BRIAN KENNY: Welcome to Cold Call, the podcast where we dive deep into the groundbreaking ideas in Harvard Business School case studies with the faculty who wrote them.
What do you do when the secret to your success might also be holding you back? Imagine building a company around a radical idea, hire extraordinary creative people, organize them into tiny autonomous teams, give them enormous freedom, and make the CEO as powerless as possible. It works spectacularly. You create some of the biggest mobile games in history, generate billions of dollars and build a culture so distinctive that employees actually toast with champagne when they kill a failed project. But then the hits stop coming and your existing blockbusters become increasingly complex businesses. And the organizational model that once felt revolutionary starts bumping up against a new reality. Do you preserve the culture that made you great or change it before the success turns into complacency? And what happens when the world’s least powerful CEO decides it’s time to lead a transformation? Today on Cold Call, we welcome Professor Jeffrey Rayport to discuss his case, “Supercell 2.0: Clash of Plans.” I’m your host, Brian Kenny, and you’re listening to Cold Call on the HBR Podcast Network.
Jeffrey Rayport’s research focuses on growth stage technology companies and how to scale them. And he is widely thought to have been the person to coin the term viral marketing. And I always have to say that when I introduce you, Jeffrey, because I think it’s the coolest thing. Welcome.
JEFFREY RAYPORT: Well, thank you so much for having me, Brian.
BRIAN KENNY: And great to have you back on the show. If our listeners enjoy listening to you talk about Supercell, this case, they can find several other episodes. Most recently, we did a really fun one in front of a live audience about the School of Rock.
But Supercell is also going to be fun. I have to admit, I’m not a gamer. I’m sure many of our listeners are familiar with Supercell, but if they’re not, could you just tell us a little bit about what are some of their greatest hits?
JEFFREY RAYPORT: So Supercell is based in Helsinki in Finland, and they emerged, took the gaming industry by storm starting in 2012 as just a company of one or two years old with the introduction of their very first game, which was Hay Day, followed by Clash of Clans, the biggest hit they ever produced. What was so remarkable of Supercell is as you know, Brian, many of these companies are one hit wonders. Release a game, Rovio, Angry Birds became very famous, big property, but there’s never anything that big that came from Rovio again. But Supercell has managed to produce game after game after game, almost on a metronomic two-year cycle starting in 2012 all the way through 2018.
BRIAN KENNY: Amazing. Amazing. So tell me what was so distinctive about the Supercell organization? The protagonist in the case is Ilkka.
JEFFREY RAYPORT: Paananen.
BRIAN KENNY: Paananen, thank you. Why did he believe so firmly that small autonomous cells were particularly well suited to creating hit games? And what is a small autonomous cell in this context?
JEFFREY RAYPORT: Ilkka’s inspiration when he and five other gamers founded the company is they all had experience in the gaming industry. He’d been involved in a gaming startup before. The thing that struck him was that this is by any definition a creative industry. That means you want the most brilliant people in the game development space to want to come to work at your company. His view was that the best people in the industry, probably true of people in almost any industry, wanted freedom and autonomy and decision rights about the thing that they were building. And if he were to create a company that optimized for that, he would in effect cream skim talent, not just in Helsinki or Scandinavia, but talent all around the world by creating the most desirable company for which to work.
BRIAN KENNY: Okay. For the creative types. And I can tell you, marketing is a creative endeavor too. Managing creative people is a challenge. I mean, I think just the nature of being creative is sort of the sense of independence and you fall in love with your work in a way that makes it hard to be managed. So I can see he’s got a distinct challenge here. The Supercell culture produced, as you said, extraordinary results. Five global hits, billions of dollars in revenue, games with remarkable longevity. Hay Day is still very popular. When I downloaded it, I looked at the numbers, it’s still a very popular game. What made the model work so well and why do competitors have a trouble replicating it?
