A Proposition of Strategic Business Plan for Destiny Star.
Module Number: MGT6850
Name of Project:
A Proposition of Strategic Business Plan for
Destiny Star
6th May, 2003
Mohamud, Mohamed
Watanbe, Hisaya
Makimura, Takashi
Jaiswal, Abhishek
Kannath, Sanjaya Rao
Sheffield University Management School
Executive Summary
Destiny Star is a start-up formed in 2002 to commercialise the ideas of a student who won the Sheffield Award in the White Rose Centre for Enterprise business plan competition. The company's strength lies in its core product, the Starlight system. The company's main target market is pcPC-based online gaming.
The objectives of the project are: to evaluate the potential market and competitive environment of Destiny Star's products; to review the existing business plan and link it to the market; to analyse and critique the company strategy; and to propose recommendations and suggest implementation strategies.
The empirical research started with the team reading Destiny Star's business plan in order to gain an insight into the company's processes, strategies, products and potential markets. In addition, interviews were conducted over a two month period between March and May with the Managing Director and the Finance Director. General information on the market and the competition was collected fromcollected from secondary data such as competitors' websites, government and industry reports.
The project, first, analysed the competitive environment of Destiny Star, its internal resource, its value chain/system, SWOT, and then, aiming at overcome its weakness and emphasize its strength, six potential strategies were analysed and two viable strategies were identified.
The internal and external analysis models used such as Five Forces Analysis, Value Chain analysis, Value System, and SWOT analysis reveal two client groups with different needs: the industrial market (B2B), which consists of application developers and publishers, and, the consumer market (B2C), which is the casual game user and individual game creators. The competitive environment based on Porter's Five forces model was conducted for both B2B and B2C markets. The B2B analysis indicates high barrier to entry, high buyer power, no supplier, high threat of substitution, and high rivalry. The B2C analysis indicated high barrier to entry, low buyer power, low supplier power, high threat of substitution, and high rivalry. The internal resource audit of Destiny Star showed mixed results, with physical proximity to Sheffield University being strength, while lack of marketing expertise and limited financial resources being weaknesses. SWOT analysis had similar results, but external opportunities and threats highlighted the rapid growth of the industry and the fact that there small developers with lower competence as potential opportunities. The main threat is the existence of more established and better financed competitors like Zona, Gamespy and NTT. Destiny Star's Value Chain analysis suggest the need to integrate functions like technology and procurement as well as inbound logistics and operations. The value system analysis for B2B focuses on collaboration with the distribution channel as there is no supplier. The value system analysis for B2C, involving the entire supply chain from suppliers to game creator communities, suggests strengthening of links with game creator communities. Additionally, the analysis produced a number of Critical Success Factors, which are essential for the survival of Destiny Star. These are: a strong marketing function, strategic partnerships, customer relationship management, cost control, and security.
After the series of analysis, aiming at overcoming the limited resources and emphasizing Destiny Star's competitive advantage, that is, communication middleware, six potential strategies have been considered; strong promotion strategy, vertical expansion strategy, vertical alliance strategy, horizontal alliance strategy, enclosure strategy of customers, the combination strategy of horizontal alliance and customer enclosure. Then, two promising strategies, vertical alliance strategy and the combination strategy have been identified and the critical success factors (CSFs) for the two strategies analysed.
The recommendations include both general business suggestions and specific recommendations geared towards B2B and B2C markets. The general recommendations are that Destiny Star should focus on its core product, namely, communication middleware, the use of external resources, enhancing the management team, and a clear vision.
The B2B recommendations are vertical alliance strategy with publishers and application developers and the outsourcing of marketing to Mango Tree. The B2C suggestions are a combination of horizontal alliance with editing tool middleware firms and the links with community circle of creators, and employing a marketing expert. Further, action plans for Destiny Star has been suggested.
Contents List
Executive Summary 1
Contents List 3
Introduction 4
Methodology of research 4
Limitation of this project 4
. Game business overview 5
2. Five force analysis about game middleware industry and online game creation product industry 6
Five force analysis for industrial market 76
Five force analysis for consumer market 07
3. Internal resource analysis and value chain/system of Destiny Star 18
Resource audit for Destiny Star 18
Value chain/system of Destiny Star 310
4. SWOT analysis of Destiny Star 714
5. Position of Starlight System in the market 815
6. Business strategy 815
Concentrating on the core product and using external resources 916
Alternatives of business strategy 1017
7. Critical success factors analysis for Destiny Star 1219
Critical success factors for Destiny Star 1219
Strategic partnership 1320
Strong marketing function 1522
Customer relationship marketing 1623
Branding 1724
Security 1724
Recommendations 1824
Action plan 1925
Appendices 2026
Appendix 1. Terms of reference 2026
Appendix 2. Useful website list 2428
Reference 2630
Introduction
Destiny Star is a start-up formed in 2002 to commercialise the ideas of a student, who won the Sheffield Award in the White Rose Centre for Enterprise business plan competition. The company's main target market is pc-based online gaming.
