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The Finnovate Show

Episode · 2 months ago

John Rossman: What can we learn from the Amazon Way?

ABOUT THIS EPISODE

John Rossman, a former Amazon executive, shares his personal experiences and insight on the Amazon Way. He talks about the importance of applying the right combination of leadership, process, and culture for each organization. Discover why customer obsessed leaders look to remove friction, experiment with new ideas and how they achieve operational excellence.

...as a leader of your company, you muststay up to date with your strategies and execution or risk obsolescence.Welcome to the Fin of a show. Financial services innovators bringing you thefuture today and now here's your host, jerry Purcell. Mm It's the fun of it. Show brought toyou by Innovation 3 60 groups. I'm jerry Purcell get ready to think aboutyour biggest challenges and capitalize on your biggest opportunities afterthis. Executives depend on external consultants to fill knowledge andexperience gaps or to have an experienced mine audit their thinking.The Innovation 3 60 group brings together a wide range of proven thoughtleadership from around the globe and cost effectively makes it available toyou. Get the insights advice and systems you need to succeed, learn moreat www dot innovation 3 60 dot com. Our guest today is john rossman. John wasan executive at Amazon where he played a critical role in launching andscaling the Amazon marketplace business, which now accounts for more than 50% ofall units shipped by the organization. Since leaving, john has focused hisefforts on innovation and strategy advice, assisting clients to innovateand grow. And as a keynote speaker, John is the author of several booksincluding the Amazon Way Amazon's 14 leadership principles and has a weeklynewsletter called the digital leader newsletter. Today john and I will talkabout how organizations can draw from his experience at amazon and what theyneed to do in doing so we will draw from giants. Book the amazon way john,Welcome to the show, jerry Great to be here. Thanks for having me. So tell meabout your days at amazon, What was it like there and what kind of challengeswere sort of present at the time? Yeah, so I was at amazon pretty early on. SoI was there from Early 2002 through late 2004 Holiday period 2002 was thefirst billion dollar quarter for Amazon today. It's about a $480 billion dollarrevenue organization. So you can see just from that metric alone, howdifferent it is at that point, 90% of the business was books, music video andit was almost 100 First party sales meaning Amazon was the retailer ofrecord. I think there was 14 fulfillment centers at the time and itwas, it was very different from a business complexity standpoint. Thethings that are the same though are...

...very much how Amazon thinks aboutleadership, what does it mean to be a good Amazonian? How do they think aboutcustomers? The leadership principles and problem solving. And so those aresome of the things that that I took from then. And the other interestingthing about when I was at amazon, it was literally the we were headcount wasflat and so to help launch the marketplace business, we had to go makeour case to several of our internal shareholders and claw some headcount tohelp launch the marketplace business for the headcount. So obviously very,very different constraints than what amazon operates in today. One of myrecollections from the, from the news of the day, was that quite a bit ofwhatever revenue with january was put back in the business? So at leastthat's what I recall reading about is that sort of part of the model as welland that's continued essentially since then. Right. And so some of the thingsthat aren't well understood about amazon is that on a unit economic basis?On a per water basis? On a per unit basis, amazon has been profitableAlmost since the very beginning. But to the point you're making what they'vechosen to do over the mostly 27 year history of the organization is justreinvest that profit instead of reporting it as profit. So they'veinvested, you know, in all sorts of things, fulfillment centers, obviouslyin all sorts of infrastructure, AWS infrastructure and all sorts of otherlines of business. And that's really how amazon operates today is as anoperating set of companies that run on a very for profit, trying to optimizebasis and as a portfolio manager of investing into smaller ideas that mightbe the big idea of tomorrow. And they do report corporate profit today, butstill ply the vast majority of their operating profit into R and D and intoinvestment. So why was amazon so different from the rest and what sortof things would you point to to describe that boy. That's, that's a bigquestion. I think that there's no simple answer into, you know, what'sdifferent about amazon or how did they get here? You know, or, or anythinglike that? But I think fundamentally amazon is built on three or four kindof core concepts. One is around customer centric city, what they callcustomer obsession, right? And that...

