry sales figure of $111 billion (Entertainment Software Association 2015, Games: Improving The Economy). Research shows that this industry is one of the fastest growing on a global scale. Even though that the typical characteristic of this industry is that it competes with other comparable entertainment industries in order to be the choice of the expenditure of the customer’s leisure time. Due to the time and scope constraint of this research paper, the scope will only be limited to the gaming industry and the influence of this inter-industrial competitive factor is kept to a minimum. Due to the developed and highly saturated state of this industry, it is incredibly hard to penetrate as a new entrant, especially as an SME. The industry is characterized by high risks and fierce competition containing market players with budgets comparable to fully-fledged Hollywood movies. On top of this, this industry is “hit-driven”, meaning that a relatively small amount of the video games counts for a significant proportion of the total revenues. Due to this market behavior, adopting a new business model is perceived to be risky and such an adoption would make business forecasting uncertain and volatile. This increases the tendency that this industry’s market players prefer to stick to well-established (and sometimes outdated) revenue models.
A. The Research Question.
This guides this research to the following research question: How does intuitive decision making affect the agency conflict behavior and the dynamic capabilities of entrepreneurial business strategy in innovative SME’s within the Dutch game development market?
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III. The World Gaming Industry: Digital Entertainment Galore.
Today, the computer gaming industry is one of the fastest growing industries on a global scale. As mentioned earlier in this document, the global sales of videogames are expected to reach $111.1 billion by the year 2015. In the year 2013 (which was a very important period for the video game industry on a global scale) video game developing companies were able to obtain strong sales in the United States, with revenues exceeding the $21 billion barrier. Research shows that this was largely due to the participating companies providing well-paying jobs that resulted in a higher overall revenues flowing to the nation. On a global scale, sales skyrocketed in 2013 to a whopping $93 billion due to the deliberate growth in the emerging mobile gaming market. On top of this, the eighth generation of new gaming consoles such as the Sony PlayStation 4 and the Microsoft Xbox One were introduced which caused a boost in console sales and technological advancements. Furthermore, video game companies were able to sell 160 million units of video games that lead to an astounding $15.4 billion in net revenues. In comparison, seventeen years earlier, the U.S. entertainment market only accounted for 74.1 million units sold and $2.6 billion in sales revenue.
Furthermore, market trends show that consumers increasingly enjoy the use of digital gaming content. In a matter of fact, digital gaming sales surpassed those of physical sales for the first time in the year 2013. The sales of digital games, digital add-on content, mobile applications, game subscriptions, and social network games accounted for a total of 53% of total game sales in 2013. This trend caused for an additional $7.2 billion in revenues. Simultaneously, the introduction of the eighth generation of gaming consoles such as the PlayStation 4 and the Xbox One, noticed similarly strong sales increases in 2013. The U.S. market sales for these consoles were able to reach $5.2 million units. The growing appetite for new video game content also affected the overall sales of consoles and related physical accessories. This trend was able to generate more than $6.1 billion of revenue in 2013. The biggest technological advancement of the eighth generation of video game consoles was the focus and possibility to enjoy gaming content on other (new) forms of entertainment channels. The networks of these consoles contained 142 million users where each of these networks functioned as a separate entertainment hub with roughly the same characteristics. Examples of the new entertainment channels are Netflix, YouTube, ESPN, and HBO Go.
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Nevertheless, it is important to understand that the largest proportion of the worldwide sales and revenues (between 80% to 90%) are earned by the largest game developing companies such as Blizzard-Activision, Electronic Arts (EA), Sony, Konami, 2K, etc. Their market dominance causes high barriers to entry for newly formed independent developers (Indie Developers). Also, due to their incredible amount of capital available, these large “corporates” always scour the market for interesting new gaming titles to buy out and/or publish in order to add to their gaming portfolio. Sadly, most of these bids are accepted due to the risky and volatile nature of the smaller developing firms, providing them with shorter returns, which they see as offers they cannot refuse. Also not to forget, usually these bids are but a fraction of the available capital of the large players. It seldom occurs that these bids are refused and that these smaller developers are able to penetrate the market effectively. The same largely accounts for publishing agreements between developer and publisher as the publisher provides a well-established network to sell the game through. Nevertheless, this option does provide a better exposure for the lesser known Indie developers. The publishers do tend to demand a relatively large percentage in royalties from net sales, which then again have their effects on the ROI’s of the Indie developers.
Finally, a short infographic obtained from the “Entertainment Software Association” is shown on the next page to portray visually the highlights of the most recent trends in the gaming industry. For further global industry details, please consult the appendix and indexes section of this document.
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Figure 1: The Entertainment Software Association: Essential Facts 2015 Infographic – April 2015 Source: http://www.theesa.com/wp-content/uploads/2015/04/Essential-Facts-2015-Infographic.pdf
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IV. The Dutch Gaming Industry: A Smaller Piece of the Gaming Pie.
The Dutch game development market accounts for the 16th largest market worldwide and is the 6th largest market in Western Europe. The market exhibits a total revenue of $421 million with 15.9 million Internet users from a total population of 16.8 million people, showing that 94.6% of the total population is active on the World Wide Web. This provides the Dutch gaming market with an incredible audience targeting potential. It is important to remember that the Dutch gaming industry is still only a fraction when compared to those of the top players such as the U.S. or Japan. Furthermore, it also shows that the worldwide gaming industry is still far from becoming saturated. The largest growth inhibitor worldwide is the uneven spread of technological advancements and Internet access.
