STRATEGIC MANAGEMENT Final Project: Strategic Plan (20 pages powerpoint presentation)

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BMGT 2341 – STRATEGIC MANAGEMENT Final Project: Strategic Plan

OVERVIEW

You are required at the end of the semester to submit a Final Project in the form of a 3-5 year strategic plan.

You will present a proposed 3-5 year strategic plan for the company described in these instructions. After reviewing the company case, you will make suggestions in your plan that will help the company develop an appropriate strategy. You will want to consider the following as you create your plan:

1. What internal resources and assets does Zynga have that may give it a competitive advantage choices does leadership have to make now in order to attain and sustain a competitive advantage??

2. What issues did Zynga face in formulating its initial strategy? 3. What challenges did Zynga face as it implemented strategy, and what 4. How did Zynga choose to compete and what innovation is left for it to pursue?

Your data and other information must be based on actual industry information, using strategies covered in the class. Strategic plans help companies set goals, evaluate progress, and change approaches to business strategy when necessary. This information in addition to solid strategy guides companies in gaining a competitive advantage. COMPANY/CASE BACKGROUND

Zynga, located in San Francisco, California, had become a dominant player in the online gaming field, almost entirely through the use of social media platforms. The company name was established by the founder and original CEO, Mark Pincus, to pay tribute to his late beloved pet bulldog, named Zinga. Although this seems whimsical, Zynga had quickly become a powerful company. To exemplify Zynga’s prominence, Facebook was reported to have earned roughly 12 percent of its 2011 revenue from the operations of Zynga’s virtual merchandise sales. On the basis of this success, Zynga had gone public in December of 2011.

Zynga had been a dominant force, but had lost market share in recent years due to the absence of a new and innovative product pipeline. Lack of new product-driven growth had led to uneven revenues, with significant losses – over $108 million in 2016. Even though Zynga had released some new mobile games, which accounted for 73 percent of the company’s revenue in 2015, this was not enough to reverse declines from the existing product lineup.

Zynga’s long term viability may be at risk because of questionable decision making. Many of Zynga’s competitors, and even some partners, had been displeased with the company’s actions and had shown it in the form of litigation. Agincourt, a plaintiff of a lawsuit brought against Zynga, was quoted as saying, “Zynga’s remarkable growth has not been driven by its own ingenuity. Rather it has been widely reported that Zynga’s business model is to copy creative ideas and game designs from other game developers

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and then use its market power to bulldoze the games’ originators.” Zynga had been accused of copyright infringement, breach of written contract, and, internally, had a reputation for a risk-averse company culture that failed to reward innovation and creativity. Regarding its users, complaint resolution consisted of email-only support, and there was concern that customer information was not being properly protected against unauthorized access.

To make matters worse, Zynga had had four CEO changes since 2013, with the most recent one, Frank Gibeau from Electronic Arts, installed in March of 2016, now expected to turn the company around. Although Zynga had once been a dominant force on Facebook, by 2016 it had failed to surface in the top 5 virtual-gaming rankings, with users increasingly choosing to play King Company’s Candy Crush Saga and others.

As Zynga looks to the future, where will its next big hit come from? With all the criticism aimed at Zynga’s past behavior, will the company continue on the path it has become notorious for and reap further accusations of imitating its competitors’ games and putting customers potentially at risk? Or will Zynga change its approach, gain a reputation for intellectual integrity and begin creating true one-of-a-kind games—showing its capabilities as a leader in the industry rather than a follower?

ADDITIONAL RESOURCES Visit Zynga’s website at http://zynga.com/ to see how the company markets its products, and visit http://investor.zynga.com/ to learn more about the company, including news, career opportunities, and investor relations.

Regarding intellectual capital, here’s an article about the quote attributed to Mark Pincus, “I don’t f***ing want innovation. “You’re not smarter than your competitor. Just copy what they do and do it until you get their numbers.” This story from 2012 talks about Zynga’s copycat strategy, and quotes Pincus justifying the company’s actions by pointing out, “Google didn’t create the first search engine. Apple didn’t create the first mp3 player or tablet. And, Facebook didn’t create the first social network. But these companies have evolved products and categories in revolutionary ways. They are all internet treasures because they all have specific and broad missions to change the world. We don’t need to be first to market. We need to be the best in market. There are genres that we’re going to enter because we know our players are interested in them and because we want and need to be where players are. We evolve genres by making games free, social, accessible and highest quality. … [Farmville, CityVille, Words with Friends], none of these games were the first to market in their category but we made them the most fun and social, and the most popular. Our teams continue to build and improve these games every week which has been an important part of our success model. We run our games as a live service and we continue to iterate, innovate and improve on them to give our players the best possible experience.”

