By Eller College
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 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.”
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. 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.”
Along with co-authors Donald Lange of Arizona State University and Andrew Henderson of University of Texas at Austin, Boivie analyzed data from 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.”