The project was undertaken with the following objectives:
> Evaluate the potential market and competitive environment of Destiny Star's products
> Review the existing business plan and link it to the market
> Analyse and critique the company strategy
> Propose recommendations and suggest implementation strategies.
Methodology of research
The empirical research started with the team reading Destiny Star's business plan in order to gain an insight into the company's processes, strategies, products and potential markets. Information about the company was obtained through interviews per week conducted over a two month period between March and May with the Managing Director and the Finance Director. Any follow-up or clarification of issues was done using E-mail. General information on the market and the competition is secondary data from competitors' websites, government and industry reports.
The theory is based on literature reviews and journal articles on technology management, marketing and strategy. First, the project analysed the competitive environment of Destiny Star. Second, the internal analysis was conducted using resource audit. Third, the value chain/system was analysed. Fourth, SWOT analysis was carried out based on the firm's internal strengths and weaknesses as well as external opportunities and threats. Fifth, a number of potential strategies were identified and critical success factors established. Sixth, a number of recommendations were generated. Finally concrete action plans were suggested.
Limitation of this project
There were some limitations in this project
Our perspective
> Time constraints: Only about two months
> Project budget limitation: Some secondary data was not free.
Company perspective
> Not in business yet: Inappropriate analysis of company in actual business
> Change in investor's investment plan: Difficulty to make certain financial and product development plan
. Game business overview
According to Department of Trade and Industry (DTI, 2002), the global games software market is estimated to be worth approximately £10bn.
The PC games market is predicted to grow by 15% CAGR (Compound Annual Growth Rate) over the next five years in volume terms. But the downward pressure on retail prices is expected to significantly slow, if not halt in the overall value of this market with only 6% CAGR growth expected (Spectrum games industry forecasts).
The UK is the largest games software market in Europe and the third largest in the world. Valued at £0.93 billion in 2000, the UK represented 26% of the total European games software market, and 8.7% of the world market. This is compared to the US and Japan markets which represented 36% and 20% of the total market value respectively in 2000. This is due primarily to the significantly higher penetration of games consoles and larger populations in Japan and the US.
One of the major developments beginning to occur in the games market is the growth of new platforms for games playing. The PC and console platforms form the bulk of the market for games at the moment and are likely to do so for the foreseeable future, other platforms such as digital TV, mobile and the Internet are now emerging.
Games are amongst the most popular interactive services delivered through digital TV. This market is valued in Europe, the US and Japan at £0.38bn in 2001 and is expected to grow to £1.75bn by 2005.
The online games market in Europe, the US and Asia is valued to be £0.5bn in 2001, and is predicted to grow to £0.89bn by 2005. The key driver of demand for online gaming is the availability of cheap, reliable broadband connectivity. Asia mainly drives online gaming, followed by the US. The UK contributes only a tiny fraction of this for the first few years, as broadband connectivity is highly limited. Online, networked gaming has the potential to turn games playing from a largely solitary activity to a social one involving potentially thousands of other concurrent players located around the globe. To date, this has been largely the province of PC games but the new generations of consoles either have online connectivity built-in or have it planned thereby opening newer channels for spread of online gaming.
The value chain system of game industry is shown in Figure 1. Like publishing industry, this industry consists of developer, publisher and retailer. However, like car industry, many parts manufacturers also exist. In addition, the manufactures of platform such as console and license holders are important players in this industry.
Figure 1 Value chain system of game industry
2. Five force analysis about game middleware industry and online game creation product industry
Currently, Destiny Star with its advanced communication middleware aims to enter industrial market and consumer market. So, first , the competitiveness of communication ...
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The value chain system of game industry is shown in Figure 1. Like publishing industry, this industry consists of developer, publisher and retailer. However, like car industry, many parts manufacturers also exist. In addition, the manufactures of platform such as console and license holders are important players in this industry.
Figure 1 Value chain system of game industry
2. Five force analysis about game middleware industry and online game creation product industry
Currently, Destiny Star with its advanced communication middleware aims to enter industrial market and consumer market. So, first , the competitiveness of communication middleware industry and online game creatior industry is analysed.
Porter's Competitive Forces Model is the most widely used framework for an assessment of the condition of the industry. The strongest forces become crucial from the point of view of strategy formulation. According to Porter (1980), following five forces influences the industry.
) Barriers to Entry
2) Supplier Power
3) Threat of Substitute
4) Buyer Power
5) Industry Rivalry
Figure 2. shows five force analysis on communication middleware. And Figure 3. shows five force analysis on pc based game creator software industry.
Five force analysis for industrial market
Figure 2 Five force analysis on communication middleware industry
Through this analysis, we cans say:
Positive factors Destiny Star
> Destiny star has advantage of experience and learning. Being in the industry has helped the company to be matured in terms knowledge of technology and market. The company has to invest its resources in the further development of its core technology..
Destiny Star has an advantage due to its relative high quality product and low cost of its communication software. Negative factors for Destiny Star
> In order to enter and establish itself in a new market, Destiny Star requires a high investment, which is a challenge for it considering the lack of funding due to reduced investor interest in the I.T sector.