JEFFREY RAYPORT: I think the only explanation for why the model was so brilliant is that it really did succeed in attracting, in a sense, the most brilliant people. Ilkka’s philosophy was if you could attract the top talent, you then had the wherewithal to help create the world’s or the industry’s best teams. The best teams, he believed, would almost guarantee that they could produce the best games. The best games, of course, create the best player experience. And that means you’ve got more downloads and more word of mouth and more people playing the game. This is one of those industries where most people don’t spend a lot of time reflecting on the business model, but it’s kind of crazy. At the time that we wrote this case, the global gaming industry was roughly 180 billion in revenues, which made it vastly larger than Hollywood box office or the music industry. So big headline. Half of that industry was mobile casual gaming. Most of mobile casual gaming follows the business model that Supercell was one of the companies along with King Digital Entertainment made famous, which is free to play games. So when we say that Supercell has revenues and it has billions in revenues, what we are saying is that they’re producing these games, they’re giving them away for free, and they only generate revenues when people get so engaged and so fulfilled by gameplay that they want to spend money inside the game. So from Ilkka’s perspective, it was find the world’s best talent, create the world’s best teams, create the world’s best games, attract players who will be engaged at a high enough level that some small percentage of the total number of hundreds of millions of players who show up every month will now start spending money.
BRIAN KENNY: Yeah. And the spending money part begins pretty quickly. Again, I’ll go back to my own personal experience on Hay Day. Very quickly I had to buy some feed for my chickens. I’m on a farm. I’m trying to keep my livestock alive.
JEFFREY RAYPORT: Yes, because we’re back to Hay Day and you really did have to tend your farm.
BRIAN KENNY: I did at the time, so I can see how that model can work very quickly. I’m wondering if you can talk a little bit about the culture of Supercell. One of the unique things the case talks about is that they actually celebrate failure. Many firms are good at starting things, they’re not good at stopping things. But what was this notion of celebrating and toasting a failed activity?
JEFFREY RAYPORT: We spend a lot of time in the entrepreneurship classes we teach talking about the value of in-market testing, about minimum viable products, putting them in the market, understanding that most of them will actually fail. They’re quick and dirty experiments. Ilkka’s view was that if you didn’t fail a lot, you weren’t taking enough risk. If you weren’t taking enough risk, you weren’t innovating. And it’s taken a long time, arguably in the US and Europe is sort of lagging that story from an entrepreneurial perspective, for people not to ascribe negative stigma to failure. So the intent of these champagne toasts at Supercell, celebrating the death of a game, either the failure or a team, a cell, deciding to kill a game, was all built around this idea that you need to create not just space, but social acceptance for failure and then have a set of rituals that are around celebrating in a sense the dividend of failure, which is learning from in-market experience. And that’s actually when I first met Ilkka at a tech conference I was co-hosting or emceeing down in New York City under the Brooklyn Bridge on the Brooklyn side. We had a little fireside chat and it was all about this company that people had heard of. They’d heard of the games. They didn’t really know what Supercell meant, but there was this curious practice and it was the champagne reception for failure.
BRIAN KENNY: I love it.
JEFFREY RAYPORT: And that is when I started thinking we’ve got to figure out how to put this amazing story into the form of a case study.
BRIAN KENNY: What’s the scale of the firm? How many employees did they have at the time that you wrote the case?
JEFFREY RAYPORT: At the time we wrote the case, it was about 520 employees. Top line revenues were about $2 billion. Remarkable thing was that it was $2 billion on the top line, but half a billion on the bottom line. We’re not talking about cash flow, we’re talking about actual net profit. So Supercell was by any measure a money machine, which made this decision that Ilkka made to reorganize it so dramatic because the company had been built on this organization structure, as you say, that related to culture was create a bunch of cells, hence the name Supercell, containing a bunch of cells. Each cell is like its own individual gaming company and the cells therefore have ultimate decision rights around product. The whole idea was that if there’s hierarchy starting with this least powerful CEO, it’s the organization chart turned upside down. So they’re there to support the cells. The cells are autonomous companies and they have absolute autonomy and freedom about what they do and what they choose to spend their time on in terms of creative output.
BRIAN KENNY: So everything’s going great. They’re making their profits, the culture is humming along. What were the signals that he saw that made him think, “We’ve got to change this?”
