executive summary - uva

Executive Summary

Contrary to what people often believe, the worldwide game industry is not all the time about laughs

and giggles. The managers that are part of Small to Medium Enterprises (SME’s) often have a hard

time successfully penetrating this creative and saturated market. The competition within the

videogame industry is severe and ruled by large corporates such as Electronic Arts, Sony and

Blizzard-Activision. Having an impact in this industry as an SME where the distance from the

developer to the gamer is minimal is actually hard to achieve. On top of this, the computer gaming

industry is one of the fastest growing industries on a global scale with global sales of videogames

expecting to reach $111.1 billion by the year 2015. It makes common sense that all of the

participants need a solid business strategy aligned with the right forms of decision making to stay

in course of its objectives while controlling its scare resources. The findings of this paper will

portray how often the actual implementation of decision-making behavior and business strategy is

misaligned with that of the actual world.

This paper will look at a small Dutch Indie game developing company named KeokeN Interactive

and will use the case analysis in order to extrapolate its findings to a more general sense. The

approach of this paper includes interviews with employees at all business levels and the application

of several business theories, tools and frameworks. The combination of the findings will provide

an overall conclusion about entrepreneurial business strategy dynamics and the effects on agency

behavior theory.

The analysis will also explain why certain forms of decision-making are so dominant in SME’s

within these type of markets. Furthermore, it will look at what the sources of origin are and which

market factors inhibit the dynamic capabilities of these SME’s. Finally, the paper will conclude

with a short explanation which steps a manager is able to undertake to improve the execution of

the initially proposed decision making.

Preface/Acknowledgements ......................................................................................................... 4

I. Introduction ........................................................................................................................ 5

II. Case Description .............................................................................................................. 5

A. The Research Question. .................................................................................................................... 6

III. The World Gaming Industry: Digital Entertainment Galore. ............................................. 7

IV. The Dutch Gaming Industry: A Smaller Piece of the Gaming Pie. .....................................10

V. The Company: KeokeN Interactive .....................................................................................11

VI. Conceptual Framework: Theories, Tools and Frameworks. ..............................................15

A. The Intuitive Decision Making Approach....................................................................................... 15

B. The Rational Decision Making Approach....................................................................................... 16

C. Misalignment in Employee Behavior: The Agency Theory ........................................................... 16

D. Startups, Strategy and Creativity: The Entrepreneurial School of Strategy .................................... 17

E. Managing Project Life-Cycles: The Product Life-Cycle Theory .................................................... 17

i. Stage 1: Research & Development ............................................................................................. 18

ii. Stage 2: Introduction .................................................................................................................. 18

iii. Stage 3: Growth ...................................................................................................................... 18

iv. Stage 4: Maturity ........................................................................................................................ 18

v. Stage 5: Decline .......................................................................................................................... 19

F. The SWOT Analysis ....................................................................................................................... 19

G. Porter’s 5 Forces Model .................................................................................................................. 20

H. The Resource-based View and the VRIN/O Framework. ............................................................... 21

I. Porter’s Generic Strategies.............................................................................................................. 22

J. The BCG Matrix ............................................................................................................................. 23

VII. Analysis and Discussion ...................................................................................................26

A. Interview and Analysis.................................................................................................................... 26

B. Scope and Business Hierarchy ........................................................................................................ 26

C. The Interviews: Findings and Feedback ......................................................................................... 27

i. Koen Deetman (Founder and Managing Director) .................................................................... 27

ii. Johan Terink (Co-Founder and Agile Scum Process Master) .................................................... 27

iii. Remco Dazelaar (Lead Programmer) ..................................................................................... 28

iv. Jom Semah (Concept Artist Intern) ............................................................................................. 28

v. Anna Udding (3D Artist Intern) .................................................................................................. 29

vi. Brian van Bentem (3D Artist Intern) ........................................................................................... 30

D. Overall Conclusion of Interview Feedback..................................................................................... 30

VIII. Business Theories and Framework Application .............................................................31

A. Porter’s Generic Strategies ............................................................................................................ 31

B. SWOT Analysis ................................................................................................................................ 32

i. Analysis ....................................................................................................................................... 34

C. The BCG Matrix .............................................................................................................................. 34

ii. Analysis ....................................................................................................................................... 37

D. Porter’s 5 Forces ............................................................................................................................ 38

iii. Analysis ................................................................................................................................... 39

E. The Resource-based view and the VRIN/O Framework. ................................................................ 40

iv. Analysis ....................................................................................................................................... 40

F. The Reaction of the Founders and Their Internal Discussions. ...................................................... 41

IX. Conclusion ......................................................................................................................43

X. Further Research Recommendation ....................................................................................46

XI. Reference List .................................................................................................................47

XII. Websites .........................................................................................................................50

XIII. Appendix and Annexes ................................................................................................53

Preface/Acknowledgements

This company research document is written as a final contribution to my Master of Business

Management (MBA) degree at the University of Amsterdam - Amsterdam Business School (ABS).

It contains finalized research omitted in the period of June until September 2015.

Firstly, the development and finalization of this case study could have not been done without the

iron support of all the people working at KeokeN Interactive, in particular Koen Deetman and

Johan Terink, both providing me with a rare and extremely open culture while giving me the

opportunity to execute this company project at their firm. Their trust has provided me with the

ability to explore this organization internally to its fullest without facing constraints in any form.

This freedom has granted this research the room it needed in order to deliver the best quality of

research possible.

Furthermore, the continuous support of my supervisor, Prof. Dr. John Cullen and the MBA courses

guided by Johan Lindeque, Jeroen Kraaijenbrink and Martyn Rademakers were vital to the

execution of this research project.

As a rare experience, I had the ability to work alongside a close MBA classmate of mine during

the complete period of this research. His constant review and discussion of my research has lifted

this research to a completely new level. Since his research has also been conducted at KeokeN

Interactive during the same period, I highly recommend consulting the final research paper of

Jordy Velasquez to fully grasp the content of the research conducted at this company.

Finally, I would like to thank my family, friends, colleagues and the faculty of the MBA program

for their encouraging support throughout the development of this research.

Christopher Jambor

September, 2015

I. Introduction

Many innovative small and medium enterprises (SME’s) are founded by entrepreneurial visions

that serve as strong guidelines through their most difficult stages of early business development.

In order for these SME’s to successfully “cross the chasm” (G. A. Moore, 1991), they need to rely

on their current know-how and past (work) experiences. Practice shows that these entrepreneurial

SME’s often tend to lack individuals in their management teams who have obtained a solid

business background to properly function as a supportive decision maker. This situation generates

dominant space for intuitive decision making versus rational decision making when these firms

are being managed. The aim of this research is to address intuitive versus rational decision making

and how they affect the agency conflict theory and thus affect the dynamic capabilities of an SME’s

business strategy implementation. This analysis will serve as an analytical research tool in order

for these innovative and entrepreneurial SME’s to develop a more stable and controllable business

environment with regard to strategy implementation.

II. Case Description

This research will commence within an entrepreneurial and innovative Dutch SME called KeokeN

Interactive, which provides digital coding solutions for their clients and develops unique video

games for the public. This research will focus on all business levels (business level, functional

level) within KeokeN Interactive as every department within this firm is being addressed.

Employees at KeokeN Interactive have stated that their business strategy is far from optimal due

to the fast developing pace of the national and global gaming market. This constant environmental

change brings a vast variety of challenges with regard to short and long term strategic planning

and its implementation. KeokeN Interactive believes that a strong vision is present within their

management but that the core business values and ways of individual behavior are not always

aligned with what their business focus should be (strategic perspective). The management believes

that when their business strategy is able to take form of a more concrete and controllable manner,

they would achieve the capability to functionally align the people with the envisioned strategy.

The management is aware that, in fact, the entire firm lacks the support of an individual with a

solid business background with who this process of developing a concrete strategy could be

developed. A brief preliminary research discussion with the management has also shown that clear

agency conflicts are present and that their intuitive behavior might affect the way of developing a

clear business strategy. This research paper will apply multiple business strategy tools, theories

and frameworks and will combine the outcomes with the individual research with the employees

of KeokeN Interactive in order to develop a tailored strategic solution.

The gaming industry has grown to become one of the most dominant entertainment industries,

generating $93 billion in sales in 2013 with an estimated 2015 worldwide industry sales figure of

$111 billion (Entertainment Software Association 2015, Games: Improving The Economy).

Research shows that this industry is one of the fastest growing on a global scale. Even though that

the typical characteristic of this industry is that it competes with other comparable entertainment

industries in order to be the choice of the expenditure of the customer’s leisure time. Due to the

time and scope constraint of this research paper, the scope will only be limited to the gaming

industry and the influence of this inter-industrial competitive factor is kept to a minimum. Due to

the developed and highly saturated state of this industry, it is incredibly hard to penetrate as a new

entrant, especially as an SME. The industry is characterized by high risks and fierce competition

containing market players with budgets comparable to fully-fledged Hollywood movies. On top

of this, this industry is “hit-driven”, meaning that a relatively small amount of the video games

counts for a significant proportion of the total revenues. Due to this market behavior, adopting a

new business model is perceived to be risky and such an adoption would make business forecasting

uncertain and volatile. This increases the tendency that this industry’s market players prefer to

stick to well-established (and sometimes outdated) revenue models.

