After working in Japan for Sega on games for the Master System, Cerny proposed the creation of a development studio in America, which was approved.

[3] Sega applied for O-1 expert visas, for "nationally or internationally recognized" people with "a record of extraordinary achievement", unaware that the developers did not qualify.

[6] As a result of the applications for this quantity of unqualified visas, the US Embassy in Tokyo denied them all and temporarily barred Sega from applying for more.

[4] Cerny's first employee at STI was Yutaka Sugano, who had previously created the arcade game Shinobi and had already been assigned to work in the US.

American staff were hired to program the game, and Japanese graphic artist Takeshi Doi worked on the animation.

[9] Despite STI's efforts, which included having each character's likeness approved by their actor in the movie–including Warren Beatty, Madonna, and Al Pacino–Dick Tracy was poorly received and did not sell well.

Cerny, who had been making frequent trips to Japan while he was setting up STI, and who had previously consulted with Sonic character artist Naoto Ohshima,[16] visited Naka's apartment and listened to the reasons why he left.

[2] Cerny took this information to Sega of America executive Shinobu Toyoda, who had previously negotiated Naka's salary while in Japan.

[16] In September 1991, Cerny pitched Sonic the Hedgehog 2 as STI's project for the 1992 Christmas season, giving the team 11 months of development time, but Sega management considered it too soon for a sequel.

STI explored other concepts,[6] but in November, Sega reversed course and told Cerny that it needed Sonic 2 for the 1992 holiday season.

[17] Cerny said that this did not create "much of a creative loss", as STI had yet to come up with a game idea on par with Sonic, but lost two months of development.

[20] Cerny had envisioned the Japanese acting as mentors to the Americans, but cooperation was difficult due to language barriers and cultural differences.

Further complicating this was STI's involvement with the Sonic franchise and Naka's desire to oversee the process personally, as well as Sega of America's initial hesitation to assist given their lack of confidence in the character.

Having been recruited by Toyoda to join STI while working with Disney Interactive, Hector knew Cerny and met with him as he was departing.

Believing the tension between the Japanese and Americans at STI was normal, Hector adapted his management style in order to keep the two teams together while integrating them when it was needed by the game being developed.

His team, consisting of American STI staff not working on Sonic 3, was given nine months to develop the game, which Morawiec considered a "tight" schedule.

To speed up production, Sega sent veteran staff from Japan to assist, including Sonic the Hedgehog artist Katsuhiko Sato.

[32] The team also changed the programming language from assembly to C, an unusual choice for Genesis games at the time, which greatly accelerated development at the cost of frame rate and performance and optimization issues.

[5] Following the release of Sonic & Knuckles, Yasuhara quit, citing differences with Naka, and went on to develop games for Sega of America.

[4][35] Further complications came from internal corporate tension: Sega of America operated as an independent entity, and relations with the Japanese were not always smooth.

Development was relatively smooth and became STI's top project, with the full support of Sega's marketing department, but pressure was mounting as the American team had not released a game since Spinball.

The game's approval was questionable due to its being unconventional and its main character being made of toxic sludge, and was not guaranteed to ship.

Released late in the Genesis' active years, The Ooze sold below Sega's expectations and was a critical and commercial failure.

However, Sega management and senior members of Sonic Team disapproved of the idea, so Morawiec moved on to work on Comix Zone.

[4] Cerny and Yasuhara remained friends after their time at STI and reunited to work with Naughty Dog on the Jak & Daxter series.

A sequel to Kid Chameleon and Jester,[57] which featured a nearly-invulnerable clay character,[5] were canceled due to STI shifting resources to Sonic the Hedgehog 2.

[57] A sequel to Comix Zone was proposed but dropped, while Morawiec and Stephens set up an office to begin work on an original Sonic game, but the project was canceled by Naka.

[65][66][67][68] Kid Chameleon is recognized for its original character designs and abilities that made it play like "several different platform games rolled into one.

[69] Comix Zone, a beat 'em up, faced mixed reviews from GamePro and Electronic Gaming Monthly at the time of its release,[70][71] but has been retrospectively praised for its originality, including the concept of moving through the pages of a comic book and defeating enemies drawn in front of the player.

Ashley Day of Retro Gamer stated, "only time will tell if such companies can harness the same kind of magic the Sega Technical Institute did so long ago.