>>: Thanks everyone for coming to the Speaker Series today. Today I’m really pleased to introduce John
Rossman. He’s here to discuss his new book The Amazon Way: 14 Leadership Principles Behind the
World’s Most Disruptive Company. As Director of Enterprise Services at Amazon, John developed
several of the key program and piece, P programs and pieces of infrastructure. Not the least of which
included the company’s successful reseller network, as well as several key retail partnerships.
Working on the customer experience across our teams here at the company I was not surprised when I
was looking at his book last week or so. To see the first chapter focused on the customer obsession. I
think this dovetails really well with the transformation we’re seeing at our own company. As we work to
improve our user and customer experiences across all of our various offerings and services.
John’s now a Managing Director at Alvarez & Marsal, which is a global services, professional services
company. He took some of the time, he took some of his time to put some of the insights that he
learned at Amazon to paper. One of the things that I thought was that John has a really keen insight and
understanding of this company. I thought it; I think we’ll expect to hear a number of those interesting
insights today as he talks with us, so John Rossman, good.
>> John Rossman: Thanks.
[applause]
>> John Rossman: M three and I were neighbors. We were neighbors actually when I was working at
Amazon. I don’t think he saw me a whole lot during those years and everything, so thanks for being
such a great friend and champion to help me out on this.
It’s been nine years since I left Amazon. There’s obviously no like you know proprietary great insights
here. But the story of actually how I got started on this has a tie into Microsoft. Wes Aaron’s, my
business partner and I were facilitating a meeting with a Senior Microsoft Finance Team. We did it down
at a hotel down in Berkley. It was set up as you know help us you know we’re a sixty billion dollar
organization running on an infrastructure that was built for a ten billion dollar company. We want to get
to a hundred billion dollars.
We brought in some of our operators to take questions from them all day long. All day long I just kept
answering it well here’s how Amazon would think about it. This would be you know Jeff Bezos rant on
that topic or you know whatever it was. At the end of the day my boss who’s from Houston, so I always
mock him, said John you ought to write a book about that. I was like Tom, you know the last thing I do, I
think in bullet points, full sentences are a real structure for me.
But basically in the nine years since I’ve left Amazon I’ve really developed you know a set of like tactics,
strategies, techniques, tricks about how Amazon thought about situations, opportunities, problems, and
how to attack them, and got clever at fitting them into my client work in situation and everything. The
book really through the lens of their Leadership Principles is really that kind of tactical explanation of
how Amazon thinks about problems.
With so many of our clients the question and the conversation always starts with, you know I’m not an
ecommerce company, I’m not even a retailer, you know why is this important? If you don’t think
Amazon or somebody like Amazon will take a fresh look at your industry and your market. I think you’re
avoiding reality. This here really demonstrates the acceleration of you know call it innovation. I look at
as accelerated Darwinism in the business landscape.
I think Satya your CEO when he says, “Our industry does not respect tradition it only respects
innovation.” I think that’s a real truism that this data helps reflect. One of the traits that Amazon has is
they are not afraid to interrupt their own businesses and to create internal competition. You know if
you would to cannibalize their own businesses. They’ve done that repeatedly. I think that that is, that’s
an interesting type of company. That’s hard to do. But I think that that’s one of the things that they
realize is that if we don’t do it somebody else will. They’re more than willing to do that within their own
business. I can give several examples of that.
Again this story and how I came to write a book about it so many years after having left Amazon. Really
started with you know the repeated question of you know, what would Jeff do? I think what’s
interesting about, one of the things that’s interesting about these leadership principles and M three and
I were just reflecting on this. Is that they’re you know they’re balanced, there’s fourteen of them.
Sometimes they compromise each other. You really have to tug at them and work at them.
They’re tactical; they get used in everyday conversations. These aren’t you know kind of you know at
the church and then once a year you go visit them and everything. You bring them into real meetings
every single day. They’re really what help scale the leadership at Amazon. I recently got asked like, well
how does Jeff keep track of so many things? A big part of it is through you know scaling his leadership
thinking and his thinking and that’s what these leadership principles do. The story here is really you
know one way to keep answering the question of what would Jeff do?
This presentation I brought out just some of the antidotes that, most of which are in the book. Some of
which didn’t make the final cut. If you have questions, you want to explore something more raise your
hand through this, or we can do it in the Q and A, or we can do it offline, yeah?
>>: It sounds like this is really the culture that he’s put in place so that everybody knows and he can be
predictable, right?
>> John Rossman: Yes.
>>: In terms of which way he would go.
>> John Rossman: Yes.
>>: How long, do you have a sense of how long this took to put in place? Because Satya now is trying to
go through that and he made a comment on Friday’s Town Hall that said, “Culture trumps strategy any
day.”