Top 25 Countries by Game Revenues
Figure 2: NEWZOO: Top 100 Countries by Game Revenues – April 2015
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The Dutch gaming industry does vary in its governmental support structure to that of markets. In this market, the Dutch government has made several millions of Euros available to invest into the support and development of Dutch indie game developers. The available support is available in the form of subsidiaries and incubator programs. One of the subsidiaries is the Dutch Gamefonds (Gamefund) who alone has 300.000 EU available per year. The largest Dutch incubator program is the Dutch Game Garden in Utrecht. Here, Dutch game developers are supported with housing, technology, lecture programs and a solid network until the first gaming title is released to the market. One of the prime Indie developer examples is the company Vlambeer where one of the very famous and influential owners, Rami Ismail, made it into the Quote 500 in his mid-twenties. Sadly, these subsidiaries and incubator programs had to cut down in available budgets as the Dutch market was facing difficulties, resulting in a cut in available investment capital for the Dutch gaming market. By creating several Dutch subsidiaries, the Dutch government hopes to achieve a more stable business environment so that the Dutch game development market is able to develop faster and compete better on a global scale.
V. The Company: KeokeN Interactive
KeokeN Interactive is a young Dutch Indie game development company that was founded by Koen Deetman and Johan Terink in early 2014. KeokeN Interactive was born out of the passion for developing great and engaging 3D game experiences. KeokeN Interactive’s basic principles and unique market approach have created a unique indie developer. The people at KeokeN believe that they are in the experience creation industry rather than just the game development industry. This core principle has given KeokeN Interactive the ability to attract highly talented individuals who think alike varying from IT and business backgrounds alike. KeokeN Interactive aims to develop rich and playful game experiences because they believe that gaming is more than just simply playing a game.
Their mission is to develop new and unique game experiences according to KeokeN Interactive’s core principles that will provide new forms of added gaming value within the worldwide Indie gaming market. Their vision is to become one of the best game experience providers out on the market. KeokeN Interactive has been working on several gaming titles ever since the initialization
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of the company. Currently, KeokeN Interactive is working on “Deliver Us the Moon” which is planned to be launched into the worldwide gaming industry somewhere in the summer of 2016.
KeokeN Interactive pursues a very flat and non-hierarchical business structure and internal business communication style. Every member of the team has the opportunity to express his or her ideas and personal opinions about any topic. By constantly consulting each other’s feedback and forms of expertise, the people at KeokeN Interactive have been able to achieve excellent business decisions. The management believes that the individuals within KeokeN Interactive are the ones who make the difference. For this reason, the employees highly respect each other’s professional/educational background and share their business responsibilities accordingly.
KeokeN Interactive develops indie style video games that are very different from what most other indie game developers have to offer. Firstly, KeokeN Interactive only develops fully 3D video games instead of 2D video games. As the global 2D Indie video game market has become extremely saturated and highly competitive, they believe that they are able to stand out from the crowd by focusing purely on 3D games. On top of this, 3D games often offer a more believable and immersive gaming experience, which is core to their game development philosophy. Furthermore, they constantly aim to develop AAA (triple A) video games that are comparable in quality to other well-known gaming titles such as Battlefield, Call of Duty, Halo, etc. Another element of their ongoing success is their unique symmetrical design style that provides their games with an immediate unique identity. Above all, their greatest differentiation element and asset is the entire KeokeN Interactive team. KeokeN Interactive believes that they are composed of highly talented individuals that have able to channel their unique abilities into their gaming titles such as “Deliver Us the Moon” which are absolutely essential for all of their future titles and future business success. Without this team of incredibly focused professionals, none of this would be possible. It is for this reason that they highly value their intangible assets within their firm that can only be delivered by their human capital.
The business model of KeokeN Interactive is quite unique in the Dutch and global gaming market alike. As an indie game developing company, it is incredibly difficult to attract and retain a relatively acceptable amount of liquid resources that can be used to invest into the different
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elements of running such a firm. The high risks associated with the volatility of the market have let the two founders of the firm decide to pursue a business model structure that decreases these basic market risks. The owners implemented a holding structure under the title Vidocq Group that contains the list of companies and thus separates the revenue streams and diversifies the associated risks simultaneously. Both Koen and Johan are considered freelancers who work for their own private companies. KeokeN Interactive as a firm hires these individuals as freelancers to join the human resource capital pool. The reason why they do this is that both owners have different responsibilities in operations and revenue streams within this firm. Johan serves as the expert in Agile project management who works as a “work for hire” at large clients. By pursuing this course of action, Johan is able to constantly generate a constant income stream for KeokeN Interactive, which Koen is able to use as a direct investment into the operations of the firm. This constant cash flow reduces KeokeN Interactive’s needs for the search of cash from other sources such as bank loans or equity through shareholders. On top of this, by constantly trying to attract financial support from local and international fund providers, KeokeN Interactive is able to attract enough cash in order to get through the most turbulent early years of business development. All of this decreases risks and the chance of the agency theory occurring by conflicts of interest. Furthermore, their focus is also to develop smaller 3D Indie games in the Unreal Engine 4 (UE4) on a yearly basis.
Figure 3: Product Lifecycle Management
Source: https://www.linkedin.com/pulse/20140626152428-113933750-cradle-to-grave-true-benefits-of-product-life-cycle-management
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By doing so, they are less focused on maximizing the lifecycle management (more on this in the conceptual framework section) of their games. Furthermore, they are able to target potential periods within the global gaming industry as large game developers on average take between 3-5 years in order to develop a new gaming title. They wish to generate a shorter revenue stream for their gaming titles when the industry is at a low peak regarding the availability of AAA (triple A) gaming titles. Furthermore, they believe that the quality of their games is comparable to that of existing AAA gaming titles at a lower price, making them a viable comparable option for purchase.
