How Alibaba Is Leading Digital Innovation in China

AI is transforming the world. And it starts with the right compute. ARM is the AI compute platform trusted by global leaders. Proudly NASDAQ listed, Built for the future. Visit arm.com discover. Welcome to the hbr ideacast from harvard business review. I'm kurt nickish. Alibaba grabbed global attention in 2014 with its initial public stock offering. It was the biggest IPO ever. Still is. Founded in 1991 by Jack Ma, Alibaba is now worth more than Walmart. 150 million people shop at Taobao, its online shopping site, daily. Its popular mobile payments platform Alipay is expanding across Asia. But even though the name Alibaba was designed to give a sense of hidden treasure, a name chosen to be universal, most people outside of Asia don't know a lot about one of the world's biggest companies.

The point is it has no direct comparison in the Western world.

That's Ming Zheng, the Chief Strategy Officer at Alibaba and our guest on the show today.

And the challenge for us is because most, most people in the west have no direct experience with our main service such as Taobao or Alipay, so they have a hard time to understand the value Alibaba was able to create over all these years.

Zheng was a strategy professor at Insead and wrote cases on the company before he joined Alibaba, and he says the company was able to grow quickly by leapfrogging existing technologies and by leveraging data to better serve customers in fast emerging economies. Ming Zheng is the author of Smart what Alibaba Success Reveals about the Future of Strategy. Ming, thanks for coming on the HBR IdeaCast.

It's my great pleasure to talk to you as well.

You maintain in your book that a Chinese technology company and Internet company is a good place to look at where the future is going to be going and why China specifically.

First, the Alibaba story is actually a general story. It offers a glimpse into the future of business for everyone, no matter where you are. What it does is right in the middle of the core of any economy. Retailing, advertising, logistics, supply chain. That's all economy is about, right? But also it shows how Internet can transform an economy that has been lacking behind for a long time.

I thought this was very interesting. In the book you talked about how China provided fertile ground for revolutionizing business because the country's business infrastructure was weak and undeveloped. And because of that, Internet and technology companies and e commerce companies in China were able to really leapfrog some developments and kind of create a new system that you say is Perhaps a better glimpse of where the economy is going digital than in the United States where so many industries were already very mature.

Yes. Over the last 40 years, after economic reform and open door policy, China has become the largest production center for the whole world. In China, on one hand you have vast number of customers, but on the other hand you also have the largest network of supply chains of anything produced in the whole world. And this hasn't happened before. When Japan or Korea emerges, they are not the world production center, they are just strong in a few sectors. But China is the production center of almost everything. And then it becomes also one of the largest consumer market as well.

You say that in the US leading firms emerged when new technology was applied to new problems like online advertising, auctions and social networks. But in China, new technology was basically applied to old problems that in many ways had never been solved yet or were not as far along, like retailing and finance and logistics, because they were still in development. How did that unfold?

Because the business environment here in the US is well developed and in many cases are very advanced. The efficiency gains of applying the new technology to the old problem is relatively low. But in China there are so many areas lacking behind new technology can show wonders in productivity gains in the quality of service people receive. Let me give you an example. When I was on the IPO roadshow in September 2014, this fund manager keep pushing me why people don't use credit card in China, why they use Alipay. There was hardly any credit card service in China when we started. And because we leapfrog into mobile payment era, nobody use personal check ever in China.

So in your vision of smart business and how business will be done in the future, you talk about network coordination and data intelligence having a sort of yin and yang that each of them drive each other's growth. You consider this pretty fundamental. Can you explain that?

Yeah, it's actually quite difficult to grasp because it's so fundamental. Smart business means more and more business decisions, including a lot of daily operational decisions will be done by machines in the future rather than by human beings. But for this to happen, you have to move your business online first. Otherwise you will not be able to have your data. The concept I call the live data feedback data is just a direct recording of your business activities. And all the data can be put into an algorithm which is like the brain of machine, so they can turn out certain decision output. Business has to move online first and this pushes coordination among business to become more network driven rather than the traditional way of vertical supply. Chain. So these are the two most important forces driving business transformation in the future.

Alibaba is a good example. It is more networked than most E retailers in the United States. Amazon, for instance, owns a lot of stock. Even though it sells a lot from third party sellers. It does its own warehousing, distribution. It's vertically integrating that way too, for instance, by having its own employees deliver or own contractors deliver packages. But Alibaba is different in the sense that it is working with a lot of partners to do many of the things that Amazon does by itself. First of all, why is that and how does that help Alibaba be the smart business that you write about?

One of the most important reasons for this is everything was growing so fast. There's no way we can provide all the service that is necessary to do the retailing business online. Secondly, we actually believe in the power of an open ecosystem, that working with others can be more productive in many, many scenarios. The more we build an open system, the more we benefit and the faster the ecosystem grows and we become more inclined to this new approach.

