Final Project: Big Data

Big Data x Logistic x Globalization 
‘Big data’ promises business benefits in terms of timely insights from data, real-time monitoring and forecasting of events, more fact-based decisions, and improved management of performance and risk. It has already had a considerable impact and changed the competitive landscape in many industries, for example, our targeted industry: logistic. We are going to focus on different functions of big data applied in different sub-industries under logistic: prediction on maritime shipping, real time monitoring on cold chain, decision making on logistic infrastructure, operational efficiency on supply chain. In our case, big data does help by implementing ‘intelligent operation’. The purpose of our group project is to establish a framework for identifying impact of globalization on logistic industry, understand how big data can contribute to make logistic industries safer and more sustainable under the age of globalization.

Big Data and maritime shipping.
In global trading and logistic aspect, big data provides free real-time information to the public, about ship movements and ports, mainly across the coast-lines of many countries around the world and thus lead to emerging innovation management practices. The initial data collection is based on the Automatic Identification System (AIS). As from December 2004, the International Maritime Organization (IMO) requires all vessels over 299GT to carry an AIS transponder on board, which transmits their position, speed and course, among some other static information, such as vessel’s name, dimensions and voyage details and share the data of their area in order to cover more areas and ports around the world. AIS is initially intended to help ships avoid collisions, as well as assisting port authorities to better control sea traffic. AIS transponders on board vessels include a GPS (Global Positioning System) receiver, which collects position and movement details. Messages include the following three basic types:

1. Dynamic Information, such as vessel’s position, speed, current status, course and rate of turn.

2. Static Information, such as vessel’ name, IMO number, MMSI number, dimensions.

3. Voyage-specific Information, such as destination, ETA and draught.

Big data and cold chain.

An increasing demand of daily products, vegetables, fruits as well as the needs of pharmaceutical drugs boosted the cold chain market where the logistics was attached with more importance on the control and stabilize of temperature and humidity in the vehicles and containers, and the cold chain monitoring platform in use of big data technology has come into the market. The M2M (machine to machine) communication requires the sensors for temperature and humidity which has been expected in the vehicles and containers that they carry, and this would help generate data during the transport which can be transmitted via mobile means and be monitored in real time. The globalization which has a positive impact on international trading would urge the immense use of this M2M communication on cold chain as it shall be taken as the supply chain integrity where daily products and pharmaceutical companies will need the proof to sell their products.

                        

                           Big data and Supply Chain Management
A “supply chain” is a broad term for the resources, activities, information, and people that are involved throughout the entire process of raw material to final product, or supplier to customer. Thus, supply chains are highly linked together and involve anything from transport to storage in warehouses to actual point of sale. Globalization increases the interconnectedness of businesses which leads to a growing complexity of supply chains. Hence, there is one magic word in the logistics industry: efficiency. Big data, with its many applications, has helped boost operational efficiency of supply chains in the logistics industry on a global scale.

Some widespread applications of big data include the following:

·         Radio Frequency Identification (RFID)

·         Enterprise Resource Planning (ERP)

·         Automated Storage and Retrieval Systems (ASRS)

        Automated Storage and Retrieval System in a Warehouse

Implementing these types of big data leads to higher efficiency and lower costs, enhancing the competitiveness of logistics companies today. However, it is often argued that globalization leads to a lack of fair trading opportunities. In fact, the World Trade Organization has received much criticism for being heavily influenced by the interests of wealthy nations and companies. Through globalization it seems that rich, well-established companies are becoming bigger, stronger and more dominant. Thus, they are able to afford the opportunities provided by big data while smaller companies are left struggling to survive in the market.

Big data in the logistics infrastructure

Big data represents more a wide range of analytical technologies than simply the ability to handle the large volume of data[1]. There are emerging innovative technologies applied making it happen for organizations to utilize the big data for a smarter decision-making. Industries such as logistics fund specializing in providing warehouses to the target market are the pioneers in employing big data analytics. The decision-making processes are typically driven by the results generated by analyzing the data on four key elements: the locations or site selection, economy of scales, market projections and customers. These four factors are interrelated rather than independent of each other.

With the applications of geospatial technology, big data in logistics infrastructure industry are to be collected in real time model, thus lead to more efficient and accurate strategic decision-making power.

Conclusion
In summary there is a lot of headroom for Big Data approaches to fill under globalization. The digital revolution in the logistics will continue with no doubt. The transformation into an information-driven business will make logistics smarter, faster and more efficient. 

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[1] ‘Using Big Data for Smarter Decision Making’ IBM BI Research, 2011

Big Data in Logistics

Preface

Large or small, no enterprise could remain aloof today as big data has been flooded in every sector, every economy, and everywhere in our lives. Big data is hyped as the next big thing by tech geeks; along with cloud, social media, and mobility, the four transformative megatrends that will shape the global economy over the next decades, as MGI report (2011).

Big Data, though with only two short years since its inception, has been profoundly transforming our lives in all dimensions. More than that, big data, as is claimed, is disruptive in terms of velocity, volume and variety. As such, big data has been termed as data deluge. It is reported that 90% of the world’s data has been created in the last two years, it is being created more overwhelmingly with the easy access to internet through mobile devices, sensors, wearables and social networking tools. It is of no avail to predict what the data landscape would look like even tomorrow. What must be done is to harness the power of big data and uncover the benefits it can bring to our business, or what changes the big data may revolutionize in terms of efficiency enhancement, cost reductions, risk management or attracting customers.

Admittedly, logistics sector is typical of a data-driven business. Logistics and big data are a perfect match. DHL Big data solutions demonstrate how the global logistics company plays ahead of the game by capitalizing on the untamed data asset in an innovative way.

Introduction 

It is the era of big data that we are entering in spite of ourselves at an accelerating speed. According to the EMC/IDC Digital Universe Report, the digital universe is growing 40% a year into next decades. It is doubling in size every two years, and by 2020 the data that we create and copy annually in the digital universe is projected to reach 44 trillion. If the foregoing future had been forecast in a sense of ambiguity, let’s watch how the date is being generated the moment we are working on the paper. Some quick facts are instrumental to our understanding how we are awash in a flood of big data every minute. The following snapshot shows the amount of data created online in one minute (NOT an hour or a day, but a minute):

• 2,000,000 Google Searches
• 685,000 Facebook Updates
• 200 Million Sent Emails
• 48 Hours’ worth of video uploaded to YouTube
• 347 New Blogs Posted

What is the implication of the above data? Unstructured, massive, and real-time? Or all of them. It is really big, isn’t it? But we are impressed not only with its being big but its ubiquitous. Big data has been making inroads into all aspects of our lives one way or another. For enterprises, it is time to make a shift of mindset to dig the value and gain competitive advantage from the untamed data by data-driven business insights. It is challenging but there is plenty of headroom for valuable innovation.

