Introduction
CD Projekt S.A (further, CDR as noted in a stock market exchange abbreviation) is a Polish company that operates in the video game development industry. It was originally founded in 1994 as a video game retailer and distributor of foreign game titles to the domestic market. Later on, the company has acquired the rights for using Aurora software development engine for producing its first video game, The Witcher (2007), which was based on the novel of Polish writer Andrzej Sapkowski (CD Project, n.d.) The launch was partially successful, which allowed the company to produce new reputable video games, such as The Witcher 2: Assassins of Kings (2011) and The Witcher 3: Wild Hunt (2015) (CD Project, n.d.). These titles were recognized with a Game of the Year awards respectively, further increasing the strong market position of CDR in video gaming (CD Project, n.d.).
Nowadays, the company owns the video game distribution service GOG.com, as well as has more than 10 branded titles in its product portfolio that bring sufficient revenues. As of May 2020, CDR reached the market valuation of $8.1 billion, which made it the largest video game development organization in Europe outperforming its main competitor, Ubisoft (CD Projekt, 2020; Ivan, 2020). In the upcoming months, the company is expected to release its long-expected Cyberpunk 2077 role-playing game that was already claimed as a single candidate for the Game of the Year award. However, the success of CDR was recently hindered by claims of poor commitment to deadlines and a ‘crunch’, a term used to describe the excessive work of game developers to polish the final product. Given the circumstances, it is essential to analyze company performance using business management analysis and provide recommendations for performance improvements.
Organizational Analysis
CDR is a large organization that has three main areas of activity relevant to the video gaming industry. The first and the main area is game development, where the company has two affiliates located in Warsaw and Wroclaw. The Warsaw affiliate is the head office responsible for managing core business operations, developing new products related to The Witcher brand, and back-office operations. The Wroclaw affiliate was opened to enhance the speed of Cyberpunk 2077 development, while one directly reports to the main headquarters located in Warsaw. The second area of activity is game publishing, where CDR does not use the support of external game publishers available in Europe but provides its service for releasing games on different hardware platforms. The third area is distribution, where CDR has its platform, GOG.com, intended to provide an access to videogames using a pay-per-service model. The platform also hosts games from the other publishers and is currently promoted as a cheaper alternative to Steam, a similar online distribution platform pioneered by the Valve company.
CDR follows a common hierarchical structure from top management responsible for game design, narrative projection, core engine programming, and external communication to lower levels of technical writers, programmers, graphics designers, and testers. However, there is no evidence on whether the company practices agile team composition in terms of distributing responsibilities for a single person among several projects. Based on the recent reports related to the delay of Cyberpunk 2077 and a work-from-home principle, it is likely that the company still uses such an approach, while the additional investigation is required to confirm it (Ivan, 2020). However, the local expansion principle of opening a separate affiliate closer to the main office still suggests a top-down approach of decision-making with a rather formal structure of reporting to investors and shareholders.
PESTEL Analysis
Political Factors
CDR operates in the gaming industry and therefore is subjected to political controls related to demonstration of the game violence. Specifically, it is controlled by the Pan European Game Information (PEGI) video content rating system and therefore requires specific content adjustment based on the organizational restrictions to a demonstration of violence or sexual narratives (PEGI, n.d). Previous gaming titles of CDR were rated as 16+, which means that younger audiences are not advised in using company products (PEGI, n.d.). However, brand popularity eventually creates a loophole in managing this requirement because of the word-of-mouth effect and aggressive promotional campaigns.
Economic Factors
Back in 2018, CDR has joined the WIG20, which is the list of largest companies positively rated by the Warsaw Stock Exchange (Reuters, 2020). However, on the global level, CDR was able to beat Ubisoft, one of the global game development companies by outperforming its market valuation. From the perspective of the local economy, CDR brought a significant motivation towards the employment of young talents with a technical background to participate in software development and game design. Furthermore, it advanced the recognition of a single country as the one capable of competing with large enterprises operating worldwide and having local affiliates with a comparatively low number of brand titles.