However, this article’s author doesn’t buy it – “Yes, every product and IP on the market is generally a derivative of some other concept in almost all cases, but what Zynga’s doing is a step beyond. The company scavenges through the most popular titles on the social market and harvests them for their own…. Pincus would have us believe he’s just continuing in the great tradition of all tech pioneers, drawing on past products to make future ones, but there’s something different with Zynga. Something wrong. And to have a brand that is this creatively bankrupt does not bode well for its long term prospects.”

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See https://www.reddit.com/r/gamingnews/comments/p7s8y/leaked_zynga_memo_justifies_copycat_strategy/ and click on the header “Leaked Zynga Memo Justifies Copycat Strategy”.

As of 2011 Zynga had made 14 acquisitions, many of which were dubbed “acqui-hires,” acquisitions of only a company's team and not its assets. See http://mashable.com/2011/05/18/zynga-dna-games/ One more recent acquisition, of Spooky Cool Labs in June 2013, brought talent in the person of Joe Kaminkow, who brought a “vast knowledge of real money gaming” to Zynga. As the analyst says, “Who better to design online slot games based on Zynga games than one of the most recognizable names in the history of slots? Kaminkow holds patents and contacts that will help Zynga get a leg up on the competition.” See http://seekingalpha.com/article/1528402-zyngas-latest-acquisition-of-spooky-cool-labs- all-about-talent This came after Zynga shut down the acquisition it made in 2012, OMGPOP, which Zynga had acquired in order to get the game Draw Something. According to this article, the game quickly lost users “shortly after the Zynga acquisition. The game might have been a huge hit for the first couple of weeks, but as with a lot of games, they start to lose their lasting appeal after a while, and that’s probably what happened with Draw Something.” This illustrates how acquisitions need to be carefully assessed for their durability and ability to generate profit instead of just adding cost. See http://www.slashgear.com/zyngas-omgpop- studio-shut-down-14-months-after-acquisition-04284917/ Zynga had also tried to develop something in the online gambling market (real money gaming!) by filing an application for a Nevada gaming license in December 2012. The company started offering online gambling in the U.K. in April, 2013, but by July 2013 Zynga “made the focus choice” not to pursue online gambling in the U.S. See http://money.cnn.com/2013/07/26/technology/zynga-online-gambling/index.html See more financial news about Zynga (ZNGA) at http://finance.yahoo.com/q?s=ZNGA and visit the company’s website at http://zynga.com/ to see the current game offerings. Visit http://investor.zynga.com/ to find out more about the business. See a video from 2009, “Inside Zynga” about how the company works, from people who work there, including Mark Pincus – note that this is a positive spin on the working environment…”relaxed, but focused on getting things done”, a “meritocracy”, “all about performance, all about what works”: https://www.youtube.com/watch?v=MeRfnXbKbko For an explanation of how addictive game play can be on a Zynga game such as Farmville, see the following story from 2011 about Mark Pincus and his secret to success. As detailed in the article, “Facebook’s success, on a business level, owes something to Pincus, although most people don’t realize it. The dirty little secret of Facebook is that there isn’t really much to do there once you’ve finished looking at pictures of your friends’ babies and your crush, and signed up for a few pages run by political causes. “Is Facebook a success because of Zynga, or is Zynga a success because of Facebook?” asks Michael Pachter, a video-game analyst at Wedbush Securities. “The answer is both. But the truth is that it’s a delicate eco-system.” And in a section describing how Pincus came up with the idea for his game business model, it says the following (this is a direct quote from the article): [Pincus] started to think about what would happen in games if you could, essentially, pay for a coach. Why couldn’t you gain an advantage in games by paying for them? “I was addicted to this online game, Rise of Nations, where you move your nation through civilizations, to the point that it really hurt a relationship I was in,” he says. “These kids online were just destroying me – they were coming in with tanks, and I was throwing spears at their tanks. And I thought to myself, Wow, I would really pay some money to not have it be this way.” Most of us would think of this

