10 Rules Behind Amazon’s Success You Can Use on Your Digital Transformation Journey
Since publishing my book The Amazon Way in June 2014, I’ve collaborated with hundreds of teams and leaders, applying lessons from the book to their cultures and businesses. What I didn’t expect was the feedback, the energy – and quite frankly, the frustration that accompanied the process of creating change when attempting to implement digital strategies.
Organizations want to innovate, move faster, operate better, break down bureaucracy, build new business models, and incorporate digital capabilities in everything they do but many don’t know where to start and how exactly make those goals a reality.
I believe Amazon offers a great example for companies to follow along their digitization transformation journey. Why? Because Jeff Bezo’s company not only continues to grow, it still innovates, experiments, makes big bets, pioneers new business models, demonstrates the advantages of scale, and, yes, even reports profitability.
Here are ten rules guiding Amazon’s digital transformation success that you can use as you implement digitization across your business, which also highlights what I’ve been hearing from leaders in all sorts of organizations bring about change spanning Internet of Things, Cloud Computing and Machine Learning.
10 Rules to follow from Amazon Digital Transformation Success
Create obsession about customers and about the right results
A single word can make a huge difference. Consider ‘’obsession’’ versus ‘’satisfaction.’’ Typical management strives to create and measure ‘’customer satisfaction.’’ They work to create a slightly more satisfied customer than the competitor and measure the experience in various ways. What if, instead, you ‘’obsessed’’ over your customers? What would you need to do to delight your customers (this includes internal customers) but do so with the same or improved cost and efficiency? You would likely have to change many things about business.
In so many industries, lots of companies are attempting great disruptions. At the center of successful disruption invariably lies great customer experience (think Uber.) When a disruption stalls, it’s often because the customer experience is not at the center of the solution.
Simplify, integrate and automate processes to scale your business
To delight your customers, make your service cheaper, faster, and of higher quality. Leaders at Amazon learn how to automate their processes and work to continually reduce manual steps, interventions and labor costs. Making your customer interactions self-service is the key strategy to accomplish this goal1. By pushing the boundaries of making your customer experiences real-time, automated and completely self-service, you will be forced to reengineer your internal processes. This will result in operational and quality benefits, in addition to the improved customer experience.
Enable accountability and manage dependencies
In The Amazon Way, I talk about the concept of “managing dependencies.” Part of a great lecture I heard at Amazon was, “It is not okay to fail because of a breakdown of dependencies. That’s a failure of leadership.” You are always dependent upon others in business – other teams, partners, vendors, products, services. The mentality of “managing your dependencies’’ is key to being a leader at Amazon. As I’ve been talking with leaders, this concept of ‘’managing dependencies’’ in an aggressive manner and far beyond a normal expectation really resonates. I am often asked how it’s accomplished. While there are many ways, start by asking a lot more and deeper questions than you normally do with your colleagues. Secondly, don’t just trust. Instead, trust and verify. When this becomes the norm in a company, then asking for details is no longer seen as a challenge to someone’s competency. Finally, create and manage service level commitments on all capabilities – and hold your partners accountable.
Develop platform strategies
Amazon is the market leader in cloud computing. Cloud computing frees companies from buying computers and hiring administrative staff to manage them. Instead, it allows them to rent and scale up or down on a dynamic basis. Amazon entered this business because they recognized that they possessed a core competency on computer infrastructure and that others might benefit from it. The benefit from Amazon is scale. They have also done this on many other functions. Fulfillment by Amazon – FBA – is an ‘’on-demand’’ use of Amazon’s fulfillment network and lets other businesses avoid the capital cost and operating complexity of warehouse and transportation networks.
Leaders should evaluate and ask two critical questions. First, what functions do we operate today that should convert to ‘’as-a-service’’ capability and leverage others’ capabilities? Second, do we have core competencies that we could let others leverage to create a new business opportunity?
