Harvard Case - Sierra On-Line (A)
"Sierra On-Line (A)" Harvard business case study is written by G. Peter Wilson, Elizabeth H. McNair. It deals with the challenges in the field of Accounting. The case study is 27 page(s) long and it was first published on : Mar 24, 1993
At Fern Fort University, we recommend that Sierra On-Line (SOL) implement a comprehensive strategic plan to address the challenges posed by the rapidly evolving video game industry. This plan should focus on: 1) streamlining its organizational structure and decision-making processes, 2) adopting a more data-driven approach to game development and marketing, 3) expanding its product portfolio to include online multiplayer games, and 4) exploring strategic partnerships and acquisitions to enhance its competitive position.
2. Background
Sierra On-Line (SOL), a leading developer and publisher of computer games, faced significant challenges in the late 1990s. The company's traditional business model, focused on single-player, boxed software, was being disrupted by the rise of online gaming and the increasing popularity of console platforms. SOL's internal structure, characterized by a decentralized and siloed approach, hindered its ability to respond effectively to these changes.
The case study highlights the key protagonists:
- Ken Williams: CEO and co-founder of SOL, known for his visionary leadership and strong product development focus.
- Roberta Williams: Co-founder and creative director, responsible for the company's iconic game franchises like King's Quest and Leisure Suit Larry.
- Bob 'The Colonel' Coates: A seasoned executive brought in to streamline operations and improve financial performance.
- The Board of Directors: Concerned about SOL's declining profitability and the need for a more strategic approach to the changing market.
3. Analysis of the Case Study
The case study can be analyzed using a combination of frameworks:
1. Porter's Five Forces:
- Threat of new entrants: High due to the low barriers to entry in the video game industry.
- Bargaining power of buyers: Moderate, as consumers have multiple gaming options available.
- Bargaining power of suppliers: Low, as the industry relies on readily available technology and talent.
- Threat of substitute products: High, with the rise of online games and console platforms offering diverse gaming experiences.
- Competitive rivalry: Intense, with numerous established players and new entrants vying for market share.
2. SWOT Analysis:
- Strengths: Strong brand recognition, established game franchises, talented development team.
- Weaknesses: Decentralized structure, slow decision-making, limited online gaming experience, lack of marketing focus.
- Opportunities: Growing online gaming market, potential for new game genres, strategic partnerships and acquisitions.
- Threats: Increasing competition, evolving consumer preferences, changing technology landscape.
3. Financial Performance Analysis:
- Declining profitability: SOL's financial statements show a decline in revenue and profit margins, indicating a need for cost optimization and revenue growth strategies.
- High operating expenses: The company's decentralized structure and inefficient processes contribute to high operating expenses.
- Limited investment in new technologies: SOL's reluctance to invest in online gaming and new platforms limits its growth potential.
4. Recommendations
To address SOL's challenges, we recommend the following:
1. Streamline Organizational Structure and Decision-Making:
- Centralize decision-making: Establish a centralized management team with clear lines of authority to facilitate faster and more coordinated decision-making.
- Promote cross-functional collaboration: Encourage collaboration between development, marketing, and finance teams to ensure alignment and efficient resource allocation.
- Implement a matrix structure: Adopt a matrix structure to leverage expertise across different departments and foster innovation.
2. Embrace Data-Driven Approach:
- Invest in analytics and data collection: Implement robust data collection and analysis systems to track customer behavior, game performance, and market trends.
- Utilize data for informed decision-making: Use data insights to guide game development, marketing campaigns, and strategic planning.
- Develop key performance indicators (KPIs): Establish clear KPIs to measure the success of new games, marketing initiatives, and overall business performance.
3. Expand Product Portfolio:
- Develop online multiplayer games: Invest in developing online multiplayer games to tap into the growing online gaming market.
- Explore new game genres: Expand into new game genres, such as role-playing games (RPGs) and first-person shooters (FPS), to attract a wider audience.
- Leverage existing franchises for online expansion: Adapt existing game franchises for online play, offering new content and gameplay experiences.
4. Strategic Partnerships and Acquisitions:
- Partner with online gaming platforms: Establish partnerships with online gaming platforms to gain access to their user base and distribution channels.
- Acquire smaller studios: Acquire smaller studios with expertise in online gaming or specific game genres to expand SOL's capabilities.
- Explore joint ventures: Form joint ventures with other companies to share resources, expertise, and market access.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: SOL's core competency lies in game development, and these recommendations leverage that strength while adapting to the changing market landscape.
- External customers and internal clients: The recommendations address the needs of external customers by providing engaging online gaming experiences and cater to the needs of internal clients by promoting collaboration and efficiency.
- Competitors: The recommendations aim to position SOL as a leader in the online gaming space by adopting best practices and leveraging strategic partnerships.
- Attractiveness: The recommendations are expected to increase revenue, improve profitability, and enhance SOL's competitive position.
6. Conclusion
By implementing these recommendations, Sierra On-Line can adapt to the evolving video game industry, enhance its competitive position, and achieve sustainable growth. The company needs to embrace change, invest in new technologies, and leverage its core competencies to stay ahead of the curve.
7. Discussion
- Alternative Options: SOL could also consider a complete shift to online gaming, focusing solely on developing and publishing online games. However, this would require significant investments and a complete overhaul of the company's business model.
- Risks: The recommendations involve risks such as increased competition, technological disruption, and the potential for unsuccessful partnerships or acquisitions.
- Key Assumptions: The recommendations assume that SOL has the financial resources and internal capabilities to implement the proposed changes.
8. Next Steps
- Develop a detailed strategic plan: Outline specific goals, timelines, and resource allocation for each recommendation.
- Form a task force: Establish a cross-functional task force to oversee the implementation of the strategic plan.
- Communicate the plan to stakeholders: Communicate the strategic plan to employees, investors, and other stakeholders to gain buy-in and support.
- Monitor and evaluate progress: Regularly monitor and evaluate the progress of the implementation plan and make adjustments as needed.
By taking these steps, Sierra On-Line can successfully navigate the challenges of the evolving video game industry and position itself for long-term success.
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Case Description
Sierra On-Line, a fast growing software developer, is criticized by a Forbes journalist for excessively capitalizing software development costs. In contrast to most other software developers that typically capitalize about 20% of R&D costs, Sierra capitalizes 80%. Questions investors must address in valuing Sierra include: Does Sierra's account reflect economic reality? Is their accounting too aggressive or are their competitors too conservative? Is Sierra's business sufficiently different from its competitors to invalidate the comparison?
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