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The Amazon Way

    The Amazon Way: 14 Leadership Principles Behind the World’s Most Disruptive Company
    by John Rossman

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    Reviews: Goodreads

    Book Summary

    Ch 1: Obsess Over the Customer

    Leaders at Amazon start with the customer and work backwards, seeking continually to earn and keep the customer’s trust. Although leaders pay attention to their competitors, they obsess over their customers.

    Jeff had profoundly internalized two truths about customer service: 

    1. When a company makes a customer unhappy, she won’t tell a friend, or two, or three… she’ll tell many, many more.
    2. The best customer service is no customer service—because the best experience happens when the customer never has to ask for help at all. 

    The Flywheel Effect

    How an improved customer experience and customer growth feed one another in a virtuous cycle

    The Holy Trinity

    A wide selection and fast, convenient availability with great delivery and service are equally critical elements of long-term customer needs. Price, selection, and availability… these are the three durable and universal customer desires that Amazon thinks of as its holy trinity.

    • Price: Amazon’s low-price strategy is well documented. For nearly two decades, Jeff has proven that he is willing to make less on an item—or an entire line of products— in the short term to guarantee the long-term growth of the business. Yet Jeff’s obsession with pricing knows no bounds.
    • Selection: From the beginning, Jeff Bezos’s goal was to make Amazon a source for virtually anything a customer might want to buy, starting with an unmatched assortment of books and other media products and then expanded to include a practically unlimited array of goods.
    • Availability: Any time Amazon takes a customer order, it offers a projected arrival time for the package using the Amazon-speak term “the Promise.” Why the heavy language? Because Jeff knows that in business, there are heavy consequences for those who don’t have an item or can’t get it to a customer quickly. Woe to those who fail to honor any element of the holy trinity—including convenient, timely availability.

    Serving the Customer: The Andon Cord

    The Andon Cord is not a unique Amazon concept; it is an idea borrowed from Japanese lean manufacturing: The andon cord is literally a cord that workers can pull – a cord they should pull – any time something in the manufacturing process goes wrong that would compromise the quality of the product or safety of the people. The line stops immediately.

    Amazon literally has jobs titled “Senior Product Manager, Andon Cord,” whose role is to build cross organizational process and systems that detect and “pull the Andon Cord” when defects occur. It’s a form of real-time instrumentation to detect errors and force teams to fix them.

    The Voice of the Customer as a Driver of Innovation

    In the early days of Amazon, Jeff Bezos would bring an empty chair into meetings as a constant reminder to his team that the customer, even though she might not be physically present in the room, still needed to be constantly acknowledged and heard.

    Jeff requires all of his managers to attend two days of call-center training each year. the resulting sense of understanding and empathy for the customer trickles up into the very highest echelons of the organization.

    Jeff has invested millions to construct systems that monitor the online feedback Amazon.com receives from its customers. For example, during my time heading up the third-party marketplace, we established an internal email system that facilitates and monitors conversations with customers and retailers, uses metrics to track customer complaints about third-party retailers, and implements a fulfillment capability (Fulfillment by Amazon) which lets merchants easily leverage Amazon.com’s distribution channels.

    The history of the company is studded with innovative triumphs driven by customer obsession:

    • Look Inside The Book
    • Amazon Prime

    “If you’re competitor-focused, you have to wait until there is a competitor doing something,” Jeff explains. “Being customer-focused allows you to be more pioneering.

    Ch 2: Take Ownership of Results

    Leaders at Amazon are owners. They think long term, and they don’t sacrifice long-term value for short-term results. They never say, “That’s not my job.” They act on behalf of the entire company, not just their own team.

    One of the biggest mistakes you can make as a leader at Amazon.com is sacrificing long-term value for short-term results. Jeff wants his people to approach every business situation as an owner, not a renter.

    How does Jeff build and maintain this sense of ownership among his team members?