...they really make decisions, they thinkthrough problems and their mindset is always customer first versus competitor.Focus the second is around thinking big and while you may start with a smallconcept or small start of a business, you're always thinking big, you'realways thinking about scale and you're always thinking of the future butrealizing like hey, how we increment our, our way there. Um, and theninvention and that amazon both from an actual invention standpoint technology,but also in their willingness to reinvent themselves. They've alwaysbelieved in invention. And then the fourth concept that I'd, I'd add isaround operational excellence and that amazon has very much an operatormindset and believes in operational excellence in those things that shouldbe scaling and impact the customer experience. They set a very high barfor themselves and for partners relative to hitting customerexpectations. And so I think that those four concepts kind of start the story,but they don't, they don't finish the story. Right? So you and I started offtalking about, hey amazon has invested, the vast majority of their profits backinto the business over their history. Well, that's really an element of, ofinvesting in the long term versus in the short term and trying to optimizein the long term versus optimizing in the short term. And so I think thatelement of patience and investment is also something that's very uniquerelative to amazon. But I, I could go on and I think that's kind of part ofthe conversation today. But those things strike me as some of thefundamental cultural fabric that separate amazon or differentiate it inmany ways from most other organizations. Yeah, it's a hard thing to do nowadays,is an executive to focus on something other than quarterly results. Sothinking out in the long term is quite unique. I actually came across someresearch over the course of the last couple of weeks that says that thosefamily air quotes family owned organizations actually do much betterthan some of the others because they do have the luxury of being able to thinkover the long run. And it sounds like amazon has done done the same sort ofthing. I think, especially for healthy successful organizations short termismcreeps in. It's not, it's not a, a big lightning bolt that happens, but itstarts creeping into the decisions and the resource allocations and what weprioritize the second leadership principle. So there's, there's 16leadership principles at amazon now.

The second is called ownership and itreads that leaders are owners, They think long term and don't sacrificelong term value for short term results? They act on behalf of the entirecompany beyond just their own team. They never say that's not my job. Well,that second element there about thinking long term and neversacrificing long term value for short term results is part of theirarticulation about how they are going to be careful about that element ofshort termism and just keep a sharp eye on. It doesn't say that we don't careabout short term results. They just don't want to sacrifice long term valuefor short term results. That's a that's a that's an important nuance there.They do care about short term results, just not at the cost of long term valuecreation. Cool. So in reading your book the amazon way, uh they're 14principles there and I think that some may come to the conclusion that theyjust need to take these 14 principles and apply them to their company andeverything is going to be just ducky. Tell me why that's not so well, there'sa, there's a few aspects why I'd say it wouldn't be just ducky. Um, in no wayhave I ever proposed or suggested that these are the right leadershipprinciples, either in individual nature or an entirety for any other company.But what I do believe is a good concept is figuring out? Like, well, what do webelieve in, how do we consistently make decisions? What do we prioritize, howdo we hold each other accountable? How do we make decisions? And so in theamazon way, one of the appendix is about building your own leadershipprinciples, right? And I kind of proposed like this is how I would goabout it. We didn't rush to create our leadership principles at amazon when Iwas there. They actually weren't codified, right? We talked about thembut they weren't written down, we were practicing them, we were hammering themout. It was a couple years after I left amazon when they codified theleadership principles and one of the underlying or meta lessons to take fromthat is that consistent. We'll call them leadership principles that theycan be called tenants. They can be called guiding concepts that can becalled a lot of different things. But one of the things that I believe avalue of having a set of well balanced leadership principles is that it helpsto scale an organization right? If we can all have the same fundamentalorientation to how we make decisions, how we work together, how we hold eachother accountable, what we prioritize then guess what? We can work betterindependently and still make really good decisions and have a commonculture and that's really the value of having a set of leadership principles,but it really takes delicate thought...

...about what do we really believe in andfor leaders to actively demonstrate those leadership principles, not justto give them lip service. Right? So your leadership principles can't justbe a poster on the wall and we pulled them down once in a while when it'smost convenient. No, they have to be used, especially when it hurts. We haveto use our leadership principles. So those are more of what I would proposeto somebody is, hey, here's, here's a set of leadership principles. Theydefinitely make a difference at amazon. I think there are some things that eachone of these leadership principles can help us think through. But underneathall of that is what are your leadership principles and what I find that mostorganizations is that different leaders have a different set of principleswithin an organization or they have no principles at all. And so it's justbasically like kind of what's the priority of the day? Kind of rules,rules and culture just happens to be based off of how we've developed overtime. The world is moving fast. It'sdifficult to keep up your executive team routinely needs new ideas to keepthem ahead of the competition. Imagine having a plan in place in 30 days tofocus your innovation efforts, improve customer experience, accelerate yourmove to digitization or increase speed to market our guide to acceleratingyour innovation agenda provides you with insights and time saving resourcesto plan your path forward contact jerry to book a quick call or for yourcomplimentary copy at www dot linkedin dot com backslash in backslash jerryPurcell, G e r r y p u r c e l L or email jerry at jerry dot Purcell atinnovation 3 60 group dot com. One of the tenants, although not one ofthe principles necessarily, but one of the tenants you talked about was tooptimize over the long run. And one of the concepts that I've heard you talkabout is relates to sort of focusing on the friction and then little eye andbig I tell me about little eye and big guy. Yeah. So you know, little I littleinvention and big, big invention, you know, concepts, everything is on acontinuum, right? There's no black or white. You know what is innovation?Innovation is is simply the ability to envision something that new or betterhopefully that benefits the customer or your business. The ability to test andto implement that in the ability to create business value out of thatconcept. Right. And so if you think of...