A. The Research Question.

This guides this research to the following research question: How does intuitive decision making

affect the agency conflict behavior and the dynamic capabilities of entrepreneurial business

strategy in innovative SME’s within the Dutch game development market?

III. The World Gaming Industry: Digital Entertainment Galore.

Today, the computer gaming industry is one of the fastest growing industries on a global scale. As

mentioned earlier in this document, the global sales of videogames are expected to reach $111.1

billion by the year 2015. In the year 2013 (which was a very important period for the video game

industry on a global scale) video game developing companies were able to obtain strong sales in

the United States, with revenues exceeding the $21 billion barrier. Research shows that this was

largely due to the participating companies providing well-paying jobs that resulted in a higher

overall revenues flowing to the nation. On a global scale, sales skyrocketed in 2013 to a whopping

$93 billion due to the deliberate growth in the emerging mobile gaming market. On top of this, the

eighth generation of new gaming consoles such as the Sony PlayStation 4 and the Microsoft Xbox

One were introduced which caused a boost in console sales and technological advancements.

Furthermore, video game companies were able to sell 160 million units of video games that lead

to an astounding $15.4 billion in net revenues. In comparison, seventeen years earlier, the U.S.

entertainment market only accounted for 74.1 million units sold and $2.6 billion in sales revenue.

Furthermore, market trends show that consumers increasingly enjoy the use of digital gaming

content. In a matter of fact, digital gaming sales surpassed those of physical sales for the first time

in the year 2013. The sales of digital games, digital add-on content, mobile applications, game

subscriptions, and social network games accounted for a total of 53% of total game sales in 2013.

This trend caused for an additional $7.2 billion in revenues. Simultaneously, the introduction of

the eighth generation of gaming consoles such as the PlayStation 4 and the Xbox One, noticed

similarly strong sales increases in 2013. The U.S. market sales for these consoles were able to

reach $5.2 million units. The growing appetite for new video game content also affected the overall

sales of consoles and related physical accessories. This trend was able to generate more than $6.1

billion of revenue in 2013. The biggest technological advancement of the eighth generation of

video game consoles was the focus and possibility to enjoy gaming content on other (new) forms

of entertainment channels. The networks of these consoles contained 142 million users where each

of these networks functioned as a separate entertainment hub with roughly the same characteristics.

Examples of the new entertainment channels are Netflix, YouTube, ESPN, and HBO Go.

Nevertheless, it is important to understand that the largest proportion of the worldwide sales and

revenues (between 80% to 90%) are earned by the largest game developing companies such as

Blizzard-Activision, Electronic Arts (EA), Sony, Konami, 2K, etc. Their market dominance causes

high barriers to entry for newly formed independent developers (Indie Developers). Also, due to

their incredible amount of capital available, these large “corporates” always scour the market for

interesting new gaming titles to buy out and/or publish in order to add to their gaming portfolio.

Sadly, most of these bids are accepted due to the risky and volatile nature of the smaller developing

firms, providing them with shorter returns, which they see as offers they cannot refuse. Also not

to forget, usually these bids are but a fraction of the available capital of the large players. It seldom

occurs that these bids are refused and that these smaller developers are able to penetrate the market

effectively. The same largely accounts for publishing agreements between developer and publisher

as the publisher provides a well-established network to sell the game through. Nevertheless, this

option does provide a better exposure for the lesser known Indie developers. The publishers do

tend to demand a relatively large percentage in royalties from net sales, which then again have

their effects on the ROI’s of the Indie developers.

Finally, a short infographic obtained from the “Entertainment Software Association” is shown on

the next page to portray visually the highlights of the most recent trends in the gaming industry.

For further global industry details, please consult the appendix and indexes section of this

document.

Figure 1: The Entertainment Software Association: Essential Facts 2015 Infographic – April 2015

Source: http://www.theesa.com/wp-content/uploads/2015/04/Essential-Facts-2015-Infographic.pdf

http://www.theesa.com/wp-content/uploads/2015/04/Essential-Facts-2015-Infographic.pdf

IV. The Dutch Gaming Industry: A Smaller Piece of the Gaming Pie.

The Dutch game development market accounts for the 16th largest market worldwide and is the

6th largest market in Western Europe. The market exhibits a total revenue of $421 million with

15.9 million Internet users from a total population of 16.8 million people, showing that 94.6% of

the total population is active on the World Wide Web. This provides the Dutch gaming market

with an incredible audience targeting potential. It is important to remember that the Dutch gaming

industry is still only a fraction when compared to those of the top players such as the U.S. or Japan.

Furthermore, it also shows that the worldwide gaming industry is still far from becoming saturated.

The largest growth inhibitor worldwide is the uneven spread of technological advancements and

Internet access.

Top 25 Countries by Game Revenues

Figure 2: NEWZOO: Top 100 Countries by Game Revenues – April 2015

Source: http://www.newzoo.com/free/rankings/top-100-countries-by-game-revenues/

http://www.newzoo.com/free/rankings/top-100-countries-by-game-revenues/

The Dutch gaming industry does vary in its governmental support structure to that of markets. In

this market, the Dutch government has made several millions of Euros available to invest into the

support and development of Dutch indie game developers. The available support is available in

the form of subsidiaries and incubator programs. One of the subsidiaries is the Dutch Gamefonds

(Gamefund) who alone has 300.000 EU available per year. The largest Dutch incubator program

is the Dutch Game Garden in Utrecht. Here, Dutch game developers are supported with housing,

technology, lecture programs and a solid network until the first gaming title is released to the

market. One of the prime Indie developer examples is the company Vlambeer where one of the

very famous and influential owners, Rami Ismail, made it into the Quote 500 in his mid-twenties.

Sadly, these subsidiaries and incubator programs had to cut down in available budgets as the Dutch

market was facing difficulties, resulting in a cut in available investment capital for the Dutch

gaming market. By creating several Dutch subsidiaries, the Dutch government hopes to achieve a

more stable business environment so that the Dutch game development market is able to develop

faster and compete better on a global scale.

V. The Company: KeokeN Interactive

KeokeN Interactive is a young Dutch Indie game development company that was founded by Koen

Deetman and Johan Terink in early 2014. KeokeN Interactive was born out of the passion for

developing great and engaging 3D game experiences. KeokeN Interactive’s basic principles and

unique market approach have created a unique indie developer. The people at KeokeN believe that

they are in the experience creation industry rather than just the game development industry. This

core principle has given KeokeN Interactive the ability to attract highly talented individuals who

think alike varying from IT and business backgrounds alike. KeokeN Interactive aims to develop

rich and playful game experiences because they believe that gaming is more than just simply

playing a game.

Their mission is to develop new and unique game experiences according to KeokeN Interactive’s

core principles that will provide new forms of added gaming value within the worldwide Indie

gaming market. Their vision is to become one of the best game experience providers out on the

market. KeokeN Interactive has been working on several gaming titles ever since the initialization

of the company. Currently, KeokeN Interactive is working on “Deliver Us the Moon” which is

planned to be launched into the worldwide gaming industry somewhere in the summer of 2016.

KeokeN Interactive pursues a very flat and non-hierarchical business structure and internal

business communication style. Every member of the team has the opportunity to express his or her

ideas and personal opinions about any topic. By constantly consulting each other’s feedback and

forms of expertise, the people at KeokeN Interactive have been able to achieve excellent business

decisions. The management believes that the individuals within KeokeN Interactive are the ones

who make the difference. For this reason, the employees highly respect each other’s

professional/educational background and share their business responsibilities accordingly.

KeokeN Interactive develops indie style video games that are very different from what most other

indie game developers have to offer. Firstly, KeokeN Interactive only develops fully 3D video

games instead of 2D video games. As the global 2D Indie video game market has become

extremely saturated and highly competitive, they believe that they are able to stand out from the

crowd by focusing purely on 3D games. On top of this, 3D games often offer a more believable

and immersive gaming experience, which is core to their game development philosophy.

Furthermore, they constantly aim to develop AAA (triple A) video games that are comparable in

quality to other well-known gaming titles such as Battlefield, Call of Duty, Halo, etc. Another

element of their ongoing success is their unique symmetrical design style that provides their games

with an immediate unique identity. Above all, their greatest differentiation element and asset is the

entire KeokeN Interactive team. KeokeN Interactive believes that they are composed of highly

talented individuals that have able to channel their unique abilities into their gaming titles such as

“Deliver Us the Moon” which are absolutely essential for all of their future titles and future

business success. Without this team of incredibly focused professionals, none of this would be

possible. It is for this reason that they highly value their intangible assets within their firm that can

only be delivered by their human capital.