    • Hiring the right people: The company has built an effective and scalable system for recruiting, managing, and developing high-performing talent.
    • Accountability: Another way is by instilling a sense of accountability throughout every stratum of the organization. As co-owners of Amazon.com, every employee must be unflinching in his accountability and honesty.
      • Yes, It Is Your Job: Amazon.com employees quickly learn that the phrase “That’s not my job” is an express ticket to an exit interview. Ownership means not only mastering your domain, but also being willing to go beyond the boundaries of your role whenever it’s needed to improve customer experience or fix a problem.
      • You Own Your Dependencies: At Amazon, one of your primary directives is to identify and tenaciously manage every potential business-derailing dependency you have. It is not okay to fail because of a breakdown of dependencies. That’s a failure of leadership. In that 2003 S-Team meeting, Jeff broke down the process of managing dependencies in three easy steps (while, of course, yelling and wildly gesticulating like a madman):
        1. Whenever possible, take over the dependencies so you don’t have to rely on someone else.
        2. If that is impossible, negotiate and manage unambiguous and clear commitments from others.
        3. Create hedges wherever possible. For every dependency, devise a fallback plan—a redundancy in a supply chain, for example.
    • Compensation Rewards Long-Term Thinking: Amazon just prefers to reward employees with stock options rather than salary or cash bonuses.

    Ch 3: Invent and Simplify

    Leaders at Amazon expect and require innovation and invention from their teams and always find ways to simplify the processes they touch. They are externally aware, look for new ideas from everywhere, and are not limited by “not invented here” thinking. And they are willing to innovate fearlessly despite the fact that they may be misunderstood for a long time.

    Jeff understands the same thing that Steve Jobs did: the best design is the simplest. Simple is the key to easy, fast, intuitive, and low-cost. Simple scales much better than complex,

    At Amazon, your job description is never limited to simply running things. No matter what your job, you are expected to improve on the processes in ways that ultimately enhance the customer experience and/or lower costs.

    Simplification Epitomized: Amazon’s Platform Businesses

    My time at Amazon.com made me a big believer in the power of process automation to make workflows simpler and more productive. When a process is automated, it’s not only easier to scale but also simpler to measure; while manual effort, even when it begins at a seemingly insignificant level, can evolve into an expensive, non-scalable, and non-real-time capability. That is why automation, algorithms, and technology architecture are the engines behind game-changing platform businesses such as Kindle, Amazon Mechanical Turk, Third-Party Sellers, Fulfillment by Amazon, and Amazon Web Services.

    I am emphasizing the self-service nature of these platforms because it’s important for a reason I think is somewhat non-obvious: even well-meaning gatekeepers slow innovation. When a platform is self-service, even the improbable ideas can get tried, because there’s no expert gatekeeper ready to say, “that will never work!” And guess what—many of those improbable ideas do work, and society is the beneficiary of that diversity.

    Technology makes the platform possible. But algorithms, automation, workflow, and technology are only part of how Amazon is inventing and simplifying. More important is the fact that capabilities are designed from the user backwards.

    Process vs. Bureaucracy

    Notice that the two halves of the principle—invent and simplify—are both equally necessary. Process innovation can be enormously powerful, but when it is practiced with- out an emphasis on simplicity, the result is bureaucracy.

    “Good process is absolutely essential. Without defined processes, you can’t scale, you can’t put metrics and instrumentation in place, you can’t manage. But avoiding bureaucracy is essential. Bureaucracy is process run amok.”

    As you work to invent and perfect processes, always remember that simplicity is an essential bulwark against the creeping onslaught of bureaucracy.

    Forcing function

    One of Jeff ’s favorite techniques is to create a forcing function—a set of guidelines, restrictions, or commitments that force a desirable outcome without having to manage all the details of making it happen. Forcing functions are a powerful technique used at Amazon.com to enforce a strategy or change.

    One example of a forcing function was the concept of direct vs. indirect headcount. The forcing function was that acquiring direct head- count was relatively easy to get approved. However, indirect head count was constrained and had to be justified by demonstrating that it would decrease with scale in the business.

    Examples of Invent and Simplify

    • Other People’s Work and The Mechanical Turk. Even Amazon.com can’t automate everything. One of my favorite strategies for dealing with this fact is the mobilizing of Other People’s Work (OPW). In many cases, the best way to scale an unavoidable residue of manual labor is to enable and motivate other people to do it. 
    • Third-Party Sellers: Inventing a Platform and Making It Simple.
    • Fulfillment by Amazon: With FBA, sellers are able to piggyback on arguably the most powerful retail brand in the world. A great new flywheel! 
    • Amazon Web Services: It is a prime example of Jeff’s “invent and simplify” principle. AWS offers companies technologies and capabilities that provide the ability to grow infrastructure instantaneously and to shrink it back if the need diminishes. This elasticity in resource usage gives companies momentum on a vast new scale. 