> Established players like Zona, NTT, Gamespy, would offer tough competition to Destiny Star.
Five force analysis for consumer market
Figure 3 Competitive analysis on B2C
Through this analysis, we cans say:
Positive factors for Destiny Star
> Destiny Star has advantage of experience and learning. Being in the industry has helped the company to mature in terms of knowledge of the technology and market..
Negative factors for Destiny Star
> In order to enter and establish itself in a new market, Destiny Star requires a high investment, which is a challenge for it considering the lack of funding due to reduced investor interest in the I.T sector.
3. Internal resource analysis and value chain/system of Destiny Star
Resource audit for Destiny Star
A resource audit identifies and classifies physical, financial, human and intangible resources that an organization owns or can access to support its strategies. (Johnson et al. 1999) In addition, firms can identify the need for resource. (Tushman et al. 1997)
Physical resource
> Certain facilitiesto develop products (e.g. Computers)
> Office is located in Sheffield University's venture incubator.
> Over summer Destiny Star will move Manchesterto have access to the grant and also to be close to investors.
Human resource
> Lack of marketer and service manager.
* Only gray boxes are in the firm at the moment. White boxes will be filled after the firm will make revenue. 3 month time after investment, specialist of marketing and sales will be on the board of executive
Organisation Structure
Graeme Wilson: Destiny Star's acting managing director
Michael Wilson: the company founder and technical director.
Charles Crowe: Destiny Star's financial director
David Catton: becoming actively involved with Destiny Star shortly after it became a commercial venture
Financial resource
Initial investment seems to be a serious problem for Destiny Star. At least, procuring the initial investment is essential for their survival. However, its almost certain that the minimum investment would be procured by the company in future.
> Approximately £20,000 of private investment and £25,000 from the White Rose seed-corn fund
> £100,000 will be provided by SMART match funding
> To fill in the shortfall in funding for the testing of the software, Destiny Star needs another £300000.
Intangible resource
> The core Starlight system is complete and tested internally
> The network and services modules development for the Starlight research project is complete and only needs minor upgrading.
It is considered that there are four important characteristics of communication middleware for online game; cost performance for publisher, scalability, security, performance. Destiny Star has technological advantage in cost performance and scalability.
According to this analysis, Destiny Star is almost ready for B2B.
On the other hand, Game creation software is still under construction.
> The graphics and sound modules need to be seriously improved
> The content editing facilities are currently undergoing a full redevelopment.
(The company plans to overcome thses problems by integrating a third party software..)
> The current test game is not of release quality, although several others are under production. E.g. Shooting game.
> Although there is already a considerable amount of good quality design documentation, end-user documentation and marketing materials are yet to be prepared.
Same as competitors' or easy to imitate
Better than competitors' and difficult to imitate
RESOURCES
* Facilities (Computers and so on... for developing the technology)
* University (location, human capital, intellectual resource)
COMPETIENCE
* Game Software development
* Starlight system
* Technology with starlight system
* System developers
Table 1 Resource audit for Destiny Star
Core competence
There are competences in the organisation's ability to overcome competition or to provide value for money. They may also be the basis on which new opportunities are created. (Johnson et al. 1999). From resource analysis, it is inferred that Starlight system of Destiny Star should be its core competence. (Table.1) However, the exploitation of this technology is not enough. To utilize core competence effectively, further competitive levels should be considered for Destiny Star.
Value chain/system of Destiny Star
Value Chain
Destiny Star is based on accumulation of technological knowledge. The basic tool to understand competitive advantage of firm's technology is its value chain. (Porter 1980). The value chain is a basic tool to analyse competitive advantages and find ways to create and sustain them. It also shows total value activities and margin within and around an organization. (Johnson et al. 1999, Porter 1980). Linkages of each activity can lead to two competitive advantages: optimisation and coordination. (Porter 1980)
Figure 4 Value chain of Destiny Star on B2B
From Figure 4., now university is the only certain resource for Destiny Star. Other sources are still uncertain. Value chain analysis shows that the integration of technology development to marketing and sales are key success factor for Destiny Star. As the company may not have certain resources for integration, therefore, contracting such resources from outside seems to be inevitable for the company to have an integration in certain constituents of its value chain.
Figure 5 Value chain of Destiny Star for B2C
From Figure 5., Current resource is only university. Other resources are uncertain as well in the value chain for B2B. In this value chain, the different parts need to integrate. For games created by game creator, it will need to integrate procurement to technology development. In addition, for game creator software, the horizontal integration from inbound logistics to operation will be required.
Value system
A firm's value chain is embedded in a large stream of activities, that is the value system. (Porter 1980). The influence of performance of other organizations in value chain may be critically important for competence and a source of competitive advantage. Also to protect resources, competitive advantages for the future should be generated by managing linkages in the wider value system. (Johnson et al. 1999). Thus, understanding and finding strategic construction of value system for Destiny Star may be a significant success factor for it.