The business model of KeokeN Interactive is quite unique in the Dutch and global gaming market

alike. As an indie game developing company, it is incredibly difficult to attract and retain a

relatively acceptable amount of liquid resources that can be used to invest into the different

elements of running such a firm. The high risks associated with the volatility of the market have

let the two founders of the firm decide to pursue a business model structure that decreases these

basic market risks. The owners implemented a holding structure under the title Vidocq Group that

contains the list of companies and thus separates the revenue streams and diversifies the associated

risks simultaneously. Both Koen and Johan are considered freelancers who work for their own

private companies. KeokeN Interactive as a firm hires these individuals as freelancers to join the

human resource capital pool. The reason why they do this is that both owners have different

responsibilities in operations and revenue streams within this firm. Johan serves as the expert in

Agile project management who works as a “work for hire” at large clients. By pursuing this course

of action, Johan is able to constantly generate a constant income stream for KeokeN Interactive,

which Koen is able to use as a direct investment into the operations of the firm. This constant cash

flow reduces KeokeN Interactive’s needs for the search of cash from other sources such as bank

loans or equity through shareholders. On top of this, by constantly trying to attract financial support

from local and international fund providers, KeokeN Interactive is able to attract enough cash in

order to get through the most turbulent early years of business development. All of this decreases

risks and the chance of the agency theory occurring by conflicts of interest. Furthermore, their

focus is also to develop smaller 3D Indie games in the Unreal Engine 4 (UE4) on a yearly basis.

Figure 3: Product Lifecycle Management

Source: https://www.linkedin.com/pulse/20140626152428-113933750-cradle-to-grave-true-benefits-of-product-life-cycle-

management

https://www.linkedin.com/pulse/20140626152428-113933750-cradle-to-grave-true-benefits-of-product-life-cycle-management

https://www.linkedin.com/pulse/20140626152428-113933750-cradle-to-grave-true-benefits-of-product-life-cycle-management

By doing so, they are less focused on maximizing the lifecycle management (more on this in the

conceptual framework section) of their games. Furthermore, they are able to target potential

periods within the global gaming industry as large game developers on average take between 3-5

years in order to develop a new gaming title. They wish to generate a shorter revenue stream for

their gaming titles when the industry is at a low peak regarding the availability of AAA (triple A)

gaming titles. Furthermore, they believe that the quality of their games is comparable to that of

existing AAA gaming titles at a lower price, making them a viable comparable option for purchase.

VI. Conceptual Framework: Theories, Tools and Frameworks.

Before the analysis of this paper’s research will be described, it is important to review the key

theoretical concepts which will be applied throughout the conducted research at KeokeN

Interactive. This section will describe the applicable theories, tools and frameworks that are used

to provide an answer to the aforementioned research question. These are the intuitive decision

making approach, the rational decision-making approach, the agency theory, the SWOT analysis,

Porter’s 5 Forces Model, the Resource-based View, the VRIN/O Framework, Porter’s Generic

Strategies, the BCG Matrix, the Entrepreneurial School of Strategy and the Product Life-Cycle

theory. Furthermore, a wide range of literature and other information sources are used in order to

amplify the foundations of this paper. The complete list of literature used can be found in the

reference list section at the end of this document.

Theories: An Introduction to Intuitive versus Rational Decision Making.

A. The Intuitive Decision Making Approach.

The terms instinct, emotions and gut feeling are usually correlated to the intuitive form of decision

making. It is through this means that the individual is able to determine his or her definite form of

decision. In a matter of fact, the intuitive decision-making process is defined as a non-sequential

information-processing mode. This method does not follow a thorough qualitative and/or

quantitative analysis as the individual believes that the need for such a thorough analysis is

unnecessary or constraints such as that of time do not allow one to do so. It is for this reason that

the aforementioned correlated factors provide this decision-making process the ability to deliver a

relatively quick decision process. Yet the famous business strategic Henry Mintzberg states that

“instinct is a tacit form of knowledge and that it complements the rational decision-making

approach”. In other words, our minds actually process most components of obtained information

continuously on a subconscious level whether we like it or not and the two forms of decision-

making complement each other. Once the conscious mind reveals a thought that the mind at the

subconscious level already assessed, the individual experiences it in the sense of revelation. Only

when one is able to break this subconscious pattern and has the need for a rational decision-making

approach, one will be able to choose a more rational path.

B. The Rational Decision Making Approach.

“Every decision is a risk-taking judgment.” In this context, it is clear that in a high-risk business

environment, such as the gaming industry, a necessity arises for the rational method of decision

making. Rational decision making is a method where the user systematically assesses the possible

outcome(s) based on applying factual data/information that support reasoning. From the

assessment the user is able to decide, by comparing the available data, the most suitable course of

action the user is willing to take. The underlying thought of this particular method is that the user

is trying to solely analyze which possible course of action accompanies the lowest risk and the

most expected benefits. It is for this reason that a clash in interests may arise between users of an

organization that pursues different forms of decision-making. The reasoning processes of the

individuals differ in such a context that the desired course of actions of these individuals are able

to create a form of internal business conflict that affects the performance of the firm (Agency

Theory).

C. Misalignment in Employee Behavior: The Agency Theory

The agency theory is a relationship-based theory between the so-called principal (decision maker)

and agent (decision receiver). This theory addresses inefficiencies and dilemmas as situations can

arise where the agent is tempted or motivated to act on his or her own self-interest instead of those

of the principal. Other problematic scenarios arise when the two parties have contrasting interests

and where the presence of asymmetric information occurs. In the situation of asymmetric

information, the principal is the individual or entity with more information regarding the interest

issue than the agent that results in the inefficient behavior of the agent. This scenario can become

troublesome when the principal is unable to (constantly) control and check whether the agent is

executing the decision(s) in alignment of the interest of the principal him/herself. This deviation

of interest execution of the agent is referred to as being the “agency cost”. In the situation that

these deviations are costly to the principal, such conflicts can turn out harmful to the

efficiency/effectiveness of the firm. The principal is able to somewhat affect, and thus align, the

interest behavior of the agent by implementing tools which suppress opportunistic behavior such

as, incentive structures, unit commissions, profit sharing and key performance indicators.

D. Startups, Strategy and Creativity: The Entrepreneurial School of Strategy

The entrepreneurial school of strategy is one of Mintzberg’s Ten Schools of Strategy (H.

Mintzberg, 1973) and is the focus of this research as it is the most applicable to the case. In this

school of strategy, the formation of the strategy processes is derived from the strong vision of the

leader(s) of the organization. As the business strategy formation is formed through the vision of

the leader(s), the business strategy is heavily affected by intuitive decision-making processes.

Furthermore, the business strategy formation is also affected by the prime judgment and

experience of the leader(s) of the organization. Through this means, the leader(s) define and control

the firm in order to achieve the short and long-term goals. Because of these strategy characteristics,

the leader is able to form a detailed but agile business strategy which is typically found in start-up

firms which have to steer through the difficult early years of business development.

E. Managing Project Life-Cycles: The Product Life-Cycle Theory

The product life-cycle theory is an economic theory developed by Raymond Vernon in order to

address the general patterns of international trade in the 1950s. This theory suggests that in general,

products and services that are traded on the market five stages throughout their complete lifetime.

The goal of this tool is to achieve maximum value and thus profitability from the product or service

available on the market. Each stage accompanies a certain type of consumers which each has its

distinct values. These values determine under which circumstances they will be convinced to

purchase the available product or service from the firm. Each stage of the product life-cycle theory

is described in more detail below.

Figure 4: Product Life Cycle

Source: http://www.afstudeerbegeleider.nl/scriptie-hulp/veelgebruikte-modellen/product-life-cycle/

http://www.afstudeerbegeleider.nl/scriptie-hulp/veelgebruikte-modellen/product-life-cycle/

i. Stage 1: Research & Development

During this stage the company heavily invests cash into researching and developing the product or

service. It is during this stage that most prototypes are developed in order to find an early match

with the target market. Low returns and market share are expected, as only a few customers are

aware of the presence of the product or service in development.

ii. Stage 2: Introduction

In the introduction stage, the company attempts to develop product awareness in the initial target

markets where the highest needs and available incomes are available for the product. Here, product

skimming is usually introduced in order to achieve higher returns on investment by increasing the

profit margins. During this stage, competitors will try to develop a product/service and develop

brand awareness as well.

iii. Stage 3: Growth

In this stage, the company attempts to further reach out and explore new target markets in order to

obtain a higher market share. By increasing the market share, the company is able to increase sales

further as most of the customers of the product will fall into this stage. Pricing may be decreased

slightly in order to make use of the price elasticity of demand. It is also in this stage that more

competitors will start to enter the market that drives up the competition and could affect pricing.

iv. Stage 4: Maturity

The market saturates and lacks further growth at this stage. Competitors have entered the market

and are competing heavily in order to maximize their market share. This trend drives a strong

pressure on production costs and product/service pricing. Firms will continuously try to minimize

their production costs while trying to keep their quality of products/service equal or higher than

before. It is at this stage when a new product/service should be introduced in order to a company

to explore a new market and to safeguard the continuity of the firm. Some firms also tend to extend

the product life cycle by adding new features that add value.

v. Stage 5: Decline

In the final stage of the product/service, sales decrease and the market tends to shrink. New markets

may have been created which create an outflow of this market into the new market, as it is able to

satisfy the customer’s new needs. Products/services at this stage are either discontinued or altered

in order to address a very niche section of the market.