    Imitate the Competition, and Don’t Be Afraid to Fail

    • In business, innovation is great—but it’s clear that in many high-risk fields, mimicry pays off even better. Let the other guy originate the idea, invest the capital, discover a market, and develop operating processes. Then slide in, steal the blueprint, improve upon it, and scale it until the other guy has been left in the dust.
    • Don’t be afraid to fail; some of the best ideas at Amazon have emerged from the ashes of defeat. Jeff likes to say “Failure happens.” Stumbles are a part of life, but at Amazon. com it is imperative that you learn something useful from them. 

    Ch 4: Leaders Are Right—A Lot

    Leaders at Amazon are right—not always, but a lot. They have strong business judgment, and they spread that strong judgment to others through the utter clarity with which they define their goals and the metrics they use to measure success.

    Make no mistake; there is a high degree of tolerance for failure at Amazon.com. A successful culture of innovation cannot exist without it. But what Jeff Bezos cannot tolerate is someone making the same mistake over and over again, or failing for the wrong reasons.

    The resulting culture of learning, growth, and account- ability would be impossible without a high premium on clarity—clarity in the setting of goals, the communication of those goals throughout the organization, the establishment of metrics, and the use of those metrics in gauging the success or failure of any initiative. 

    PowerPoint: At Amazon, PowerPoint slides were not allowed. If you needed to explain a new feature or investment to the S-Team or Jeff himself, you began by writing a five to seven page essay. After you finished that, you reviewed it and trimmed it down to maybe two pages of text for the executives.

    The Future Press Release: An Amazon product launch almost always begins with what we used to call a future press release—an announcement of the product written before its development even began, used for internal purposes only. Crafting the future press release forced us to articulate for ourselves what would be newsworthy about the product at the very end of the development process.

    Gladiator culture: Because the numbers provide crystal-clear, incontrovertible proof of which leaders are right a lot, Amazon.com operates to as close to a true meritocracy as possible. I cannot overstate how important this is for minimizing bureaucracy in the organization.

    Metrics

    • Repeatable, consistent performance reflected in metrics is the gold standard for success at Amazon. Without access to a consistent set of metrics, an Amazon.com leader would be flying blind, and such risky behavior is not acceptable at the company.
    • In this day and age, you need real-time data, real-time monitoring, and real-time alarms when trouble is brewing—not lag-time metrics that hide the real issues for 24 hours or longer. Your business should operate like a nuclear reactor. If a problem arises, you need to be aware immediately.

    Amazon.com has what I would call a two-strike culture. Leaders are expected to be right—a lot. They are encouraged to take risks, but they must be calculated risks. And a leader cannot completely blow it very often before being shown the door.

    Ch 5: Hire and Develop the Best

    Leaders at Amazon 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.

    A typical interview day at Amazon can last nine hours. You may find yourself speaking to a group of people who will be working for you if you are hired. You may find yourself sitting in on a strategic meeting with company brass. You may be expected to contribute a solution to a real-time problem. You may even be shown the door before you ever get started.

    Jeff often says, it’s better to let the perfect person go than to hire the wrong person and have to deal with the ramifications. Why? Because it is a difficult, time-consuming, and expensive process to get rid of a bad hire—and in the meantime, they are dragging down those around them by their failure to help keep the flywheel of continuous growth and improvement humming at full strength.

    Raising the Bar on Hiring: The bar raiser is an individual appointed to serve as the last line of defense to ensure Jeff ’s standards of excellence. The bar raiser has veto power over any potential hire—regardless of the candidate’s pedigree or his popularity among the rest of the hiring group. The bar raiser’s job is to ensure that the next hire should increase the company’s collective IQ , capacity, and capability—not decrease it. 

