I highly recommend the books "The Innovator's Dilemma" and "The Innovator's Solution" by Clayton Christensen. They basically provide answers to all of your questions. Christensen is the one who coined the term "disruption" as it applies to technology and innovation. The premise of the books are that large entrenched companies focus on larger profits and ignore off the shelf technologies that they already have in house because the potential profits seem too small. Other smaller companies start using off the shelf technologies to focus on niche customers and eventually overtake the larger companies. By the time the larger company realizes what's going on, they're playing catchup.

Nintendo used "The Innovator's Dilemma" and "Blue Ocean Strategy" (another book I highly recommend) as the basis for the development of the Wii.