Nintendo's innovation strategy and the Wii console's competitive advantage

Nintendo Case Study

Performance

Nintendo's current strategy is not to be the best at what its competitors do, but rather to be a leader of innovation n the video game industry by trying to be the only one -- or at least the first -- to do what it does. That is, the company has not tried to simply produce a better (i.e. faster, more realistic, and more gamer-targeted) video game console with the Nintendo Wii, but to produce an entirely new and different kind of game console. While its competitors have tried to produce consoles that can support games with ever-better graphics and more intricate games aimed at traditional gamers (primarily males in their teens to mid-30s), Nintendo has focused on making a console with broad appeal and a truly diverse offering of non-gaming options. This strategy appears to be serving it quite well, as demand for the Wii has remained quite high and generated nice profits for the company.

Resource Strengths and Weaknesses

While Nintendo has proven its ability to attract and retain talent with a high level of innovation and creativity, an evidenced by the development of many of its consoles culminating in the Wii, a major resource deficiency is visible in the still-limited production of the Wii. The inability to maintain production levels that meet demand for the product is a major internal resource weakness for the company. External resource opportunities for the firm include a much broader base of appeal in consumers around the globe and reduced costs of materials for the Wii compared to competitors. An external weakness can be found, however, in the difficulty and risks that game developers face in creating games for this console.

Nintendo's core competence is its ability to innovate, and it has proven this ability time and time again but especially with the radical departure from other consoles that the Wii represents. The fact that Playstation is only now (in 2010, following publication of the case study) attempting to copy the Wii's remote is evidence of this competency, which is also highly distinctive. The ctual material resources needed by the company are also fairly common and less valuable (i.e. less expensive) than those used by its competitors in terms of absolute value needed per unit, which can be seen from the cost of production and the consumer price per unit for the Wii compared to the Xbox and Playstation. The limited game development and problems of availability that plague the Wii, however, could damage the company's key strength factor of innovation by limiting the degree to which the Wii's offerings can continue to expand and adapt to consumer trends and newly developed niches.

Rivalry

Nintendo's position relative to that of its competitors is the result of a complex set of factors not entirely detailed in the case study. With its innovation and the low cost of production/low price to consumers, Nintendo appears to be relatively strong, and a strong, broad, and loyal consumer base also assists the company in it competitiveness. Sony and Microsoft, however, Nintendo's two major competitors, have many different departments and product offerings unrelated to the video game industry, providing them with more stability and much larger company-wide revenues and levels of operating capital, adding to their relative strength immensely.

Issues for Managerial Attention

As the above analysis clearly demonstrates, one of the primary issues of managerial concern for Nintendo in its current state (as described by the case study) iss the increase of Wii production levels to meet demand for the product. A change in pricing (I.e. making the unit more expensive) could also be warranted, which would make an adjustment to the demand curve on its own; the fact that consumers were willing to spend double or even triple the retail cost of a Wii in order to purchase one via Ebay and other online resale sites suggests that the profitability of these units could be higher than it currently is. A combination of increased supply through increased production capacities and a slightly decreased demand by raising the per-unit price would increase the company's profits and help the company to operate more efficiently according to the macroeconomic principles of supply and demand.

The other major issue that should be of concern to management at Nintendo is increasing the potential profitability and minimizing the risks to game developers. This issue is difficult to balance with the continued innovation that the company also needs, and that has been a definitive trait of the video game console manufacturer since 1979 when its first games rolled off the line. Finding a way for cross-platform game design to be facilitated without limiting the innovative aspects of the Wii would be of enormous benefit to the company and increase its appeal and potential profits exponentially through licensing fees and increased unit sales.