Adaptation, Innovation and Resilience at Alibaba. A Discussion with BCG’s Martin Reeves. (2 of 3) (Tech Strategy – Podcast 48)

This is Part 2 in a three part series about Alibaba and Ant Group. The focus was on Alibaba’s ability to continually adapt to new markets, consumer behaviors, technologies and opportunities. The idea of adaptability and innovation are increasingly discussed as key competitive abilities. Part 1 is here. Part 3 is here.

To investigate that, I spoke with Martin Reeves, who is Chairman of the BCG Henderson Institute. And has long written about adaptability and rate of learning as critical parts of strategy. Here is his summary from the BCG website:

“Since joining BCG in 1989, Martin has led a broad range of strategy assignments in the Financial Institutions, Consumer Goods, Industrial Goods and Health Care sectors. He has particular expertise in the areas of adaptive strategy, strategy for multi-business systems, sustainability strategies, ecosystem strategies, collective learning and innovation, corporate vitality, and trust.”

Specifically, we spoke about his paper with Ming Zeng about Alibaba as a self-tuning enterprise. Although we did go off to other ideas pretty quickly. The main question was how Alibaba had been so successful for two decades in business after business.

You can listen to this podcast here or at iTunes, Google Podcasts and Himalaya.

Related podcasts and articles:

This is part of Learning Goals: Level 8, with a focus on:
  • #32: Adaptation and Resilience

Concepts for this class. The slides discussed in the podcast are located below and correspond to the 4 ideas below.

  1. Adaptation and Resilience
  2. SMILE Marathon: Sustained Innovation

Companies for this class:

  • Ant Financial / Alipay / Ant Group
  • Alibaba

Photo courtesy of Alibaba


I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.

