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Strategic Plan – Activision Blizzard Inc.

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Strategic Plan – Activision Blizzard Inc.

Introduction

Activision Blizzard Inc. Inc (Previously Activision Inc.) has its headquarters in

California, USA and deals in entertainment software and peripheral product development and

supply across the globe. The firm provides a wide range of video games for a variety of

platforms including, PC-based, XBOX based and Nintendo based. The firm’s portfolio is

recognized by many as one of the best with a comprehensive and competitive network across,

America, Europe and Asia. There are different segments in the firm dealing with different

aspects of the industry. These segments make Activision Blizzard Inc. extremely competitive and

include the Activision Publishing, Blizzard entertainment and Blizzard Distribution.

The five forces framework

The five-force framework provides the basis for the strategic plans that the firm’s

management may desire to take up in order to improve its participation in the industry. These

forces include; threats to new entrants, bargaining power of suppliers, bargaining power of

buyers, threat of substituting products and intensity of the competition within the

market[ CITATION Por08 \l 1033 ].

Threats to new entrants

Similar to other industries, the barriers to entry in the gaming industry is determined by

the ease by which new players can access and challenge for the market share with the existing

market players. This is done with an intention of making it difficult to operate in the industry.

The more established firms have the ability to mass produce games for the market. This mass

production ensures that the costs of production is low enough that the benefits may be transferred
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to the customers. This makes it difficult for start ups as the cost of capital is relatively high and

that of production is even higher. The main changes faced by new entrants into this market is the

difficulty in accessing the distribution channels, compliance with regulations from different

governments and extreme competition from other players in the market. Activision Blizzard ha a

great advantage over any new entrant in the market given its efficient distribution network across

the globe. Having been in the industry for a long time, the firm has streamlined its operations

with regulations in different governments for compliance purposes. The firm may also employ

tactics that would result in the discouraging new entrants from venturing into the industry.

Bargaining power of suppliers

The gaming industry is composed of both small and large firms that produce different

products for different segments within the market. Each firm targets to gain a competitive

advantage in the market by employing superior product development methods and higher the

best talent in the market in order to produce more superior products to the satisfaction of the

consumer[ CITATION Por85 \l 1033 ]. Given this situation, the firms are unable to collude to

exercise a collective bargaining power in the industry. Profitability in this industry is based on

the number of sales made in every fiscal year. The suppliers are therefore driven in maintaining a

larger customer base and work even harder to acquire more customers in a bid to improve sales.

In order to diversify the risk associated with low bargaining power, most suppliers categorize

their clients. One of the categories is buyers who purchase parts to make a product and the

second is buyers of the finished product.

The development of games is a labor-intensive affair requiring the most talented

developers and designers. The suppliers’ power is increased at this point with differentiation of

different products based on intellectual property rights of the different developer. The dominance
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exerted by the suppliers can increase when products are differentiated from other competitors

resulting in an increased cost of switching and reducing the probability of substitute.

Bargaining power of buyers

The buyers bargaining power is that they are able to demand products of a better quality

from the developers. This results in an increased cost of the final product as development and

hardware cost increase. Considering the high volume of competitors in the gaming market, the

buyer has an advantage when bargaining as they have different options and only pick the ones

that meet their specific needs. Even though the products are properly differentiated the brand

loyalty is relatively low. Despite this drawback, Activision Blizzard is able to achieve a degree

of product differentiation by utilizing its more established game lines. Additionally, for

individual titles to maintain a level of success as new games, a constant critical review of the title

is necessary for it to retain its appeal to the client base. The industry is therefore susceptible to

low profit margins as buyers collude to demand better quality games from the developers and

only purchase from the developer that meets these needs even if the price is lower than

competitors.

Threat of substitute goods

The profitability level is greatly lowered in the gaming industry given the high number

of substitutes in the industry. This forces most gaming developers to further differentiate their

products using all their unique competitive advantages as well as tehri outstanding performances.

By not doing so the firms are likely not able to survive in the industry given the number of

challenges they may be forced to face. There are three substitutes available in the market for

games; live sporting events, films and music. Future environmental trends are a likely barrier to
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the competitiveness of new entrants in the market. More established firms such as Activision

Blizzard are able to mitigate against such threats through eth development of strong brands for

their existing titles and the firm therefore curving a unique niche in the market.