    Our custom recruiting application, which forced every interviewer to provide a lengthy, narrative analysis of the candidate and a yes-or-no recommendation (with no “maybe” option available). Your notes were expected to be detailed enough to justify your answer; the after-interview questioning could almost be as intense and consuming for the interviewer as it had been for the interviewee. The data was then immediately processed and applied to the next round of interviews.

    It was an absurdly rigorous process, one that would be considered wildly excessive at almost any other company. But if you really believe that your people are your company, why not invest the time and effort required to identify and hire only the very best?

    At Amazon.com, the vast majority of stock options go to the A+ employees; only the crumbs go to the B and C players. And since the salaries were, relatively speaking, quite low (I think the top salary at the time was $155k), a vast majority of our compensation came in the form of stock. So being “a solid B” meant a significant falloff in stock options and promotion opportunities.

    Ch 6: Insist on the Highest Standards

    Leaders at Amazon set high standards—standards that many people consider unreasonably high. Leaders are continually raising the bar and driving their teams to deliver an ever-increasing level of quality. Leaders also ensure that the few defects that elude the quality process do not get sent down the line, and that problems are fixed so they stay fixed.

    Most of the principles refer to the expectations that Amazon has for leaders. It sends a subtle but powerful message that empowers every Amazon.com employee to act and think like a leader. When everyone behaves like a leader, it acts as a forcing function for the relentlessly high standards that Jeff insists upon.

    Service Level Agreements (SLA)

    • At Amazon.com, SLAs are used to define expectations for the services provided to both external and internal customers.
    • Because bad customer experiences are simply not acceptable at Amazon.com, SLAs are written in such a way that the worst experiences are still very, very good compared to the rest of the industry. When you settle for the median, mediocrity sets in. Jeff relentlessly conveys to his team that even small service failures are far from trivial. 
    • What’s probably most impressive is that everything at Amazon.com has an SLA—everything. 
    • This dedication to real-time metrics and SLAs is one of the most unique aspects of Amazon.com. 

    Ch 7: Think Big

    Thinking small is a self-fulfilling prophecy. Leaders at Amazon create and communicate a bold direction that inspires results. They think differently and look around corners for big new ways to serve customers.

    Leaders create and communicate a bold direction that inspires results. As I’ve explained, my challenge was to design and operate a capability that would allow third parties to sell at Amazon—not for 10 or 100 users but for tens of thousands. With that kind of scale in mind from day one, based on a vision that is massive, you’re willing to invest in a way that you wouldn’t with a modest vision of incremental change. This is one of Amazon’s secret sauces—to think about the vast potential of a project from day one and create an inspired team that owns that. 

    Amazon.com has never put short-term profits ahead of long-term investment and value creation. While Amazon.com’s short-term investors may grouse that Amazon.com should be “making more money,” Jeff continues to build one of the most dominant, enduring, and valuable enterprises in the world. Meanwhile, other Internet boom companies have bit the dust, mostly because they put too much emphasis on short-term profitability and failed to invest enough in long-term value creation.

    The Regret Minimization Framework

    • When making a decision, if you can project yourself out to age 80 and sort of think, “What will I think at that time? If you think about the long-term then you can really make good life decisions that you won’t regret later. 
    • It works well when applied to a personal career decision. But it works just as well when making a decision about the future of your business. Which choice will look best when you consider it, not six months or one year from now, but decades in the future? Chances are that’s the right option—the one that holds out the promise of doing really big things.

    Ch 8: Have a Bias for Action

    Leader at Amazon value calculated risk taking. Speed matters in business. Many decisions and actions are reversible and do not need extensive study. So when you are in doubt, try something—and take advantage of the opportunities that being the first in the field can offer.

    At Amazon.com, there is a natural tendency to push forward at all times. The right kind of person for Amazon. com is somebody who is astute and contemplative yet avoids paralysis from analysis—the kind of person who is always moving forward on things without waiting to be asked to do so.

    Jeff has always reassured his people that they will never be punished for erring on the side of action. This has resulted in both huge wins (the creation of one-click shopping) and colossal failures (the creation of Amazon Auction). 

    Leaders are expected to be right—a lot. They are encouraged to take risks, but they must be calculated risks. How do you successfully balance a bias for action with the ability to be right a lot? By developing and monitoring the metrics.

