This piece was co-authored by Christimara Garcia, a volunteer at the Christensen Institute and founder of Catalyze Innovations Initiative, a Brazilian market-creating innovation action tank.
In his book, Range: Why Generalists Triumph in a Specialized World, David Epstein tells the story of how Nintendo became a global leader in the consumer electronics and video game industry. Founded in 1889 by Fusajiro Yamauchi to make and distribute a Japanese variety of cards, Nintendo had grown to around 100 employees by the 1960s. That’s when the company’s struggles began as competition for affordable entertainment increased.
Epstein notes that, “Japanese adults were turning to pachinko for gambling, and a bowling craze swallowed entertainment dollars.” Observing that customers had fewer dollars to spend on cards, Yamauchi’s grandson, who now headed the company, began investing in new sectors including instant rice, a taxi service, and rent-by-the-hour love hotels. None worked and the company slid deeper into debt. That is, until it hired a young electronics graduate, Gunpei Yokoi.
Originally offered a maintenance job, Yokoi liked to build things, so when he got bored at work, he built simple electronic toys. After the company president got wind of Yokoi’s knack for building things, he decided to sell Yokoi’s first toy, an “Ultra Hand.” More than one million units flew off the shelves. Immediately, Yokoi was put in charge of research and development. Despite this early success, it wasn’t until his first major failure—the Drive Game—that Yokoi learned an important lesson that would shape the future of the company.
Drive Game was so complex and expensive that not only could most people not afford it, but it also broke very easily. It used the latest and hottest technology, but at the time electronics technology was still in its infancy and not all that great. This is when he adopted the lateral thinking with withered technology philosophy. In essence, Yokoi would borrow insights from adjacent fields (lateral thinking) and stay away from expensive, cutting edge technology. This shift in strategy ultimately enabled Nintendo to design one blockbuster product after another.
Nintendo’s story offers several lessons for managers looking to develop innovations, especially for new markets:
- Employ an emergent strategy so you can learn. An emergent strategy—one that develops over time in the absence of a clear and specific blueprint—enables innovators to learn from customers and change their business model quickly. Only when innovators understand their customers better and have developed an appropriate business model should they implement a deliberate strategy in which they move from primarily learning to executing. If Nintendo’s president, for example, had doubled down on many of the early investments that didn’t work, such as the taxi or instant rice business, the company would have likely not survived. By being flexible he was able to figure out what worked.
- Cutting edge technology often isn’t necessary to develop affordable innovations that can serve new customers. Innovation is often synonymous with high-tech, advanced, or cutting-edge. However, our research studying 100 organizations with a market-creation strategy revealed that just 55% relied on novel technology not conventionally used in the industry. This makes sense— many customers, especially those who currently can’t afford products on the market, do not need high-tech innovations. Instead, they need simple and affordable products that can help them solve a simple problem. Once Yokoi at Nintendo realized this, he was able to take advantage of existing technologies that were more than good enough for the customers Nintendo targeted. Products such as the Game Boy and the Nintendo Wii used fairly basic and simple technology which made them affordable and durable.
- Always look for workarounds. People cobble together workarounds whenever they have a problem for which no available products or services on the market can solve. When Yokoi saw a man playing with his calculator on the train to pass the time, the idea for a portable electronic toy was planted in his head. And from there emerged the Game Boy, which during the 20th century sold close to 120 million units and was the best selling console
Although Nintendo has grown into a $12 billion dollar a year company that employs more than 6,000 people, the lessons of its past are instructive for today’s innovators who seek to solve problems for many in their communities.