...that as innovation, well then theseideas can be either smaller things that just help improve operations, help helpremove a source of frustration for a customer or they can be big gamechanging business models, products and services for us. And so there's there'sa continuum there. So friction is the name that that we use at amazon and isthe name that a lot of people use for just the little things that we ask ourcustomers or partners or employees to do because we haven't quite finished orperfected our product or our service right. We haven't made it slippery. Wehaven't made it super easy to use. And at amazon you know friction especiallywhen you have millions and millions of transactions. Little tiny pieces offriction make a big difference both in the customer experience as well as inoperational performance. So friction is just finding all of those littledefects or things we ask others to do because we haven't automated it orimproved it and made it, made it slippery. So amazon is just thisoperational excellence machine that continues to find both little, a lot oflittle ways to improve the customer experience and improve operations.Sometimes these actually end up in very big program. So think about the conceptof returns. Right? So a customer orders a product and they want to return it.What most companies do is they try to try to make that slightly difficult fora customer to do. Well. If we truly have customer obsession, then we'refocused on actually making that easier with the core belief that if customerstrust that buying from you is going to be easy in every aspect includingreturns or problems that over the long run they're going to come and do morebusiness with you over the long run. So amazon has, has innovated and scaledreturns in so many ways. Right? Think of all the different ways that you canreturn items at amazon now right? You can you can drop it off at a ups store,you can drop it off at a uh many of the retail partners. You can drop it off atan amazon bookstore, you can drop it off at a whole foods, you can have theitems picked up your doorstep, you can drop them off at partners and you don'teven have to put it return it in the box, right? You just bring the item inA. Q. R. Code and they take the item away from you. That type ofunconventional thinking about removing all of the little things that get inthe way of truly satisfying customers is what the notion of friction is. AndI really think it sets the basis for how we innovate in most organizationsbecause not every company has either...

...the opportunity or is ready to reallythink about breakthrough concepts, breakthrough business balls. But everycompany can work to serve their customers better and to improveoperational excellence. And that's why focusing on friction is a a triple winbecause we we make it better for customers. We actually improveoperational results and we build the culture of the capacity for actuallymaking change happen. So again that's a principle. I wouldfind it hard to find an executive that would disagree that that's important.You're absolutely right. I mean they will never disagree with it but willthey allocate resources allocate time and truly push through all of theinternal stakeholders that it takes to make change happen. That's where youknow, most companies kind of give up along the way because you know, youhave to hold others accountable. You have to be willing to allocateresources for it. You, you oftentimes have to redo things because the priorcapability won't, won't get you to where you need to go and you justbecome kind of comfortably numb with the status quo, right? You aren'tmeasuring correctly to identify where all of these little pieces of frictionare. And I was going to say because that's one of the things that amazondoes is it measures the noise, right? You know, you know, jay, I get asked alot about like, well you know, what was different about your or what was yourday to day life like at amazon And it was always about metrics. We werealways, we would spend more time defining what the right metrics werefor a new product or new service or new geography or a new capability, we spendmore time defining what the metrics would be versus like what the actualrequirements were because we knew no matter what we launched with. Like ifwe didn't have the metrics in place, we wouldn't be on a path for thatcontinuous improvement and we would always be adding more metrics tounderstand failure and how we were operating. Most companies design theirmetrics? Hey, they want fewer versus more. Right, Give me a green, yellow,red. I need it really simple. We did the exact opposite. We would alwayshave more metrics. And secondly, most companies build metrics in some waykind of measure the average or the mean. And in some ways what they're trying todo is kind of pat themselves on the back, right? Hey, we're doing a goodjob. Amazon was the exact opposite, right? Like we would always be focusingmetrics on where the failure was, where the friction was at the edge of thedistribution curve because that's where the opportunity for improvement liescreating high tensile sls so that we could hold ourselves extremelyresponsible for making the worst...