Logistics and supply chain, of all the industries, is supposed to be the most ideally situated for using big data analytics given that massive amount of data are being generated every day in supply chain business activities. For instance, the tracing of goods from origin to destination produces an extensive flow of information including geographical, customers, packages, transportation carriers, energy consumptions, and among others. When the enormous amount of data generated is aggregated on a global scale, it turns out to be a huge mine of data. Enterprises embracing the advent of big data configure the capabilities to extract values from such mines as to boost operational efficiency, increase customer experience and loyalty, fortify risk management and exploit innovative business models. Big data and logistics are made for each other, according to CSI report (2013). 

DHL is a prime example of how it has significantly benefited by tapping into the power of big data, and gained its competitive advantage globally. For instance, by using GPS and sensor data, they optimized the route, thereby fuel usage reduced, and orders delivered more efficiently. That is only a part of the benefits that big data analytics unleashed. However, there are many enterprises in the logistics sector that didn’t apply the big data. A survey by Accenture (2014) showed that only 30% of the target companies in the logistics and supply chain sectors have implemented the tool of big data analysis as an organizational imperative to run their businesses though more than 90% have a big data strategy in place to be executed in the next 6-12 months. 

Big data is the untapped logistics asset, says a report from DHL. In the age of emerging technologies such as mobile devices and sensors, big data would bring unprecedented transformations in the logistics sectors. In particular, with the surge of e-commerce move and delivery on an end-to-end basis, innovations in logistics supply chain will be overwhelming, which will be bound to change the landscape of global economy. 

Industry Profile Report 

Differences of Big Data from existing technologies (Michael, Michele, 2013): 

Unlike past eras in technology that were focused on driving down operational costs mostly through automation, the ‘Analytics Age’ has the potential to drive elusive top-line revenue for enterprises. For those enterprises that become adept with Big Data analytics, they will simultaneously minimize operational costs while driving top-line revenues to net substantial profit margins for their enterprise.

Big Data analytics uses a wide variety of advanced analytics, as displayed below: 

Deeper insights.

Rather than looking at segments, classifications, regions, groups or other summary levels you will have insights into all the individuals, all the products, all the parts, all the events and all the transactions etc.

Broader insights.

The world is complex. Operating a business in a global, connected economy is very complex given constantly evolving and changing conditions. As humans, we simplify conditions so we can process events and understand what is happening. But our best-laid plans often go astray because of the estimating or approximating. Big data analytics takes into account all the data, including new data sources, to understand the complex, evolving, and interrelated conditions to produce more accurate insights.

Frictionless actions.

Increased reliability and accuracy that will allow for deeper and broader insights to be automated into systematic actions.

The spectrum of opportunities and pitfalls in the adoption of Big Data: 

Opportunities 

The key to success for organizations seeking to take advantage of this opportunity is (Minelli, Michael, (2013)):

1. Leverage all current data and enrich it with new data sources.

2. Enforce data quality policies and leverage today’s best technology and people to support the policies.

3. Relentlessly seek opportunities to imbue your enterprise with fact-based decision making.

4. Embed your analytic insights throughout your organization.

With so much data being generated, the real challenge is finding the right data and deriving actionable intelligence.

Pitfalls

For those ready to dive into a Big Data implementation, be sure to weigh the pros and cons. Three of the most common problems in big data deployments are incomplete data collection, false starts, and disruptive drains on IT and data-professional staff productivity.

Here are some insights into the pitfalls to avoid:

1. Failure to capture critical data. 

With haste and inexperience, you might miss relevant data that could illuminate revenue opportunities or ways to reduce customer churn. If competitors start taking advantage of what you miss, the entire business could be vulnerable.

2. False starts. 

Taking multiple shots at big data will delay implementation. The impact of any delay will only be magnified if competitors beat you to a breakthrough.

3. Resource drains.

IT and data-management teams are under pressure to maintain daily operations, deliver new reports and analyses, and incorporate new capabilities. Overburdening employees with too many roles or short-staffing the day-to-day work is not the way to go. In fact, many successful practitioners report that their big data teams are quite separate from preexisting BI, data warehousing, and data management teams.

Factors driving technology leaders to manage Big Data (Philip Russom 2013):

1. Big data just gets bigger. 

Embracing big data to keep pace with its growth, get a business return and fold it into enterprise data architecture. Thus, it is important to beef up data management infrastructure and skills as early as possible. Otherwise, an organization can get so far behind from a technology viewpoint that it is difficult to catch up. From a business viewpoint, delaying the leverage of big data delays the business value. Similarly, capacity planning is more important than ever, and should be adjusted to accommodate the logarithmic increases typical of big data.

2. Resistance is futile: big data will be assimilated into enterprise data.

Technology leaders have to start somewhere, even if it is a data management silo devoted to one form of big data. Typical silos manage Web logs, sensor and machine data logs, and persisted data streams. Yet, it is also important to determine how each form of big data will eventually fit into an overall architecture for enterprise data.

3. Advanced analytics is the primary path to business value from big data. 

The current uptick in advanced analytics among organizations is driven by the availability of new big data, plus the new business facts and insights that can be learned from its study.

4. Joining big data with traditional data is another path to value. 

For example, 360-degree views of customers and other business entities are more complete and bigger when based on both traditional enterprise data and big data. In fact, some sources of big data come from new customer “touchpoints” (mobile apps, social media) and so belong in customer view.

5. Big data can extend older applications.

This includes any application that relies on a 360-degree view, as mentioned above. Big data can also beef up the data samples parsed by many analytic applications, especially those for fraud, risk, and customer segmentation.

