03/28/2008 02:45 am ET | Updated May 25, 2011

Grove: To Innovate, Established Giants Need To Transform Other Markets

I usually try to control myself and resist giving compliments or unsolicited advice to people I don't know well. But I recently did just that. I emailed letters to Lee Scott, C.E.O. of Wal-Mart, and Jeff Immelt, C.E.O. of General Electric. I wanted to share with them some of my thoughts about their businesses. Both companies are leviathans that have struggled recently to grow in ways that satisfy shareholders. Wal-Mart, I wrote to Scott, has created a phenomenal opportunity for itself by offering in-store health clinics and, in the process, may transform the U.S. health-care industry. G.E., I told Immelt, could boost its fortunes by complementing its experience in power generation with building an electric car.

In my position as a lecturer at Stanford Graduate School of Business, I've been working with my colleague Professor Robert Burgelman to examine how large companies can defeat the law of big numbers. Successful businesses sooner or later encounter a situation in which the reward for their success becomes a punishment of sorts. The reward is that they get big. The punishment is that when they get big, it gets harder and harder for them to grow. And then their investors pile on the abuse.

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