Why Alibaba is not “too big to change”

Hello, fellow Olio enthusiasts! 👋

Happy Hump Day and welcome to the 27th edition of Weekly Olio - your weekly dose of giggles, wisdom, and a sprinkle of intrigue with our tantalizing thought piece (yes, we're talking about Publisher's Parmesan here). 🤭

A big shoutout to all of you for the fantastic support and feedback. Let's keep the momentum going in the days and weeks ahead! 😊

Today’s Publisher’s Parmesan covers an interview by Alibaba’s Group CEO, Daniel Zhang, where he talked about leadership, the group’s biggest restructuring in history, culture, and value creation, amongst other topics.

We thought his answers about Alibaba’s restructuring were particularly interesting. These are acute reflections on how to lead and transform a large and hitherto very successful organisation. With quarter million employees, and many more contractors and ecosystem stakeholders, Alibaba’s transformation will be challenging but potentially offer very useful lessons for all of us.

Exciting, right? 👏

Will come to that, but let’s first start with the curation.

Oh, and before you continue, it's time for some sponsor spotlight! Don't worry, it's not clickbait, it's just our way of 'feeling the ad-vantage'. So, do click, and help us keep the lights on and the puns rolling! 😀

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The Quote󠀢 💭

The Tweet 🐦

Slootman's business playbook is simple: Increase the tempo, raise the standards, and narrow the focus. His secret sauce? Amp it up and don't settle for mediocrity. Oh, and don't forget to confront problems with high care, high empathy, and low emotion. It's not rocket science, but it sure does work. 😎😎

The Infographic 💹

When it comes to travel, some tourists spare no expense. And some cities are well suited to attract them.

From the luxurious desert city of Dubai to the city of light and love, Paris, many international travellers today are looking to tick the crème de la crème of destinations off their bucket lists. In some cases, they’re seeking out the opulent experiences they missed out on when the pandemic brought the world to a halt. 🧳

The Short Read 📝

What makes us bold? - by Nautilus

A parasite infection can make a leader of the pack—or a dead wolf.🤯🤯

Yes! This parasite, Toxoplasma gondii, doesn’t make the wolves ill, but it does change their behaviour, making many of them bolder and more inclined to take risks—for better or for worse.

Well, it seems like Toxoplasma gondii is the ultimate equal-opportunity employer when it comes to changing behaviour! This sneaky little parasite doesn't discriminate between species, turning any unsuspecting host into a bold risk-taker.

And apparently, that includes us humans too! Who knew that the key to becoming a successful entrepreneur was simply getting infected with a parasite? Move over, business schools, it's time to start offering Toxoplasma gondii workshops!

But before you rush out to intentionally contract this parasite, keep in mind that the potential risks and negative consequences of infection still outweigh any supposed benefits. Plus, I'm pretty sure investors won't be too keen on funding a business pitch that involves intentionally infecting oneself with a parasite. 😀😀

The Long Read 📜

Here…comes…INDIA!!! - by Noah Smith

The world has a new largest country, and it's on the move.

There was a quote attributed to Napoleon two centuries ago: “Let China sleep, for when she wakes, she will shake the world.” Well, China did wake up, and the world has been shaken.

The whole economic landscape of the planet, the geopolitical balance of power, and even the Earth’s environment have been irrevocably changed in the last three decades by the addition of 1.4 billion human beings to the ranks of the (more or less) developed world. Now India brings another 1.4 billion, eager to join those ranks.

Publisher’s Parmesan 🧀

Why Alibaba is not “too big to change”

Disclaimer: This article was originally published in Chinese by Qin Shuo.

Alibaba is one of the most important companies in China, and Zhang Yong is also one of the most important business leaders in China.

In 2008, he served as the COO of Taobao and the general manager of Taobao Mall. In 2009, he launched the Double Eleven Shopping Festival. In 2012, Taobao Mall changed its name to Tmall, and Tmall Double Eleven surpassed the American "Black Friday" a few years later to become the world's largest shopping carnival.

