Harvard Case - Adventurous Computer Games, Inc. (Abridged)
"Adventurous Computer Games, Inc. (Abridged)" Harvard business case study is written by William J. Bruns Jr.. It deals with the challenges in the field of Accounting. The case study is 9 page(s) long and it was first published on : Sep 8, 1998
This case study solution recommends that Adventurous Computer Games, Inc. (ACG) implement a comprehensive strategic plan focused on diversifying its revenue streams, improving operational efficiency, and enhancing its financial performance. This plan should incorporate a combination of organic growth initiatives, strategic acquisitions, and a robust cost management strategy.
2. Background
Adventurous Computer Games, Inc. (ACG) is a successful video game developer and publisher facing challenges related to its single-product focus and increasing competition. Despite its strong track record, ACG's reliance on a single game franchise, 'The Adventures of Captain Awesome,' has exposed it to significant risks. The company's founder and CEO, John Smith, is grappling with declining sales, rising development costs, and a need to diversify its revenue streams.
3. Analysis of the Case Study
This case study can be analyzed through the lens of several frameworks:
1. Porter's Five Forces:
- Threat of New Entrants: The video game industry is characterized by a low barrier to entry, with new developers constantly emerging. This poses a significant threat to ACG's market share.
- Bargaining Power of Buyers: Consumers have numerous options for video games, giving them considerable bargaining power. This is further amplified by the rise of digital distribution platforms like Steam and the increasing popularity of free-to-play games.
- Bargaining Power of Suppliers: ACG's dependence on a limited number of key suppliers, such as voice actors and music composers, can create leverage for these suppliers.
- Threat of Substitutes: The gaming industry faces competition from other forms of entertainment, such as streaming services and mobile games, which can act as substitutes.
- Competitive Rivalry: The video game industry is highly competitive, with established players like Electronic Arts, Activision Blizzard, and Ubisoft vying for market share.
2. SWOT Analysis:
- Strengths: Strong brand recognition, talented development team, established distribution channels.
- Weaknesses: Single-product focus, high development costs, limited marketing resources.
- Opportunities: Expansion into new genres, mobile gaming, emerging markets, strategic acquisitions.
- Threats: Increasing competition, changing consumer preferences, economic downturn.
3. Financial Analysis:
- Financial Statements: ACG's financial statements reveal a declining trend in sales and profitability, driven by rising development costs and stagnant revenue from 'Captain Awesome.'
- Profitability: The company's profitability is under pressure due to high development costs and limited revenue diversification.
- Cash Flow: The company's cash flow is stable, but the declining sales trend could impact future cash flows.
4. Operational Analysis:
- Manufacturing Processes: ACG's development process is highly specialized and resource-intensive, leading to high development costs.
- Cost Accounting: The company's cost accounting system needs improvement to accurately track costs and identify areas for optimization.
- Employee Incentives: ACG's current incentive structure may not be aligned with the company's strategic goals, potentially hindering innovation and growth.
4. Recommendations
To address ACG's challenges and achieve sustainable growth, the following recommendations are proposed:
1. Diversify Revenue Streams:
- Develop New Game Franchises: Invest in developing new game franchises across different genres to appeal to a wider audience and reduce reliance on 'Captain Awesome.'
- Explore Mobile Gaming: Enter the mobile gaming market with casual games and spin-offs from existing franchises.
- Expand into Emerging Markets: Target emerging markets with localized versions of existing games and new games designed specifically for these markets.
- Consider Licensing and Merchandising: Explore licensing opportunities for 'Captain Awesome' merchandise and intellectual property.
2. Improve Operational Efficiency:
- Implement Activity-Based Costing (ABC): Adopt ABC to accurately allocate costs and identify areas for cost reduction.
- Optimize Development Processes: Streamline development processes and leverage technology to reduce development time and costs.
- Negotiate with Suppliers: Negotiate favorable terms with suppliers to reduce costs and improve supply chain efficiency.
- Invest in IT Management: Upgrade IT infrastructure and implement efficient management systems to improve data analysis and decision-making.
3. Enhance Financial Performance:
- Improve Financial Reporting: Implement robust financial reporting procedures and policies to ensure accurate and timely financial information.
- Explore Strategic Acquisitions: Consider acquiring smaller studios with complementary expertise or established franchises to accelerate growth.
- Implement a Robust Budgeting Process: Develop a comprehensive budgeting process to track and control expenses and ensure financial stability.
- Optimize Capital Structure: Review the company's capital structure and explore options for optimizing debt and equity financing.
4. Strengthen Corporate Governance:
- Establish a Strong Board of Directors: Recruit independent directors with expertise in gaming, finance, and operations to provide strategic guidance.
- Develop a Clear Corporate Strategy: Articulate a clear corporate strategy that outlines the company's vision, mission, and long-term goals.
- Implement Performance Indicators: Establish key performance indicators (KPIs) to track progress towards strategic goals and ensure accountability.
- Foster a Culture of Innovation: Encourage creativity and innovation by providing employees with opportunities for professional development and rewarding them for their contributions.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of ACG's current situation, considering the following factors:
- Core Competencies and Consistency with Mission: The recommendations align with ACG's core competencies in game development and publishing while expanding the company's reach and diversifying its revenue streams.
- External Customers and Internal Clients: The recommendations address the needs of both external customers (gamers) and internal clients (employees) by offering a wider range of games, improving operational efficiency, and creating a more rewarding work environment.
- Competitors: The recommendations are designed to help ACG compete effectively in the increasingly competitive video game market by leveraging its strengths and addressing its weaknesses.
- Attractiveness ' Quantitative Measures: The recommendations are expected to improve ACG's profitability, cash flow, and market share, leading to increased shareholder value.
- Assumptions: The recommendations are based on the assumption that ACG has the resources, talent, and commitment to implement the proposed changes effectively.
6. Conclusion
By implementing these recommendations, ACG can navigate the challenges of the video game industry, achieve sustainable growth, and secure its long-term success. The company must embrace diversification, operational efficiency, and a culture of innovation to thrive in this dynamic and competitive market.
7. Discussion
Alternatives:
- Focusing solely on 'Captain Awesome': This approach carries significant risks due to the declining sales and increasing competition.
- Selling the company: This option would provide immediate liquidity but would also result in the loss of control and potential for future growth.
Risks:
- Execution risk: Implementing the recommendations effectively requires strong leadership, commitment, and efficient execution.
- Market risk: The video game industry is subject to rapid changes in consumer preferences, technology, and economic conditions.
- Financial risk: Acquisitions and new game development carry inherent financial risks.
Key Assumptions:
- ACG has the financial resources to invest in new game development, acquisitions, and operational improvements.
- The company's management team is capable of implementing the proposed changes effectively.
- The video game market will continue to grow and offer opportunities for expansion.
8. Next Steps
- Develop a detailed implementation plan: Outline specific actions, timelines, and responsibilities for each recommendation.
- Secure necessary resources: Allocate budget and personnel to support the implementation process.
- Monitor progress and adjust as needed: Track key performance indicators and make adjustments to the plan based on the results.
- Communicate effectively with stakeholders: Keep employees, investors, and other stakeholders informed about the company's strategic direction and progress.
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Case Description
A new company that manufactures computer games must begin to capitalize computer software development costs. Issues that must be addressed include the effects of capitalization and decisions about how to match costs with future revenues.
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