Electronic Arts:

The Blockbuster Strategy

Group 9: Li Shuguo, Liu Yazhuo, Tanda Song, Han Jie

Summary:
 Since resources and capabilities are the primary sources of profitability, we first
identify EA‟s resources and capabilities and find its competitive advantage
through primary and support activities. EA‟s human resource and knowledge
management is their key advantage. EA make efforts to go across multiple
platforms to make easier transplant and deploy globally. EA‟s in-store
distribution helps to gain higher margin and better market awareness. EA has a
good cooperation with other companies to work more effectively.
 The main difficulties faced by EA to sustain the competitive advantage sourced
from two aspects. On one hand, from the external perspective, the first problem is
how to hold the talents in the acquisition company; even though the elitist can be
hold, the concretizing of two different company‟s culture can still be a critical
issue to handle. At last, it is so hard to find the right person with both the
entertainment background knowledge and the experience in game industry. And
on the other hand, from the internal perspective, the communication within the
company is still one of the biggest blocks to the development of the company,
which cannot easily solved by email. In internal part, we analyze the
communication and Intellectual capital.
 To sustain the competitive advantage in the future, we propose analysis and
implementation in the following three ways,
First, make it more efficiency and fully,
Second, identify opportunities, online game and Asia
Third, correct the weakness, Wii
 Considering the fact that the rules are partly sourced from the movie industry and
these two industries indeed have lots of characters in common, we decide to
apply the rules to the movie industry. Because of the inherent advantages over
content and marketing owned by the movie industries, we mainly focus on the
part of process management of the rules this time. Firstly, separating the roles
more clearly by responsibility; secondly, setting up the milestone for the
developing process; and finally, increasing the feedback during the production
 process. These “rules” can be a new guide to the developing of movie; meanwhile,
to overcome the limitations of these measures, we have to balance all the factors
and make the right trade-off at the right time.

The source of EA’s competitive advantage

The video game industry is a hit-driven business, where small number of blockbuster
titles generates most of the profits. No firm produced more hits than EA.1A firm‟s
resources and capabilities offer a more secure basis for strategy than market focus,
they are the primary sources of profitability. 2

Step 1: Identify firm's resources and capabilities

We first identify firm's resources and capabilities in table1 and table 2.

Apprising EA’s Resources
RESOURCE CHARACTERISTICS
Tangible Resources Financial Cost efficiently
Physical
Intangible Resources Technology Artist and Technical employees
Reputation 'the world's leading video game publisher'
Good brand loyalty to customers
Human Resources Talented and creative producer & director
Training, experience, adaptability EA's experience
Commitment and loyalty of employees Training rules
Table1

Identifying EA’s Organizational Capabilities

FUNCTION CAPABILITY
Corporate Management Affiliated companies
CRM companies
Movie companies
MIS Knowledge sharing
R&D Produce hit titles
Manufacturing Multiple Platform Flexibility
Design Innovation
Marketing EA Labels
Sales, Distribution In-store Distribution
Table 2

1
MICHAEL A. ROBERTO, GINA M. CARIOGGIA, Electronic Arts: The Blockbuster Strategy, 2004
2
Robin slide page 43
Step 2: Explore linkages between resources and capabilities to find

competitive advantage

Michael Porter argues that an organization can enhance its competitive positioning by
performing key internal activities in the value chain at a lower cost and better than its
competitors3. Since activities are basic units of competitive advantage, we use
Porter‟s value chain to look for EA‟s competitive advantage through major and
support activities and come to the following conclusion as source of competitive
advantage:

 Good Human Resource and Knowledge Management

EA‟s human resource and knowledge management is their key advantage. EA has very
good reputation for its talent executive small group. All of these cumulated successful
experiences are the huge treasure. Actually; EA‟s internal network is kind of an
informal but more opening organization which makes it easier and more convenient
for the employees to learn and share knowledge. The new releases of products are
mainly due to the successful coordinating of human resource. In addition, EA also
launched the Field Guide Initiative- a project intended to leverage the knowledge
present in EA studios so as to maintain and enhance its advantage furthermore.4 They
develop an internal web site to share art and design tools and combine experts‟
knowledge in the way of listing rules for training and sharing. They also have a
mobile e-mail solution to make information access work better.
 Multiple Platform to make easier transplant
As a global company, EA make games across PlayStation 2, XBOX 360, GameCube
to make easier transplant. Gibeau said: "Our basic competitive advantage is that we
can publish games across multiple platforms simultaneously in a cost effective way
and in multiple languages and deploy it globally better and bigger than anybody else"
5

 In-store distribution (market & sales) to gain higher margin and better
awareness and reduce cost
EA distribute games directly to retailers and launched EA Affiliated Labels.
EA's in-store distribution capability became one of the firm's distinctive capabilities.6
 Cooperation with other companies to work more effectively
Cooperating with RightNow® to optimize its customer relationship management
(service), EA recently gained the Gartner CRM Excellence Award.7 In order to work
more effectively, EA usually make core productions itself such as sports games, and
cooperate with other small companies to complete some other productions, which can
turn complex jobs into simple ones.
3
Bartol et al, 1993: 211
4
MICHAEL A. ROBERTO, GINA M. CARIOGGIA, Electronic Arts: The Blockbuster Strategy, 2004
5
Jeffrey Fleming, we see father: a history of EA, 2007
6
MICHAEL A. ROBERTO, GINA M. CARIOGGIA, Electronic Arts: The Blockbuster Strategy, 2004
7
Electronic Arts relies on RightNow® to cost-efficiently support global growth and brand dominance, RightNow®
Step3: Appraise firm's resources and capabilities

To appraise EA‟s resources and capabilities, we analyse the strategy importance and
EA‟s relative strength by hypothetical only.

Recourses Importance EA‟s CAPABILITIES IMPORTANCE EA‟s

Relative Relative
Strength Strength
R1. 6 5 C1. Corporate 9 8
Financial Management
R2. 7 6 C2. MIS 8 7
Technology
C3. R&D 7 4
R3. 8 7
Reputation C4. 8 6
R4. 8 7 Manufacturing
Talented C5. Design 9 6
people
C6. Marketing 7 5
R5. 7 6
Traing C7.Sales, 7 6
Rules Distribution

Table 3&4 Appraising EA‟s Resources and Capabilities

Superfluous Strengths Key Strengths

Relative Strength

C7
R3 C8

C8 R4 C1
R1
C8 C8
C8

C2 C6 R5 C4 R2
C8 C8 C8 C8

C5 C3
C8 C8

Zone of Irrelevance Key Weaknesses

Strategic Importance
Figure 3
Factors which make it difficult for EA to
sustain its competitive advantage
As considered that human resource management is the most significant competitive
advantage, it might be most difficult to sustain this advantage. In this part, we analyze
the difficult factors in two perspectives. The first one is from the external of the firm
to identify, such as the acquisition the other companies in the industry and franchise in
the entertainment industry. The other one is internal view; we also use Porter‟s value
chain8 to examine each part.

External perspective

Affiliated corporation

The acquisition of dozens of game companies has contributed 15 percent revenue for
EA.9 Since it mainly depends on the financial capability, it‟s also effectively reduced
the competitive leader position at the same time. On the other hand, the affiliated
companies faced the human resource management problem. Keeping the talent
employees still work in the company sometimes is difficult, and the game creators
usually don‟t like constraint by others. In our opinion, to get the talent team of the
original hit titles might be the most important merit of acquisition.
Another difficult question is that although we get the core team of the acquisition
company, we also have to integrate the team‟s capability to EA. It‟s even more
difficult to reveal the creative and successful management experience to the whole
corporation.