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as cheating. “It’s breaking the rules of the Western ways of gaming to buy your way ahead, but so what?” he says. He’s got a point: why do games have to be fair? After all, in life, everything is easier if you throw money at it. It’s all easier then. You knew that already. And in another section, the article describes how Mark Pincus’s personal relationship with Mark Zuckerberg was critical to the two company’s continued business relationship (the importance of social capital): “Zynga truly has an insurmountable competitive advantage so long as they don’t anger Facebook.” See http://www.vanityfair.com/business/features/2011/06/mark-pincus-farmville-201106 Regarding the essentially “unethical” nature of online social gaming, see the article from 2009, making the point that “game developers who monetize the best (and that’s Zynga) make the most money and can spend the most on advertising. Those that won’t touch this stuff (Slide and others) fall further and further behind. Other game developers have to either get in on the monetization or fall behind as well. Companies like Playdom and Playfish seem to be struggling with their conscience and are constantly shifting their policies on lead gen (lead generation, or how to get new players). The games that scam the most, win.” See http://techcrunch.com/2009/10/31/scamville-the-social-gaming-ecosystem-of-hell/, with a video at the end of the article of a discussion about the ethics (or lack thereof) of providing “virtual goods”. In October 2012, Zynga’s third-quarter results reported a net loss of between $90 million and $105 million, a new all-time low for the company. At that time, analysts suggested shareholders would be better served if the company offered itself up for a buyout, but Pincus remained optimistic, saying the focus would shift to an emphasis on developing mobile business, and that planned cost reductions would “support our strategy to transition from being a first party web game developer to a multiplatform game network”. See http://www.pcmag.com/article2/0,2817,2410638,00.asp Shareholders subsequently sued, alleging “that Zynga failed to warn them about declining revenue ahead of the company's earnings report.” See http://www.pcmag.com/article2/0,2817,2407931,00.asp By 2013, Zynga had taken steps to correct its slumping business by laying off 18 percent of staff (520 employees in June, 2013) with the action taken reportedly to reduce costs – The move was planned to result in savings of about $70 million to $80 million in pre-tax annualized cash expenses. See http://www.pcmag.com/article2/0,2817,2419871,00.asp See a video overview of Zynga’s troubles, including a description of Zynga’s “creative bankruptcy,” at https://www.youtube.com/watch?v=XcRWOP1u-cE , and read the comments! In July of 2013, Mark Pincus was replaced as CEO by Don Mattrick, formerly president of Microsoft’s Interactive Entertainment unit, responsible for X-Box gaming at Microsoft. Pincus was to remain chief product officer and chairman of the board. See http://www.pcmag.com/article2/0,2817,2421253,00.asp And in August 2013, Mattrick announced some significant structural changes and executive departures – three former executives were let go in an effort to take “layers out of the executive rank to get senior leaders closer to important product initiatives”. In addition: “Mattrick also said the changes should embolden studio leads to take more initiative on product and game decisions. There are now three overall divisions: 1) studios, 2) technology, live ops and publishing, and 3) functional areas covering legal, finance and human resources. One observer said that the changes with studio leadership effectively put everyone in a horse race where they’re more transparently and directly responsible for the performance of their units. In about two quarters, it should be obvious who is underperforming and who is not.” See http://techcrunch.com/2013/08/13/zynga-shakeup/ However, in April 2015 Mattrick resigned and Mark Pincus was back in charge, even though reports were that the company was “beginning to move in the right direction under Mattrick.” See http://www.reuters.com/article/2015/04/09/us-zynga-ceo-idUSKBN0MZ28B20150409 In May Pincus announced he was laying off 18 percent of Zynga’s staff, in an attempt to “return Zynga to its more nimble roots: I’ve been encouraged in my first few weeks by the level of talent and commitment throughout our company. But, I’ve also heard teams express frustration. They want to move faster and take more shots on goal. In order to win, we need to return to our entrepreneurial roots with leaders and teams

