Big versus small (block)

Friday, December 14, 2007

From the Wall Street Journal
Informed Reader
November 20, 2007; Page B8


Look to Giants, Not Start-Ups, for Innovation


When businesses get so big that their growth starts to slow, they should find a stagnant industry outside their own and use their heft to shake it up and reap the resulting rewards, says Andy Grove in business magazine Portfolio.

When people think of radical innovations, they usually think of start-ups that shake an industry from the ground up. Some sectors are hobbled with "intractable, industry-wide problems" that only a large company can solve, says Mr. Grove, the co-founder of Intel. Mr. Grove, who has been researching the phenomenon with Stanford Graduate School of Business professor Robert Burgelman, calls this "cross-boundary disruption." Crucially, the industry on the other side of the boundary is "stagnant and populated with companies that cling to doing business the way they always have."

Mr. Grove says Apple Inc.'s entry into the music business via the iPod is the defining example. It took advantage of the music industry's unwillingness to accept that downloaded music was replacing CD sales. Unlike start-ups such as Napster Inc., Apple's wealth and well-known brand allowed it to overcome record companies' objections, build a digital distribution system, and thus reap the rewards of its disruption.

Digital technology is likely to make future cross-boundary disruptions easier, but not all cross-boundary disruptions have to take place in the digital realm. Mr. Grove believes Wal-Mart Stores Inc.'s experiment with cheap in-store health clinics, which provide basic medical services, has all the ingredients of a successful cross-boundary disruption. As a suggestion, Mr. Grove says General Electric Co. could benefit from a cross-boundary disruption by building an electric car. Neither auto makers nor energy companies seem willing to exploit new energy sources or reduce the U.S.'s dependence on foreign oil. GE has the money and expertise to build both an electric car and the machinery needed to charge it.