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VI. Conceptual Framework: Theories, Tools and Frameworks.
Before the analysis of this paper’s research will be described, it is important to review the key theoretical concepts which will be applied throughout the conducted research at KeokeN Interactive. This section will describe the applicable theories, tools and frameworks that are used to provide an answer to the aforementioned research question. These are the intuitive decision making approach, the rational decision-making approach, the agency theory, the SWOT analysis, Porter’s 5 Forces Model, the Resource-based View, the VRIN/O Framework, Porter’s Generic Strategies, the BCG Matrix, the Entrepreneurial School of Strategy and the Product Life-Cycle theory. Furthermore, a wide range of literature and other information sources are used in order to amplify the foundations of this paper. The complete list of literature used can be found in the reference list section at the end of this document.
Theories: An Introduction to Intuitive versus Rational Decision Making.
A. The Intuitive Decision Making Approach.
The terms instinct, emotions and gut feeling are usually correlated to the intuitive form of decision making. It is through this means that the individual is able to determine his or her definite form of decision. In a matter of fact, the intuitive decision-making process is defined as a non-sequential information-processing mode. This method does not follow a thorough qualitative and/or quantitative analysis as the individual believes that the need for such a thorough analysis is unnecessary or constraints such as that of time do not allow one to do so. It is for this reason that the aforementioned correlated factors provide this decision-making process the ability to deliver a relatively quick decision process. Yet the famous business strategic Henry Mintzberg states that “instinct is a tacit form of knowledge and that it complements the rational decision-making approach”. In other words, our minds actually process most components of obtained information continuously on a subconscious level whether we like it or not and the two forms of decision-making complement each other. Once the conscious mind reveals a thought that the mind at the subconscious level already assessed, the individual experiences it in the sense of revelation. Only when one is able to break this subconscious pattern and has the need for a rational decision-making approach, one will be able to choose a more rational path.
Page 16 B. The Rational Decision Making Approach.
“Every decision is a risk-taking judgment.” In this context, it is clear that in a high-risk business environment, such as the gaming industry, a necessity arises for the rational method of decision making. Rational decision making is a method where the user systematically assesses the possible outcome(s) based on applying factual data/information that support reasoning. From the assessment the user is able to decide, by comparing the available data, the most suitable course of action the user is willing to take. The underlying thought of this particular method is that the user is trying to solely analyze which possible course of action accompanies the lowest risk and the most expected benefits. It is for this reason that a clash in interests may arise between users of an organization that pursues different forms of decision-making. The reasoning processes of the individuals differ in such a context that the desired course of actions of these individuals are able to create a form of internal business conflict that affects the performance of the firm (Agency Theory).
C. Misalignment in Employee Behavior: The Agency Theory
The agency theory is a relationship-based theory between the so-called principal (decision maker) and agent (decision receiver). This theory addresses inefficiencies and dilemmas as situations can arise where the agent is tempted or motivated to act on his or her own self-interest instead of those of the principal. Other problematic scenarios arise when the two parties have contrasting interests and where the presence of asymmetric information occurs. In the situation of asymmetric information, the principal is the individual or entity with more information regarding the interest issue than the agent that results in the inefficient behavior of the agent. This scenario can become troublesome when the principal is unable to (constantly) control and check whether the agent is executing the decision(s) in alignment of the interest of the principal him/herself. This deviation of interest execution of the agent is referred to as being the “agency cost”. In the situation that these deviations are costly to the principal, such conflicts can turn out harmful to the efficiency/effectiveness of the firm. The principal is able to somewhat affect, and thus align, the interest behavior of the agent by implementing tools which suppress opportunistic behavior such as, incentive structures, unit commissions, profit sharing and key performance indicators.
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D. Startups, Strategy and Creativity: The Entrepreneurial School of Strategy
The entrepreneurial school of strategy is one of Mintzberg’s Ten Schools of Strategy (H. Mintzberg, 1973) and is the focus of this research as it is the most applicable to the case. In this school of strategy, the formation of the strategy processes is derived from the strong vision of the leader(s) of the organization. As the business strategy formation is formed through the vision of the leader(s), the business strategy is heavily affected by intuitive decision-making processes. Furthermore, the business strategy formation is also affected by the prime judgment and experience of the leader(s) of the organization. Through this means, the leader(s) define and control the firm in order to achieve the short and long-term goals. Because of these strategy characteristics, the leader is able to form a detailed but agile business strategy which is typically found in start-up firms which have to steer through the difficult early years of business development.
E. Managing Project Life-Cycles: The Product Life-Cycle Theory
The product life-cycle theory is an economic theory developed by Raymond Vernon in order to address the general patterns of international trade in the 1950s. This theory suggests that in general, products and services that are traded on the market five stages throughout their complete lifetime. The goal of this tool is to achieve maximum value and thus profitability from the product or service available on the market. Each stage accompanies a certain type of consumers which each has its distinct values. These values determine under which circumstances they will be convinced to purchase the available product or service from the firm. Each stage of the product life-cycle theory is described in more detail below.