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empowered to drive outcomes. We’ve seen that across our industry – and in the early days at Zynga – tighter, more nimble teams can drive faster innovation and deliver more valuable experiences for players....We need to be more resourceful in how we manage our costs in order to fund our investments in great new games, people and data analytics. We’ve over-burdened our game teams with complexity and centralized expenditure.” http://www.businessinsider.com/zynga-ceo-marc-pincus-explains-staff- reductions-on-earnings-call-2015-5 In November 2017, current CEO Frank Gibeau was able to report Zynga’s second consecutive quarter of net income, the first time it has done so since going public in 2011. In addition, Gibeau announced the release of Words with Friends 2, adding a modernized user interface and new ways to play. However, Gibeau noted he was making clear to the developer teams “that if it isn’t broke, don’t fix it.” Zynga also entered into an agreement to acquire Peak Games’ card and board game group, including the spades and rummy games, to expand its mobile card game options. Finally, Gibeau pointed out his interest in chat-based games and augmented reality. See https://venturebeat.com/2017/11/11/zynga-ceo-how-the- company-is-staying-on-the-comeback-trail/ Whether these initiatives will contribute to sustainable positive revenue and growth that delights shareholders remains to be seen.

PRESENTATION You will create a PowerPoint Presentation of your Strategic planning tasks. The presentation should provide a summary of each task and your strategic planning recommendations as outlined in the next section.

STRUCTURE There are specific steps of completion that you must follow as you work towards a final plan. This will need to be a part of the final presentation.

Task 1: Analysis of internal and external environmental factors that will affect strategy. (Chapters 2, 3 and 4).

• Be sure to identify factors (such as economic, technology, legal etc.) and their importance.

o Using tools such as the SWOT analysis, Porter’s Five Forces, Value-Chain Analysis, and RBV will assist you here.

• Define the internal and external stakeholders, and identify their needs and expectations from the organization. What will their influence on the strategy be?

• Review the current Mission, Vision, Values and strategy of the organization.

o What are the current strategic goals of the organization?

Task 2: Use relevant and appropriate tools to analyze the effects of the current business plan and strategy. (Chapter 3).

• Review the position of the company in its current market

o How is the company performing financially? Providing an annual report from sources such as yahoo finance can satisfy this requirement.

o Identify the company’s current strength and weaknesses in the current market in terms of

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brand, services, debt, international position, and market shares. Conducting a Financial Ratio Analysis or using the Balanced Scorecard will be helpful in evaluating the company’s performance.

o Provide a comparison of the company with another in the industry. Compare the structure, locations, product selections, pricing, services, quality etc.

o Is the company’s current position reflective of their current mission, vision and strategic plan?

• Evaluate the competitive strengths and weaknesses of the current business strategy.

o You can use tools such as the SWOT analysis and Porters Five Forces analysis here.

Task 3: Make Recommendations. Develop strategic options for the company using appropriate modeling tools/frameworks, based on current goals and identified needs of the company. (Chapters 5-8)

• The most appropriate models used would depend on what the company needs to do next to reach their desired position. Identify the business-level, corporate-level, international (if applicable), and entrepreneurial (if applicable) strategies and models recommended. These should be based on current organizational strategy, mission, vision, and goals.

• Apply the criteria and evaluate the options for delivering the strategic direction chosen of the company. (Differentiation, cost leadership, combination, diversification etc.)

Task 4: Outline a plan to implement and evaluate the suggested strategic direction of the organization. Explain the structure of a plan needed to deliver the strategy. (Chapters 9-13)

• Introduction – Summary of the problems and proposed solutions.

• Mission, Vision & objectives – Current Mission, Vision and objectives of the company, and any recommended changes based on your recommended strategy.

• Strategy – Proposed strategies as previously identified. Set strategic goals that are Specific, Measurable, Attainable, Relevant and Time-Bound over the next 3-5 years.

• Analysis – Included analysis conducted previously.

• Implementation – Overall plan to implement the strategic direction. Explain how stakeholders should be involved in the formulation of the plan. Provide a dissemination process to ensure stakeholders are informed and committed to the plan.

• Evaluation – Identify measures and methodologies to evaluate the effectiveness of the plan’s goals over a 3-5 year time period.

• Conclusion – Provide a conclusion of the plan and how you think your recommendations will benefit the company.

Note about sources and citations: You must cite all sources using an MLA format Works Cited slide. For this project, you should have at least 3.