The success of Electronic Arts—known for games such as Battlefield, Madden, and The Sims—once hinged on managing relationships with retailers. Today, with online gaming on the rise, the company is learning how to use technology to get closer to the gamers themselves.

Here is a brief excerpt from an interview of Bryan Neider, COO of EA Labels, conducted by Krish Krishnakanthan for The McKinsey Quarterly, published by McKinsey & Company. Neider talks about his company’s digital transformation, technology as an enabler of customer insights, and the role of the CIO.

To read the complete interview, check out all the other resources, register to receive email alerts, and obtain information about the firm, please click here.

Source: Business Technology Office

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Gaming-platform innovations have opened up a whole new world of offerings in the interactive-entertainment industry over the last five years. The barriers for entry have come down, and small game developers can get their products in front of large audiences almost instantaneously through digital channels. Whereas Electronic Arts (EA) used to play against peers operating in a retail setting, it now must also master new platforms such as social networks, mobile phones, and tablets.

What was the starting point of EA’s digital transformation?

When John Riccitiello became CEO in 2007, he presented a vision to his senior-leadership team that showed our business through the analogy of a burning platform. You’re in the middle of the ocean on an oil platform that is on fire; your options are to hold fast and ride it down or jump off and face the unknowns of the ocean. John was anticipating the fundamental shift in our industry away from the packaged-goods model that made us successful and toward the digital delivery of games made possible by greater bandwidth and connected devices. It was a shift that, at the time, we were fundamentally unprepared for.

We were also facing execution challenges—our game-quality scores were down and our costs were rising. John’s presentation that day was the inception point of EA’s digital transformation, with the objective of tearing down and rebuilding our business in ways that would allow us not only to deliver our games digitally, direct to consumers, but also to get better insights and build a much closer relationship with our customers. We have since been getting out of the “fire and forget” retail-delivery model and instead incorporating data-backed analysis into our decision making as we grow our business in delivering digital games and services. In fiscal 2013, we are forecasting digital to represent 40 percent of our overall business. As that percentage continues to grow, we are at the mercy of consumer preferences, which are almost by definition ever changing and difficult to define. So it’s immensely valuable if we can understand how consumers are responding to our products. We’re on our way; EA’s revenue coming from digital channels was up 47 percent in fiscal 2012 and will grow by an additional 40 percent in the current fiscal year.

How has the new competitive landscape affected the way EA is organized?

We needed to provide our customers with products that were relevant to them and accessible anytime, anywhere, on any device. From that came our EA Labels business unit structure, which now comprises six units grouping games that address distinct segments of the market. Within those business units, the profit and loss resides with the franchise owners, who are responsible for creating great games while optimizing revenue and profitability for their given franchises—for example, FIFA or Need for Speed—across packaged goods and digital products. The general manager of each franchise can go after the opportunities or make the trade-offs that will deliver the highest return for his or her line of business.

While these labels operate with a high degree of independence, they also draw on central resources—distribution, marketing, and corporate functions such as HR, finance, and IT, as well as our evolving digital platform, which creates the technological mechanisms that allow us to deliver our content on demand. The delivery of this content includes innovative business models like the free-to-play model, which generates revenue from microtransactions—items that can be purchased in a game to either accelerate or enhance the game-play experience for the player. Advertising is a secondary revenue driver in most titles that use this model.

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To read the complete interview, please click here.

Krish Krishnakanthan is a principal in McKinsey’s New York office.