Rivalry intensity with existing competitors

The level of intensity in the gaming industry is considered a zero-sum endeavor even

though it remains extremely strong in nature. This is as a result of a high fixed costs on game

development and storage. The impact is a more sluggish growth rate as many game titles remain

less profitable in the market. Additionally, the total software production is minimal when

compared to the actual development cost involved in production. The high cost of development

presents a negative impact on the capacity increase as most firms remain uncertain and

noncommittal on the huge sums required.

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Competitor analysis
The gaming industry is quite competitive; however, more acquisitions and mergers are expected in the future as the smallest companies

are under constant threat from piracy, risky investment in upfront development costs, an increase in the number of players reverting to content

developers and unstable economies, the table below presents the firm’ latest

Table 1: Competitor analysis [ CITATION Gur20 \l 1033 ]

Net Days
Ticke Market Cap Financial Profitabilit PE Cash-to- Equity-to WACC ROIC ROE ROA
Margin Inventor
Company Revenue ($M) Strength y Rank Debt Asset
% y
r Ratio % % % %

Activision
17.4 11.1
ATVI Blizzard $7,660 59,363.17 7 8 26.86 2.06 0.67 4.81 28.9 16.74 10.43
8 8
Inc
- - -
$2,984.3
SE Sea Ltd 89,309.71 4 3 0 1.49 0.13 9.41 54.5 -39.02 103.5 23.1 5.75
2
8 4 4
Electronic 20.4 11.8
EA $5,590 35,351.75 8 8 27.14 5.57 0.7 6.37 23.51 17.42 0
Arts Inc 4 1
Take-Two
TTW Interactive $3,363.1 16.7
19,574.54 7 6 41.11 13.27 0.5 3.68 14.1 18.71 9.17 5.42
O Software 2 5
Inc
- -
$1,247.0 -
BILI Bilibili Inc 20,725.81 5 1 0 1.7 0.37 0 29.3 -21.5 10.7 2.98
4 24.55
3 8
-
ZNG $1,763.2 -
A
Zynga Inc 9,009.64 5 4 0 1.03 0.55 1.7 12.2 -21.55 -9.68 0
5 18.41
4
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SCP SciPlay 55.7

$548 331.66 6 4 16.49 26.96 0.14 0 3.81 68.51 4.87 0
L Corp 9
GLU Glu Mobile
$512 1,656.34 7 3 321 7.87 0.61 5.78 1.86 1.44 2.71 1.46 0
U Inc
GRV GRAVITY No 129. 23.5
$306.41 965.15 9 6 24.01 0.64 -4.01 13.12 36.27 0
Y Co Ltd Debt 63 2
Avid
AVID Technology $372.47 543.32 2 6 28.59
Inc                
The above table shows that although Activision Blizzard Inc. Dominates the industry, most players are very strong. This is largely due to

high costs of development while the contribution margin of each tittle produced remains very low. This forces most companies to rely solely on

major hit titles to secure profits.

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SWOT analysis matrix

For the managers of Activision Blizzard Inc., a SWOT analysis remains an important tool

for their strategic planning. The best thing about the tool is that the management can succeed in

analyzing the current Strengths (S), Weaknesses (W), Opportunities (O) and Threats (T) that the

business may face in its prevailing environment. The matrix is a 2 X 2 combination with each

portion contributing to the matrix. The company’s strengths and weaknesses make up its internal

strategic factors while its opportunities and threats make up its external strategic factors. A

combination of the different factors produces four types of strategies that can be exploited by the

management; strengths-opportunities strategies (SO), weakness-opportunities strategies (WO),

strength-threats (ST) strategies and weakness-threats strategies (WT).

Internal strategic factors – strengths

As a leader in its industry, Activision Blizzard Inc. is set up with numerous strengths that

have enabled it maintain its place in the industry. These strengths not only aid the firm in

maintaining and growing its market share but also in penetrating new and developing markets.

This paper will examine some of the most critical strengths that give Activision Blizzard Inc. its

edge in the market.