Conceptual Review Continued: Tools and Frameworks

F. The SWOT Analysis

The SWOT Analysis is an analytical tool that assesses the strengths, weaknesses, opportunities

and threats of an organization, taking into account the internal and external (market) environmental

factors. By using this tool, the firm is able to assess its market position and how it wishes to

strategically move within this framework, if necessary. On top of this, the SWOT also functions

as a great supporting tool to determine the firm’s key core competences that are drastically

important in developing a business strategy. The user should be wary of trying to answer gray area

factors by over-analyzing. Subjectivity may affect these factors that result in possible incorrect

feedback from using this tool. The focus should be on executing this tool in a simple and concise

manner that then provide the answers in a similar way. If possible, the user should focus on

including statistical results over descriptive statistics, as they are able to give a more concise and

predictive cause and effect relationship than descriptive data can.

Figure 5: Wikipedia: SWOT Analysis - May 2015

Source: https://en.wikipedia.org/wiki/SWOT_analysis

https://en.wikipedia.org/wiki/SWOT_analysis

G. Porter’s 5 Forces Model

Michael Porter’s 5 Forces Model is a strategic tool used by firms to analyze the level of

competition within a particular industry. It is also frequently used as one of the tools to (re)develop

a firm’s business strategy. The tool has derived five market forces from industrial-organizational

economics, which make the tool capable of determining the competitive intensity and the industry

profitability (attractiveness) of the selected industry. A particular industry can be denoted as being

“unattractive” when the analysis of these fives forces drives down a firm’s overall profitability.

The fives forces which this tool assesses are; the threats of new entrants, the threats of substitute

products or services, the threats of existing market competitors, the bargaining power of suppliers

and buyers. These forces are micro environmental forces that directly are able to affect the ability

of a firm to serve its selected customers and produce a profit from doing so. When any of these

forces change in a particular market, the affected firm should re-assess its current market position

and decide whether it should alter its business strategy and/or business model in order to cope with

these changes. This adaptive ability is of incredible importance as a failure of being so can result

in diminishing business performance and ultimately result in a forced exit of the business market.

The ultimate goal of this tool is to maximally put the core competences of the firm to use in the

market.

Figure 6: Chartered Global Management Accountant: Porter’s Five Forces of Competitive Position Analysis

Source: http://www.cgma.org/Resources/Tools/essential-tools/Pages/porters-five-forces.aspx

http://www.cgma.org/Resources/Tools/essential-tools/Pages/porters-five-forces.aspx

H. The Resource-based View and the VRIN/O Framework.

The Resource-based view is one of the five strategic views where the key focus lies on the

determinants that the firm consists purely of collective bundles of resources. It is the selection and

combination of these available business resources which give the firm the ability to develop a

unique core competence and thus provides the firm a concrete way of pursuing a differentiation

strategy. The resources of a firm can be the firm’s assets (tangible resources), capabilities,

organizational processes, firm attributes, business information and knowledge (intangible

resources). These resources have the ability to be used as an input in the organization in order to

create business value and thus use its core competences in order to achieve a competitive

advantage. In order to determine whether the firm’s resources are capable of generating a

competitive advantage, these resources need to comply with four distinct attributes. These

attributes have been determined by the VRIN framework (Barney, J.B. 1991) as being valuable,

rare, inimitable and non-substitutable. Further research has shown that a fifth element may be

added to fully grasp the firm’s resource potential. Organizational support (VRIN/O) should

function as the fifth element as only the organization’s ability to harness and support the use of

these elements provides these resources the ability to generate the desired competitive advantage

(Barney, J.B. 1991).

Figure 7: Hubpages: VRIN/O Framework - February 2014

Source:http://jamieedwards1.hubpages.com/hub/How-specific-would-the-identification-of-strategic-capabilities-need-to-be-in-

order-to-achieve-advantage

http://jamieedwards1.hubpages.com/hub/How-specific-would-the-identification-of-strategic-capabilities-need-to-be-in-order-to-achieve-advantage


The resource-based view is considered an “inside-out business strategy approach” where the

strategy analysis initiates from the internal environment of the firm instead of the external

environment of the firm.

I. Porter’s Generic Strategies

Porter’s Generic Strategies (Porter, M. 1980) serves as a descriptive business strategy tool in order

to determine which of the available four strategies a firm is pursuing in order to achieve

competitive advantage. These strategies are defined as being either low cost, differentiation or

focus (combination of the two). The abovementioned strategies depend on the scope (industry wide

or segmented) and focus of the firm (low cost or differentiation). A firm has the option to fall into

the “focus” strategy if the strategy determined includes a combination of the two strategic focus

advantages. Firms should be careful when pursuing their desired strategy not to become “stuck in

the middle”. In this situation, the firm has no clear strategy with regard to one of the three possible

strategies. When a firm is able to determine that it is “stuck in the middle”, the firm should re-

assess the effectiveness (scope and focus) of their strategy to achieve the desired shift.

Figure 8: Michael Porter's Three Generic Strategies

Source:http://jamieedwards1.hubpages.com/hub/How-specific-would-the-identification-of-strategic-capabilities-need-to-be-in-




J. The BCG Matrix

The BCG Matrix (Henderson B. 1970), also known as the Growth-Share Matrix, is a project

portfolio-planning model created by Bruce Henderson who was working at that time part of the

Boston Consulting Group in the 1970’s. This model has the aim to categorize a firm’s business

units or business projects into four distinct categories being; “Dogs”, “Question Marks”, “Stars”

and “Cash Cows”.

A. Dogs: Business projects that fall into this category both have a low market share and

growth rate potential. It is for this reason that these projects do not take up, but also do not

generate a large amount of cash flow for the firm. These projects can be seen as cash traps

due to their low market potential and should be taken into account for divestiture.

B. Question Marks: These projects have a large market growth rate and low relative market

share at the same time. These projects have the ability to take up much cash due to required

investments, but do not always generate equal or more cash flows in return. Due to their

nature of high growth potential, investments that result in a higher market share are advised

so that their return on investment (ROI) capabilities are increased. If this is not possible,

these projects should also be considered for divestiture due to their constant high cash-

consumption rate.

C. Stars: “Star” projects differ from “Question Marks” in their nature to have obtained a

relatively high market share which can result in higher returns on investment. It is for this

reason that firms find these projects worth keeping and investing into as they have the

ability to develop into “Cash Cows” in the future where their payoff will largely outset the

required investment. It is for this reason that firms should always aim to have “Star”

projects in their business portfolio to maximize the continuity potential of the firm in the

long-term.

D. Cash Cows: The “Cash Cow” projects are projects with low market growth rates and

higher relative market share. These projects are often present in saturated markets with low

growth potential. Because of this nature, these projects provide higher returns than the

required investments that result in a large amount of cash inflows. These projects should

be continued as long as possible in order to nurture the financial position of the firm and to

be used as financial sources for investment for other projects in the business portfolio.

The axes of the BCG Matrix tool differentiate the business units/projects by comparing the relative

current market growth and market share potential to that of the market’s largest competitor. The

market growth axle serves as the indicator to the project’s industry attractiveness where the relative

market share serves as the indicator of the project’s competitive advantage. The combination of

these two indication axles forms the overall possible profitability of the selected projects. The

eventual positioning of the selected projects shows what course of actions the firm should take in

order to achieve the desired shift as seen within this tool.

Figure 9: Management Study Guide: BCG Matrix

Source: http://www.managementstudyguide.com/bcg-matrix.htm

It is important to keep in mind that this tool takes several assumptions into consideration. The first

assumption is that an increase in relative market share for a project will result in a higher cash

return. This assumption is supported by the notion that an increase in market share is often

accompanied by a higher form of market/business experience (experience curve) which can result

in higher cost effectiveness from operations. The second assumption is that an increase in market

http://www.managementstudyguide.com/bcg-matrix.htm

growth will accompany a higher cash expense when attempting to achieve this shift. This tool,

therefore, provides the user with the ability to visually portray and provide a selection where

projects are able to provide the needed cash input for other business projects that require this aid.

