Conversation with Glenn Carroll

New news: On May 23, 2009, Glenn Carroll, professor of organization at Stanford Graduate School of Business, will give a lecture on "Organizational Innovation: From Entrepreneurship to Maturity" for Chinese managers. For details, please refer to: Stanford Business School Executive Training Course

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Register and pay before March 31, and get a discount of 5,000 yuan!

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Glenn Carroll, professor of organization at the Stanford Graduate School of Business, is one of the leading figures in the field of organizational ecology. Inspired by ecology, organizational ecology looks at organizations from a new perspective, emphasizing that each organization's environment is composed of other organizations, and shifting the focus of analysis from individual organizations to the level of groups of organizations.

Professor Carroll will be presenting an executive training course co-hosted by CEConline and Stanford Graduate School of Business.

The significance of organizational ecology

Liu Lan: You are one of the leading figures in organizational ecology. What kind of discipline is organizational ecology?

Carroll: Organizational ecology is a theory of organizational change that asserts that organizational change is difficult to achieve at the level of individual organizations, especially when organizations experience drastic changes. In fact, many changes in society and the economy take place not through the adaptation of individual organizations, but through alternative processes of what Schumpeter calls creative destruction. That is to say, the existing older organizations cannot adapt and thus fail; while the new organizations are better able to adapt to the current market environment, introduce new technologies, and succeed. Organizational change is achieved to a greater extent through this substitution process than through the adaptation of individual organizations.

Liu Lan: What does this mean for managers?

Carol: Makes a lot of sense. China's economy is growing rapidly, consumers and industrial markets around the world are changing rapidly, and now they are facing a financial crisis. In such an environment, it is important for managers to understand how difficult it is to change the organization, not to try to do the impossible, but to use the assets and capabilities that the organization already has to do what is more feasible . That said, understand the limitations of your organization and don't try to go beyond too much.

Problems of large companies

Liu Lan: You have done research on the American auto industry with ecological methods. What are the main findings?

Carroll: It's a study of how the industry has evolved. Beginning in the late 19th century, a number of adventurous entrepreneurs experimented, and several of them later succeeded. We collected data on every automaker that has ever appeared in the industry, so we were able to model their entry and exit and found that: in the early stages of the industry, the introduction and legalization of new products dominated; in the later stages of the industry , which dominates competition and economies of scale, the ability of some firms to produce and expand into new markets more efficiently than others.

Liu Lan: What practical guiding significance does this have for current automakers or other companies?

Carroll: I don't think this particular study has much practical implications. It is mainly to help us understand the entire process of change at a deeper level and see how the industry evolves.

But I think that, as the auto industry has evolved so far, if technology changes dramatically in a few years, those manufacturers that can take advantage of this opportunity will not be the existing big automakers in the United States, but new start-ups from Firms in new industries with fewer existing technologies. I speculate that Tesla, the local electric car maker, has some chance of success.

Liu Lan: If we understand the past better, we can better understand the present. Has your understanding of the history of the auto industry helped you better understand the predicament the U.S. auto industry is facing today?

Carol: For me it is. The problems of the big Detroit automakers have to do with the growth, aging, and maturity of their organizations.

They have so much resources, so much money, there seems to be no reason why they can't make cars that suit American consumers' tastes, no reason why they can't develop alternative fuel technology and smaller cars, no reason why they can't make There are no cars of the same quality as the Japanese manufacturers, but they just don't.

I think the reason is that the organization has become bureaucratic, rigid and difficult to adapt. In fact, it is difficult for them to do anything innovative, they can only do what they are good at. If oil prices come down, they may last a few more years, but sooner or later, consumer tastes will change, technology will change, the market will change, and they will be in big trouble. It's the obvious thing, isn't it?

Liu Lan: If you were invited to give advice to those big car manufacturers now, what would you suggest?

Carroll: I haven't spent much time thinking about the specific troubles of those automakers, so it's a bit of a tough question.

My suggestion would be to create a holding company and then spin it off, kind of like what GM did with its Saturn division. For large organizations, it is much easier to create from scratch outside of the existing organizational territory than to change the processes of the existing organization. Therefore, you have to find ways to jump out of existing structures.

