Why this book?
- In the digital age, your [senior executive] job content will change radically.
- Instead of spending most of your time supervising others and attending endless reviews, meetings, and committees, your job will be to study consumers directly (not through filters) and drive continuous innovation for them.
- Your job will require learning how to manage day-to-day operations by using data and metrics with digital tools, to hone your judgment, to make high-leverage decisions, to create mission-critical cross-functional teams with clear goals and specific outputs that innovate and deliver a better user experience, as well as to allocate resources and make mid-course adjustment in a timely fashion.
Building Block 1: Customer-Obsessed Business Model
- The three unmatchable and innate advantages of the Internet
- unlimited selection
- unfiltered customer reviews
- ultimate personalization
- “One thing I love about customers is that they are divinely discontent. Their expectations are never static – they go up. It’s human nature.”
- Amazon is all about platform and infrastructure. So it is, in essence, a scale business characterized by high fixed costs and relatively low variable costs.
- Data is the new equity in the digital age. From customers’ data and behavioral analysis, new needs can be identified, better services and experiences can be created, and thus more revenue streams can be generated, which further expands the scale, lowers the cost, and increases the return.
- A business model without the right management system won’t fly.
Building Block 2: Continuous Bar-Raising Talent Pool
- “It’s better to let the perfect person go than to hire the wrong person and to deal with the ramifications.”
- Once a year, we offer to pay our associates to quit. The first year the offer is made, it’s for $2,000. Then it goes up one thousand dollars a year until it reaches $5,000.
- “Builders are people who are curious, explorers. They like to invent. Even when they’re experts, they are ‘fresh’ with a beginner’s mind.
- Leaders are owners. They think long-term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say, “that’s not my job.”
- Executives must:
- Hire and develop the best
- Exercise frugality
- Dive deep (by investing personal time & energy to stay connected to the details)
- Have backbone; disagree and commit
- Deliver results:
- The most successful are those who can excel in the pressure cooker, week in and week out, shaking off the occasional failure and the subsequent tongue-lashing, put their heads down, and keep on driving.
- Without exception, there will be a bar raiser among all interviewers whom a candidate will meet during the recruiting process. Bar raisers are usually assigned to recruiting outside their own businesses, so that they could stay independent from urgent business need.
- After the final decision is made, and the new hire gets on board, the interviewers and the bar raiser are still not off the hook.
- At Amazon, the majority of compensation is instead stock based. The vesting period is also heavily tilted towards the long term: 5% for the first year, 15% for the second year, and 20% each for the next four half-year periods.
- “I cant think of another place… that thinks long-term rather than optically for a quarter, or that looks at an area of business (or customer experience) and doesn’t let itself get blocked by existing convention, or that gives people who deliver a chance to try any new entrepreneurial venture that makes sense regardless of their experience level in that area.” – Andy Jassy, 2013
- “Leaders have relentlessly high standards”
Building Block 3: AI-Powered Data and Metrics System
- “I try to organize my personal time so that I live mostly about 2 to 3 years out.” – Jeff Bezos
- “The answer [to any question Bezos throws at you] starts with a number!”
- Amazon nailed down 452 detailed goals for 2010, as stated in Bezos ’ 2009 Shareholder Letter. But goals, by themselves, are not enough. Amazon also specified owners, deliverables, and targeted completion dates for each.
- To ensure good outputs, one needs to get to the bottom of the issue and seriously track the inputs.
- At Amazon, each claim needs to be supported by data and metrics.
- Amazon’s Leadership Principle of Dive Deep declares that: Leaders operate at all levels, stay connected to the details, audit frequently, and are skeptical when metrics and anecdotes differ.
- A [strong] data and metrics system significantly minimizes the need for physical supervision.
- Amazon also has business review meetings, but with two key differences from most traditional companies.
- One is cadence: Amazon’s review is on a weekly or bi-weekly basis.
- The other is focus. Instead of focusing on historical performance and having each executive or manager do lengthy presentations, Amazon’s review focuses more on how to solve particular customer problems and how to design and implement experimentations to improve, innovate, and invent.
Building Block 4: Ground-Breaking Invention Machine
- Companies that innovate within their existing competencies are doomed to fail; innovation means building new competencies.
- If you don’t dare to kill your own business, others will.
- Unless you can make peace with the possibility of large-scale failure (large-scale risk-taking implied), large-scale success will not come.
- “Simple is the key to easy, fast, intuitive, and low-cost.”
- It all starts with the press release, an internal document that looks at what the future would be like with the successful execution of the idea being proposed.
- Amazon has a well-known approach to drive project development: the two-pizza team, or as Amazon refers to it, 2PT. The 2PT teams refer to “autonomous groups of fewer than ten people who are cross-functional, full-time, and co-located.