Create small, independent teams to avoid bureaucracy
Bureaucracy is a killer to innovation, and high-performing employees are not attracted to companies or divisions in which they cannot make a difference. Small teams are one of the keys to avoiding complexity and attracting great talent at Amazon. The key to the small teams (six to ten people or smaller) is that they truly own something – a product or feature; a service like the checkout cart; or a process like the warehouse receive process. Each team defines its business plan, metrics, and product roadmap. This drives motivation and continuous improvement, while providing transparency and accountability for future investment and results. Evaluate your business and organization structure, and identify opportunity to create small, autonomous teams that are truly empowered to make a difference.
Learn how to create value and optimize customer experiences using the Internet of Things (IoT). Go behind the scenes at Amazon Web Services to understand how they are leading innovation initiatives with the IoT and how you can reinvent your company’s business models
It is all about technology but not about your IT department
Here’s the biggest surprise about Amazon – the centralized information technology group is relatively small, but the technology capability of Amazon is huge. Technology planning, architecting and development are dispersed across most teams at Amazon. There is a very small centralized technology function. Compare that with how most companies are set up with large centralized technology functions and business leaders who are not expected to understand, design or implement technology. The future will be won by companies that raise the technology capability closer to the customer with integrated technology and business teams.
Develop clarity and simplicity in what you are doing – and not doing
Michael Porter, Harvard professor of strategy, states that strategy can be defined as making trade-offs in competing and choosing what not to do. The fundamental mistake leaders make in developing digital strategies is not seeking clarity regarding the customer experience. What will delight the customer and force changes to those business practices that don’t add value to the customer but put incredible complexity on teams creating new technology? At Amazon, leaders write narratives of plans. They start with the end in mind via a future press release or deliberately assess how to measure long-term success of a capability or team. Begin with a clear, simple roadmap to the destination.
Experiment more through small bets
Executives talk about ‘’failing forward’’ and making bets. Most do not understand the essence of innovating or operate in an environment that gives permission or patience for this. What happens? Safe investments are proposed, really big monolithic projects get funded, and incremental changes occur. In the 2015 shareholder letter, Bezos called Amazon ‘’the greatest company to fail at.’’ Amazon is doubling its number of experiments and has a clear portfolio mentality between ‘’scaling investments’’ that have a clear ROI versus ‘’bets’’ that often fail. The strategy is to lay lots of bets at an affordable price.
Raise your ‘’Change IQ’’
The best part about working at Amazon is that everything is always on an improvement path. There is nothing static. Make it faster, add new features, do it cheaper, reduce errors, delight the customer – constant change. Operating well is now a necessity to compete. Every company has to be able to create continuous change and embrace continuous improvement. This is the Change IQ. Warren Buffet tells boards and CEOs to combat the ‘’ABCs’’ (arrogance, bureaucracy and complacency) into which successful businesses and teams fall. To avoid the ABCs, set the expectation and forcing functions to create a culture with a high Change IQ.
Why does Amazon create this perpetual environment of innovation and continuous improvement? They firmly believe that if you are not creating and managing digital disruption, you will be a victim of it. The speed of evolution in business is accelerating. The lifespan of companies on the S&P 500 Index is a great indication of this acceleration. Three out of four companies on the S&P Index are predicted to fall out of it in the next fifteen years. It is truly ‘’innovate or die.’’Ask yourself, ‘’How would our business and industry change if Amazon operated it?’’ You might come up with some surprising ideas.
In discussing why Amazon is always pushing to invent, Jeff Bezos told TV commentator Charlie Rose in a 2013 interview that ‘’companies have short life spans and Amazon will be disrupted one day. I don’t worry about it because I know it is inevitable. Companies come and go. Companies that are the shiniest and most important of any era, and you just wait a couple of decades and they are gone. I would love for Amazon’s disruption to be after I’m dead. Companies that don’t let the past models and successes define who they are will be the ones that span and define the next ones.
- “The Tide Has Turned: Nuance Research Finds Most Customers Would Rather Self-Serve over Speaking with a Live Agent,” May 10, 2012, Nuance Communications, Inc.
Further reading: Avoiding the ‘watermelon’ effect
This article was written by John Rossman, Best Selling Author And Expert On Digital Disruptive Innovation. John is at the forefront of digital disruptive innovation and is the author of “The Amazon Way: 14 Leadership Principles of the World’s Most Disruptive Company”.Originally this article was published here.