Figure 6 Value chain of Desiny Star for B2B
As Destiny Star has developed the core product 'the communication middleware' in-house, Destiny Star may not have any B2B supply chain. Therefore, our analysis is only focused on the distribution channel. As Figure 6. shows the target customers are developers and publishers. In terms of modern marketing concept for distribution channel, Destiny star should communicate with end users as much directly as possible.
As Figure 6. shows mainly three effective distribution channels are considered. First is Destiny Star to customers directly. This reduces contractual costs with middlemen and also allows feedback from customers quickly and accurately. However, finding customers and making contracts takes a long time. Second is distribution channel via associations. Associations tend to already have scale of economy and their own distribution channels. While this reduces time and allows the firm to reach certain customers easily, contractual fee is normally expensive. Third one is to use of intermediaries. Intermediaries also already have scale of economy but have cheaper contractual fee compared to associations. However, they may lack technological knowledge.
Figure 7 Value chain of Destiny Star for B2B
Game creation software is the company's main product for B2C. However, this product does not integrate with its core product 'the Starlight System'. So, the company can rather buy the game creation component from a third party. Destiny Star already has specific technology knowledge. The game creation components be integrated properly for user's taste. Therefore, buying components for software should be directly from suppliers as possible. This reduces cost of purchasing. In distribution chain, it is difficult to sell and gather game creators as end users in initial stage. As Figure 7. shows, in distribution channel, we strongly recommend that Destiny Star should communicate with game communities. In particular, online world this way is effective way. This strategy is introduced in the section of business strategy.
Meeting external activities is considered to play a key role of competitive advantage. According to Porter (1980), alliance could be the effective competitive advantage of value system. Alliance involves coordinating or sharing value chains with partners. We suggest that Destiny Star must have alliances with some partners for B2B and B2C. This suggestion will be discussed in detail in the section of critical successful factors.
4. SWOT analysis of Destiny Star
The process of assessing advantage plays a central role in strategic marketing planning and it
normally used. SWOT looks at the internal (strengths & weaknesses) and the external (opportunities & threats) environments (Baker, 1996).
The goal of SWOT analysis is to enhance the strengths and exploit the opportunities while at the same time reducing weaknesses and tackling threats. SWOT analysis on Destiny Star has given the following result as summarised in the table below.
Strengths
* Starlight platform is based on proven university research and is more advanced than competitors
* Proximity to the university
* Ability to develop communication technology software
Weaknesses
* Lack of financial resources
* Shortage of human resources, e.g. marketing and sales
* No partnerships and alliances
* Not licensed or patented yet
Opportunities
* The market is growing rapidly
* Many small application developers with no bargaining power
* Large publishers are buying companies like Destiny Star
Threats
* Established and better financed competitors such as Zona, NTT, gamespy who offer the same technology and service
* Investors may be wary of any IT-related investments, given the failure of many IT companies. Scepticism is even more towards gaming companies
Table 2 Destiny Star SWOT analysis
5. Position of Starlight System in the market
Figure 8 shows that an original model was created for the project to locate the relative competitive strengths of the Star light system and the products of Destiny Star's main competitors, Gamespy and Zona. Cost and scalability are Starlight's strengths. The competitors' advantages lie in performance in the case of Gamespy, and, scalability/reliability for Zona.
Figure 8 Position of Starlight System in the market
6. Business strategy
Tidd et al (2001) have found three technology paths in small firms. To be precise, they suggest four, but the fourth is ignored here because it is not relevant to Destiny Star.(Table 3) Obviously, Destiny Star is a start-up middleware industry. According to the authors, a new technology-based firm needs to decide which path it choose, i.e. whether to become a superstar or a specialized supplier. At present, Destiny Star can choose either of the options. (Table 3)
Table 3 Categories of innovating small firms (adapted from Tidd et al, 2001)
Concentrating on the core product and using external resources
Whichever strategy Destiny Star will choose, the core product is the communication middleware and it can be defined as a software developer. Zahra and Bogner (2000) have pointed five factors that affected software start-ups' success;
* Level of R&D expenditure,
* How radical new products were,
* The intensity of product upgrades,
* Use of external technology,
* Management of intellectual property.
Among these factors, especially, from the second to the fourth were associated with the profitability and market share growth. These factors have been suggested by other literature including Kerin et al (the importance of the radicality of the venture's new products, Tidd et al, 1992), Dodgson (frequent upgrades, Tidd et al, 1993) and Leonard-Barton (the use of the external sources of technology, Tidd et al, 1995). In the rapidly growing industry like software industry, large investment and significant feature of products has been required. Therefore, in other words, it can be concluded that concentrating Destiny Star's resources on its core product is a viable strategy.
Conversely, in order to concentrate the resources on its core product, the effective usage of external technology is necessary. Alliance can be a good option. UMIST (Tidd et al, 2001)'s survey shows that when the reason of alliance is to reduce cost and time it tend to be successful. Further, strategic alliance will be discussed in the section of critical success factors for Destiny Star.
Alternatives of business strategy
The strategies we discussed are as follows:
For industrial market, i.e. B2B business,
Strategy 1. Strong sales promotion,
Strategy 2. Vertical expansion,
Strategy 3. Vertical alliance.
