STRATEGY FORMULATION AND IMPLEMENTATION

TERM PAPER:
Internal Factor Analysis Summary on Nintendo







BY:
P.HARSHA VARDHAN
10MBI0105



Abstract:
This paper mainly deals with the internal factor analysis summary where Nintendos internal
factors are taken into consideration. Analysis is done on Nintendo using the sources. Using this
the analysis of the Nintendos business. This is an extension of SWOT analysis. What are the
strengths and weakness and exploring them and trying to solve them. Some factors are taken into
consideration and analysis is done on the present condition of Nintendo. This will help in
developing the organizations mission and vision. There will rating given for every factor.
According to the rating the analysis and according to the results the interpretation is done.
Introduction:
The Video Games industry develops, publishes, manufactures, distributes, and sells electronic
gaming devices, software, and accessories. Traditionally the video games industry referred to
gaming on raster display devices where resolution was determined based on the number of
pixels the image contained. However, with the development of more advanced technologies,
such as the breakthrough of 3D polygon imagery pioneered by the Silicon Graphics Institute, it
now refers to any type of display device (Lysenko, 2007). There is evolution of technology in
the whole market and industry. Previously the companies have specific games for their own
gaming stations. Now the games are used in any gaming station by converting them into desired
format.
But now there are many other substitutes for the gaming stations. Mobile phones, personal
computers, and external graphic cards which will turn your laptop into a gaming machine. The
video games industry can be segmented into two additional sectors. Firstly the software sector,
which constitutes the games themselves; and secondly the infrastructure and technology sector,
which encompasses the support necessary to distribute and the improved technology offerings
needed to play the games. Combined these three sectors make up the video games industry.
Again within software sector there is a wide variety of scope of game offerings, such as but not
limited to: First Person Shooter Games (FPS), Role Playing Games (RPGs), Mass Multiplayer
Online Role Paying Games (MMORPGs), or Platform Level Games (PLGs). With so many
game offerings catering to consumer preferences on a multitude of platforms the infrastructure
and technology sector is of obvious strategic importance to competitors within the industry and
will be explored in greater detail throughout this report.

Introduction of Nintendo:
Nintendo was founded over 100 years ago in 1889 by Fusajiro Yamauchi in Kyoto/Japan
as a simple card manufacturing company. Nintendo started with simple, hanafunda
translated to flower cards and became market leader in this segment. Before
manufacturing hardwares and softwares for the game industry several business units
were tried. Nintendos most known hardware products are Gameboy, Nintendo DS and
Wii including their software games. In 1985 Nintendo entered the market by introducing
home video game console, the Nintendo entertainment system (NES). It introduced its game
Mario super bros. into the market. Super Mario bros. became the biggest hit in the industry. Till
date many will be interested in playing Mario super bros. this game lead the industry for a long
period of time because of its high quality game play. This made a rapid shift in the industry.
Consumers are switching to high quality gameplay games.
Evolution of Nintendos technology:
In 1985 Nintendos NES had an 8 bit processor with 2kB of video RAM, however just 6 years
later it had doubled its processor to 16 bits and increased its video RAM to 32 times that of its
1985 offering with video RAM of 64 kBs. This incredible growth supports the hypothesis made
by Gordon Moore, co-founder of Intel. He famously proposed in his 1965 paper Electronics
that the number of components on computer chips will double every eighteen months to two
years (Brock.D, 2006). Increasing the number of components on computer chips increases the
storage capacity available to game makers. This in turn enables games to be longer and more
complex, with higher sound and music quality. The latest product from Nintendo is Wii. A new
style of game play has been incorporated with fully motion sensing controllers, dubbed
wiimotes. Software is targeted towards a wide variety of ages and many markets. Nintendo
recognized internal advantages of software development aimed at multi-player settings to be
enjoyed by all age groups and certain niche markets. Furthermore, Nintendo successfully
incorporated a low cost strategy that has helped to encourage massive unit sales. Released at
$250 in North America making it the most affordable console of the three, the Wii has sold the
most units today (Gruener, 2006). Perhaps more impressive the Wii is the only console of the
generation to be sold above production cost at release. A potential threat arises further down the
product life cycle as the consoles technical specifications lack compared to its competition.
Review of Literature:
Internal factor analysis deals with all the internal factors analysis and the rating is given to each
factors and the weighted average is taken and the analysis summary is given to the organization.
By using this the organization will try to improve itself where it finds very weak. This will help
in not repeating the same mistakes which are made in the past.

