The Amazon Way: 14 Leadership Principles Behind the World's Most Disruptive Company

Reviewing an audio book by John Rossman - Part I (Principles 1 through 3)

About the Author

According to his LinkedIn profile, John Rossman worked for Amazon between 2002 and 2005, first as a director of merchant integration and later as a director of enterprise services. He has a BS in Industrial Engineering from Oregon State University, and is currently a managing director at Alvarez & Marsal. His profile lists a number of specialties, including: digital disruption, strategy, and large-scale program management. He describes himself as a "preeminent independent authority on Amazon.com."

Overview

The Audio Book is divided into four audio files. The first three audios discuss the principles that Rossman learned while working at Amazon. The fourth is a series of appendices. This series of blog posts will discuss contents from the first three audio files. The fourteen principles are enumerated in the Table of Contents. The book's chapters describe the principles in more detail. The principles are:

Principle 1: Obsess Over the Customer
Principle 2: Take Ownership of Results
Principle 3: Invent and Simplify
Principle 4: Leaders Are Right – A Lot
Principle 5: Hire and Develop the Best
Principle 6: Insist on the Highest Standards
Principle 7: Think Big
Principle 8: Have a Bias for Action
Principle 9: Practice Frugality
Principle 10: Be Vocally Self-Critical
Principle 11: Earn the Trust of Others
Principle 12: Dive Deep
Principle 13: Have Backbone – Disagree and Commit
Principle 14: Deliver Results

These principles, according to the audio book, permeate Amazon's corporate culture. They are not just slogans. Rossman asserts that he has continued to use these principles in his career, even after he left Amazon. These principles provide a consistent philosophy for Amazon's employees and have helped the corporation to achieve its massive scale successfully. Along with an introduction and conclusion, the book's chapters coincide with the fourteen named principles. I was going to cover all fourteen principles in a single post, but it's getting too long for a blog, so I will discuss principles 1 through 3 in this post, 4 through 9 in part II, and 10 through 14 in part III. Parts II and III will be posted in coming days.

Summaries

Principle 1: Obsess Over the Customer

Rossman describes Jeff Bezos' (Amazon's CEO) obsession with the customer as a "psychosis that has generated many of his most vitriolic tirades," claiming that Bezos has a unique ability to put himself in the place of the customer. In this regard, two truths are especially important to Bezos:

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... The best experience happens when the customer never has to ask for help."

From these truths, Bezos drove to automate the business, reducing organizational friction, and minimizing the opportunities for humans to muck up the customer experience. This strategy has been so successful that customers now expect and demand effortless self-service customer care technology. This sacrifice of short-term financials for customer benefit, drives long term financial gains.

From this, Rossman goes on to describe something that he calls, "the fly wheel effect." This is a self-perpetuating cycle that happens when the business focuses on free cash flow, not margins. By driving down margins and pursuing volume, Amazon raises revenue. This revenue is reinvested in, "the holy trinity," price, selection, and availability. Investments in the holy trinity feed back into further increasing revenues. Rossman claims that Amazon pursues this strategy at all levels and scales throughout the business and goes on to provide some specific examples of how investments in price, selection, and availability all increase the top-line for Amazon's business.

Next, Rossman describes the concept of "the andon cord." This is an idea that comes from manufacturing, which is basically an emergency stop function when a product's quality or safety is being jeopardized. Amazon has adopted this idea and applied it to their retail business as a quality control mechanism. Amazon has invested millions of dollars in processes that monitor online feedback and pull the "andon cord" and make other proactive reparations when necessary.

Principle 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.

Rossman gives the (apocryphal?) example of people who rented a hall for a Christmas party. When they didn't have a tree stand, they nailed the trunk to the floor. Owners of a property would never do that. Bezos wants Amazon's employees to think like owners, not renters. Bezos still owns 20% of Amazon's shares, so he is able to prioritize long term results without pressure to meet quarterly expectations. He has sold investors on this management style.

Rossman says that investors can use tenure of leadership team at other companies as a way to find other companies that focus on the long term. You don't want to invest in a company whose leaders don't have a long-term, vested interest in the business. Several other principles are mentioned that support this one:

• #5 Hire and develop the best
• #8 Have a bias for action

Another example of this principle is a concept of "the open kimono." Leaders are expected to find the balance between driving for results and honestly revealing their flaws and weaknesses in order to help the organization, "fail forward." Rossman enumerated a number of connecting principles, called "Amazon's Principles of Ownership:"

1. Yes, it is your job. Boundary-less behavior is expected.
2. You own your dependencies. If a problem is caused by a dependency breakdown, Amazon's leaders must be able to show that they've done everything possible to manage the failed dependency - whenever possible, take over the dependency; when that is impossible, negotiate clear commitments from others; for every dependency, devise a fallback plan.
3. Compensation rewards long-term thinking. This works as a fly-wheel to drive the next principle, "invent and simplify."

Principle 3: Invent and Simplify

"Amazon.com continues to grow by inventing and simplifying every single day." Simple things can grow more easily than complex things. For Amazon to achieve the growth that Bezos seeks, they must ruthlessly simplify their technologies and processes. Everyone is expected to improve processes to aid the customer or reduce costs. This principle is epitomized in Amazon's platform businesses. Engines behind simplification include: automation, algorithms, and technology architecture.

In a letter to shareholder, Bezos wrote:

The Power of Invention:

Invention comes in many forms and at many scales. The most radical and transformative of inventions are often those that empower others to unleash their creativity – to pursue their dreams. We are creating powerful self-service platforms that allow thousands of people to boldly experiment and accomplish things that would otherwise be impossible or impractical.

Gatekeepers slow innovation, so Amazon is continuously working to replace gatekeepers with platforms that act as enablers. Virtuous cycles within the platforms stimulate and expand energy of the participants. Also of importance, technical systems are designed from the user backwards.

Process innovation is critical to Amazon's success, but if it is not also simplified, the result is bureaucracy. As Bezos put it, "Bureaucracy is process run amok." To distinguish process from bureaucracy, Rossman suggests the following warning flags:

• When the rules can't be explained.
• When they don't favor the customer.
• When you can't get redress from a higher authority.
• When you can't get an answer to a reasonable question.
• When there is no service level agreement or guaranteed response time built into the process.
• When the rules simply don't make sense.

One of Amazon's biggest successes comes from monetizing "other people's work" (OPW) with their Amazon Mechanical Turk product, an online market place for freelancers to receive pay for performing simple tasks. This started as a curation and rating system and moved into other aspects of the business. Rossman claims that almost all companies can find opportunities to benefit from OPW.

Conclusion

That's it for tonight's post. Future posts will cover the remaining principles and try to tie it all together. Thank you for reading this. If you found it useful, you may consider reading Rossman's book or listening to it in audio format. I can certainly report that I have benefitted from listening to the audiobook.

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@remlaps is an Information Technology professional with three decades of business experience working with telecommunications and computing technologies. He has a bachelor's degree in mathematics, a master's degree in computer science, and is currently completing a doctoral degree in information technology.