By fully using this mechanic, the management of the firm is able to better justify which projects

are worth spending time and resources into and which projects should be taken out from the

business portfolio in a certain time frame. This behavior should support a better overall

performance of the firm while keeping track of the alignment of the preferred business strategy.

This tool does contain several limitations, which are important to consider when applying this tool

as a business manager. The BCG Matrix tool ignores many important determinants of business

profitability. The market growth rate is only one factor of market attractiveness, whereas relative

market share is only one element of competitive advantage. Furthermore, this tool assumes that

each business projects is completely independent of one another, where an actual scenario analysis

could show that one (profitable) project could not exist without another (which could be of less

potential within this matrix). This would mean that the matrix would advise to divest the less

profitable project that could result in the failure of the continuity of the more profitable project

simultaneously. Finally, the scope of the relative market share is affected by the type of market

that is being targeted. The situation could occur that a specific project is able to capture a large

proportion of a small niche market that could be part of a larger market in overall, resulting in

wrong classifications of the project(s).

VII. Analysis and Discussion

This section includes a thorough analysis and discussion of the research in order to attempt to find

an answer to the central research question of this company project. This section will discuss the

in-depth interview analysis within KeokeN Interactive along with the application of the prescribed

business tools and frameworks as reviewed in the conceptual framework section. Furthermore,

final feedback from the owners of KeokeN Interactive on the application of these tools, theories

and frameworks will be discussed to provide more added value to the research.

A. Interview and Analysis

In order to fully understand and capture the dominant forms of decision making within KeokeN

Interactive, an individual and private interview has been conducted with all of the current

employees. The goal of this research is to firstly see in which ways the form(s) of decision making

are affecting the employees at all levels within the business hierarchy and to assess what the

advantages and/or disadvantages are of these effects. Furthermore, the interview will attempt to

determine what the factors are which fuel the agency theory in the case of KeokeN Interactive.

This analysis will then provide preliminary outcomes to the effect on business strategy dynamics

for entrepreneurial firms within this volatile market. The second section, which applies the tools

and theories, will then further support these outcomes and develop the outcomes of the research

that will be fully addressed in the conclusion section. And finally, the feedback from the owners

on the second section’s application will further support the overall analysis of the research.

B. Scope and Business Hierarchy

Currently, this firm holds the two founders, the lead programmer and three artist interns at the

office. The two freelancers for the storyline development and the in-game audio composition have

not been included in the interview analysis as their direct contact with this firm are at a bare

minimum, thus not providing sufficient feedback. During the conduction of the interviews, my

classmate Jordy Velasquez has also joined this firm. A private interview with him has not been

conducted as well due to his short presence. For the same reason, my personal feedback has also

been kept out of scope in order not to affect the research by personal bias. The business hierarchy

chart and interview questions list with regard to KeokeN Interactive can be found in the appendix

and annexes section of this document.

C. The Interviews: Findings and Feedback

i. Koen Deetman (Founder and Managing Director)

Koen believes that it is critically vital for a small entrepreneurial firm to have a strong and

visionary leader (entrepreneurial school of strategy). The performance of teams in overall are more

important than individual performance as this decreases the lead time to the market and thus

decreases the risky time period of startups. Koen envisions that he needs to work together with

individuals with specific sets of (business) expertise who are better at him doing these professions.

By doing so, he is better able to trust their performance instead of acting as the prime control

mechanism. He believes that his methods of leadership have been effective thus far, but that it has

experienced some drawbacks as well, which have affected business performance. By being an

extreme intuitive decision maker, he has attracted a lot of risk to the firm, causing the agency

conflict to arise during several work-for-hire projects and other business scenarios. It is only when

he clearly is able to address a negative impact to business performance, where he experiences the

need to enact a rational form of decision making. This has made him aware that he often makes

too many intuitive business decisions. For this reason, he searches for a rational decision maker as

a sparring partner. He does try to find this in his direct co-founder Johan, but as he believes him to

be too much of a follower, this sparring aspect is unable to show its full potential. This largely has

to do with the fact that Johan is more focused on his projects of clients off-site, rather than being

present at the operations of KeokeN Interactive. Koen is also aware that his dominant preference

to intuitive decision making has affected the other employees as they are seldom triggered to

provide feedback on a rational basis.

ii. Johan Terink (Co-Founder and Agile Scum Process Master)

During the early phases of his studies, Johan became aware that he was better in developing

projects than being a programmer. After he joined Koen in the foundation of KeokeN Interactive,

he made it clear that he would be of most use as the person who would work for clients and provide

the needed cash flows for business investments. Personally, Johan feels to be a combined user of

rational and intuitive decision making. Because that he feels that he is more of a business support

employee, he feels that he is always more tempted to make use of rational decision making in order

to make sure that more control is taken into account. However, because he is often absent at the

office due to the projects at the clients, he feels that this control is often overlooked due to the

strong presence of Koen at the firm who clearly is an intuitive decision maker. Nevertheless, when

he is in discussion with Koen about business decisions Johan does know that he will most likely

follow Koen’s ambitions. It is because of his frequent absence that he believes that he has a lesser

say in the operations of the firm which actually is not the case. He does notice that KeokeN

Interactive is not as effective with following the proposed business strategy because of this issue.

This is also the main issue where the agency conflict arises as employees are tempted to act

differently than for what they are initially hired for.

iii. Remco Dazelaar (Lead Programmer)

Remco feels that he must be steered in the organization before he commits himself to a task. He

does not function as an initiator even though he is the lead programmer. He will always seek

confirmation from other employees before further executing a specific business process. His

problems arise from finding it hard to be in control of the processes in this firm. He believes that

there is a strong lack of control mechanisms. This has forced him to let his preference to being in

control of his processes go. Because of this, he has somewhat been forced to change from a rational

decision maker to an intuitive one. This was amplified by the feeling that KeokeN Interactive is

unable to measure whether they are in control. A prime example was their previous gaming title

Horrinth. The development of this game was extremely intuitive where many (intuitive) ideas were

combined, resulting in a strong deviation from the core idea of the game. He believes that this was

the main aspect why the firm decided not to publish this title to the public. Furthermore, Remco

believes that there are many agency conflicts present, as there is a low pressure to perform well.

The lack of control mechanisms on personal performance provides no incentive for control on

performance. But from their previous experiences with their gaming title Horrinth, Remco believes

that there is more structure, a stronger inside-out vision and a higher value of intangible resources

within KeokeN Interactive.

iv. Jom Semah (Concept Artist Intern)

Jom believes to be a mix of an intuitive and rational decision maker. His intuition prevails through

experience, which has made him less rational. In the firm, he believes that there is often an agency

conflict. He finds it difficult to work with Koen, as he is the leader with the strong vision. It is hard

to overcome such a strong influencing factor within such a small firm. Jom finds it important to

listen to ideas and opinions from others, as this will always unfold better plans of preparations. His

focus is to prepare plans from which he will barely deviate. This does force him often to have a

tunnel vision, which is inherited by the behavior of others within KeokeN Interactive. This makes

it hard to convince others of deviating from the initial plan of attack. He furthermore believes that

the firm currently performs below the best efficiency levels. This has had a large influence on the

period of instability during Horrinth. Koen has a solid monologue where he wants to break free

from the market as an Indie Developer. Nevertheless, Jom is aware that Koen is not the only Indie

developer with this aspiration. Nevertheless, he does believe that Koen is a true pioneer due to his

solid enthusiasm and vision. Jom has a 50/50 feeling whether KeokeN Interactive is in control of

its processes and business strategy. The lack of consistency comes due to the high turnover of

employees, especially at the interns. The strength of the firm is operational excellence and a solid

vision throughout the company. Currently, time is their biggest threat as many indie developers

are also choosing to shift to 3D game development.

v. Anna Udding (3D Artist Intern)

Anna has a very creative professional experience that has influenced her decision making to be

very intuitive. She believes to have potent adaptive capabilities that could not have come forth if

she would be of a more rational kind. Nevertheless, she believes to have obtained a strong analytic

capacity that gives her the ability to make quick decisions. Once the scope and complexity of a

specific business process decision increases, she is tempted to take a rational form of decision

making into account. This is definitely the case during the presence of incomplete information,

which actually occurs quite often within KeokeN Interactive. She believes that Johan is the rational

decision maker and Koen the intuitive one. Johan serves as the person who slows down Koen’s

enthusiasm which is usually affected by his intuitions in order not to deviate too much. Anna

believes that a combination of rational and intuitive decision making is best as it takes both sides

of the coin into account. This does not always happen at KeokeN Interactive, as she believes that

Koen is the person who makes the call in the end. What is interesting is that because of Koen’s

nature they dare risk to take greater risky business decisions that support their strategy in some

context. By pursuing a “blue ocean strategy” (the creation of a new market), they will always need

to consider the risk before some other competitor does this before they do.

vi. Brian van Bentem (3D Artist Intern)

Brian describes himself as an emotionally “flat” person who never sits still. He likes to do a lot of

testing which serves his perfectionistic behavior. This behavior is supported by his intuitive form

of decision making. He tries to avoid being rational, as he believes that this specific behavior is a

waste of precious time. Luckily, KeokeN Interactive provides him with a lot of freedom to make

intuitive choices. He has seen several agency conflicts arise where it is important to convince the

dominant individual. Brian further believes that Koen is easily satisfied due to his intuitive nature,

where Johan is a lot harder to please as he is more rational. This combination pushes the

performance of the firm forwards in Brian’s opinion. Once too many ideas are accepted and

implemented by Koen, Johan puts the brake on it and separates the unnecessary from the core

focus. He believes that the leaders of the firm make the right choices, but that it is a shame that the

high employee turnover intern level is a constant loss of intangible resources.

