Corporative Strategies- Renewal

Nintendo:
Nintendo was lunched by Sekiryo Yamauchi and built a successful distribution network to distribute
playing cards in all of Japan for about 40 yrs. The business had a core competence in distribution.
In 1977 the business was passed to his grandson Hiroshi Yamauchi who wanted the business to go
beyond playing cards into a more innovative future. He identified their core competence to be
distributions since the business had developed and maintained an extensive pipe line of stores,
distributors and sub distributors. Playing cards was not a crazy innovation but they knew how to get it
everywhere.
Their new strategy was to go into video gaming then use their extensive network to sell these games
like they did with playing cards, sell in toy stores, variety stores and small shops that sold bits of
entertainment.
The first sales of their first game, even though they sold 1m units they still lost money. But they learnt
that people loved video game and are willing to pay for it and Nintendo was able to make use of its
network to sell these games now they only needed a huge market for these games which they
identified to be the USA.
In 1980 Nintendo entered the American market, developing a relationship with Far East. Behind the
success of Nintendo, a constant search for outdated technology that can still be relevant for gaming.
This idea was to keep production cost at a minimum to be affordable for most of the people. That is
how they came up with the idea behind the Game & Watch series, using LCD screens used in
calculators to have the cheapest gaming system ever.
1994, Sony became the leader in gaming consoles by providing gamers what they wanted: more
performance and outstanding graphics. This is due to the usage of CD-Roms instead of typical
cartridges, allowing for more data and fastest transfers. From there Nintendo, still focusing on budget
performance consoles, will lose continuous market shares with the Nintendo 64 released in 1996 and
the GameCube in 2001.
Nintendo tried to keep up with the PS2 by being cheaper while providing great performances (the
GameCube was at $199 & the PS2 at $299) but didn’t expect Microsoft to join this market and
released the Xbox the same year (2 months before the GameCube!) with a DVD player and certainly
the best performances for this generation and Gamers were more attracted to the PS2 & Xbox than the
Nintendo GameCube because of multiple factors like Nintendo games being too childish.
Nintendo was losing this game that they were owning for so long, the strategy had to be changed and
maybe the market as well. Nintendo became positioned 3rd on the market and clearly the gamers were
less interested in its future release than in the ones from Microsoft and Sony. These last 2 won the
game and they are fighting each other without much care for Nintendo. Nintendo discovered trying to
beat them back with a more powerful console was not a good strategy, The GameCube was a failure
because it tried to compete directly with the PS2 & the Xbox so probably not a wise choice to do the
same strategy. A better strategy is to create a market where Nintendo will be the only player. in 2006,
they decided to launch their new console, the Nintendo Wii, by reanalysing the market and focusing
on a new audience who will soon be called the Casual Gamers. Its difference was that It targeted
everyone. From Wii Sports to Just Dance, the idea was to give anyone the ability to play easy-to-learn
games that will have the full family playing together. This was a total new audience, far from the
(way smaller) red ocean market overwhelmed by Microsoft & Sony.
In terms of results, here are the overall sales results from the consoles of this generation:
  Nintendo Wii (Nintendo): 101.63 million
 PlayStation 3 (Sony): 87.4 million
 Xbox 360 (Microsoft): 84 million
Nintendo has played a vital role in the gaming industry by establishing itself as one of the top
competitors. The company is reputable for its consistency in gaining a temporary competitive
advantage. Dated back to 1889, Nintendo has continued to be successfully innovative and serve as a
foundation in the entertainment industry. One of the many advantages that Nintendo has in the
industry is that its customers are pretty loyal. This is a result of the brand image being very well
known for its family friendliness.
The family oriented aspect has allowed for it to reach a very broad audience with each gaming system
the company has released. The release of the Wii and Wii U has played very well into adding value to
the company’s brand

