The Corporate Planning Paradox
New paper by UA Eller College assistant professor shows that startup companies benefit when established corporations enter new technology markets
TUCSON, Ariz. – April 7, 2009 – When corporations try to diversify into new technology sectors, startup companies reap the rewards, according to the findings of a new paper co-authored by Eller College of Management assistant professor of management and organizations Steven Boivie.
“In order to take off, new industries need a lot of firms to come in — not just startups,” explains Boivie. “We were interested in what existing firms, those that we call corporate parents, bring to this sphere.”
Along with co-authors Donald Lange of Arizona State University and Andrew Henderson of University of Texas at Austin, Boivie analyzed data from the birth of the home computing industry spanning 1975-1994. “To become commercially viable, new technologies need to attract investors,” Boivie says. “Start-ups lack legitimacy, and their early products are crude and inefficient relative to alternatives from other industries.” For this reason, multibusiness corporations can play a significant role in moving technology forward.
“Corporate parents have significant resources to devote to research and development in new industries,” Boivie says, “But the paradox is that while these firms’ entry decreases the rate of failure for firms overall, their own corporate children prove to be weaker survivors.”
Boivie cites IBM as an example. “When IBM entered the personal computing market in 1981, it was a strong signal of where the industry was going,” he says. “IBM legitimized the new PC industry. But when we consider their activity in that market over the long term, we see that IBM’s PC business was only very successful for a few years.”
Boivie’s paper, “The Parenting Paradox: How Multibusiness Diversifiers Endorse Disruptive Technologies While Their Corporate Children Struggle,” was published in the February issue of the Academy of Management Journal.
The Eller College of Management at the University of Arizona is internationally recognized for pioneering research, innovative curriculum, distinguished faculty, excellence in management information systems, entrepreneurship, and social responsibility. U.S. News & World Report ranks the Eller undergraduate program #11 among public business schools and two of its programs are among the top 20 — Entrepreneurship and MIS. U.S. News & World Report ranks the Eller MBA Full-Time program #48 in the U.S. The College is among the leaders of business schools generating grant funds for research. In addition to a Full-Time MBA program, the Eller College offers the 25th ranked Evening MBA program, the Eller Executive MBA and the Online MBA. The Eller College of Management supports more than 5,000 undergraduate and 600 graduate students on the UA campus in beautiful Tucson, Arizona, and a satellite campus in Phoenix.
Liz Warren-Pederson, Eller College of Management
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