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Source: Industry and Market Structures 85

have been perfectly capable of handling this—in fact, it has all along
been a computer pioneer. In its view of the market, however, and of the
user, Bell System saw the computer as something totally different and
far away. While it designed and actually introduced a computer-type
PBX, it never pushed it. As a result, a total newcomer has become a
major competitor. In fact, ROLM, started by four young engineers, was
founded to build a small computer for fighter aircraft, and only stumbled
by accident into the telephone business. The Bell System now has not
much more than one-third of that market, despite its technical leader-
ship.
4. An industry is ripe for basic structural change if the way in
which it does business is changing rapidly.
Thirty years ago, the overwhelming majority of American physi-
cians practiced on their own. By 1980, only 60 percent were doing so.
Now, 40 percent (and 75 percent of the younger ones) practice in a
group, either in a partnership or as employees of a Health
Maintenance Organization or a hospital. A few people who saw what
was happening early on, around 1970, realized that it offered an
opportunity for innovation. A service company could design the
group’s office, tell the physicians what equipment they needed, and
either manage their group practice for them or train their managers.

Innovations that exploit changes in industry structure are particu-
larly efFective if the industry and its markets are dominated by one
very large manufacturer or supplier, or by a very few. Even if there is
no true monopoly, these large, dominant producers and suppliers,
having been successful and unchallenged for many years, tend to be
arrogant. At first they dismiss the newcomer as insignificant and,
indeed, amateurish. But even when the newcomer takes a larger and
larger share of their business, they find it hard to mobilize themselves
for counteraction. It took the Bell System almost ten years before it
first responded to the long-distance discounters and to the challenge
from the PBX manufacturers.
Equally sluggish, however, was the response of the American pro-
ducers of aspirin when the “non-aspirin aspirins”—Tylenol and Datril—
first appeared (on this see also Chapter 17). Again, the innovators diag-
nosed an opportunity because of an impending change in industry struc-
ture, based very largely on rapid growth. There was no reason whatever
why the existing aspirin manufacturers, a very small number of very
large companies, could not have brought out “non-aspirin aspi