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A Dialogue with Savio Kwan: Culture is Core Competitiveness That Cannot be “Copied”

Savio Kwan / Non Executive Director in Alibaba HK Entrepreneurs Fund Board, Partner and CEO of A & K Consulting / 2018-06-07

Read this article in Chinese

When Kwan was 26, something changed his life.

As an engineer, he applied for an MBA at London Business School, but was rejected, a result that he never expected. He jumped into his car, drove two hours to London, hurtled into Professor Charls Hendy – the Dean’s office and asked why.

The professor told him, because in his application letter, he only talked about what London Business School could bring to him, but not what he could do for the school. He also said that the recommendation letter which his boss wrote for him, seemed to be full of commendations, but anyone reading this letter would know instantly that he was unwilling to let Kwan leave.

Kwan, returning to Cambridge with his rejection letter, told his boss that he’d leave the company even if he couldn’t get into London Business School. Guess what? Not only did his boss agree to write him another letter of recommendation, but he also proposed that the company would sponsor his degree. What recommendation letter could be more convincing than this?

Since then, Kwan has always followed two principles: being perseverant and never giving up; and asking not only what others can do for you, but what you can do for them first.

With this, when he decided to join Alibaba in 2001, what he had in mind was what he, an “old business veteran” could do for this “new economy company”. He believed that Alibaba needed a set of methodology to turn e-commerce into real business.

Kwan is 16 years senior than Jack Ma, Before joining Alibaba, he was planning for retirement. After graduation from London Business School, he followed a smooth career path, serving successively as the China President of BTR Plc and Ivensys Plc, both Fortune 500 companies.

In the 80s and 90s, Kwan worked for GE, in charge of its medical devices business on China Mainland. From selling products in China, to building a Chinese service team, setting up a Joint Venture and finally opening a product R&D center in China… All these were pioneering practices for foreign companies.

A lot of people think Kwan must have brought GE’s management practice and culture to Alibaba to help the latter build its culture and value system. But Kwan said that this is misunderstanding. Corporate culture is the only thing that cannot be copied and pasted to apply to all companies. That’s why he never talked about the so-called “his management theory”. Instead, he would look at individual companies’ problems and gave advices based on his experience. What applies to GE applies only to GE and by the same token, what applies to Alibaba applies only to Alibaba.

In 2004, he resigned as Alibaba’s COO and served instead as its CHO, before taking one further step back to become its senior advisor. In 2005, he co-founded a management consulting company to provide consulting to start-ups. In 2008, he became independent director at Alibaba.com-the HK-listed company until its privatization in September 2011. Now he is the independent director at Alibaba Entrepreneurs Fund.

Standing in between East and West, with experience in a foreign company and a private Chinese company, having founded his own business but also doing well in incumbents, staying true to principles yet being kind in nature, Kwan is a perfect mix of various contradictions. He was able to enjoy a smooth career path in a multinational company, but also made his name in Alibaba, a Chinese internet company. Such background makes us believe that his unique experience should be shared and learned by more people, in and out of China.


Interview | Paris Innovation Review

About management: corporate culture is a set of game rules

Paris Innovation Review: If you were asked to look at your entire career, which part do you think is the most valuable?

Kwan: This is a hard question. My career is still moving on and one’s value is always better reflected in the future. But if there is something that’s always made me happy, that is, both at GE and Alibaba, I used the power of “culture” to change rules of the game and people’s habits so that individuals and teams are improved. To put it simply, I use culture to empower, and in particular, empower the young.

Are there similarities in the cultures of GE and Alibaba?

Culture cannot be copied and pasted. Alibaba’s culture is unique to Alibaba. A lot of people think that I brought GE’s culture to Alibaba, but that is a misunderstanding. A lot of companies, seeing Alibaba’s success, so they want to copy its culture. But you can’t learn culture. It is a company’s core competence.

And the key of a company’s culture is its mission and value proposition. That is, what you can do for your clients. Alibaba’s mission is to make sure that there is no hard business in the world. So its target clients are business people. But GE’s mission is to bring good things to life using electric products. The two are totally different.

One can never emphasize enough the importance of corporate culture. But it’s one thing to have culture, another to implement it. So why was Alibaba’s “Du Gu Jiu Jian (its nine core principles)” implemented so efficiently and effectively? What was the key?

After you have culture, the way you implement it might be more or less the same. For example, you need to write it down so that everybody understands your culture. You have to educate people about it and establish a reward and punishment system to evaluate people’s behavior, among other things.

