Having run strategy and leadership development programs across the Fortune 1000 for over the past 25 years, I've seen lots of business models. As I highlighted in a prior article on The Future of Seamless Shopping, nothing currently parallels 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.
The principles that Amazon abides by and how you can adapt them for your business is the focus of a new book, The Amazon Management System by Ram Charan and his co-author, Julia Yang. To help any business emulate the success of Amazon in its own industry, the book breaks down Amazon's management system into six building blocks:
Building Block 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.
Building Block 2: Continuous Bar-Raising Talent Pool
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.
Building Block 3: AI-Powered Data and Metrics System
In most companies founded in the "pre-digital" age, data are scattered and fragmented within 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 suffer 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 detected, insights generated, and routine decisions automated. In this way, it provides the single source of truth and significantly minimizes the need for "personal supervision," thus enabling massive reduction in organizational hierarchy.
Building Block 4: Ground-Breaking Invention Machine
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. Amazon is exactly the opposite. Amazon's invention machine is continuous, accelerating, and aimed at generating ground-breaking, game-changing, and customer behavior-shaping inventions that create new market spaces and economic opportunities of massive magnitude.
Building Block 5: High-Velocity and High-Quality Decision-Making
Another systematic flaw with legacy management systems: decision-making happens at a glacial pace, with a "one-size-fits-all" approach applied to decision-making. All kinds of frustrations litter a typically lengthy approval process composed of numerous executives and committees, and decisions are further stalled by politics, backstabbing, and poor communication. Amazon's decision-making is high-quality, high-velocity, and strictly follows a set of clearly articulated principles and uniquely designed toolsets enforced with striking consistency throughout the organization. This can make the company a very demanding place to work, but it frees employees from many of the headaches of unclear decision-making processes.
Building Block 6: Forever-Day-1 Culture
As they get bigger, most legacy companies find they have long lost the initial speed, agility, and vitality commonly found in start-ups. They become rigid, slow, and risk-adverse. Their cultures lose that start-up mentality. Amazon, as an organization, is committed to build 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.
These building blocks aren't a one-size fits all formula. Every company culture is different. But one thing is for certain: Amazon's doing a lot right these days. Learn from them, and then innovate your own unique "Day 1" culture and business model.