D. Overall Conclusion of Interview Feedback

The feedback from the interviews clearly shows that nearly every employee prefers an intuitive

form of decision making except Johan (Co-Founder). This reflects a higher than average business

risk due to the dominant intuitive behavior rooted at every business level. The lack of control

mechanisms invites agency conflicts due to low incentives for performance and rational feedback.

On the other hand, the vision of the leader is very strong which supports a solid business strategy.

The problem is that the dominant intuitive behavior invites numerous deviations from the initial

plans of operations, which again attracts additional risks and agency conflicts. The business model

assumes a combination of intuitive and rational business leaders, but the model also has its

downsides, as one of the leaders often needs to be absent on offsite projects. This makes this

rational leader feel somewhat distant where he assumes a supportive role instead of a leadership

one. This scenario provides the intuitive leader the space to dominate the firm with his preferred

decision-making behavior. Because of this, KeokeN Interactive clearly needs to attract more

rational employees into the firm at higher hierarchical positions in order to obtain more control on

the execution of the proposed business strategy. More measures on performance will incentivize

all the employees to perform better and within the proposed periods.

VIII. Business Theories and Framework Application

A. Porter’s Generic Strategies

KeokeN Interactive has decided that it currently is unable to pursue an overall cost leadership

strategy due to its current company composition and business development phase. Even though

they currently have a strong focus on operational efficiency, they believe this option is viable in

the end once the returns on investment commence by launching their first gaming title publicly.

For the time being, they believe that a strong differentiation focus is the business strategy to pursue.

By having a different market focus (game service industry instead of game development industry),

offering unique gaming experiences and developing a unique company image, they believe that

this will set them apart from the competition. They also wish to break the so-called “fourth wall”

by bringing the announced game experience to life. By sending game themed emails, providing

numerous possible game-themed conference sessions and regular contact with their gamer

community through their Twitch live video chat channel, they aim to achieve a more continuous

personal contact with their community. The aim on the long run is to combine their differentiation

strategy with a cost efficient strategy, thus achieving a combined focus strategy. They are trying

to show that this option is viable even in their market, as they have forecasted that the total budget

for their current 3D gaming title will cost them a fair amount less to develop when compared to

direct competitors. Competitors that develop more simple 2D games often have more than double

the expenditures on developing one of their titles. One would say that they have already achieved

a cost leadership focus, but as their firm is yet in the early stages of game and business

development, it is hard to say that this is actually true this early on. They also stress that at this

stage it is more important for them to focus on a differentiation strategy in order not to be “stuck

in the middle”. It is interesting to see that this business strategy leans more to a rational perspective

than an intuitive one even though analysis has shown that intuitive decision-making behavior is

dominant.

Figure 10: Porter’s Generic Strategies - Rational Case Analysis KeokeN Interactive

Source: http://jamieedwards1.hubpages.com/hub/How-specific-would-the-identification-of-strategic-capabilities-need-to-be-in-


B. SWOT Analysis

The SWOT Analysis tool in relation to KeokeN Interactive provides the following results:

Strengths:

- Strong company vision

- Employees with strong expertise (IT and business experts)

- Strong network within Indie and worldwide gaming industry

- Business model supports project investments and lowers company risks

- Well-managed product life-cycle management

- Few Indie competitors with this level 3D expertise

- Only current Unreal Engine 4 developers in the Dutch market

- Projects provide quick ROI, short time to market

- Financial support from local fund providers

- Operational costs are in control and realistic



Weaknesses:

- Low cash inflow, which may inhibit business investments

- Business investments carry an increased risky nature

- Continuous outflow of intangible resources due to high employee turnover (interns)

- High initial investment costs

- Lack of market exposure/brand awareness

- Lack of publisher’s network

- Dominant intuitive form of decision making within multiple business levels

- Continuous threat of deviating from business strategy due to intuitive nature

- Human resources are scarce

- Limited cash reserves

Opportunities:

- Technological advancements can support Indie game development market

- Publisher deals could provide (financial) resource support in game development

i.e. publishing exclusivity on Xbox One

- Multiple digital distribution channels available to publish through

- Attendance of large gaming conferences i.e. Gamescom, PAX East, etc.

Threats:

- High threat of new (Indie) entrants

- Threat of substitute gaming titles

- Technological advances might increase threat of competitors

- Game developer buyouts, i.e. Electronic Arts (EA), Microsoft, Sony, etc.

- Too many stakeholders will decrease profit margins through royalty cuts from revenues

- Unforeseen changes in the market environment

- Unfavorable game launch affects financial resource availability for future projects

i. Analysis

The SWOT analysis provides a clear picture that the market is able to have large immediate, and

possibly unforeseen, consequences in relation to company performance. This means that in order

to cope with these volatile factors, a participant of this market should have a certain level of control

over its resources. It is here where a dominant form of intuitive decision-making behavior does

not provide the ability to be at the required level of control. Rational business decisions based on

a thorough cost and benefits analysis are able to provide statistical feedback in order to create a

cause and effect relationship with regard to strategic decisions. When such a firm is able to

combine the best of both worlds, it is able to pursue the safest route to the indicated strategic goals.

C. The BCG Matrix

The BCG Matrix application in the case of the short and long-term strategic goals of KeokeN

Interactive provides the following results:

Firstly, the current (and only active) project of KeokeN Interactive is their title “Deliver Us the

Moon”. As this project is currently in its “pre-alpha” phase (early development without a publicly

playable test version), it is unable to provide a high market share. They are unable to provide the

game at this stage to the public in order to receive returns. This results in a high amount of

investment being put into the development of this title and low amount of market growth rate, thus

classifying this project as a “question mark”. Their aim for this title is to develop it into such a

stage that it can be published on the market, providing the first returns on investment (“Star”). The

further support of the published title will enhance the market growth rate and eventually shift its

product life-cycle stage to maturity, classifying it as a “Cash Cow”. At this stage, the game will be

able to provide the needed investments in order to develop their next gaming title in the upcoming

development year(s).

Figure 11: BCG Matrix - Project Deliver Us the Moon Rational Case Analysis KeokeN Interactive


In the meantime, KeokeN Interactive has planned to redevelop a previously cancelled project

known as “Horrinth”. This previous project will require minimal development time (several

months) as its main components such as level design and storyline have already been developed

previously. By simultaneously launching this title with “Deliver Us the Moon”, KeokeN

Interactive wishes to provide a short “free to play” gaming experience in order to support the sales

of “Deliver Us the Moon”. Currently, “Horrinth” is taking in no cash investments and providing a

low market growth rate, classifying it as a “Dog” project. Their aim is to use a relative high amount

of cash for a short period, shifting it to a “Question Mark”, where they will eventually divest the

project as it is not planned to generate returns due to its free to play nature.


Figure 12: BCG Matrix - Project Horrinth Rational Case Analysis KeokeN Interactive


The new project, which we will call project “X” in this paper, will follow a similar pattern to that

of “Deliver Us the Moon”. This title will start off as a “Question Mark” classified project that will

shift to a “Star” during publishing and finally shift into the “Cash Cow” class in order to provide

the needed funds for the upcoming title(s) afterwards. Keep in mind from their business strategy

that the projected lifespans of their gaming titles are between 1 to 1.5 years, making them less

vulnerable in the long-run to unexpected market changes. This does affect the timespan of the

returns on their investments, making their projects highly dependent on a constant high sales

performance throughout their lifespan.


Figure 13: BCG Matrix - Project X Rational Case Analysis KeokeN Interactive


ii. Analysis

The research clearly shows that the entrepreneurial state of the firm and intuitive decision-making

behavior has largely determined the project development and product life-cycle management of

their gaming titles (operations). Their intuition tells them that they should expect that the life-

cycles of their project would be relatively short when compared to other gaming titles. In a matter

of fact, it is the unique quality of the titles combined with a rigorous and effective marketing

campaign that could extend the corresponding life-cycles, providing them with the cash flows for

further support and development. It is known that entrepreneurial firms are extremely ambitious

and innovative. It is for this reason that it is of no surprise that KeokeN Interactive has already

been busy on other possible projects to work on in the future even though their current project is

in its early stage of development. It is their method of spreading out the market risk over various

projects, making them less susceptible to sudden negative impacts. KeokeN Interactive needs to

be careful with trying to invest too much (human) capital into multiple projects, as the nature of

their firm provides them with scarce (human) resources. This could also endanger the initial focus

of the firm, making them deviate from their proposed business strategy.


