In-depth interpretation: Alibaba's most important organizational change in 24 years

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On March 28, Alibaba Group Chairman and CEO Daniel Zhang issued an all-hands letter announcing the launch of Alibaba's most significant organizational change in 24 years.

Alibaba will move towards a new stage of organizational governance and build a "1+6+N" organizational structure: under Alibaba Group, it will set up six business groups and a number of business companies, including Alibaba Cloud Intelligence, Taobao Tmall Business, Local Life, International Digital Business, Cainiao, and Dawen Entertainment. Qualified business groups and companies have the possibility of independent financing and listing. Alibaba Group will fully implement the management of the holding company.

As soon as the news came out, the outside world paid great attention and questions followed. What does this organizational change mean? Why change? Which of Alibaba's companies are likely to go public separately the fastest?

What are the core changes in Alibaba's organizational change?

There are four core changes brought to Alibaba by this organizational change:

First, Alibaba will build a "1+6+N" organizational structure: 1 Alibaba Group + 6 business groups (Alibaba Cloud Intelligence, Taobao Tmall Business, Local Life, Cainiao, International Digital Business, Dawen Entertainment) + N business companies (Alibaba Health, Sun Art Retail, Intime Retail, Freshippo, Quark, etc.).

Second, in the future, each business under Alibaba's umbrella will be more like a separate startup. People, finances and affairs are fully independent, and each business is responsible for its own business results. Qualified business groups and business companies can independently raise funds and go public independently.

Third, Alibaba Group fully implements the management of holding companies. Daniel Zhang continues to oversee strategy as Chairman of the Board and CEO of the Group.

Fourth, the middle and back office functions of Alibaba Group will be lightened and thinned in an all-round way, and the corresponding capabilities will be absorbed into each business group/business company in an orderly manner, or exist in the form of a professional service company.

What is the relationship between Alibaba Group and each business group/company?

Ali sources said that this change is to start from the top to further straighten out Alibaba's organizational governance relationship. Alibaba, as a listed entity, will not change, and the results of various business groups/companies will continue to be consolidated in the financial statements.

In the future, Alibaba Group will be more like a relatively detached holding group, the focus of operation will be separated from specific businesses, and more energy will be invested in investment, innovation, and incubation. Alibaba Group is more like a big base to support them. ”

Each business group and company under Alibaba will set up its own board of directors, implement the CEO responsibility system under the leadership of the board of directors, and the independent decision-making power of the business will be greatly strengthened, and the annual business planning, market response, budget, salary and benefits will be decided by itself, and it will face the market alone.

Some insiders speculate that in the future, the cooperation between Alibaba's various businesses may also move towards marketization. For example, how to set the price of services between Cainiao and Taobao, Alibaba Cloud and Taobao, will go to the market to solve the problem, rather than "brotherly feelings", which is actually a blocking point for years of internal collaboration.

Which of Alibaba's companies will go public separately?

In the eyes of internal employees, the most imaginative aspect of this change, and the most interesting thing for employees, is that the independent financing or independent listing of many businesses may accelerate.

At present, Alibaba's Sun Art Retail, Ali Health, and Ali Pictures have all been independently listed. In the past year, there have been many reports in the market that Hema is raising funds separately, and Alibaba Cloud and Lazada are considering separate listings. In the eyes of internal employees, although there is no timeline for these, the possibility of a separate listing is greatly improved.

Daniel Zhang, chairman and CEO of Alibaba Group, said that instead of putting Alibaba's diversified business in one pot (referring to the listing carrier), it is better to let a business have the conditions and decisively let it face the capital market alone.

He said that he hopes that Alibaba will grow a number of listed companies in the future, and several listed companies will be able to have children after a few years, and more listed companies will emerge. In this way, Alibaba's business is truly prosperous.

Why did Alibaba make such a big organizational change?

Ali management said that in fact, for this change, Daniel Zhang has been 2-3 years in the making. Daniel Zhang himself said that this reform is a natural result.

A consensus is that Alibaba's business is becoming more and more complex and complex, including mature e-commerce businesses represented by Taobao Tmall, offline retail businesses such as Yintai and RT-Mart, as well as businesses involving flexible employment such as Ele.me and Cainiao, and newly established innovative businesses such as Quark and Lingyang, which are all in different industries, different tracks, and different life cycles.

As early as 2020, Daniel Zhang repeatedly proposed internally that with Alibaba's size and complexity, any one-size-fits-all strategy is extremely harmful. To this end, he implemented a multi-governance structure under Alibaba's management responsibility system. In short, each business runs according to its own independent business strategy, makes its own decisions, and assumes its own responsibilities, rather than "lack of resources, ask the group, make market decisions, and listen to the group." ”

In December 2021, Alibaba announced the establishment of four business segments, each of which will be managed by four major presidents on behalf of the group. Subsequently, Hema , Fliggy, Ele.me and other businesses became independent loop companies, with their own separate compensation, benefits, budgets and employee option incentive mechanisms, "all of which were paved the way." Today, we take a big step forward on the basis of the past. Daniel Zhang said.

In his letter, he said that making the organization agile, making the decision-making link shorter, and making the response faster are the original intention and fundamental purpose of this change.

What will happen to Ali after the change?

This change is undoubtedly a big move, some people think that this reflects Ali's courage, some people say that Ali has to change.

From the performance point of view, at present, Alibaba's core e-commerce business is facing fierce market competition, Alibaba Cloud has dropped from a three-digit high growth to 3%, and Alibaba's market value has shrunk by more than 70% from the highest nearly $900 billion. Some insiders said that it remains to be seen whether this adjustment can make Ali's business return to high growth, but changes are a good thing.

In fact, using the adjustment of production relations to drive the release of productive forces is Alibaba's consistent practice. Alibaba's many organizational changes in history have led to greater development of Alibaba's business and led the entire industry.

In 2004, Alipay was spun off from Taobao to become a separate company, after which Ant Group grew. In June 2011, Taobao was split into three (One Taobao, Taobao and Taobao Mall), and Tmall was born. In July 2012, Alibaba launched the "Seven Swords Under the World", which gave birth to Alibaba's external e-commerce ecosystem.

Some insiders said that Alibaba's reform is a revolution for itself and another important exploration of how to better govern super-large companies. If this path works, it may produce the effect of "changing the world and the world" and create new Tmall and Alibaba Cloud; If this path works, it is not ruled out that more companies will follow suit in the future and become a new model for the development of large-scale platform enterprises.