Saturday, October 27, 2007

Making Decisions

The Institutional Yes
How Amazon’s CEO leads strategic change in a culture obsessed with today’s customer.

An Interview with Jeff Bezos by Julia Kirby and Thomas A. Stewart

There was an excellent article in HBR’s October 2007 edition that interviews Jeff Bezos, the founder and CEO of Amazon. They have been hugely successful in growing their business organically. I will excerpt the article over the next few postings, highlighting issues I feel are critical to drive organic growth from a leadership perspective.


How do you have the confidence that an investment will ultimately pay off?

It helps to base your strategy on things that won’t change. (Potentially counterintuitive but very powerful) When I’m talking with people outside the company, there’s a question that comes up very commonly: “What’s going to change in the next five to ten years?” But I very rarely get asked “What’s not going to change in the next five to ten years?” At Amazon we’re always trying to figure that out, because you can really spin up flywheels around those things. All the energy you invest in them today will still be paying you dividends ten years from now. Whereas if you base your strategy first and foremost on more transitory things—who your competitors are, what kind of technologies are available, and so on—those things are going to change so rapidly that you’re going to have to change your strategy very rapidly, too.

What are some of the things you’re counting on not to change?

For our business, most of them turn out to be customer insights. Look at what’s important to the customers in our consumer-facing business.
They want selection, low prices, and fast delivery. (The fundamental decision criteria mentioned in the first posting. This is one of the most powerful things leaders can do in setting direction. Its very simplicity makes it powerful and compelling!) I can’t imagine that ten years from now they are going to say, “I love Amazon, but if only they could deliver my products a little more slowly.” And they’re not going to, ten years from now, say, “I really love Amazon, but I wish their prices were a little higher.” So we know that when we put energy into defect reduction, which reduces our cost structure and thereby allows lower prices, that will be paying us dividends ten years from now.(the application of processes like 6 Sigma create competitive separation in this context) If we keep putting energy into that flywheel, ten years from now it’ll be spinning faster and faster.

Another thing that we believe is pretty fundamental is that the world is getting increasingly transparent—that information perfection is on the rise. If you believe that, it becomes strategically smart to align yourself with the customer. You think about marketing differently. If in the old world you devoted 30% of your attention to building a great service and 70% of your attention to shouting about it, in the new world that inverts. A lot of our strategy comes from having very deep points of view about things like this, believing that they are going to be stable over time, and making sure our activities line up with them. Of course there could also come a day when one of those things turns out to be wrong. So it’s important to have some kind of mechanism to figure out if you’re wrong about a deeply held precept.

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