JEFFREY RAYPORT: The crazy thing when you think about their history starting with where we began, 2012, Hay Day and Clash of Clans. 2014, Boom Beach, another global billion-dollar franchise. 2016, Clash Royale, an extension of the Clash of Clans franchise, which became another global billion-dollar phenom followed in 2018 by a game that is much in circulation now called Brawl Stars, which in itself became a billion-dollar hit. So at that point, you can easily understand why SoftBank bought in back in 2013 at a $3 billion valuation and Tencent bought in 2016 at a $10.3 billion valuation. This was Europe’s first decacorn, a company in excess of 10 billion in value. So it made huge headlines, but there was one problem. After Brawl Stars in 2018, a year, two years, three years went by, and by the time you get to 2023, it had been a five-year drought in new games brought to market that could achieve this kind of global scale. And Supercell is famous, not just for champagne toasts to celebrate failure, but the reason there’s so many failures, like they estimate they’ve killed 30 games to launch five is that-
BRIAN KENNY: They’re drinking a lot of champagne.
JEFFREY RAYPORT: They’re drinking a lot of champagne and they’re setting a very high bar. And one of the mantras you hear inside the company is, “We don’t do $100 million games.” So even though an owner like Tencent might say, “Well, it’d be great if you hit a bunch of singles and doubles, I’ll take those because that looks like revenues.” The Supercell view is, “If it can’t be global and it can’t be a billion dollar franchise, that is not what we do.”
BRIAN KENNY: I think any leader feels that they might need to create a burning platform to demonstrate that there’s urgency to get the organization behind them when they need to make this kind of change. Is that what happened here? Was he able to convince people that we really need to make some changes or was there some resistance?
JEFFREY RAYPORT: Well, there was a lot of soul-searching prior to any kind of decision about the reorg. And the funny thing is that Ilkka talked to all kinds of people, academics, investors, founders, gamers, and said, “I’m thinking about doing this radical restructure of the company.” And almost across the board, the response he got was, “You got a couple of hundred million people who play your games every month. You’ve got a couple billion in revenues. You’re taking home 500 million. You tell me what’s broken.” Everyone said, “Do not touch this.” His view, because of this five-year drought, was that the company was drifting further and further from its mission. The mission that they’ve had since day one is a wonderful one. It’s to build great games that are played by as many people as possible for many years and that will be remembered forever, meaning become the legends of the gaming industry. And so the answer to the question of how in that context do you create this sense of urgency? Ilkka did something very interesting. He got up in front of all the employees, over 500 at that time, and stood in front of them with a table next to them, and on the table was a bottle of champagne. And he was proposing a champagne toast to celebrate the learning from failure, but in this case, it wasn’t a game team, a cell sitting up there, it was the CEO. And he was effectively saying, “I have poorly served this company by not having made a change that would allow us to deliver more effectively over time on the mission instead of less.”
BRIAN KENNY: Interesting.
JEFFREY RAYPORT: His one piece of data, obviously he had a bunch of slides he put up on the screen, but the killer slide showed the overall growth in mobile casual gaming from 2015 up to late 2023. The market was up about 193%, so almost tripled in size. And Supercell during that time had declined by about 25%. So his point was we are on a path to irrelevance, even if it feels good, even if we’re wealthy, even if we have reasons to relax, even if we have a huge fan base, we either make this change to deliver on our mission or we’ve got to change the mission and hence the dream.
BRIAN KENNY: So don’t rest on our laurels, in other words. I’m wondering if you just pull the lens back away from Supercell, you’ve looked at a lot of firms, a lot of entrepreneurial firms over the years. Is this a fairly common challenge that eventually you kind of rise to that level where you’re so locked in on what you’re doing and you’re doing it well, but it inhibits your ability to be able to think about innovating and moving in a different direction?
JEFFREY RAYPORT: I think that’s right. There’s a lot of reflection at the company about the fact that they’ve been so fabulously successful and people have gotten so rich. The question is are they hungry enough and is that part of what they need to re-engineer into the culture of the company? But I think Brian, your point speaks to a much larger issue, which I try to frame when we teach the case. Every HBS class stereotypically has some kind of two by two matrix that goes up on the board. I try to avoid them at all costs, but sometimes they’re just unstoppable. In this case, it strikes me, it is instructive to say that every company, especially in the creative industries, wrestles with this question of how do you maintain a high octane approach to innovation and creativity? So that’s one axis, low, high, but the other one is everyone wants to grow.