Figure 4: Product Life Cycle
Page 18 i. Stage 1: Research & Development
During this stage the company heavily invests cash into researching and developing the product or service. It is during this stage that most prototypes are developed in order to find an early match with the target market. Low returns and market share are expected, as only a few customers are aware of the presence of the product or service in development.
ii. Stage 2: Introduction
In the introduction stage, the company attempts to develop product awareness in the initial target markets where the highest needs and available incomes are available for the product. Here, product skimming is usually introduced in order to achieve higher returns on investment by increasing the profit margins. During this stage, competitors will try to develop a product/service and develop brand awareness as well.
iii. Stage 3: Growth
In this stage, the company attempts to further reach out and explore new target markets in order to obtain a higher market share. By increasing the market share, the company is able to increase sales further as most of the customers of the product will fall into this stage. Pricing may be decreased slightly in order to make use of the price elasticity of demand. It is also in this stage that more competitors will start to enter the market that drives up the competition and could affect pricing.
iv. Stage 4: Maturity
The market saturates and lacks further growth at this stage. Competitors have entered the market and are competing heavily in order to maximize their market share. This trend drives a strong pressure on production costs and product/service pricing. Firms will continuously try to minimize their production costs while trying to keep their quality of products/service equal or higher than before. It is at this stage when a new product/service should be introduced in order to a company to explore a new market and to safeguard the continuity of the firm. Some firms also tend to extend the product life cycle by adding new features that add value.
Page 19 v. Stage 5: Decline
In the final stage of the product/service, sales decrease and the market tends to shrink. New markets may have been created which create an outflow of this market into the new market, as it is able to satisfy the customer’s new needs. Products/services at this stage are either discontinued or altered in order to address a very niche section of the market.
Conceptual Review Continued: Tools and Frameworks
F. The SWOT Analysis
The SWOT Analysis is an analytical tool that assesses the strengths, weaknesses, opportunities and threats of an organization, taking into account the internal and external (market) environmental factors. By using this tool, the firm is able to assess its market position and how it wishes to strategically move within this framework, if necessary. On top of this, the SWOT also functions as a great supporting tool to determine the firm’s key core competences that are drastically important in developing a business strategy. The user should be wary of trying to answer gray area factors by over-analyzing. Subjectivity may affect these factors that result in possible incorrect feedback from using this tool. The focus should be on executing this tool in a simple and concise manner that then provide the answers in a similar way. If possible, the user should focus on including statistical results over descriptive statistics, as they are able to give a more concise and predictive cause and effect relationship than descriptive data can.
Figure 5: Wikipedia: SWOT Analysis - May 2015 Source: https://en.wikipedia.org/wiki/SWOT_analysis
Page 20 G. Porter’s 5 Forces Model
Michael Porter’s 5 Forces Model is a strategic tool used by firms to analyze the level of competition within a particular industry. It is also frequently used as one of the tools to (re)develop a firm’s business strategy. The tool has derived five market forces from industrial-organizational economics, which make the tool capable of determining the competitive intensity and the industry profitability (attractiveness) of the selected industry. A particular industry can be denoted as being “unattractive” when the analysis of these fives forces drives down a firm’s overall profitability. The fives forces which this tool assesses are; the threats of new entrants, the threats of substitute products or services, the threats of existing market competitors, the bargaining power of suppliers and buyers. These forces are micro environmental forces that directly are able to affect the ability of a firm to serve its selected customers and produce a profit from doing so. When any of these forces change in a particular market, the affected firm should re-assess its current market position and decide whether it should alter its business strategy and/or business model in order to cope with these changes. This adaptive ability is of incredible importance as a failure of being so can result in diminishing business performance and ultimately result in a forced exit of the business market. The ultimate goal of this tool is to maximally put the core competences of the firm to use in the market.
Figure 6: Chartered Global Management Accountant: Porter’s Five Forces of Competitive Position Analysis Source: http://www.cgma.org/Resources/Tools/essential-tools/Pages/porters-five-forces.aspx
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H. The Resource-based View and the VRIN/O Framework.
The Resource-based view is one of the five strategic views where the key focus lies on the determinants that the firm consists purely of collective bundles of resources. It is the selection and combination of these available business resources which give the firm the ability to develop a unique core competence and thus provides the firm a concrete way of pursuing a differentiation strategy. The resources of a firm can be the firm’s assets (tangible resources), capabilities, organizational processes, firm attributes, business information and knowledge (intangible resources). These resources have the ability to be used as an input in the organization in order to create business value and thus use its core competences in order to achieve a competitive advantage. In order to determine whether the firm’s resources are capable of generating a competitive advantage, these resources need to comply with four distinct attributes. These attributes have been determined by the VRIN framework (Barney, J.B. 1991) as being valuable, rare, inimitable and non-substitutable. Further research has shown that a fifth element may be added to fully grasp the firm’s resource potential. Organizational support (VRIN/O) should function as the fifth element as only the organization’s ability to harness and support the use of these elements provides these resources the ability to generate the desired competitive advantage (Barney, J.B. 1991).
Figure 7: Hubpages: VRIN/O Framework - February 2014
Source: http://jamieedwards1.hubpages.com/hub/How-specific-would-the-identification-of-strategic-capabilities-need-to-be-in-order-to-achieve-advantage
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The resource-based view is considered an “inside-out business strategy approach” where the strategy analysis initiates from the internal environment of the firm instead of the external environment of the firm.
I. Porter’s Generic Strategies
Porter’s Generic Strategies (Porter, M. 1980) serves as a descriptive business strategy tool in order to determine which of the available four strategies a firm is pursuing in order to achieve competitive advantage. These strategies are defined as being either low cost, differentiation or focus (combination of the two). The abovementioned strategies depend on the scope (industry wide or segmented) and focus of the firm (low cost or differentiation). A firm has the option to fall into the “focus” strategy if the strategy determined includes a combination of the two strategic focus advantages. Firms should be careful when pursuing their desired strategy not to become “stuck in the middle”. In this situation, the firm has no clear strategy with regard to one of the three possible strategies. When a firm is able to determine that it is “stuck in the middle”, the firm should re-assess the effectiveness (scope and focus) of their strategy to achieve the desired shift.
