Friday, December 27, 2019

6 Building Blocks Make Amazon A Global Market Leader

Amazon-logoEvery new business dreams of growing from a startup to a global market leader in a few years, like, but that goal is elusive. As a mentor to entrepreneurs, I often get asked for the magic that has made Amazon the world's most valuable brand, from a total unknown only twenty years ago. My simple answer is that they keep their focus on customers, rather than technology.

Thus I was pleased to see the evidence confirming that perspective in a new book, “The Amazon Management System,” by Ram Charan and Julia Yang. They present a convincing story that every entrepreneur has the same potential, but most get sidetracked and bogged down by their technology, competitors, and internal organization. Jeff Bezos has kept his focus on customers.

Of course, it’s never quite that simple, but I really like the authors outline of the six key building blocks that have driven Amazon growth since their early days, to keep their current market value hovering around a trillion dollars. In my view, every startup in today’s world would do well to adopt a management system with the same key objectives:

  1. Start with a customer-obsessed business model. At Amazon, Jeff Bezos leads a relentless drive to invent dramatic new ways to delight customers, not waiting for customer demands or competitors to show the way. These days, speed of delivery, rate of change, and automation are key, so these elements get attention for every customer.

    For example, when delivery costs and delays were still a major online sales hurdle, Amazon Prime membership was invented to offer free next day shipping. It has proven to be a huge customer growth engine, and now has over 100 million members globally.

  2. Practice continuous bar-raising for your talent pool. Contrary to popular belief, I’m convinced that business success is more of function of the right people, rather than the right idea. Amazon extends this concept to continuously and proactively seek better talent as they learn more from results. They find more and better owners and builders.

    In their recruiting process, they actually have a key insider designated as a “bar raiser” involved in ever interview, to make sure that the bar is never lowered due to any bias or pressing business urgency. They help hiring managers raise the bar for every interview.

  3. Incorporate AI-powered data and metrics systems. Jeff Bezos is a man of numbers, and he deals in large volumes, with quick turnaround, so he relies on the latest data technology. While others level off with a certain level of automation, Amazon continuously raises the bar on data analysis, just like they do on talent, and measure the return.

    When they need a new fulfillment center, they pick the best location by simulating all the orders and predicting an optimum location. Their pricing algorithm crawls the Web daily, and adjusts prices to always match the lowest price found anywhere, offline or online.

  4. Make your company a ground-breaking invention machine. Most entrepreneurs who have built thriving companies settle into a protective and defensive mindset, clinging to core competencies of the past. New inventions bring risk and cost, and they don’t see other companies using them until it is too late. The cost of being late is hard to recover.

    For example, few consumers recognize that Amazon has a subsidiary, Amazon Web Services (AWS), that has invented over 165 computing services for business customers, including new ones every month, that have become crucial to its continued growth.

  5. Insure high-velocity and high-quality decision-making. Bezos categorizes all decisions into two types: 1) Those that are irreversible – requiring deliberation and consultation, and 2) changeable, reversible –best made quickly by high judgment small groups or individuals. Most decisions fall in group two, and Bezos stays out of this loop.
  6. Forever reinforce and espouse your Day-1 culture. Normally, in the beginning most organizations function with speed, nimbleness, and a risk-acceptance mentality. Later, complexity and layers creep in, characterized by slowness, rigidity, and risk aversion. Bezos sees Day-2 thinking as leading to stasis, irrelevance, decline, followed by death.

In my view, Amazon illustrates that the world of business management has evolved, from command and control being dominant, to one designed for speed, agility, and scale in serving customers. Customers are now the drivers of your ability to survive and thrive in business.

People at the top and all levels, like Jeff Bezos, with an understanding and commitment to these values, are the key to success in every company today, more so than any management and delivery system. As an entrepreneur, how well do your values align with these? Your future satisfaction and success likely depends on your answer.

Marty Zwilling

*** First published on on 12/12/2019 ***



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