Alibaba empowers business units to be more agile as challenges mount

30-Nov-2021 Intellasia | Fox | 5:02 AM Print This Post

Alibaba Group Holding Ltd’s chief executive, Daniel Zhang, is devolving power to the heads of the company’s business units to become more agile in tackling rising challenges and potentially open the way for spinoffs, people familiar with the matter said. Zhang, also chair of the internet giant, is delegating more responsibility to presidents at each business line from location-based services to cloud computing who now function as “mini-CEOs,” the people said. The strategy is intended to speed up decision making so each division can better fend off competition, revitalise flagging sales and reshape its monolithic image in the wake of Beijing’s regulatory crackdown on big platforms.

At the same time, Ant Group Co., the financial-technology giant in which Alibaba holds a 33 percent stake, has started to distance itself from Alibaba, as Ant restructures its businesses to fall in line with regulations following Beijing’s cancellation of its initial public offering, the people said.

The management shift, which has been taking shape over the past few months, reverses a centralisation drive begun almost three years ago. That drive brought the company’s subsidiaries and affiliates into close alignment, the so-called Alibaba Economy conceived by former boss Jack Ma.

In the long run, the changes may pave the way for Alibaba to hive off smaller subsidiaries and seek separate listings for them, the people said. Units that could be ripe for spinoffs in the future include Cainiao Smart Logistics Network, grocery chain Freshippo, a local services department that comprises several of Alibaba’s location-based service apps, as well as overseas e-commerce platforms Lazada and Trendyol, they said.

The shake-up reflects growing challenges for China’s internet titans that have come under increased scrutiny from Beijing. Alibaba’s market value has slumped by half, wiping out some $400 billion since October last year, when Ant’s hotly anticipated IPO preparation was under way. Last week, Alibaba slashed its revenue growth outlook for the current fiscal year on the back of sluggish sales growth on Singles Day, the biggest annual online shopping festival in China.

Like many large tech companies in China and the US that are burgeoning as conglomerates, Alibaba has expanded its ecosystem by offering consumers and businesses multifaceted services, from shopping and travelling to payment and logistics.

The new management model hasn’t been formally announced inside Alibaba. However, over the past few months, “building an agile organisation” has become a popular refrain inside the company, the people said.

Nearly three years ago, different units of Alibaba plus Ant, were brought closer together to form a united front and tackle competition from rivals including Tencent Holdings Ltd-backed Pinduoduo Inc. and Meituan. A committee comprising 13 senior executives was created in spring 2019 to helm an Alibaba Economy Body, headed by Zhang with Ant Chair Eric Jing as his deputy. It called for more coordination across Alibaba’s sprawling business empire.

The Alibaba Economy, as company executives also called it, was first coined by billionaire founder Ma in 2017, when he was serving as Alibaba’s chair. He told investors and later a widely broadcast annual company party that Alibaba would become equivalent to the world’s fifth-largest economy, comparing gross merchandise value on all of its platforms with the gross domestic product of nations.

“If your company can support 10 million profitable businesses on its platform, this is called [an] economy,” he said at the Alibaba Investor Day in June 2017. Alibaba will serve 2 billion consumers by 2036 and create 100 million jobs, he added.

Zhang, who took over from Ma as CEO in 2015 and as chair in 2019, is known as a very hands-on executive, according to people familiar with him. He used to hold debriefs with presidents at different units and their direct reports once every two weeks, signing off on big and small decisions, the people said. Zhang has held far fewer such meetings in recent months, they said.

While Alibaba and Ant had continued to grow at a brisk pace, the centralised structure also created problems. Decision-making was focused at the top, flexibility was reduced and the company oftentimes was slow to respond to rapid changes across industries.

Since Ant’s blockbuster IPO was scuttled in November last year, few inside the company mention the term “Alibaba Economy,” and the 13-person committee has practically ceased to function, people familiar with the matter said. After months of discussions, the companies’ top echelons agreed that Ant shall chart a more independent path from Alibaba in the future, they said.

Under the Alibaba Economy structure, Ant tied its strategy more closely with Alibaba. Ant’s Alipay, a payment and lifestyle app used by more than 1 billion people in China, helped divert traffic to Alibaba’s platforms, and its consumer-lending services supplemented Alibaba’s e-commerce business. Ant’s big move into lending spooked Chinese regulators, who saw it as a risk to the country’s financial system.

Currently, Zhang still directly oversees the e-commerce business. Other business units, such as industrial and community e-commerce, cloud computing and local services, have their own presidents. Local services was formally announced in July as a unit that comprises several of Alibaba’s location-based services including navigation app AutoNavi, travel gateway Fliggy and delivery app Ele.me.

In the past few years, smaller rivals have been nipping at Alibaba’s heels on multiple fronts.

Alibaba’s market share in online retailing has been weakened by JD.com and Pinduoduo, which grew quickly with aggressive discounts and socialising features. Ele.me, an Alibaba delivery platform, has been struggling to compete against Meituan. In cloud computing, where Alibaba has had a first-mover advantage, it is also coming under pressure.

https://www.foxbusiness.com/technology/alibaba-empowers-business-units-to-be-more-agile-as-challenges-mount

 

Category: China

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