—-transcription below

Welcome, welcome everybody. My name is Jeff Towson and this is Tech Strategy. And the topic for today, Adaptation, Innovation and Resilience at Alibaba. And this is a discussion, sort of an interview, more like a discussion with Martin Reeves, who is the chairman of the Henderson Institute, which is sort of the think tank for the Boston Consulting Group. And this is really part two of a three part series on Alibaba and Ant Financial specifically. And how did they succeed for so long for 20 years? And part one was podcast 47, which is the link is in the show notes, which was how Ant Financial is basically revolutionizing finance. And this is going to be part two, which is a bit of a discussion. And then part three will be more on sustained innovation as sort of a core dimension for Ant Financial specifically but Alibaba more generally. So going a little bit more in depth. Okay let me tell you a little bit about Martin. I’m gonna cut over to the interview so I wanted to sort of get this done ahead of that but Martin Reeves is a very interesting gentleman. I’ve been following him for a while. I suspect in terms of areas of interest the strategy elements of this he is probably the closest person to what I do But comes at it from a different angle You know, he’s a management consultant senior management consultant He’s been running the BCG Henderson Institute I don’t know how long he’s been chairman. I think at least a couple years, but he’s really been at the Boston Consulting Group for 31, 32 years. And he’s been involved in the Henderson Institute, as far as I can tell, from at least 2001. So a good 19, 20 years. Prior to that and he’s based out of San Francisco now, but prior to that he has kind of an interesting background He spent a couple years I’m reading off his LinkedIn profile a couple years at an agricultural agrochemicals company really just two years This would be 1987 to 1989 Prior to that he was at Cambridge University, did his masters in natural sciences. He actually did a postgraduate year in biophysics at the University of Tokyo. I didn’t get a chance to ask him about that unfortunately because part of his activities are Japanese bamboo flute performance, which would have been fun to ask about. But basically he’s a very, very serious, very senior strategy thinker at BCG. There’s a couple groups I would look at in the world who are the best at this stuff and I put them on that list So obviously I’ve been I’ve been following him for a long time and it was a real pleasure to get to chat with him for a while And he does sort of focus on the competitive aspects, which is also my area But he comes at it from a different dimension, which is more ongoing management. So you’ll hear him talk a lot more about culture and adaptation and how you build the organizational structures that are necessary for that. I come at a little bit more narrowly from the focus of competitive advantage and structural advantages. So I’m really focused on a subset of a much broader question that he addresses, which makes sense because he’s dealing with lots of clients in lots of parts of the world. And then I’m obviously Asia-China which is a bit different as well. So anyways that was the idea. I wanted to talk to him about Alibaba and how they’d been so successful for 20 years. And I mean it really sort of went off onto a lot of tangents. So this is more of a wide-ranging discussion, not terribly focused. But yeah, we kind of went down a lot of rabbit holes. Anyway, so part three will focus this a lot more down on the sustained innovation question. But I thought this was kind of a fun talk. Now for those of you who are subscribers, members to the class. The two concepts I really want to put on your radar are adaptation and resilience, which I would put together. And you’ll hear us sort of tease apart those ideas because it’s really quite fuzzy at this point strategically. And then another idea which we’ll call sustained innovation, which in part three, which will be Ant Financial, I’m going to talk a lot about sustained innovation as a critical element of what Ant is doing. So those are sort of your two concepts for this class. level seven, level eight of the syllabus. So adaptation and resilience and sustained innovation. This is gonna go into learning goal 32, which I have titled competing on adaptation, innovation and resilience. Okay, now for those of you who aren’t members, please sign up, go over to There’s a free 30 day trial, try it out, join the group. And… you know, see how it works for you. We’re up to about eight levels of content now, which comprise about 40 learning goals. And those who are members, you know, get basically updates every couple of days on what they should be studying to systematically move through those seven or eight levels of ideas and thinking. Okay, with that, I’m gonna jump over to the interview with Martin. Okay, welcome everybody. We are here with Martin Reeves who is calling in from San Francisco has been very generous with this time very early in the morning in San Francisco so certainly appreciate that. And I’ve given a bit of a quick bio before we switched over but just to repeat very quickly Martin Reeves very well known global I mean the word thought leader is used a lot. overly used. This is one of the situations where it’s actually pretty accurate description. And this Martin is a well-known thought leader in digital meets competitive strategy, but really most aspects of strategy, I think at this point would be a little more fair to say, and a long history of writing, including about Alibaba, which is what we’ll talk about today. Okay, with that bad introduction, Martin, welcome, and thank you very much for joining in. Thanks for inviting me. Now I sent you a couple questions just on this. I thought the easiest sort of paper to sort of go based on would be your article on the self tuning enterprise. HBR 2015 the link for that is in the show notes and it’ll be on the web page there. A really fascinating article. And I won’t summarize it, but we’ll go into that in depth. But I think The simple question, the number one question, talking about Alibaba, what jumps out at Alibaba is it’s a pure digital player in a very, very dynamic market, perhaps one of, if not the most dynamic market, and yet they’ve got 20 years of success. There’s a 20-year track record to look at, so it’s not a one-hit wonder. There’s something going on here that they are doing so well over such an extended period of time. And so I guess that’s sort of the first question is, you know, if you were to point to what is the secret of Alibaba’s success, if you could point to one, you know, there’s a lot of factors, but one primary factor for such