First, the firm has god returns on capital expenses. Activision Blizzard Inc. has

experienced success, especially at the execution of new projects and grow this has enabled is

develop new streams of income. Secondly, the rims is also successful at integrating the different

firms that it acquires in tis mergers and acquisition. Over the previous number of years,

Activision Blizzard Inc. has looked to streamline its operations and to do so, it has acquired other

technology firms which has created a reliable supply chain for its different products. Third, the

products from the firm have experienced a consistency in quality given the increased automation
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of the production processes at Activision Blizzard Inc. This consistency has enabled the firm

scale up or scale down based on the prevailing market demands of the industry products.

Fourthly, Activision Blizzard Inc. has had strong Free Cash Flow over a number of years.

These strong free cash flow has given the firm the ability to expand into new projects with the

necessary resources at hand. Fifthly, the firm has a strong distribution network for its products in

the industry. The firm has built a strong and efficient distribution network over a number of

years that has the capacity to enable it reach a larger section of the market. Sixthly, Activision

Blizzard Inc. has developed an effective and efficient Got To Market Strategy for its new and

existing products. Seventhly, Activision Blizzard Inc. has reliable suppliers for its raw materials.

A strong base of reliable suppliers of these materials has enabled the firm overcome any sort of

supply chain bottlenecks[ CITATION Utt94 \l 1033 ]. Finally, Activision Blizzard Inc. is good at

product innovation. The firm has a successful track record in the development of new products in

accordance with the demands of its customers.

Internal strategic factors – weakness

This section looks at the areas in which Activision Blizzard Inc. can make improvements.

Using the SWOT analysis, the firm is capable of building on its competitive advantages and

strategic positioning by identify and working on areas in which it can improve on services and

products offered in the market. The write up in this section looks at the weaknesses that can be

improved upon by Activision Blizzard Inc.

First, the firm has been unsuccessful at integrating firms that previously had a different

work culture before acquisition. In the strengths section of the SWOT analysis, it has been

mentioned that Activision Blizzard Inc. is good at integrating firms it has acquired however,
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when it comes to firms with a different culture from that of Activision, the integration is usually

hectic. Secondly, the firm is not efficient at its product demand forecasting that results in an

increased rate of missed opportunities when a comparison is made with its competitors. The

reason why the days inventory for the firm is high is because the firm is not particularly good at

demand forecasting compared to its competitors[ CITATION Act20 \l 1033 ]. This chain of events

results in increased inventory both at the firm’s warehouse and in its distribution channels.

Thirdly, Activision Blizzard Inc. has experienced a limited success in operations outside its core

business. The firm has gained enough market share to be considered one of the leading players in

the space. However, given its present culture, Activision Blizzard Inc. has had its struggles when

moving to other product segments within the market. Fourthly, the firm’s level of investment in

research and development has been surpassed by the fastest growing players in the market. Even

though the firm’s current expenditure in research and development is way above the industry

average, the level of innovation undertaken by it has been way below other leading companies in

the market. The firm has depicted itself to the industry as a mature firm that is interested in only

releasing products that have been fully tested on more familiar features,

Fifthly, the product range produced by the firm shows a lot of gaps that may be exploited

by a new competitor. The lack of choice for most of its consumers means the gap is inevitably

going to be taken up by either an existing or an upcoming competitor. Sixthly, the firm has a

weakness in its financial planning strategy as it is not done either properly or efficiently. Th

firm’s asset ratio and liquid ratios suggest that more can be done in utilizing the assets available

to produce more efficient results that the current undertaking. Finally, the firm has been

incapable of dealing with most of the upcoming firms that have presented challenges to some of

its niche segments. To be able to counter the effects of this weakness, the firm has to develop an
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internal feedback mechanism that links its sales team on the ground to the developers in the

office.

External strategic factors – opportunities

There are several opportunities that Activision Blizzard Inc. can exploit to further

increase their market share.

First, a more stable free cash flow in the firm’s books presents an opportunity for

Activision Blizzard Inc. to diversify its investment in adjacent product segments. With an

increased capacity of cash in the bank, the firm is able to invest in more contemporary

technologies and different product segments. This would provide more opportunities for the firm

in different segments of the market. Secondly, dilution of competitor’s advantage due to market

development enables Activision Blizzard Inc. to increase its competitive advantage compared to

the other market players. Thirdly, Activision Blizzard’s core competencies can help it succeed in

other similar products fields. A comparative example in this case would be that of General

Electric healthcare research that aided it in developing better Oil drilling machines. Fourthly, the

green drive by the government has opened an opportunity for procurement of Activision Blizzard

Inc. products by the state as well as federal government contractors.