Alibaba went to great length in implementing culture. First, the management team has to have a thorough understanding of its corporate culture and preach it day in day out. In the meantime, it established a set of code of conduct that’s executable, measurable and gives people incentives. There are several red lines in Alibaba, such as being dishonest and giving or taking bribes. Anyone crossing the lines will be fired, whoever you are.

The management preaching culture by themselves is essential. You cannot delegate this to HR. In a lot of companies, people think that HR should be responsible for establishing corporate culture whereas the management should focus on revenues. But that’s putting cart before the horse, because revenues are generated by people. So, the management should not pursue revenues; rather, they should make sure people have the right mindset and do things in the right way with the right strategy. In this way, revenues will naturally come.


In recent years, with its fast development, what has been changed or added to Alibaba’s culture?

As I am no longer working in Alibaba, I don’t have a full picture of what’s going on. But with its more than 50,000 employees worldwide, one should not expect the same mythology as when it only had 500 people. Management will be harder. The value system is like sand being held in cupped hands. However hard you try to hold them, there will always be some sand leaking out. Yet once you let go, all the sand will be gone. If you want your value system to stay, you need more people to abide by it. The more people there are to hold the sands, the more sands you will have.

That puts a higher demand on the management. It’s not enough to simply have one or two senior managers to preach, you need all the management to do it.

How did you manage to switch from GE to Alibaba, with two different cultures?

At GE, I was a cog in a big machine with everything in order. It was hard to break the rules. Having said that, though, I tried to be a rule-breaker.

We first sold medical devices in China, then built a service team, formed a joint venture and finally set up a product R&D center. A lot of things were unimaginable back then, yet we made it.

This has nothing to do with your personality. I would call it being at the right time, doing the right thing and to the right people. I was at the right position at the right time. Fortunately, after that we figured out what the future would look like, we didn’t refuse to change. If we had not moved away from product import, we would have missed the opportunity to make things in China and sell to other countries. What’s more important is that I understood the needs of my target clients. GE’s target client was China, a country whose central government wanted to develop its healthcare industry and market, rather than merely patients.

At Alibaba, my first challenge was if I didn’t change, we would die.

So within one month, we turned a 300 plus people company into one with merely 100. When we had to let people go, we did it with peace in mind, because we “kill to save”. If we hadn’t done that, the company would have died and everyone in the company would have lost their job. And we made compensations to those who were given the pink slip.

I joined Alibaba on January 8th 2001. On January 13th, Jack Ma and I, together with several other co-founders spent 7 hours in our Hangzhou office, talking and discussing. Jack talked a lot about Ali’s value. I suggested that we wrote them down and we ended up with more than 80 pages. We then summarized them into nine which later turned into Ali’s “Du Gu Jiu Jian (its nine commandments)”. I had a thorough understanding of Ali’s culture that day and blended into it since the first day.

I was fortunate not choosing to bring GE to Alibaba. Instead, I turned myself an Ali-er before I helped other Ali-ers develop and find out what’s the best for themselves.

Some people say that the new generation of Chinese entrepreneurs, such as  Robin Li at Baidu, Lei Jun at Xiaomi used to be either product manager or engineer. When they do business, they start from what customers want and make products quickly. In this process, not much attention is given to culture. What’s your opinion on that?

Different companies have different cultures and different ways to practice culture. But in essence, culture is a set of rules. A lot of people think culture means moral standards, but that’s an illusion.

Different founders have different preferences. For example, Pony Ma, the founder of Tencent, values products. He can talk with clients about products until early in the morning. But that doesn’t mean that he doesn’t care about rules. One manager has to manage several people. If he or she has to explain the same thing to everyone, the management cost will be high. As a result, there will be conflicts and frictions. But if everyone is on the same page, and people know instantly what you want on your first wink, then the management cost will be low.

At Alibaba, people understand what Jack Ma says in pretty much the same way. Back in 2005, however, when he invited me to help him consolidate Yahoo China, the 750 audience would have 750 different interpretations. Before that, Yahoo China had had several managements. This is a perfect example. Culture is not a set of moral standards to be imposed upon others. It is a set of rules of the game. When you have more than one set of rules in a company, there is no way you can manage your company well.

All companies have their rules of the game. The difference is some companies are more vocal whereas some are less so.


About innovation: “burning money” is to do quick “trial and error”

Compared with Alibaba, today’s Internet startups go much further in burning money. What’s your opinion on this crazy “mainstream” practice?

