3. captured more than 80% of the digital Chinese con-
sumer market, and by 2011 it had become a national
phenomenon. Many companies would have taken
this leadership position as validation and focused
onoptimizingthesuccessfulmodel.Instead,Alibaba
saw the sustained rapid growth of China’s online
population and the increasing sophistication of con-
sumers and retailers as signals of great uncertainty
in the marketplace and a risk to the current model.
Again there was heated debate within the com-
pany about which direction to take and which
model to build. Instead of relying on a top-down
decision, Alibaba chose to place multiple bets and
let the market pick the winners. In 2011 the com-
pany split the very successful Taobao into three in-
dependent businesses. Each took a different view of
the future of e-commerce in China. Taobao focused
on consumer-to-consumer transactions, Tmall on
business-to-consumer transactions, and Etao, a
new unit, on product search. Although the outcome
might have been the dominance of any one of the
models, Alibaba actually succeeded in creating two
successful mass-market businesses (Tmall, which
has a 60% market share in the fiercely competitive
B2C market, and Taobao, the market leader in C2C)
and one strong niche-market model (Etao).
Increasing experimentation at the height of suc-
cess runs contrary to established managerial wis-
dom, but for Alibaba it was necessary to avoid rigid-
ity and create options. Recalibrating how and how
without making a commitment to business model
experimentationfromveryearlyon.However,when
the firm first ventured beyond its core B2B e-com-
merce platform to launch Taobao, the decision was
hotly debated within the company, as it involved go-
ing head-to-head with an apparently almighty eBay.
TominimizedistractionatthebuddingB2Bbusiness,
Taobao was set up as an independent company, with
a separate office (or in this case, apartment) and sep-
arate funding (a 50/50 joint venture between Alibaba
and SoftBank).
At each juncture in its evolution, Alibaba contin-
ued to generate new business model options, letting
them run as separate units. After testing them, it
would scale up the most promising ones and close
down or reabsorb those that were less promising. In
2006, for example, spotting two new trends, Alibaba
decided to launch two units. To tap the growing B2C
market, it began building Taobao Mall, a platform
for established brands to reach Chinese consumers,
which eventually became Tmall and is a major part
of the group portfolio today. To catch the software-
as-a-service wave, it started Alisoft, which probably
entered the market too early. Alisoft could not find
a killer app that generated enough customers. The
business was shut down in 2009.
Another driver of Alibaba’s success has been
the ability to modulate its rate of business model
experimentation to fit the circumstances. For ex-
ample, within just four years of launch, Taobao had
intentions from above but, rather, as a network that
shifts and develops in response to external feed-
back. To see what this means in practice, let’s look
at Alibaba.
Started in 1999, the Alibaba Group initially fo-
cused on building a B2B website for small Chinese
manufacturers. But in the years since, it has ex-
panded its portfolio in many directions. Today the
group spans 10 businesses and has approximately
27,000 employees and more than $8 billion in rev-
enue. In China’s fast-changing e-commerce market,
it could not have achieved that level of success with-
out constantly retuning the enterprise at all levels.
The way Alibaba went about this suggests a number
of guidelines for other organizations:
Keep resetting the vision. When Alibaba be-
gan operations, internet penetration in China was
less than 1%. While most expected that figure to
grow, it was difficult to predict the nature and shape
of that growth. So Alibaba took an experimental ap-
proach: At any given time, its vision would be the
best working assumption about the future. As the
market evolved, the company’s leaders reevaluated
the vision, checking their hypotheses against reality
and revising them as appropriate.
In the early years, Alibaba’s goal was to be “an
e-commerce company serving China’s small ex-
porting companies.” This led to an initial focus on
Alibaba.com, which created a platform for interna-
tional sales. However, when the market changed, so
1999JACK MA FOUNDS
ALIBABA IN HIS
HANGZHOU
APARTMENT
ALIBABA.COM
IS LAUNCHED
2003TAOBAO
MARKETPLACE,
AN ONLINE
SHOPPING SITE,
IS LAUNCHED
FOCUS
BUILD E-COMMERCE
PLATFORM FOR SMALL
EXPORT COMPANIES
FOCUS
TAP EXPLODING
CONSUMER
DEMAND
IN CHINA
2004ALIPAY IS LAUNCHED
ALIWANGWANG,
WHICH ALLOWS
INSTANT MESSAGING
ON TAOBAO,
IS LAUNCHED
FOCUS
BUILD BASIC
INFRASTRUCTURE AND
BOOST CONSUMER
CONFIDENCE IN DOING
BUSINESS ONLINE
FOCUS
FOSTER THE
DEVELOPMENT
OF E-COMMERCE
ECOSYSTEM
2009ALIBABA CLOUD
COMPUTING IS
FOUNDED
FOCUS
PLACE DIFFERENT BETS
ON THE FUTURE OF
E-COMMERCE IN CHINA
2011TMALL AND ETAO ARE
SPUN OFF FROM TAOBAO
MARKETPLACE AS
INDEPENDENT PLATFORMS
JUHUASHUAN, A GROUP
SHOPPING WEBSITE,
BECOMES A SEPARATE
BUSINESS
2014ANT FINANCIAL
SERVICES GROUP
IS ESTABLISHED
FOCUS
MOVE BEYOND
E-COMMERCE TO
ALL COMMERCE,
CONCENTRATING ON
INFRASTRUCTURE
Alibaba’s Evolution
By continually readjusting its focus and experimenting with new models,
Alibaba grew from a small start-up with 18 employees to an $8 billion
enterprise employing 27,000. Here are some of the key moves it made.