Figure 8: Michael Porter's Three Generic Strategies
Source: http://jamieedwards1.hubpages.com/hub/How-specific-would-the-identification-of-strategic-capabilities-need-to-be-in-order-to-achieve-advantage
Page 23 J. The BCG Matrix
The BCG Matrix (Henderson B. 1970), also known as the Growth-Share Matrix, is a project portfolio-planning model created by Bruce Henderson who was working at that time part of the Boston Consulting Group in the 1970’s. This model has the aim to categorize a firm’s business units or business projects into four distinct categories being; “Dogs”, “Question Marks”, “Stars” and “Cash Cows”.
A. Dogs: Business projects that fall into this category both have a low market share and growth rate potential. It is for this reason that these projects do not take up, but also do not generate a large amount of cash flow for the firm. These projects can be seen as cash traps due to their low market potential and should be taken into account for divestiture.
B. Question Marks: These projects have a large market growth rate and low relative market share at the same time. These projects have the ability to take up much cash due to required investments, but do not always generate equal or more cash flows in return. Due to their nature of high growth potential, investments that result in a higher market share are advised so that their return on investment (ROI) capabilities are increased. If this is not possible, these projects should also be considered for divestiture due to their constant high cash-consumption rate.
C. Stars: “Star” projects differ from “Question Marks” in their nature to have obtained a relatively high market share which can result in higher returns on investment. It is for this reason that firms find these projects worth keeping and investing into as they have the ability to develop into “Cash Cows” in the future where their payoff will largely outset the required investment. It is for this reason that firms should always aim to have “Star” projects in their business portfolio to maximize the continuity potential of the firm in the long-term.
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D. Cash Cows: The “Cash Cow” projects are projects with low market growth rates and higher relative market share. These projects are often present in saturated markets with low growth potential. Because of this nature, these projects provide higher returns than the required investments that result in a large amount of cash inflows. These projects should be continued as long as possible in order to nurture the financial position of the firm and to be used as financial sources for investment for other projects in the business portfolio.
The axes of the BCG Matrix tool differentiate the business units/projects by comparing the relative current market growth and market share potential to that of the market’s largest competitor. The market growth axle serves as the indicator to the project’s industry attractiveness where the relative market share serves as the indicator of the project’s competitive advantage. The combination of these two indication axles forms the overall possible profitability of the selected projects. The eventual positioning of the selected projects shows what course of actions the firm should take in order to achieve the desired shift as seen within this tool.
Figure 9: Management Study Guide: BCG Matrix
Source: http://www.managementstudyguide.com/bcg-matrix.htm
It is important to keep in mind that this tool takes several assumptions into consideration. The first assumption is that an increase in relative market share for a project will result in a higher cash return. This assumption is supported by the notion that an increase in market share is often accompanied by a higher form of market/business experience (experience curve) which can result in higher cost effectiveness from operations. The second assumption is that an increase in market
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growth will accompany a higher cash expense when attempting to achieve this shift. This tool, therefore, provides the user with the ability to visually portray and provide a selection where projects are able to provide the needed cash input for other business projects that require this aid. By fully using this mechanic, the management of the firm is able to better justify which projects are worth spending time and resources into and which projects should be taken out from the business portfolio in a certain time frame. This behavior should support a better overall performance of the firm while keeping track of the alignment of the preferred business strategy.
This tool does contain several limitations, which are important to consider when applying this tool as a business manager. The BCG Matrix tool ignores many important determinants of business profitability. The market growth rate is only one factor of market attractiveness, whereas relative market share is only one element of competitive advantage. Furthermore, this tool assumes that each business projects is completely independent of one another, where an actual scenario analysis could show that one (profitable) project could not exist without another (which could be of less potential within this matrix). This would mean that the matrix would advise to divest the less profitable project that could result in the failure of the continuity of the more profitable project simultaneously. Finally, the scope of the relative market share is affected by the type of market that is being targeted. The situation could occur that a specific project is able to capture a large proportion of a small niche market that could be part of a larger market in overall, resulting in wrong classifications of the project(s).
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VII. Analysis and Discussion
This section includes a thorough analysis and discussion of the research in order to attempt to find an answer to the central research question of this company project. This section will discuss the in-depth interview analysis within KeokeN Interactive along with the application of the prescribed business tools and frameworks as reviewed in the conceptual framework section. Furthermore, final feedback from the owners of KeokeN Interactive on the application of these tools, theories and frameworks will be discussed to provide more added value to the research.
A. Interview and Analysis
In order to fully understand and capture the dominant forms of decision making within KeokeN Interactive, an individual and private interview has been conducted with all of the current employees. The goal of this research is to firstly see in which ways the form(s) of decision making are affecting the employees at all levels within the business hierarchy and to assess what the advantages and/or disadvantages are of these effects. Furthermore, the interview will attempt to determine what the factors are which fuel the agency theory in the case of KeokeN Interactive. This analysis will then provide preliminary outcomes to the effect on business strategy dynamics for entrepreneurial firms within this volatile market. The second section, which applies the tools and theories, will then further support these outcomes and develop the outcomes of the research that will be fully addressed in the conclusion section. And finally, the feedback from the owners on the second section’s application will further support the overall analysis of the research.
