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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.
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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
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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
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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
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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
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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?
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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.
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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.
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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
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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/
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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
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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
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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
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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.
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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.
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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.
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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/
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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.
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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
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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
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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
Page 22
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-
order-to-achieve-advantage
Page 23
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.
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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
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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).
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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.
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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
Page 28
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
Page 29
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.
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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.
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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.
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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-
order-to-achieve-advantage
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
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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
Page 34
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).
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Figure 11: BCG Matrix - Project Deliver Us the Moon Rational Case Analysis KeokeN Interactive
Source: http://www.managementstudyguide.com/bcg-matrix.htm
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.
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Figure 12: BCG Matrix - Project Horrinth Rational Case Analysis KeokeN Interactive
Source: http://www.managementstudyguide.com/bcg-matrix.htm
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.
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Figure 13: BCG Matrix - Project X Rational Case Analysis KeokeN Interactive
Source: http://www.managementstudyguide.com/bcg-matrix.htm
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.
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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
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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-
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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
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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
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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.
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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
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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
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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:
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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
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
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Annex 3: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Gamer
Demographics
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
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Annex 4: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Gamer
Purchasing
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
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Annex 5: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: How We Play
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
Page 57
Annex 6: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: How We Play
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
Page 58
Annex 7: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: How We Play
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
Annex 8: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: How We Play
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
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Annex 9: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Parents And
Games
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
Page 60
Annex 10: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Parents And
Games
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
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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
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
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
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
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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
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
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Annex 14: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Sales
Information
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
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Annex 15: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Total
Consumer Spend on Games Industry
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
Annex 16: The Entertainment Software Association: Essential Facts about the Computer and Video Game Industry: Total
Consumer Spend on Games Industry
Source: http://www.theesa.com/wp-content/uploads/2015/04/ESA-Essential-Facts-2015.pdf
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Annex 17: KeokeN Interactive: Business Hierarchy
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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?
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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?
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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
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Annex 19: KeokeN Interactive: The VRIN/O Framework