...customer experience, still a greatcustomer experience. And if the worst customer experience is still a greatcustomer experience, then you know that the average customer experience isreally, really good. So that was always our mindset around metrics and reallyset the basis for so many things at amazon and is really where I start withmost companies is like, well how do you measure customer experience? How do youmeasure operational excellence today? And how do you use metrics as a verb tohelp hold each other accountable and have decisions about removing a pieceof friction improving something. Yeah, measure and then talk about it right.Yeah. I always say you need to make metrics a verb right? Like it's alwaysabout like action just having the metrics is interesting and can beinsightful but it's like what do you do with them? Like how do you driveimprovement? So you have to make metrics a verb. So so I'm an executivetoday and I'm unhappy with the performance of my organization. Whatshould I do? Well, it would really depend upon the basis for where thatperspective is coming from. Is it coming from kind of poor or mediocrecustomer feedback? Is it coming from declining growth and and andprofitability compression or is it coming more internally? Like you know,people aren't collaborating effectively or aren't striving for operationalexcellence. So I want to be clear on that but I always start with customersright? Like well what are your customers saying about you and you know,start from that customer perspective and then bring it, bring it internallyand the way you measure that as we've already talked about can be one of thebig unlocks one of the most important decisions. Any executive mates isaround resource allocation. Where do you allocate resources And so Ioftentimes like to understand, You know, how much of resource allocation is injust optimizing for today's business. This quarter's rules versus how much ofresource allocation is towards future businesses? Right. Horizon to Horizonthree, they're sometimes referred to, right? But it's not about optimizingtoday's business about planting seeds and and building a perspective on whatthe future would be. And so that can be the other source. Oftentimes ofinternal dissension in an organization is they recognize like all we are doingtoday is optimizing for today. We are not spending nearly enough time orattention to what the future would be. And so I, I oftentimes like tounderstand kind of wears resource allocation, if I get a discussion, likewe just aren't feeling great about...

...today's business about today's team. So there are a couple of commonmistakes you've listed there. But are there other other things that companiesdo wrong? Oh uh yes. Many, especially around like if we just talk about, ifwe're just talking about innovation, right, how do you identify aninteresting idea? How do you test an interesting idea and then how do youcreate business value out of it and scale it? Right. Like that's my simpledefinition of what innovation is, especially successful companies todayin that concept. What they're not willing to do is really have testableideas and allowing those testable ideas to not reach a level of success, right?That we call this, you know, failing faster and failing forward. I don'tlike that word, failure because it has a huge negative connotations to in inin many ways, right? The first is that no good leader wants to say I'm failingor I had a failure here. And secondly, it's oftentimes used as an excuse forsloppy execution when we're talking about failing fast and failing forward.What we're talking about is experimentation, right? We want to testsomething and have an A or B results. And so I try to pivot towards alanguage of experimentation in a business. And so what big successfulcompanies don't understand is how to experiment, how to define a hypothesis,how to, how to understand the elements that need to be tested, the riskiestaspects of it and how do you quickly and cheaply in as rude a manner aspossible, test those things out and then proceed forward. So that wholeconcept of experimentation is one of the things that larger organizations,especially successful ones don't understand correctly. One of the thingsthey do is they have processes that are geared just for scale businesses,things like procurement, things like legal, things like HR and recruiting,right? All of those have specific requirements and processes and ways youinteract. They only work for scale businesses. If you apply thoseprocesses, two small experiments, what happens is slowing down, right? Youburden them with too much overhead. And what they're getting completely wrongis those processes are trying to optimize for cost efficiency and riskmitigation versus when we're experimenting the number one thing weare trying to optimize for speed, speed, the learning all of those processes tofail us for that. And so those are things that big companies get wrong andI and I can continue to go on. Like one other thing I would mention is that bigcompanies tend to fall in love with a...

...business case, right? They start theprocess with understanding what the business case is for a new product ornew service, understanding addressable market, understanding the size of theproblem. That's interesting. But if it's an early idea and you don'tunderstand how customers are going to react to it, what the adoption is, whatyour unit economics are, how it's gonna work in any way. Well then trying tostart with the business case is a, is a complete mistake because you won't, youwon't pursue interesting use cases and interesting ideas where you actuallyhave no idea like what the potential market is. So there's there's astarting set of things that big companies get wrong when it comes toinnovation. One of the other things just related to the amazon way, isthere a number of tactics that are mentioned in one of them is this sixpage memo And the six page Memo can generate significant positive impact onprojects and like that. But if people turn into a process, then it's justlike your business case you're talking about, it's going to go down the roadand people have spent a whole lot of time writing something, but there's notgoing to be the thought behind it. And I think one of the challenges that I'veobserved is that a lot of organizations sort of glom onto these ideas and thenmaking a process and then once it's the process that you're done yeah, whatthey forget is they forget the reason we're doing it, like what's the value?We're trying to get into it and they just, you know, become cheaper and justlike follow the process right, without trying to get the value out of it. Sothe concept you're mentioning is that the underlying concept is that writingconcepts out writing problems out writing situations out is a much morepowerful way for both thinking through something as well as communicatingcomplex situations to others. And so instead of using power point as a wayof abbreviating amazon believes in this process of writing. So that youmentioned kind of the six pager, they write future press releases, uh theywrite FAA cues, they do other things that help teams understand andcommunicate with each other in a much more durable and thoughtful manner thanjust using power Point. The key to that communication though isn't just like,oh that we're writing out because when people, when, when teams first startdoing this, what they do is they write with too much complexity, right? Theydon't. And so the element the essence of what you're trying to get to iscalled clarity, right, clarity is both completeness of thought plus simplicityof thought, extremely difficult to get...

