The powerful innovation practices that Amazon uses to dominate
The powerful innovation practices that Amazon uses to dominate

The powerful innovation practices that Amazon uses to dominate

In record time Amazon has disrupted and dominated three established industries. After Amazon, book publishing, web hosting, and retail will never be the same.

Barnes and Noble fell victim to Jeff Bezos and his team. In its heyday, the company had almost 800 retail stores. Today its 640 stores make up the last national retail book chain.

It an effort to match Amazon’s Kindle, the company invested over a $1B on the Nook e-reader. In the most recent quarter, the Nook sales declined by 25%, leaving them with approximately 3% market share of eBook sales.

Similarly, Wal-mart was too slow to respond to the Amazon threat. Twenty years ago, Amazon was a worth a fraction of Wal-mart. Now Amazon is worth a staggering $380B+ and Wal-mart only $223B. The most telling number of all is Amazon’s 522k revenue per employee. More than double that of Walmart at 222k.

Web and cloud hosting is a market that you’d expect the IBM’s, Microsoft to dominate. Not so fast. Amazon now leads in market share for cloud hosting, owning over a quarter of the market. Not bad for a bookstore.

The breadth of Amazon’s innovation is unrivaled. Perhaps the GE and IBM of yesteryear come close. Today Amazon is the undisputed king of innovation. Here’s how they do it.

Deep Customer Focus

At the very center of Amazon is customer focus. It’s how they think about their business strategy and how they design new products.

“If you’re competitor-focused, you have to wait until there is a competitor doing something. Being customer-focused allows you to be more pioneering.”

Jeff Bezos, CEO Amazon

When you look at the design of the Amazon Echo, the customer focus approach is evident. Bezos challenged the design team to make the Echo’s response time to a question a lightening fast one second. That’s nearly three times quicker than the industry standard.

The resulting sub 1.5-second latency of the final Echo product puts it significantly in front of its competitors. And that’s why it sold over a million units in pre-order.

Long Term Focus

Amazon has never paid a dividend to its shareholders. They chose to reinvest all profits into existing products and bold new bets.

The company is always using foresight into long-term strategic opportunities. It started with the company’s founding. It placed a big bet on the web. More recently the bets on the Kindle and AWS have paid off handsomely.

Despite always investing in new markets and opportunities, the Amazon customer never feels shortchanged on the existing experience.

Spinning the Flywheel

Some argue that Amazon’s strategy is too broad. But this spectrum of innovation unlocks an operating advantage. The flywheel effect.

Amazon innovates across the customer experience; its products and processes. The more each area succeeds, the more the Amazon business accelerates. Making the company unstoppable.

Embracing Risk

“Companies that don’t embrace failure and continue to experiment eventually get in the desperate position where the only thing they can do is make a Hail Mary bet at the end of their corporate existence.”

Jeff Bezos, CEO Amazon

By embracing risk and failure, Amazon creates the space for successful innovation. Due to the breadth of the flywheel effect across the business, they realize an additional advantage. They can make lots of small bets at the fringe of the flywheel. Meanwhile, the core business continues to be healthy.

Happy to be misunderstood

“Invention requires a long-term willingness to be misunderstood.”

Jeff Bezos, CEO Amazon

This philosophy is contrarian to all public companies. In the information age, companies are continuously over-communicating to manage the ‘market.’

Not at Amazon. They recognize they have a plan and are sticking to it. They double-down in the face of criticism and misunderstanding.

Small teams

Amazon builds teams with that ‘act more like founders’ than plain employees. By applying the ‘Two Pizza’ rule, the company keeps team sizes tiny. If a team cannot be fed by two pizza’s, then it’s too big.

By giving them a P&L, the teams are encouraged to take ownership, and they have resources to move fast and decisively.

I’d love to hear your comments and suggestions. Just email mike@qualitance.com.

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About the author

Mike is the Chief Innovation Officer at QUALITANCE. He’s passionate about emerging technologies and experience design. Over his award-winning career, he’s worked on big innovation and marketing projects for Nike, Levi’s, Xbox, GE and many others.