Lessons from Alibaba’s Chief Strat­egy Of­fi­cer

A dig­i­tal busi­ness pi­o­neer de­scribes the keys to be­ing a ‘smart busi­ness’.

Rotman Management Magazine - - FRONT PAGE - In­ter­view by Karen Chris­tensen

Why is it im­por­tant for ev­ery Western busi­nessper­son to be fa­mil­iar with Alibaba’s busi­ness model?

Alibaba’s busi­ness model pro­vides key in­sights into the fu­ture of strat­egy. The sources of com­pet­i­tive ad­van­tage have shifted dra­mat­i­cally, and com­pa­nies need a new strate­gic ap­proach that fits into an era where net­works and data dom­i­nate. For us, strat­egy is no longer about anal­y­sis and plan­ning; it is a process of real-time ex­per­i­men­ta­tion and cus­tomer en­gage­ment. Go­ing for­ward, a big chal­lenge for lead­ers will be to del­e­gate more and more work to machines — es­pe­cially in rou­tine op­er­a­tional de­ci­sions — so that peo­ple are freed up to be­come more cre­ative and in­no­va­tive.

Is Alibaba China’s ver­sion of Ama­zon?

Def­i­nitely not. Alibaba first grabbed global at­ten­tion with the big­gest-ever ini­tial pub­lic of­fer­ing on Septem­ber 19, 2014, and to­day, it has a mar­ket cap that is on par with Ama­zon; but that is where the sim­i­lar­i­ties end. Alibaba has

a unique busi­ness model. We are not a re­tailer in the tra­di­tional sense. We don’t source or keep any stock and lo­gis­tics ser­vices are car­ried out by third-party providers. From the be­gin­ning, Alibaba has been an open ecosys­tem that em­pow­ers mil­lions of sell­ers to do busi­ness on our plat­form. Alibaba is what you get if you take ev­ery func­tion as­so­ci­ated with re­tail and co­or­di­nate them on­line into a data-driven net­work of sell­ers, mar­keters, ser­vice providers, lo­gis­tics com­pa­nies and man­u­fac­tur­ers. We have suc­ceeded in con­nect­ing and co­or­di­nat­ing all of th­ese play­ers, re­ly­ing heav­ily on ma­chine learn­ing technology to achieve scale and man­age com­plex­ity. We ba­si­cally do what Ama­zon, ebay, PayPal, Google, Fedex, and a good por­tion of Whole­salers and Man­u­fac­tur­ers do, com­bined — with some el­e­ments of the fi­nan­cial sec­tor thrown in.

Many peo­ple still think of China as it was two decades ago — as the world’s fac­tory, un­de­vel­oped and filled with copy­cat busi­nesses. This im­pres­sion is a dan­ger­ous mis­take. Chi­nese com­pa­nies are cre­at­ing world-class prod­ucts and con­sumer ex­pe­ri­ences. China is now a vir­tu­ally cash­less so­ci­ety. Ev­ery­thing is paid for with the swipe of a smart­phone. Chi­nese com­pa­nies are not just catch­ing up any­more — they are in­no­vat­ing in par­al­lel and even leapfrog­ging Western com­pa­nies in some ar­eas. The pres­sure is on for th­ese com­pa­nies to be­come ‘smart busi­nesses’.

How do you de­fine a smart busi­ness?

Smart busi­nesses use ma­chine learn­ing to gather data from their net­works of par­tic­i­pants to au­to­mat­i­cally re­spond to cus­tomer be­hav­iour and pref­er­ences. A smart busi­ness al­lows the en­tire value chain to be re­con­fig­ured to achieve both scale and cus­tomiza­tion, us­ing a com­bi­na­tion of two forces: net­work co­or­di­na­tion and data in­tel­li­gence.

Net­work co­or­di­na­tion is the break­ing down of com­pli­cated busi­ness ac­tiv­ity so that groups of peo­ple or firms can get it done more ef­fec­tively. Func­tions that were once locked into ver­ti­cally in­te­grated struc­tures or rigid sup­ply chains are now eas­ily co­or­di­nated through on­line con­nec­tions. As the net­work of busi­ness ac­tors co­or­di­nates on­line, busi­ness ac­tiv­i­ties are also get­ting smarter. Con­stantly flow­ing data, cre­ated from real-time in­ter­ac­tions, cre­ates a con­tin­u­ous feed­back loop that au­to­mat­i­cally gen­er­ates de­ci­sions that are in­creas­ingly ‘in­tel­li­gent’.