>> John Rossman: Absolutely, so I was there from just about four years, from early two thousand two to
late two thousand five. You heard and felt, and used these leadership principles but there was not a list
of them. Today there’s a list of them. It’s part of orientation. I don’t know exactly when they codified it
into you know these are the leadership principles and everything.
But these were the things and I was there at a very interesting time. I got to launch and run two
businesses. I launched the third party selling business, so that’s third parties selling at Amazon. That’s
over forty percent of all units shipped and sold today. A lot of analysts would say that is the vast
majority of the profit at Amazon comes from that business. They launch and learn, so they’ve learned a
tremendous amount about new categories through that business, as you’ve seen their category
expansion and their retail expansion that’s how they’ve done it.
The second business I got to run there was helping to run other large retailers ecommerce
infrastructure. We had to cross many of these issues. I think it was kind of during that time we got
really clear about what being a platform company meant versus being a retailer. Many of these things
kind of came to play. I think it was kind of shortly after that that they really codified these.
>>: But he would just keep repeating that and people would repeat them. He would give them you
know so it was him really trying to, okay…
>> John Rossman: And others but, but I mean he’s amazingly predictable and consistent. That’s I think
you know you always know how Jeff’s going to think about it. But that actually makes it a lot easier to
operate in the environment. These are part of that thinking.
>>: That’s a good question, on the previous slide when you said new company, what is the metric for
new like with the last five, four years?
>> John Rossman: Well I think that was…
>>: Hey John can you repeat the question.
>> John Rossman: On the previous slide the metric for new company. That was really companies
entering and exiting the S and P five hundred index, basically the velocity of change within that index.
You know I think the symbolism of you know the customer is very important. I don’t think the key is
being customer focused. I always, I think the interesting word is obsession. You know that’s very
different than well I have an interesting stake in the customer and everything, but when you have
custom obsession that is very, very different.
The way Amazon typically thinks about whether it’s both features or new businesses they take a very
lateral view of the experience. They don’t look at it through the lens of their offering or their feature,
their product. They look at it end to end. They’re willing to change the model. A real interesting one
that they launched in two thousand three that was very controversial. I think very counterintuitive was
a feature called Search inside the Book. That’s the ability at Amazon to view the full digital content of a
book and to search it, and to read select chapters to it. The push back was very strong both within
Amazon as well as especially in the industry from publishers.
Why would customers buy a book if they could read it? If they don’t like it they won’t buy it. But it was
Jeff’s intuition that if a customer trusts what they’re going to buy and are more comfortable with it
they’ll actually buy more. That was very counterintuitive thinking. Search Inside the Book I think is one
of those innovations where counterintuitive thinking but lead by truly what is best for the customer,
regardless of how it impacts our sales, regardless of how it impacts the industry and our partners. If we
lead with a customer’s viewpoint on this we think that in the long term we will win. That’s one of the
other principles is you have to think long term. Short term it probably had a hit to the business.
On the tactical side I work with a lot of clients. You hear a lot about you know business intelligence, BI.
The vast majority of it is, has significant latency to it. You’re looking at data that is you know typically
thirty, sixty days old. It’s rolled up, it’s in reports. You can’t act on it. One of the principles that we
drove at Amazon was every system has to be real time. Now did we work our way off of that objective?
Yes, but we started everything with all data has to be real time. The things that you can do with real
time data are vastly different than you can do with stagnant data.
I think the concept of, and they chose this word very intentionally, instrumentation. They didn’t use
analytics. They didn’t use you know data. They didn’t use reporting. They used instrumentation as a
very key word. Because instrumentation gives you that feeling of real time controls and the ability to
correct, steer, make adjustments based off that data, and that you had the controls with it.
I think that you know one of the tricks of Amazon is everything, all processes in the underlying systems
and data are engineered with real time instrumentation in mind. Which leads to a great culture, this
didn’t show up real well around you know data kind of trumps all in discussions. There’s an intense
focus on metrics both short term operating metrics as well as long term metrics to measure the health
of a business. Its part of what allows Amazon to not have too much you know organizational deferment
is that it’s, it’s an environment where the best data always wins the conversation.
This leadership principle Invent and Simplify, again I always I think I kind of focused on the
counterintuitive word. I think the most important word here is simplify. I think that so many, I think it’s
not relatively easy but the ability to invent is definitely there. But the ability to simplify which often
times means integrate and make it obvious and self service in nature, that’s a very different thing to do.
You know leaders are expected and require innovation from their teams and always find a way to
simplify. They are externally aware, look for new ideas from elsewhere, and are not limited by “not
invented here.”
I can point out many examples. One of the recent ones I saw at Amazon was you’d think that the
returns process was a pretty tried and true, how can on earth can this possibly get better? Why on
earth would I want to make it better for my customer? But I noticed a couple of refinements to the
Amazon returns process. They made it easy for me to send my return packing slip to a friend to print it.
