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How Amazon Innovates – to win in the digital age



Nobody matches Amazon when it comes to innovation. Amazon’s management system is designed for speed, agility, and scale. The result – a continuous stream of forward-thinking innovation and relentless growth based on the following –

1. Customer Obsessed Business Model

Despite most companies’ commitment to putting the customer first, they actually operate quite differently: they tend to be competition centric. Leaders pay huge amount of attention to financial results, especially earnings per share, and dance to the quarter-by-quarter short-term rhythm set by the capital market. Amazon’s business model, on the contrary, is customer-obsessed, built on novel concepts of platform, ecosystem and infrastructure, able to defy traditional laws of diminishing returns, and delivers increasing cash flows and higher return on investment.

2. Continuously Raising the Bar on Talent

Most traditional companies spend enormous amounts of money on recruiting, developing, and retaining talent, and yet still encounter huge difficulty in finding the right people and deploying them in the right jobs. When it comes to recruiting, for example, many companies lack specific standards, and even if there are standards, they will often be compromised when challenged by pressing business urgency. Amazon’s talent pool is carefully defined, meticulously documented, and rigorously chosen; and coupled with complete end-to-end follow-through and feedback to ensure continuous bar-raising, both for the talent pool itself and for the self-reinforcing mechanism of talent acquisition and retention.

3. AI Powered Data and Metrics

In most companies founded in the “pre-digital” age, data is scattered and fragmented in different silos, layers, and business units producing significant latency of weeks and months. People seeking a full picture of what is really happening in any day-to-day operation must spend intensive efforts involving many people, and endure long wait times, in order to dig beneath the results on the surface. Amazon leverages modern technology to run day-to-day operations differently. Amazon’s data and metrics system is ultra-detailed, cross-silo, cross-layer, end-to-end, real-time, input-oriented and AI-powered; therefore, everything can be tracked, measured, and analyzed in real time with anomaly detection, insights generated, and routine decisions automated. In this way, the system provides the single source of truth and significantly minimizes the need for “personal supervision,” thus enabling massive reduction in organizational hierarchy.

4. Continuous Disruptive Innovation

Most companies have built their success on an original innovative product or service. After that defining moment, growth occurs and people become complacent with minor improvements (ie: incremental or sustainable innovation). Amazon is exactly the opposite. Amazon innovates continuously, accelerating, and aimed at generating ground-breaking, game-changing, and customer behavior-shaping disruptive innovations – that create new market spaces and economic opportunities of massive magnitude.

5. High Velocity , High Quality Decision Making

A huge issue impeding change in many enterprises is decision-making typically occurs very slowly with established processes resulting in a “one-size-fits-all” approach. Further, for important decisions, there are all kinds of frustrations littering a typically lengthy approval process composed of numerous executives and committees with delays or diversions caused by politics, backstabbing, and poor communication. In contrast, Amazon’s decision-making is high-quality, based on high-velocity that strictly follows a set of clearly articulated principles and uniquely designed toolsets with consistency throughout the organization. While this can make the company a very demanding place to work, it removes many of the issues with traditional, long in the tooth decision-making processes.

6. Forever Day 1 Culture

As an organization gets bigger, Enterprises find there is typically a loss of speed, agility, and vitality commonly found in young companies. Further, enterprises typically become rigid, slow, and risk-adverse as the culture loses the start-up mentality. In contrast, Amazon, as an organization, is committed to having a “forever day 1 culture” that works to combine the size and scale advantages of a big company with the speed and agility of a startup – including the same excitement, motivation and feeling of ownership that characterizes the first day the company was founded.

Conclusion

These and other principles are critical for an organization to increase revenue and relevance – in an increasingly on-line, real-time, all-the-time world with expanding business demands, rising User expectations, shorter windows of opportunity, delivering new information services having high value and stickiness, being sophisticated in perceiving and managing risk, skilled in monetizing value creation, etc. These attributes are essential to innovating for impact – to expand opportunities, meaningfully improve business outcomes, and create significant wealth for stakeholders. And while every organization is different and recognizing the challenges with changing entrenched processes and the modus operandi, it’s different now. How different ? Given the success of Amazon, Apple, Uber, Airbnb, Netflix and many other large technology based companies – it’s very different now – especially if one of them enters your market or changes the game ! Because of this, for an enterprise to be successful going forward, it’s important to learn from digital companies and others who are making innovation more rewarding – by adapting and expanding comfort zones to be more curious and open minded as well as entrepreneurial and moving to a new business model. Interesting stuff if your future oriented. Or for an enterprise trying to preserve the status quo, a nightmare in the making.

For further insights on increasing the rewards from innovation, the principles of how Amazon operates, and insights on adapting them for your business – see the new book The Amazon Management System by Ram Charan and Julia Yang.

 

Feb 13, 2020                by Soren Kaplan / CAIL Innovation commentary                     info@cail.com

 

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