How might different competitive strategies help to explain why Electronic Arts lost its leadership ?in the video-game market to Activision Blizzard? 2. How would you use the adaptation mode

MGMT-2115 Human Resource Management Case Study 1

Acting on a Strategic Vision

Established as Amazin’ Software by an ex-Apple marketing executive named Trip Hawkins, Electronic

Arts (EA) was a pioneer in the home computer-game industry. From the outset, EA published games

created by outside developers—a strategy that offered higher profit margins and forced the new

company to stay in close contact with its market. Crediting its developers as “software artists,” EA

regularly gave game creators photo credits on packaging and advertising spreads and, what’s more

important, developed a generous profit-sharing policy that helped it to attract some of the industry’s

best development talent.

By 1986, the company had become the country’s largest supplier of entertainment software. It went

public in 1989, and net revenue took off, climbing from $113 million in 1991 to $298 million in 1993. The

company continued to grow by developing two key strategies:

• Acquiring independent game makers

• Rolling out products in series, such as John Madden Football, Harry Potter, and Need for Speed

Activision’s path to success in the industry wasn’t quite as smooth as EA’s. Activision was founded as a

haven for game developers unhappy with prevailing industry policy. At the time, systems providers like

Atari hired developers to create games only for their own systems; in-house developers were paid

straight salaries and denied credit for individual contributions, and there was no channel at all for

would-be independents. Positioning itself as the industry’s first third-party developer, Activision began

promoting creators as well as games. The company went public and rode the crest of a booming market.

Between 1986 and 1990, however, Activision’s growth strategies—acquisitions and commitment to a

broader product line—fizzled, and it had become, as Forbes magazine put it, “a company with a sorry

balance sheet but a storied history.”

Enter Robert Kotick, a serial entrepreneur with no particular passion for video games, who bought one-

fourth of the firm and took over as CEO. Kotick looked immediately to Electronic Arts for a survey of best

practices in the industry. What he discovered was a company whose culture was disrupted by internal

conflict—namely, between managers motivated by productivity and profit and developers driven by

independence and imagination. It seems that EA’s strategy for acquiring and managing a burgeoning

portfolio of studios had slipped into a counterproductive pattern: Identify an extremely popular game,

buy the developer, delegate the original creative team to churn out sequels until either the team burned

out or the franchise fizzled, and then close down or absorb what was left.

On the other hand, EA still sold a lot of video games, and to Kotick, the basic tension in EA culture wasn’t

entirely surprising: Clearly the business of making and marketing video games succeeded when the

creative side of the enterprise was supported by financing and distribution muscle, but it was equally

true that a steady stream of successful games came from the company’s creative people. The key to

getting Activision back in the game, Kotick decided, was managing this complex of essential resources

better than his competition did.

MGMT-2115 Human Resource Management Case Study 1

So, Kotick moved the company to Los Angeles and began to recruit the people who could furnish the

resources that he needed most—creative expertise and a connection with the passion that its customers

brought to the video-game industry. Activision, he promised prospective developers, would not manage

its human resources the way that EA did: EA, he argued, “has commoditized development. We won’t

absorb you into a big Death Star culture.”

Between 1997 and 2003, Kotick proceeded to buy no fewer than nine studios, but his concept of a

video-game studio system was quite different from that of EA, which was determined to make

production more efficient by centralizing groups of designers and programmers into regional offices.

Kotick allows his studios to keep their own names, often lets them stay where they are, and further

encourages autonomy by providing seed money for Activision alumni who want to launch out on their

own. Each studio develops its own financial statements and draws on its own bonus pool, and the

paychecks of studio heads reflect companywide profits and losses.

The strategy has paid off big time. The company, now known as Activision Blizzard, has squeezed past EA

to become the bestselling video-game publisher in the world not affiliated with a maker of game

consoles (such as Nintendo and Microsoft). Revenues for calendar year 2012 were $4.6 billion, up more

than 22 percent over 2009, making Activision Blizzard the number one video-game publisher in North

America and Europe. Today, its market capitalization of $14.5 billion is twice that of EA.

Kotick attributes the firm’s success to a “focus on a select number of proven franchises and genres

where we have proven development expertise…. We look for ways to broaden the footprints of our

franchises, and where appropriate, we develop innovative business models like subscription-based

online gaming.”

Case Questions

1. How might different competitive strategies help to explain why Electronic Arts lost its leadership

in the video-game market to Activision Blizzard?

2. How would you use the adaptation model to advise Activision Blizzard on the best way to

maintain its leadership in the video-game market?

3. If you ran a small video-game start-up, what would be your strategy for competing with EA and

Activision Blizzard?