I’m at a friend or I’m on my mobile phone, send it to a friend to print it to me.
The real clever thing they did was the second that I took it to UPS they set the expectation with me that
once we receive the item at the warehouse we’ll credit you back. As soon as it was shipped from UPS
later that afternoon I got the credit and everything. I though both A how that built trust with me, I’m
sure it was done on a customer segmentation. I’m a Prime customer, they know me well, I’m
trustworthy. But you know the ability to continue to shave off the defined edges of what is already a
world class process. I think that that really gets at how to keep simplifying processes and experiences
and make them self service. Yeah?
>>: I just had another experience I just most recently had. I’d purchased a [indiscernible] that was
maybe I don’t know three dollars and a pair of cables that was the wrong one. I went to return it and
instantaneously they say you know, I got an email back and said you know what keep it. Which basically
means that quite frankly it’s not worth them going through all the process and they knew exactly how
much it cost to email, process, return that, and they just said keep it.
>> John Rossman: I said I’ve never seen that.
>>: Yeah, I was floored actually by it.
>> John Rossman: That’s interesting. A real important cultural capability is the willingness to Have
Backbone; Disagree and Commit. It’s stated this way, leaders are obligated to challenge when you
disagree. Don’t compromise just to get along, but once a decision is made commit wholly to it.
So much of this world and so many organizations are geared to the what I think is kind of the
compromise, the lowest common denominator of well let’s get along you know and everything, right.
It’s important that we reach consensus and that everyone get along. Amazon is wired a very different
way while getting along, being collegial is valued being right has a higher order standard to it. But once
a decision is made, been made and it’s clear who the decision maker is. They have good hygiene around
that. Once a decision is made there’s an expectation that you know you don’t see the passive aggressive
un-working of decisions.
That lets them move forward. They learn very quickly you know data driven environment. They make
corrections and one of the principles in the book is about you know leaders are most critical of
themselves above everybody else. But I think that the ability to have backbone and disagree, and to
fight through to get to the right answer, but then once a decision is made put it behind it. That is a well
organized and well functioning team, and organization that can do that.
Two-Pizza Team has anybody here kind of read or heard about Amazon Two-Pizza Teams? There’s been
a lot written out there about them. Jeff’s biggest paranoia is bureaucracy, is that he knows you know
the history of large organizations, large teams. He’s a firm believer that small teams of innovators will
out innovate. Two-Pizza Team is really one way, not the only way, one way that Amazon works to keep
bureaucracy low, keep small teams, and keep teams engaged in innovating, and launching.
A Two-Pizza Team is a team no bigger than ten. It owns a service typically. It could be the item receive
service, it could be the cart service, it could be the image service, something like that. The world is all
broken up into these services. As a Two-Pizza Team owner you own the business. You own it from
being the CEO of that service, so driving adoption, understanding who your customer is internal and
external. The metrics relative to that, the product road map, the engineer and the operations all the
way through the stack.
I think that that’s a very unique capability and it allows a lot of people to have a stake in ownership and
adoption. It’s closely tied to an architectural principle I’m sure all of you are experts in this of service
oriented architecture. Really Two-Pizza Team is the organizational model that fits into a service oriented
architecture. These Two-Pizza Teams typically own services. Services are only allowed to talk to each
other via APIs. There’s a great description of you know Jeff went very tactical at defining that every
team will only work with other teams via an API. These teams shouldn’t have to talk to each other
because their API is obvious and well documented. I think that you know there’s a strong correlation
between some of their architectural principles and their organizational model.
When, yep?
>>: A question of the Pizza Teams. How do you ensure with that architecture that you don’t have teams
that conflict in the bigger order goals, right? Because that’s kind of the risk what you get when you start
fragmenting the business that way.
>> John Rossman: Well, first I’d say sometimes that competition is allowed and actually generated and
everything. But you know just through kind of product planning and their overall annual planning. The
other thing that’s a little hard to do is kind of the cross team coordination and so on, initiatives that
require a lot of cross team coordination. They have compensating you know approaches for doing that.
There’s taxes put on team for infrastructure work. There’s taxes put on team for you know enterprise
initiatives and everything. But it does allow for healthy amount of your budget and road map to be
independent from other teams. Yep?
>>: In the context of the [indiscernible] of the customer are you going to discuss the [indiscernible]
publishers?
>> John Rossman: I’m sorry?
>>: Are you going to discuss the Amazon [indiscernible] shared publisher?
>>: A shared.
>> John Rossman: Yeah, and I’m sorry what’s the question?
>>: Is it going to focus on the customer?
>> John Rossman: Yeah, well I mean, I think that there’s a lot of lenses on that conversation.
