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Tuesday, October 02, 2007

Amazon .com : Optimism, Culture & Customer Obsession

Amazon.com is a posterchild for internet economy and applied technical breakthroughs. It also excels and defines the gold standard in many other things ranging from strategy setting to fostering unique corporate culture centered on customer obsession.
I thoroughly enjoyed reading Jeff Bezos interview in the current issue of HBR. I read it and re-read it again and found it exhilarating. If you base your strategy first and foremost on more transitory things—who your competitors are, what kind of technologies are available, and so on—those things are going to change so rapidly that you’re going to have to change your strategy very rapidly, too says Jeff Bezos. He says as much as strategy needs to focus on arriving at answers for what might change in the next five to ten years, it is also important to note that what may not change in the next five to ten years. What you really want to do companywide is maximize the number of experiments you can do per given unit of time. The key he says, really, is reducing the cost of the experiments. The HBR editors find that Amazon’s strategy and culture are rooted in a sturdy entrepreneurial optimism. Amazon encourages people to take big strategic bets regularly at all levels of the organization. Jeff takes pride in the fact that they are willing to plant seeds and wait a long time for them to turn into trees and adds that Amazon management is not always asking what’s going to happen in the next quarter, and focusing on optics, and doing those other things that make it very difficult for some publicly traded companies to have the right strategy. One way to back up an idea for trial is to ask is, “Is it big enough to be meaningful to the company as a whole if we’re very successful?

One of the reasons that it’s so difficult for incumbent companies to pursue new initiatives is because even if they are wild successes, they have no meaningful impact on the company’s economics for years and he adds in the case of Amazon, a seed planted tends to take five to seven years before it has a meaningful impact on the economics of the company. If in the old world you devoted 30% of your attention to building a great service and 70% of your attention to shouting about it, in the new world that inverts. A lot of its strategy comes from having very deep points of view about things like this, believing that they are going to be stable over time, and making sure our activities line up with them.

Why is Amazon not like eBay? Jeff reasons out : our customers who are buyers are very convenience motivated and Amazon wants to make it really, really easy to buy things. Metrics like revenue per click or revenue per page turn remain very high, as efficiency is the focus - a customer wanting quick service may not have the patience till an auction closes. On the controversial part of third party sellers offering their products/services as part of the main offering he rationales that Amazon doesn’t make money when it sell things; it makes money when it helps customers make purchase decisions. Read his take on customer focus as against competitor focus : If you’re competitor focused, you tend to slack off when your benchmarks say that you’re the best. But if your focus is on customers, you keep improving. Every new employee, no matter how senior or junior, has to go spend time in our fulfillment centers within the first year of employment. Every two years they do two days of customer service. Everyone has to be able to work in a call center. Corporate cultures are incredibly stable over time. They are self-perpetuating, because they attract new people who like that kind of culture, while the people who don’t like it eject themselves. Cultures are very hard for competitors to copy—and a source of great competitive advantage if you have the right culture for the right mission. They also limit. There are things that you cannot undertake. You have to be accepting of what your culture is in your thinking about strategy. Read the full interview - excellence never happens in pockets!

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