In the recent period, Ali has made two major decisions that can affect a long time, which have attracted widespread attention:

First, Zhang Yong issued a letter to all employees on March 28, announcing the launch of the "1+6+N" organizational reform.

6 is the 6 major business groups, namely Alibaba Cloud Intelligence, Taobao Tmall Business, Local Life, Cainiao, International Digital Commerce, and Big Entertainment. While, N is the number of business companies, such as Ali Health, Sun Art Retail, Hema, etc.

Ali Group will shift from the past unified management model of comprehensive management of people, finance, and affairs of its business to a full-scale holding model, participating in each board of directors as a shareholder, exercising shareholder rights, and fulfilling shareholder obligations.

The second is that Zhang Yong entered the cloud battlefield and personally served as the CEO of Alibaba Cloud Intelligence to seize the opportunity of the new generation of artificial intelligence technology and the comprehensive embrace of intelligence in all industries. In the future, the core is to do two things well: make computing power more inclusive, and make AI more popular.

In the new era of cloud intelligence integration, where does Alibaba go? And how to go? Zhang Yong made a decision and also showed his courage, direction of change and judgment on the future.

Here is what he said.

About "1+6+N" organizational transformation

Question: In the past, people used to say “too big to fail”. In fact, “too big to change” is the norm. Alibaba’s restructuring this time is the “largest organisational change in 24 years since its establishment”. What key factors did you consider before making this decision?

Zhang Yong: First of all, from a business perspective, what people see as Alibaba is actually a very complex set of businesses. I have studied some large groups carefully, and they either have a single main business or have strong interconnectivity between their main businesses.

Alibaba has businesses for consumers (to C), businesses for enterprises (to B), platform-based companies for consumers, and tool-based businesses for consumers. With so many businesses, their focus and characteristics are different. Just like a zoo, different species require different cultivation methods. If we keep running them together, it may be more suitable for some species, but not necessarily for others, and the friction between them will increase.

Some businesses are impacted more by the international environment, some are impacted more by technological innovation, and some are impacted more by changes in consumer trends. The competitors in each business are also different. From the perspective of growth cycles, Taobao has been around for 20 years, while some businesses are only two years old. In terms of growth, it’s hard to imagine how our overseas businesses in Southeast Asia can respond quickly to competitors’ actions while sitting in Hangzhou. Therefore, from the perspective of the development logic of a group with multiple businesses, change is inevitable. We need to make the organisation simpler and more agile, and let our “kids” grow up and face the market independently.

Secondly, from the perspective of employees, we need to solve the problem of “who we fight for”. It is very important to establish a more direct relationship between employees, middle managers, and senior managers in terms of their contributions, commitment to the business, and incentives, rather than having a long chain of communication in the middle.

My biggest takeaway from Alibaba is that entrepreneurial spirit is not nurtured but self-inspired. With so many businesses, Alibaba needs a group of entrepreneurs, not just one. Can you train or set targets to cultivate entrepreneurship?

It’s impossible. It must be done by a mechanism that helps entrepreneurs self-inspire. As I have mentioned in the letter addressed to the company, “The market is the best judge. In the future, business groups and companies that meet the (good) requirements will have the potential of independent financing and listing.” This is fundamental reform.

Of course, today’s restructuring is not accomplished overnight, but with previous preparations, it becomes natural. In 2015, we proposed a “mid-end strategy”, and built a governance model of “big mid-end, small front-end”. In 2020, we advocated for an agile organisation and implemented a ‘management responsibility system’ i.e., managers are held responsible for achieving specific business goals and targets, and they are evaluated based on their performance against those objectives. Based on these explorations, we have further and more thorough reforms, which is the new governance structure of “1+6+N”.

Question: Before the reform, you believed that each business in Alibaba should have the final decision-making power. After the reform, each business has its own board of directors. Will you be part of the board of directors of all of the businesses? If you want them to run fast on the battlefield and practise with real guns and swords and also bear the responsibility of the entire Alibaba, how do you balance this?

