(Yicai Global) Jan. 24 -- "Nothing is more terrible than a chief financial officer as chief executive," Jack Ma, founder of Alibaba Group Holding, said publicly in 2007.
However, the firm's CFO Daniel Zhang took the position of CEO in 2015 and will even succeed Jack Ma as board chairman later this year.
Zhang cannot recall exactly when Jack Ma asked him to take over the internet giant worth around USD400 billion. "I cannot remember the details. He (Ma) and I usually talk for two or three hours when he returns from a trip. He bought the takeover up in one of our talks," Zhang said.
Fewer than eight months remain before Alibaba's leadership changes. How will the firm's new head create a better future? The Alibaba Operating System, Daniel Zhang answered firmly in a recent exclusive interview with Yicai Global.
"China's digital economy has just started," Zhang said. He shared his thoughts on shaking uping Alibaba's organization and understanding its business operating system, while talking about challenges the firm faces and how it has adapted itself to the world.
Here are some excerpts from the interview:
Yicai Global: You will become Alibaba's Chairman of the Board in about eight months. Would you please tell us when and how you learned the news?
Zhang: To be honest, I cannot recall exactly, but it must've happened in one of my talks with Teacher Ma [Editor's note: Teacher Ma refers to Jack Ma. He is usually addressed as such at Alibaba because he was an English teacher before founding the firm]. Teacher Ma and I often meet and talk with each other over tea for two or three hours when he returns from a trip every so often. He first referenced the specific time of 2019 about a year ago and officially announced it in September.
Yicai Global: How will you complete this hand-off and transition? What changes do you imagine?
Zhang: Changes will be dramatic in some ways, but not in others. Ma has been preparing for a long time. He has been gradually withdrawing from the firm's operations and management over the past few years. He has traveled 800 to 1,000 hours a year, especially in the past three years since I took over as CEO. I don't feel any big changes switching from a CFO to a CEO, but being chairman is quite different in both communicating with the public and in social activities, because Alibaba is so large and must connect closely with society.
Teacher Ma spent much time on social activities, while I devoted myself to the firm's operations. Soon I will have to shoulder both duties myself, which is a huge change and challenge for me.
Birth of the Digital Economy
Yicai Global: Alibaba's business has grown rapidly over the past five quarters, per the firm's financial reports. However, most of China's internet companies' stock prices have dropped 20 percent to 30 percent, so what is your opinion of the future of the internet-based or digital economy?
Zhang: The internet-based economy has nothing to do with the share price. We said in the roadshow before Alibaba listed that we would not run the firm for the sake of the stock price. Sure, I check the firm's shares every now and then, because it is impossible for me not to so do, but I don't keep my eye glued on it every day and I feel neither giddy after a rise nor tense after a drop. Besides, the firm is doing well.
Alibaba and other Chinese internet companies had the great luck to have been born in China, the world's largest market. China enjoys the most developed digital economy worldwide. Our digital economy is more developed than the US', which is our biggest advantage. This edge is unrivaled for future economic development and our function in it and the opportunities we will enjoy.
The market has its ups and downs, for both Chinese and foreign companies, so we must gear up for the future. I believe the digital economy has just begun.
Alibaba's System Enables
Yicai Global: You have talked a lot recently about the concept of Alibaba's Operating System. Could you give us some details?
Zhang: Alibaba prepared a lot in terms of organization, business and talent last year. Our current commercial operating system in the digital economy is essentially the manifestation of what we have done over the past 19 years. Business development is a matter of finding concrete opportunities and pain points.
Looking to the future from today, we find that all our customers are moving towards overall digitized operations. They not only sell online, but also conduct marketing, user management and consumer operations via the internet. The business world is increasingly moving from the demand side to the supply side. I think that the most important supply side reform is the digital revolution which fully connects consumer demand with supply.
People used to just sell whatever they produced. They'd be happy if their products sold well and upset if not. Today we must design and produce according to the market's needs. Supply chains respond quickly to these needs. The entire industry chain is becoming fully digitized, including sales, marketing, supply chain, product design and production, logistics, and preparation of the most upstream raw material.
In our comprehensive digitization, we provide a consumer-oriented market and the liquidity and consumer financial services that all enterprises desire in their operations. We also boast logistics supply chain management that makes commodity distribution more efficient, and information technology infrastructure all firms need in their digitized operations.
Such a commercial operating system confers a certain capability, rather than being a tool. We provide all companies with an overall digitized capability that better integrates hardware and software and improves the user experience. Thus, we call it a commercial operating system.
Yicai Global: You mentioned the digitization of the entire system, including all links in the production chain. This will be a historic achievement; why is Alibaba able to do this?
Zhang: I think it serves the needs of the market and customers, who will move towards digitization whether Alibaba does it or not. And we are able to serve and help them get there more efficiently. Just like a mobile phone operating system, a good one will help produce a good handset and be used by every phone maker. It does not mean that every mobile phone made is a good one, however. This is the operating system, which provides a capability and standard that allows better integration of software and hardware. Ultimately, it needs to seek opportunities from customers and the market.
The commercial operating system Alibaba proposes proceeds from customers and the market. We have served as an infrastructure company in the digital economy era with our payment, logistics, and business market arms, just like energy, water, power firms and other traditional infrastructure companies. We hope that all our customers can secure their market and consumers and realize their entire digital operation once they access our commercial operating system. It's our goal to help them digitally manage consumers as well as supply and production via this process.
Yicai Global: Do you worry about regulatory problems in the process? The current monopoly is more than just a market monopoly, but is also a technological one.