For individual market, i.e. B2C business,
Strategy 4. Horizontal alliance,
Strategy 5. Enclosure of game creators,
Strategy 5+4. The combination of Strategy 4 and 5.
In the industrial market, publishers are concentrated and have relative high bargaining power.
Strategy 1 is a sales promotion strategy to publishers. As publishers have large scale of economy, heavy budget for sales promotion is required. Many company are failure to increase profit by sales promotion with huge investment. (Low et al, 2000).
Strategy 2 is the current strategy of Destiny Star that is to expand its business activity in the vertical direction. This strategy requires huge investment and be risky. According to DTI report (2001), the average development budget for a premium console title is now in the range of £1-2m and requires a team of at least 20 people working for 18-24 months. UK teams tend to be smaller than US teams and much smaller than Japanese teams.
In addition, game market has been said to be hit-driven and is becoming ever more hits driven. The same DTI report says that 3000 games was reported to have been released in 2000 and the top 99 titles of them (3.3% of development) accounted for 55% of all sales. Game industry tends to be gambling.
Strategy 3 is a strategy to overcome the disadvantage of Strategy 2 and aims to reduce the time and cost of development through alliance with relatively low risk. The alliance may well lose total control of development and managerial transaction cost tends to go up. Partnering smaller publishers and developer seems to be a promising strategy. Smaller publishers also face the limitation of resource and can complement their resources through the alliance. The communication middleware of Destiny Star has a large advantage of enabling publishers to reduce their communication cost and involve tens of thousands of people in their game. Therefore, the strategic alliance with smaller publishers and developer seems to be theoretically superb.
Individual market is a scattered market and buyers have relatively lower bargaining power.
Strategy 4 aims to reduce the time and cost of development of Star Light System through alliance with middleware developers in order to launch the product as soon as possible. However, many middleware developers are established as specialized suppliers and they may not appear to have any active motivation to have alliance. Therefore, it would be difficult to build win-win relationship based on mutual benefits.
Strategy 5 focuses on marketing. In consumer market, marketing activity affects significantly the financial result of a company. Especially, game market is hit-driven mass-market and then sophisticated marketing is essential. Individual game creator seems to be loyal customers because they want to make their own games. However, the customers are few and widely scattered. Therefore, the creation of a community circle of game creators is a viable strategy.
Hill and Rifkin (1999) have pointed the ten rules of radical marketing, which involves an activity of creating a community of consumers. (Table 4) As online marketing become common, many companies try to maintain direct communication via the Internet. Their websites often offer a chatting room for customers to communicate each other.
Therefore, entering this market by setting up a community circle of game creator and serving the community closely seems to be a viable strategy.
Strategy 5+4 (Strategy 5 and Strategy 4) allows customers to customize their own game more in detail and enables the partners of alliance to access the information of customers directly. Destiny Star also can benefit from the partners and customers as this is explained above.
To sum up, Strategy 1 and Strategy 2 request large investment, more than one year for product development and seems to be quite risky. Consequently, based on the idea of concentrating on the core product and using external resources, Strategy 3 seems to be a good alternative. Similarly, Strategy 5+4 seems to be the better strategies because Strategy 4 and Strategy 5 look at supplier side and buyer side respectively. Therefore, the combination strategy may well enable Destiny Star to build a sound value system. As a result, in the following sections, Strategy 3 and 5+4 are discussed for the industrial market and the individual market respectively.
. The CEO must own the marketing function. CEOs of radical marketers never delegate marketing responsibility; they typically act like de fact chief marketing officers.
2. Make sure the marketing department starts small and flat and stays small and flat. In order to stay involved with marketing, CEOs must not allow layers of management to grow so numerous that they distance them from the market.
3. Get face-to-face with the people who matter most - the customers. For radical marketers, "'face-to-face' is a mantra." They know he advantages of direct interaction with customers.
4. Use market research cautiously. Market research typically tells a marketer what the average customer wants. Radical marketers prefer grassroots techniques.
5. Hire only passionate missionaries. Radical marketers "don't have marketers, they have missionaries"
6. Love and respect your customers. Radical marketers respect customers as individuals, not as numbers on a spreadsheet. They recognize that the core customers are responsible for the bulk of their companies' successes.
7. Create a community of consumers. Radical marketers "encourage their customers to think of themselves as a community, and of the brand as a unifier of that community."
8. Rethink the marketing mix. Radical marketers' marketing techniques often differ dramatically from those used by traditional marketers. For example, traditional marketers seek to reach broad audiences via large-scale advertising, while radical marketers use "surgical strike advertising" characterized by short, targeted ad campaigns.
9. Celebrate common sense. Smaller companies with limited resources cannot hope to compete with larger competitors without fresh and different marketing ideas. So radical marketers, for example, limit distribution in order to create loyalty and commitment among their distributors and among their customers.
0. Be true to the brand. Radical marketers "are obsessive about brand integrity, and they are fixated on quality.
Table 4 The ten rules of radical marketing (Source: Hill and Rifkin, 1999.)
