As the much missed Jack Ma has returned to China, Alibaba this week (28 Mar) announced a major (some call “radical”) restructuring. The group will be “split” into six units, in a “1+6+N” structure: 

  1. Cloud Intelligence Group
  2. Taobao Tmall Commerce Group
  3. Local Services Group
  4. Cainiao Smart Logistics Group 
  5. Global Digital Commerce Group, and 
  6. Digital Media and Entertainment Group

Alibaba Group as a whole, according to the letter by CEO Daniel Zhang, will act as “a holding company”. Each individual unit in the future will have the possibility of fundraising from external investors and IPO. 

A lot of friends asked us over the past two days whether it is a good move for Alibaba, for Lazada and other subsidiaries, and what the impact would be for competition like Meituan, Pinduoduo and Shopee. 

Actually the underlying issues have been well covered in our book “Seeing the unseen: behind Chinese tech giants’ global venturing”, but here are some of our thoughts on the current move:

 

1. A lot of reporting about this focuses on ‘relieving regulatory pressure’ and ‘giving more autonomy to the business units” – however, an underlying issue that Alibaba leadership has been trying to fix is: how to get Alibaba, with close to quarter million employees across sectors and business units, more agile and responsive to the ever changing and hyper competitive market environment?

2. For Alibaba and other major tech companies in China, which grew out of the hyper competitive environment, organisation is a constant topic that occupies the leadership’s mindspace. How do you make sure a company that became large quickly still retains the agility, coherence and fighting spirit? We have discussed this extensively in our “Tech leaders with Chinese characteristics” report.

3. Alibaba leadership knows this, and has always known this. This is the reason why “embrace change” has been a core value of the group for a long time. (although there has been a lot of mockeries about this).

4. The current pressure for Alibaba is real, for example(s):

5. Worse, all the competitors and disruptors we mentioned above are still (relatively) young but more crucially founder-led, with strong desire and execution capabilities to win;

6. In comparison, in many areas Alibaba’s mid-level executives are showing signs of weariness. In some teams and business areas, to the worry of top leadership, reporting and politicking are taking the place of execution and business growth. As a group, it is often not exactly apparent which team (or business unit) is contributing more, which is just slacking off;

7. A very early Alibaba veteran told us last year: “it used to be the case that any key Alibaba executive would be battle hardened but still spirited to make a good founder; now look at the mid levels, I am not sure anymore”;

8. The new structure might be able to make some of these performance and motivation issues more transparent. Different business groups should be held accountable while having the ‘autonomy’ to execute. The downside is perhaps the reduced ability for the holding group to mobilise or focus resources on a single area of concern.

9. Daniel Zhang said in the letter “Every Alibaba employee, regardless which business group or operating company you are in, must restart yourself as an entrepreneur, embrace the market with your own passion and capabilities, in order to build a tomorrow that belongs to you.” He added “the market is the best test”.

10. Again, while it is a bold (and good) move, whether it will achieve the intended benefits will be highly dependent on how the new structure is executed, and the related leadership, people, organisation and product issues.

 

At the end of the day, Alibaba is still a formidable company from which we can learn a lot of good lessons – from top level issues such as people and leadership to minute product issues such as feature sequencing for payment/ecommerce. We hope that it will continue to thrive, and inspire.

 

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].

 

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Jianggan Li is the Founder & CEO of Momentum Works. Prior to founding Momentum Works, he co-founded Easy Taxi in Asia, and served as Managing Director of Foodpanda. The two years running Rocket Internet companies has given him a lifetime experience on supersonic implementation, and good camaraderie with entrepreneurs across the developing world. He holds a MBA from INSEAD (GMAT 770) and a degree in Computer Engineering from Nanyang Technological University. Unfortunately he never wrote a single line of code professionally - but in his first job he was in media, travelling extensively across Asia & Europe, speaking with Ministers & (occasionally) Prime Ministers. Apart from English and his native Mandarin, he is also fluent in French and conversational in Cantonese & Spanish. He tried to learn Latin (for three years) and Sanskrit (for six months) as well. In his (scarce) free time, he reads, travels, hikes and dives. Pyongyang, Tehran & Chisinau are among the interesting cities he has been to.