So how do you do that in increasing scale? And when you stop and think, “Okay, so who’s in that upper right quadrant?” What Gartner would call the magic quadrant, in which you’ve got high levels of innovation and creativity and a very high level of scale, that becomes very rarefied air. It’s what the innovator’s dilemma was all about, which is that there is something about bigness that makes it difficult to maintain any kind of mojo as an innovator. And to some extent, that is the generic version of the problem Ilkka was trying to solve for.
BRIAN KENNY: And isn’t part of the tension that they’re up against too, is that they’ve got 200 million users, as you said, that are playing these wonderful games that they’ve already created. You have to continue to make that experience fun and you have to continue to make it a draw so that people will continue to log into those games. At the same time, you need to be sort of pushing the organization ahead and saying, “What’s the next game that’s going to become legendary that people are going to think about forever?”
JEFFREY RAYPORT: No question. And ultimately, both Ilkka and his number two, a wonderful guy named Greg Harper who was running North American operations and the creative studios from the West Coast, the way they started to think about it is that actually they were trying to do two jobs with one organizational model. One was, of course, managing these fabulous global billion dollar franchise games, as you say, with huge fan bases and engaged players, but the other one was originating new games. The fact that the cells were essentially tasked with, especially for the ones involved with the franchise hits, were essentially trying to do both jobs at the same time, that is what led to this sense that if we don’t make a change, meaning if we do not find a way to bifurcate the organization around what in the management literature we talk about exploration, exploration as in looking for the new opportunity versus exploitation, meaning develop the commercial value of the opportunity you have, that by trying to do both things well at the same time with the same people in the same organization, they would never yield an optimal result.
BRIAN KENNY: So what’s the model that they’re looking at? What are they considering?
JEFFREY RAYPORT: They essentially created two organizations out of one. One side is referred to as the New Game side of the house, all focused on new game origination, create new hits. The other side of the house is called Live Games, and those are the ones that operate those five franchise hits that we’ve talked about. The interesting question though is that to some extent, new games was attempting to replicate the early days at Supercell. What does it feel to be like a scrappy startup where capital and time are scarce resources? How do you simulate that in the context of a very successful company? Then by the same token, the challenge on the live game side was if you and I inherited one of these franchises, of course, as you say, we’d need a bunch of very creative people to continue to pave the highway as we drive down this no-end-game-scenario things that happen inside any one of these starting with a Clash of Clans or the Clash franchise.
But inevitably you would need marketing people and you need a technology help desk and you’d probably be thinking, “I can measure every keystroke on every mobile device across every one of these hundreds of millions of users.” So that means data collection, analytics, and now I need data scientists. I probably need a bunch of people who become go-to-market people, run virtual currency.
BRIAN KENNY: Sounds like a business you’re describing. Is this what we call a business?
JEFFREY RAYPORT: I think this is what we at HBS call a business. And needless to say, we in the business world think that a pretty good way to manage that is you set up some kind of organizational hierarchy and you have different functions around marketing and customer service and operations and finance, and all of that becomes the story. And by the way, that kind of makes sense given that you take Clash of Clans. I mean, that game alone generates about 1.3 billion a year. So the idea that you’d run a business like that with a bunch of creative types running around, no matter how brilliant they might be, first, they probably have better things to do. But the other part of it is that they’re doing the job of what might be done by hundreds of people.
BRIAN KENNY: And you may not have gotten into this in your research, but I’ll ask the question anyway. I’m wondering if there was any discontent among the creatives. Let’s say you were part of the creative autonomous cell that developed Clash of Clans. Do you eventually grow a little tired of that and you want to have the opportunity to move over to the live game side and try to do something entirely new? Do you feel short-changed because they’re creating this new group and you don’t necessarily have the sort of energy that comes with being part of that new startup?
JEFFREY RAYPORT: All of the above is true. I mean, one of the big questions is if you have a brilliant person or a brilliant cell and they create a brilliant game, is the reward for having been successful at originating a game that somebody takes it away from you? But the other part of it is, as you said, you need creative talent on both sides of the fence. So then the question is, is it a caste system? Are the really amazing creative people on the new game side, but the ones who are the journey persons, are they the ones working on the live game side? But you could also rotate that 180 degrees, which is the ones on the live game side, they’ve got an audience of a hundred million people. The ones on the new game side, their audience is the other members of the cell and a whiteboard. So all of these things were aspects of what Ilkka needed to figure out, which is why this decision was both very hard to make, especially with all the folks who said, “Why in the world would you risk upsetting the apple cart?” And then by the same token, once you’ve done it, a big challenge here is how do you make sure it works?