Opportunities for small businesses

Liu Lan: The problem of Chinese companies is often not too big, but too small and too young. You did a study of the U.S. beer industry, and one of the findings was: "The growing dominance of big business actually creates an environment that favors the entry of smaller, more specialized organizations." Good news for businesses. Can you be specific about how small businesses should take advantage of this opportunity?

Carol: Of course. But let me distinguish first, there are two different industry scenarios, both of which are good for small business.

The first scenario is like the early days of the auto industry, where each business was small. To a certain extent, this is the case with many industries in China today. Every business starts from scratch, and the challenge starts with finding viable products and technologies, understanding your strengths, building an organization around your strengths, and growing with the market without falling behind your competitors.

This is also the case with Microsoft. Don't forget, Microsoft started as a small business. This is also the case with many small Chinese companies: they don't want to be small all the time. They are now small and therefore flexible, but this won't last long. As the market develops, they need to get bigger. This is a challenge they face. In this case, small is not too much of a concern.

The second scenario is what you're talking about, a mature industry has gone through a lot of evolution, first small companies came in, then some got bigger, crowding out other companies, and in the end there were only a few big companies left, the American ones. That's what the beer industry is like. I don't know if this is the case in many industries in China, but Chinese companies are also competing in the world market, and big companies dominate, such as Microsoft, SAP and Oracle in the software industry.

If it's a worldwide industry, and a few big companies dominate, there's also room and ways for smaller companies to do well. But small companies need to know how to choose the appropriate strategy and marketing, so that they do not compete directly with larger companies, but can create innovative products and markets.

That's what those little brewers do. Big brewers make the same kinds of beer and sell them in the same way, and customers want variety. Someone can produce some small varieties, targeting a small market that the big manufacturers are not interested in, but also a profitable market.

Chinese manufacturers should be able to discover the same market niche. Take the software industry as an example, you don't want to compete with Microsoft on operating systems, but there should be a small niche market, not big enough for Microsoft to be interested in, but big enough for Chinese companies to be beneficial Can be pictured. They enter such a market, not with big companies with rich resources, but with companies as small as themselves, so the competition is not so fierce. This is one way.

There is another way, less common in China, but already prevalent in Europe and the United States, perhaps one of the most prominent consumer trends in industrial society. In the society I live in, when consumers buy products, they are more and more concerned not with the characteristics of the product, but with the identity and personality of the manufacturer. They may not be able to distinguish between different kinds of cheese, meat, beer, but what attracts them is that the products they buy are made by small manufacturers, produced by hand, just like they were a hundred years ago.

Some people believe it's better quality, some people want to stand out in a popular society, and some people agree with a common cultural form, like what it's like to be a true American or a German . For small businesses, the opportunities are plentiful.

Cultural Dilemma of M&A

Liu Lan: Actually, some Chinese companies are growing into big companies, such as Lenovo. One of the paths for them to enter the international market is through mergers and acquisitions. Lenovo bought IBM's PC business a few years ago. There are many other Chinese companies doing the same. However, we know that the majority of unsuccessful mergers and acquisitions, successful mergers and acquisitions are more of an exception.

You have co-authored a book on M&A from a cultural perspective. Can you talk about the main findings of the book? What advice do you have for Chinese companies considering acquiring foreign companies?

Carroll: This question can be thought about on several levels. The first is the strategic level, where the push for mergers and acquisitions is usually done. Like Lenovo, or Daimler-Chrysler, almost all of the big acquisitions are like this. This is due to the consideration of scale, thinking that if the scale does not increase, it is no longer competitive. The leading companies in the industry get bigger and bigger, and eventually they can't grow internally, so they acquire other companies. This makes sense, but unfortunately, thinking and planning for M&A often ends there.

The problem is that you really need to integrate the two companies into one and have them operate as one organization. Of course not every merger needs to do this, and some companies still operate independently after an acquisition. Assuming that integration is required to achieve economies of scale after mergers and acquisitions, there will be overlapping issues of employees, hardware, technology, etc., but what is often forgotten or overlooked is the issue of cultural integration.