Negotiating with vendors is you know that’s the game of business. I think the publishers have built a
situation where somebody has incredible leverage on them, right, Amazon’s well over fifty percent of
the book market. You know I think that you can argue that through the lens of a customer. It gives
better access, lower prices. That benefits the customer. Publishers can argue it the other way. But
that’s the reality of vendor management negotiating that every company does. But the key lesson there
is you know manage your leverage. If you start being in a position where you’re the unleveraged one
you should expect a conversation like that.
One of the favorite strategies used at Amazon is a strategy called OPW, Other People’s Work. I don’t
know if people get this picture. But this was Tom Sawyer and he was able to talk his friends into
painting his fence for him. That’s really the essence of OPW is we especially use it at Amazon for
processes that couldn’t be automated. Things like is this a good image or not? That’s a hard
computational problem to solve. Write a review, build me a description, describe the item, things like
that.
Our job at Amazon was build the tools and the incentive so that others, your customers, your vendors,
your partners would be incented, would have the tools to easily do work for you. But also think about
the incentives that are in line there. I’ve worked with a lot of my clients on you know what’s your OPW
strategy for a process that you really don’t want to own, doesn’t scale well, but others are interested in
it. Think about what your OPW strategy is.
I talked a little bit about instrumentation and one of the you know goals of that is real time data.
Another aspect of this was you know we had an architectural principle of No Batch Systems, because
Batch Systems didn’t allow for real time data. When you truly start working the ability to take out Batch
Systems you start taking cycle time out of processes. When you can start doing that and re-engineering
processes and capabilities your Batch Systems will soon be the weakness in that change.
You know for all the IT people and process owner people here and everything. I think one of the four
letter words at Amazon is Batch. You know you literally have to get an out of cycle approval in order to
have a batch element to you know your process or your system, or your data. I think it’s a, that focus on
real time data. I haven’t seen any other company that I’ve gotten to work with that has a true
understanding of why real time data’s so valuable in their business. That even though today it may not
seem like that Batch System is going to hurt. It’s some use case, some need down the road you’re going
to run into it. It’s like, oh gosh but we’ve got a Batch System architected in there. Then you don’t have
the ability to deal with it.
At the start we talked a lot about that these leadership principles are the mechanisms through which
you know the leaders at Amazon, Jeff can help scale his thinking and approaches. One of the ways
around that is a Forcing Function. A Forcing Function is a mandate or a rule, or an approach that makes
it very difficult to do anything other than the goal that we’ve described.
Everybody here’s familiar with you know Cloud technology and the move to the Cloud, Amazon Web
Services, AWS. Do you think that AWS started as we see an opportunity to completely change the
provisioning and purchasing model for technology? Do people think that there was a purposeful
strategy set out like that? It didn’t start that way. The way it started was engineering teams owned
everything from kind of the application through infrastructure. That became unscalable and
uneconomic so we forced the separation between application teams and infrastructure teams. That was
step one.
Step two was these infrastructure teams are going to provide reliable self service capabilities to their
application teams that they were servicing. Jeff thought that that was such a good idea and he goes,
internal customers are patient, internal customers understand when things don’t work, external
customers do not. I’m going to force you infrastructure guys to externalize your capabilities and have
external customers.
That was the genesis for AWS was this Forcing Function. In order for your infrastructure to be good
enough for my applications I’m going to force you to have external customers. He forced the
infrastructure teams to think about external customers. Low and behold that turned into AWS and they
got crazy adoption when they didn’t expect it. It was like there, now there’s a business model. Now
they obviously are thinking that through. But it didn’t start from a strategy of Cloud computing. It
started as an example of a forcing function to force infrastructure teams to provide high reliability self
service capabilities to application teams.
Another interesting Forcing Function is this concept of Direct and Indirect Head Count. Direct Head
Count are people who develop code or can negotiate contracts, so vendor management people, and
SDEs. Indirect Head Count is basically everything else, Account Management, Business Operations
Management, Customer Service are kind of the big categories.
As a process owner every year I could have almost unlimited Direct Head Count, so System
Development Engineers. But I always was increasing constrained on my Indirect Head Count. What did
that force me to do? It forced me to create scalable processes. I would have to automate things that
today I was doing manually. When you put a forcing function like that in there like managing your head
count and shifting your head count that way. It forces to create highly automated processes. I thought
that was a really interesting technique that at the top they could, and not figure out all the details
underneath it to the teams.
>>: Do you see more [indiscernible]? Don’t break it, sort of a Direct and Indirect Head Count and what
it was doing?
