Smart Business … Ming Zeng on what Alibaba’s success says about the future of strategy
March 9, 2019
Alibaba’s “customer-to-business” model shows how to use the power of AI and machine learning to respond to customers’ rapidly changing needs and aspirations.
In Smart Business: What Alibaba’s Success Says About the Future of Strategy, Alibaba’s chief strategy officer, Ming Zeng, explains how Alibaba’s model was developed, its innovative use of technology, and how it keeps the company on a growth path.
Zeng argues that in a digital world, all successful companies use the latest tech, but the Chinese giant Alibaba is the company that has taken the underlying principles of e-commerce the furthest, with a model based on machine learning and the comprehensive “datafication” of the customer experience.
Alibaba, founded in 1999 by Jack Ma, recorded a net income of 61.41 billion yuan, approximately US$9.6 billion, in the year ending March 2018, and its market cap puts it firmly in the global top 10 companies.
Alibaba is not like Amazon
Zeng says that Alibaba is sometimes compared to Amazon but he believes that the comparisons are incorrect. Whereas Amazon is a retailer, Alibaba is a portal that links customers to sellers (although it is now highly diversified, involved in everything from banking to film finance). Its strategy has been to apply technology to every part of the purchase chain, from advertising to delivery.
“Alibaba today is what you get if you take all functions associated with retail and coordinate them online into a sprawling, data-driven network of sellers, marketers, service providers, logistics companies, and manufacturers,” says Zeng.
“Alibaba does what Amazon, eBay, PayPal, Google, FedEx, wholesalers, and many of the biggest manufacturers do in the USA, with a healthy helping of financial services for garnish.”
Academia to Alibaba
Zeng was not a part of the company at its inception. At that time he was working as an academic at INSEAD business school, after completing his PhD in the USA, teaching a course on Asian business when Alibaba caught his attention.
“It had no Western counterpart so it was a perfect case for MBAs,” he says. “I contacted the company and management agreed to let me study the ﬁrm and conduct some interviews. I met Jack Ma for the ﬁrst time in 2000 and I later worked as a strategy adviser for Alibaba Group.
“In 2006 I was ﬁnishing my ﬁrst book in English, Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition**, about emerging multinationals from China. I got a phone call from Ma asking me to join the company, which I accepted.”
Zeng and Ma realised that they had to think of the company as an ecosystem if they were to realise its potential.
The strategic imperative was to make sure that the platform provided all the resources, or access to the resources, that an online business would need. The emerging technology of algorithms and machine learning, together with the decreasing cost of computing power, made it possible.
Zeng says, “The formula for smart businesses can be summarised in a simple equation: Network Coordination + Data Intelligence = Smart Business.
“That equation represents what is behind Alibaba’s success and captures everything you need to know about business in the future.”
The C2B model
The technology allows the company to put customers at the centre of business, constantly collecting data on them and their purchase choices in real time.
Zeng calls this the customer-to-business (C2B) model, using feedback loops to drive machine learning. Now, when customers log on they see a customised webpage with a selection of products curated from the billions offered by millions of sellers.
The model requires several connected elements: a network that can dynamically adjust the supply and quality of service offerings, an interface where customers can easily articulate their needs and responses, a modular structure that can grow from an initial beachhead, and purchasing platforms than can provide agility and innovation.
Every customer exchange supplies more data, which goes into the feedback loops required for machine learning.
This system requires that a large number of actions and decisions are taken out of human hands. Algorithms automatically make incremental adjustments that increase system-wide efficiency.
Alibaba even uses AI-based chat-bots to handle a wide range of customer inquiries and complaints without any human interaction at all.
Facilitating the data loop
Zeng puts forward four steps as the basis for creating a smart business: creating datafication processes to enrich the pool of data the business uses to become smarter; using software to put workflows and essential actors online; developing standards and APIs to enable real-time data flow and coordination; and applying machine-learning algorithms to generate business decisions.
In this new environment, leaders no longer manage. Instead, they enable workers to facilitate the feedback loop of user responses to help the company along its evolutionary path.
Zeng is adamant that the C2B model represents the future for all business.
“We live in a time of exponential change,” he says. “Everything I have described in Smart Business will soon be conventional knowledge. Change will be disruptive. But it will also bring massive opportunity.”