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7. Critical success factors analysis for Destiny Star
Critical success factors are discussed by using Johnson et al (1999)'s balanced scorecards with taking into account competence-based approach and external related factors approach (Table 5 and 6).
Competence-based approach is knowledge-based and looks at CSF from various dimensions, including employee's technical knowledge and skills and managerial control system. (Jensen & Harmsen, 2001). The external success factors approach considers security, successful partnership, easy and affordable access and customer acceptance of the software as critical (Eid et al 2002).
Critical success factors for Destiny Star
Balanced scorecards combine both qualitative and quantitative measures, acknowledge the expectations of different stakeholders and relate an assessment of performance to choice of strategy. (Johnson et al. 1999).
Financial Perspective
Customer Perspective
CSF
CSF
* Funding and cost control
* Strategic partnering (reduction of cost and sharing assets)
* Branding strategy
* Strategic partnering (development of competent strength, sharing distribution channel)
* Having marketing function
Internal Perspective
Innovation and learning perspective
CSF
CSF
* Technical knowledge and skills of employees
* Managerial skills
* Securities for technology
* Strategic partnering (sharing knowledge)
Table 5 Balanced scorecards for B2B for Destiny Star (Adapted from Johnson et al. 1999:468)
Financial Perspective
Customer Perspective
CSF
CSF
* Funding and cost control
* Strategic partnering (reduction of cost and sharing assets)
* Branding strategy
* CRM
* Having marketing function
Internal Perspective
Innovation and learning perspective
CSF
CSF
* Technical knowledge and skills of employees
* Managerial skills
* Securities for technology
* Strategic partnering (sharing knowledge)
Table 6 Balanced scorecards for B2C for Destiny Star (Adapted from Johnson et al. 1999:468)
Strategic partnership
A firm can obtain the benefits of an integral scope internally, or the benefits of coalitions with independent firms to achieve some or all of the same benefits. (Porter 1985) In addition, alliance is very efficient because firms cannot always deal with considerably complex environments from internal resources and competence alone. (Johnson et al. 1999) The most important thing may be that strategic partnering allows firms to go beyond normal market transactions by long-term agreements. This strategy is the top priority for Destiny Star. Table 7 shows ideal theoretical partnership models and we identified ideal one of models. In addition, Figure 9 shows ideal strategic alliance for Destiny Star as well as advantages and disadvantages for alliance.
Table 7 Type if and motives for strategic alliance
Loose (market) relationship
Contractual relationships
Formalised ownership/relationships
Formal integration
Forms of alliance
Networks, Oppotunistic alliances
Subcontracting, Licences and franchises
Consortia, Joint venture
Acquisition and merger
Influences (Asset management)
Assets do not need joint management
Asset management can be isolated
Assets need to be jointly managed
Asset separability
Assets cannot be separated
Assets/skills can be separated
Assets cannot be separated
Asset appropriability
High risk of assets being appropriated
Low risk of assts being appropriated
High risk of asset appropriation
Source: Johnson et al. 1999:34
Figure 9 Strategic alliance for Destiny Star
Clearly Destiny Star is inferior financial and develop capability compared to large firms. In initial stage for launching the product, Destiny Star cannot avoid of having strategic alliance for the both B2B and B2C plan. Destiny Star should make priorities of objectives for strategic alliances. Depending on negotiating with partners and level of financial resource, priorities of objectives will be decided. The crucial successful factor for strategic-contractual partnering is that the innovator must persuade its partners to recognize, as the risk is a good one. (Tushman et al. 1997) In appendix, there is a list showing publishers, developers, IT institutions. We hope it will be helpful for Destiny Star to find best partners.
Strong marketing function
The marketing capability of an organisation depends on the combination of human resources and organisational assets possesses by the company. The firm's capability depends on its ability to cope with external environments, as well as internal environment (Bradley, 1995).
Bradley (1995) mentions a number of skills required for successful product planning in any organisation. First, the company must know where to seek new idea, how to choose and refine the core product concept, how to package and test it. Second, is the issue of pricing or valuing of the product or service. Third, the firm must consider promotion, where it develops the symbolic values and communicates the value of the product or services to stimulate market interest among customers. Finally, distribution, that is, to deliver the product or service to make it accessible to customers.
Since Destiny Star does not have the marketing expertise or resources to employ, they are now talking to Mango Tree Consulting. The idea is that to outsource the B2B marketing to Mango Tree who Destiny Star have a plan for hiring as market agency while the company tackles B2C market in-house. The potential advantages of Mango Tree are:
> They have an established network
> They are likely to provide a channel to game developers and small publishers
> They might sell licensing
Another potential option is to advertise and hire a sufficient number of well-qualified and networked marketers. However, there are a number of constraints with these alternatives apart from the obvious financial limitations. One, it might prove difficult to get people meeting these criteria and secondly it will take some time for the to be orientated in the company's technology and way of working.
The best alternative in that case is for Destiny Star to work with Mango Tree. If a marketing expert is employed, as the company wants, he will have to collaborate with Mango Tree, at least in the initial stages.