a big success over such a long period of time, what would be your go-to point? Sure. Um, well, first of all, an uber caveat on case studies, if I may, which is we can talk about Alibaba and I’m happy to do so. Um, I have, uh, the pleasure of having worked with them, but I have no special inside knowledge or anything. The truth with case studies is they’re often held up as examples of perfection. There is no perfect company. So what we’re really talking about today is the ideas that Alibaba is an exemplar of. So what’s an exemplar of? I think it’s an exemplar of a digital conglomerate. So it’s not just one business or one marketplace. It’s an ecosystem of ecosystems. It’s gone global leadership. It has sustained its performance over that time. And I think one of the ideas we’re going to explore today is that that is to do with adaptation. So in a very fast moving risky environment, longevity is what it’s all about. You have to survive to succeed and they’ve survived and flourished. But I think I can illustrate the idea that they’ve been extremely adaptive. and innovative. In other words, they haven’t created success and then rested on their laurels. They’ve continuously reinvented themselves and continue to do so, which is harder than it sounds. No, that’s great. I think one of the things that really caught my attention about your writing, this was many years ago, was the specificity of the language. I mean, I literally remember reading something and I was about two pages into it and the language was so precise that I literally stopped and I went back and I’m like, who wrote this? And that’s how I actually came across you for the first time. And you use certain language very specifically like agility versus adaptation, versus A strategy based on adaptation versus a strategy based on let’s say shaping. I mean, there’s very specific language and the word that you keep using on Alibaba has been adaptation and the title of your article was the self-tuning enterprise, which I should have mentioned is, is co-written, but one of the co-authors is Ming Zhang, who is for those of everyone in China knows who he is. He’s the chief strategy person for Alibaba. He’s a big name in China, obviously. By the way, there’s an interesting story there, Jeffrey, which is when I write something like the self-tuning company, you might expect that it’s the companies that don’t do that thing, which are most interested in talking about that. But actually, what I often find is that the most advanced companies are the most humble. And also, just because they can do something doesn’t mean that they’re happy with their ability to have codified that thing. So actually, it was a tremendous pleasure to help. Alibaba to codify what they were doing, many aspects of which didn’t have names and hadn’t been conceptualized. And of course, that’s important if you’re scaling a set of ideas that we’re going to talk about today, to actually codify them so that they’re not so implicit that they can’t be passed on and refined. Yeah, one of the things I thought was really interesting was when you talk about, let’s say, adaptation, resilience, innovation, rate of learning, these things, you know, they tend to… depend on each other in various ways. But usually when you talk about that traditionally, if you say innovation, people start thinking product innovation, user experience, maybe technology, you know, sort of very product and service level innovation changing adaptation. And then at the other extreme, we would have companies that make big bets and they, you know, they spin off a subsidiary and you start talking about, you know, creating a new enterprise within an enterprise. But I thought you sort of talked between those two, let’s call them extremes of, you know, adapting at the product level, at the platform level, at the business model level, and even at the vision level on a regular basis. You know, this constant evolution at every level of the organization as an ongoing thing. And I thought that sort of, you know, self-tuning aspect was really interesting. How would you describe that as different to how? Adapt adaptation would normally be described big bets, standard product, you know, development, things like that. Well, the the several aspects to that, I think, firstly, why did we invent a word? It’s not always a good thing to invent new jargon in business, but we we came up with this word self tuning because we wanted to signal something new. So what’s what’s new here? It’s the idea of not just adapting. But Continuously adapting at all levels as you said so not just the level of product But at the level of the business systems including the innermost business systems that we’d normally think of as As being constant and then the other sort of aspect is to do this in a in an autonomous fashion In other words, it’s not deliberate episodes of learning managed episodes of learning the the learning and the learning of the learning processes is baked into the into the fabric of the company. So that’s why we use the word self-tuning. Now as to these different related words adaptation and customer centricity and innovation, they’re fairly highly related, but there are some nuances. So adaptation is my general go-to word for changing according to market conditions. So being successful because you’re learning more effectively from changing conditions than competitors. It’s quite close to the word innovation. Innovation has more of a nuance of being episodic, being product centered, and also being seeds driven as opposed to needs driven. So one… it can create something by adapting to an emerging reality or what can create something a castle in the mind that then becomes a castle in reality. So innovation has a more sort of seeds driven nuance. I think the interesting thing about the Alibaba self-tuning system, the Alibaba learning system is that it shows that these ideas are more related than we might think. So we may have a stereotype that the… for big slow type, this slow cycle capital intensive goods that involve a lot of imagination and perhaps new to the world. You know, we can use the word innovation. The thing, the new thing comes from the mind. And for iterative, repetitive, small step innovation, perhaps we can use the word adaptation because it’s more driven by changing conditions. I think the boundaries are blurring in a couple of interesting ways. The capital intensive slow cycle big bets are becoming more associated with data and the more associated they become with data, the more that they can be attuned and they can learn at the level of their digital identity. I think also there’s a greater appreciation of the trade-off between flexibility and scale. So many businesses that may have been