D. Porter’s 5 Forces

The application of Porter’s 5 Forces in relation to KeokeN Interactive provides the following:

Rivalry among existing competitors: High

- Saturated and highly competitive market

- Multiple large corporates dominate the worldwide gaming industry

- High differences in available resources between large and smaller competitors

- Middle class game developers are very small of proportion in the market

- Low switching costs for customers

- Wide range of games providing many substitutes

- Customer loyalty is important and a dominant factor of company success

Threat of new entrants: Medium

- Indie game developers have the ability to achieve of relative low costs of entry

- Short lead time to market time is achievable

- Initial investment costs are relatively high for new entrants

- Subsidies, funds and incubator programs exist which could provide required resources

- Specific IT and business expertise are a large determinant of company success

- Economies of scale exist

- Technological advancements directly affect company performance

Bargaining power of suppliers: Medium (combination of low/high, depending on the resource)

- Large number of suppliers exist

- Certain technological suppliers (such as the virtual reality goggles) are slim and costly,

but support differentiation strategies

- Low changing costs for general resources suppliers

- High changing costs for niche resource suppliers

Bargaining power of buyers: Medium/High

- Large number of customers provides a wide audience to target

- Number of customer transactions depend on game type and business model (single player,

multiplayer, pay-to-play, etc.)

- Price sensitivity in the Indie market is higher than in the AAA market

- Buyers have low changing costs

- Differences between competitors are relatively small in general

Threat of substitute products and/or services: Medium

- KeokeN Interactive focuses on unique game experiences that are difficult to copy

- Game experience can be mimicked by competitors

- When their titles lack unique experiences, the threat of substitutes is high

- Market is saturated and highly competitive

iii. Analysis

The application of Porter’s 5 Forces model shows that the highest threat results from the

competitors and the bargaining power of the customers. This is largely due to the highly

competitive and saturated nature of this quickly developing market. It is this nature that forces the

players to find other ways in order to stand out from the rest and find solutions through different

means (aka differentiation). These forces inhibit the dynamic capabilities of KeokeN Interactive,

but can be dealt with by differentiating effectively. Thinking out of the box is clearly related to an

intuitive way of decision making, which invites the accumulation of new ideas, pushes disruptive

innovation and new business models. This largely explains where the dominant existence of

intuitive decision making within a firm like KeokeN Interactive results from. The forces of the

market invite this behavior at all business levels, but do add upon the correlated risks of making

business decisions. Once again, control is key in such a demanding and vibrant market. Balancing

intuitive with rational decision making decreases the possible risks for a start-up, but provides the

capacity to differentiate by thinking out of the box continuously. It is here where the agency theory

needs constant consideration, as important decision makers within these firms will face pressure

from multiple ends within the business hierarchy. The differences resulting both forms of decision-

making behavior will result in contradicting opinions that could have an effect on business

performance.

E. The Resource-based view and the VRIN/O Framework.

For the application of the VRIN/O framework for KeokeN Interactive please consult the appendix.

The application of the VRIN/O framework identifies that KeokeN Interactive is able to develop a

sustained competitive advantage from the following specific business elements:

- Game development expertise

- Business management knowledge

- Proprietary technology (patents, copyrights, etc.)

- Application of technology (know-how)

- Human expertise

- Human skills

- Brand ownership

- Unique Customer Relationship

- Disruptive innovation of games

- Employee training and development

- Unique game experience development

iv. Analysis

The VRIN/O framework shows that they have a very strong internal expertise on intangible assets

that are supported by KeokeN Interactive extensively. It is this collective bundle of resources that

provides them with the ability to develop and support a unique core competence, providing the

firm with a concrete way of pursuing a differentiation strategy. This clearly reflects their proposed

business strategy as they wish to differentiate specifically by focusing on intangible resources.

These intangible resources provide them with a hard to imitate business value and core

competences that support their long-term competitive advantage. By obtaining experienced

personnel with rare and hard to imitate skills, artwork and styles, they are able to more effectively

support and control the development of their games. Without the support of KeokeN Interactive,

they would not be able to execute these competitive advantages to their actual potential. By

attracting an extensive expertise, they are able to compete more effectively, as most (Dutch) Indie

game developing companies lack this aspect (especially at business level). KeokeN Interactive

believes that the current (Indie) gaming market is in the need of more business expertise in order

to better function within this vibrant market. It is the combination of applying a rational and

intuitive form of decision making that has made them this profound with these rare and inimitable

intangible resources. No individual would be able to only rationally or intuitively assess the benefit

of these intangibles and make a selection on doing so, especially with an inside-out business

strategy.

F. The Reaction of the Founders and Their Internal Discussions.

The final stage of the research composes of a consultation with both founders of KeokeN

Interactive in order to discover their reactions to my applied analysis. Their immediate feedback

quickly shows that they would have approached and applied the tools, theories and frameworks

differently. It is important to keep in mind that this feedback mostly came from Koen, who is the

dominant and intuitive decision maker of the duo. This is due to being the most present at the firm

where Johan is regular working off-site on client projects.

The founders both agreed that they would have applied the SWOT and Porter’s 5 Forces analysis

in a very similar pattern. This is somewhere not of a large surprise as these tools have the best

abilities to portray facts due to low deviations from personal bias. However, they did state that

they would not prefer to apply the same tools at the same level of detail to generate more space for

intuitive decision making. Furthermore, they both agreed in their perspectives to have applied the

Porter’s Generic Strategies tool differently. They would focus more on a long-term differentiation

focus, as the high technological development pace of the market is unable to guarantee a long-term

cost efficiency focus. It became clear in this consultation that market uncertainty clearly fuels their

preference to intuitive decision making. The application of the BCG Matrix, which is less popular

in Johan’s perspective due to its various shortcomings, did show multiple deviations in approach

and application. Koen favored managing multiple projects simultaneously to spread risks and

maximize the changes to generate cash flow. Johan did not completely approve of this vision as it

would invite more risk into the business and would decrease control on ongoing projects. It was

interesting to see these discussions arise once again due to a difference in favored decision-making

styles. The discussion of the applied VRIN/O Framework also provided interesting feedback as

the application shows a lot of internal support for knowledge and intangible assets. They confessed

that they are somewhat aware of this behavior, but did not believe that this element was already so

deeply rooted in their business model and business culture. The application of this tool provides

them with clear feedback that they are on the right path in pursuing their preferred business

strategy. They did become aware from the application of this tool that they are currently unable to

fully utilize these competitive advantages to their fullest. This is due to some of the elements

missing full organizational support.

All in all, my analysis made them realize that they are only able to fully discover and address the

effects on their business strategy implementation and the effects on agency conflicts through a

thorough application of such tools, theories and frameworks. What is especially interesting is that

this approach favors a more rational form of decision making which is not dominant within

KeokeN Interactive, as the interviews have shown. They also agreed that inviting more rational

forms of decision making will create more internal balance and control. Koen did state that practice

and experience are able to tell them more than the application of these theories, tools and

frameworks. It was interesting to hear this statement come from Koen as this statement is favored

by many intuitive decision makers. It seems that individuals are able to have the same market and

business knowledge, but still differently envision the application of business strategy. It is clear

that only having one dominant form of decision making lacks that ability to fully discover and

portray the elements of the dynamics and impacts on business strategy.

IX. Conclusion

This section will combine all of the findings from the research of the case of KeokeN Interactive.

These findings will then be extrapolated to a more general market perspective to fit a wider

audience.

A. Why are certain forms of decision making so dominant within SME’s participating within

dynamic and highly competitive markets? What are the sources of origin and what are the

factors that force smaller players to behave in a certain sense?

The findings within this paper showed that nearly all of the employees at KeokeN Interactive

favored an intuitive form of decision making except the Co-Founder. It is the entrepreneurial

background of this type of firm that has largely attracted a particular type of decision maker.

