While Amazon.com’s earnings reports are always anticipated, Tuesday’s results were accompanied by a big announcement, even by their standards. Amazon.com CEO Jeff Bezos will be transitioning out of his current CEO role to become Executive Chairman in the third quarter.
Anytime there is a leadership change, employees and investors get nervous. What makes this particularly surprising is Amazon.com is at the forefront of the new economy and showed the enormous power and potential of e-commerce with a mind-blowing $125.6B in revenue in the previous quarter. In reading several analyst perspectives, this planned transition to incoming CEO Andy Jassy appears to be a simple execution of a succession plan that had begun years ago, so seeing this change as a worrisome direction for the company would be premature.
The Power of Invention
What was particularly interesting is the quote from Jeff Bezos on this transition, reflecting his perspective on innovation, investment in differentiation, and the power to lead change. He said:
“Amazon is what it is because of invention. We do crazy things together and then make them normal. We pioneered customer reviews, 1-Click, personalized recommendations, Prime’s insanely-fast shipping, Just Walk Out shopping, the Climate Pledge, Kindle, Alexa, marketplace, infrastructure cloud computing, Career Choice, and much more,” Bezos said. “If you do it right, a few years after a surprising invention, the new thing has become normal. People yawn. That yawn is the greatest compliment an inventor can receive. When you look at our financial results, what you’re actually seeing are the long-run cumulative results of invention. Right now I see Amazon at its most inventive ever, making it an optimal time for this transition.”
Amazon.com has made it a practice to continually and aggressively invest in growing and diversifying their business through key platforms. They have built a world-class logistics operation, revolutionized delivery speed, accelerated the acceptance of AI, become a world leader in cloud computing & data management, and created a marketplace that enables all types of companies to create business. Consider: 63% of product research begins on Amazon.com!
Creating an Innovation Organization
One of my favorite quotes, by John C. Maxwell, is “Change is inevitable; growth is optional.” Jeff Bezos knew this from the beginning and has created and driven a culture of innovation and reinvention within Amazon.com. All of the examples highlighted in Bezos’ quote were developed from new. Some of them were evolutionary, some more revolutionary, but all of them required the following behaviors:
- A clear understanding of the business mission & vision
- A culture that encouraged smart risk taking and embraced an investment mindset
- An organization that was nimble & agile to “fail fast/fail cheap”
- An environment that embraced diversity of thought
- A relentless commitment to change the organizational system, such as structure & process, to foster innovative thinking at all levels
While not all businesses will become the “next Amazon,” are you applying the same type of culture development within your organization? Consider five metrics & assessments that can help you assess whether you have a culture of innovation:
- What has been your 3-year gross-margin growth? True innovation enables pricing power, and differentiation is something end users are willing to pay more to acquire. The more a solution is meaningfully unique, and the more it solves an important end-user need, the less price elastic the solution will be, and the more margin that will be generated by the owner.
- What percent of sales are you investing in new product launches? Maintenance brands & products can get away with 3% of sales dedicated to brand investment for a short period of time, but best practice is to invest consistently closer to 6%. If you are creating meaningful differentiation, you’ll be looking to spend 12% – 15% of net sales, at least in the first two years, to drive awareness, trial, loyalty and penetration.
- What is your success rate? What percentage of new items that make it through stage-gate 1 (please tell me you have a stage-gate process) progress to launch? If you find your organization is progressing 50% or less of stage-gate 1 items to launch, you are likely suffering from (a) uninspired ideas that do not meet an end-user need; (b) a broken innovation system/process that is cumbersome, distracted and/or fragmented.
- How does your organization react to killing an idea? Or saying “no” to an opportunity? One of Steve Jobs’ admirable commentaries is how important it was for his team to say ‘no’ to ideas, as that helped prioritize the most important and impactful initiatives. Jeff Bezos’ organization has launched many successful items, but have also had some very visible failures. Remember the Fire Phone? That failure did not distract amazon.com, nor did it derail them from pursing new, better and more lucrative areas for growth. Better to recognize a flawed idea early and move resources toward something better vs. dragging out trying to sculpt a fundamentally flawed failure-in-waiting.
- How much time are you spending on future trends and “next generation” vs. managing the demands of the day-to-day? The best innovators allocate organizational resources, research and insights funding and take an “outside-in” approach to seeking what’s next. But it’s not just the responsibility of one person or group; it’s the entire culture that is wired to be forward-looking. Organizations that are heavily influenced by the sales function will typically struggle in this area, being pulled away from future innovations for near term customer asks.
Bottom line: If you think, once or twice a year, you will hire a brainstorming team to help you and your organization throw ideas at a wall and into concept test to determine your innovation pathway, you are destined to fail. Innovation is hard; it takes discipline, a learning and agile mind, a willingness to constantly seek new perspectives, and the stomach to invest. Great innovators use a powerful screening process, a fit-for-purpose stage-gate, drive focus on the truly unique and differentiated items, empower the entire organization to be innovative thinkers, and make choices to abandon low value work for high value output. I’m looking forward to seeing what incoming CEO Andy Jassy has up his sleeve for amazon.com 2.0.
If you’re looking for help in your innovation process, or desirous to create meaningful differentiation, check out the systems approach to creating an innovation culture from the innovation engineering team at https://jumpstartyourbrain.com