>> John Rossman: Direct Head Count was your engineers or vendor management people. Indirect was
kind of all your business management people. Each year you be tightened on your Indirect Head Count
even if your business was growing, and your business was always growing. But you could have almost
unlimited Direct Head Count. I could get engineers to develop tools, systems, processes to automate
things. But I had to continue to show efficiency and scalability in my business.
>>: Right.
>> John Rossman: That forced me to automate, to create OPW tools, to solve problems in a new way,
and a scalable way.
>>: Okay, thanks.
>> John Rossman: Yep, I think another type of Forcing Function was a technique that was called a
Future Press Release. A Future Press Release would be one of the very first things you would do when
starting a new initiative whether that was a service launch, a product launch, a new category. There was
a few rules to a Future Press Release. First it was done not in the time of when the project was
launched, but sometime down the road. It would first explain why this was important to customers.
Why customers loved your service or your feature.
The second thing it would do is it would describe what were the things that you did early on, the hard
things you did that made that successful? You were kind of predicting like well I have to figure out the
migration of you know this capability. I have to figure out how to solve this problem. We tacked on this
hard problem in it.
It’s incredible, so for big initiatives these Future Press Releases get edited, not reviewed but edited at
the S Team level, at the Senior Team level. They show a propensity for spending time on aspects like
this as well as getting your metrics right. Because they think that if we can get the Future Press Release
right and we can get your long term metrics right, good people are going to drive in the right direction.
They spend an enormant amount of time at senior levels getting your Future Press Release right.
I’ve used this with a lot of my clients to help tackle what are the hard things we’re going to do? Why is
this going to be successful? Then once you have that you’re bringing that out all the time through you
know your project meetings and all of that. To keep reminding yourselves you know we committed to
these things. We committed to solving this problem. We said we were going to do this. It’s yet another
type of forcing function that allows you to drive change and have the authority of others, even when
you’re maybe not the direct decisions maker organizational owner. Write your Future Press Release.
>>: We do this; we do this in office manager [indiscernible].
>> John Rossman: Good, are they useful in kind of gaining cohesion and forcing tackling tough issues?
Good, that’s great. Are You a Platform? When I was at Amazon, when I started there primarily thought
of both externally and internally as a retailer. I launched the third party selling business. Then I ran the,
essentially the outsource ecommerce business.
During that time we got really clear that Amazon was at least two types of companies. It was a retailer
and it was a platform company. The retailer was just another tenant on the platform company
capability. There’s so much more than just a technology aspect that goes into truly being a platform
company. It changes the business model. It changes the operational obligation that goes along with it.
It changes the ecosystem that you have to build around.
You know there’s several different types of capabilities, critical capabilities. One of the things that I
address in the book in one of the appendix’s are what I think those critical capabilities are relative to a
traditional you know software technologies services company. I think every company has the
opportunity to ask two questions. One is if this capability is not critical to me how do I leverage
somebody else’s capability but in a high control manner, so as a service? Or conversely if I have a
capability how do I create it as a platform to let others leverage off of it?
Everybody thinks that these are technology oriented things. Is anybody familiar with The Fulfillment by
Amazon Business? FBA allows third parties without ever talking to anybody at Amazon, again without
ever talking to somebody at Amazon leverage Amazon’s network planning capability, sortation,
fulfillment network, and atomized purchasing tools. I can avoid the large capital costs of building
fulfillment centers; avoid the operational complexity of being really good at fulfillment, and ride on the
coat tails of an Amazon core competency, which is fulfillment. I think that most companies have the
opportunity to really ask themselves the questions. Like how do I become a platform company?
>>: You know I think there’s something really interesting that you said earlier about leverage which is
true about Amazon and a platform company. A lot of those giant enterprise platforms Amazon moved
away from the Targets, the Borders, the lesser extent Parks and Spencer’s. Because they realize that
that business relationship was not scalable. That dealing with the custom support for these high value
customers just didn’t work. The only way to be a successful platform company is to make sure that you
always have leverage over the people who are on your platform, so that you can dictate terms to them
and not the other way around.
>> John Rossman: I couldn’t say it better. I absolutely agree with that.
>>: Yeah.
>> John Rossman: That was the second business I ran and it was a real conflict because my clients
wanted all of that control. But Amazon was a federated platform. Like I’ll tell you what’s coming but I’m
not going to give you a lot of input into that. Yeah?
>>: How did they balance this with sort of the experimentation principle of like trying out new things
and not getting over invested? It just seems like a large investment to always build a platform. Is there
sort of a balance between how far you get before you decide no we’re really going to go build it?
>> John Rossman: There are some bets that just like you know you got to get into it. You know there’s a
certain amount of commitment to even get to the point where you can trial. But it’s amazing how many
things can be started at a small scale and then are allowed to kind of germinate.
Amazon Fresh I think is a business that took an initial you know capital and operational commitment.