Dealing with New & Disruptive Technologies

Global economies, through innovation, have evolved considerably to form the nature of how business is conducted today. Rapid technological developments cause some firms to collapse while others have used new technologies to exploit business opportunities. Indeed, big data, being a disruptive technology, means that it is both a threat and an opportunity in the business environment. It can be a threat if companies fail to exploit the potential of big data while competitors are quick at adopting this new technology. Hence, companies should seize the opportunity of big data to conduct business more efficiently in the twenty-first century. As DHL (2013) points out, logistics companies such as DHL manage an enormous amount of goods and data sets every day. This means that the logistics industry basically relies on big data usage as a core part of their business models. For this reason, the success of logistics companies is linked to managers’ ability to fully exploit this new disruptive technology. Therefore, important questions are:

• How can the disruptive nature of new technologies be used to one’s advantage?
• How can innovation build upon these new technologies?

These questions are particularly interesting in today’s world where technology evolves faster than ever, loads of information is readily available via the internet, and communication occurs instantly amongst each other. Indeed, in addition to traditional resources such as labor, capital, and land, information has become a critical element in shaping competitive advantage in today’s world (DHL 2013). According to Wu, Ming, Wang, and Wang (2014), “knowledge has become a main source of wealth, and knowledge workers are the most vital asset, and how to manage knowledge is the most important task for organizations and individuals” (p. 6314). In a sense, this means that it is no longer a competitive advantage to simply have knowledge; instead companies nowadays must be able to use knowledge intelligently. Big data allows logistics companies to make intelligent use of their knowledge through package tracking, customer relationship management software, and Enterprise Resource Planning (ERP) software such as SAP and Oracle for example.

According to George, Haas, and Pentland (2014), big data involves huge sets of data, meaning these data sets must be managed in smart ways. People need to utilize powerful techniques to discover trends and patterns within a huge set of data. Therefore, nowadays the logistics industry needs employees with these technical skills. Indeed, from a human resources perspective it can be said that employees working with big data need the proper qualifications and training in order to efficiently work with big data applications. Therefore, logistics companies need people who have mathematical knowledge (e.g. statisticians) as well as computer skills who can work together with marketers in order to identify broader market trends. Equipped with this knowledge of market trends and needs, logistics companies can then design products and processes in ways that more effectively fulfill market needs.

Characteristics of Building on Emerging Technologies

Building upon emerging technologies such as big data requires the logistics industry to merge big data into the life cycles of existing products and services. DHL has done a particularly good job at accomplishing this. This can be seen from the fact that it has improved its operational efficiency, customer experience, and b2b supply chain management in recent years (DHL 2013). As a result, DHL has been able to please customers and reduce its operational costs. It is important to note that although using big data is helpful, this technology also has its limits. This is because of the existence of many indirect sales channels such as online platforms, Smartphone applications and portals. These indirect sales channels cause logistics companies to not have an entirely clear picture of customer activity.

In an online article from our week 9 class readings, Van Hove (2014) highlights the importance of original innovation. According to the author, if a company wants to innovate successfully then it is not enough to simply replicate the innovative actions of strong competitors. In short, Van Hove (2014) claims that in order to innovate effectively, employees need a clear idea of why they do what they do as a business. People are more motivated to add value to their organization if they can identify with the organization’s strategies and goals. Furthermore, to maximize innovative prowess, managers should encourage employees to share creative ideas and to be persistent in achieving agreed upon goals.

We generally agree with these arguments made by Van Hove (2014). To us, the author is basically saying that innovative companies are ones that are able to excite their employees and to make them ambitious. This is done by first inspiring the employees through ambitious goals and secondly by increasing the employees’ identification to the company. In this way, intrinsic motivation of employees will be harnessed, creating an environment conducive to original innovation.

While this approach to innovation is true when managing people, it does not always apply when managing products or processes. In contrast to the author, we believe it is often important for companies to replicate their competitors’ actions, especially when it comes to utilizing emerging technologies to enhance business opportunities. Van Hove (2014) states that “businesses exist because of opportunity and opportunity is why we innovate”. The author seems to be saying that firms should exploit environmental opportunities by creating innovative products or processes. This is a logical statement, however, in today’s world opportunities are often linked to innovations themselves. In other words, innovative technologies themselves represent opportunities for companies to innovate further.

Strategic Adoption of DHL

Deutsche Post DHL Group contains two powerful business brands in the marketplace: The Deutsche Post who is Europe’s largest mail services operator and market leader in the German mail and parcel market; and DHL, the leading global brand in the logistics industry. Originally founded in 1969 by Larry Hillblom, Adrian Dalsey and Robert Lynn, DHL primarily carried out their delivery between San Francisco and Honolulu, but expanded aggressively to countries that could not be served by other courier providers through its blue ocean strategy since the 1970s. As of 2014, DHL has around 285,000 employees in 120,000 destinations in all continents. 

In 2009, DHL presented its strategy 2015 which emphasized three key objectives for its development: become the provider of choice for customers, an attractive investment for shareholders and the employer of choice for staff. The strategic approach of its four business divisions (mail, express, global forwarding and freight, supply chain) in its annual report of 2012 and 2013 fully reflects its objectives. By making the important progress towards these three key objectives, in April 2014, “Strategy 2020: Focus. Connect. Grow” has been announced, the new strategy aims to build on these successes and further accelerate DHL’s growth. Slightly different from its previous four business divisions, the new one consists of post/ecommerce/Parcel, express, global forwarding and freight, supply chain. As the newly named division, post/ecommerce/parcel would continue to design a market-based cost structure, provide the highest quality to its customers, motivating its workforce and keep them informed as well as tap into new online and offline markets. By acquiring Allyouneed.com, DHL has established an online supermarket where they offer same-day food delivery with its retail customers; and DHL offers one of the largest online marketplaces in Germany on MeinPaket.de, all these efforts are in line with its goal of offering effective digital communications as the internet has become a useful tool for its customers to access its services. When looking at DHL’s strategic approach in the recent five years, we shall be able to find that DHL’s strategic approach is trend-setting and refuses to be left behind in general. 

Stepping into the big data era, where this new technology has been forecasted to play a vital role in logistics industry, as the trend leader, DHL would definitely strive to explore the benefits that big data could bring in. 

The contribution to operational efficiency

1. Real-time route optimization

In 2010, DHL and Blue Dart, part of DHL Group, launched an “intelligent” pick-up and delivery vehicle called Smart Truck, which combines a number of innovative technologies including a route planner, and this is able to adjust the routes based on incoming shipment and traffic data. DHL Smart Truck reduced number of miles travelled by 15% and length of average route by 8% during its pilot stage, and also reduced fuel consumption and CO2 emission.