Fifthly, New environmental policies – The new opportunities will create a level playing

field for all the players in the industry. It represents a great opportunity for Activision Blizzard

Inc. to drive home its advantage in new technology and gain market share in the new product

category. Sixthly, economic uptick and increase in customer spending, after years of recession

and slow growth rate in the industry, is an opportunity for Activision Blizzard Inc. to capture

new customers and increase its market share. Seventhly, New trends in the consumer behavior
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can open up new market for the Activision Blizzard Inc. It provides a great opportunity for the

organization to build new revenue streams and diversify into new product categories too. Finally,

the new technology provides an opportunity to Activision Blizzard Inc. to practices differentiated

pricing strategy in the new market. It will enable the firm to maintain its loyal customers with

great service and lure new customers through other value-oriented propositions.

External strategic factors – threats

There are several threats that the firm faces intis operations. First, Liability laws in

different countries are different and Activision Blizzard Inc. may be exposed to various liability

claims given change in policies in those markets. Second, As the company is operating in

numerous countries it is exposed to currency fluctuations especially given the volatile political

climate in number of markets across the world. Third, New environment regulations under Paris

agreement (2016) could be a threat to certain existing product categories. Fourth, the demand of

the highly profitable products is seasonal in nature and any unlikely event during the peak season

may impact the profitability of the company in short to medium term. Fifth, growing strengths of

local distributors also presents a threat in some markets as the competition is paying higher

margins to the local distributors. Sixth, Imitation of the counterfeit and low-quality product is

also a threat to Activision Blizzard Inc.’s product especially in the emerging markets and low-

income markets. Seventh, no regular supply of innovative products – Over the years the

company has developed numerous products but those are often response to the development by

other players. Secondly the supply of new products is not regular thus leading to high and low

swings in the sales number over period of time. Finally, New technologies developed by the

competitor or market disruptor could be a serious threat to the industry in medium to long term

future.
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Limitation of the Activision Blizzard Inc. SWOT analysis

Although the SWOT analysis is applied in a wide array of strategic planning, the analysis has

inherent limitations in its application. First, certain capabilities or factors of an organization can

be both a strength and weakness at the same time[ CITATION Hel10 \l 1033 ]. This is one of the

major limitations of SWOT analysis. For example, changing environmental regulations can be

both a threat to company it can also be an opportunity in a sense that it will enable the company

to be on a level playing field or at advantage to competitors if it able to develop the products

faster than the competitors. Second, SWOT does not show how to achieve a competitive

advantage, so it must not be an end in itself. Third, the matrix is only a starting point for a

discussion on how proposed strategies could be implemented[ CITATION Hel10 \l 1033 ]. It

provided an evaluation window but not an implementation plan based on strategic

competitiveness of Activision Blizzard Inc. Fourth, SWOT is a static assessment - analysis of

status quo with few prospective changes. As circumstances, capabilities, threats, and strategies

change, the dynamics of a competitive environment may not be revealed in a single matrix.

Finally, SWOT analysis may lead the firm to overemphasize a single internal or external factor

in formulating strategies. There are interrelationships among the key internal and external factors

that SWOT does not reveal that may be important in devising strategies.
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References

Activision Blizzard Inc. (2020). Quarterty Results . Retrieved from Activision:

https://investor.activision.com/financial-information/quarterly-results

Guru Focus. (2020, November 21). Activision Blizzard Inc Analysis and Valuations -

Competitive Comparison . Retrieved from gurufiocus:

https://www.gurufocus.com/stock/ATVI/analysis

Helms, M., & Nixon, J. (2010). Exploring SWOT analysis – where are we now? A review of

academic research from the last decade. Journal of Strategy and Management, 3(3).

Porter, M. (1985). The Competitive Advantage: Creating and Sustaining Superior Performance.

New York: Free Press.

Porter, M. (2008, January). The Five Competitive Forces That Shape Strategy. Retrieved from

Havard Business Review: https://hbr.org/2008/01/the-five-competitive-forces-that-shape-

strategy

Utterback, J. (1994). Mastering the Dynamics of Innovation. Boston: Havard Business School .