1

An Innovation Audit
The tool to accelerate and facilitate innovation

Sigin G. John
Department of Business Management, Technology University Dublin
TU-315: Technology and Innovation Management
Prof. Saad Ahmed
November 6, 2022
 2

Declaration and Statement of Authorship:

1. I hold a copy of this document which can be produced if the original is lost/ damaged.
2. This proposal is my original work and no part of it has been copied from any other
student’s work or from any other source except where due acknowledgement is made.
3. No part of this document has been written for me by any other person except where such
collaboration has been authorized by the advisor concerned.
4. I have not previously submitted this work for this or any other course.
5. I give permission for this work to be reproduced, communicated, compared and archived
for the purpose of detecting plagiarism.
6. I give permission for a copy of our marked work to be retained by the Department for
review and comparison, including review by external examiners.

I understand that:

7. Plagiarism is the presentation of the work, idea or creation of another person as though it
is your own. It is a form of cheating and is a very serious academic offence that may lead to
expulsion from the University. Plagiarized material can be drawn from, and presented in,
written, graphic and visual form, including electronic data, and oral presentations. Plagiarism
occurs when the origin of the material used is not appropriately cited.
8. Plagiarism includes the act of assisting or allowing another person to plagiarize or to copy
our work.

Sigin G. John

06-11-2022
 3

An Innovation Audit
The tool to accelerate and facilitate innovation

Introduction
The world will never stop turning and change has become inevitable. Upon that, today’s
competitive and highly volatile market calls for a new kind of flexibility and adaptability
(Boons et al., 2013).
An article titled "Convergence: Embracing a Next Millennium of Change" appeared in
Newsweek magazine. The article opens with a quote from a former executive vice-president
of Lucent Technologies: "You have a single digital system, and maintenance & operation
costs can go way down, instead of administering and maintaining three different systems—
one for phone, one for television, and another for computer data. In addition to saving
money, a single integrated system enables the delivery of hitherto unheard-of multimedia
services (Kodama & Shibata, 2017)
However, for businesses and higher managements pressing issue is how and when to
change, that matters. And this change is nothing but an innovation that is offered to end user
or optimization of processes to deliver against margin and profit expectation. Innovation is
nothing but commercialisation of ideas or changes. Now the question arises is how can
businesses incorporate innovation? This is where an innovation audit comes into play.
In this article, the innovation strategy of The Japanese multinational consumer electronics
company, Nintendo Corp., is used to explore the importance of innovation audit. Since its
founding over 130 years ago, the corporation has been regarded as the largest video game
company by revenue. It is significant to note that the business sold 5.4 billion software units
and 822.11 million hardware units by the end of 2012 (Nintendo Co. Ltd., 2022).

"An audit is a systematic procedure of objectively acquiring and analyzing statements of

assertions regarding economic activities and events in order to establish a correlation
between these statements and defined criteria and report the results to interested parties
(Mahdi, 2011).
Benefits of Innovation audit are summarised as below:-
1. Employees will be given industry knowledge so they can speak with one voice during the
audit and have a clear grasp of the procedures, advancements, phases, and advantages of
digitalization for the sector.
2. The organization, people, markets, and other areas of the company's internal business
processes will be evaluated for their level of digital maturity, and the company's strengths
and shortcomings will be highlighted as well as compared to other industrial firms by
industry.
3. The degree of development of digital technologies, production, and production-related
digitalization in several areas (cyber security, energy monitoring, robotization and
automation, production process digitization, logistics, cloud technologies, etc.) will be
evaluated as required.
4. Purchase suggestions for products and machinery with integrated digital technologies to
boost the company's competitiveness will be made.
5.Organizational recommendations for the company's digital transformation will be given,
including suggestions for organizational structures, business processes, staff competency
development, networking, and/or communication improvement.
 4

Framework
Although numerous types of innovation audit frameworks exist, Pentathlons Framework is a
structured, interactive and facilitated process of conducting an innovation audit to achieve or
improve highly engaged advancements.

