What you will learn from reading Invent and Wander:
– How Amazon thinks about customer experience and what they do to improve it.
– Then mindset and philosophies that Jeff Bezos has used to grow Amazon.
– What customer obsession means to Bezos and why it’s a principle behind amazon’s success.
Invent and Wander Book Summary:
Invent and Wander is a fascinating book on the collected writings of Jeff Bezos. It does a great job at categorising Bezos’s annual shareholder letters into bitesize lessons and ideas that reveal his philosophy.
This book summary relies heavily on direct quotes from the book. So when it talks in the first person i.e. ‘One thing I love about customer’ this is Jeff Bezos and not me (sadly)! If you think you might be interested in the ideas of a man who has created one of the largest companies that has ever existed then read on!
How to spot patterns:
People who love all fields of knowledge are the ones who can best spot the patterns that exist across nature.
To Invent, you must experiment:
To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.
The importance of Business plans:
As MacKenzie drove, Jeff typed up a business plan and spreadsheets filled with revenue predictions. “You know the business plan won’t survive its first encounters with reality,” he says. “But the discipline of writing the plan forces you to think through some of the issues and to get sort of mentally comfortable in the space.
Focus on the big decisions:
“As a senior executive, what do you really get paid to do?” he asks. “You get paid to make a small number of high-quality decisions. Your job is not to make thousands of decisions every day.”
Jeffs’ Customer Obsession:
One thing I love about customers is that they are divinely discontent. Their expectations are never static-they go up. It’s human nature. We didn’t ascend from our hunter-gatherer days by being satisfied. People have a voracious appetite for a better way, and yesterday’s “wow” quickly becomes today’s “ordinary.” I see that cycle of improvement happening at a faster rate than ever before.
Start with customers and work backward. Listen to customers, but don’t just listen to customers-also invent on their behalf.
One advantage-perhaps a somewhat subtle one-of a customer driven focus is that it aids a certain type of proactivity. When we’re at our best, we don’t wait for external pressures. We are internally driven to improve our services, adding benefits and features, before we have to.
We lower prices and increase value for customers before we have to. We invent before we have to. These investments are motivated by customer focus rather than by reaction to competition.
Our customers have made our business what it is, they are the ones with whom we have a relationship, and they are the ones to whom we owe a great obligation.
In our retail business, we have strong conviction that customers value low prices, vast selection, and fast, convenient delivery and that these needs will remain stable over time. It is difficult for us to imagine that ten years from now, customers will want higher prices, less selection or slower delivery.
The Amazon Flywheel:
Focus on cost improvement makes it possible for us to afford to lower prices, which drives growth. Growth spreads fixed costs across more sales, reducing cost per unit, which makes possible more price reductions. Customers like this, and it’s good for shareholders. Please expect us to repeat this loop.
Eliminate Errors at their root:
As my last example, I’ll just point out that one of the most important things we’ve done to improve convenience and experience for customers also happens to be a huge driver of variable cost productivity: eliminating mistakes and errors at their root. Every year that’s gone by since Amazon.com’s founding, we’ve done a better and better job of eliminating errors, and this past year was our best ever. Eliminating the root causes of errors saves us money and saves customers time.
At Amazon.com, we use the term customer experience broadly. It includes every customer-facing aspect of our business from our product prices to our selection, from our website’s user interface to how we package and ship items. The customer experience we create is by far the most important driver of our business.
As we design our customer experience, we do so with long-term owners in mind. We try to make all of our customer experience decisions-big and small-in that framework.
Another example is our Instant Order Update feature, which reminds you that you’ve already bought a particular item. Customers lead busy lives and cannot always remember if they’ve already purchased a particular item, say a DVD or CD they bought a year earlier. When we launched Instant Order Update, we were able to measure with statistical significance that the feature slightly reduced sales. Good for customers? Definitely. Good for shareowners? Yes, in the long run.
We build automated systems that look for occasions when we’ve provided a customer experience that isn’t up to our standards, and those systems then proactively refund customers. One industry observer recently received an automated email from us that said, “We noticed that you experienced poor video playback while watching the following rental on Amazon Video On Demand: Casablanca.
We’re sorry for the inconvenience and have issued you a refund for the following amount: $2.99. We hope to see you again soon.” Surprised by the proactive refund, he ended up writing about the experience: “Amazon ‘noticed that I experienced poor video playback…’ And they decided to give me a refund because of that? Wow… Talk about putting customers first.”
The most important Financial measure:
The ULTIMATE FINANCIAL measure, and the one we most want to drive over the long-term, is free cash flow per share.
Though it’s more subtle and complex in the real world, this issue-the duality between earnings and cash flows comes up all the time.
Cash flow statements often don’t receive as much attention as they deserve. Discerning investors don’t stop with the income statement.
Though some may find it counterintuitive, a company can actually impair shareholder value in certain circumstances by growing earnings. This happens when the capital investments required for growth exceed the present value of the cash flow derived from those investments.
Mixing math with judgement:
The above decisions require us to make some assumptions and judgments, but in such decisions, judgment and opinion come into play only as junior partners. The heavy lifting is done by the math. As you would expect, however, not all of our important decisions can be made in this enviable, math-based way.