built, you know, sort of… massive one-off investments now see the dynamic efficiencies compared to static efficiency and therefore not necessarily build, invest all of their aspirations in scale economics. And then at the other end of the spectrum, I think we may think about recommendation able to figure out what we want. But in fact, they also probe what we will want next. So I talk about in the article, the triple learning loop. So Alibaba’s marketplace algorithms both detect what you want from your clickstream behavior. They also probe what you want next. What novelty are you responding to? There’s a certain amount of randomness in probing meta-learning aspect, in other words, and they will do all of that more and more effectively over time. So you can see that the ideas are not entirely distinct, I think. Right. I thought you had a good point about, it was almost like a two by two matrix that, you know, your strategy really depends on what your landscape is. And if you’re in a very predictable environment, that enables you to do certain things. And if you’re an unpredictable environment, it almost mandates that you do other things. I mean, yearly planning isn’t going to do you a heck of a lot of good in some industries. But then there was this idea of how much of this industry is under your control. Is it malleable? Can you shape it versus, you know, look, we’re an oil and gas company. We kind of, you know, the, the world kind of dictates how we do more than we dictate anything, you know, we’re responding all the time, uh, Alibaba. You know, I would say Alibaba is almost both of those. I mean, I wouldn’t have said that normally a digital company, I would kind of put it in the second category of look, it’s unpredictable, but you have a decent ability to shape your environment as a digital creature, you know, creating digital products online, but Alibaba being sort of, you know, so tied to the development of China from, you know, 2000 to now and being part of that, you know, very unusual development story. I often wonder how much. they shaped anything or were they just a very good adapter to this sort of this, you know, really historical development of a big country. And maybe they didn’t, maybe there wasn’t much malleable there at all. They just adapted quickly and were fast on their feet. Um, well, I think, um, it’s, it’s both actually. So, um, you’re referring to the framework in my book, uh, your strategy needs a strategy where I say that strategy is often conflated with planning. But planning is only one philosophy of strategy. If we’re in a relatively fixed environment with relatively high predictability, we can create during endurable plans. Excuse me. But if we’re in a fast moving environment, which is also given, it’s beyond our control, we can adapt. If, on the other hand, we’re an entrepreneur, we can shape, we can bring into existence something new. And if we’re in an ecosystem setup, we can shape, we can collaboratively shape hence ecosystem strategy. And if something is broken, we need to take rapid pragmatic action to renew. So these are the five spaces of strategy, planning, adapting, envisioning, coevolving or shaping. and renewal. So at the outset, as with any entrepreneurial company, I think Alibaba was shaping. So it was a first in class in China release with its initial e-commerce business. But then as a market emerges, as competitors emerge and as technology changes, they become more adaptive to conditions. And then as a company grows and acquires sort of a, if you like, an engineerable environment, an engineered environment, it has a certain predictability, then it can to some extent plan, although Alibaba plans in a very special sort of way. It’s probably best called continuous planning than episodic planning. And of course, all of this is done somewhat collaboratively because they run an ecosystem where others and the distribution assets. And then occasionally, because it’s a very fast moving business, they’ve also had to fix things that were maturing or which broke or which were competitively obsolete. So I think Alibaba is a good example of what I call multi-lens strategy, which is at the right stage of the life cycles for each business, they’ve employed the right very general sort of way. The other thing I’d say about strategy at Alibaba is it’s a they may not use this word, but it’s it’s a great example of not automation but autonomization namely strategy can be something which is very intention driven very top-down or it can be emergent it can emerge naturally and evolve naturally because you have engineered an environment where that can take place and a lot of Alibaba strategy is essentially bottom-up and emergent and continuous. Right. I thought that was another interesting dimension. And, you know, if on, if on one axis, there’s this idea of, you know, predictability, malleability and such, and then maybe on the other axis, it’s just top downwards is bottom up. Uh, and how much of that is autonomous at this point. And when I look at say Taobao, it was a small team living in an apartment. I mean, it wasn’t, you know, there probably wasn’t even much data at that point. So I mean, it was all. top down. But then when I look at Ant Financial, I mean, it looks like it’s designed to be bottom up more than any of the businesses I’ve seen them do. I mean, their little motto for Ant Financial, Ant Group is 310. You can apply for a loan in three, is it three minutes, you get approval in one second and there’s zero human involved. That’s the zero. I mean, it’s literally a financial services company that looks designed to be autonomous from the bottom up. for a fairly large suite of products and services. So I kind of wonder how much they’ve been moving more and more to this autonomous bottom up, self-tuning organizational style as their capabilities have grown, as they have more data, which is a huge advantage, and whether they have an ability to do that that simply others can’t match. So at what point does this become a competitive advantage where like this whole idea of adaptability, they may have a structural advantage in doing that, that can’t be matched anymore by very, you know, except for a handful of companies, maybe. So can adaptability, can it become a structural advantage where they can just do it faster than anyone? Well, some, some people have written about the phenomena you just described as An example of the end of strategy or the end of competitive advantage. I know that book. That’s a Rita’s book, right? Yes, exactly. But I think, so that’s an apparent contradiction, but it’s not really a contradiction because what it means is the end of static advantage or the end of static advantage in certain industries. So in