Analysis also showed that these types of firms initially favor differentiation in their business

strategy. However, it is incredibly tough to successfully differentiate within a market where its

foundations are based on creativity itself. It is no wonder that such a market largely attracts

intuitive decision makers to think out of the box. On the other hand, one would also expect to find

rational thinkers within such a firm in order to retain more control over their scarce resources. The

intuitive behavior does attract higher than average business risk, but does match the creative and

innovative origin of this type of firm. You do see that in a matter of fact, the leaders of KeokeN

Interactive have attempted to develop a business model that assumes a combination of these forms

of decision making to cope with this specific drawback. Nevertheless, it is the execution of such a

business model that determines its effectiveness and the effects on the behavior at all business

levels. When there is a complete lack of control mechanisms to measure and control performance

and the behavior of employees, agency behavior conflicts can arise and business performance can

be affected. The longer this issue remains unresolved, the more deeply rooted this issue becomes

and the harder it will be to deviate from this pattern in later years due to habituation. Therefore,

when measures on performance are implemented, they will incentivize employees to perform

better within certain strategic boundaries. Skeptic readers may conclude that these measures could

destroy critical added business value by inhibiting creativity. This in a sense is true, but without a

clear guidance that invites rational and intuitive decision making altogether, the dominant

preference of the (dominant) leader will shape the behavior of the firm as was seen in the case

analysis at KeokeN Interactive. This shaped behavior will not always be aligned with the

envisioned business strategy and could thus affect optimal business performance by attracting

unnecessary risk. This issue is of incredible importance for start-ups, as the early phases of shaping

a firm will most likely determine the course of action for the upcoming years. These firms will

have fewer resources available later on, as these will most likely be fully utilized for business

development. Please note though, that I am not per se stating that having an intuitive decision-

making nature within such a firm is absolutely wrong. If a firm is able to develop clear and

effective business decisions without attracting unnecessary business risk, then it could well support

the performance of that particular firm. However, a complete absence of rational decision making

(where a thorough analysis for critical business decisions is highly recommended) will provide

slim chances that a constant optimal form of business performance can be pursued in the long-run.

B. What are the market factors that largely inhibit the dynamic capabilities of SME’s in these

types of markets and what are the sources of these factors?

The application of Porter’s Generic strategies showed that KeokeN Interactive heavily focuses

differentiation in their early stages of business development. They are aware that they will

additionally have to focus on cost leadership once they achieve the capabilities to do so. From this

feedback, one can clearly see that such a firm is aware that they also require a rational form of

decision making to obtain more control over their resources. The interesting aspect of this notation

is that these firms are apparently able to define the necessity to pursue this rational course of action

in the end, but seldom pursue a strategic behavior to achieve it. This is where the factors of the

market come into play. It seems that the factors of the market in which they participate forces these

firms to pursue and retain a dominant intuitive form of decision making. The application of the

SWOT analysis to the case of KeokeN Interactive illustrated that the market is able to have large

and immediate (and possibly unforeseen) consequences in relation to the SME’s company

performance. The dynamic nature of this type of market forces the smaller participants to pursue

a behavior to be able to constantly cope with these sudden pushes in order not to be eliminated by

the competition. The application of Porter’s Five Forces confirmed these findings by determining

that the largest threat from the market results from the current competitors and the high bargaining

power of the consumers. This inhibits the dynamic capabilities of the smaller participants as their

success is largely determined by how well they are able to serve, and thus retain, the needs of their

obtained customer pool. The creative and dynamic competitive nature of this market will

constantly provide the consumers to have a large selection of possible substitutes available to shift

to. It is this reason why the BCG Matrix showed that the entrepreneurial firms are extremely

innovative and pursue a strong focus on obtaining a strong internal expertise on intangible assets

to remain competitive. When these firms are able to obtain this rare and difficult to duplicate

expertise (VRIN/O) is when they are better able to retain their obtained customer pool. This invites

a rigorous product lifecycle management through the application of scarce resources, which are

prone to large impacts when unnecessary risk is attracted. This once again shows that

differentiation within the entertainment market, where the foundations are built upon creativity, is

incredibly difficult to achieve. These firms will need a combination of the two types of decision

makers to succeed.

C. How can the execution of decision-making within these firms be improved?

It would be naive to state that there is no method of improving decision making, as there is always

the presence for improvement for any aspect of business administration. As mentioned before,

business strategy and business performance is largely affected by the differences in what the

employees know how they should behave and how they actually behave in the real world. “What

managers know they should do - whether by analysis or intuitively - is very often different from

what they do. A common failure of managers is the postponement of difficult decisions.” (H.A.

Simon, 1987 pp.62) This behavior is well known from professionals to students alike. “A choice

between undesirables is a dilemma, something to be avoided or evaded. Often, uncertainty is the

source of difficulty” (H.A. Simon, 1987 pp.62) Here we see that uncertainty is also a large factor

which affects the actual implementation from decision-making behavior to what is initially

illustrated by the individual. In order to minimize this effect, the manager is able to undertake

several steps:

1. “Solving the problems takes priority over looking backwards to its causes.

2. The manager accepts personal responsibility for finding and proposing solutions instead of

seeking to shift that responsibility either to superiors or to subordinates, although the search for

solutions may, of course, be a collaborative effort involving many people.

3. The manager accepts personal responsibility for implementing action solutions, including

securing the necessary authority from above if required.

4. When it is time to look backward, fixing blame may be an essential part of the process, but

the primary focus should be on what can be learned to prevent similar problems from arising in

the future.” (H.A. Simon, 1987 pp.63)

Furthermore, I believe that an important fifth element should be added to this list. The founder of

KeokeN Interactive, Koen Deetman has explained the following:

5. “Always search for individuals who are better at doing things than you are as a business

leader. This focus invites different types of people which in turn invites different forms of decision

making altogether.” (K.A. Deetman, 2015)

This list, when pursued effectively, should be able to solve one of the main critical problems as

explained within this paper.

X. Further Research Recommendation

I hope that the reader of this paper has been convinced that it is critically important to look at the

forms of decision-making within firms in dynamic markets and how they affect their strategic

dynamic capabilities. I therefore strongly recommend others to feel invited to commence further

research into this topic. Employees within firms might have all the knowledge on applicable

theories, tools and frameworks determining which elements should be pursued in their business

strategy, but it is the actual execution of the behavior that determines how effectively these

elements are implemented into actual business strategy.

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XIII. Appendix and Annexes

Annex 1: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Overview

Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf

Annex 2: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Overview


http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf


Annex 3: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Gamer

Demographics



Annex 4: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Gamer

Purchasing



Annex 5: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: How We Play



Annex 9: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Parents And

Games



Annex 10: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Parents And

Games



Annex 11: The Entertainment Software Association: Essential Facts About The Computer And Video Game Industry: Top Sellers

- Best-Selling Video Game Super Genres by Units Sold, 2014


Annex 12: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Top Sellers -

Best-Selling Computer Game Super Genres by Units Sold, 2014




Annex 13: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Top Sellers -

Best-Selling Computer Game Super Genres by Units Sold, 2014



Annex 14: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Sales

Information



Annex 15: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Total

Consumer Spend on Games Industry


Annex 16: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Total

Consumer Spend on Games Industry




Annex 17: KeokeN Interactive: Business Hierarchy

Interview Questions: KeokeN Interactive

The following interview questions served as major guidelines to answer the most important

elements of the research. The interviews were executed in a regular conversation method instead

of a strict question-to-answer style. This method enhanced the quality of the interviews.

1. What is your specific background in studies/work experience? Do you have a business

background? Experience?

2. Do you think that KeokeN needs people with a business background in order to create

control?

3. Which KPI’s do you think KeokeN tracks in order to know whether it is on track?

4. How do you know whether you and the rest (firm) is on track with its expectations?

5. Are you dealing with incomplete information when you have to make business

decisions? Which sources can be better handled. How are they handled?

6. Do you ever face inter-collegial conflicts of interest? Why? How did you feel about

this?

7. Have you ever had to deviate from your daily operations in order to cope with business

environmental constraints? E.g. having to take on a different task in the short term or

else the firm would face consequences? How did you feel about this?

8. What do you think you use more in your decision making intuitive or analytic decision

making? Why? Where does this come from? What factors/elements determine which

one you choose?

9. Were you ever forced to deviate from your initial business strategy? If so, why? Due

to which circumstances?

10. On basis of which factors do you think that your firm makes a consensus on decision

making?

11. Where do you think that your firm excels or lacks operational excellence? What is the

source of this deficiency? How can this be changed? What is the true value of KeokeN?

12. Where do you think that the specific strengths/weakness of KeokeN lie?

13. Where do you think that the specific market threats lie? And the opportunities? How

so?

14. Which resources do you believe that KeokeN manages best? Which resources less?

Which resources constraints do you typically deal with?

15. Do you think that KeokeN is exploring the market or already exploiting the market?

How so?

16. Do you think that KeokeN has a clear inside out or outside in business strategy? Do

you develop a game which suits your customer or what you think your customer wants?

Customer focus?

17. How would you describe the culture of KeokeN?

18. Do you perceive that KeokeN has more tangible or intangible resources which

determine its competitive advantage?

19. How do you think that KeokeN will be able to handle with sudden

developments/changes in the gaming market?

20. Who leads the firm? Why? Is everyone involved in business decision making?

21. Have you ever had the idea that valuable intellectual knowledge left the firm and never

got replaced properly?

Annex 18: KeokeN Interactive: Interview Questions

Annex 19: KeokeN Interactive: The VRIN/O Framework

executive summary - uva

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