The philosophy of Flywheel has been thoroughly applied by Amazon in the process of business operation. However, in order to operate this flywheel smoothly, Amazon has been focusing on innovations, even creating its own formula.
For Amazon, ceasing to innovate means going backward. In fact, the Amazon headquarters, where Jeff Bezos – the founder and CEO stays, is a building called Day 1, which means the company has a lot of work ahead. At the age of 25, Amazon is constantly trying to experiment with new areas, bearing in mind the same pioneering spirit as startups. In addition, according to the latest date by IFI Claims, a company that tracks global patent data, the company received 1,963 patents in 2017. Amazon has more patents than any other retail businesses in the industry (7,096). The result is a series of continuous innovations such as Prime Air, Amazon Video, Kindle, Fire TV, Amazon Fresh, Amazon Go, Echo, AWS … that demonstrate their ceaseless creations.
So what makes Amazon always maintain the spirit of innovation, the spirit of “Day 1”? The answer is the following formula:
(innovations) = f (organization * architecture)(mechanism*culture)
The first element, also the core element to Amazon’s success, lies in the corporate culture, ingrained in its DNA. This corporate culture is published publicly by Amazon on its homepage into a set of 14 leadership principles (preliminary in Table 1, see details here)
Amazon 14 Leadership Principles:
- Customer Obsession: Leaders start with the customer and work backward. They work vigorously to earn and keep customers’ 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 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. They work on behalf of their 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 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.
Figure 2. Amazon 14 Leadership Principles in the DNA of every Amazonian.
First, culture is the core, the Amazon DNA. Amazon always maintains the spirit of “Day 1”. This is the spirit that from the beginning, Jeff Bezos emphasized in the letter to shareholders (1997) and it has been attached to letters to shareholders till now. How is Day 2 for Jeff? “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death.”The spirit of “Day 1” reflects the mindset of operating a business as a startup. It is a combination of customer obsession, long-term thinking, quick iterate with experiment, dare to fail, giving decisions quickly (will be detailed in section 3).
To maintain that Day 1 spirit, the number one principle is the obsession of customers (Principle 1), stemming from the company’s mission as “the most customer-oriented company in the world” and the commitment “making customer life easier”. In other words, customers for Amazon are absolutely a supreme priority. Even in Amazon meetings, an empty seat is represented for the customer as a reminder that even if customers are not in the meeting room, Amazon still needs to pay attention to their opinions.
As analyzed in the previous sections, the principle of Flywheel. Amazon’s growth model is based on the ability to take advantage of “holy trinity“, it is a wide selection of products: Jeff had originally interviewed and shared that Amazon will not only be a company that sells books but also books that Amazon sells, Amazon must be an “everything store”; low prices with thin margin and focus on offering the cheapest product to users; availability: products are always available to customers: operating with “promise” commitment to delivering goods on time, anywhere, anytime.
Coming back to the principle of the flywheel. This trinity facilitate the process of increasing customer experience, boosting traffics and thereby attract more sellers to the platform, improve selections and enhance customer experience again; at the same time, it reduces investment infrastructure costs, which in turn reduce costs, and increases the customer experience, creating a faster and faster rate of spinning.
This growth momentum principle applies to all businesses in Amazon, reflecting the long-term thinking of this enterprise’s constant growth and innovation (Reflecting in principle # 2, each individual at Amazon needs with a spirit of ownership, long-term thinking). With this long-term mindset, Jeff Bezos shares Amazon’s willingness to be misunderstood for a long time while pursuing the vision: “Innovation requires the willingness to be misunderstood for a long time” (Principle #3 on innovation and simplification). That’s why Amazon invested in cloud computing, suffered losses first to get good result later on; selling hardware (Kindle, Amazon Echo…) at a low price to sell e-books and digital products connecting the commercial segment later on; and many other examples. Once set up the vision, Amazon will pursue the goal stubbornly with the flexibility in tactics.
When we talk about culture, we have to talk about people. In other words, human resources are the foundation of culture. This set of corporate culture DNA must be carried by each individual. To achieve this, Amazon set high standards and strictly implemented from recruitment and talent development (Principle #6). This recruitment process usually lasts… nine hours, with enough participants.
In particular, they are the one who plays the role of raising the quality standard. They have the right to veto any decision of the recruitment council (Amazon is called a bar raiser). The recruitment process will be open until Amazon finds qualified personnel. These are employees who are able to see good people and are in charge of interviewing candidates for admission to Amazon. They have the right to oppose any candidate, even if the candidate applies to positions that are not in their area of expertise.
Amazon also sets the highest standards for employees and partners (Principle #7). With partners, the Service Level Agreement is meticulously set up. Amazon will recruit people with innovative, entrepreneurial and innovative, a true builder.
With employees, Jeff Bezos expects each person to have the spirit of ownership and leadership, a founder’s mentality and constantly learning to perfect themselves (Principle #5). Employees are always expected to have a performance of 10/10, even more, and are rewarded by company stock.
The mechanism for Amazon to be a customer-focused company and always keeps the “Day 1” spirit to be discussed in detail in Part 2 – Innovation Mechanism. Another important factor is the entrepreneurial spirit – dare to fail and experimentation will also be included in part 3 – Organization.
Hoang Nam Le – FPT Ventures
The innovation formula at Amazon: Going backward from the customer – Part 2
Innovation formula at Amazon: “Amazon is the best place in the world to… fail” – Part 3
Innovation formula at Amazon: Small-2-pizza team at Amazon – Part 4