2. Crowd-based pick-up and delivery.

DHL MyWays is an app enabling flexible parcel delivery through crowd-sourcing on which consignees can state where they want delivery and other app users in the area can build points by making ad hoc deliveries in their area.

3. Operational capacity planning

One research project at DHL called “DHL Parcel Volume Prediction” is investigating the correlation between external factors like Google search results, weather conditions or even flu outbreaks and online parcels orderings. This analytic tool results in the operational capacity planning improvement.

Development of New Business Models

1. Market intelligence for small and medium-sized enterprises

DHL Geovista is an online geo marketing tool for SMEs to analyze business potential which is currently under piloting. It is used for predicting realistic sales and analyzing local competitors based on the scientific models.

2. Address verification

A correct address is the prerequisite for a punctual delivery. DHL Address Management is able to return incomplete or incorrect incoming data with validated data from its database.

Nevertheless, all new technology involves trade-offs between risk and return (HBR, 2013). With regard to big data, there are a series of challenges that not only DHL, but all logistics players shall overcome for the sake of the successful implementation, such as data transparency & governance, and data privacy. However, with the rapid development of internet where data is driven to be a crucial point for the success of logistics sector, DHL, the entrepreneurial logistics provider, will be expected to perform more efficiently.

References:

Big data: The next frontier for innovation, competition and productivity, McKinsey Global Institute, 2011. 

http://www.forbes.com/sites/danielnewman/2014/06/03/big-data-means-big-disruption/

https://www.t-systems.com/news.../WhitePaper_Big-Data-Logistics.pdf

http://www.emc.com/leadership/digital-universe/2014iview/index.htm

www.infosys.com/infosys-labs/.../bigdata-challenges-opportunities.pdf

Big Data in Logistics: a DHL perspective on how to move beyond the hype, December,2013

Big Data Analytics in Supply Chain: Hype or Here to Stay. 2014, Accenture Global Operation Megatrends Study. 

Minelli, Michael , (2013). 'What Is Big Data and Why Is It Important?'. In: (ed), Big data, big analytics: emerging business intelligence and analytic trends for today's businesses . 1st ed. : Hoboken, N.J. : John Wiley & Sons, Inc . pp.(13-14).

Philip Russom, (2013). Managing Big Data. TDWI Best Practices Report. TDWI Research.

Mohanbir Sawhney, Robert C. Wolcott and Inigo Arroniz. (2006). The 12 Different Ways for Companies to Innovate. MITSloan Management Review.

DHL. (2013). Big Data in Logistics: A DHL Perspective on how to move beyond the hype. Troisdorf, Germany: Jeske, M., Grüner, M., Weiß, F.

George, G., Haas, M.R., & Pentland, A. (2014). Big Data and Management. Academy of Management Journal, 57(2), 321-326.

https://annualreport2013.dpdhl.com/dpdhl_gb2013/static/export/docs/DPDHL_2013_Annual_Report.pdf

file:///C:/Users/1/Desktop/DPDHL_2014_Annual_Report.pdf

http://www.dpdhl.com/content/dam/dpdhl/Investors/Publications/DPDHL_Annual_Report_2010.pdf

http://annualreport2012.dp-dhl.com/outlook/opportunities-and-risks/strategic-focus

http://www.dpdhl.com/content/dam/dpdhl/Investors/Publications/Annual_Reports/DPDHL_Annual_Report_2011.pdf

http://unstats.un.org/unsd/trade/events/2014/Beijing/documents/postal/USPS%20-%20Big%20Postal%20Data.pdf

http://www.transglobalexpress.co.uk/news/351/

http://www.delivering-tomorrow.com/drilling-deep-to-find-big-data-riches/

https://hbr.org/2013/04/innovation-risk-how-to-make-smarter-decisions

Van Hove, M. (2014, July 11). Transformation Through Strategy And Innovation. Retrieved from http://www.strategos.com/transformation-strategy-innovation/

Wu, Z.Y., Ming, X.G., Wang, Y.L., & Wang, L. (2014). Technology solutions for product lifecycle knowledge management: framework and a case study. International Journal of Production Research, 52 (21), 6314-6334.

Nintendo: Please Keep the Ocean Clean

RANKED as the 8th Japan's Best Global Brands in 2014 (Interbrand: 2014), Nintendo has been regarded as a pioneer in the technology and gaming industry in the world since it enters into electronic era in 1970. Being loosely translated as “Leave luck to heaven”, Nintendo has experienced both “leave luck to itself” and “leave luck to heaven” – the pathway has never came easy, and the commercial failure of “Virtual Boy” is among the obstacles that Nintendo has experienced. By horizontal comparing Virtual Boy with Oculus Rift, another virtual game headsets who’s achieved tremendous success in the market, a series of lessons on both technology and commercial innovation could be learned.

Industry Overview

During this decade, the video gaming industry sees the introduction of the 8th generation gaming console. The console manufacturers have continued to adopt the five-year console development life cycle. Since the 6th generation gaming consoles (i.e. around the early 2000s), three prominent players have emerged: Sony, Microsoft and Nintendo. As of January 2014 Sony had the biggest chunk of the $9.9 Billion market with 63% of the market share. Microsoft was second with 23%, followed by Nintendo with 14% market share. Although the industry experienced significant growth in recent years, many sectors have already fully matured and stepped into the decline according to the life cycle stages.

Source: Agents of Guard

Environmental Impact on its Innovation Process:

To enlarge its market share by satisfying a wider array of customers, as well as capitalizing on its reputation by labeling itself as a tool for families, Nintendo has developed and innovated a handful of educational video games from simple mathematics for kindergarten kids to virtual driving lessons for teenagers. Many of these innovated programs are actually great fun for all ages of people, and people don't even mind the learning that's going on while they play or relax. This market-driven innovation shall be regarded as another strong selling point for Nintendo, who can establish itself as a staple for every household.

Competition in the console market is another stimuli for technology innovation. Companies attracted customers by offering faster graphics processors, superior physics engines, chip innovation and other hardware tweaks. Nintendo has suffered from a decline in market share for years; largely attributable to its newest console, which has been out-competed by Microsoft’s Xbox and Sony’s PlayStation. Finally, the management of Nintendo has realized that “gaming for fun” is more important to its major customers rather than simply hardware performance. Consequently, the innovative Wii which has been marketed with the tagline “active, social gaming in your living room” has been launched. 

