You are right about special challenges of managing Real Madrid which is much tougher than other clubs. Xabi Alonso past as player there would be huge plus. He already understand club culture how locker room works and intense pressure from fans and media. Instead of this he will not go blindly he know how to handle big personalities and high stakes building respectful team based on his shared experiences and knowledge of Madrid way.
That's an advantage Xabi Alonso has because he knows the club well, but I think it's difficult to achieve success without good squad depth. Having so many great players can also make things difficult for a coach because sometimes their egos are too high, so a firm coach can make them prioritize the club over their individual egos. If Xabi Alonso can manage each player well, then the chances of achieving success are much greater. Important decisions sometimes have to be made more quickly because success is inseparable from the cooperation of the entire team.