Social Factors
CDR grounded its successful product releases based on the novels of Andrzej Sapkowski, who was colloquially recognized as a master of fantasy writing. However, the social aspect was further enhanced by the release of The Witcher series on Netflix, which has eventually boosted sales of all Witcher-related games in early 2020 and dramatically increased CDR’s stock value. While the commercial background of such effect is hard to be quantified, it is assumed that social engagement with books, video games, comics, and television series has certainly brought commercial advantage to the company. Moreover, the mounting number of company followers already expect the release of Cyberpunk 2077, which means that a 360-degree orientation in satisfying consumer needs through alternative communication channels was a winning strategy for CDR.
Technological Factors
Being a short-term retailer back in 1994, in 10 years CDR managed to acquire significant technological resources for developing video games. The first effort was the outsourcing of the Aurora software development engine from Bioware company, which further resulted in the development of a local software and hardware platform used for future games (Labella, 2015). Future endeavors relate to close collaboration with technical giants such as Nvidia for graphics optimization and AMD for managing processing power. Currently, CDR claims that its future project will be fully compatible with the next-generation gaming consoles, while this statement is yet to be verified.
Environmental Factors
The gaming industry itself does not bring physical impacts on the environment. However, it is essential considering the aspect of CDR philosophy of bringing games that are free from the digital rights management and therefore allow the company to maintain a certain form of independence. Specifically, it means that the organization follows a typical commercial strategy of offering the main product at its fixed price, while any forthcoming improvements, downloadable content, and gameplay changes are provided for free. It means that CDR challenges its main competitors such as Ubisoft for releasing new content for the already purchased game for money, as well as extra monetary efforts for enrichment through the ‘season pass’ opportunities (Purchese, 2015). Overall, it is a major advantage that is rarely executed in a video gaming industry and therefore should be considered as a fair demonstration of customer-centricity.
Legal Factors
The legal factors in the gaming industry are multifaceted and somewhat connected with political restrictions for game ratings imposed by PEGI or other relevant agencies. For the case of CDR, it is important to liaison with distribution agents regarding any controversies that may arise during the product distribution for the target audience. The ultimate attention should be made to the individuals who pre-purchase the game in a country that has not yet adopted violence protection standards in its media restrictions. Otherwise, it might be a consecutive issue with violating local laws and prohibition of product distribution.
SWOT Analysis
The SWOT analysis for the current CDR market condition is further summarized in Table 1. The core strengths could be summarized as the ability to attract superior interest from loyal customers based on the previous projects, and the use of the ‘Witcher’ brand as a driving factor of consumer interest. Meanwhile, CDR’s reputation lags behind its counterpart expression of timely service delivery, which hurts potential revenues and brand recognition. The alternative modes of communication are already initiated, while the sole idea remains uncompetitive in terms of mass-market penetration. Specifically, it is worth admitting that CDR does not have a luxury of reputation in terms of gaming portfolio compared to what Ubisoft or Bethesda has. Therefore, it is likely that its future development might be obscured with comparatively standard narratives and user-adopted strategies towards customer engagement through the past reputation. However, illuminated consumers confident in CDR success will remain loyal to the company even if the new product will fail their initial expectations, which does not have a significant impact on shareholder value.
Table 1. CDR SWOT Analysis.
TOWS Analysis
The TOWS matrix is based on the previous assumptions from the SWOT analysis and is conceptually represented in Figure 2. For the strength-opportunities sector, the following recommendations are proposed. First, the company should develop new communication channels that explain how the new game is developed and what are the essential features of this process. Eventually, CDR was successful in doing so through the Night City Wire initiative related to the Cyberpunk 2077 brand, while the rest of its side project remained not covered. The obvious advantage of such an approach relates both to informative and educational purposes since the company might acquire an additional role-modeling reputation in game development and attract more IT professionals in the game design industry locally (Delery and Roumpi, 2017).
Second, the company should make more emphasis on its distribution platform, GOG.com, which might eventually become a major competitor of the Steam service (Makuch, 2014. Specifically, it could be enhanced with the feedback and user opinion options that are carefully analyzed by internal marketing specialists to provide an unbiased opinion on the quality issues experienced by gamers. Finally, CDR might benefit from looking at the ways how quality standards for meeting customer expectations are set in the other industries, where the cost of time and resources is more essential.
