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Management in Practice

What Makes Alibaba Grow?

Yale-educated lawyer Joe Tsai helped found the Chinese e-commerce giant Alibaba and served as chief financial officer for a decade. Tsai, now Alibaba’s vice chairman, talks to Yale Insights about the financial mindset and internal culture that have propelled the company’s extraordinary growth.

Q: How have you kept up with the explosive growth of Alibaba since its founding in 1999?

I view my 17 years at Alibaba as the world’s most valuable experience in business. We started as a B2B company, which meant that we had to hire a lot of salespeople. So I learned something about sales and incentivizing sales organizations. Later we started Taobao, which is a consumer-facing platform, and I had to get into the mindset of serving consumers and massive numbers of users. Later on, we developed Alipay, which is a payment service, and through that we developed a financial services business, including loans and insurance. I have no background as a bank person, right? But I learned about financial technology and how that can change financial services. Now we’re in cloud computing; we’re in digital entertainment—so, so many different vertical areas.

When you’re in a senior management position, having to make decisions on a lot of these things, you have to learn very quickly.

I think it’s the best business school that you can go to. But I think you have to be curious even about things that we are not directly doing yet. I am not a technology person. As you know, I trained as a lawyer. But having worked in a technology company means that you have to at least understand some basic things about technology, about software—now the big themes are in artificial intelligence and deep learning—just to be able to have an intelligent conversation with your chief scientist or your chief technology officer about these things. You have to keep up; you have to read up on things.

I try to be as curious as possible. The cost is sometimes you get a little tired.

The other thing is you have to love what you do. If you don’t love what you do, then there’s very little motivation for you to learn more about the next subject, to really get involved in the discussion.

That’s what motivates me.

Q: In your talk at Yale SOM today, you spoke about there not being clear swimming lanes in your industry and in your business. How important is it in your role to be comfortable with uncertainty, and maybe even to enjoy uncertainty and risk and exploration?

Not having swimming lanes means potentially there is a lot of upside that you can’t define, and it’s by definition unlimited. But then when you allocate your resources to do one thing over something else, you’re giving up the something else. And the opportunity cost of that, if it is not well defined, is also scary, because you literally worry about missing the next big thing.

I think we’ve seen a lot of companies that end up missing big trends and big things, and then when they wake up to it, then they feel like they have to catch up. And then they get into it too late and they become followers. Other companies really tread the new ground and are very, very forward-looking—very, very visionary.

The challenge is to really minimize your opportunity costs. For 13 years I was CFO at the company. The worst mistake a CFO in an internet company can make is to give things up. Traditional CFOs come into their work with a mindset of cost and cost control—if we can spend a dollar less, that’s a better solution than having to spend more money. But you can’t do that in the internet world. You have to think about, “Are we spending enough? Is this all we can spend? Why don’t we do more of it?” Because if you don’t do more of it, the opportunity cost could be huge. That’s the mindset and mentality that I bring to our whole finance operation. It’s not a very cost-driven department; it’s a department that focuses more on really understanding the business and helping the business side think through what is the upside, what’s the downside, and what are the opportunity costs.

That’s the challenge: thinking in that sense of opportunity rather than just defined costs.

I would be a terrible CFO if I went to work for, let’s say, a manufacturing business. It’s very different.

Q: How global is Alibaba now? And where do you see it going in terms of becoming more global?

Alibaba today is more global than we were two years ago. I say “two years ago” because we went public in New York two years ago, and at that time, we thought, “We’re on the New York Stock Exchange—we’re global.” But we were not very global back then.

I still think we’re not global enough. I think language is a very, very important factor. It’s very difficult for a Chinese company to go global without thinking about having to change the corporate language from Chinese to English. We still live in a world where most of the world doesn’t understand Chinese. And I personally hope maybe 20 years from now things will be different, but I am not too optimistic, and that’s because Chinese is actually a much harder language to learn than English.

Maybe one day the corporate language will become English, and through that the culture, the sensibility, will follow the adoption of the language, and then we can be truly international.

There is nothing that forces you to go in this international bent faster than getting into a business in a different country.

Q: Seems like another opportunity for curiosity and learning.


Q: How important are teams to the growth of your business?

A big reason I joined Alibaba was that there was an original team of people. There’s not just one or two people, but a team. Alibaba had 18 founders. If you think about it, that’s a lot of people.

I am fundamentally a team person. Just earlier this afternoon I came from the Yale lacrosse practice, because when I was at Yale as an undergrad, I was on the lacrosse team. And I think on the sports field you develop a very strong sense of helping your teammates out. In lacrosse we learned that an assist is just as important as a goal, and you back each other up. Jack Ma and the rest of his team already had that DNA in them, working as a team. And when I came in, I fit right in.

Teams are very, very important when you scale a business, when you grow from 18 people to 200 people, from 200 people to 2,000, and then to 40,000—we now have 46,000 employees. You need strong teams, not just to run all the businesses and all the projects, but also to preserve the culture. I think what’s most important about an ongoing business is the culture of the firm, meaning that you have a very clear mission, you can very clearly communicate what your vision is for the company over the next, let’s say, 10, 20 years, and then you adhere to a set of values that you really espouse.

So, for example, one of Alibaba’s core values is “customer first.” You heard me in the talk today; I constantly talk about the customer and serving our users. Another value is “embrace change.” Not a lot of companies have that as a core value. In Alibaba we decided that embracing change is so important because we’re in a very, very disruptive industry.

Who is going to evangelize all of these values to the rest of your colleagues? If you don’t have a core team of people who truly believe in those values and are willing to go out and promote them, then the company culture falls apart very quickly.

Q: It sounds like you’re saying that culture is a source of advantage for the company.

Absolutely. That culture is absolutely critical to the sustainability of the business, to motivating people, and also to your customers. Customers want to associate with companies that have a unique positive personality or identity, and culture is very much a part of that.