Sometimes we have little or no historical data to guide us and proactive experimentation is impossible, impractical, or tantamount to a decision to proceed. Though data, analysis, and math play a role, the prime ingredient in these decisions is judgment.
Math-based decisions command wide agreement, whereas judgment-based decisions are rightly debated and often controversial, at least until put into practice and demonstrated. Any institution unwilling to endure controversy must limit itself to decisions of the first type. In our view, doing so would not only limit controversy-it would also significantly limit innovation and long-term value creation.
You can count on us to combine a strong quantitative and analytical culture with a willingness to make bold decisions. As we do so, we’ll start with the customer and work backward. In our judgment, that is the best way to create shareholder value.
Making something simple and lower friction:
Kindle makes it more convenient for readers to buy more books. Anytime you make something simpler and lower friction, you get more of it.
The Co-evolution of humans:
We humans coevolve with our tools. We change our tools, and then our tools change us.
Long-term thinking levers our existing abilities and lets us do new things we couldn’t otherwise contemplate. It supports the failure and iteration required for invention, and it frees us to pioneer in unexplored spaces. Seek instant gratification-or the elusive promise of it-and chances are you’ll find a crowd there ahead of you.
Be energised for room for improvement:
The good news for share owners is that we see much opportunity for improvement in that regard.
Everywhere we look (and we all look), we find what experienced Japanese manufacturers would call muda, or waste.* I find this incredibly energising. I see it as potential-years and years of variable and fixed productivity gains and more efficient, higher velocity, more flexible capital expenditures.
Goal setting at Amazon:
Senior leaders that are new to Amazon are often surprised by how little time we spend discussing actual financial results or debating projected financial outputs. To be clear, we take these financial outputs seriously, but we believe that focusing our energy on the controllable inputs to our business is the most effective way to maximise financial outputs over time.
We’ve been using this same annual process for many years. For 2010, we have 452 detailed goals with owners, deliverables, and targeted completion dates. A review of our current goals reveals some interesting statistics:
360 of the 452 goals will have a direct impact on customer experience.
The word revenue is used eight times and free cash flow is used only four times.
In the 452 goals, the terms net income, gross profit or margin, and operating profit are not used once.
IT and Leverage:
IT is so high leverage. You don’t want to imagine a competitor whose IT department is nimbler than yours. Every company has a list of technology projects that the business would like to see implemented as soon as possible. The painful reality is that tough triage decisions are always made, and many projects never get done. Even those that get resourced are often delivered late or with incomplete functionality.
Types of Decisions:
Some decisions are consequential and irreversible or nearly irreversible one-way doors-and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type i decisions.
But most decisions aren’t like that-they are changeable, reversible they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups.
As organisations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention.
Process as proxy:
The process becomes the proxy for the result you want. You stop looking at outcomes and just make sure you’re doing the process right. Gulp. It’s not that rare to hear a junior leader defend a bad outcome with something like, “Well, we followed the process.” A more experienced leader will use it as an opportunity to investigate and improve the process. The process is not the thing. It’s always worth asking, do we own the process or does the process own us?
Disagree and commit:
Third, use the phrase “disagree and commit.” This phrase will save a lot of time. If you have conviction on a particular direction even though there’s no consensus, it’s helpful to say, “Look, I know we disagree on this, but will you gamble with me on it? Disagree and commit?” By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes.
Achieving a high standards Culture:
Another important question is whether high standards are universal or domain specific. In other words, if you have high standards in one area, do you automatically have high standards elsewhere?
I believe high standards are domain specific, and that you have to learn high standards separately in every arena of interest.
When I started Amazon, I had high standards on inventing, on customer care, and (thankfully) on hiring. But I didn’t have high standards on operational process: how to keep fixed problems fixed, how to eliminate defects at the root, how to inspect processes, and much more. I had to learn and develop high standards on all of that (my colleagues were my tutors).
Understanding this point is important because it keeps you humble. You can consider yourself a person of high standards in general and still have debilitating blind spots. There can be whole arenas of endeavor where you may not even know that your standards are low or nonexistent, and certainly not world class. It’s critical to be open to that likelihood.
What do you need to achieve high standards in a particular domain area?
First, you have to be able to recognise what good looks like in that domain. Second, you must have realistic expectations for how hard it should be (how much work it will take) to achieve that result the scope.
In the very first lesson, the coach gave her some wonderful advice. “Most people,” he said, “think that if they work hard, they should be able to master a handstand in about two weeks. The reality is that it takes about six months of daily practice. If you think be able to do it in two weeks, you’re just going to end up quitting.”
Unrealistic beliefs on scope-often hidden and undiscussed-kill high standards. To achieve high standards yourself or as part of a team, you you should need to form and proactively communicate realistic beliefs about how hard something is going to be-something this coach understood well.
So, the four elements of high standards as we see it: they are teachable, they are domain specific, you must recognise them, and you must explicitly coach realistic scope. For us, these work at all levels of detail.
MOST OF THE inventing we do at Amazon goes like this: somebody has an idea, other people improve the idea, other people come up with objections for why it can never work, and then we solve those objections. It’s a very fun process.