Customer relationship marketing
Relationship marketing is to deliver long-term value to customers and customer satisfaction (Kotler at al. 2002). Relationship marketing is value creation through visible and invisible ties and adds value of customer loyalty and retention (Donaldson et al. 2002). Small firms are likely to get in touch with customers in a responsive, flexible and adaptable way. (Donaldson et al. 2002). Hence, it may be relatively easy for Destiny Star to implement customer relationship marketing (CRM) because CRM must be the integration of all parts of company.
Donaldson et al. (2002:156) suggests that the benefits of customer relationship management are;
> Identifying customers and their individual profitability,
> Identifying individual customer's specific needs,
> Tailored products to individual customer requirements,
> Retaining customer longer,
> Identifying new product opportunities,
> Capability to target high value prospects.
How can Destiny Star obtain these benefits? In most companies, a customer focus is strongly emphasized in their corporate mission or vision statement. (Donaldson et al. 2002) Therefore, Destiny Star also should have this in corporate mission or version statement.
Then, the creation of a community circle for B2C business is theoretically an ideal distribution channel of Destiny Star. Creating attractive communication channel to game creators may be a significant successful factor.
Branding
According Kotler et al (2002), "Brands are as the most enduring assets of a company. Brand equity is customer equity." Branding has become to be so crucial for firms today. Intangible value is often reflected in the brand (Donaldson et al. 2002). In virtual reality such as the internet, image is more important for customers. From recent consumer behaviour, they are likely to be image-relative. Strong brand image will gather customer's expectations (Proctor et al. 2002). Moreover, although brand image takes time to be created and cannot be copied by competitors (Kotler at al. 2002).
Destiny Star's core competence is in intangible asset. Therefore, we strongly recommended that Destiny Star should use own brand in B2B and B2C business. Making logo or symbol is helpful to foster company's image and brand itself. The logo or symbol should be exposed anywhere products or firm's information are.
Security
Security generally deals with how secure the network, systems and applications components. In the gaming market segment, which Destiny Star is in, it's concerned with being able to test the software without giving away valuable information to competitors. Since the technology know-how is key Destiny Star security is very crucial.
Recommendations
Based on our analysis and evaluation of the probable strategies and action plan for Destiny Star, we propose the following recommendations that apply generally to the company:
> Destiny Star should focus all its efforts and resources towards its core product 'The Starlight System'.
> Destiny Star should look at effectively utilising its limited resources. For a start-up like it, this isits critical for its success.
> Destiny Star should clearly articulate its vision and bring about clarity as to where and what it wants to be.
> Destiny Star should hire a senior marketing personnel. As marketing is as important dimension as development and finance for its success, it may be essential for Destiny Star to have a senior marketing expertise in its management team.
We have two recommendations specifically for the B2B segment for Destiny Star:
> Destiny Star should follow the vertical alliance strategy to work closely with small publishers and application developers.
> Destiny Star should outsource marketing to Mango Tree as long as it has in order to take advantage of its knowledge and network in game industry for as it does not have in house marketing strengths.
> Or Destiny Star should hire a senior marketing personnel. As marketing is as important dimension as development and finance for its success, it may be essential for Destiny Star to have a senior marketing expertise in its management team.
We would recommend that Destiny Star should focus only on B2B sector. As, it is a start-up, it has got limited managerial, financial resources as well as rapid technology change. So, it would be able to achieve better results with a limited focus.
In addtion, we have the following two recommendations for the B2C segment for Destiny Star:
> Destination Star should implement the strategy 4+5, which is a combination of strategic alliance and communicating community circle of creators.
> Destiny Star should hire one marketing expert to handle B2C marketing.
Action plan
.
* Assuming that the funding is attained, the core team of Destiny Star should be reinforced by employing a marketing personnel. He/she should preferably be someone with an insight into the technological basis underpinning Destiny Star's product.
Don't run B2B and B2C at the same time. First run B2B completely and then B2C. Destiny Star's core component relates to B2B!!
B2B
* Destiny Star should find small application developers and publishers for strategic alliances who expect to share risks and develop their technology and their new business idea to commercialise. The way to find partners is to use associations, direct contacts via e-mail and telephone, or, introduction through University and investors connections, word of mouth, and so on.
* As Mango Tree is experienced in marketing within the gaming industry, Destiny Star should strengthen its ties with them. The outsourcing is the next step in the collaboration. That way, the network and links that Destiny Star is lacking will be established.
> Assuming that the funding is attained, a marketing expert can be employed. This should preferably be someone with an insight into the technological basis underpinning Destiny Star's product.
B2C
* Students of Sheffield University or Sheffield Halam University should be invited so as to in order to create a game creator community. Sheffield Halam University Art and Culture School has many students who are developing superior 3D components and some of them may well be interested in game creation.unit
* Destiny Star should make a specific website for the circle of game creators and players, where they can critique, share ideas and exchange experiences. Destiny Star shouldmust integrate theseese information intoto apply to develop theirits technology, product, and service.
* Further investigation for horizontal alliance should be conducted. Developers in other area such as office use software should be taken into account because game industry may fit their expansion strategy.
