Double fault.

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How Nintendo Squandered Its Wii Triumph

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The death of Nintendo CEO Satoru Iwata on July 11 unleashed a rare outpouring of emotion in Japan's normally impassive tech world, and deservedly so. Iwata had many accomplishments at Nintendo -- including the development of the Wii console, the DS handheld player and the Rockefeller Center retail store -- but his legacy transcends them. He personified much of what's right and wrong about corporate Japan in the increasingly dynamic global economy.

The Yamauchi family that founded Nintendo took a calculated risk in naming Iwata the company's first non-family CEO in 2002, a relatively fallow time for the company. Replacing Hiroshi Yamauchi (a man known for inflexibility and a volatile temper), Iwata quickly led Nintendo back to ascendancy, helping oversee a tripling of revenue.

By 2009, Nintendo was posting $4.5 billion in operating profit as revenue hit $15 billion. The company shipped more than 100 million units of the Wii alone, making it the world's best-selling console. For a time, Nintendo seemed to be enjoying a revival of its 1980s heyday.

As CEO, Iwata reinvented Nintendo's culture. A former programmer and HAL Laboratory alum, he was hands-on, in the style of Apple founder Steve Jobs, daring his staff to surprise him and take risks. "On my business card, I am a corporate president," Iwata said at a conference in 2005. "In my mind, I am a game developer. But in my heart, I am a gamer."

But Iwata soon stopped paying heed to the second part of the quote. Iwata failed to anticipate or respond to the ways Apple's iPhone would change the world. It's no accident that he achieved the pinnacle of his success in 2009 -- that was the year smartphones began devastating sales of handheld game consoles.

Rather than change course, Nintendo stuck with the strategy that had worked in years past. In that sense, Iwata was a typical Japanese CEO. Japan's last two decades are littered with examples of companies squandering advantages because of insular thinking. (Sony and Sharp once thrived by staying one step ahead of the consumer; now they languish on the margins of the global tech scene.)

Part of the problem is that Japanese executives have focused too closely on Japanese consumers, at the expense of the global market. Japan's products are often on the cutting edge of technology, but fail to awaken much interest anywhere outside of the country. (It's a phenomenon that some observers refer to as Japan's "Galapagos syndrome," after the highly evolved but idiosyncratic creatures Charles Darwin found off Ecuador's coast.)

It wasn't until March 2015 that Iwata staged a turnaround. After arranging a partnership with mobile game maker DeNA, Nintendo's stock price began to soar.

If only Iwata had done it five years earlier. Now, it's arguably too late. Pre-iPhone, Nintendo was in a great position to be a major, if not the biggest, player in mobile games. But it didn't want to cannibalize its cornerstone products, so it ended up watching the market slip away. In the process, Iwata's team became a classic example of slow-moving, overly deliberative Japanese management.

Nintendo's lost half-decade is a microcosm of 2015 Japan: teeming with innovative energy yet held back by a culture that tends to squander rather than harness it. Iwata's career, in many ways, is an inspiring story -- but it's also a cautionary tale.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Willie Pesek at wpesek@bloomberg.net

To contact the editor on this story:
Cameron Abadi at cabadi2@bloomberg.net