Internal Analysis:
Core Competencies:
The company is noticed as a timeless leader in video gaming, which is a worthy and rare ability
for Nintendo. The marketing departments enables Nintendo to become an efficient brand. The
research and development department reach a capability in innovative technology and game
plans. By that, efficient manufacturing processes make possible that Nintendo reach economies
of scale and to produce their products at a lower cost than the production of competitors game
systems. The development department produces a Wii-console and in-house games, which are
very valuable, rare and momentary irreplaceable core competencies. Therefore, the games give
the company temporary competitive advantage until competitors produces comparable
imitations. Nintendo is a strong competitor, difficult to reach. Microsoft and Sony already
launched comparable products of Nintendos game play. The company has experience with
portable systems with games, which have a funny history with populated characters with names
like Mario and Yoshi that bring so many competitors to imitate these figures. These characters
almost universally recognized even by those, who dont often play games of Nintendo.
Financial Overview:
The net profit margin of Nintendo was -4.1% in 2014. The company should come out of loses.
When compared with past 5years net profit ratio there is a huge fluctuations in the ratios. In 2010
the net profit margin was 15.9%. This was a very good year for Nintendo. But in 2011 it fell to
7.7% where this showed the companys performance came down by 50%. In 2012 it saw a net
negative profit of 6.7%. Again in 2013 it pushed itself and made very little profits and net profit
was 1.1%. But before 2009 recession the Nintendo was holding nearly 27% of the market share
in the gaming industry. Suddenly Nintendo came into decline stage which led them to change
their strategies. When it comes to current ratio the present condition of Nintendo is very strong.
They are able to pay their debts in any condition. They are financially strong. The debt ratio has
also been in control. They dropped nearly 10% from 2010. The present debit ratio is 14%. This
indicates the company is concentrating less on the liabilities. The inventory turnover ratio is very
low @ 2.54%. It has been gradually decreased heavily by nearly 4%. This shows the company
has poor sales in the market. Total asset turnover ratio has come down nearly by 50% in the past
5 years. In 2001 it was 81% but in 2014 it was 44%. This shows how the company failed in the
market in gaining the sales and capturing the market. It failed to hold its stake in the gaming
industry.
SWOT analysis:
Strengths:
Nintendo produces high quality and stylish products.
The management takes decisions which will help the brand to sustain the competition in
the market.
The company is having strong financial backup.
Their current ratio shows that the organization is in debt free status.
Weakness:
Dependent on outsourcing the microprocessors.
Dependent on the outsiders.
No particular target market for Nintendo.
Competitive advantage.
Sated not competing with the players in the market.
Opportunities:
There is chance in growth in the software industry.
Growth in gaming console.
Innovation of new technology.
Online gaming/Online multiplayer gaming.
Rapid growth in female gamers globally.
Rapid growth in consoles in developing countries like INDIA.
Re-engage core customers.
Threats:
Volatile exchange rates.
Short product life cycles.
Weak, recovering economy in developing countries.
Sonys market share.
Competition in smart phones.
With regard that Nintendo has an advantage of an early head-start of manufacturing hardwares
for the gaming industry. Besides competitors like Sony or Microsoft were not able to keep a
software developer for 30 years or a better notoriety of their games (of their consoles) compared
to Nintendos softwares. Although this is one of Nintendos unique resources however vice
versa it might be one of Nintendos largest weakness.
Summary:
In general, however, Nintendo has done a great job in drawing up a well-known brand image in
the video and gaming industry. The Nintendo Wii was the first, with new technological advanced
console and unique system, with controls that have sensors and where you have to play with your
own movements. A good sign is that the high price does not bring off the customers from the
console. Nintendo should preparing well for the release of systems and planning forward so that
there will be not a higher demand than the supply. The way they thinking is maybe the key to
their success Nintendo keeps doing, what they can do best and thats making quality
software, outstanding hardware and a healthy profit. This could be the clue what kept Nintendo
in business the years ago, than most other companies, and could keep for years to come. Many
businesses tried it this way, but went out of business because they couldnt find the way to make
money on it. Nintendo will not fast giving up the business, in opposite; Nintendo will succeed in
the new digital media environment because that company can just fit in the labor market and the
president of Nintendo does not excluded to creating a Nintendo phone on which you were able to
play games on it. There are two booming market right now stands in front of Nintendo.
Conclusion:
Nintendo is a well-known gaming company, and that should be enough to put every possible
effort to remain strong or even better. As mentioned, Nintendo is a focused company where it
could be easier for its R&D to innovate and impress the world with brilliant technologies in the
gaming market. The social and economic impacts should be turned to be one of Nintendo's
advantages. For example, it should remain in the low-price strategy. Also, it should remain as
family oriented gaming company. Today, most adults are into games and preferring to share that
with their kids to ensure it is appropriate, even if they are passionate about it. Also, the female
gamers are now becoming a new trend, where Nintendo can take that niche into account. In
addition, the SOWT analysis provided variety of opportunities that are ready to take advantage
of. Not to mention, the strength of the company can be considered as an opportunity. Finally, the
internal analysis showed that Nintendo did not have its best in the last four years. Most of ratios
applied to its financial statements were decreasing every year, or better being steady in unloved
level. Nintendo uniqueness is one of its strong arms, where they can focus their R&D in to create
unexpected/cool technologies lie the motion controllers.
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