Zhang: The wheel of history is turning forward. Why have platform companies emerged in the new digital economy era and how to supervise such firms are new topics in the world. In fact, there are already several platforms in the world, including Facebook, Google, Amazon, Apple, Alibaba, and Tencent. Their occurrence is inevitable just as cars in the carriage era, when everyone worried that the coachman would be unemployed, or whether their car would hit someone. They are a product of human society and they've already appeared.
Alibaba and the World Adapt
Yicai Global: People say Alibaba is entering an era of full-scale operations and may face JD.Com and Pingduoduo on the field of e-commerce. It is exploring new retail on its own, while Tencent invests more in smart retail. It will confront rivalry in cloud computing, payments, big entertainment, logistics and other sectors. You also commented on the relationship between Alibaba and Pingduoduo, Meituan Dianping, Toutiao and Tencent in an interview in the first half of last year. Have you changed your opinions now?
Zhang: New powers never fail to emerge, because everyone wants to find opportunities between digitization and business. Business formats and opportunities are everywhere. New entrepreneurs, new models will never stop popping up and opening new competitive tracks within a sector.
For Alibaba, first, we must be good at learning. We are really big and have been successful in some areas. But business innovation knows no limits, and you must continue to learn, keep learning from your partners -- even from your opponents -- and see how they do it.
Second, learning is not enough, because innovation comes from ourselves. Innovation comes not from learning and imitating opponents, but rather from our creation of new things and new race tracks.
Third, we must merge all innovation and learning into a platform. Just like mountain climbing: a small company in the fast-growing stage of a field, quickly climbed a kilometer at the beginning, slowed down after reaching two or three kilometers, and became very tired after three.
For Alibaba, the core of building a platform company is to sustain growth, making it easy to climb 10,000 meters or even higher. In the past two years, we talked about the innovation at the earlier development stage and the accumulation of the middle stage, which describes this kind of relationship.
I feel that the fun of doing business comes from creation, probably due to my character. Business is also a game, sometimes a war, but the biggest difference between it and a real war is that it creates value, not destroys others. This is the most important source of creativity; otherwise fun cannot exist. Hate or envy; I live, you die, this does not bring creativity.
Tweaking the Structure
Yicai Global: Alibaba has been adjusting its structure over the past few years. It went through a new round of fine-tuning recently. Alibaba set up a cloud intelligence business group and split up its Tmall business. Can you talk about the thoughts and logic underlying this?
Zhang: We have had a major adjustment each year in recent years. We generally do it after the Double 11 sales [festival on Nov. 11 -- China's Black Friday], according to my custom, when we pass a large node and prepare for the next year at the year's end. The most important preparation is to get our organization ready. We start planning, arranging staff to see who is appropriate for the job, after having altered the organization. We have to revise our working relationship in a timely fashion.
The change this time will lay the foundation for the future based on the experience of the previous year. An organizational adjustment is nothing more than changing the vertical and horizontal relations or splitting and combining units. Designs of and changes to organizations are to plan the vertical and horizontal structure or decide to split and combine units. If you want rapid growth, you must divide units and change vertically. If you want to accumulate experience and knowledge, you must combine units and change horizontally.
I am in direct charge of some new businesses after this organizational correction, which will make these future businesses grow faster. It will also help the new generation of leaders to better show themselves, rather than being buried in the lower strata, that is, lifting up the third tier of managers to see the second.
My style of structural modification may not touch all the teams at the same time. If you look at teams after three years or five, you will find that all of them have changed. This type of change takes place every year, but I have never touched all the teams in a year. Nor will I. I always focus on one issue and prepare for the future at a certain stage in a year.
Creator Changes 0 to One
Yicai Global: In a previous internal speech, you said the 'Creator' is the most cherished label which staff refer to you by on your company intranet, and you often talked about the concept of 'creator.' Alibaba has 80,000 employees. How do you inspire the creative spirit in them?
Zhang: First, I must start innovating myself if I want to ask a team of 80,000 people to do the same. The number one on the team, from top to bottom, should not ask only his team to innovate if he can't do it himself.
The team, as a system, must be good at turning 1 into 10, 100 -- even 1,000. A creator himself must turn 0 into one. This is a must, and the two must be combined. You must start from yourself. Only in this way, can work be fun, or you will only be an administrative manager, whether you are a chief executive or a chairman.
Yicai Global: You mentioned team just now. What do you deem a good team?
Zhang: First, the team must have its own characteristics, not mediocrity with no features. Other teams and people can add something to teams with features. Shortcomings shouldn't arouse fear. Featurelessness should arouse concern.
Second, the team needs learning ability. Learning is also an ability. It's quite important that you should think about things that others can't and do things others also can't.
Third, keep an open mind. Ultimately, a team is an achievement with others. As we said, getting hard-to-do business means winning customers, making customers better, not just by achieving for ourselves alone, or proving how excellent I, myself and I are.
Yicai Global: People who are curious and creative are important within a team. What are your opinions of outside entrepreneurs in the current economic environment?
Zhang: Entrepreneurship brings the highest risk and is the most difficult and arduous experience. In the end, it is perspective that matters. How to hit the customers' pain point, e.g. market opportunities. Second, is your ability. How to think of things that others can't. Solve problems creatively. Ease customers' pain points. Then you have a chance. Third, some people have a good perspective and ideas, and everything goes well at the very beginning. After one year, they break all the bonds of fellowship and the team can't be a unit. What matters is always achieving with others, letting them have customers and their own team. This is a systematic thing.
Entrepreneurship is high-risk, with small-probability of success, no matter whether the economy is good or not. In the end, we must endure loneliness and create core values.
Editor: Ben Armour