It’s always day one, no matter how big Amazon gets in size. Find out why this concept is so central to Jeff Bezos’s strategy and how he fends off day two, in this excerpt from Ram Charan and Julia Yang’s The Amazon Management System
From the day he launched his new venture, Jeff Bezos has been obsessed with customers. Throughout the history of Amazon, this relentless focus has informed every decision and appeared in virtually every communication or action. In everything from the empty seat at early meetings (to represent the customer) to the recurring theme in every annual letter, customers are the guiding light for Amazon.
Do you know what else Bezos has been obsessed with? Organisation. Whether at Amazon headquarters or fulfilment centres, he always keeps an eye out for flaws in the company’s systems or corporate culture.
So, what kind of organisation did Bezos want to build when he started this exciting adventure called ‘Amazon’? If you read through all the shareholder letters that Bezos wrote meticulously over the past 22 years (1997-2018), the phrase ‘day one’ appeared an amazing 22 times, with striking consistency.
If you go to Amazon headquarters, you will find a building named ‘Day One’ where Bezos’s office is located. Why is day one so important to Bezos? Why has he felt such a strong urge to constantly remind everyone that it’s still day one?
Why day one?
At the early stage of any startup, the founder (or the small founding team) runs everything, from design, production and sales, to delivery and bookkeeping. If luck is on their side, the business will soon outgrow the capacity of the founding team, and they will need to expand the team and build an organisation.
Normally, in the beginning, the organisation will still function with speed, nimbleness, and a risk-acceptance mentality, but as the business grows bigger, complexity starts increasing, and layers begin creeping in, the once-nimble startups inevitably fall into the trap of so called ‘large organisations’ characterised by slowness, rigidity, and risk aversion.
Bezos’s model of ‘day one vs. day two’ has captured Bezos’s aspiration for Amazon to grow aggressively in scale and scope while preserving the entrepreneurial vitality of a startup and building on the numerous advantages of a large company at the same time.
Bezos was fully aware of the challenge in this. As he has noted: ‘There are some subtle traps that even high-performing large organisations can fall into as a matter of course, and we’ll have to learn as an institution how to guard against them.’
What does ‘day two’ look like in Bezos’s mind? ‘Day two is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always day one.’ To Bezos, someone who wanted to win so badly during childhood that he would cry publicly over the loss of a football game, day two is never an option.
One of the many reasons why Bezos loves customers is their divine discontent. Their expectation always goes up. Famous for his unreasonably high standards, Bezos is never satisfied with just meeting customers’ expectations. What he always wants is to constantly delight them, to invent on their behalf, and to ‘wow’ them. What he so adamantly wants to build is not just an invention machine, but one that continuously accelerates, because this is the only way to always stay ahead of customers’ ever-rising expectations.
Customer obsession and day one thinking are the inextricably linked twin drivers of the Amazon management system. Amazon has to improve continuously in everything it does, in everyone it has, and with accelerating speed and agility. In short, it’s always day one, no matter how big Amazon gets in size.
How to fend off day two? The starter pack
There is no simple answer to an age-old problem that has been a source of trouble for almost every organisation on the planet. There are many culprits and traps that can lead to day two; some obvious, but some much more subtle and deeply imbedded in human nature. So, where to start?
Bezos identified this challenge early on and has put a great deal of thinking into finding a solution. In his 2016 Shareholder Letter, he offered a starter pack of essentials for day one defence. It includes:
- True customer obsession
- Resist proxies
- Embrace external trends
- High-velocity decision making
True customer obsession: For Amazon, customer obsession is the first principle. For Bezos, it is essential to the day one vitality. Why? It crystallises the core purpose of the enterprise into something that drives behaviour and decisions forever.
Resist proxies: Bezos has said: ‘As companies get larger and more complex, there’s a tendency to manage to proxies. This comes in many shapes and sizes, and it’s dangerous, subtle, and very day two. A common example is process as proxy.’ Processes are a means to an end, initially designed to make business operation more scalable. However, as a company grows bigger, processes actually can become an end by themselves, so complicated that most people don’t know how to navigate through them and in some cases, customer service is compromised to serve requirements of the internal processes, and focus on inputs, outputs and their linkage gets lost.
Embrace external trends: Most day two companies lack the necessary vigilance to respond to key external changes. When faced with new digital technologies, such as big data, machine learning, and AI, day two companies question how realistic it is to apply new technologies to existing business: how much real impact the enormous investments required could have on the business and what would be the return on investment.
Since the innate uncertainty of technology and future business development limits the possibility of nailing down a specific number of expected returns with bullet-proof accuracy, such discussions usually end nowhere.
High-velocity decision making: Amazon challenges the common trap of applying a ‘one-size-fits-all’ heavyweight approach to most decisions. Not every decision needs to go all the way to the top, to wait for all the information, and to require lengthy approvals and the agreement of all.
The cumulative effect of these practices is to engrain a daily culture of setting ambitious, aspirational yet well-thought-through goals combined with a clearly defined set of metrics to monitor and learn from these experiments in order to continuously improve. Other than factors mentioned in Bezos’s starter pack, what else could drag an organisation into day two? There is no rocket science here. The usual suspects are complacency, bureaucracy, and interdependency that blurs the lines of accountability.
‘More than anything else, he (Bezos) fears and loathes complacency,’ says former Amazon executive, John Rossman. Bezos was truly concerned that as Amazon grew bigger and became more successful, complacency would replace, ‘our spirit and our desire
to take risks… we would cease to insist on the highest standards and gradually entangle ourselves in a giant ball of red tape.’ He explicitly told his executive team that if Amazon fell into this trap, the company would die.
There is no easy way to fight complacency, which usually creeps into any organisation. Amazon tackles this organisational evil by relentlessly raising the bar. This remedy may seem too simple. Almost everyone knows it. But the real challenge here is the unyielding determination to enforce it throughout the entire organisation.
Bezos hates bureaucracy. Lovers of bureaucracy can hide behind the bullet-proof shield of bureaucracy, and protect themselves from transparency, accountability, or measurability.
Without extreme caution and continuous nipping in the bud, bureaucracy can quickly encroach upon your entire organisation, drive away top performers and, before you know it, get you onboard the one-way express to day two.
How to kill bureaucracy? Bezos has poured enormous thought into this aspect. Here are three practices for your consideration.
1. Budget control: Amazon has become notoriously famous for its low-cost operation, which is designed to squeeze out bureaucracy.
2. Indirect headcounts: Amazon regards those who are directly involved in the creation of new skills or better customer experiences as direct headcounts. All others are indirect headcounts. The company has always maintained stringent control over indirect headcounts. Bezos is particularly vigilant in eschewing middle management, This is probably one of the key contributors for Amazon’s impressively low general and administrative (G&A) expenses.
3. Simplify processes: Without defined process, business can’t scale. But how can you distinguish bureaucracy from good process? Here is a checklist of warnings by former Amazon executive, John Rossman:
- When the rules can’t be explained;
- When they don’t favour 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
If any of the above-described situations occur, you need to re-examine and simplify the processes.
This is an edited excerpt from The Amazon Management System: The Ultimate Digital Business Engine That Creates Extraordinary Value for Both Customers and Shareholders by Ram Charan and Julia Yang (Ideapress Publishing, 2019).
Ram Charan holds MBA and doctorate degrees from Harvard Business School. He served on the faculties of Harvard Business School and Northwestern University before pursuing consulting full time. He now advises CEOs and serves on several boards across the globe.
Julia Yang is an advisor to entrepreneurs, founders, CEOs and executives. She serves on the faculty of the joint MIT-Tsinghua MBA programme and holds an MBA from Harvard Business School.