I'm not talking about issues like Chinese culture versus American culture, but talking about company culture at the organizational level: what's important in our company? How do we do things? Why do we do these things? What do we believe in? What does another company think is important? How do they do things? Why do they do those things? What do they believe in? How do we bring the two companies together to think and act like one? History has proven this to be a very difficult problem to deal with, and mergers and acquisitions often fail because of it.

My suggestion is that first you need to think about these issues, you need to assess these difficulties.

The problem is that most people involved in decision-making only want to get the deal done. Investment banks, consultants, lawyers, CEOs, all of these people can make a lot of money just by making M&A happen. And what happened after the merger was not so important to them, but it was important to the people who stayed and the shareholders.

So the first thing you need to do is figure out how much investment, time, and effort it will take. If you get it right, maybe people who always think M&A is too easy won't initiate as many M&As. We know a lot about how to train people culturally, and that takes a long time and a lot of effort. However, the assumptions that drive M&A sometimes don't allow this, and you don't have the time and resources to invest in it.

Upgrading challenges for Chinese enterprises

Liu Lan: Chinese enterprises are going through a cold winter. Do you have any other advice for Chinese managers?

Carroll: Let me talk about it from the perspective of the US market. Chinese companies have a lot of dependence on the US market, and I think it's hard to get rid of that, and it's not a bad thing.

I just mentioned that there is a trend among consumers in developed countries, especially in the United States, to buy based on the personality of the manufacturer. For example, U.S. consumers are increasingly favoring organic food. What's been getting a lot of exposure lately is that a lot of organic food sold in the U.S. comes from China. Many Americans are upset because it doesn't fit the image they have of organic food manufacturers.

This will continue to be disturbing, but will eventually subside. But more importantly, Chinese manufacturers and the government need to recognize the importance of establishing a credible and transparent system that allows mass consumers to know the origin of products and the conditions under which they are produced. Consumers need to know that organic food in China is indeed organic and can be trusted, even if those organic farms don't fit their cultural image. The system needs a lot of regulation, oversight and credibility to build consumer confidence.

Consumers in the U.S. are now concerned that Chinese products are not as described. Leaded toys, milk scandals, all of which have reduced the trust of American consumers. So they ask, "Is this product from China?" They start to worry about the wrong product. My suggestion is to build credible and transparent systems that build the confidence of American consumers. They can say, "I'm happy to buy this pumpkin. It was grown in Sichuan and processed in this place."

I think this is very different from the thinking that dominates China's manufacturing and processing system: We make something nice, usable, and sell it at an attractive price.

This approach to more sophisticated consumer groups and greater transparency is a real challenge. I recommend taking it seriously and thinking about how to deal with it. I don't think entrepreneurs can do it alone, and I don't think government can do it alone. Both are required. Industry associations and accreditation bodies also need to be developed.

Liu Lan: This requires a collective effort.

Carol: Yes. I'll give you a small example, a case I'm writing. There is a furniture company here. The owner is Maria Yee. She is Chinese, but she has lived in the United States for most of her life. Her furniture is sold in the US through some big retailers, but it's all made in China, and she owns two factories in Hunan.

Her furniture is very green, from the wood to the glue, paint and more. It is one of the greenest furniture makers in the world and appeals to American consumers.

Certification bodies are also involved, certifying the origin of bamboo and more. The way the furniture is assembled is also green and attractive to American consumers. Many are traditional Chinese style and are assembled using traditional joinery, no nails or anything like that.

Her chair is comfortable and nice looking, but is that the most comfortable chair I can buy? Most likely not. Is that the prettiest chair? Close, but not too. I bought it not just because it is comfortable and beautiful, but because I like this traditional way of joinery, and because it is environmentally friendly, the chair will not be poisonous to anyone sitting on it when it arrives at my house.

Liu Lan: You are right. Chinese companies face the challenge of upgrading: from pure OEM manufacturers to trusted and branded manufacturers.

Carroll: Yes, it looks like it will cost more, but it actually ends up creating a lot more value for the business owner than simply relying on low prices.

Small companies need to know how to choose the appropriate strategy and marketing so that they do not compete directly with larger companies, but also create innovative products and markets.

There is a trend among consumers in developed countries, especially in the United States, to buy based on the personality of the manufacturer.