BRIAN KENNY: Yeah. And you mentioned the H word, hierarchy, which sounds like that was not a big part of the culture in the beginning of Supercell, but here now we find ourselves in need of a hierarchy. What’s the reaction to that within the firm?
JEFFREY RAYPORT: It was very funny when I was over in Helsinki having some conversations that became part of this case, I was talking to a guy named Stuart McGaw who runs the Clash of Clans cell. Now this is a live games organization, and he came into an all-hands meeting early 2024 when he had a team of… Get this, Brian. Remember, we’re talking about a billion plus top line. The cell was 17 people.
BRIAN KENNY: Yeah, amazing.
JEFFREY RAYPORT: So 17 people running this vast franchise, and he came into an all-hands meeting because they figured they needed a little more bench strength, so he was going to hire an art director. The art director was not a senior person, it was a mid-level person. And so he announced they were hiring the art director, and full disclosure, this person is going to be a middle manager. And the horror that spread through the meeting, people were like, “Wait a second, if we have middle managers, that means we have hierarchy. If we have hierarchy, then this isn’t the Supercell I signed up for.”
JEFFREY RAYPORT: So back to this notion of the whole strategy, the company is named after an organizational unit called a cell, a collection of organizational units. The social contract would seem to imply that the reason the world’s best talent showed up and was willing to work in Helsinki and live through Finnish winters and dark nights and all the rest of it, the whole idea is because there are privileges, there are rewards. Now you tell me that I signed up for freedom and autonomy, which this was a culture modeled on the Netflix culture deck where we only hire senior people and it’s all about freedom and responsibility. That’s exactly what Ilkka had designed into the cells. And now you tell me we’re living in a world with multiple levels of management, including, of course, by definition, middle managers.
BRIAN KENNY: The case also talks about the fact that in the new games area, the live games piece, Ilkka was trying to create some pressure. He wanted it to feel like a startup, and startups come, we know, with tremendous pressure and fear of failure and all those kinds of things. And oftentimes you’ve got to be held accountable for results and numbers and those things. I’m wondering, how was he able to manufacture, for lack of a better word, the kinds of constraints that would make people feel the sense of urgency that they need to produce and to continue producing inside a firm that’s already well established and is making a lot of money and having a lot of success?
JEFFREY RAYPORT: In a sense, he borrowed from the venture capital industry and said, “Listen, we are not a startup, and so the constraints are not going to be ones that have to do with the fact that we’re all wondering how we’re going to eat our ramen noodles tomorrow night.”
So they imposed a bunch of constraints, timelines, milestones, and then stage-gated the release of capital resources to these cells on the new game side, essentially to simulate what it would be like to be a startup that is subject to the tyranny of raising successive rounds of venture capital in order to progress. Perhaps the thing that gave it teeth was that in kind of classic Scandinavian corporate style, part of what he believed would make this work was a culture that was already practicing radical transparency. So you might say, “It’s easy enough to blow through a deadline. It’s easy enough to be three weeks late on hitting a milestone. So what? I’ll get the budget then instead of now and nobody’s going to stop paying my salary.”
So what they did was they made all of these commitments public to the entire company so that when somebody missed a milestone or a deliverable, that was when they had to explain themselves to 500 of their fellow Supercellians. And that has given the process some discipline that might otherwise be lacking in the context, again, of a very successful going concern.
BRIAN KENNY: At some point, does autonomy stop being an advantage and start becoming a constraint on scale?
JEFFREY RAYPORT: One of the things that is a fascinating moment in discussing this case in the classroom is this question of why you would select for a structure involving a flat organization and a less powerful CEO, as opposed to doing in effect what the rest of the corporate world does with powerful CEOs and big, disciplined, well-defined managerial hierarchies. And in general, the thinking in the management literature is that at one end of the spectrum is not quite a Supercell model, but it was called holacracy. It was made famous by Zappos where the cells in the Zappos context were called circles and in the Valve concept they’re called (Valve being another gaming company) cabals. There’s a philosophy called podularity in which they’re called pods. Some people refer to them as teams.