other words, traditionally strategy is based upon competitive strategy is based on a very simple idea, which is relative scale, which is if I’m relatively big, I’m producing more than you, I’m learning faster than you and I have scale and learning economies and providing that I realize the cost reduction potential inherent in that scale and that learning, you can never catch up. So that’s that static scale driven advantage. The trouble with something like a digital business is that you never reach the optimum always changes. So you never reach the plateau of the S-curve of learning because you are constantly jumping to the next S-curve which is the next technology or the next business model. So therefore, I use this phrase competing on the rate of learning or dynamic advantage. And it can be an advantage but it’s a different type of advantage. So when I say my prayers in the evening, I’ve been… you know well trained to pray to the gods of sustainable competitive advantage that’s a key mantra of competitive strategy but actually i now have to pray to the gods of a serial dynamic advantage or serial temporary advantage advantage has to be constantly renewed in such industries and in fact we can prove that numerically because if you look at the excess returns of successful companies there their return on investment over and above the industry norm. And you look at the fade rate of that, it used to be that in many industries that it took about 10 years for you to, for that excess, for the premium, that competitive premium to fade, to regress to the mean. But now that’s more like one year according to our analysis. So suppose we are dynamically advantaged, how does that work? Well you tend to be… dynamically advantage if you are big because not for traditional reasons, not for static scale reasons, but because you can defray the risks or diversify the risks of the bets that you need to take in order to continue to learn. You typically own a platform and so you become product agnostic. In other words, if this or that product fails, you don’t care because you’re product agnostic because you are the platform on which all products do business. You tend to have powerful and renewed reasons for people joining your platform. So for example, you may own the customer interface, you may own crucial data from the customer interface, you might occupy some crucial component of production that nowadays is more likely than not to be data. And also, and this gets quite cultural and capability driven and therefore very difficult, you organize for learning and for, in effect, use another word, ambidexterity. You organize for continuous renewal. You’re constantly exploring as well as exploiting your successful business model. So if you do all of those things, then you can indeed be a structurally advantaged, dynamic competitor that competes on the rate of learning. However, we don’t have the textbook for that yet. So another interesting thing for me as a strategist about Alibaba is in a sense, they’re writing the textbook. So we have Ming Zheng, we have the self-tuning company article, and we have more recently Ming Zheng’s book on strategy that I highly recommend to people. And, you know, Alibaba is still figuring out what they know and what they’re learning, and maybe at some point we’ll have a textbook, but this is This is more strategy in practice, strategy in motion, than it is some established body of dogma. Yeah, I mean, this is basically what I’m focused on is this is why I’m studying Asia, China, competitive advantage and rapidly changing markets. And I’ve read the end of competitive advantage. I didn’t buy it at all, just to be blunt. I didn’t buy it. I think you have to break this question apart. We could put it two by two with entry advantage, attacker advantage versus incumbent advantage. Those are often different playbooks. In terms of competitive advantage. And we could also do pipeline versus platform on the Y axis. If you’re an incumbent platform, the types of advantages you build are going to be very different than say, you know, Stalin’s Snickers and stuff. And I think you get different playbooks within those four and some of them. Not only do they not look like they’re fading, they look static to me. I mean, I can point to certain platform business models that don’t innovate at all. And they are just locked in there as incumbents, you know, and, and then in other cases, I think it’s exactly what you said in certain types of platforms. You’re on this constant dynamic advantage where you’re always trying to jump to the next series of advantages before your current ones fade. I used to call it wing walking. It’s like when those guys, when those guys used to walk on the wings of airplanes, you know, the biplanes. And there’s only one rule for being a wing walker is you don’t let go of one hand until you’ve got your hand on the next pole. That’s what they look like to me. They know their core set of advantages is fading fast and they got to get to the next one before they’re blown off the wing. And, you know, I would sort of break it out that way, but if I was looking at an attacker advantage, then I think the playbook becomes different. Which sounds like that’s kind of a job description for what, for what I do, but um, that’s a good way of putting it. Um, But a point I make in my book, Your Strategy Needs a Strategy, is that typically when we come up with a new idea in strategy, we say, you know, the old idea is dead. It’s all about the new idea. Actually, we didn’t say that. What we said was planning is not obsolete. It is merely no longer a panacea. So the point is to choose the right approach to strategy at the right time in the right business. So there are still some… very plannable industries and some very plannable functions within industries. For instance, the funeral earn industry, the thing you bury your grandmother’s ashes in. You know, demographics is one of the most predictable things that we have. You know, we can predict death rates 10 years out with some accuracy and we know the demand for those things. It’s a relatively concentrated industry. So we, I mean, this is an example, a little bit sinister perhaps. You know, that’s an example of a very plannable industry. Um, on the other hand, um, if you take, uh, you know, app based video games, um, I was interviewing for the book, uh, people in that industry. And the interesting thing is, um, they, not only the people in that industry, not only don’t know who’s going to be number one next week, but they don’t necessarily expect that they will even have heard of that company. So it’s really incredibly radical uncertainty. So, uh, no talk of annual plans, uh, uh, in that, in that industry. And so an interesting