Nintendo’s new direction was clear from the outset: instead of offering an incremental hardware upgrade, Nintendo offered a new way to play games; one that involved gamers in an exciting new way which differentiated the experience from that of its competitors. What the Wii represented was the first major home console innovation that did not compete mainly based on graphical or power updates, but a new way to play. This innovative gaming experience was a perfect vehicle with which Nintendo was able to disrupt the market.

Company Analysis 

Introduction

Founded on September 23, 1889 in Kyoto, Japan by Fusajiro Yamauchi, Nintendo started out its business by producing and selling Japanese playing cards known as “Hanafuda”, or “flower cards”. After decades of development, Nintendo went public in 1962. The company used the newly injected capital to begin developing games rather than cards in the 1960s. The launch of Magnavox Odyssey in 1972 was the first involvement of Nintendo in video games. Thirteen years later, introduced in 1985, the Nintendo Entertainment System (NES) became an instant hit. Game Boy, a portable gaming device which came out in 1989, was later regarded as the most successful video game system ever released, as it sold well over 150 million systems worldwide (Nintendo: company history). However, the launch of Virtual Boy, a 32-bit table-top 3D video game console, in 1995 was later proven to be a commercial failure. In 2004 Nintendo released the Nintendo DS, its fourth major handheld system. The release of the Nintendo DS also initiated a new direction in the video game industry.

Latest products: Wii U and Amiibo

SWOT Analysis

As a well-established company, Nintendo’s strong brand name gives it a first mover advantage over its competitors. Its strong portfolio also offers target clients with different products which increases its revenue. However, the growing competition could not only reduce Nintendo's market share, but also scrape the profit margin.

Strengths

• Important heritage in video game development
• Strong global brand in video game market with Valuable IP’s Like Mario, Zelda
• Focus on Value Innovation (Pioneer - Motion Sensing)
• Simple User Interface and Greater Playability
• Family-Friendly Values
• Backward Compatibility
• Attracting traditional Non Gamers to the gaming world by offering them unique entertainment value
• Focus on providing an immersed and entertaining experience 
• With net assets of US$11 billion as of March 2014, Nintendo is in an extremely strong financial position, which means that it can afford to take a considered approach to its strategic development.

Weaknesses

• Low focus on offering online user experience e.g. No unified user account system
• Lack of innovative video games (partly due to poor tie ups with third party developers)
• Complete exclusion/ignorance of DVD gaming market
• Unable to back up / Replicate 
• Huge success of “Wii” with new product launches like “Wii U”
• Complete lack of focus on the hardcore gamers' needs and expectations
• In terms of online services and digital distribution, Nintendo lags behind Sony and Microsoft. This is set to become increasingly important as consumers shift to digital gaming.

Opportunities

• New unifying Nintendo OS under development for coming release
• Tablet games can be ported to Wii U without hassle
• Microsoft's XBOX One seemingly missing the mark with consumers
• Aging population in Developed markets
• Growing consumer base in emerging markets
• Improved online experience through improved OS and a unified account system
• Digital gaming is forecast to be the most dynamic video games category over 2013-2018, and is expected to account for 35% of global video games value by 2018.

Threats

• Sony PlayStation 4 which comes with Superior motion detectors and HD graphics
• Games available on Smart phones and Social Media
• Third party developers are likely to flock to other more successful systems, if Sales of new launch of “Wii U” do not improve
• The niche possessed by Wii in motion sensing being eroded away with numerous new entrants like Oculus Rift, Valve Steam Box, Ouya etc.
• Wii U will no longer compete in Blue Ocean

PEST Analysis (Macro Environment)

Blue Ocean Strategy (Kim and Mauborgne (2005)):

Background

At the end of 2005, Nintendo was hardly sailing smoothly. Its GameCube had failed and its GameBoy withered after reaching an early peak. Moreover, its games were also not so well received and hardly any competition to Sony's PlayStation2. Nintendo came up with their path breaking product “Nintendo Wii” in Nov 2006, which challenged the way a video game was played by creating a completely unique offering through the introduction of motion sensors in a gaming experience. When the Wii was introduced, Nintendo's President talked about Blue Ocean and disruptive thinking, inspired by Kim Chan and Mauborgne's then-recent book "Blue Ocean Strategy". Nintendo should expand the industry rather than simply competing in the existing industry.

What is Blue Ocean Strategy?

Red vs Blue:

Source: blueoceanstrategyaustralia.com.au

The sequence of blue ocean strategy

Why Nintendo felt the need to create a blue ocean 

With the hyped release of Wii, it earned the scorn of gamers because Wii didn’t have any high-definition graphics. Its graphical output was a measly 480p in comparison to the industry's 1080p ceiling. Wii had a miserable 512MB internal storage compared to the 20GB and 80GB its competitors had launched. It had no optical audio-out port nor did it have any external storage option and also lacked a centralized online service. In short, the Wii could never compete with Xbox or PlayStation, which was also the primary reason for Wii's existence. Rather than fight for the same finite market and dollars, Wii wanted to create its own market space and attract new audiences altogether. Wii's target was beyond just kids, it was the whole family. The heart of Wii's strategy was that consoles do not necessarily require state-of-the-art technology, power and performance. Instead, it shifted its focus to providing a new form of player interaction to a wider audience. 

How it went about creating the Blue Ocean

Wii simply proved two things: that there are far more noncustomers than customers and that a better solution to an existing problem is not good enough. Nintendo focused on the demand side and redefined the problem itself in a creative way. Nintendo looked into the gaming industry's noncustomers for insights i.e.; older non-gamers, parents who wanted their kids to play active games, elderly, and the very young.

The Three Tiers of Noncustomers

First Tier – “Marginal Gamers” e.g., young adults, students, etc.

Second Tier – “Tried but refusing” e.g., sports enthusiasts, readers, etc.

Third Tier – “Never Considered” e.g., the elderly, very young children, etc

CREATING BLUE OCEAN 

Value innovation

Value innovation is the cornerstone of the blue ocean strategy which simply defies the traditional dilemma of value-cost trade-off. In value innovation, companies don’t just concentrate on value creation or just on innovation. If you concentrate only on value creation, you cannot stand out in the crowd as competition catches up with you. If only innovation is focused upon, the value to customers tends to be technology-driven with no cost leadership, which buyers are not ready to pay for. Hence, in value innovation, instead of focusing on beating the competition, companies focus on creating a leap in value for buyers which makes competition irrelevant.