Entertainment licenses

Entertainment licenses provide 16 percent revenue in all, which is the second largest
one (Sports 42%).10 Human resource management is also very important in this part.
Firstly, we have to find out the suitable people to coordinate the relationship between
the movie industry and game industry. Also we should create a team to negotiate with
movie industry about the co-enhancement of both titles and details. So it‟s a difficult
factor to create a team to deal with the relationship with movie studios.

Internal perspective
8
Competitive Advantage: Creating and Sustaining Superior Performance, 1985
9
Adapted from Banc of America Securities research report, March 13, 2003
10
Adapted from Banc of America Securities research report, March 13, 2003
Communication

The organization of EA is quite a huge and kind of formal organizational corporation.

As an innovation and creative game company, it should use the information
organization to communicate with each other.11 It should high degree of learning and
knowledge sharing.12 And it also encourages an open innovation attitude;13 it will
lead to „disciplined creativity‟.14 But it‟s quite difficult to communicate in an efficient
way. Game design and producing is an art work, so we think the old way is too formal
and lack of flexible and interactive.

Intellectual capital

After studied the notable games published by EA, we find out nowadays most of
those are created based on the former products and continue to make sequel. (About
12 series of the total amount 17) 15 It‟s both the capability of EA to achieve succeed
until today and also become more and more difficult to sustain. To inherit the success
hit titles is not only to make the series of game upgrade in the picture quality and
some relevant adaptation with the hardware, but also creative some tangible or
intangible features. We particularly focus on the improvement by human resource
management perspective. It‟s hard to transfer the information to the other team which
takes over the project in the future. Also maintains the essential idea of the original
game need quite a lot of work to do. There are many gamers complain the game‟s
quality is not as good as before. 16 Some analysis display the market share loss is
questionable by the series games, sometimes the sequel almost destroy the game
image established before.17

EA’s management to ensure that it sustains

its competitive advantage going into the
future
To sustain the competitive advantage in the future, we propose analysis and
implementation in the following three ways, first, make it more efficiency and fully,
second, identify opportunities, third, correct the weakness. [Grant 2008]

11
Teigland et al. 2005
12
Robin, Strategy slide 3 page 14
13
Chesborough 2003
14
Case, Page 9
15
Wikipedia, Electronic Arts, 2008,3,4 18:19
16
Brendan Sinclair, GameSpot
17
gamedaily.com & Rob Perchese, eurogamer
Efficiency and fully
Although the human resource management in EA is already efficiency, there still have
room to improve. For example, we suggest giving the employees the opportunity to
join into different affiliated companies in one year time, such as the exchange student
between universities. It may increase the interest and work motion of employees and
the information and experience transferred to the other part of the corporation.
Furthermore, we invent the gamers come in to the company, participant in the process
of game design and producing. In this way, we modified the value chain; from the
traditional one to a new one which introduced the consumer contribute the
intelligence to our product.

Experience Game

Value

Opportunities

Online Games

According to the market share, EA‟s online game is only 4.5% revenue of market
share,18 while online game is growing rapidly. On the other hand, online game is
much more time consuming than others. The development, services and business
model of online game is quite different compare with the one which EA is familiar
with. And if EA change business model to cost based on time or other ways, the
revenue might be significant grown with the online game trends. We propose
acquisition some online game company to accelerate to this market, especially learn
the business model from them.

Asia

There is no doubt that Asia might be the largest game consuming area of the world.
18
Adapted from Banc of America Securities research report, March 13, 2003
Take china game market (China‟s online game‟s market hit 12.8 billion yuan in 2007)
as an example, to go to this market we faced two main problem, one is culture across,
the other is „game crack‟. For the first one, we propose to employ the local
background game designers, artists and gamers to assistant the producing of the game.
We also want to cooperate with the local movie studios to negotiate the industry cross
develop. It‟s rarely entertainment licenses in this market.
After studied the communication difficult within the corporation, we find it might be
even harder to communication with the outboard department. It is suggested the
internet meeting and mobile communication should be used to make management and
knowledge transfer more effective and efficiency.