thing that I investigated when I was researching for the self-tuning article is, you know, does Alibaba do planning? How does Alibaba do planning? It turns out that they do replanning. So in other words, they have a rough direction. You know, any company has an aspiration, a hypothesis about the future or their competitive advantage. But the action is in replanning events. certain level, you know, middle management, the organization, and they’re typically triggered by a success or a challenge. And they follow a protocol such as it must involve a customer, it must involve some data, it must involve some recommendations, it must involve actions, it must involve some aspect of challenge. So there’s a protocol for how do you replan. And there are these little replanning events popping up, bottom up all over the organization. So the organization is continuously in motion. There is no one thing called the annual plan, but the different aspects of the business are constantly being replanned. So you might call it always on strategy or continuous strategy. So I guess the simplest way of describing it is it’s strategy with a small grain size, you know, bottom up, and with very high frequency. Yeah, when I mean, I spent a lot of time at Alibaba. And when I was reading your article about, you know, at what level do you adapt? And they’re clearly incredibly dynamic at the, you know, everything that’s operating on their platform, the value they’re providing to their various users, which keeps advancing, which they talk about in their latest IPO document is, you know, sustainable, sustained innovation is their critical activity. But then when I look at their business model, They seem to me like a one trick pony, like they build platform business models. That’s been, that’s all they, they almost, they shy away from anything. That’s not a platform business model from day one. And they’re the, I think they’re the masters at it. I think, you know, the latest ones they’ve done, it’s so well thought out. So within that one approach, they seem to be very consistent. It’s like, it’s almost, I would point to their key skill is like, Yeah, they’re the platform builders. That’s really what they do. And they’re just very good at identifying and building and adapting with that. So there, there was a level there that’s almost very static, which I thought was interesting when, when you were talking about this, but yeah, the vision seems to change pretty radically. They come up with fairly bold ideas. Um, you know, the, the financial services one, they’re, their B2B business, which is basically a digitization and democratization of world trade. where they want to let every SME act like a multinational and buy and sell around the world like it’s nothing. I mean, it’s a, the scope of the vision is stunning. But then when you look at their plan, it’s like, Oh, platform business model. It’s the same playbook. It just has a lot of subtleties. So yeah, I think it’s an interesting aspect. So it’s what I call multi-timescale strategy. So, you know, we might have to be careful of oversimplifying what’s going on here in the sense that Um, on the whole, um, we have less planning, but it doesn’t mean planning is dead. It means that we need to choose the right approach to strategy, uh, in the right, um, the right business unit or the right business. Um, equally, although things are going faster in business in general, I mean, data moves very fast, so our planning processes are, uh, learning processes need to move equally fast. It doesn’t mean that everything is moving fast. In fact, slow change is very important too. I mean, demographics, um, are very important. Institutions are very important. Geopolitics is very important. And as you say, within Alibaba’s business model, there are some things that change slowly and there’s some things that change faster. And you need to be able to think at those different speeds. And we have some primitive tools and strategy for dealing with different timescales. The main one is the discount rate. You know, we add long-term things to short-term things by equalizing them with a discount rate. But that’s very hard to do in practice if you’re dealing with multiple timescales, unknown discount rates, multiple plausible scenarios. So I think one of the, just as platform strategy is an emerging area strategy, I think ecosystem of ecosystem strategy is even more embryonic and multi-timescale strategy. How to be effective on multiple timescales and how to know where to focus attention is also important. It’s interesting that the big e-commerce players all use slightly different language for these things. So, Jeff Bezos says, focus on what is constant. What he doesn’t mean is be static. What he means is your products may be turning over extremely fast because you have a product agnostic platform. The platform itself may have a certain constancy and the recipe for creating new platforms may have even more constancy. As you say, Alibaba is a serial… platform innovator, that’s the constant in their business. So we have to focus on different time scales, I think as we think about strategy too. And that’s another gift to us from the digital revolution. Yeah, I mean, my area tends to be product service up to the platform level. And then… between digital and physical. So, you know, mix of assets, but then there’s that other level, which I’m just daunted by, which is when you take this up to ecosystem strategy, which makes my brain hurt. Basically. Uh, it’s, you know, it’s so complicated. It’s like 3d chess watching these major digital conglomerates, uh, make all their moves. Um, I haven’t gotten there yet. I’m, I’m working on this level right now. Well, I don’t think anyone has actually Jeffrey, I think, um, Yeah, this is the exciting thing about digital strategy, which is we’re figuring out on the fly, you know, it’s strategy in motion, which is exciting because of course you go back to the very beginnings of competitive strategy in the early 60s on the East Coast of America. There was no distinction between academics and practitioners. They were both figuring out something in motion. And, and then, you know, you had the dogma and strategy, the textbooks, the MBA courses, and the things somehow became a little bit. fragmented. But with ecosystem strategy, we have a living discipline. The leading practitioners, leading academics are comrades in arms in trying to figure out how this thing works. And we don’t have all of the answers yet. I mean, the big mystery that I’m working on is what I call hybrid organization, which is the general recipe for combining machine synergistic learning organizations in the broad sense of the word organization, in other words, combining the