did the vision. As Chinese domestic consumption
exploded, Alibaba saw an opportunity to expand its
offering to consumers. Accordingly, it launched the
online marketplace Taobao in 2003. Soon Alibaba
realized that Chinese consumers needed more than
just a site for buying and selling goods. They needed
greaterconfidenceininternetbusiness—forexample,
tobesurethatonlinepaymentsweresafe.Soin2004,
Alibaba created Alipay, an online payment service.
By providing both an escrow service and a merchant
rating system, Alipay introduced the ingredients
for transparency and trust, which sped up the pen-
etration of e-commerce in China. Ultimately, this led
Alibaba to change its vision again, in 2008, to foster-
ing “the development of an e-commerce ecosystem
in China.” It started to offer more infrastructure ser-
vices, such as a cloud computing platform, micro-
financing, and a smart logistics platform. More re-
cently, Alibaba recalibrated that vision in response to
the rapid convergence between digital and physical
channels. Deliberately dropping the “e” from e-com-
merce,itscurrentvisionstatementreadssimply,“We
aim to build the future infrastructure of commerce.”
By regularly retuning its vision, Alibaba has been
able to not only respond quickly and effectively to
new market realities but also shape the way consum-
ers and businesses interact.
Experiment with business models. Alibaba
could not have built a portfolio of companies
that spanned virtually the entire digital spectrum
2013CAINIAO (CHINA
SMART LOGISTICS
NETWORK) IS
LAUNCHED
2008TAOBAO MALL,
AN ONLINE B2C
MARKETPLACE
LATER RENAMED
TMALL, IS
LAUNCHED
2010ALIEXPRESS,
AN ONLINE
INTERNATIONAL
CONSUMER
WEBSITE, IS
LAUNCHED
FOCUS
START
GLOBALIZATION
HBR.ORG
June 2015 Harvard Business Review 8180 Harvard Business Review June 2015
SPOTLIGHT ON MAN AND MACHINE THE SELF-TUNING ENTERPRISE

4. employee portal. As an initial step, the team built
functionality that allowed employees to nominate
themselves for promotions. This gave them more
control over their own career trajectories. Next the
team added a web-based interface through which
HR executives could update organizational struc-
tures and links to all employee records easily at the
same time. This helped internal HR systems and pro-
cesses keep up as operational teams frequently re-
aligned themselves to market needs. Then the team
created a more flexible goal-setting interface that
improved the performance review system. Instead
of static annual goals, employees can set goals with
different time frames for different projects and align
their objectives with those of colleagues outside
their units. It’s also easier now to give feedback to
coworkers through the interface.
WHILE INTERNET natives like Alibaba have been the
pioneers of the self-tuning enterprise, the emerging
with the market. The approach leaves more room
for innovations to bubble up from the market, as
opposed to being pushed down from the top of the
organization. Leadership in effect stops manag-
ing something that is better left to a market-driven
mechanism.
Get good at adapting the organization. At
Alibaba, maintaining organizational flexibility is an
area of intense focus. A few lessons stand out from
its experience—for instance, that it’s critical to build
an expectation of change into the culture from the
outset. “Embrace change” has been one of the com-
pany’ssixcorevaluessinceitsearlyyears.Itsfounder
and chairman, Jack Ma, regularly emphasizes this
theme with employees, investors, and customers.
“In the information era,” he says, “change is the best
equilibrium. No single organization structure is per-
fect and can solve all problems.” That mindset has
become a pillar of Alibaba’s recruiting. The company
evaluates potential hires not only on their technical
skillbutalsoonademonstratedabilitytothriveunder
conditions of rapid change.
