CREATING DISCONTINUOUS INNOVATION: THE CASE OF NINTENDO’S WII MU SHIFENG A THESIS SUBMITTED FOR THE DEGREE OF MASTER OF ENGINEERING DIVISION OF ENGINEERING AND TECHNOLOGY MANAGEMENT FACULTY OF ENGINEERING NATIONAL UNIVERSITY OF SINGAPORE 2008 Creating discontinuous innovation: the case of Nintendo’s Wii ACKNOWLEDGEMENTS The completion of this thesis would not be achieved without the help from my supervisors, colleagues, friends and my family, who keep supporting me throughout the journey of my graduate studies. I would like to take this opportunity to express my gratitude and appreciation to all of them. I would like to thank my main supervisor Dr. Chai Kah Hin, for his continuous guidance and encouragement, helping me not only finish this project, but also improve my personal aptitudes in thinking, analyzing and communicating with different people. As well, I would like to thank my co-supervisor Prof. Hang Chang Chieh. As the head of the Division of Engineering and Technology Management, National University of Singapore, he is very busy with administrative affairs. However, Prof. Hang often spared time with me to discuss my research project and provided insightful recommendations in the implications of my work. I am also very grateful to other professors and my colleagues in the Division-ETM, ISE Department and ECE Department of NUS for their kindly support and help during my graduate studies. They are A/Prof Jeffrey Funk, A/Prof Seiko Arai, Prof Liu Shang-Jyh, A/Prof Neo Kok Beng, Annapoornima M. Subramanian, Yu Dan, Michele Chew, Virginia Cha, Xie Yu Juan and Cheng Yu Chao. - ii - Creating discontinuous innovation: the case of Nintendo’s Wii Finally, I would like thank my friends and family for their understanding, support and encouragement especially when I confronted with difficulties and depressions. They help me keep optimistic and encourage me to overcome all the obstacles. Without them, the completion of this thesis would not have been possible. Mu Shifeng Aug. 2008 - iii - Creating discontinuous innovation: the case of Nintendo’s Wii TABLE OF CONTENTS ACKNOWLEDGEMENTS................................................................................................. ii TABLE OF CONTENTS.....................................................................................................iv SUMMARY.........................................................................................................................vi LIST OF TABLES............................................................................................................ viii LIST OF FIGURES .............................................................................................................ix Chapter 1 Introduction ..........................................................................................................1 1.1 Motivation.................................................................................................................1 1.2 Research Objectives..................................................................................................4 1.3 Thesis Structure ........................................................................................................6 Chapter 2 Literature Review...............................................................................................10 2.1 Introduction.............................................................................................................10 2.2 Technological Innovation Management .................................................................11 2.2.1 Introduction......................................................................................................11 2.2.2 Discontinuous innovation and disruptive technology......................................15 2.2.3 Discontinuous Innovation and Established Incumbents ..................................21 2.2.4 Expanded View of Discontinuous Innovation and Established Incumbents ...24 2.3 Company Competency: A Resource-Based View ..................................................28 2.3.1 A Resource-Based View..................................................................................28 2.3.2 Classification of Company Competencies.......................................................30 2.4 Conclusion ..............................................................................................................32 Chapter 3 Research Methodology.......................................................................................34 3.1 Introduction.............................................................................................................34 3.2 Overview of Research Methodologies....................................................................34 3.3 Selection of Case Study ..........................................................................................36 3.4 Case Study Protocol................................................................................................39 3.4.1 Case Study Overview.......................................................................................39 3.4.2 Research Design...............................................................................................40 3.5 Conclusion ..............................................................................................................43 Chapter 4 Data and Analysis...............................................................................................44 4.1 Introduction.............................................................................................................44 4.2 Video Game Industry..............................................................................................45 4.2.1 Video game industry structure.........................................................................45 4.2.2 History of Video Game Industry: ...............................................................48 - iv - Creating discontinuous innovation: the case of Nintendo’s Wii 4.2.3 Statue quo of Video Game Industry.................................................................51 4.3 Nintendo..................................................................................................................52 4.3.1 Nintendo’s History...........................................................................................52 4.3.2 Nintendo’s Innovation .....................................................................................61 4.3.3 Patent Analysis of Nintendo and Its Competitors............................................64 4.4 Wii ..........................................................................................................................75 4.4.1 Wii’s development...........................................................................................77 4.4.2 Wii and Its Competing Products......................................................................86 4.5 Conclusion ..............................................................................................................93 Chapter 5 Discussion ..........................................................................................................94 5.1 Introduction.............................................................................................................94 5.2 Discontinuous Innovation and Secondary Features................................................94 5.3 Discontinuous Innovation and Company Competencies ......................................100 5.4 Conclusion ............................................................................................................106 Chapter 6 Conclusions and Implications ..........................................................................107 6.1 Introduction...........................................................................................................107 6.2 Research Findings.................................................................................................107 6.3 Implications for Scholars......................................................................................109 6.4 Implications for Managers ....................................................................................110 6.5 Limitations............................................................................................................112 6.6 Future Research ....................................................................................................114 6.7 Conclusion ............................................................................................................115 REFERENCES .................................................................................................................117 APPENDIX A: Definition of patent classes .....................................................................139 APPENDIX B: Survey for secondary features .................................................................141 - v - Creating discontinuous innovation: the case of Nintendo’s Wii SUMMARY An abundant amount of research has discussed the declining performance of well- established companies in the face of discontinuous innovations. As a type of technological innovations, discontinuous innovations destroy the usefulness of existing architectural knowledge and the technical skills of established incumbents who are bounded by traditions, existing technological paradigms, sunk costs, internal political constraints and have difficulties acquiring and applying new knowledge and skills. In