algorithmic with the human to maximize enterprise learning. I think we don’t fully know how to do that yet. We know something about how to connect backbone IT systems into autonomous learning loops from Amazon. We know about… the imperative to migrate human cognition to high levels of creativity and value added from Google. We know about focusing human cognition on empathy and imagination from Kai-Fu Lee. We know something about self-tuning processes from Alibaba, but we’re still in the process of stitching all that together. It’s a very exciting area. Did you see the tweet fight between Warren Buffett and Elon Musk about a year and a half ago? And you can remind no, no, what’s that about? It was pretty great. Actually it was Elon Musk basically came out at a conference. I think it was on a earnings call and he basically took a poke at Warren Buffett and he said, I, I’m paraphrasing, but he said, you know, this idea of competitive advantages, nonsense, the only way you win is speed of innovation anymore. And he bet. Then he said, I don’t like Oligopoly. So it was kind of a poke at this idea. He said, the only thing that matters is speed of innovation. And then. Warren Buffett responded to this later, like it, uh, I think it was at the Berkshire meeting. He said, you know, Elon’s a smart guy, but he wouldn’t want to compete with me in candy bars. I like the next day Elon Musk tweets out, I’m starting a candy bar company. I’m totally serious. And he tweeted out about his new candy park. So I mean, Buffett is kind of the competitive advantage. You know, he’s one of the big thinkers on this subject, right? And there, so he’s, I mean, if anyone represents sort of old school, it will be him, but then you have, you know, who is more innovative and fast on their feet than Elon, so you’ve got like almost two people that symbolize this argument. Just about the waters. just don’t need the waters a little. I’ve been, I learned something very important about Berkshire Hathaway a couple of days ago. So another aspect of competitive advantages very topical right now is resilience. So in a sense, we’ve been talking about innovation and adaptation and we’ve been talking, implicitly we’ve been talking about good times. How do you grow through innovation? But there are bad times too. We’re in the middle of a COVID induced economic crisis. So we’re seeing depression of demand and disruption of business models. And so I’ve been looking at the value of resilience. And what I found was that resilience, the ability to not only withstand, but to thrive in bad times, actually contributes an average 30% of long-term performance. I also found that two-thirds of long-term outperformers across a multi-decade period, actually were advantaged in bad times. And I found this very interesting thing about Berkshire Hathaway, which is that all of their gains have come from crisis periods, actually. So if you look at their excess returns over time, they make more money than others in times of crisis. So it’s the ultimate generally resilient company. So we may think of Warren Buffett as being a classical competitor, but actually he’s a dynamic competitor. that seems to specialize in doing extraordinarily well in crisis times. And when I went back and I read Buffett with this in mind, I actually saw a different strand of thinking. So he talks about being fearful and others are greedy and greedy when others are fearful. He talks about the sort of being psychologically countercyclical, if you will, and the role of that in strategy. And that seems to be a very important part of their success recipe. So. Elon and Warren may have more in common than they might betray in the tweets. Yeah, I’ve been reading your stuff about resiliency. And I always put it with a bit of a question mark in my brain. I’m just not quite sure how it fits in into my worldview yet. But I think the phrase you just said really maybe brought it home was advantaged in bad times versus advantaged in good time. We just, I mean, I just sort of brought up. Okay, attacker advantage and combat advantage. That’s one distinction. Maybe the distinction should be advantaged in good times versus bad times. Maybe in rapidly changing, you know. Yeah. This conversation actually triggers a new thought, which is a great thing about these sorts of conversations, which is you’re pushing on the distinction between learning and innovation. And we sort of said that one of the differences is, you know, occasional and big ticket, you know, big grain size and driven by human ingenuity is sort of, you know, more like innovation and adaptation with a small grain size to changing conditions is more, you know, is more learning or adaptation driven. I guess we could say the same thing in bad times in that, you know, the gentle decline or rotation of product needs. is adaptation. That’s like continuous learning. But in a sense, the big ticket learning, the equivalent of innovation is resilience. Because the thing about a crisis is it tends to be rather severe and the onset tends to be rather sudden. So it may be repeated if you look at it on a long enough time scale. I mean, we’ve had, if you go back 500 years, you can point to a dozen epidemics, but within a lifetime, you can probably only point to… to one or two. So the large increments of adaptation under very forced circumstances that don’t have a repeated pattern, you could say that that’s resilience or one-shot learning, if you will. And so I relate the two ideas in that way. I think it’s another important aspect of dynamic strategy. And who knows, tech will probably face something like that one day. You know, we’ve had the dot com crash and, and, you know, I saw in fortune magazine that they were speculating about another tech sell off. You know, at some point, something will happen to tech, some trust crisis, geopolitical crisis, some crisis of investor confidence, and we’ll have something sudden that people need to adjust to. Yeah, there’s another, yeah, I agree. There’s another way of looking at this problem. Like I think baked into at least my thinking is this idea of things progress normally and they evolve, you know, at a certain pace and then every now and then it’s punctuated by some degree of crisis. Maybe that viewpoint is not the whole picture. Maybe I should be viewing it from the, we start with the base case of who can survive seismic changes. And that’s the terrain I’m really standing on. I may have a bias in my view. I think actually if you spend a lot of time on the ground in China, where I do it, people are a lot more comfortable with change and disruption because it’s so normal and it’s just part of life as opposed to say California where I grew up as well. So yeah, that, yeah, I think