This is not a classic holacratic model, but the whole idea of pushing decision rights down in a sense to the front lines, people closest to the products and the customers versus the hierarchy is that we have essentially flat organizations because we’re trying to optimize for adaptability, and we have hierarchical organizations to optimize for reliability. And this is where the interesting moment comes up, which is we talk in the case about a game called Smash Land!, which was one of Ilkka’s personal favorites. It’s a game that easily he believes could have ranked in the top 25 of global games. It was in development to the point where it was not just a company playable prototype getting a bunch of positive feedback, but it actually gone into beta testing, meaning in market testing in smaller markets like Canada and Australia, in this case Canada. The fascinating thing was that the cell, the members of the cell went on a little retreat one day, something every Finnish household and workplace does, which is go sit in the sauna. And so the members of the cell went and sat in the sauna and the lead of the cell said to them, “I know that things have been going well with Smash Land! but I’ve got to ask the question. If you were going to take the next two to three years of your professional life and you were going to dedicate it to one project, one game, would Smash Land! be it?” I always imagine ever since I heard this story that it’s a scene out of some Scandinavian noir drama in which people are sitting there and the steam is wafting through the sauna room and everyone is sweating away, wrapped in their towels, and 20 minutes go by and then people make eye contact. And in this case, when everyone made eye contact, the answer was no.
BRIAN KENNY: That’s so interesting.
JEFFREY RAYPORT: So they killed the game and Ilkka found out about it a couple of days later. Now, that sounds great in the early days of Supercell because that’s maintaining the high bar, we only launch billion-dollar hits. But if you turn that around and say, okay, so now you’re the guy sitting at Tencent headquarters in Shanghai, and you just had a conversation with the CEO at this company you own a controlling interest in, above 80% of the equity of the company, and you’ve come into it at a $10 billion valuation. And last month when you talked to the CEO, Ilkka, he talked to you about how excited he was about this next game that was in the pipeline. It would be the next big, the sixth billion-dollar global franchise hit. And now you call up and you say, “Hey, how’s that thing going?” And you’ve got a CEO that says, “Well, I got to tell you, it doesn’t exist anymore. The cell killed it.”
BRIAN KENNY: Wow.
JEFFREY RAYPORT: At this point, you start to think maybe reliability isn’t such a bad idea, meaning maybe something when you get beyond those early days that has an element of controllability and visibility around outcomes starts to become a better or more compelling idea.
BRIAN KENNY: Yeah. Talk a little bit more about Ilkka. What’s his leadership style like? He’s been with the firm since its beginning, is that right?
JEFFREY RAYPORT: He is one of the founders of the firm and was CEO from the beginning.
BRIAN KENNY: And so how does his leadership style kind of evolve over time? It sounds like he’s learning on the job as he goes.
JEFFREY RAYPORT: He is a huge ice hockey fan and he has always believed that the role of a CEO is a coach, not a player. And as we all know whether it’s an orchestra conductor or the coach of a sports team, they don’t play a note and they don’t make goals. So his view was that you set people up for success, you have a huge amount of say about who it is who comes into the organization. He always had sign off on who it was who came together to form a cell, often had input on who would be the lead in the cell, and of course ran all the corporate systems that supported the cell. But when it came to decisions around product itself, those rights were owned 100% by the cells themselves. And so that has been very much his style. And in fact, when he was talking about making this change, the thing that dawned on me, it was just at the time when Paul Graham from Y Combinator had written the famous blog post about founder mode, about all these founders starting with Brian Chesky to Airbnb had come back into their businesses when the organization had grown large and kind of lost its sense of what the real product expression was or the vision was, they’d come back and they put their hands all over everything. In Ilkka’s case, he was never a game developer. And so what did founder mode look like for Ilkka? It was to come back into the thing that was his product, which is the company itself, and choose to reengage, to reshape it.
BRIAN KENNY: Okay. And so his self-described role as being the least powerful CEO ever is just because he was really leading from behind. He wanted to let the creative, the autonomous cells sort of have the glory and he was just there enabling them in their work.
