Organizational behavior case for discussion
Acting on a vision of change
Video-game maker Activision was founded in 1979 by an ex-music industry executive and four disgruntled programmers from Atari,a pioneer in arcade game and home video=game consoles. In part, the company was established as a haven for game developers unhappy with prevailing industry policy at the end of the 1970s. At the time, systems providers like Atari hired developers to create game only for their own systems; in-house developers were paid straight salaries and denied credit for individual contributions, and there was no channel at all for would-de independents. Positioning itself as the industry’s first third-party developer, Activision began promoting creators as well as games. It went public in 1983 and successfully rode the crest of a booming market until the mid-1980s.
Its struggles began in 1986, when it entered an ill advised merger with Infocom, a software firm founded to develop interactive-fiction games. The relationship was rocky from the first, and Activision closed down Infocom operations in 1989, after three years of mismanagement and escalating losses. Meanwhile, Activision had also begun to branch out from video games into other types of software and, in order to underscore its new commitment to a broader product line, changed its name to Mediagenic. By this time, however, competition in the video-game market had increased substantially, and the decision turned into arcas beyond its distinctive competence turned out to be a major strategic blunder. By 1991, Mediagenic was bankrupt.
This is the point at which Robert Kotick happened upon Activision/Mediagenic-“a company,” as Forbes magazine put it, “with a sorry balance sheet but a storied history.” Kotick, a serial entrepreneur with no particular passion for video games, bought one-third of the firm for $440,000 and looked immediately to industry leader Electronic Arts (EA) for a survey of best practices in the industry. What he discovered, however, was a competitor whose culture was beset by internal conflict-namely,between managers motivated by productivity and profit and developers driven by independence and imagination. But EA also sold a lot of video games, and to Kotick, the basic tension in EA culture was not entirely surprising:clearly the business of making and marketing video games succeeded when the creative side of the enterprise was supported by financing and distribution muscle, but it was equally true that a steady stream of successful games came from a company’s creative people. The key to getting Activision/Mediagenic back in the game, Kotick decided, was managing this complex of essential resources better than his competition-notably EA-did.
So the next year, Kotick raised $40 million through a stock offering, moved the company (rechristened Activision) from Silicon Valley to Los Angeles, and began to recruit the people who could furnish the resources that he needed most-creative expertise and a share of the passion that its customers brought to the video-game industry. Activision, he promised prospective developers, would not manage its human resources the way that EA did: he argued, “has commoditized development. We won’t absorb you into a big Death Star culture.”
Between 1997 and 2003, Kotick proceeded to buy no fewer than nine studios, but his concept of a video game studio system was quite different from that of EA, which was determined tomake production more efficient by centralizing groups of designers and programmers into regional offices. Kotick allowed his studios keep their own names, often let them stay where they were, and further encouraged autonomy by providing seed money for Activision alumni who wanted to launch out on their own. He still conducts market research out of the company’s L.A headquarters but does not use the results to put pressure on his creative teams; rather, he shares the data with his studios and lets them draw their own conclusions. Each studio issues its own financial statements and draws on its own bonus pool, and the paychecks of studio heads reflect both company-wide profits and losses.
Kotick’s strategy has paid off big time. In 1999, Activision’s Neversoft studio came up with Tony Hawks’ Pro Skater, which broke though the monotony of sports games by letting players proceed at their own pace through a virtual landscape. Activision’s next blockbuster franchise-the World War II game Call of Duty-came in 2003 from a group of developers who had left EA to found a studio called Infinity Ward. In 2006, Kotick paid $100 million for a company called Harmonix, which had developed a game revolving around a guitar-shaped peripheral: the Guitar Hero franchise has revolutionized not only video games and popular music and, as of this writing has generated more than 2 billion in revenue.
By this time, Activision had built or developed games for every lucrative product category in the market except one-The so-called “massively multiplayer” games in which players pay monthly subscription fees to enter online worlds and build characters over the course of month or even years. The attractiveness of the category is obvious: Whereas a console games might command a one-shot retail price of $40, an online multiplayer game might charge $15 a month to each of several million players. In December 2007, therefore, Activision announced a strategic move that would immediately transform it into a major player (so to speak) in the multiplayer category-a merger with the game-making unit of the French entertainment conglomerate Vivendi. Vivendi was big, but it had only one blockbuster game-the world’s number-one online multiplayer franchise, called World of Warcraft. Developed by a Vivendi-owned California studio called Blizzard, World of Warcraft had 11 million subscribers and, with $3.7 billion and sneak into the top spot as the bestselling video-game publisher in the world no affiliated with a maker of game consoles (such as Nintendo and Microsoft). Today, Activision Blizzard’s market capitalization of $13.3 billion is nearly twice that of EA. Kotick has attributed the firm’s success to a “focus on a select number of proven franchises and genres where we have proven development expertise. .. We look for ways to broaden the footprints of our franchises, and where appropriate, we develop innovative business models like subscription-based online gaming.”