Similar to how a high-performance pentathlon athlete thrives in five sports, there are five
essential components for businesses to succeed:-
- A procedure for choosing and prioritizing ideas with little information. - A technique
for idea production in response to issues and obstacles.
- Proven project management abilities to select an idea from conception to market in
a highly unpredictable environment.
- To direct and impact the choice and execution of ideas, an innovation strategy is
necessary to determine where innovation is most needed. Because implementation
may include purchase, a new supply chain, or new capabilities, senior management
buy-in is necessary.
- An organizational culture that includes enterprise and its people that can handle the
conflict between taking chances and the need to prevent failure as goods and
services approach the market.

Strategy
Innovation strategy for any business is the methodical process that it uses to direct idea
development, concept selection, and idea implementation in order to succeed in the
competitive market.
Nintendo was the market leader in the 1980s and 1990s thanks to its early deployment of
the Red-Ocean Strategy to boost efficiency. Nintendo was able to compete in the market by
outspending rivals and taking advantage of demand thanks to this technique. But this tactic
included trade-offs between value and expense (Chan & Mauborgne, n.d.) . Nintendo
consequently faced intense competition from companies like Sony and Microsoft. Early in
2000, when Sony's PlayStation and Microsoft's X-box were introduced, the firm experienced
a sharp plunge in sales (Liao, 2010).
Nintendo set out to develop a fresh approach that would alter the principles and the ground
rules of the video game market.Nintendo made the decision to concentrate on the particular
requirements of its target market and maximize the value for them (Nintendo Co. Ltd., n.d.) .
They carried out a segmentation analysis using demographic characteristics including age,
 5

gender, geography, and occupation in order to fully recognize and appreciate the demands
of their clients.
But this time, Nintendo unveiled the Blue Ocean Model, a business strategy that predicts the
number of people who would buy its products outside of its target market. It is a strategy
that, in other words, produces uncontested market space, reinvents the competition and
renders it obsolete, develops and captures new needs, breaks the value-cost trade-off, and
synchronizes the system of the firm's operations in pursuit of distinction and low cost (Chan &
Mauborgne, n.d.) . The 2006 release of the Nintendo Wii was a product of the blue ocean
strategy.

Figure 1 : Nintendo Unit Sales ,Games and consoles, 2003-2008 ((Liao, 2010)).

Through the 2006 debut of the Nintendo Wii, which sold more than 51 million consoles in its
first year on the market, Nintendo achieved its goal and reached its pinnacle. As a result, it
became the video game console with the quickest sales rate ever. Additionally, it dismantled
the link between console innovation and "chip technology," making gaming more of a family,
communal, and community activity as opposed to an individual, personalized experience for
each gamer (Liao, 2010) . It transformed the conventional video gaming console into a
potent tool for physical fitness (Nintendo Co. Ltd., n.d.) .

Figure 2: Nintendo’s Wii Unit Sales, Games and consoles,2003-2008 (Liao, 2010).

Selection & Source of ideas

There are two sides to the Innovation Model. One side is “outside-in,” bringing in external
ideas and technologies into the innovation process. The other side is “inside-out,” enabling
unused internal ideas and projects to go outside for others to use instead (Chesbrough,
 6

2003). While inside-in strategy involves utilizing current resources for improvement and idea
creation, outside-in approach involves incorporating outside ideas into research and
development.

Nintendo uses majorly inside-out strategy for idea generation. It makes use of the company's
opportunities to produce concepts for new product ideas. The primary sources for the
creation of such possibilities are the now available, either utilized or unexploited technology,
possible patents, customers, or even the goods of rivals with an aim to create relevant
products.
When the company has a new product concept in hand, the second stage, idea screening
and scanning, is processed. However, as this sub-process usually consists of evaluating
potential ideas, it is insufficient to commercialize a successful product. The company now
decides which concepts may turn into profitable goods and which ones should be
abandoned. Therefore, focus groups of 5–10 people are held at this point. These
participants were chosen based on their shared traits with the topics under discussion.
These discussions are facilitated by a qualified moderator who leverages the surroundings
and internal dynamics of the group to understand why participants feel the way they do
about a certain topic. Next stage is product development followed by launch of product into
market.