Another important lesson is that change must be
activelypursued,notmerelytolerated.Intraditional
companies, organizational change is often executed
through infrequent, large-scale initiatives. An enter-
prise that regularly retunes itself, in contrast, limits
the need for such risky, one-shot transformations.
Consider a new program Alibaba experimented
with in 2012, which rotated its top 22 managers
across its broad portfolio of businesses. There was
some concern about disrupting the continuity of op-
erations, but the program proved successful, partly
because managers were required to institutionalize
and transfer knowledge. In addition to enhancing
the skills of top talent, the program showcased the
leadership’s commitment to flexibility. Judged a suc-
cess, the program continues: A portion of the senior
leadership is rotated every year.
Build systems that support fluidity and
feedback. In its early years, Alibaba used a leading
enterpriseresourceplanningsystemtomanageinfor-
mation flows and resources. But over time it became
clear that ERP was straitjacketing rather than facili-
tating change. It was designed for a traditional stable
structure with clear unitary reporting lines, and ad-
justing it to reflect an evolving structure was taxing.
The company needed something more dynamic.
An Alibaba team set out to create a better alterna-
tivebyexpandingthefunctionalityofthecompany’s
much to experiment was fundamental to its ability
to capitalize on nascent market trends.
Focus on seizing and shaping strategic op-
portunities, not on executing plans. In volatile
environments, plans can quickly become out-of-
date. In Alibaba’s case, rapid advances in technology,
shiftingconsumerexpectationsinChinaandbeyond,
and regulatory uncertainty made it difficult to pre-
dict the future. To deal with this situation, Alibaba
adopted a continuous process of “replanning.”
Rather than meticulously executing a fixed, detailed
blueprint, the company keeps revising its strategy
and tactics as circumstances change.
Alibaba does have a regular planning cycle, in
which business unit leaders and the executive man-
agement team iterate on plans in the fourth quarter
of each year. However, it’s understood that this is
only a starting point. Whenever a unit leader sees a
significant market change or a new opportunity, he
or she can initiate a “co-creation” process, in which
employees, including senior business leaders and
lead implementers, develop new directions for the
business directly with customers.
At Alibaba co-creation involves four steps. The
first is establishing common ground: identifying
signals of change (based on data from the market
and insights from customers or staff) and ensuring
that the right people are present and set up to work
together. This typically happens at a full-day work-
ing session. The second step is getting to know the
customer. Now participants explore directly with
customers their evolving needs or pain points and
brainstormpotentialsolutions.Thethirdstepentails
developing an action plan based on the outcome of
customer discussions. An action plan must identify
a leader who can champion the opportunity, the sup-
porting team (or teams) that will put the ideas into
motion, and the mechanisms that will enable the
work to get done. The final step is gathering regu-
lar customer feedback as the plan is implemented,
which can, in turn, trigger further iterations.
The co-creation process highlights the self-
directed nature of self-tuning enterprises. Alibaba’s
business units can initiate co-creation sessions
whenever they see a relevant market stimulus, with-
out any central mandate or oversight. And although
the process now follows a successful pattern, each
co-creation initiative is tailored to the situation at
hand. By creating a forum for regular exchange with
customers, Alibaba is able to evolve synchronously
Are You Ready
for Self-Tuning?
1How changeable,
complex, and
uncertain are the
markets you play in?
2Are you “managing”
some things that are
better left to market
mechanisms?
3Is the organization good
at experimentation
and learning?
4What is the first place
you could start testing
a self-tuning approach?
lessons are relevant for a broad array of companies,
in both digital and more-traditional industries.
Digital pioneers will need to reinvent themselves
in the face of unrelenting technological change,
but more-traditional industries will face complex,
dynamic environments, too. Technologies like two-
sided marketplaces, which help to both create and
exploit such environments, are spreading well be-
yond the digital sector. By borrowing from the play-
book of current experimenters, companies can find
a way to keep up with unpredictable markets—and
even get ahead of the curve.
HBR Reprint R1506E
Martin Reeves is a New York–based senior partner
at Boston Consulting Group and a coauthor of Your
Strategy Needs a Strategy (Harvard Business Review
Press, 2015), with Knut Haanaes and Janmejaya Sinha.
Ming Zeng is the chief strategy officer at Alibaba Group.
Amin Venjara, a project leader at BCG during the writing
of this article, is now a vice president of strategy and
business development at ADP.
Alibaba leaves more room for innovations to
bubble up from the market, as opposed to being
pushed down from the top of the organization.
JOEDICHIARRO
“If it’s broke, buy a new one.”
June 2015 Harvard Business Review 8382 Harvard Business Review June 2015
SPOTLIGHT ON MAN AND MACHINE HBR.ORGTHE SELF-TUNING ENTERPRISE