On 28 March 2023, Alibaba Group announced a major restructuring, a couple of days after Jack Ma, its legendary founder, returned to Hangzhou after a long stay overseas. According to the letter by CEO Daniel Zhang, Alibaba will be split into 6 independent business groups, each with its own board of directors, management, and (external) fundraising plans.
A lot of speculation since went into how difficult (and prolonged) the restructuring was going to be – ultimately many large, complex conglomerates fail to implement such radical changes. (Alibaba is reported to have about 240,000 employees).
But Alibaba is moving faster than many had anticipated. Just last week (18 May), Alibaba announced the board of directors of each business group in their FY 2023 results release. It has also announced which business groups are going IPO first and which business will be completely spun off – breakneck speed, almost.
We will talk about Alibaba’s restructuring in more detail in Momentum Works’ The Impulso Podcast next week, and here we think there are five lessons organisations can learn from this exercise:
1. The market is always changing
Back in 2015/6, if you talked to a seasoned ecommerce observer in China, they would have told you that the fight was over: Alibaba was dominating with Taobao / Tmall occupying more than ¾ market share in 2016, while JD, a retailer, took the bulk of the rest.
Things have become very different now. Not only Pinduoduo, which runs a slightly different model, proved to be significant in size and profitable, but also we saw ByteDance’s Douyin (TikTok’s Chinese version) encroaching into Taobao’s space aggressively.
Meituan, the dominant food delivery platform in China (beating Alibaba’s ele.me in market share), is also encroaching into the ecommerce space with its expansive and efficient on-demand fulfillment capabilities.
As a result, Taobao and Tmall share in ecommerce in China have reduced to <50%, more than enough to be alarming to the Alibaba leadership.
In a competitive environment, where innovation keeps happening, no company, even Alibaba, can sit on its success and expect itself to continue to reap the benefits of being number 1.
2. Organisations need to adapt to the changing market (but it’s not easy)
In 2015, Alibaba started a “mid-end strategy” (中台战略), and built a governance model of “big mid-end, small front-end” (大中台、小前台) – it was designed to have stronger, powerful support system so the front-end teams in different areas remain agile.
That major undertaking has created a lot of value, but it has also proven to be extremely difficult. Alibaba leadership has realised, with different business models (e.g. Taobao’s online marketplace versus Hema’s offline retail), it’s very hard for a centralised organisation to always make informed decisions for each unit.
Organizations throughout history have always needed to juggle between centralisation and decentralisation. In fact, the opening phrase of the famous Chinese classic Romance of Three Kingdoms (三国演义) was: “The empire, long divided, must unite; long united, must divide (天下大势，分久必合，合久必分)”.
In a business context, it is the same – when a company gets big (and often more rigid), how does it remain agile and respond to changes? As we have seen in countless business case studies, it is not easy to balance.
3. Once you decide on a change you need to implement fast
Alibaba’s restructuring, from the moment they sent the internal letter announcing the restructuring, to the moment all these are taking place is happening at a breakneck speed.
The leadership must be keenly aware of the potential harm that prolonged uncertainty can bring to the organisation. They must have studied a lot of corporate restructuring case studies – quite often failures arise from the loss in momentum, when people get into a lot of unnecessarily detailed discussions and the bigger purpose/mission becomes missing.
There is also a classical Chinese idiom called “一鼓作气” (literally: the army will have the highest motivation when the battle drum is beaten at the first time). At the second drum, the soldiers already become tired; the third drum, exhausted. Anyone should complete the mission while the motivation is at the highest level, the saying implies.
4. Having connected data is very important
Alibaba has real-time, granular and connected data of the business units. This is what gives the Group leadership visibility and confidence to execute such drastic restructuring.
Imagine if they did not have that in place, it would probably take weeks if not months to collect all the data in one place to get a good sense about the implications of the restructuring – the problem is by then the market (especially one as competitive as China’s) would have moved on.
Alibaba took the painstaking task over the years of ensuring that all the data is connected – sometimes at the expense of new, non-core businesses moving more slowly. Looking back especially at this juncture, it was probably all worth it.
5. The founders are a great stabilising and motivational force in times of big change
As we see during this restructuring, Jack Ma has returned to China from overseas, and a few of Alibaba’s original 18 co-founders (e.g.: Eddie Wu 吴咏铭, Lucy Peng 彭蕾, Joe Tsai 蔡崇信) have joined the board of the business groups, sometimes as chairman.
This gives Alibaba’s workforce, close to a quarter million employees, huge confidence and motivation. The founders still command wide respect within the ecosystem, a status that is obviously different from the subsequent professional managers. Knowing the ‘founders are with us’ will give people, especially at middle and ground levels, great confidence that no matter how hard the restructuring is, they will emerge successful on the other side.
As Daniel Zhang, CEO of Alibaba mentioned in the announcement, the restructuring is to “strengthen the competitiveness of the businesses through greater independence to address the evolving needs of different customers and capture new opportunities” – the landscape will continue to evolve.
Will this be a good move for Alibaba, for Lazada and other subsidiaries; how would this impact competitors like Meituan, Pinduoduo and Shopee? Do stay tuned for our take on these questions in an upcoming episode of “The Impulso Podcast”!
Momentum Academy has also conducted a number of sharings and workshops on Alibaba’s culture, its key success factors, people and organisation practices, as well as its product roadmap. If you are interested in bringing such learnings to your organisation, feel free to contact [email protected].