LEGO
wooden pull toys, piggy banks, cars and trucks – were reasonably successful but a key turning point
for the business came in the 1940s when they began making plastic toys including a truck which could
be taken apart and re-assembled. The now familiar Lego bricks appeared on the market in 1953 but
were not initially very successful, partly due to poor perceptions amongst consumers and retailers of
plastic toys. . Much work was needed to improve its design to give better locking ability but gradually
the concept became reality and 1958 saw the emergence of the patented basic brick design with which
are still in use. By 1959 the company had stopped making wooden toys and concentrated solely on
plastic bricks and related products.
It is worth putting the power of the basic architectural/platform innovation in perspective. With just
two bricks there are 24 different combinations, and with six there are 915 million possibilities, so the
range of options – both designed by Lego but also created by end users – is huge. Estimates suggest
that over 400 million children (and a fair number of adults) play with the bricks for around 5 billion
‘play hours’. Yet the original design still holds, apparently bricks made today can still interlock with
those made in the first batch of 1958. Not surprisingly Fortune magazine named Lego as ‘toy of the
century’ in 1999.
by the late 1990s the company had begun to run into difficulties:

 In their main product area low cost ‘good enough’ quality competition was making inroads
into their market – a classic example of disruptive innovation similar to the low cost airline
revolution. A Canadian company, Megabloks, began offering a wide range of competitively
priced building toys which rapidly pushed Lego along the shelf space of many stores.
 At the same time a large section of their traditional market – young boys – was increasingly
being drawn away from building models and into the world of computer games.
 finally, Lego was a global company but based in a high cost economy – Denmark – with
resulting pressure on its operations to remain competitive. Its supply chains were long and
expensive, its product development had become increasingly complex, with many product
ranges involving such a wide range of choice – for example the Pirate figures had no less
than 10 different leg designs, each with its own clothing – that it became difficult to
manufacture economically.
In the early 2000s, LEGO was struggling. It turns out that they had to do a massive shift in order to
keep themselves relevant and inspiring to children. After some changes in company leadership, they
realized that they needed to take a more contextual research approach in understanding children in
order to recapture their market share. It involved extensive rationalization and cost-cutting in areas
like supply chain and factory location, together with a rethink of the product development strategy.
For example, the number of unique pieces being manufactured in Billund was cut from 12,400 to
around 7,000. But it also included extensive learning about new ways of working with users as
designers as part of the product innovation approach.
Other issues Lego had to deal with was whether they should be cost leader or differentiators or try to
do both, while avoiding the danger of being stuck in the middle
Lego needed to dynamically evolve and adapt to their environment
Lego was failing in the early 2000s but managed to strategically renew itself through great leadership
and through its dynamic capabilities. For Lego differentiation through innovation is a key selling
point. It looks like Lego’s interlocking system of play and the backwards compatibility of bricks
create a built- in market for Lego. But actually, the brick itself is easy to imitate now the patterns have
expired and many companies can do the required plastic moulding even to Lego’s very strict
specification, but what keeps customers interested in Lego and makes it an ever-popular toy is the
constant innovation with new products. Innovation and differentiation through innovation is central to
Lego’s success.
Lego company needs to be careful about how its differentiation affects its cost structure because the
product is easily imitable and if the cost gets too out of line, low earn competitors can enter the
market. Lego currently operates on a knife edge of pushing innovation but keeping an eye on cost.
This sort of dual strategy ends up being stuck in the middle with the company doing neither thing very
well. A company can avoid being stuck in the middle while pursuing a dual strategy by maintain a
strong philosophy and system of constraint or guided innovation.
Takes from both case studies
For a company to succeed and maintain its success, it needs to understand its core competences and
stick with them, refer to these competences when making important strategic decisions about the
business operations and future
Innovation and consistent innovation and differentiation is important to survive in any business or
market. Innovation is not always about improving old products, it can mean staring again. Product
innovation doesn’t necessary mean leaning on yesterday’s product but finding new ones in the
example of Nintendo.