JEFFREY RAYPORT: In the view that you don’t get the best people, hence the best teams, hence the best games, if you don’t give them that level of freedom and autonomy.
BRIAN KENNY: Again, consistent with managing creative resources. It’s the same idea.
JEFFREY RAYPORT: So it was interesting that one of the ways in which he explained to me his peace with the decision was that as much as people might say, “Wait a second, middle management, hierarchies, this seems to fly in the face of what I signed up for at Supercell.”
His counterargument was of course, ultimately the north star here is doing what’s best for players. But he also had a view that it was very much around the creative talent within Supercell, which is if you created one of these incredible hits that has gone global and become a focus over many, many years of hundreds of millions of people. The question is: is the company guilty of underserving the brilliance of the intellectual property by not investing in the commercial engines to grow the impact over time? So to some extent, this is about serving the player, but it’s also about serving the creators.
BRIAN KENNY: How was he able to know if things were working? At what point did he say, “I think we’re onto something here. I think this might actually work.”
JEFFREY RAYPORT: You’re talking about after the reorg?
BRIAN KENNY: Yeah.
JEFFREY RAYPORT: One measure of course is how well is the company doing? Another measure of it is has the company released new franchise hits? In a sense, it’s a mixed news story. 2024, it turned out that applying commercial scale, including some hierarchical organizations inside of the live game cells, lit up some of these preexisting franchises. So during that year, Brawl Stars, as our students say, blew up in the best sense. It became a huge phenomenon all over again. The following year they applied the Brawl Stars’ playbook to Clash Royale, which became a huge phenomenon all over again. And just to give you a sense of the impact, in 2024, revenues were up year-on-year, 77%.
BRIAN KENNY: Wow.
JEFFREY RAYPORT: Profitability was up over 80%. The company grew from a top line of just over two billion to over three billion, and it continued to perform at that level for the next year. So from the commercial standpoint, it’s very hard to argue that the reorg wasn’t essential to breathe new life into the franchises or put it differently to enable these existing franchises to grow to their full potential, meaning this was evidence that they’d been dramatically, maybe dramatically underserving that potential. But what we don’t know, partly because it’s a little bit early to know, is whether this reorg on the new game side will have produced more global hits. And on that, the jury is still out.
BRIAN KENNY: Okay. I’m wondering if there’s sort of a meta lesson here that can help leaders distinguish between their company’s fundamental values and organizational practices that have sort of become sacred traditions. I go back to the champagne thing. I don’t know if they’re still doing that, but he’s introduced sort of a new way of operating here and it seems to be working really well. Is there some lesson that leaders can take away about when to really separate from some of those traditions that were part of the original culture?
JEFFREY RAYPORT: I think that it’d be fair to say that there’s a very highly generalizable, well-known management lesson of which this case is a good example, which is this is the power of an ambidextrous organization. This is a term coined in the pages of Harvard Business Review by Mike Tushman and others many, many years ago. But the whole idea was you have one side that is discovering new opportunity, drug development, new motion pictures, new franchises, and the other side of course is running the Lion King franchise for Disney or Frozen or anything else. I think the other side of it is that we tend in the entrepreneurial world to romanticize the origin culture of any venture. People often harken back to those early days and see them as the purest expression of what the venture was meant to do in the world, the value it was meant to create.
I think that one thing we’ve learned from this case and others is that culture is maybe more importantly an input than an output, meaning that this is not something that is sort of a spiritual gauzy thing that’s wrapped around adventure and never changes, but actually it’s something that smart founders and CEOs, to your point, who are learning and evolving on the job can look at culture as one of the levers that they have at their disposal to manage a successful scaling process. And that when the situation, the market, the product, the success or lack thereof selling in what the company currently does, when all of that changes as it always does, that it’s essential to think about culture as something that you evolve to, that you design the culture for the scale and stage of the venture, which inevitably means that culture must change.
BRIAN KENNY: And there’s probably the inverse case to make that if you feel like you’ve strayed from your culture too much, you need to have a sense of what your values were in the beginning to be able to go back and use that as a touch point. And that could even serve to sort of re-energize the firm. Is that fair to say?