But then they operated it in Seattle solely for five, six years. Really figured out the business aspect of it,
all the technology, replumbed everything in their supply chain to be a forward deployed inventory
model. Then the tax change that basically took sales tax out of the equation, meaning everybody was
going to have to collect it. Those two things combined and now they’re exploding the markets in Fresh.
That’s a good example where you know there was a big upfront commitment. They allowed it to trial
and error, and refine itself over a long period of time. Then they picked the right point and now they’re
going for it.
One of the pieces I wrote and this is an appendix in the book, and I have some copies of it. Is a piece I
wrote called Future-Ready Self-Service. Future-Ready Self-Service is, I wrote out kind of ten core
principles for how to reinvent the way that work gets done. The underlying principle is that your
customers don’t want to talk to you. They want to answer their question. They want to get what they
want to get done, when they want to do it, with tools that’ll allow them to do it themselves that are
easy, that are obvious in a way to do.
That when companies take the opportunity to truly think about not incremental process improvement.
But how would I obliterate this function. How would I do away with you know manual credit checking
or whatever the process is? You think about the problem set completely different. The thing that you
know the business I ran at Amazon, the third party selling business. We were given the goal of being
able to you know launch and run hundreds of thousands of third parties with only a minimal operational
staff. I literally had a, like fifteen account managers. But I got all the engineers I wanted.
I approached the problem set in a very different way. Selling at Amazon is a very complex choreography
and hand shake of data, and systems, and processes, and capability, much more complex than EBay’s.
We created the you know my Future Press Release was a seller in the middle of the night without talking
to anybody should be able to sign up, provision themselves, list products, fulfill orders without ever
having to talk with somebody at Amazon.
That was my Future Press Release. We had to completely reinvent and create tools that allowed third
party sellers to do that without ever talking to somebody at Amazon. I think the opportunity at most
companies to reinvent the way that work gets done. To challenge the assumptions on why this is a
manual aspect you know why these processes happen. Why there’s cycle time here? If you start with
the question what would I need to do to completely automate this? I think you come at the problem set
from a completely different standpoint. This piece gives some of the tricks and the things that you can
think through to provide Future-Ready Self-Service.
This is a fairly I think famous model from Amazon. It’s, if you ever want to read what I think is a really
interesting piece, read the first Shareholder Letter, nineteen ninety-seven Amazon Shareholder Letter.
They reference it every year. They attach a copy of it to it every year. This virtuous cycle is very real. I
think that there’s actually a new one emerging at Amazon in the retail business. That’s the virtuous
cycle of Prime and between all the access points that they’re giving, and all the content and value, Prime
is transitioned from being a shipping club to a loyalty club, to a new business model. I think that they
are putting a massive mote around their customers. Once you’re inside I think it becomes very difficult
in a good way to leave as a customer.
But I think every business needs to really think about how is what I’m doing both a great individual
product and capability? As well as what’s my synergistic aspect? What’s my virtuous cycle that I’m
creating relative to this? In an environment where resources are constrained you can only make a few
bets. If you don’t have a good, simple picture of the virtuous nature of the business that you’re
creating, I’d suggest taking the time to create and understanding of that virtual model, of that virtuous
model.
Jeff is a long time proponent of Long Term Thinking. He is part of a group called the Long Now
Foundation. They’re building a clock in West Texas on some property that he owns that will chime once
a year and guaranteed for a hundred thousand years, or something like that. The message is just around
you know long term thinking. He talks about that just by shifting his investment timeframe from you
know eighteen months or two years, which is his typical competitor investment timeframe to five to
seven years. He can approach problems in a completely different way. He can invest in a different way.
He can experiment in a different way.
I think through this process of inventing and rediscovering that you have to keep you know the long
term insight. Not make compromises to the long term based on short term need. I think that’s always
the tension is don’t give away something that’s going to be incredibly valuable down the road in order to
sacrifice for short term benefits. Everybody knows the pressure relative to do that. But I think that you
know thinking in the long term making smart short term decisions is incredibly valuable. Is a
commitment that you can see made at Amazon in many, many ways.
That’s the core of this. A friend of mine wrote a poster of some of the key tactical aspects that when he
read the book he came away with. That’s my email; you can follow me on Twitter. I’ve got a Blog called
on-amzn. I focus primarily on things about Amazon business and multi channel, and technology
capabilities. But I wanted to open it up for questions.
>>: Why did you leave Amazon? What was your decision?
>> John Rossman: Yeah, it was a lot more about, so I was a partner at Arthur Anderson before I was at
Amazon. Alvarez & Marsal was starting a healthy company consulting business. Some of my best
people I ever worked with were starting that business. I had the opportunity to start the Seattle
practice. I wanted more control of the bets that were being made and the outcomes relative to those.
That was kind of the opportunity that I had with A and M. Yeah?