Wii's Value Innovation

Changing the Concept with New Game-Play, New Consumers, New Approach 

As of 2005, Nintendo's main business of gaming consoles was a speck in the gaming arena with sales of GameCube totalling just 20 million, whereas Sony's PS2 had amassed an excess of 115 million buyers. Nintendo desperately needed a radical change in its strategy and market focus in order to gain major traction in the video game industry. With the creation of the Wii, Nintendo made radical changes to its strategy: Now gamers were playing with their families, their friends and not alone in the dark at night. This was the biggest utility Wii provided. Nintendo changed its focus from the technological race towards a more user-oriented strategy - from better graphics to having more fun, thus providing value for its buyers with affordable consoles. Another cost saving offer was its Wii Sports package, which includes Baseball, Bowling, Golf, Tennis etc. With this sports package, some people did not even find a reason to buy more games. Also, after realizing its past mistake when aiming for a younger audience, Nintendo started tapping into the “casual gamers” category; reaching far beyond the “hard-core gamers” who the PS3 and Xbox 360 directly target.

Analytical tools and frameworks

The Strategy Canvas

The strategy canvas is both a diagnostic and an action framework for building blue ocean strategy. It serves two main purposes: to understand where the competition is investing and what the consumer perception is of these offerings. The vertical axis depicts the value derived from each of the factors the industry competes in (horizontal axis).

The above figure is called the “value curve”, a graphic depiction of a company’s relative performance across its industry’s factors of competition.

The vertical axis depicts the offering level that buyers receive across each factor. All these factors together depict the strategy that each of the companies chose to differentiate themselves in the market. These are compared among the competitive group and a certain value is assessed to be perceived by consumers. The resulting value curve is the graphic depiction of a company’s relative performance across its industry’s factors of competition.

Wii’s ERRC Grid

Eliminate High resolution graphics DVD/HD-DVD Playback Hard Disk storage	Raise Hardware accessories Wireless controller Social gaming Fitness & Sports Backward compatibility
Reduce Processing power Graphics quality Online gaming Complexity of games Price	Create Motion sensor controller Family-friendly gaming Character customization Active fun

In the case of the video game industry, the avid gamer of age group 18-25 was the main target. Nintendo, before launching Wii, targeted the “under -18” market, which represented only 1/3 of the total market. This put a cap on Nintendo’s success. Subsequently, Nintendo's strongly differentiated (although more expensive) competitors dominated the market by targeting an older audience with much more buying power. Wii's target was beyond just kids, it was the whole family. The heart of Wii's strategy was that consoles do not necessarily require state-of-the-art technology, power and performance. It shifted its focus to providing a new form of player interaction to a wider audience. The new Wii boosted the fun factor and made video gaming active fun.

Before and After of Life Cycle and Technological Trajectory: 

Can Nintendo keep blue ocean blue? (Svend Hollensen 2013)

Unfortunately, the blue ocean is getting polluted by competitors. 

"Sony Playstation"

In 2008, cumulative sales of PlayStation2 (PS2) reached 130 million units, making it the world’s best-selling game platform. However, the 2006-2007 launch of Sony’s new-generation PS3 did not translate into the immediate success that the company had hoped for. PS3 was not as successful as the Nintendo Wii. Sony suffered from a perception that it was a complex console to be used only in a darkened room by young men. The core age group used to be a tight demographic group of 14- to 30-year-old men (Brightman, 2012).

In September/October 2010 Sony launched the PlayStation Move, a motion-sensing game controller platform for the PlayStation 3 (PS3) game console. Based on a handheld motion controller wand, PlayStation Move uses the PlayStation Eye camera to track the wand’s position and sensors in the wand to detect its motion (Sony Computer Entertainment, 2010).

"Microsoft Xbox 360"

Microsoft continues to target the ‘‘serious’’ gamer segment with the Xbox 360, whose graphics, games and Xbox live internet gaming have been popular with the core user segment, primarily young males.

In November 2010, Kinect for Xbox 360, or simply Kinect (originally known by the code name Project Natal) was introduced world-wide. It is a motion-sensing input device for the Xbox 360 video game console. Unlike its rivals, Microsoft’s Kinect does not use a controller. Instead, a series of sensors allow the gamer to control the action using gestures, movement and speech. Based around a webcam-style add-on peripheral for the Xbox 360 console, it enables users to control and interact with the Xbox 360 without the need to touch a game controller, through a natural user interface using gestures and spoken commands (Crawford, 2010).

Globalization Processes

Nintendo has company locations throughout Asia, North America, Europe, and Australia. This enables the company to effectively manage its global marketing strategy by targeting the needs of local markets. Furthermore, the company’s global presence is a key driver of sales, as local subsidiaries control sales within each respective country. One positive benefit of globalization is that firms can capture sales worldwide, the magnitude of which is demonstrated by Yücel and Dağdelen (2010, p. 61) who claim that “within the last 50 years, world commerce and trade enlarged nearly 20-fold.” Looking back at the historical development of Nintendo, it seems that much of the company’s success can be attributed to its ability to innovate and thereby surprising customers with a diverse range of video game consoles and games. Brady, Goodman, Hansen, Keller, and Kotler (2009) identify five levels of a product: the core benefit, basic product, expected product, augmented product, and potential product. These five levels basically describe to what extent the needs of the market are fulfilled by a company's product, or value offering. The figure below displays the five product levels, taken from Brady et al. (2009, p. 506):

A potential product is great because it surprises customers in a positive way by fulfilling their needs in exciting, new ways. Therefore, when a company is able to impress people by exceeding their expectations, the company will benefit from increased sales. Nintendo has been good at surprising people in positive ways already since the introduction of the Nintendo Entertainment System (NES) in 1985. Duck Hunt was a game for the NES where a game pistol was used to simulate hunting ducks. This interactive way of gameplay designed by Nintendo was already very innovative back in the 1980s.