We have to look at “burning money” in a different way. China has tremendous innovation opportunities, because it has no historical baggage. E-commerce, for example, was a revolution to supermarkets and department stores. In China, this is nothing. Everyone is happy. But in Britain, you can’t allow this to happen. You can’t get rid of supermarkets and connect suppliers directly with buyers, although this will save costs.

Previously, in developed countries in particular, the innovation cycle was long. In China today, this cycle has been greatly reduced. It seems that people are burning money. But in fact, they are quickly do “trial and error”. Money becomes an accelerator. Those with money are willing to accelerate innovation. When Groupon was popular, there were more than 5,000 Groupon companies, each having a different trick. 5 years after trial and error, only the right methods have survived and the wrong ones have disappeared.

When you entered Alibaba, you went there as an “outsider”. But you also told Jack that you hope that you would be the last “outsider”, why? Would you suggest startups hire outsiders as senior management?

I have thought about this question long and hard. Those who were fired by Alibaba were very expensive. But we didn’t fire them because they were incompetent, but because they were too expensive. In addition, Alibaba had already figured out its own business model and was ready to scale. So the question was, to whom you want to give this opportunity to scale this business?

A start-up I am helping faced a similar problem. They had an opening for an important position and spent 1 million hiring an external manager. Yet two months later, they found that he was not a proper fit and had to let him go, spending once again a lot of money. But in fact, their external pick also paid a price.  Only two months into his new position, he had to find another job. It’s a lose-lose situation.

In fact, a lot of external managers choose to join for fame or fortune—higher salary, options or a higher position. Few do so for a greater ideal. So I think opportunities should be left to the team, and in particular, young people in the team.

You should close the door to outsiders and give instead young people in the team good training, opportunities to do things and experience, among other things.

A lot of Internet entrepreneurs have worked for Alibaba, Tencent and Baidu and some of them are quite successful.

Yes. These people are now in their 30s and scattered around the world. Some of them have founded their unicorn companies. So giving young people the opportunity to contribute is incredible drive .

If you have to hire outsiders, they must be specialized in something that neither you nor your team can do. But the core members of your team must be well versed in your business and corporate culture. Most of these people can be found within the company. Startups have to be aware of the need to have back-up talent and pass the business on. By putting a David Beckham on the bench, field players will feel the pressure to play well.


On competition: in global competition, you can’t focus only on business.

Is today’s Alibaba a “Top Multinational”? On the one hand, we see traditional IT companies such as Huawei facing numerous obstacles in entering overseas market, and on the other hand, the new generation of Internet companies, represented by Toutiao, Tencent and Alibaba are flourishing overseas. How do you predict the roles of Chinese companies in the international market and what strategies do you think they will take?

Alibaba is far from a top multinational. Even Jack Ma would agree with this. It’s dangerous to think that you are great or awesome.

What’s more, how do you define a multinational? Alibaba, and in particular Ant Financial, has clients all over the world. But if you look at foreign contribution to Alibaba’s revenues, the figure is still small. A lot of its overseas investments won’t produce results until some time later. Based on the two metrics, Alibaba is still at an early stage.

Chinese companies have tremendous opportunities overseas. For all the talks about China-US trade frictions, there are few actions. In doing business with each other, countries have to respect each other’s culture. Why could GE succeed in China? Because it not just focused on exporting or business itself. It understood the Chinese market and more importantly, the Chinese government.

With Chinese companies increasingly successful and changes of business environment, we see many that a foreign company suffers numerous setbacks and even fall into difficulty. Over the past 30 to 40 years, foreign companies have played a complex but fun role in Chinese economy. As someone who has personal experience of that part of history, how would you evaluate it? What’s your opinion on the mutual influence, interaction and competition between Chinese and foreign companies?

Foreign companies are experienced in building systems, something Chinese companies should learn. But now China is more innovative, because it’s not burdened by history. A lot of foreigners do not understand China, thinking that China has never stopped copycatting. But if they deal with Chinese entrepreneurs every day, they would know this is not true. A lot of companies that were seen as benchmarks of Chinese companies have either been defeated by their Chinese counterparts or have disappeared.

Today’s world is highly competitive, with new companies appearing on the scene every day. If you simply copy and paste what’s popular overseas to China, you are destined to fail. After you fail, you might complain the system being unfair or not transparent. But truth be told, companies fail because they don’t fully understand the Chinese market and their target clients. If the Chinese consumers really want something, they will find you. There is only one judge in the market—the consumers. The market is fair. Jack Ma said, Chinese middle class today are still interested in American consumer products and some lifestyle-related products are still quite attractive. Companies should find their own competitive edge, rather than trying to do what they are not good at.


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