there’s an interesting dynamic. I don’t quite have it figured out, but yeah, there’s something interesting going on there. And, um, Buffett’s teacher, Ben Graham. He was one of the few people that invested during the Great Depression. And he chose very specific, he actually assigned his graduate students to make lists of very specific types of companies that he, you know, with qualitative characteristics that were most likely to survive a major decline. And that’s what he would buy because he lived through the Great Depression. And that’s what he studied. So he came at it very much with that worldview. Well, there you go. That’s maybe the seeds of, I’m not sure what Buffett calls resilience here, but maybe the seeds came from that view of his mentor. I didn’t know that story. But more generally, I think time is one of the most sophisticated dimensions of strategy and we’re living in very turbulent times and on multiple time scales, it’s not just product volatility, it’s geopolitical. instability and technology unforecastability and generation change. So we need to be used to different types of dynamics. So there are the dynamics of maturation, commoditization that we’re all familiar with. There are dynamics of growth and incremental learning against a growth trajectory. There are the discontinuities of competitive disruption. pandemic type events where the not only the system is disturbed but the system of systems, the economy becomes correlated with events in human health and commerce and so on. In the long term, of course, evolution doesn’t measure profits, it measures survival. In the long term, the ticket to ride is continued existence. So one of the most interesting aspects of strategy that I participate in, coming mainly out of China actually, is a fascination with longevity. So I get interesting inquiries from Chinese leaders about, you know, defying the gravity of their product cycles. You know, we may be in electronics and on average, product may be gone in four years and the company may be gone in 20, but we want to last for a hundred or a thousand years. You know, how do we, how do we ensure longevity? How do we repurpose governance to ensure longevity? Is that another interesting, um, slow cycle aspect of strategy that is, um, uh, very much, um, uh, up in the air that we’re learning about right now. Yeah. Hua Hui does that actually. If, if you, if you read Ren Zhengfei’s, um, you know, he’s been writing a lot. He’s been giving speeches since 1990 ish. And from the beginning, 1991, he talked about the guiding goal of Huawei is to survive long-term. It’s not to make money. It’s not to get rich. It’s not to go public. It’s to survive. And he studied why tech companies don’t survive. And ironically, that has served him well in the last two years, because if you’ve been preparing to survive for 30 years, that’s probably not bad for the situation they’re in. But yeah, it’s definitely a different mindset. Yeah, there’s okay. It was I’ve kept you about. Yeah, it’s 45 minutes. I should let you go here. Let me, you mentioned you have a book coming out. Oh yes. Um, so the next book is called the imagination machine coming out next year from a Harvard business press. And it’s about the importance of, um, the creative side of strategy, the importance of human ingenuity and the imagination in strategy and why we need that more than ever, both because of the sort of the changes in the world that we talked about, but also because as machine learning takes over routine cognitive tasks, we need to focus our human capabilities on high levels of value added. And it’s one of those interesting things where as human beings, we bring imagination to work every day, but we don’t really have a playbook as to how to harness imagination. In fact, Our thinking on imagination is dominated by some romantic era concepts that it’s something very ethereal, something in the mind, something special to creative personalities. We almost have the idea that it can’t be managed. So the book is essentially about how do you harness, as systematically as any other unpredictable aspect of human affairs, how do we harness the power of imagination in strategy. Okay, fantastic. And we’ll definitely keep an eye out for that. I’ve put up quite actually, I teach from several of your articles over the years at various business schools around Asia. So I’ve been putting out your content for a long time, actually. It’s really a fascinating stuff. And so much of this is applicable to China Asia. I mean, it really is one of the reasons I study this market is when it comes to competition, it’s, it’s just the most ruthless I know of. You know, the company’s rise and fall so fast, you get a lot of iterations very quickly. So it’s not a bad petri dish to look at some of these questions. Indeed. But that’s great. Okay. Anyway, thank you so much. Thanks for joining me, Jeff. I appreciate it. Okay. And that was the interview with… You can see I kind of went off on a bunch of tangents there because we’re both grappling with certain strategy questions as you go from traditional businesses to digital, as you go from sort of more pipeline, vertically integrated businesses, product services to platforms. And then as you take it to the next level, which is ecosystem competition, which is really on the frontiers of the thinking, pretty much everywhere. So you can see we’re both kind of grappling with that question. And my approach is actually easier because I’m pretty narrowly focused. I’m looking at competitive advantage within all of that. He’s got to kind of grapple with everything. So anyways, I thought that was a lot of fun. I hope that was helpful. For those of you who are subscribers, the two ideas for today, adaptation and resilience as a strategic dimension, as a competitive dimension, and then sustained innovation, which is, I would consider that sort of a subset of innovation, which I’m gonna go into in the next podcast, which will be part three on Alibaba Ant, which is gonna be about sustained innovation as a component of network effects. And all of this goes under Learning Goal 32 which is competing on adaptation, innovation and resilience. And that is it for me for today. I am hustling down to the airport here in a couple of minutes. I’m going down to Koh Lanta in the islands of southern Thailand because the borders are still closed and I’m going crazy sitting here in Bangkok. So that’s going to be my little treat. So I wanted to get this done before I go down there. So no bad microphone this week. one so you won’t have to listen to my horrible travel microphone. Anyways, that’s it from me. Everybody have a great week and I will talk to you next week.

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