Big IT: Big Enough to Fail
Investment bankers love them. Investors and pension fund managers like them. Even business gurus like Peter Drucker liked writing about them. I'm speaking of big companies with big top line revenue, big brand recognition, and typically lugubrious Big Company customer service.
Hasn't America learned a lesson from the financial meltdowns of AIG, Bear Stearns, GMAC, and Fannie Mae?
Apparently not. Consider the proposed acquisition of 3COM by HP. This plan follows several other recent large IT acquisitions. Oracle is poised to swallow Sun Microsystems. Dell plans to acquire Perot Systems.
Cisco’s recent offer for Tandberg is a reminder that Cisco is, in fact, is the poster child for Big IT. Wikipedia cites no fewer than 127 firms acquired by Cisco since its formation.
Those increasingly few numbers of entrepreneurs American culture does nurture are expected to politely lay their innovations at the feet of the behemoths, and to be rewarded handsomely for their sacrifices. Expanding the workforce through IT is often discussed, but it's far from clear how this method of harvesting by absorption improves innovation crop yield.
Little Fish - Big Fish
The rationale for this Little Fish - Big Fish scheme is much discussed. Big IT has access to capital. It can rationalize its dilution of focus by believing it has diversified risk across its product portfolio. It may exert greater pricing power by reducing the number of players in the market (e.g., HP's acquisition of Compaq). Sometimes, though this possible benefit is surely suspect, there are operating synergies, such as what Cisco expected with Atlantic Scientific, or what Time-Warner expected with AOL.
What's lost in this Assimilation-for-Profit is the agility and motivation that were the hallmark of small businesses where innovation was sparked.
Risks undertaken by Big IT are not so different from those taken by Big Banking, Big Insurance, or Big Auto. How is Big IT different? Big IT is less likely to be seen as deserving of a government rescue. Increasingly, Big IT has no domestic manufacturing base, no organized workforce, and no clear interdependence with other industries. Increasingly, qualified talent and up-and-coming competitors are available elsewhere. Just as the U.S. ceded its television manufacturing capacity to other nations, the U.S. may yet yield its early lead in information technology.Continued on the next page