...to, right? That's a high bar of writing,especially in a complex business situation or technical situation makingit both complete as well as simple to understand. So these narratives even anexpert teams who have a lot of experience, they take iterations to doand so being patient and understanding and being willing to spend the timeupfront and writing these out is the discipline. But this is what helpsavoid spending time and really expensive resources down the road inbuilding and experimenting because we spend so much time up front inunderstanding and debating the fine grain aspects of what the potentialcould be. How are we going to experiment along it? How are we goingto measure who's the customer, what's the job they're trying to get done?That's the whole element I get asked a lot. Well what is amazon's innovationprocess and the name to the innovation process is working backwards, startwith the customer and work backwards. So throughout all of this writing, oneof the things we do is we feature the customer and very vivid manners andwhat are they experiencing? What are they truly trying to get done? What'sthe job they're trying to do and then go into solution ng of what we might doin order to fix that. So those are some of the technique tricks to help get tocompleteness of thought and the ability to communicate it to others. It's notenough to understand it well as your small team, you have to be able tocommunicate it to others because anything in any sizable organizationthat's worthwhile pursuing you know that you have to get others toparticipate in that change initiative. Yeah, so a couple of thoughts. One is Ithink we could certainly justify a second podcast because the informationis very interesting and it comes down to not sort of over relying on onprinciples as much as you know culture and how you actually do stuff, you knowin jerry's terms, can I can I kind of double click on that, right? And Iabsolutely agree. Right? Culture is what you do right like that. That'sthat's essentially what culture is. Principles is a way of up front beingdeliberate about Well what how do we operate? Right, what do we want ourculture to do? And for each principle you have to develop mechanisms, rightmechanisms are ways that you put that principle into practice. And so it'snot just enough to have principles but to have mechanisms or practices withouta guiding aspect of what you're trying to get to can also lead you inerroneous and inconsistent manners and so you need all elements of strategy,well balanced principles which state...

...like this is what we believe in and andand the durable essence of what we're trying to accomplish and thenmechanisms to help and if you have all of those then you're truly buildingculture in what you believe in. Very good. One last question, 11 sort offinal point you'd like to make two execs around run innovation and whatthey can learn from amazon. Yeah, I think I think it comes down to resource.I kind of mentioned it already but resource allocation and people thinkabout resource allocation is just like budgeting. Where am I putting my myresources, where are you putting your time where how are you activelyeducating and exploring new capabilities, new models for the futureand educating yourself so that you can truly be the leader for that innovationversus just the administrator of resources. One of the leadershipprinciples that amazon is called diving deep and what it says is that theexpectation of leaders is that they are builders and that they understand thedetails of concepts of that applies to understanding future concepts. And soone of the things I find in senior executives is is they've gotten used toessentially being an administrator versus being a builder. Right? Somebodywho actually engineers and understands capabilities, processes business modelsand how customers operate. You need to resource allocate more of your time tothe future to truly help make those important resource allocations anddecisions you need to make relative to innovation. Great advice. So that wrapsup this episode. And as always, I look forward to hearing thoughts from youour listeners about today's show. Please keep the conversation going ifyou like the show. Tell your friends and please take a minute to radar showor post a comment. Go to www dot innovation 3 60 dot com or yourfavorite podcast site. To find out more and to listen to more shows, john thankyou very much for chatting with me. We may have to arrange a second podcastanytime jerry. Real pleasure. I look forward to collaborating in the future.Stay safe and see you. Next week. You've been listening to the Fin ofEight show with jerry Purcell. If you like the show, share it on your networkand subscribe on itunes or wherever you listen to podcasts. And you can go towww dot innovation 3 60 dot com To listen to more shows, download thetranscription from today's show or to contact today's guest. This is theInnovate show, Financial services innovators bringing you the futuretoday.

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