B. Scope and Business Hierarchy
Currently, this firm holds the two founders, the lead programmer and three artist interns at the office. The two freelancers for the storyline development and the in-game audio composition have not been included in the interview analysis as their direct contact with this firm are at a bare minimum, thus not providing sufficient feedback. During the conduction of the interviews, my classmate Jordy Velasquez has also joined this firm. A private interview with him has not been conducted as well due to his short presence. For the same reason, my personal feedback has also been kept out of scope in order not to affect the research by personal bias. The business hierarchy chart and interview questions list with regard to KeokeN Interactive can be found in the appendix and annexes section of this document.
Page 27 C. The Interviews: Findings and Feedback
i. Koen Deetman (Founder and Managing Director)
Koen believes that it is critically vital for a small entrepreneurial firm to have a strong and visionary leader (entrepreneurial school of strategy). The performance of teams in overall are more important than individual performance as this decreases the lead time to the market and thus decreases the risky time period of startups. Koen envisions that he needs to work together with individuals with specific sets of (business) expertise who are better at him doing these professions. By doing so, he is better able to trust their performance instead of acting as the prime control mechanism. He believes that his methods of leadership have been effective thus far, but that it has experienced some drawbacks as well, which have affected business performance. By being an extreme intuitive decision maker, he has attracted a lot of risk to the firm, causing the agency conflict to arise during several work-for-hire projects and other business scenarios. It is only when he clearly is able to address a negative impact to business performance, where he experiences the need to enact a rational form of decision making. This has made him aware that he often makes too many intuitive business decisions. For this reason, he searches for a rational decision maker as a sparring partner. He does try to find this in his direct co-founder Johan, but as he believes him to be too much of a follower, this sparring aspect is unable to show its full potential. This largely has to do with the fact that Johan is more focused on his projects of clients off-site, rather than being present at the operations of KeokeN Interactive. Koen is also aware that his dominant preference to intuitive decision making has affected the other employees as they are seldom triggered to provide feedback on a rational basis.
ii. Johan Terink (Co-Founder and Agile Scum Process Master)
During the early phases of his studies, Johan became aware that he was better in developing projects than being a programmer. After he joined Koen in the foundation of KeokeN Interactive, he made it clear that he would be of most use as the person who would work for clients and provide the needed cash flows for business investments. Personally, Johan feels to be a combined user of rational and intuitive decision making. Because that he feels that he is more of a business support employee, he feels that he is always more tempted to make use of rational decision making in order to make sure that more control is taken into account. However, because he is often absent at the office due to the projects at the clients, he feels that this control is often overlooked due to the
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strong presence of Koen at the firm who clearly is an intuitive decision maker. Nevertheless, when he is in discussion with Koen about business decisions Johan does know that he will most likely follow Koen’s ambitions. It is because of his frequent absence that he believes that he has a lesser say in the operations of the firm which actually is not the case. He does notice that KeokeN Interactive is not as effective with following the proposed business strategy because of this issue. This is also the main issue where the agency conflict arises as employees are tempted to act differently than for what they are initially hired for.
iii. Remco Dazelaar (Lead Programmer)
Remco feels that he must be steered in the organization before he commits himself to a task. He does not function as an initiator even though he is the lead programmer. He will always seek confirmation from other employees before further executing a specific business process. His problems arise from finding it hard to be in control of the processes in this firm. He believes that there is a strong lack of control mechanisms. This has forced him to let his preference to being in control of his processes go. Because of this, he has somewhat been forced to change from a rational decision maker to an intuitive one. This was amplified by the feeling that KeokeN Interactive is unable to measure whether they are in control. A prime example was their previous gaming title Horrinth. The development of this game was extremely intuitive where many (intuitive) ideas were combined, resulting in a strong deviation from the core idea of the game. He believes that this was the main aspect why the firm decided not to publish this title to the public. Furthermore, Remco believes that there are many agency conflicts present, as there is a low pressure to perform well. The lack of control mechanisms on personal performance provides no incentive for control on performance. But from their previous experiences with their gaming title Horrinth, Remco believes that there is more structure, a stronger inside-out vision and a higher value of intangible resources within KeokeN Interactive.
iv. Jom Semah (Concept Artist Intern)
Jom believes to be a mix of an intuitive and rational decision maker. His intuition prevails through experience, which has made him less rational. In the firm, he believes that there is often an agency conflict. He finds it difficult to work with Koen, as he is the leader with the strong vision. It is hard to overcome such a strong influencing factor within such a small firm. Jom finds it important to
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listen to ideas and opinions from others, as this will always unfold better plans of preparations. His focus is to prepare plans from which he will barely deviate. This does force him often to have a tunnel vision, which is inherited by the behavior of others within KeokeN Interactive. This makes it hard to convince others of deviating from the initial plan of attack. He furthermore believes that the firm currently performs below the best efficiency levels. This has had a large influence on the period of instability during Horrinth. Koen has a solid monologue where he wants to break free from the market as an Indie Developer. Nevertheless, Jom is aware that Koen is not the only Indie developer with this aspiration. Nevertheless, he does believe that Koen is a true pioneer due to his solid enthusiasm and vision. Jom has a 50/50 feeling whether KeokeN Interactive is in control of its processes and business strategy. The lack of consistency comes due to the high turnover of employees, especially at the interns. The strength of the firm is operational excellence and a solid vision throughout the company. Currently, time is their biggest threat as many indie developers are also choosing to shift to 3D game development.
v. Anna Udding (3D Artist Intern)
Anna has a very creative professional experience that has influenced her decision making to be very intuitive. She believes to have potent adaptive capabilities that could not have come forth if she would be of a more rational kind. Nevertheless, she believes to have obtained a strong analytic capacity that gives her the ability to make quick decisions. Once the scope and complexity of a specific business process decision increases, she is tempted to take a rational form of decision making into account. This is definitely the case during the presence of incomplete information, which actually occurs quite often within KeokeN Interactive. She believes that Johan is the rational decision maker and Koen the intuitive one. Johan serves as the person who slows down Koen’s enthusiasm which is usually affected by his intuitions in order not to deviate too much. Anna believes that a combination of rational and intuitive decision making is best as it takes both sides of the coin into account. This does not always happen at KeokeN Interactive, as she believes that Koen is the person who makes the call in the end. What is interesting is that because of Koen’s nature they dare risk to take greater risky business decisions that support their strategy in some context. By pursuing a “blue ocean strategy” (the creation of a new market), they will always need to consider the risk before some other competitor does this before they do.