Appendices
Appendix 1. Terms of reference
Experiencing enterprising module
Project terms of reference
Student names: Hisaya Watanabe
Takashi Makimura
Sanjaya Rao Kannath
Abhishek Jayaswal
Mohamed Mohamud
The company
Destiny Star is a start-up formed in 2002 to commercialise the ideas of a student who won the Sheffield Award in the White Rose Centre for Enterprise business plan competition. The company's main target market is pc-based online gaming.
The company's business model is based on two revenue streams; producing own end-user product, and licensing the technology to established game publishers.
Key strengths, which also form the selling points of Destiny Star's products, are the reduction of software costs paid by publishers and the provision of a technology that helps end-users create their own game worlds.
Destiny Star's key personnel are:
Graeme Wilson (Managing Director)
Michael Wilson (Technical Director)
Charles Crowe (Finance Director)
Project scope
The scope of the project is as follows:
* Evaluate the potential market and competitive environment of Destiny Star's products
* Review the existing business plan and link it to the market
* Analyse and critique the company strategy and give suggestions informed by research and relevant literature
* Propose recommendations and suggest implementation strategies
Presentation
* Presentation to the company 9 May
* Submission of draft to the company 9 May
* Submission of the final report to the supervisor and company by 16 May
Method of review and evaluation
Given the timescale, collecting primary data is not possible. Reviewing and evaluating the business model of Destiny Star will, therefore, rely on secondary data from journals, company business plan, public reports, and market and competitor information.
Signed..................
Date....................
Name................
Signed.....................
Date........................
Name........................
Signed....................
Date.......................
Name.................
Signed......................
Date........................
Name.......................
Signed................ Signed (for Destiny Star).............
Date................. Date.................
Name............ Name............
Appendix 2. Key events
Date
Events
26/02
First meeting
* Meeting the company
* Introduction of the potential project areas
* Get the business plan
* Confidentiality agreement
03/03
Group meeting
* Reflect on the first meeting
* Feedback on the business plan
* Discuss the area to focus on
* Establish the more information required
* Set second meeting with the company
07/03
Meeting with company
* Further talk on the project
4/3
Group meeting
* Identify areas to focus on
* Finalise the terms of reference
* Divide tasks amongst members
21/3
Meeting with company
* More information and clarification
* Refine ideas and analysis
* Analysis of middleware technology
* More information on financial resources
* Discuss competitor analysis
28/3
Meeting with company
* SWOT analysis
* Information on finance and investor negotiations
* Value chain and value system analysis
* Sign terms of reference
4/4
Meeting with company
* Discuss the ideas and direction of research
4/4
Finalise ideas and analysis
* Concrete ideas based on meeting with the company on 7/4
9/5
Presentation and draft to the company
* Presentation to the company
* Make any necessary amendments resulting from the presentation
6/5
Submission of final report to the supervisor and company
Appendix 2. Useful website list
Reference
Bradley, F. (1995) Marketing Management: providing, communicating, and delivering value, London, Prentice-Hall
Department of Trade and Industry (DTI), (2002). From exuberant youth to sustainable maturity: Competitiveness analysis of the UK games software sector. Department of Trade and Industry.
Donaldson, B. and O'toole, Tom (2002) "Strategic Market relationships from strategy to implementation", London: John Wiley & Sons, Ltd.
Eid, R., Trueman, M. and Ahmed, A. M. (2002) "A cross-industry review of B2B critical success factors," Internet Research: Electronic Networking Applications and Policy, Volume 12 Number 2 2002.
Jensen, B., and Harmsen, H. (2001) "Implemtation of sucess factors in new product development-the missing links,? European Journal of Innovation Management, Volume 4 Number 1 2001.
Hill, S. and Rifkin, G. (1999). Radical Marketing. New York: Harper business.
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Low, S.G. and Mohr, J.J. (2000) "Advertising vs sales promotion: a brand management perspective", Journal of Product & Management, MCB University PressVol.9 No.6, p389-414
Kotler, P., Armstrong, G., Saunders, J., and Wong, V. (2002) "Principle of Marketing", 3rd edition, Person Education Limited.
Porter, ME (1980) Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press
Porter, ME (1990) The Competitive Advantage of Nations London: Macmillan
Tidd, J., Bessant, J. and Pavitt, K.(2001). Managing Innovation; Integratign Technological, Market and Organizational Change, 2nd. London: John Wiley & Sons, Ltd.
Tushman, L. M. and Anderson, P. (1997) "Managing Strategic Innovation and Change", Oxford University Press Inc.
Porter, M. E. (1985) "Competitive Advantage, Creating and Sustaining Superior Performance", The Free Press.
Proctor, T. and Kitchen, P. (2002) "Communication in postmodern integrated marketing", Corporate Communications: An International Journal, MCB University Press, Vol. 7, No.3, p144-154.
Zahra, S. A. and Bogner, W. C. (2000). Technology strategy and software new ventures' performance: Exploring the moderating effect of the competitive environment. Journal of Business Venturing, 15(2): pp.135-173.
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