The Amazon Management System . Ram Charan

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СКАЧАТЬ 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

How to make it work?

      Building Block 1:

      Customer-Obsessed Business Model

      Before starting Amazon, Jeff Bezos worked at D. E. Shaw and Co., a Wall Street firm famous for its quantitative trading methods. In 1994, founder David Shaw appointed Bezos to lead the effort to study potential business opportunities that could be created by the Internet. The two would spend a few hours brainstorming each week, and Bezos would conduct further study to explore the feasibility of their ideas.

      Among those seemingly crazy ideas generated twenty-five years ago, some indeed came true, such as the “concept of a free, advertising-supported email service for consumers – the idea behind Gmail and Yahoo Mail,” “a new kind of financial service that allowed Internet users to trade stocks and bonds online” – the idea behind E-Trade, and last but not the least, “the everything store.”1

      When Bezos studied the Internet, a magic number caught his attention: 2300%. Web activity had increased by a factor of roughly 2300% in the past year. Bezos noted, “It’s highly unusual, and that started me thinking, what kind of business plan might make sense in the context of that growth?”2 With this notion in mind, he decided to quit his lucrative, highly promising career on Wall Street and start his own business.

      Twenty-five years ago, the Internet was still in its infancy. So where should Bezos start? How to conceptualize a dynamic business model with unlimited growth that had both the high potential to ride this wave of unprecedented growth and the solid feasibility to convert his ambition into reality?

      What’s Amazon’s business model?

      Although extremely excited by the unprecedented growth, Bezos sensibly realized that it was highly impractical to launch the “everything store” right from the beginning.

      So where to start? Bezos listed twenty product categories that had potential to sell online, such as computer software, office supplies, apparel, and music. After careful contemplation, he decided that the best starting point should be books.

      1.0: Online bookstore

      Why books?

      You can probably come up with several obvious reasons yourself. Books are highly standardized, the market is big, and the logistics of shipping books is relatively less challenging than shipping other things.

      The less obvious reason is that at that time the book market was heavily dominated by only two distributors. For a start-up, it was much easier to deal with two, rather than thousands, if not hundreds of thousands, suppliers at the same time.

      But the most important reason was that the Internet could provide enormous competitive edges in the book game.

      Why? Back then, a typical bookstore would carry 100,000 books in stock, only a fraction of the roughly 3 million titles in print. All physical bookstores were constrained by a practical ceiling of how many books they could carry, while an online bookstore could offer an “unlimited selection”.

      This was exactly the crucial differentiator that Bezos had been looking for to feed his game-changing ambition. He understood that the Internet would change customers’ shopping experience in a fundamental way. So what other magic tricks could the budding Internet do?

      There were two more worth noting. One is customer reviews. Unlike the flattering reviews by famous figures included on physical books as part of marketing efforts, reviews on the Internet would come from ordinary readers, direct, authentic and unfiltered. The unlimited space on the web meant that all reviews, positive or negative, could be shown in their entirety, as posted.

      The other is personalization. Bezos envisioned that one day they could achieve the ultimate in personalization: a different version of the website for each customer based on the patterns and preferences derived from his or her previous shopping records. This would be a whole new experience for customers, made possible only on the emerging Internet.

      With “unlimited selection,” “unfiltered customer reviews,” and “ultimate personalization,” the three unmatchable and innate advantages of the Internet, Bezos was confident that no physical bookstores, no matter how big they were then, could be serious competitors in the long run.

      That’s perhaps why the word “Amazon” instantly enchanted Bezos when he tried to find a good name for his start-up. He had experimented with names such as Awake.com, Browse.com, Bookmall.com, Relentless.com, Makeitso.com, as well as Cadabra. Still searching, Bezos referred to the dictionary. Luckily the name hunt didn’t last long. Amazon jumped out at him. It was love at first sight. Amazon “is not only the largest river in the world. It’s many times larger than the next biggest river. It blows all other rivers away,” Bezos said.

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