Page 30 vi. Brian van Bentem (3D Artist Intern)
Brian describes himself as an emotionally “flat” person who never sits still. He likes to do a lot of testing which serves his perfectionistic behavior. This behavior is supported by his intuitive form of decision making. He tries to avoid being rational, as he believes that this specific behavior is a waste of precious time. Luckily, KeokeN Interactive provides him with a lot of freedom to make intuitive choices. He has seen several agency conflicts arise where it is important to convince the dominant individual. Brian further believes that Koen is easily satisfied due to his intuitive nature, where Johan is a lot harder to please as he is more rational. This combination pushes the performance of the firm forwards in Brian’s opinion. Once too many ideas are accepted and implemented by Koen, Johan puts the brake on it and separates the unnecessary from the core focus. He believes that the leaders of the firm make the right choices, but that it is a shame that the high employee turnover intern level is a constant loss of intangible resources.
D. Overall Conclusion of Interview Feedback
The feedback from the interviews clearly shows that nearly every employee prefers an intuitive form of decision making except Johan (Co-Founder). This reflects a higher than average business risk due to the dominant intuitive behavior rooted at every business level. The lack of control mechanisms invites agency conflicts due to low incentives for performance and rational feedback. On the other hand, the vision of the leader is very strong which supports a solid business strategy. The problem is that the dominant intuitive behavior invites numerous deviations from the initial plans of operations, which again attracts additional risks and agency conflicts. The business model assumes a combination of intuitive and rational business leaders, but the model also has its downsides, as one of the leaders often needs to be absent on offsite projects. This makes this rational leader feel somewhat distant where he assumes a supportive role instead of a leadership one. This scenario provides the intuitive leader the space to dominate the firm with his preferred decision-making behavior. Because of this, KeokeN Interactive clearly needs to attract more rational employees into the firm at higher hierarchical positions in order to obtain more control on the execution of the proposed business strategy. More measures on performance will incentivize all the employees to perform better and within the proposed periods.
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VIII. Business Theories and Framework Application A. Porter’s Generic Strategies
KeokeN Interactive has decided that it currently is unable to pursue an overall cost leadership strategy due to its current company composition and business development phase. Even though they currently have a strong focus on operational efficiency, they believe this option is viable in the end once the returns on investment commence by launching their first gaming title publicly. For the time being, they believe that a strong differentiation focus is the business strategy to pursue. By having a different market focus (game service industry instead of game development industry), offering unique gaming experiences and developing a unique company image, they believe that this will set them apart from the competition. They also wish to break the so-called “fourth wall” by bringing the announced game experience to life. By sending game themed emails, providing numerous possible game-themed conference sessions and regular contact with their gamer community through their Twitch live video chat channel, they aim to achieve a more continuous personal contact with their community. The aim on the long run is to combine their differentiation strategy with a cost efficient strategy, thus achieving a combined focus strategy. They are trying to show that this option is viable even in their market, as they have forecasted that the total budget for their current 3D gaming title will cost them a fair amount less to develop when compared to direct competitors. Competitors that develop more simple 2D games often have more than double the expenditures on developing one of their titles. One would say that they have already achieved a cost leadership focus, but as their firm is yet in the early stages of game and business development, it is hard to say that this is actually true this early on. They also stress that at this stage it is more important for them to focus on a differentiation strategy in order not to be “stuck in the middle”. It is interesting to see that this business strategy leans more to a rational perspective than an intuitive one even though analysis has shown that intuitive decision-making behavior is dominant.
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Figure 10: Porter’s Generic Strategies - Rational Case Analysis KeokeN Interactive
Source: http://jamieedwards1.hubpages.com/hub/How-specific-would-the-identification-of-strategic-capabilities-need-to-be-in-order-to-achieve-advantage
B. SWOT Analysis
The SWOT Analysis tool in relation to KeokeN Interactive provides the following results:
Strengths:
- Strong company vision
- Employees with strong expertise (IT and business experts) - Strong network within Indie and worldwide gaming industry
- Business model supports project investments and lowers company risks - Well-managed product life-cycle management
- Few Indie competitors with this level 3D expertise
- Only current Unreal Engine 4 developers in the Dutch market - Projects provide quick ROI, short time to market
- Financial support from local fund providers - Operational costs are in control and realistic
Page 33 Weaknesses:
- Low cash inflow, which may inhibit business investments - Business investments carry an increased risky nature
- Continuous outflow of intangible resources due to high employee turnover (interns) - High initial investment costs
- Lack of market exposure/brand awareness - Lack of publisher’s network
- Dominant intuitive form of decision making within multiple business levels - Continuous threat of deviating from business strategy due to intuitive nature - Human resources are scarce
- Limited cash reserves
Opportunities:
- Technological advancements can support Indie game development market - Publisher deals could provide (financial) resource support in game development
i.e. publishing exclusivity on Xbox One
- Multiple digital distribution channels available to publish through - Attendance of large gaming conferences i.e. Gamescom, PAX East, etc.