>>: What are Amazon’s most effective listening mechanisms to have that sort of outside end view that
made them so successful?
>> John Rossman: Data being critical they have a great Voice of the Customer Program that lets them
cut across teams. A Voice of a Customer Program is a formalized program. That team gets to pick an
issue and cuts across teams to address that issue.
I think the other is you know they do a lot looking at customer service. You know you’ll hear a lot of
stories about you know Jeff gets an email from a customer and he fires that thing away, and people
jump. I think that there’s a big belief in kind of the canary in the coalmine point of view. Of like well if
this customer can have this bad experience it shows that some things not in line some place in. They
really tackle each failure with you know real ownership. I think it’s a combination of data, formalized
customer listening programs. Then the ability to look at any one customer incident and go we got to
figure this out.
>>: Can you explain a little bit more about the Voice of the Customer Program. What exactly are the
channels of feedback that are coming in? Are they aggregating a certain number of, I mean obviously
there’s customer complaints. But what are the exact sort of data sources where they’re getting all of
this?
>> John Rossman: Yeah, primarily from customer service. They do a lot of you know Pareto analysis of
the biggest issues. Often times Voice of the Customer comes from like well we had a bad experience on
X product or you know a bunch of shipments were late, or something like that. They’ll pick an incident
and you know work it across the teams to resolution. It’s primarily a customer service driven program.
When I was there the VP of Customer Service ran the Voice of the Customer Program. He got to pick the
issue, convene everybody together, and you know it’s like hey report back next week on what we’re
doing about it. He had authority to you know mandate changes which get to you know a principle
around ownership. Ownership at Amazon means I have the ability and the obligation to pursue making
something better, fixing something regardless of organizational structure.
While there are teams and there’s organization there’s not much deference to it. Like people don’t care
that much about it. It’s certainly my obligation is to not let an organizational structure get in the way of
getting something right on behalf of a customer or an issue. I think that that aspect of ownership and
not being to differential to organizational structure is a real cultural strength for Amazon.
>>: Do they pay the employees who do and fix that? Do they reinforce that? Because I know Google
some of their customer basic folks are the highest paid. How does Amazon pay for its…
>> John Rossman: Yeah, you know so compensation Amazon a lot written about compensation at
Amazon. They do salary and they do RSUs. There are no bonus structures within Amazon. They’re very
purposeful about why they don’t do individual bonuses. I think in general there is no, there’s no
bonuses. But they do a lot in terms of icons.
There’s, they have a lot of awards that have a monetary value of nothing. But it gives you; you know
kind of pride of the tribe and everything, right. They have an award called the Just Do It award, which
you might typically get if you pursued something on behalf of you know an error, an issue, an
inefficiency, a customer issue that was really hard to get done. You might get the Just Do It award which
is basically an old sneaker that’s been dipped in bronze. Yeah?
>>: I think you had a couple questions online. But one is I’d be curious if John could comment on the
time, no pun intended metrics they watched to know their customer, and how they used them as in the
metrics?
>> John Rossman: Other than there’s a lot of them and they’re very purposeful in the ability to cascade
metrics. You know you can pick kind of one metric, drill in, cascade all the way down. The other thing
about metrics at Amazon is you know who the owner is of every metric.
Metrics aren’t these ill defined pieces of data like people own metrics. There is such a commitment to
SLAs that it, internal, external SLAs are very, very serious component closely tied to that concept of
instrumentation. But every service as a launch requirement has an agreed upon set of SLAs that,
because you can’t have great service dependency if I can’t count on you know what my SLA is for my
services. Yeah?
>>: I don’t know how much appearance you have with any of their acquisitions. But I’m curious how
hard it is for them to transfer these business abilities on to any of their, any of the acquisitions. Like I
know Zappos had their own, but…
>> John Rossman: Well I think, the thing I’d say is I think it’s you know they do acquisitions for a couple
different reasons. But they’re stand alone acquisitions things that they don’t mess with. Zappos is a
good example. I think they look for cultures that are well aligned with these cultural principles. There
isn’t a big gap to close there. They look for somebody who is a really good leader. It’s through a leader
that you scale principles like this. Good, yep?
>>: Do you have any insight into like consumer products like Kindle and stuff? How do they get
feedback from customers on those products that don’t have direct you know like there’s no way that
they can just…
>> John Rossman: Well one of the advantages of being a retailer is they understand they’ve been selling
a lot of other peoples products for a long, long time. There’s a lot of insight both of the products as well
as the type of content that you know that might be selling relative to that. I think that they inherently
have really good understanding because of their core retail business. I think that would be you know
one key way that they really understand the market.