For the weaknesses-opportunities sector, the company management should carefully explore its past mistakes related to the use of resources and time planning. Given that the majority of its projects, under the different explanatory reasons, were delayed, there should be some formal process for resolving the quality management inside the company. Eventually, it could be realized through the engagement of QA testers, while still being monitored by experienced employees internally. While similar issues are occurring in similar companies such as Ubisoft, there is still an area for improvement for quality excellence.
For the strengths-threats sector, it is relevant to admit that the company boasts a single ‘Witcher’ brand, which is far from the similar portfolio of Ubisoft as its main competitor. While both companies pursue the open-world game development philosophy, Ubisoft has more market advantage in attracting potential customers among progressive youth through leveraging on brands such as Far Cry, The Division, or Assassin’s Creed. Meanwhile, CDR was recognized mostly for its original brand and therefore might financially suffer if the new title will become a failure. Hence, it should seek new avenues and explorations, while those still require strict alignment with the external investment perspectives and market trends.
Finally, for the weaknesses-threats sector, it is crucial to address the problem of future financial investments. Currently, the company has extended the release of its forthcoming Cyberpunk 2077 project three times per one year, which was negatively reflected in its stock market position at the beginning of November 2020. Given that the company has already experienced a bottom the bankruptcy after unsuccessful adaptation of The Witcher 2007 a decade ago, it is likely that more strategic insurance is required to meet shareholders’ needs. Potentially, this effort could be realized through the analysis of customer perceptions related to the estimated time for receiving a high-quality gameplay experience, which is paramount for the video gaming industry (Kollmann et al., 2020).
However, linking the aforementioned discussion to the colloquial evidence of how Ubisoft and other A+ companies attempt to develop their open-world gaming experience, CDR still has its unique model for industry disruption. Specifically, it has special ways of persuading customers and shareholders in purchasing the product based on being free of digital rights management bureaucracy, streaming-tolerant policies related to content publishing, and regular communication and feedback.
Table 2. CDR TOWS Analysis.
Conclusion
The case of CDR demonstrates a perfect example of how small companies might eventually grow into large enterprises in the video gaming industry. It also shows the importance of maintaining customer-centricity in providing final, high-quality products, which, however, is a weak point for the chosen industry overall. Hence, the focal points for the future success of the company include better project planning, proactive communication with shareholders, and regular feedback collection and analysis from the current customer base.
The adherence to the aforementioned recommendations is likely to dramatically improve game design planning and overall business contribution since the company already has a high customer reputation and stock market ratings. Nevertheless, brand diversification would be also helpful in capturing new consumer groups and outperforming major competitors. Despite its anticipated success with a formal announcement of Cyberpunk 2077, business efforts will likely be highly recognized by customers worldwide if the aforementioned analytical recommendations are considered.
Reference List
CD Projekt (n.d.) Core business. 2020. Web.
CD Projekt (2020) Financial summary report. Web.
Delery, J.E. and Roumpi, D. (2017). ‘Strategic human resource management, human capital, and competitive advantage: is the field going in circles?’, Human Resource Management Journal, 27(1), pp. 1-21.
Ivan, T. (2020) CD Projekt is now Europe’s most valuable game company ahead of Ubisoft. Web.
Kollmann, T., Stöckmann, C., Kensbock, J.M. and Peschl, A. (2020) ‘What satisfies younger versus older employees, and why? An aging perspective on equity theory to explain interactive effects of employee age, monetary rewards, and task contributions on job satisfaction, Human Resource Management, 59(1), pp. 101-115.
Labella, A. (2015). The Witcher originally developed as a point-and click RPG. Web.
Makuch, E. (2014). GOG Celebrates Six Years of Advancing the “DRM-Free Movement. Web.
PEGI (n.d.). Web.
Purchese, R. (2015). The Witcher 3 sells 6m copies in six weeks. Eurogamer. Web.
Reuters (2020) Games developer CD Projekt to replace IT firm Asseco in Warsaw’s WIG20 index. Web.