    No matter how much research and analysis you do, the future can never be guaranteed. That’s why Amazon rewards leaders who just do it—who respond to uncertainty by taking a (smart) risk and learning from the results.

    Ch 9: Practice Frugality

    A leader at Amazon tries not to spend money on things that don’t matter to customers. Frugality breeds resourcefulness, self-sufficiency, and invention. No extra points are awarded for headcount or budget size.

    Just as he did in 1997, Jeff fundamentally believes that Amazon is still in day one, and so he runs it with the cost-minded discipline normally applied to a brand new start-up. More than anything else, he fears and loathes complacency—especially since the company still operates on razor-thin profit margins, relying on high and growing volume to pay the bills. Keeping costs down is one way of fending off complacency.

    The Legend of the Door Desk: Early on in the company’s history, someone came up with the idea of hammering legs on to doors to create more desks. Eventually, the “door desk” became Jeff’s symbol for the low-cost, egalitarian culture he was trying to create. 

    Ch 10: Be Vocally Self-Critical

    Leaders at Amazon do not consider themselves, or their teams, above criticism. They benchmark themselves against the best, and they are proactive about revealing problems or mistakes, even when doing so is awkward or embarrassing.

    While many business teams and their leaders fool themselves by denying the existence of problems for weeks, months, and even years on end, Amazon. com leaders are expected to be intellectually honest. They acknowledge their shortcomings and continually ask, “How can we get better?” 

    A leader at Amazon has to be willing to “open his kimono” and take responsibility for his mistakes. There simply is no other way.

    The principle of being vocally self-critical is one of the tools Jeff uses to help Amazon combat the danger of arrogance; the virus that has taken down countless hugely successful organizations. One of the keys to organizational greatness is the presence of Level 5 Leaders–leaders who blend humility and will. Amazon.com expects everyone to be a Level 5 leader. 

    Ch 11: Earn the Trust of Others

    Leaders at Amazon are sincerely open-minded, genuinely listen, and examine their own strongest convictions with humility. Their openness enables them to trust those around them—and to earn the trust of others in turn.

    Leaders at Amazon must learn both to trust their colleagues and to earn their trust through transparency, commitment, and mutual respect.

    I really enjoyed my time there…the ability to work collaboratively without worrying about titles, organization charts, and official roles. All of those things got ditched at the door so that we could devote our energies to attacking problems. 

    Six Keys to Earning Trust

    1. Open your kimono. Learn to take accountability and admit faults—not recklessly or in a way that lets people exploit you, but rather in a way that demonstrates honesty and pursuit of improvement. Be willing to admit your own failures. If you put up a wall around yourself, your team will, too. 
    2. Take the hit. When bad thing happen, resist the temptation to point the finger. As leader of a team, you need to accept responsibility for both the good and the bad. When your team members see that you are willing to take the blame even for mistakes that are not directly your fault, they will start to let go of fear and begin to trust you.
    3. Build up your team members. This is the opposite of taking the hit. Whenever appropriate, make sure you praise your team members in front of their peers and superiors. Never try to take sole credit for something good that your team did.
    4. Ditch the leash. Allow your team members freedom to explore new ideas and to be creative. If people feel that you are micro-managing them, they will stop trusting you. Make room for failure and, more importantly, the opportunity to learn from failure.
    5. Accept confrontation. Fighting is not good, but neither is false agreement. When there is a difference of opinion, promote open discussion. Explore solutions with the intent to solve problems. If disagreement never occurs, it’s a warning sign that your team is afraid of telling you the truth.
    6. Find the value in each person. We all have weaknesses, but we also have strengths. Everyone brings something different to the table. Find what is unique in each individual and use that unique strength for the good of the team.

    Trust and the Two-Pizza Team

    • Much has been written about Amazon.com’s famous Two-Pizza Teams—working groups whose size is limited to six to ten individuals—the number of people that can be fed by an order of two pizzas. However, most people miss the point. What truly matters isn’t team size—it’s autonomy and accountability. The Two-Pizza Team is about trusting a small faction within an organization to operate independently and with agility.
    • At Amazon, Two-Pizza Teams work like little entrepreneurial hot houses. Insulated from the greater organization’s bureaucracy, the Two-Pizza Teams encourage ambitious young leaders, provide opportunity, and instill a sense of ownership.

