Amazon’s emergence as one of the world’s most important companies accelerated as the pandemic made us all increasingly dependent on it. It is an “everything” store, an entertainment provider and, through Amazon Web Services, an enabler of our virtual lives. Amazon and the other leading companies (such as Facebook, Amazon, Apple, Netflix, and Google) look set to dominate our new digital economy for decades to come.
However, if there is one thing we have learned through this pandemic, it is to expect the unexpected. Uncertainty seems to be the only thing we can rely on these days. The forces of disruption should be coming for even the most innovative companies. We know that the larger a company becomes, the more it struggles to adapt to changing markets. There is a long list of firms that either no longer exist or are mere shells of themselves, driven out of business by sudden shifts in technology or customer preferences. Blackberry or Nokia phone, anyone? One study concluded that 50% of the companies in the Standard and Poor’s stock index will be replaced by the end of the decade. So, why should we believe Amazon, or any other company for that matter, is more resilient? Has it found a way to inoculate itself from disruptive threats?
In their book Lead and Disrupt, Stanford Professor Charles O’Reilly and his Harvard colleague, Professor Mike Tushman (who are also my colleagues at Change Logic), argue that Amazon may have done just that. Conventional wisdom says corporations cannot lead disruptive innovation. The argument is that companies grown fat on the profits of a mature business model are incapable of doing new and surprising things. However, Amazon has made renewal core to its DNA. In two decades, Amazon has gone from being an online bookseller with no inventory of its own to one of the world’s most preeminent technology firms.
Amazon’s recipe for constant renewal comes from its ability to never stop exploring new market opportunities, even as it exploits its existing markets to the fullest. It did not stop at becoming the world’s dominant retailer. It moved rapidly into entertainment, electronics, and technology services. O’Reilly and Tushman show that Amazon has developed a system for ideating, incubating, and scaling new ventures that rivals anything that Silicon Valley startups can achieve. Underpinning this system are three of Jeff Bezos’ core beliefs: customers are at the center of everything; innovations are programs—not projects—that may take many years to show impact; and finally, inventors need to have passion. They should be patient and persistent, recognizing that failure and invention are inseparable twins.
These beliefs form a set of practices that others can learn from. Ideation through the PR/FAQ process creates an opportunity for employees to propose new products or services. It starts with a PR announcement launching the product, together with made-up customer quotes explaining the value they experience. This one-pager is backed up with text (not PowerPoint) giving answers to frequently asked questions. If successful, an idea moves on to incubation, in which a two-pizza team (i.e., small enough to be fed by two pizzas) aims to convert the idea into something they can validate with evidence from customers. These teams become more formalized and are decoupled from the main business as the experiments demonstrate the viability of the new offering. This separation facilitates scaling, as the team is now ready to become the founders of a new venture, with the independence to pursue the opportunity.
The explore and exploit activities of Amazon are held together through a common management system and common APIs (application programming interfaces) that help ensure everything integrates as it should. Amazon has figured out how to use its corporate assets to allow it to go faster than a startup.
The key lesson for other leaders is to accept that the practices of building a new business are entirely different from those involved in managing an existing one. The core business system of managing operational efficiency and effectiveness is anathema to the needs of building new ventures. One is about being more predictable, the other about living with uncertainty and making sense of emerging opportunities.
It is very hard to manage these are two separate logics at the same time. But that’s what most firms do. Innovation inside corporations is killed not by bad intentions, but by good managers who are focused on today’s business and have limited capacity to worry about the future. Companies need an “explore” business system that has dedicated practices for ideation, incubation, and scaling new ventures with autonomy from the core—while still tapping into corporate assets to help them go faster than their smaller competitors. The disciplines of ideation, incubation, and scaling can be learned. It’s more important to create an environment that encourages managers to step forward and turn insight into viable business. These “corporate explorers” need to be able to experiment with different concepts, learn from customers, and iterate an idea over time.
I am not certain if Google, Apple or Facebook will live to be 100. Executives at Google complain that it’s gone into “pantry mode” when it comes to radical new ideas. Apple’s TV and music businesses look unconvincing. Though Facebook has proven it can acquire new assets, it’s less clear that it can grow them. I am more confident that Amazon will make it to 100 years old because at its core, it is not a retail or technology business, but an organization primed for constant renewal and reinvention.
Andy Binns writes on innovation and change. He is a Principal at Change Logic, a Boston-based strategic innovation advisory firm.