The Amazon Management System: The Ultimate Digital Business Engine That Creates Extraordinary Value for Both Customers and Shareholders
Ram Charan and Julia Yang
Ideapress Publishing (December 2019)
The “sercret sauce” of one of the most successful organizations thoughout the history of business
First of all, here’s to all “the hearts and souls” of all the family members and friends “whose personal sacrifices” made it possible for Ram Charan, Julia Yang, and countless others to pursue their dreams. We may not know who they all are but you can be certain that Ram and Julia do. They dedicate this book to them.
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At a GE annual meeting years ago, its then chairman and CEO — Jack Welch — was asked the reasons why he so highly admired small companies. “For one, they communicate better. Without the din and prattle of bureaucracy, people listen as well as talk; and since there are fewer of them they generally know and understand each other. Second, small companies move faster. They know the penalties for hesitation in the marketplace. Third, in small companies, with fewer layers and less camouflage, the leaders show up very clearly on the screen. Their performance and its impact are clear to everyone. And, finally, smaller companies waste less. They spend less time in endless reviews and approvals and politics and paper drills. They have fewer people; therefore they can only do the important things. Their people are free to direct their energy and attention toward the marketplace rather than fighting bureaucracy.”
I was again reminded of these remarks as I worked my way through Ram Charan and Julia Yang’s brilliant examination of how Amazon’s management system and its digital business engine helped it to create extraordinary value for both customers and shareholders.
“At the heart of all Amazon’s business endeavors is the Amazon management system, a digital system composed of six building blocks, that has been continuously and relentlessly empowering Amazon for more growth and more exploration into the unlimited sky of the digital age.”
Here are the six “groundbreaking” building blocks, accompanied by my brief annotations:
1. Customer-Obsessed Business Model
Comment: The effectiveness of Amazon’s change management initiatives is determined almost entirely by whatever is needed to maximize the value it creates for its customers.
2. Continuous Bar-Raising Tool
Comment: Channeling Marshall Goldsmith, I agree that what gets an organization here won’t get it there…or even allow it to remain “here”…and the same is true of individuals.
3. AI-Powered Data and Metrics System
Comment: Day-to-day, the Amazon system is seamless and cohesive by being ultra-detailed, cross-silo, cross-layer, end-to-end, real-time, input-oriented, and AI-powered.
4. Ground-Breaking Invention Machine
Comment: In effect, Amazon competes every day with itself to produce even more and even better products and services, those that are ground-breaking, game-changing, and customer behavior-shaping.
5. High-Velocity and High-Quality Decision-Making
Comment: The terms, conditions, policies, and procedures are crystal clear…crisply and consistently enforced.
6.Forever Day-1 Culture
Comment: In essence, Amazon functions at three levels [begin italics] simultaneously [end italics] and [begin italics] interdependently [end italics]: maximizing economies of immense scale with the speed of a startup (per Welch’s comments) while consistently strengthening all organizational capabilities.
Charan and Yang devote a separate chapter to each of these building blocks. They as well as Jeff Bezos would be among the first to acknowledge that none is a head-snapper. They agree with Thomas Edison: “Vision without execution is hallucination.” Ultimately, the Amazon workforce (top to bottom) is obsessed with rapid and significant improvement at all levels and in all areas.
With only minor modification, I think that almost all of the material that Charan and Yang provide can be of substantial benefit to the leaders in almost any organization, whatever its size and nature it may be.
For example, during a senior management meeting, Bezos asked the head of the Customer Service Department about customers’ wait time. Without citing any evidence, that person replied that it was well under a minute. Bezos immediately called the 800 number and tracked the wait time with his watch. After 270 seconds, his call was picked up. Consider very carefully the context for this incident.
“Why would Bezos invest four-and-a-half precious minutes of the entire executive team on this seemingly ‘trivial’ detail? Two reasons.
“First, for Bezos, who is truly obsessed with customers, this was just the opposite of trivial. In fact, It was paramount to the customers’ experience. No customers would call Amazon’s call center just for a friendly chat. Usually it was an unpleasant encounter or a frustrating problem that triggered their call. The long wait would simply exacerbate their growing dissatisfaction and mounting anger.
“Second, Bezos used this specific example to vividly demonstrate the Deep Dive principles right on the spot, i.e., no task is beneath them and they should invest time and energy to verify personally. After these painfully long four-and-a-half minutes, everyone on site and everyone who heard about the anecdote would definitely learn the lesson by heart. This is effective coaching in the moment.”
Bezos and members of his senior management team are visionaries, to be sure, but also world-class diehard pragmatists. All details are significant, although some may be more significant than others. Bold initiatives are considered “failures” only if they are poorly planned and executed, and, nothing of value is learned from them. (That rarely happens at Amazon.) People in most companies understand the WHAT, the HOW, or the WHY of what they do. At Amazon, they must understand (begin italics] all three [end italics] and then respond effectively — and quickly — when they can create even greater value for Amazon’s customers and shareholders.
As Ram Charan and Julia Yang point out, “Armed with the AI-powered data and metric system, Amazon can liberate all builders at all levels of the organization and at the same time ensure the continuous bar-raising of a Forever Day-1 organization.”
Those who share my high regard for this brilliant book are urged to check out another, Brad Stone’s The Everything Store: Jeff Bezos and the Age of Amazon (2013).