Speak softly, make tough decisions: An interview with Alibaba Group chairman and CEO Daniel Zhang The chairman and CEO of Chinas e-commerce giant describes Alibabas approach to innovation and how he balances analytics and instinct to push himself to spot hidden opportunities. September 20192 While visionary founder Jack Ma has provided Alibaba Groups most public presence during the companys journey from apartment start-up to global e-commerce powerhouse, current chairman and CEO Daniel Zhang can be credited with many of the companys game-changing successes. Nonetheless, the pair present as oppositesZhang, with calm and collected cogitation, in the face of Mas restless dynamisma duality that drew attention when Ma nominated Zhang last year to succeed him as company chairman in September 2019. Zhang, known on Alibabas Hangzhou campus by a nickname that translates to “the free and unfettered one,” had hitherto eschewed the spotlight, but his instinct for innovation proved instrumental in Alibabas rise to become the worlds most valuable e-commerce company in 2017. Among Zhangs initiatives is Alibabas annual 24-hour sales promotion, known as the “11.11 Global Shopping Festival,” or “Double 11” for short, which notched gross merchandizing volume of $30.8 billion in just 24 hours in 2018. Zhang was also at the forefront of Alibabas drive to become a mobile-first business: more than 90 percent of sales on Alibabas China e-commerce sites are now made via mobile device. More recently, the Shanghai native spearheaded the launch of Freshippo (known as “Hema” in Chinese) grocery stores, which combine a high-end, in-store experience centered on fresh foods with rapid e-commerce home delivery and a robot-staffed restaurant option. 1 In this interview, Zhang talks with McKinseys Daniel Zipser about Alibabas approach to innovation, the power of purpose at Alibaba, and how Zhang balances analytics and instinct to guide his own decision making and push himself to spot hidden opportunities. The following is an edited version of their conversation. The Quarterly: What strikes you as notable about Chinese consumers, and how are they evolving? Daniel Zhang: What we see from our digital platforms is that they are very diverse. Because of the internet, they know whats popularnot only in China but all around the world. They also have strong beliefs. Generation Z, for example, doesnt believe only in so-called big brands; they prefer unique things and new brands from their own generation. Thats a big part of their lifestyle. The other important thing is that they tend to spend more. China is famous for being a high-savings-rate society, but the younger generation are more willing to improve their lifestyle through spending, and that presents huge opportunities. The Quarterly: Speaking of consumer spending, Double 11, the online shopping festival that happens on November 11 each year, generated more than $30 billion in gross merchandise volume in 2018. What was your vision when you launched the event back in 2009? Daniel Zhang: Tmall Tmall is now the largest online B2C business in the world, but at the time, it was tiny compared with Taobao Taobao Marketplace. So we 1 See Uptin Saiidi, “Inside Alibabas new kind of superstore: Robots, apps and overhead conveyor belts, ” CNBC, August 30, 2018, cnbc.3 wanted people to remember us. The idea was to bring together all the merchants on Tmall and create a common event where we could work together to serve our mutual customers with the best service, the best products. We never dreamed it would become such a fantastic event ten years later, and that really reflects the power of ecosystems. But if you ask me about the idea on day one, I have to say it came from a sense of, “How can we make people remember us?” and “How can we survive?” From there, it came from trying new things. Going forward, it will continue to be about innovation. We will look to promote not only online sales but also brick-and-mortar stores. Double 11 is a day focused on consumers, and they seek online as well as offline experiences. Thats a very obvious trend we see and will pursue as we continue to make Double 11 the best day of the year for consumers. The Quarterly: Say more about innovation and technology at Alibabaand, in particular, the role of artificial intelligence AI. Daniel Zhang: We are always trying new thingsalways innovating services and using technology to give consumers new experiences. For example, people in China are now largely used to the convenience of mobile wallets, so we have pushed to promote facial recognition as confirmation for digital payments. Feedback tells us young Chinese consumers love the convenience of this; its a fantastic consumer experience. We had been working on AI for many years, but, to be honest, we didnt even realize what we were doing was AI. We are a data-driven company. We create value from the data generated by real activity of users and merchants; we use data as fuel for our marketplaces to help merchants better serve their customers. That is our logic, and we have been working on this for many years. Technology and data empower our whole businessnot only on the sales side and marketplace side but also in the back-end office, in customer service, in every single area. This is how we work. So when people say “AI,” we laugh and say that, to us, its “Alibaba intelligence” because data and technology power everything we do. The Quarterly: How would you describe Alibabas purpose, and how does your business model support it? Daniel Zhang: Alibaba has been a mission- and vision-driven company from day one. Jack Ma, along with 17 other early cofounders, set a great mission: to make it easy to do business anywhere. Our mission drives our business strategy, which is empowering our business partners. Even though our business is always evolving, the mission remains unchanged. For example, we are not only helping big brands and retailerswe also help small and medium businesses grow. We believe small is beautiful; we want to help new businesses and entrepreneurs be more successful. Thats always been our philosophy. In this digital era, when we talk about Alibabas future, we focus on helping our 4 Daniel Zhang Education Earned a BA in finance from Shanghai University of Finance and Economics Career highlights Alibaba Group Chairman and CEO (Sept 2019present) CEO and director (May 2015Sept 2019) COO (Sept 2013May 2015) President, Tmall (June 2011Sept 2013) General manager, Taobao Mall (subsequently rebranded as Tmall) (Aug 2008June 2011) CFO, Taobao Marketplace (Aug 2007June 2011) Shanda Interactive Entertainment CFO (Aug 2005Aug 2007) Fast facts Responsible for launching Alibabas “Double 11” Singles Day eventnow the worlds most successful retail promotion business