Most of Nintendo's gaming consoles contained special characteristics which made them unique compared to the competition. Indeed, the Nintendo Wii is one prime example of how Nintendo, under the pressure of competition such as Microsoft and Sony, succeeded by adjusting its strategy. The Nintendo Wii, with its cordless controller, transformed the way gaming is experienced. All of a sudden, games could be played in a very realistic manner where the player uses hand motions and gestures in combination with pushing buttons to play a game. Hence, over the years Nintendo has been able to lock in profits and create a loyal customer base by surpassing customers’ expectations with innovative gaming devices. Moreover, Nintendo has done so by being more of an early adopter than an adaptive follower or late adopter. Nintendo has created a competitive advantage for itself by providing people with fun new ways to experience gaming. For these reasons, people have always been excited to see what Nintendo will introduce next, even if the company was not always the first to introduce a gaming device on the market. Hence, Nintendo has been placed under “potential product” in the figure above from Brady et al. (2009, p. 506). Contrary to Nintendo, Sony and Microsoft compete in the video game industry on a less radically innovative level. Sony’s PlayStation and Microsoft’s Xbox continuously represent incremental innovations.  Both consoles have similar games which target a similar audience. Sony and Microsoft mainly rely on improving graphics, software speed, and hardware design to differentiate their products. Therefore, both companies are good at changing, or augmenting, their gaming consoles; however, Nintendo seems to be one step ahead of them by using innovation as a key driver of differentiation. Sony and Microsoft have also been added to the figure from Brady et al. (2009, p. 506).

Nintendo’s Creative Contributions to Globalization

Nintendo is a company which has played a fundamental role in the evolution of the video game industry. Indeed, according to Monsters & Critics (2011) Nintendo received multiple Emmys from the National Academy of Television Arts & Sciences for its excellence in creativity. One Emmy, awarded in 2007, honors the characteristic plus-shaped direction pad which revolutionized how video games are played. Another award was given to Nintendo for the innovative Wii controller, which through its motion-sensing technology has also revolutionized the gaming experience. Finally, the Nintendo DS was also awarded for its innovative touch-screen control mechanism as well as its dual screens (Monsters & Critics 2011). These ‘Emmys’ show the impact Nintendo has had in the global marketplace. Nowadays, Microsoft’s Xbox and Sony’s Playstation are the main competitors of Nintendo. However, the innovative prowess Nintendo has shown is likely to remain efficient at setting the company apart from its rivals. Another sign that Nintendo has influenced globalization processes can be seen by the fact that the Nintendo Wii has been widely utilized globally for medical purposes. According to Shih and Chang (2012), the Nintendo Wii wireless controller and the Wii Balance Board can be used by people with physical and cognitive disabilities in order to enhance their motor skills and ultimately quality of life. Bower, Clark, McGinley, Martin, and Miller (2014) argue that using the Nintendo Wii can help people who have suffered from a stroke to regain their sense of balance. Furthermore, the Nintendo Wii may even be helpful to people suffering from Parkinson ’s disease and Multiple Sclerosis. The pictures below show the Nintendo Wii being used for its medical potential:

It is fascinating that a video game company such as Nintendo can have such a strong impact on the health and medicine sector. People can even save costs by purchasing a Nintendo Wii instead of spending money on other expensive forms of treatment.

Nintendo leads to a global revolution

1. Shaping the future trend of video games

Nintendo changes the international landscape. Within the game console industry, the two other console companies (Microsoft and Sony) begin to develop motion-sensing systems in their consoles. Motion sensory games will be the future trend of video games. In this case, Nintendo is actually shaping the future of video games.

2. More opportunities for game developers

In the game development industry, Nintendo's revolution creates more possibilities for the game developers. In the past, game developers had many limitations because game consoles could not support certain games, even though the ideas may have been good. This may be because of technological constraints, the game consoles could only provide a platform that solely uses the buttons and joysticks to control all the things in the games. However, now those companies have more room to create new games.

3. Exchange across nations

Furthermore, as Wii can be used to access Internet, people can make use of Wii to play online games. People from all over the world can exchange their ideas and game-playing experiences with others. Therefore, it fastens the cultural exchange across boundaries.

Further Reflections on Globalization and Innovation

Generally speaking, globalization is speeding up the innovation process because many companies now operate 24/7. The fact that many companies operate continuously makes them more agile, allowing for new products to be developed quicker and then sold globally. Sourcing is also a notable driving force of innovation, because global companies are sourcing their raw materials from suppliers worldwide. This creates increased competition amongst suppliers and ultimately adds to the competitiveness of international firms who exploit economies of scale both in purchasing and production. Hence, innovation is a competence which competes globally and is then able to spread from one region to another rather quickly in today’s globalized world. Firms which use existing technologies in clever ways are often able to develop innovative products. These existing technologies, such as the internet, are used as a platform with which to innovate. For example, Google and Facebook essentially used the internet as a platform to develop their own innovative products and services. Nintendo must also remember to keep building upon existing technologies to create innovative and fun gaming experiences. In the never-ending hunt for competitive advantage and profits, Nintendo will most likely continue to influence processes in our globalized world. Likewise, globalization is a strong force which will continue to affect the innovative potential of Nintendo.

Failure Innovation Case Study

Introduction of “Virtual Boy”

Despite Nintendo’s success story, the Virtual Boy remains an example of an innovation failure in the company’s history. The Virtual Boy’s 3D graphics were not very developed yet and the screen only displayed red and black colors. It was bulky and uncomfortable, also making it not portable. Thus, the world was not yet ready for the 3D technology which the Virtual Boy promised.

The Virtual Boy was a radical innovation which transformed the gaming experience, however, with its fledgling technology it was doomed to fail. Satoru Iwata, Nintendo’s current president and CEO, states in an interview that the Virtual Boy was a commercial failure. Nevertheless, it influenced Nintendo to improve its 3D technology, the fruits of which can be seen in today’s Nintendo consoles. (Itoi & Iwata 2015) Subsequently, it is interesting to note that the failure of the Virtual Boy had a positive impact on technological developments for the rest of the company Nintendo. Therefore, one major finding is that while an innovative product which is a technological failure should quickly be pulled out of the market, it may influence the development of other potentially successful products in considerably positive ways.