So what is a good example of a success of network coordination and data intelligence at Alibaba?

The obvious example is logistics. As early as 2006, packages originated from Taobao was growing exponentially. The old state mail system cannot handle it at all. And when we go talk to the postal service, they just didn't care at all. You know, it's not their business. It's extremely hard for us to do logistics because we are just a bunch of engineers. But then business people see great, entrepreneurs see opportunity in these areas. So people start to build their own delivery companies and they all grow exponentially with Taobao over time. So there are quite a few delivery companies already went IPO over the last few years and become billion dollar companies.

To do this work, of course you need talent. And you write in your book that one way Alibaba recruits the best talent is by actually having a really good understanding of its vision and its mission. And that those are two different but related things. And I wonder if you can explain that.

Vision is extremely important nowadays, especially when you are trying to build an ecosystem. You have to provide a direction for all your partners about where you are going and why it makes sense. However, who will have the vision? It's usually people who have a mission, because when they have a mission, they will think beyond short term result and they will think beyond just making money. So the first day when Alibaba was set up, Jack Ma and the founding team had a Mission to make doing business easier for everyone and anywhere. And their vision is Internet is the most powerful tool to make this happen. And following this, we have a strategy. How do we build an e commerce ecosystem that can help everyone grow?

I wanted to ask about your sense of the future for individuals. What do you advise aspiring managers in companies or people who are getting their degrees in business? What do you tell them? How do you tell them to think about how they should position their careers for the future?

Be more creative. Because more and more decisions will be taken over by machines. People have to become more creative to work with smart machines in the future. So go for jobs that can make them more creative and go for organizations that really provide an environment that foster development of creativity. I even call it creativity revolution. Following Peter Jacket's terminology, he coined the term knowledge revolution. And I think the future is creativity revolution.

Yeah, it's funny. At a time when people are worried about robots taking their jobs, you wrote in your book that the individual is more powerful today than ever before.

But the individual I'm talking about are creative individuals. People who only have knowledge will lose their jobs in the future because most jobs with just codifiable knowledge will be replaced by machines. But this leaves more room for people who wish creativity to play a role. And creativity relies so much on individuals. So organizations has to enable individuals to become more creative. But a traditional company is more about control monitor the performance of an employee. So people are much more passive in a traditional organization. But in the future, individuals have become more self driven and become more creative in the future. So in this sense they have more power over companies.

But at the same time they should be worried.

Yes.

What does Alibaba do to help employees be more creative?

One of the most important things we keep pushing is to make our organization much more flexible. It is focusing more on the successful rate of innovation rather than the efficiency of operation. So for example, there are a few times we may have multiple teams competing against each other. So instead of just picking one team over the others, we usually let some real teams run their own work. And maybe after half the year they will realize which one is representing the future and that team will take over the job.

How do you combat this idea that creativity still comes from the United States? The legacy of the Apples, Amazons, Microsofts, Steve Jobs, folks like that. Do you think that's a misperception?

Not a misperception. I think still US is the most creative country in the whole world for sure. I have been studying innovation in China over the last 30 years now we are moving into the next stage of innovation, but still overall, because of relative poor education system in China, the cultural orientation over the last century about short term orientation makes still today extremely difficult to be truly original in China. So there will be decades because China can create much more original thinkers than today.

Do you see a time when Chinese companies, which rightly or wrongly have been often criticized as copycat companies, do you see a time when that changes?

It is changing slowly now, but it takes tremendous effort and it would probably take another decade or more for more Chinese companies to become truly innovators.

What is the biggest challenge that Alibaba faces today?

I think we are at a very interesting stage. The new technology revolution has brought great productivity gains and great hope. But also it brings a lot of controversial and a lot of challenges. Like a lot of people will be losing jobs in the coming decade. These are very serious global challenges and I don't think we human race together are well prepared for this. So there are tremendous work need to be done to get the whole world ready for the new coming challenges.

So the biggest challenges that Alibaba faces are are essentially some of the biggest challenges that any company faces.

Yes.

Yeah.

Yes.

Ming, I want to thank you for talking with the HBR idea cast. This was really interesting.

Thank you for the opportunity.

That's Ming Zheng. He's the chief Strategy officer of Alibaba and he's the author of the new book Smart what Alibaba's Success Reveals about the Future of Strategy. You can find it@hbr.org. This episode was produced by Mary Dew. We got technical and production help from Rob Eckhart. Adam Buchholz is our audio Product manager. Thanks for listening to the HBR IdeaCast. I'm Kurt Nickish. Sam.