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Daniel Zhang Yong, right, the chairman-in-waiting of Alibaba. Current Executive Chairman Jack Ma Yun, left, has "[been preparing] this succession plan for 10 years," he says.   © Reuters
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When the guru steps down: tech companies face the succession question

Jack Ma has been gradually handing power to Daniel Zhang for years

PALO ALTO, U.S./TAIPEI -- The task of finding a successor to the founder of a big-name American technology company has proved to be one of the most difficult management challenges in business.

Apple founder Steve Jobs was replaced twice -- once successfully, once not. Bill Gates' successor, Steve Ballmer, struggled to escape the shadow of the Microsoft founder. Other examples, notably the case of Google, have gone more smoothly.

In China, there are few, if any, precedents for the succession of Jack Ma Yun at Alibaba Group Holding. The charismatic Ma has embodied the country's entrepreneurial spirit, having built one of the world's most successful tech companies from scratch.

Now, Ma is preparing to hand the chairman role in September to Daniel Zhang Yong, who succeeded him as CEO in 2013. Analysts note that the Alibaba transition has been well-planned.

"Jack Ma is relatively down-to-earth when it comes to succession strategy, as he has already planned this for years," said Liu Ningrong, a professor and principal at the Institute for China Business at the University of Hong Kong. "Compared with other Chinese companies, Alibaba is relatively a more international company than all of its peers."

In a broad sense, Zhang's challenge will be similar to those of other tech chiefs who have stepped into the role occupied by company founders.

"For tech companies, you will need to make sure to keep the innovations going as the new CEO comes in," said Michael Ewens, associate professor of finance and entrepreneurship at California Institute of Technology.

Zhang is not only taking over the chairman role from Jack Ma, though. His tasks also include replacing Ma as the public face of China's biggest e-commerce company. Zhang is widely viewed as the more serious and reserved financial mind.

Brian Tayan, a corporate governance researcher at Stanford Graduate School of Business, says there is a risk in replacing a founder who has embodied a tech company.

"They've not only built the organization and its processes, but in many ways they have defined the culture by the leadership style they brought in growing the company," he said.

Another risk for an executive replacing a founder is the potential for a staff exodus.

"Founders' exits sometimes have a cascade effect of employment leaving the company, especially in the management level," Ewens said.

But in some cases of prominent public tech companies in the U.S., replacing the founder CEOs has helped take the companies to the next level.

Google, for example, put Eric Schmidt in the CEO role and made him the so-called "adult supervision" for Larry Page and his co-founder Sergey Brin. After 10 years in the role, Schmidt became executive chairman in 2011.

A less fit choice of successor, on the other hand, can undermine a promising company. After Jobs was ousted from Apple in 1985, his successor, former PepsiCo CEO John Sculley, presided over flops like the PowerPC and Newton. It was only after Jobs returned to the company in 1997 that it began to turn around. Tim Cook, who took over shortly before Jobs' death in 2011, has overseen a period of strong growth thanks to the iPhone.

But it is hard to tell whether a successor will be a Schmidt, a Cook or a Sculley in the first few years into the CEO role.

"You only know the relative success after he or she has had a chance to put their mark on the company, make investments or acquisitions to position it for the future, implemented plans to develop the internal procedures and, in some cases, add professionalism," Tayan said. "After that has played out, [you can] see how the company is performing."

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