partners win through successful digital transformation, rather than about how we can make ourselves even stronger. When small businesses can grow faster and grow healthier, it will benefit the whole society. As the Chinese economy transforms into a consumption-driven economy, Alibaba has a huge opportunity to understand consumers changing needs. We help connect the whole world with China to facilitate easy trading and access to the worlds largest consumer market. The Quarterly: You are often described as reserved, soft spoken, and detail oriented. How do you see yourself as a leader, and how has your leadership style evolved? Daniel Zhang: I dont think Im a reserved guy, actually. People may tag me based on my background as an auditor, and I always say that maybe I picked the wrong first job. Obviously, though, that first job gave me a lot of opportunities to learn the basic skills and have access to many clients in different industries. I consider myself very lucky to be engaged in the digital landscape and to be part of such a fantastic company in Alibaba. In terms of my leadership style, Im very nice to people. I tend to give people opportunities to try their own ideas, but Im very tough once a decision has been made. Once I make up my mind, I want my teams to go ahead and get concrete 5 results. Thats why people at Alibaba always say its very difficult to deal with me in business meetings, because in that context I am always trying to get to the substance of the matter and drive people to make progress. So my leadership style is that, yes, while I speak softly, I always make the tough decisions. I think the most important thing for a leader is to lead the whole team forward. They need direction, and they need clear guidance. Leaders have to make the tough decisions, even if it may not be the perfect decision. At the same time, I also try to learn from our young peoplethe people born after 1990, 1995. Learning about their lifestyle and preferences helps give me a lot of new ideas and inspires innovation. The Quarterly: How much of your process for making tough decisions is intuition compared with data analysis? Daniel Zhang: Its a combination. Our advantage is having huge amounts of data, and my team does a fantastic job in providing me with daily analysis. But as a leader, you have to see something which others cannot, and often that comes down to focusing on customer pain points. Four years ago, I had the idea for the Freshippo retail stores, which have since become very popular. My original thinking was that traditional e-commerces hub- and-spoke model could not deliver fresh products on time and on demand. Its not like you can deliver fresh fish to a customers home while she is still in the office. We had to rearchitect the business model and address that particular pain point, and that process led to the origin of Freshippo. Pain points mean opportunity. And thats why, every year, I do a self-evaluation process during Chinese New Year. I ask myself, “How many new ideas, how many new businesses did I initiate last year?” I dont focus my self-evaluation on the performance of the existing businesses: this is about the new opportunities. Today they may be new ideasvery tiny, very smallbut they may become much bigger in the future. Maybe they will become a main business for Alibaba. The Quarterly: Among those ideas, there will inevitably be failures as well. How do you handle failure as a leader, and how does Alibaba approach the topic as an institution? Daniel Zhang: We give our people a lot of space to try new things. It means you have to accept mistakes. The vast majority of innovations will result in failure; you have to acknowledge that. But the key is, can we learn from the failures? For example, five or six years ago, we tried a new thing. It was a digital social- messaging platform called Laiwang. We started the business, invested heavily, sent some of our best people, but it failed. We didnt create a new experience for consumers that differentiated from what they could already get in the market. That experience served as a critical lesson that informed our thinking when we created DingTalk, a cloud-based, SaaS software-as-a-service-based work-6 collaboration platform. The tool is a direct result of Laiwangs failure because the team realized that people have too many contacts on their social networks. Users wanted an alternative messaging platform dedicated to work relationships and communication. DingTalks success is another example of a pain point inspiring a new service. Its an example of valuable lessons we can harvest from failure. The Quarterly: What motivates you, personally, as a leader? What drives you when you get up in the morning? Daniel Zhang: First, its about having fun. Thats the most important thing. I work with many young people in our line of businessthe digital landscape is a brand- new frontier for societyand the experience of new things is not only fun, but it also makes you feel younger. I always say to my friends, to my team, that the key thing to ask yourself is, “Do you still have curiosity about the world?” If you are curious about the world, then you will find something different, then you will find new opportunities, and you will move ahead. The Quarterly: Finally, youve worked alongside Alibaba founder Jack Ma for several years now. Whats it like working with him, and what have you learned as a result? Daniel Zhang: We work very well together. Since joining Alibaba 12 years ago, Ive worked very closely with him. While we have totally different personalities, we complement each other well. Jack is a visionary. He thinks about not only today and tomorrow but five and ten years from now, and that is what makes Alibaba different. I learned from him the importance of looking at the big picture. You need to have your feet planted on the ground and move forward solidly, but you also need to be forward looking. We look at opportunities not only for today but, more importantly, opportunities for the next generation and the coming decades. Copyright © 2019 McKinsey & Company. All rights reserved. Daniel Zhang is the chairman and CEO of Alibaba Group. This interview was conducted by Daniel Zipser, a senior partner in McKinseys Shenzhen office. Related thinking For morefrom our ongoing series of interviews on the Chinese consumer, see the following, on McKinsey: “How Chinas largest online travel agency connects the world: An interview with Ctrip CEO Jane Sun” “How a cosmetics giant reaches Chinese consumers: An interview with Shiseido CEO Masahiko Uotani” “Catering to Chinas diverse appetites: An interview with Kang Shi Fu CEO James Wei” For more on Singles Day, see “What Singles Day can tell us about how retail is changing in China,” on McKinsey.