Data in­tel­li­gence is the busi­ness ca­pa­bil­ity to ef­fec­tively it­er­ate prod­ucts and ser­vices ac­cord­ing to con­sumer ac­tiv­ity and re­sponse — and it is a rad­i­cal de­par­ture from how most firms gen­er­ate prod­ucts and ser­vices to­day. A sim­ple ex­am­ple of data in­tel­li­gence is rec­om­men­da­tion en­gines, but the ca­pa­bil­ity I am de­scrib­ing is much more so­phis­ti­cated than that. Com­pa­nies can now de­velop more highly evolved ap­pli­ca­tions of data in­tel­li­gence if they au­to­mate de­ci­sion mak­ing and con­stantly run real-time data — say, sup­plier’s ship­ping times, fab­ri­ca­tors’ fin­ish­ing no­tices, lo­gis­tics track­ing or cus­tomer pref­er­ences. This au­to­ma­tion is achieved through ma­chine-learn­ing al­go­rithms that en­hance co­or­di­na­tion and op­ti­mize ev­ery link in the value chain.

You be­lieve au­tomat­ing de­ci­sions is a five-step process (see side­bar). Which is the tough­est step to achieve?

Ev­ery step is dif­fi­cult, but I think the most dif­fi­cult part is the first step — ‘datafy­ing ev­ery­thing’. For the last 200 or 300 years in the in­dus­trial econ­omy, we have been deal­ing with phys­i­cal prod­ucts and a phys­i­cal en­vi­ron­ment; but now, you have to trans­form your busi­ness into a dig­i­tal one, and that re­quires very deep knowl­edge of the do­main of your in­dus­try and also, a deep un­der­stand­ing of all the new tech­nolo­gies and ways of op­er­at­ing. For lead­ers in a tra­di­tional in­dus­try, the chal­lenge at hand is to em­brace the smart-busi­ness mind­set.

How is Alibaba us­ing ar­ti­fi­cial in­tel­li­gence?

Ar­ti­fi­cial in­tel­li­gence is an ex­am­ple of ‘gen­eral technology’, which means a technology that has so many ap­pli­ca­tions

Busi­nesses need a new strate­gic ap­proach that fits an era where net­works and data dom­i­nate.

in­di­vid­u­als is to be flex­i­ble: Think care­fully about your po­si­tion­ing within an or­ga­ni­za­tion or net­work and ex­plore how data tech­nolo­gies can max­i­mize your con­tri­bu­tion. Choose roles and part­ners that give you the most lever­age and bring the great­est fu­ture po­ten­tial. At the same time as ad­vanced tech­nolo­gies ap­pear to be tak­ing over the world, they are co­a­lesc­ing to un­leash in­di­vid­ual cre­ativ­ity. They need not swal­low the in­di­vid­ual, but can in­stead pro­pel you for­ward to greater heights.

What is the great­est chal­lenge on your plate at the mo­ment?

Keep­ing up with the waves of in­no­va­tion! We will see more and more ex­cit­ing changes in the com­ing decades, and we are do­ing our best to keep up. That is my key mes­sage: Smart busi­ness is the emer­gent paradigm of the fu­ture, and it will likely be­come dom­i­nant in the next decade. Ev­ery­one has to un­der­stand the fun­da­men­tal prin­ci­ples of op­er­at­ing in this en­vi­ron­ment and find their own way to sur­vive. Ming Zeng is Chief Strat­egy Of­fi­cer and Chair­man of the Aca­demic Coun­cil at Alibaba Group. He is the au­thor of Smart Busi­ness: What Alibaba’s Suc­cess Re­veals About the Fu­ture of Strat­egy (Har­vard Busi­ness Re­view Press, 2018) and co-au­thor of Dragons at Your Door: How Chi­nese Cost In­no­va­tion is Dis­rupt­ing Global Com­pe­ti­tion (HBR Press, 2007).

The prin­ci­ples of smart busi­ness ap­ply to in­di­vid­u­als as much as they ap­ply to firms.

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