From what I understand, Sega of Japan and Sega of America acted as if they were two different companies. Sega of America wanted to build around the Genesis and that's why the Genesis had so many add-ons. Sega of Japan wanted to make a new console and that's where the Saturn came from.
You can see how this would be counter productive. Things didn't get settled until a few years after the Saturn and they were able to push out the Dreamcast. The problem was that they were in pretty bad shape and they didn't just need the Dreamcast to be competitive, they needed it to decisively win the console war the way the PS2 did.