    Ch 12: Dive Deep

    Leaders at Amazon operate at all levels, stay connected to the details, and audit them frequently. No task is beneath them, because they know that only a deep dive into the nuts and bolts of a process can really uncover opportunities and solve problems before they become insurmountable.

    Leaders at Amazon understand details and metrics two to three degrees deeper than senior executives at most companies. They are keenly aware of their dependencies and therefore can discuss the details of any given project under their jurisdiction. One driver of the dive-deep philosophy is the pure, relentless sense of curiosity that Jeff Bezos exemplifies and that he encourages among all those who work for him.

    The desire to dive deep is also why Jeff has banned PowerPoint and demands clear decision-making narratives. Putting together a slideshow makes it all too easy for employees to only skim the surface of their ideas while creating the illusion of an intelligent argument.

    The Five Whys: Working under deadline pressure, it often feels as if we don’t have enough time to dive deep and really understand a problem, technology, or situation. There is a balance between knowledge exploration and exploitation; it takes experience to learn when it’s necessary to dive deep and when it’s better to leave things at an abstract/aggregate level. The Five Whys is an iterative question-asking technique we used at Amazon.com to explore the cause-and-effect relationships underlying a particular problem. 

    Rolling Up the Details

    • The Amazon annual planning process starts in August and wraps in October. 
    • Teams build six-to-eight-page narratives describing their businesses, growth opportunities they envision, their plans for taking advantage of those opportunities, and the resources required. 
    • These narratives work their way up the food chain of leadership culminating in two-pagers that are read at the S-Team level. 
    • At each step of the journey, the narratives are examined at strategy meetings. Then the discussion begins, which may be far-ranging or focused on one or two features or capabilities out of several. 
    • At Amazon, no big decision is made without first ensuring that it is based on a deep dive into the underlying details that will determine its success. 

    Ch 13: Have Backbone—Disagree and Commit

    Leaders at Amazon have conviction. They are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting; they do not compromise for the sake of social cohesion. But once a decision is made, they commit to it wholeheartedly.

    At Amazon.com, I learned that disagreeing with Jeff and the other senior executives was not only beneficial to me personally (as an “owner”) but also my obligation to the customer, to the shareholder, and company. “If I drive us over a cliff,” Jeff would say, “You’re as much at fault as I am.”

    The Importance of Mental Toughness

    Psychotherapist Amy Morin compiled a list of traits that characterize mentally strong people. If you want to succeed in Jeff ’s relentless and fiercely competitive world, you cannot:

    • Feel sorry for yourself
    • Give away your power
    • Shy away from change
    • Waste energy on things you cannot control
    • Worry about pleasing others
    • Fear taking calculated risks
    • Dwell on the past
    • Make the same mistakes over and over
    • Resent others’ success
    • Give up after failure
    • Feel the world owes you anything
    • Expect immediate results

    Ch 14: Deliver Results

    Leaders at Amazon focus on the key outputs 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.

    At the end of the day, it’s all about outcomes at Amazon.com. If you violate all of the other principles—if you fail to obsess over the customer, communicate vaguely, hire second rate people, ignore details, and so on—but consistently deliver outstanding business results, then all will be forgiven. After all, the purpose of all the other principles is simply to support and facilitate this final, crucial principle—delivering results.

    Conclusion

    A s you may have figured out, the leadership principles presented here are not secrets—they are publicly posted at Amazon.com and discussed within the company often. The key to these principles lies in the combination of principles and the way they are actually used in making everyday decisions at Amazon.

    Like any effective dogma, the leadership principles should be used as a guide, not a blueprint.

    Striking a common sense balance is crucial—not trying to follow a set of rules as if they constitute a recipe for success. Lending too much importance to any one of the principles can up-end the entire framework and ruin the desired effect. For example, if you are too vocally self-critical (principle 10), you might endlessly question yourself and sacrifice a bias for action (principle 8). Attempt to earn the trust of others by accepting every task (principle 11), and your high standards could slip (principle 6). You get the picture.