The Amazon Management System . Ram Charan

Corporation and Alfred Sloan of General Motors created divisional structure in the 1920s. Then the matrix structure evolved in the 1960s to accommodate the global market and global supply chain. However, as businesses grew bigger, the number of layers went up, bureaucracy increased, and decision making slowed down.

      In the 1980s Jack Welch of GE created the concept of the operating system. While the intensity of execution increased, the number of layers remained large, bureaucracy remained intense, decision-making remained slow, and the chain between manufacturers and end-users remained long.

      Moreover, such a management system was not focused on customers or on innovating for customers. Instead, organizational leaders fixated on competition with a mindset deeply entrenched in achieving incremental growth slightly better than GDP, gaining market share against a few key competitors, and benchmarking best practices here and there.

      This old management approach has become obsolete in the digital age. Amazon is one of the biggest reasons why.

      Why Amazon?

      The arrival of the digital pioneers, such as Amazon’s founder and CEO Jeff Bezos, disrupted these corporate leadership models of the past. No one is more determined than Amazon to reinvent the management system by using tools that have become available in the digital era.

      The Amazon management system is truly revolutionary. It delivers a superb end-to-end customer experience that is better, cheaper, faster, and more convenient; it drives continuous inventions on behalf of customers; it creates new businesses, expands the eco-system and more importantly, increases cash flows from gross margin that have enabled continuous investment in technology infrastructure and innovation. It not only creates tremendous value for customers, but also creates the world’s best value for shareholders.

      Legendary investor Warren Buffett, in an interview with CNN, called Amazon a “miracle.”

      What is the Amazon management system?

      At the heart of all Amazon’s business endeavors is the Amazon management system, a digital engine 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.

      The Amazon management system breaks new ground in the following ways:

      Building Block 1:

       Customer-Obsessed Business Model

      Despite their espoused commitment to putting the customer first, most traditional companies operate quite differently: they tend to be competition centric. They pay a huge amount of attention to financial results, especially earnings per share, and dance to the quarter-by-quarter short-term rhythm set by the capital market.

      Amazon’s business model, on the contrary, is customer-obsessed, continuously expanding, built on novel concepts of platform, ecosystem and infrastructure, able to defy traditional laws of diminishing returns, and actually delivers increasing cash flows and higher return on investment.

      Building Block 2:

       Continuous Bar-Raising Talent Pool

      Most traditional companies spend enormous amounts of money and effort in recruiting, developing, and retaining talent, and yet still encounter huge difficulty in finding the right people and deploying them in the right jobs. Take recruiting for example, many companies lack specific standards, and even if there are standards, they will easily give way to the pressing business urgency.

      Amazon’s talent pool is carefully defined, meticulously documented, and rigorously chosen; and coupled with complete end-to-end follow-through and feedback to ensure continuous bar-raising, both for the talent pool itself and for the self-reinforcing mechanism of talent acquisition and retention.

      In all interviews, Amazon includes a designated and trained person known as the “bar-raiser.” They ensure that the hire is a fit for Amazon’s culture and its continuous bar-raising.

      Building Block 3:

      AI-Powered Data and Metrics System

      In most companies founded pre-digital, data is scattered and fragmented within different silos, layers, and business units producing significant latency of weeks and months. People seeking a full picture of what is really happening in any day-to-day operation must spend intensive efforts involving many people, and suffer long wait times, in order to dig beneath the results on the surface.

      Many of you can remember the painful experience and mounting frustrations of trying to gather important information from various divisions to piece together a complete picture for you, your team, or a presentation. In some companies, this need alone could justify a big division.

      In such a setup, monthly or quarterly reviews could easily last hours or even days, as business and functional leaders sort through their pieces of the jigsaw puzzle one by one; then such work spirals out of control when the business grows bigger, the number of employees increases, and layers are added, due to the limitation of time and energy of any human being, i.e., the rule of “span of control.”

      Amazon leverages modern technology to run day-to-day operations differently. Amazon’s data and metrics system is ultra-detailed, cross-silo, cross-layer, end-to-end, real-time, input-oriented and AI-powered; therefore everything can be tracked, measured, and analyzed in real time with anomaly detected, insights generated, and routine decisions automated.

      In this way, it provides a single source of truth and significantly minimizes the need for “personal supervision,” thus enabling massive reduction in organizational layers.

      Building Block 4:

      Ground-Breaking Invention Machine

      Most companies began before Amazon build their success on one brilliant innovation they made a long time ago. After that super-lucky and destiny-defining moment, many shy away from ground-breaking inventions, and seem complacent with minor improvements afterwards, here and there, year after year, and sometimes limited to only the packaging.

      On this front, Amazon has surprised us all. Amazon’s invention machine is continuous, accelerating, and aimed at generating ground-breaking, game-changing, and customer behavior-shaping inventions that create new market spaces and economic opportunities of massive magnitude.

      Building Block 5:

      High-Velocity and High-Quality Decision-Making

      Another systematic flaw with legacy management systems: decision-making happens at what feels like a glacial pace, with a “one-size-fits-all” approach applied to almost all matters requiring a yes or no. All kinds of frustrations litter a typically lengthy approval process composed of numerous executives and committees and decision are further stalled by all kinds of politics, backstabbing, gaming-the-system, and the routine charades of maximizing requests on resources, and minimizing commitments on results. All of us are probably familiar with this from own experiences.

      Amazon’s decision-making is high-quality, high-velocity, and strictly follows a set of clearly articulated principles and uniquely designed toolsets enforced with striking consistency throughout the organization. This can make the company a very demanding place to work, but it frees employees from many of the headaches mentioned above.

      Building Block 6:

      Forever-Day-1 Culture

      As they get bigger, most legacy companies find