Technologically, Virtual Boy was a spectacular console with an integration of state of the art technologies that was highly salivated by aficionado. To name a few, there are: 

• NEC’s V810 microprocessor
• Toshiba’s TC511664BJ-80 1Mbit DRAM
• Sharp’s  LH5P1632N-70Y 512Kbit RAM
• Texas Instruments’ 570AOY5K inverter

All the data indicate that Virtual Boy used cutting-edge technologies at that time. For instance, NEC 32bit process was theoretically powerful. What is more overwhelming is, on top of all the above technologies, 3D graphics system would offer unprecedented experience for fans in the form of virtual reality. It was the concept of 3D graphics that made Nintendo’s Virtual Boy an extraordinarily innovative product in the market. 

Unfortunately, it was a nightmare for Nintendo and a classic failure in the history of portal game industry. The Virtual Boy had not undergone the whole product's life cycle.  It was released in 1995 and discontinued it in 1996. It was died in infancy and there were only 22 games. Nintendo laid blame for all faults directly on its creator, Gunpei Yokoi, who is the creator of Game Boy. The failure of Virtual Boy  led to Gunpei Yokoi being driven from Nintendo.

The two key factors that contributed to the failure of Virtual Boy among other things are as follows along with reasons in terms of marketing strategy and short-sighted management:

• The poor design. The monochromatic (RED) system gave it a reputation as a headache-inducing machine, and two-legged stand led to hunchbacks after long sessions of play.
• Insufficient provision of content (video games) embedded resulted in its unattractiveness to its fans. 
• They were so bulky that they couldn't easily be worn, a tabletop tripod was set up to prevent head fatigue. That made the playing less comfortable.

How about new modern virtual gaming kit?

Does this mean all these virtual games will end up in a marketing tragedy? The answer is NO. In fact, twenty years later, Oculus Rift, which has been witnessed as an evolutionary version of Virtual Boy has experienced huge success with a similar idea, similar functioning, and similar effect, but why did these two products undergo conversed results? 

Recommendations & Conclusions

Lessons Learnt - a Technological Innovation Perspective 

The Halo Effect 

Gunpei Yokoi, the mastermind of ‘Virtual Boy’, was a benchmark in the portable gaming world with his spectacular successful development of Game Boy. As such, Nintendo’s executive teams took it for granted that Gunpei Yokoi would do nothing wrong and that he had a sort of the Midas touch. Even worse, Nintendo's management team pressed Yokoi’s team to put the Virtual Boy into the market ahead of schedule to take advantage of the fans’ fever for it, rather than treat it as a brand new product by making a detailed plan and testing it before it was immaturely delivered.

Innovation Myopia 

Nintendo is a successful company with myriad of innovative products. Virtual Boy was the most daring innovation when it was released to the market in 1995. Yet Virtual Boy turned out to be a disastrous failure for Nintendo and it was discontinued less than a year later, totaling sales of as low as 77,000 units in the Japanese and North American markets. Further to the halo effect of the leader Gunpei Yokoi, it was the mistake of innovation myopia that an organization was made when fundamental part of innovation was ignored or jumped over. In Virtual Boy’s case, their previous successes led Nintendo’s executive management to pay little attention to the customers’ bottom line that nothing short of perfection would be acceptable. That is a big lesson, not only for Nintendo but for all industries as well.  It would be fatal for companies in the era of the fast-changing technological and complex world today.

Managing Innovation systematically 

People are energetically pursuing new innovative products and eager to commercialize innovations as can be seen by the case of Virtual Boy-rushed to the market and rushed to the obscurity. Empirically, the success rate of traditional innovation is on average 17% as a whole, yet it could be scaled up significantly to 86% if a strategic approach is adopted. From a perspective of innovation process, innovation cycles life from its embryonic stage to its birth. In a sense, innovation is fragile and needs well-organized management to make sure the new baby is healthy and will be growing up rather than aborted if it is not fit for the market, or premature delivery if it is brought to the world earlier than the prime timing. If the marketing testing was properly conducted, the nausea effect caused by the red LED display and movement of images in the background of the games would have been discovered. The story would have been different if it would not have been for the oversight of systematic management.

Recommendations: (Passport Feb2015)

Growing pressure to innovate

Leverage brand strength beyond own hardware

Nintendo is sticking to its strategy of producing games exclusively for its own hardware. However, the rise of mobile gaming on smartphones and tablets, and ongoing technological improvements to these devices are undermining the viability of this strategy, especially since casual gamers form a core consumer group for Nintendo. Therefore, the company should look at ways to leverage the strength of its games portfolio to develop apps for mobile devices that are compatible with its core strategy.

Step up hardware innovation

If Nintendo is to continue to pursue its strategy of producing games exclusively for its own hardware, it needs to step up its innovation in hardware to deliver compelling experiences that positively differentiate its products from its rivals’ new generation consoles, and attract consumers away from the increasingly diverse and sophisticated gaming offered by mobile devices.

Improve digital presence

Digital gaming is exerting an increasingly strong influence on the development of video games. Nintendo lags behind Sony and Microsoft in its digital presence. A more extensive and convenient digital offer is likely to be essential in the successful development of its next generation of hardware and in the uptake of new games titles. Moreover, as PlayStation now gets into its stride, Nintendo needs to look into game streaming.

Strengthen emerging market presence

With emerging markets playing an increasingly important role in driving growth in the global video games market, Nintendo needs to address its weaknesses in this area. The company needs to focus strongly on the console it is developing specifically to target the expanding middle class in emerging markets. The launch of the product needs to be supported by strong games titles and extensive, locally appropriate marketing activity.

Conclusion:

Blue Ocean strategy cannot be a static process (Kim and Mauborgne, 2005).

The case shows the necessity for Nintendo to create a dynamic strategy in order to stay in the Blue Ocean and not to allow turning it into a Red Ocean again. However, it seems that Nintendo has not been able to generate enough tools to safe-guard its competitiveness. Its two competitors have managed to imitate Nintendo’s excellent idea about motion controls and come up with even better solutions. In 2010, Sony launched the ‘‘Move’’ and Microsoft launched the ‘‘Kinect’’.

With the PlayStation Move, Sony claimed to have a controller, which offers more accurate motion control than the Wii, and Microsoft’s Kinect removed the need for a controller completely. Notably, what these devices offer is motion control combined with more graphical power than Nintendo’s Wii. 

The launch of the ‘‘Wii U’’ represents Nintendo’s attempt to reestablish its Blue Ocean in game consoles, but sales in 2014 do not indicate that Nintendo will achieve a new Blue Ocean.

Source: EBSCO. ILLUSTRATIONS BY QUICKHONEY FOR TIME, February 24, 2014

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