The Amazon Management System . Ram Charan
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speed, agility, and vitality commonly found in start-ups. They have become rigid, slow, and risk-averse; complacency and bureaucracy have crept in. Some could sustain for a while, some would gradually fall into oblivion or irrelevance, some would become the prey for aggressive acquirers, and only a few could continuously refresh themselves.
Amazon, as an organization, is committed to be forever Day 1, that is, to combine the size and scale advantages of a big company, the speed and agility of a startup, and the continuous upgrade of organizational capabilities.
Why does this matter to you, and everyone?
Make no mistake. Every leader, every entrepreneur, every manager, and every employee, with no exception, must recognize that the century-old management system has become obsolete, and that to survive and thrive in the digital age, all companies need to learn and find a new way that best fits them.
It’s a must, not optional.
Founders and business owners
Going forward, all companies will be digital. Every company will have a platform of its own and/or be connected to someone else’s platform.
Old companies, even old industries, could be disrupted and destroyed; new market spaces and enormous economic opportunities are being created at the same time. The digital giants are the driving forces behind many major changes in the digital age.
The good news is that most of your legacy peers have not started down this path yet, so if you get a head start on embarking on the digitization journey, you may improve your chances to take the lead.
The choice is yours to make: to die or to digitize and achieve exponential value creation.
Senior executives
In the digital age, your job content will change radically.
Instead of spending most of your time supervising others and attending endless reviews, meetings, and committees, your job will be to study consumers directly (not through filters) and drive continuous innovation for them. Your job will require learning how to manage day-to-day operations by using data and metrics with digital tools, to hone your judgment, to make high-leverage decisions, to create mission-critical cross-functional teams with clear goals and specific outputs that innovate and deliver a better user experience, as well as to allocate resources and make mid-course adjustment in a timely fashion.
You will need to be imaginative, to be able to reinvent the business, organization and management system using digital tools, and to lead the transformation. Otherwise, digitization could be a big disruptor for you; and perhaps . . . . the terminator.
Junior to middle managers
As more companies make the transition to the kinds of Amazon management practices described here, leaders will remove management layers, requiring you to reimagine your job and rebuild your competence. Just as the management reforms of the 1980s and 1990s “re-engineered” corporations and removed redundant roles, the digital age is doing this again through the filter of data analysis.
We expect to see reductions in corporate multilayer structures from seven, nine, or twelve layers to no more than five, four, or even three layers. This will reduce the traditional management pool by as much as eight in ten.
This change is inevitable. We have worked with large traditional companies that have gone from eight layers to three layers, and quickly become disruptors to their traditional and digital competitors.
Don’t be disheartened: this in fact presents you with an opportunity. You can go with the wind and take advantage of it, becoming more prosperous, more satisfied, and achieving faster personal growth. You can benefit by understanding the digital management system, proactively preparing yourself in mindset and skill set, and becoming a catalyst instead of a roadblock in the coming management digitization.
The young and fresh
There has never been a better era for new talent — the young and fresh.
The more you understand the Amazon management system, the more contributions you can make, and the more successful you will be in your career whether you are working for a company or starting your own.
Most companies (by most we mean 99%), whether digital or traditional, are looking for young talent who are hard-working, eager to learn, and demonstrate the necessary aptitude, mindset, and skill set required in the new system. Many of them are willing (indeed, forced) to promote these high-potential young people faster and take a risk on their inexperience.
So it’s your time to shine now. Learn fast and get ready.
The entrepreneurs
For your start-ups, please stop copying the management system from GE or other industrial-age companies. Do not follow the traditional 100-year-old wisdom.
Eschew seven or more layers, avoid silo-based organization structure, and choose superior alternatives to the once-a-year annual strategy, budget, KPI, and evaluation processes. Trust and apply the digital way.
Learn from the digital giants and the relentless inventors, such as Amazon, whose management system has been systematically described in this book. All the elements that have fueled Amazon’s tremendous success create unparalleled opportunities for you to start building the superstars of tomorrow. Leveraging a digital management system will help your start-ups scale much faster than ever — far beyond traditional expectations.
Find a new way to get the most from the digital age and experiment with what works best for you.
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In many ways, Amazon has defied the traditional laws of business operation and the core building blocks of the Amazon management system have demonstrated a new formula for winning in the digital age.
Again we are not here to advocate a blind replication of all and everything in the Amazon management system. We hope that this book can help you understand how it works and pick the valuable ingredients and inspirations for your own digital way.
As you read our book, you will see we have focused on the positive aspects of what Amazon does right and what you can learn from that. The brand has been in the news recently and featured in critical articles about everything from environmental impact to labor practices. Many of these are serious issues and warrant serious consideration and action. Amazon’s clout and visibility makes its decisions in these areas even more worthy of attention. In this book, we will not be addressing those concerns directly — but rather looking specifically from a management perspective and what you can learn about Amazon’s model for creating value and the six building blocks you can apply to your own business.
Chapter Highlights
Building Block 1
Amazon’s business model is customer-obsessed, continuously expanding, built on novel concepts of platform, ecosystem, infrastructure and personalization (M=1), able to defy traditional laws of diminishing returns, and actually delivers increasing cash flows and higher return on investment.
What’s Amazon business model?
1.0: Online bookstore
2.0: Online everything store
3.0: Unstore - online platform
4.0: Infrastructure and online and offline platform
What’s its underlying logic?
Customer obsession
Relentless drive to invent
Long-term thinking
Earnings vs. cash generation