Zhang Yong: I will not be involved in the board of directors of all businesses, only a few. But this does not mean that I am completely detached from each business.

First, all of Alibaba’s businesses are highly digitised, and I can understand the situation of each business in real time. The information is transparent.

Second, the visibility of our data is also very good. The data is not result-oriented but process-oriented. I can see the granular original data.

So whether I am part of the board of directors or not does not affect my understanding of the business. The visibility of data is the most critical.

After the reform, Alibaba Group became a holding company. What holding companies are most afraid of is that the subordinates report only the end result, i.e. the headquarters need reports, and the subordinates fill in the metrics. We need to master the original, granular data. It should be transparent and with no concealment. This is also a requirement for the governance of any listed company.

Question: Hearing what you have been sharing, I feel that although this restructuring has “split” some parts of the organisation, the internal connection is not broken.

Zhang Yong: If they were broken, the company would have undermined its own efforts. If there is no internal connection and mutual leverage, it will be impossible to form a strategic judgment of the overall market situation, and problems will arise in the long run.

Simply put, when a company becomes significant, it needs to become small, and after a long time, it needs to be separated. This is the law of nature. And after the separation, there are still commonalities.

About Production Relations and Productivity

Question: Organizational change is a management issue, followed by the management capabilities and innovation issues of each business group. If some business units do not perform so well in the market, will they still face the problem of continuing reform?

Zhang Yong: This cannot be avoided. Can changes in production relations create new productivity? It is a necessary condition, but not a sufficient condition. The necessary conditions must be achieved first, and the remaining sufficient conditions, such as entrepreneurship, entrepreneurial ability, innovation mechanism of each business, the vitality of young people, organizational culture, deep insight into the industry, etc., are all steps towards success.

Ten fingers have different lengths. After the necessary conditions are met, people's problems, problems of vision, problems of innovation, and problems of organizational culture may be more exposed. There is no avoiding this. Because these problems exist, if you don’t expose them, you may not even know that you are so sick. “If you don’t break out in silence, you will die in silence”, so it’s better to expose it more fully, and then solve whatever problems should be solved. If a certain part really has no market competitiveness, it can only be "buried".

Capability Building, Value Creation and Entrepreneurs Like Clouds

Question: What is your main approach to promoting the capacity building of business leaders? "Smash the whip"? Engage in training?

Zhang Yong: What I hope more is to inspire, inspire them, let them inspire themselves.

Today, Ali has a lot of business, and the requirements for the overall quality of the leaders are very high. "If you can go to the hall, you have to go to the kitchen." You have to understand the basics, and you need to build a team to make up for your shortcomings.

Question: I often heard a saying in the past that Ali is "like a cloud of good generals". Does the change hope that more entrepreneurs will emerge?

Zhang Yong: Ali may be like a cloud of good generals, but warriors are not entrepreneurs, warriors are warriors, and what we need more is "entrepreneurs like a cloud." Every business today needs an entrepreneur, a leader who can lead the business into the future. What every group needs is not a general, but a handsome man.

Question: Last question, you have been in close contact with a large number of Ali customers, mainly enterprises, for so many years. What do you think of the capabilities and capabilities of Chinese companies?

Zhang Yong: The most common feature of Chinese enterprises is strong viability and adaptability. The second is learning ability. The Chinese are industrious and smart, and they have been constantly improving from the earliest manufacturing capabilities to the current product design capabilities.

Of course, we are relatively strong on the user side and marketing side, but we have to work harder in terms of supply chain, product innovation, and digital intelligence. But on the whole, the survivability and learning ability of Chinese companies complement each other, and I admire them very much. This may also be the most valuable ability of Chinese entrepreneurs.

Reading the above conversation, the words in "The Analects of Confucius" come to our minds, "He who knows will not be confused, the benevolent will not worry, and the brave will not be afraid." Zhang Yong is one such person who can see the future, sleep well, win battles, and is not afraid of challenges.

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