But I would also go back to the virtuous cycle. I mentioned that Prime I think is really becoming a
business model for Amazon. Devices like the Kindle HGX, like the Phone, like Kindle TV are, it’s between
the devices and the content, and the services that’s really part of the Prime business model, now.
>>: What do you believe that’s Amazon’s Achilles heel?
>> John Rossman: Their what?
>>: Their Achilles heel.
>> John Rossman: Wow.
>>: What could make them fail?
>> John Rossman: I think a couple things. One is if you know trust is incredibly important in their
business. If they were to have you know a major trust issue, a data breach, something like that I think
that could decimate any business, right. We’ve seen that happen so I think that a company like Amazon
they invest an incredible amount in making it a fortress. But if something did happen I think that would
be a high risk to their business.
I think the ability to continue to attract and retain you know system development engineers quite
frankly is the hardest thing in their business. That’s again why Two-Pizza Teams and service oriented
architecture are incredibly important to the business. Because that lets them put teams in new
locations and still be effective in building products and services.
>>: What about, Amazon’s pretty successful and at some point if you’re really, really successful you
start running into a lot of regulatory pressures which aren’t engineering issues so much. What happens
next?
>> John Rossman: Yeah, I think they are beginning to attract attention that you know as the underdog
you’re not used to attracting. But when you’re the big guy you start attracting. My, I think the Hachette
negotiation is an example. There’s aspects of some regulation in Germany in the EU that they’re
running into in their market place practices. I think that that’s something you know they learn quickly,
right. I think they’re going to have to develop a PR muscle that is still developing at this point. Okay?
>>: I’ve got a question, Amazon is crazy about customers, but employees are dispensable. How does
this model drive the [indiscernible] growth?
>> John Rossman: The question of employees being…
>>: The word he used is dispensable but I have other quotes [inaudible] on my…
[laughter]
>> John Rossman: Here’s the thing I would say about Amazon and employee satisfaction is if you love
tackling hard projects and owning them all the way through. Being, you know at Amazon there is no
sustaining engineer. It’s like the team is the sustaining engineering. That’s the strong belief that that
drives the quality of the teams. It is an all in culture. If that’s what you love you will love Amazon and
everything, right.
But if you can’t, and I think you see a lot of these things in the leadership principles. If some of those
aspects and the patience because most compensation is going to come via RSUs and everything, if you
aren’t in it for the long term I think Amazon isn’t for everybody. It’s a life commitment I think in a lot of
ways. But you know it’s a high demanding place.
>>: Is it the life commitment for its shareholders? When will they actually get the return?
>> John Rossman: Boy isn’t that the great question on you know when do earnings, when is it today
versus always investing for the future and everything? There’s, I think it’s very hard to put a
mathematical model to the stock valuation for Amazon. But if you understand the dynamics of their
platform business and all the different fronts that they’re investing in, and understand you know that
the businesses that they’re in. You know they’re still you know truly an inch into them I think that’s
where people have a lot of confidence in the stock in the long term.
But I think it will be, I think that’s an aspect that you start seeing Amazon shifting on is in their more
established businesses they aren’t the everyday low price anymore. They’re competitively priced. Little
shifts like that over a big business drive a lot of margin. They need that in order to invest in all the things
that they’re investing in. That’s what’s driving the Hachette negotiation.
>> Amy Draves: Time for one more question.
>>: [indiscernible] instances that happens up front. I was reading and it says that there’s an emphasis
on using free cash flow, [indiscernible]. How does the, so the expenditure think about sort of
[indiscernible] cash flow [indiscernible] new service into Sprint bundle? Like how does that get allocated
to different parts of the particle bundle?
>> John Rossman: Can you, just the essence of the question of again is?
>>: It’s basically how does the metric gets allocated to different business like [indiscernible] to the same
bundle. Like is it like Amazon Prime? But that has like [indiscernible] that it’s like delivery [indiscernible]
free cash flow…
>> John Rossman: I think one thing that Amazon does very well is they allocate resources extremely
well. They think that that’s the most important thing a leader does is resource allocation, because
they’re precious. Would I rather spend a dollar on you know expanding in China or a dollar in you know
in an electronics category?
What I can say is they think very hard about resource allocation. They’re very meaningful in these are
the things we’re going to do and we’re not going to put resources against this. When they mean we’re
not putting resources against something they truly mean we’re not putting resources against something.
You see investment shifts pretty dramatically and pretty quickly. They’re good at that.
They have, one of the hiring criteria’s around fungibility. The reason why fungibility is so important is
because they’re going to take people and point them at new problems depending upon which things
they’re going to invest in versus which things they’re not going to invest in. Free cash flow is you know
the measure for how they think the company should be valued over the long term.
Good, well it’s a real pleasure and honor to get to speak here. I live in Bellevue so this was easy. I
appreciate your time this afternoon, so thanks.
[applause]