Alibaba Group Divides Into 25 "Small But Beautiful" Biz Units

Alibaba Group, owner of China’s largest online shopping platforms, is undergoing its third major reorganization in the past 19 months as the company continues to adapt to the country’s fast-growing e-commerce environment.

Alibaba - which in July was split into seven major business groups - is now being divided into 25 business units, overseen by two committees: a strategic committee under the direction of the Alibaba Group board, and a management and execution committee primarily made up of nine top company managers.

In a Jan. 10 letter e-mailed to Alibaba Group’s 24,000 employees, Alibaba Group Chairman and CEO Jack Ma called the unusual move to split into more than two dozen discrete business units - some quite small and each with its own general manager or unit president - a transformation aimed at helping the company reach its goal of operating an e-commerce "ecosystem" that benefits small businesses, consumers and the economy as a whole.

"We are going to make the most difficult organizational and cultural transformation in Alibaba's 13-year history," Ma wrote. "The change is most difficult because we are trying to implement our ideals for the future and no one has done this before." Ma concluded the letter by urging employees to "work together to make every business unit small but beautiful, and enable them to collaboratively drive the development of and create value for the ecosystem."

The reorganization will help Alibaba remain flexible and nimble in a rapidly changing Chinese Internet environment that, among other trends, is quickly shifting to mobile e-commerce, said Alibaba Group CFO Joe Tsai.

The establishment of smaller units is expected to break down artificial barriers within the company, improving operational synergies as well as transparency among Alibaba's myriad e-commerce businesses, Tsai said.

"Rather than looking at six or seven big business groups, each of the 25 units could be a significant player in their industry and be very influential," he said. "For example, for the first time we have broken out the (online) travel category as a separate business unit on par with Tmall," the company’s market-leading B2C (business-to-consumer) online shopping website.

Creating stand-alone business units will allow Alibaba to focus and compete more effectively in the travel space as well as in other emerging e-commerce fields, which in China have the potential to eventually rank among the world's largest online markets, Tsai said.

The new structure also will create more opportunities for Alibaba Group's youthful managers, who will take on more responsibility within the organization, he said. "I think they will feel empowered and it will give them a chance to really stretch their legs," Tsai said. "It makes them accountable, they can't blame things on their bosses." The managers of the 25 business units are expected to be named in the next few days.

Alibaba Group currently dominates major sectors of Chinese e-commerce. The sprawling company owns Taobao Marketplace, China's largest C2C (consumer-to-consumer) website; Tmall, which holds more than 50% of the B2C market; and, the leading B2B (business-to-business) platform. An affiliated company, Alipay, is China's leading online electronic-payments provider.

Tsai noted that most of the newly established business units "in some shape or form have existed all along, buried in larger companies."

But by "de-emphasizing the idea of a B2B company, a Tmall company, a company," Alibaba hopes to spur creative interaction among business unit managers looking to improve performance by cooperating with other Alibaba units. The smaller companies “have grown from sort of teenagers under parental guidance into adults who can now interact with each other in a more social environment,” Tsai said.

This latest reorganization is part of an ongoing effort by Alibaba Group to remain nimble and innovative during a period of rapid expansion. In July 2011, Taobao was split into three separate businesses; a year later, was divided into two companies as part of a realignment that created seven major business groups.  

The frequent restructuring "is a reflection of the fast growth of the whole Internet space and the e-commerce landscape," Tsai said. While Alibaba's total number of employees has been stable over the past year, revenues are soaring - Tmall and Taobao Marketplace recently announced their combined GMV (gross merchandise value, a measure of total sales) exceeded RMB $1 trillion ($157 billion) in 2012, up about 60% over 2011 results.

"We are in a hypergrowth environment," Tsai said. "While we didn't grow headcount, the scale and influence of e-commerce on the economy has definitely increased."

With that growth, "more and more we have come to realize that we are not just a company. We are operating an ecosystem” that includes thousands of other companies providing services that support e-commerce, as well as millions of small online vendors and their customers. "Through this realization we started to think proactively about changing our own organization to meet these challenges."

In his letter to Alibaba employees, Ma, the Alibaba chairman, named nine top managers to the management and execution committee, which will have oversight over the 25 business units. The members include current Taobao Marketplace President Leo Jiang; Tmall President Daniel Zhang; President of group-shopping website Juhuasuan Zhang Yu; eTao President Eddie Wu; China B2B business executive Zhang Jianfeng; Chief Data Officer Jonathan Lu; Alibaba Cloud Computing chief Wang Jian; China Business Unit President Ye Peng; International President Sophie Wu.