- At Amazon, the project team is held accountable end-to-end (e2e), meaning their ownership extends all the way from concept, to design, to development, to testing, to launch, and to post-launch operation.
Building Block 5: High-Velocity and High-Quality Decision-Making
- Type 1 decisions refer to those that are consequential and irreversible or nearly irreversible
- Focus on a few Type 1 decisions – “As a senior executive, you get paid to make a small number of high-quality decisions. Your job is not to make thousands of decisions every day.”
- Type 2 decisions refer to those that are changeable, reversible. With Type 2 decisions, speed matters
- “Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow.
- At Amazon, each operation has a set of metrics to ensure operational excellence, and each metrics has one designated metrics owner.
- Unfettered by the status quo, he envisions the future and then works backwards to create a strategy to make it happen, by asking the obvious but commonly neglected question: how will it change?
- He places huge emphasis on fighting conformity, challenging group thinking, and resisting the overrated importance of harmony.
- He expects people to challenge him.
- “When I’m 80, I want to have minimized the number of regrets that I have in my life. And most of our regrets are acts of omission, they’re things we didn’t try, it’s the path untraveled.” – Bezos
- “If you’re good at course correcting, being wrong may be less costly than you think.”
- “Great memos are written and re-written, shared with colleagues who are asked to improve the work, set aside for a couple of days, and then edited again with a fresh mind. They simply can’t be done in a day or two.”
- Nearly every meeting at Amazon starts with attendees sitting in silence and reading the narratives for 15-30 minutes.
- At Amazon, a meeting rarely ends without clear decisions or specific actions.
Building Block 6: Forever-Day-1 Culture
- The Defense of a Day-1 culture includes:
- True customer obsession
- Resist proxies (ex: Processes should be means to an end, not ends unto themselves).
- Embrace external trends
- High-velocity decision making
- Bezos is particularly vigilant in eschewing middle management, as he believes bureaucracy-loving C-and D-players usually reside there.
- “Whenever possible, take over the dependencies so you don’t have to rely on someone else. If that is impossible, negotiate and manage unambiguous and clear commitments from others. Create hedges wherever possible. For every dependency, devise a fallback plan.”
- Amazon’s mission is: “We strive to offer our customers the lowest possible prices, the best available selection, and the utmost convenience.”
- Amazon’s vision is: “To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online.”
- Amazon uses a set of 14 Leadership Principles to define its corporate culture. For each leadership principle, Amazon specifies the expected behavior.
- Customer Obsession: Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.
- Ownership: Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say “that’s not my job.”
- Invent and Simplify: Leaders expect and require innovation and invention from their teams and always find ways to simplify. They are externally aware, look for new ideas from everywhere, and are not limited by “not invented here.” As we do new things, we accept that we may be misunderstood for long periods of time.
- Are Right, A Lot: Leaders are right a lot. They have strong judgment and good instincts. They seek diverse perspectives and work to disconfirm their beliefs.
- Learn and Be Curious: Leaders are never done learning and always seek to improve themselves. They are curious about new possibilities and act to explore them.
- Hire and Develop the Best: Leaders raise the performance bar with every hire and promotion. They recognize exceptional talent, and willingly move them throughout the organization. Leaders develop leaders and take seriously their role in coaching others. We work on behalf of our people to invent mechanisms for development like Career Choice.
- Insist on the Highest Standards: Leaders have relentlessly high standards – many people may think these standards are unreasonably high. Leaders are continually raising the bar and driving their teams to deliver high-quality products, services, and processes. Leaders ensure that defects do not get sent down the line and that problems are fixed so that they stay fixed.
- Think Big: Thinking small is a self-fulfilling prophecy. Leaders create and communicate a bold direction that inspires results. They think differently and look around corners for ways to serve customers.
- Bias for Action: Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking.
- Frugality: Accomplish more with less. Constraints breed resourcefulness, self-sufficiency, and invention. There are no extra points for growing headcount, budget size, or fixed expense.
- Earn Trust: Leaders listen attentively, speak candidly, and treat others respectfully. They are vocally self-critical, even when doing so is awkward or embarrassing. Leaders do not believe their or their team’s body odor smells of perfume. They benchmark themselves and their teams against the best.
- Dive Deep: Leaders operate at all levels, stay connected to the details, audit frequently, and are skeptical when metrics and anecdote differ. No task is beneath them.
- Have Backbone, Disagree and Commit: Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.
- Deliver Results: Leaders focus on the key inputs for their business and deliver them with the right quality and in a timely fashion. Despite setbacks, they rise to the occasion and never settle.
- Amazon has created a system of simple but effective forcing mechanisms to ensure that everyone in the organization really lives and breathes the stated values and principles.
- Every week, Bezos asks his executives the same question: what can we do better for the customers.
- “Our pricing objective is to earn customer trust, not to optimize short-term profit dollars.”