JEFFREY RAYPORT: I think it’s very fair to say that. And to some extent you could argue that Ilkka’s version of founder mode was to come back to this notion of, in a sense, a more expansive view of the kind of brilliant creative talent he was looking to attract, meaning that if you accept the fact that it’s a level playing field, they’re brilliant people who extend franchises creatively and they’re brilliant people who originate them, then the question is how do you build in a sense, a bigger tent to accommodate that diversity of creative talent? And you don’t do that if you’re underserving the commercial opportunity and you don’t do it if you’re distracting a bunch of people from the invention of the new games.
BRIAN KENNY: So we’re running out of time, but one question I would ask you is if you were sitting in Ilkka’s chair today, what would you be watching most closely over the next one, two, three years to determine whether you’re succeeding? Is it just the money, the finances, or is it you’ve created the next blockbuster game that’s going to be remembered forever, or is it both?
JEFFREY RAYPORT: I think the answer, dissatisfying as it may be, that you’ve got to say it’s both, meaning that there is clearly much evolution to be done across the five existing franchises. They’ve done huge transformation. We can talk about it in a different podcast, but just to give you a sense of the drama of it, the comparable game to Clash of Clans is King Digital Entertainment’s Candy Crush saga.
BRIAN KENNY: Which we’ve talked about on another podcast if our listeners want to find that.
Editor’s Note: If you’d like to listen to the Candy Crush episode, please find it here: https://hbr.org/podcast/2018/05/candy-crush-was-a-blockbuster-can-king-digital-capitalize
JEFFREY RAYPORT: Yes. Lo, so many years ago. And at that time when the Clash of Clans cell hired that first middle manager, one of the questions was how big should the cell be? And so Stuart, who ran it, logically called up his counterpart who was running the Candy Crush team within King Digital Entertainment and said, “I’m running Clash of Clans with 17 people. You have comparable revenues. How big is your team?” And the answer was 700.
BRIAN KENNY: Oh my goodness.
JEFFREY RAYPORT: So inevitably you’ve got to conclude that 700 may not be the right answer, but 17 is clearly not the right answer. Somewhere between those two numbers is the right answer. And that right answer is the thing that allows you to build essentially the commercial engines that deliver on the potential of those existing hits. But you cannot judge the success of the reorg without asking the other question, which is when is the next hit game going to come out of the new game side of the house? And that’s got to be a metric you’re watching and that they’re watching very closely within the company.
BRIAN KENNY: Yeah. I assume you’ll be watching as well. Maybe you’ll write another case about it.
JEFFREY RAYPORT: Can’t wait. A huge fan of Ilkka’s and of Greg’s and of the whole team there as well as of the company. These folks really do play a high integrity version of the free to play game of their own, which is you don’t have to spend a dollar, a euro, to have access to the full glory of every single one of these products. So it’s not a bunch of great stuff behind a paywall. It’s a handcrafted experience for players who really want to engage. And of course, the business model depends on some of them caring enough, like you feeding your chickens in Hay Day.
BRIAN KENNY: If you want to get the best chicken feed, you do have to spend a dollar.
JEFFREY RAYPORT: That’s a different story. Either that or do a subscribe and save with Chewy and make sure that the ownership delivers.
BRIAN KENNY: We’ve also talked about the “Chewy” case. So our listeners definitely have to go back and look at the catalog to see all your great cases that we talked about.
Editor’s Note: Listen to the Chewy episode here: https://hbr.org/podcast/2022/10/chewy-coms-make-or-break-logistics-dilemma
JEFFREY RAYPORT: That’s right. Well, we didn’t talk about your chickens in the context of the “Chewy” case.
BRIAN KENNY: No, we didn’t. Jeffrey, thank you for joining me.
JEFFREY RAYPORT: Brian, thank you so much. It’s been a real pleasure.
BRIAN KENNY: If you enjoy Cold Call, you might like our other podcasts: Climate Rising, The Founder Mindset, IdeaCast, Managing the Future of Work, Skydeck, and Think Big, Buy Small. Find them wherever you get your podcasts and check out our video episodes on the Harvard Business School YouTube Channel.
We want to hear from you! Email us at: cold call@hbs.edu. Thanks again for joining us. I’m your host Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School and part of the HBR Podcast Network.