Threats:
- High threat of new (Indie) entrants - Threat of substitute gaming titles
- Technological advances might increase threat of competitors
- Game developer buyouts, i.e. Electronic Arts (EA), Microsoft, Sony, etc.
- Too many stakeholders will decrease profit margins through royalty cuts from revenues - Unforeseen changes in the market environment
Page 34 i. Analysis
The SWOT analysis provides a clear picture that the market is able to have large immediate, and possibly unforeseen, consequences in relation to company performance. This means that in order to cope with these volatile factors, a participant of this market should have a certain level of control over its resources. It is here where a dominant form of intuitive decision-making behavior does not provide the ability to be at the required level of control. Rational business decisions based on a thorough cost and benefits analysis are able to provide statistical feedback in order to create a cause and effect relationship with regard to strategic decisions. When such a firm is able to combine the best of both worlds, it is able to pursue the safest route to the indicated strategic goals.
C. The BCG Matrix
The BCG Matrix application in the case of the short and long-term strategic goals of KeokeN Interactive provides the following results:
Firstly, the current (and only active) project of KeokeN Interactive is their title “Deliver Us the Moon”. As this project is currently in its “pre-alpha” phase (early development without a publicly playable test version), it is unable to provide a high market share. They are unable to provide the game at this stage to the public in order to receive returns. This results in a high amount of investment being put into the development of this title and low amount of market growth rate, thus classifying this project as a “question mark”. Their aim for this title is to develop it into such a stage that it can be published on the market, providing the first returns on investment (“Star”). The further support of the published title will enhance the market growth rate and eventually shift its product life-cycle stage to maturity, classifying it as a “Cash Cow”. At this stage, the game will be able to provide the needed investments in order to develop their next gaming title in the upcoming development year(s).
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Figure 11: BCG Matrix - Project Deliver Us the Moon Rational Case Analysis KeokeN Interactive Source: http://www.managementstudyguide.com/bcg-matrix.htm
In the meantime, KeokeN Interactive has planned to redevelop a previously cancelled project known as “Horrinth”. This previous project will require minimal development time (several months) as its main components such as level design and storyline have already been developed previously. By simultaneously launching this title with “Deliver Us the Moon”, KeokeN Interactive wishes to provide a short “free to play” gaming experience in order to support the sales of “Deliver Us the Moon”. Currently, “Horrinth” is taking in no cash investments and providing a low market growth rate, classifying it as a “Dog” project. Their aim is to use a relative high amount of cash for a short period, shifting it to a “Question Mark”, where they will eventually divest the project as it is not planned to generate returns due to its free to play nature.
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Figure 12: BCG Matrix - Project Horrinth Rational Case Analysis KeokeN Interactive Source: http://www.managementstudyguide.com/bcg-matrix.htm
The new project, which we will call project “X” in this paper, will follow a similar pattern to that of “Deliver Us the Moon”. This title will start off as a “Question Mark” classified project that will shift to a “Star” during publishing and finally shift into the “Cash Cow” class in order to provide the needed funds for the upcoming title(s) afterwards. Keep in mind from their business strategy that the projected lifespans of their gaming titles are between 1 to 1.5 years, making them less vulnerable in the long-run to unexpected market changes. This does affect the timespan of the returns on their investments, making their projects highly dependent on a constant high sales performance throughout their lifespan.
Page 37 Figure 13: BCG Matrix - Project X Rational Case Analysis KeokeN Interactive Source: http://www.managementstudyguide.com/bcg-matrix.htm
ii. Analysis
The research clearly shows that the entrepreneurial state of the firm and intuitive decision-making behavior has largely determined the project development and product life-cycle management of their gaming titles (operations). Their intuition tells them that they should expect that the life-cycles of their project would be relatively short when compared to other gaming titles. In a matter of fact, it is the unique quality of the titles combined with a rigorous and effective marketing campaign that could extend the corresponding life-cycles, providing them with the cash flows for further support and development. It is known that entrepreneurial firms are extremely ambitious and innovative. It is for this reason that it is of no surprise that KeokeN Interactive has already been busy on other possible projects to work on in the future even though their current project is in its early stage of development. It is their method of spreading out the market risk over various projects, making them less susceptible to sudden negative impacts. KeokeN Interactive needs to be careful with trying to invest too much (human) capital into multiple projects, as the nature of their firm provides them with scarce (human) resources. This could also endanger the initial focus of the firm, making them deviate from their proposed business strategy.
Page 38 D. Porter’s 5 Forces
The application of Porter’s 5 Forces in relation to KeokeN Interactive provides the following:
Rivalry among existing competitors: High - Saturated and highly competitive market
- Multiple large corporates dominate the worldwide gaming industry
- High differences in available resources between large and smaller competitors - Middle class game developers are very small of proportion in the market - Low switching costs for customers
- Wide range of games providing many substitutes
- Customer loyalty is important and a dominant factor of company success
Threat of new entrants: Medium
- Indie game developers have the ability to achieve of relative low costs of entry - Short lead time to market time is achievable
- Initial investment costs are relatively high for new entrants
- Subsidies, funds and incubator programs exist which could provide required resources - Specific IT and business expertise are a large determinant of company success
- Economies of scale exist
- Technological advancements directly affect company performance
Bargaining power of suppliers: Medium (combination of low/high, depending on the resource) - Large number of suppliers exist
- Certain technological suppliers (such as the virtual reality goggles) are slim and costly, but support differentiation strategies
- Low changing costs for general resources suppliers - High changing costs for niche resource suppliers