Weakness

Wii

We choose Wii as the most important weakness for research. Nearly 85 percent
revenue in game industry is contributed by video game software,19 and Wii is the
fastest growing game console. In this platform, EA grab not much market share, while
Nintendo hold both the advantage of hardware and software. However, the sports
game is EA‟s main advantage, as well as driving games and Sims are all suitable to be
transplanted to Wii. In the future, we propose to make the Nintendo game team
stronger and specially create a team focus on the action controller such as the Wii
remote which can detect the acceleration and orientation in three dimensions.
According to our research, this kind of game console might predict the next
generation game platform. Access into the market earlier might establish a R&D
fundamental for the future competitive.

Critically examine the rules of successful

development set by the creative directors at
EA and discuss whether these can be
applied to another media industry of your
choice
Game industry is a kind of combination of both software and art, which
determines its special developing process. It has to possess both the creative from art
perspective and disciplines from software developing perspective. After examining

19
HooVers, 15% revenue from PC game
the rules set by the creative directors, we found out it can be briefly induced to three
aspects. The first one is content selection; main concept and idea of the content must
be highly extracted and articulated, which means you have to understand it very well,
especially concerning to the advantages. The second one is developing, which
stressed the importance of milestone and feedback, ensure the measuring and
management and also avoid the unnecessary loss. Thirdly, when it comes to marketing,
the core concept is to be as much comprehensive as possible in spite of the target
group or the environment. The most valuable part of the rules is the way it
controls the developing process.

Having taken an extensive observation of the media industries, we would like to

look into the movie industry intensively. Firstly, although there are a lot of common
characters between the processes of making movies and games, it is still very
common to hear about budget or managing problems of a movie, for example, An
Lee's Lust Caution failed to attend the Cannes Film Festival due to the problem of
delaying and over budget. With the trends of professionalization in the movie industry,
the core capability of movie companies should be their capabilities of managing the
process of selection, production, promotion and release but rather merely making
good movies. To make this idea into practical, several measures could be taken:

Assign the roles more clearly by responsibility.

There are always conflicts between the director and executive producer. In fact, it
is executive producer who decide when to begin or cut and where to spend the money.
20
So it is necessary to re-define the role‟s responsibility and implement it completely.
In addition, it is very common that some irrelevant person such as an authority to play
this vital role especially outside Hollywood.21 However, as an executive producer, the
person should be qualified and competent enough to be professional, he or she must
have strong capability to manage, finance and communicate so as to supervise and
control the production process better.

Set up the milestone for the developing process

Setting the milestones of the whole process means the whole team should make
much better plan before making the movie. After taking as much possibilities into
consideration and optimizing all the resource, the main production members including
director, producer and executive producer should make out a reasonable plan by
setting several milestones of the pre-production, production, and post-production and
also observe it strictly. It is the way to make the process measurable and increase the
producing efficiency and reduce the risk of exceeding the budget or deadline.

Increase the feedback during the production process.

Movie is a kind of subjective art, making it attractive to everyone is impossible.
But we can broaden the target group as larger as possible by increasing the feedback

20
http://en.wikipedia.org/wiki/Executive_producer
21
Executive Producer: the Core Figure behind the Big Screen by 林嘉澍
during the production process. Before the movie is finished, we could also make a
kind of “finished thread” of the movie and ask for the feedback from the minority
from different segmentations. It will be especially valuable for the commercial ones,
because it is easier for the film makers to meet the mainstream‟s taste, which will
have positive impact directly on the box office.

The biggest merit of the rules in the game industry is the process management.
However, there are still some limitations; for example, shooting itself is restricted by
lots of factors such as the weather and personnel. Furthermore, as a kind of art, it
cannot be treated merely as a commercial production. As a result, the key to
successful process management is either the right person or the rigid rules and perfect
plans but the degree of balancing all the factors and make the right trade-off22 at the
right time.

22
What is Strategy Michael E. Porter