The Amazon Management System
Amazon: among entrepreneurs, no name more embodies the ideal of business success. Many businesses may identify with the famous platform. But many also want to understand how to develop a strategy with similar success.
New York Times best-selling author Ram Charan teams up with successful McKinsey consultant Julia Yang. The result is The Amazon Management System – The Ultimate Digital Business Engine That Creates Extraordinary Value for Both Customers and Shareholders. The book outlines 6 core building blocks for an Amazon-influenced strategy.
Both Charan and Yang provide a timely overview. They look at how any business organization — including Amazon — must compete in the digital era.
What Is The Amazon Management System About?
Charan and Yang explain the factors of Amazon’s success. And they look through the lens of six building blocks:
1. Customer obsessed business model,
2. Continuous refinement of the talent pool,
3. AI-powered data and metrics,
4. Invention Machine
5. High Velocity and High-Quality Decision Making
6. and Jeff Bezos’ well known Day One culture.
How the Book Reads
The book definitely doesn’t read as a glorified review of Bezos and Amazon management. Instead the book looks at how legacy management systems have left organizations less competitive. The book further uses Amazon as the model example of what tenets modern systems should include.
The key takeaway is that these building blocks impact each other, like an interlocking puzzle. For example, the Day One culture concept is meant to keep a speedy and nimble swagger to a large organization, but it also protects the “High velocity” of decision-making outlined in the 5th concept.
What I Liked about The Amazon Management System
I felt the authors tied the concepts and their meanings well across the building blocks they identified. When explaining tips about bureaucracy in Day Two, Charan and Yang detail how Amazon’s view of headcount eschews middle management, keeping G & A roughly 1.5% of total revenue.
In fact, there are more than a few nuggets that get into how decisions are made beyond a number. For example, most of the executives were against the launch of Amazon Prime because Amazon would potentially spend more to ship per customer than the membership fee planned. According to Charan and Yang, Bezos approached the logistics cost by:
“….envisions the future and then works backwards to create a strategy to make it happen, by asking the obvious but commonly neglected question: how will it change?”
Logistics Costs Explained
The authors go on to note that Bezos suspected that the logistic costs would drop over time. But key to the example, the authors note the influence of management systems on the cost.
“In addition, with a continuous system upgrade, Amazon’s logistics system would continue to “drive down Amazon’s transportation cost by double digit percentages each year.”
These sort of insights, combined with some case-level review of financials, give the reader a quick way to envision how the building blocks fit in their own businesses. That makes the concepts adaptable and actionable.
I also liked the structure of the book. It allows readers to note their reflections while giving a summary highlight at the start of each chapter. That helps turn the book more into a useful guide where small business owners and entrepreneurs can discover for themselves what can be applied in their own organization or team.
A Short But Insightful Book
I did wish the book was a bit longer — fewer than 200 pages do not seem to do a company with the scope and notoriety like Amazon much justice. I also wish there were more insights from Amazon personnel. Given that Amazon is very protective of outlining strategic topics in public, deep insider commentary may really be wishful thinking.
Yet the book’s brevity was designed to allow readers to distill the key ideas without being too bogged down on details. The segment on AI, for example, was meant to cover how machine learning is best leveraged without requiring Python or R to appreciate the importance.
The Amazon Management System best compliments innovation books with deeper detail on domain subjects, such as Service Innovation, which outlines service selection strategy. The chapter that rightly highlights Amazon’s views on cash flow is a good complement to Islands of Profit in a Sea of Red Ink.
The book also offers some thoughtful counterintuitive suggestions. For example, the authors note that Amazon looks to multi-function, multi-layered involvement in an approval process “with all the available relevant facts, analysis, and perspectives, effectively considered and efficiently decided.” The idea is to make certain decisions with parallel considerations instead of a sequential one that can take much longer to execute. Ideas like this can help entrepreneurs rethink how they execute their operations.
Entrepreneurs intrigued by Amazon will find the insights from Charan and Yang top notch. The digital era has raised the speed for even the most basic of operational building blocks. This challenges how a business can execute good decisions quickly. The Amazon Management System will provide the right framework to make that operational execution as excellent as it can be.