Organisation/people Culture
The management hierarchy has had an impact on the organizational structure and/or culture
of the company since the 1950s. At that time, Nintendo CEO Hiroshi Yamauchi put a lot of
emphasis on internal innovation since he understood that the firm couldn't advance without
becoming a creative organization. Yamauchi often reminded his staff that the creation of
fresh concepts and the use of innovative goods will aid the company in achieving its cultural
objectives (Kim et al., 2011) .
Thus, by adhering to these criteria, the company had shown that it was making an attempt to
develop new and distinctive items beyond those that previously existed. The organizational
culture protocol, which addressed how the employees should act, was clear and complete.
They had to focus on providing value to the consumer, act quickly, and stay away from
bureaucracy when it came to the process of developing innovations. Additionally, the
corporation said that the culture of taking risks was essential since it would eventually create
an unpredictable business climate and have a detrimental impact on the company's ability to
compete with its rivals. All of them therefore assumed excellent risk management. It's also
important to note that, rather than focusing on immediate success, the Nintendo Wii U
launch strategy placed more emphasis on the future integration and pairing of the console
with the Nintendo 3DS. Because of this, it may be claimed that the company's culture tries to
keep it competitive in a world where smartphones and tablets are common.

Conclusion
- Nintendo had Positive Effects of the Blue Ocean Strategy
The Blue Sea approach gave rise to the Nintendo Wii series. In the first six months after its
release, Wii Sports sold 8.88 million copies, while the original Wii sold over 5 million. In the
history of the video game industry, this has never happened before.
- Bilateral platform has a positive impact on Nintendo’s games.
In order to interact with consumers and software developers, Nintendo's multimedia
interactive system offers a hardware platform. Consumers purchase the platform's hardware
and software in order to use the benefits of the entertainment software. Software developers
 7

who are approved to create content for Nintendo's platform can profit from consumers
purchasing content created by the company.
- Collaborating with other platform has been boon for Nintendo sales.
Nintendo has partnered with Game Stop, the greatest online gaming retailer in the world.
Utilizes Amazon to seize the industry's mainstay channels, and Game Stop to rule the
market. It even uses  the online sales of  Asian Horse Son, Game Stop, and other platforms
to sell games.
- Nintendo online e-shop has added significant sales.
- Add social networking and mobile devices to your audience.
Nintendo could think about entering this market and creating straightforward games for
social media (like Facebook) and mobile devices.

Nintendo must keep advancing with cutting-edge technologies and gaming ideas. They
made the right decision by switching their strategy, moving from the ROS to the BOS.
Additionally, it was determined that despite the company's long history of competition, it still
has a wide range of choices available to preserve its present competitive edge.

Figure 3: Nintendo’s Audit Graph (Brooks, 2019)

 8

Bibliography

Boons, F., Montalvo, C., Quist, J., & Wagner, M. (2013). Sustainable innovation, business models and
economic performance: an overview. Journal of Cleaner Production, 45, 1–8.
https://doi.org/10.1016/j.jclepro.2012.08.013

Brooks, T. (2019). Nintendo - Innovation audit. Ivory Research.

Chan, K., & Mauborgne, R. (n.d.). Red Ocean Vs Blue Ocean Strategies. Www.Blueoceanstrategy.Com.
Retrieved 6 November 2022, from http://www.blueoceanstrategy.com/about/concepts/red-vs-blue/

Chesbrough, H. (2003). Open innovation: The new imperative for creating and profiting from technology.
Harvard Business School Press.

Kim, S., Lamont, I., Ogasawara, H., Park, M., & Takaoka, H. (2011). Nintendo’s Revolution. MIT Sloan
Management.

Kodama, F., & Shibata, T. (2017). Beyond fusion towards IoT by way of open innovation: an investigation
based on the Japanese machine tool industry 1975-2015. Journal of Open Innovation: Technology,
Market, and Complexity, 3(1), 23. https://doi.org/10.1186/s40852-017-0073-0

Liao, A. (2010). Nintendo’s strategic innovation.

Mahdi, S. (2011). Audit expectation gap: Concept, nature and trace. African Journal of Business
Management, 5(21), 8377. https://doi.org/10.5897/AJBM11.963

Nintendo Co. Ltd. (n.d.). Nintendo History. Retrieved 6 November 2022, from
https://www.nintendo.co.uk/Hardware/Nintendo-History/Nintendo-History-625945.html

Nintendo Co. Ltd. (2022, June 30). Dedicated video game sales units. Nintendo Co. Ltd.
https://www.nintendo.co.jp/ir/en/finance/hard_soft/index.html