The Amazon Way: 14 Leadership Principles Behind the World's Most Disruptive Company

Reviewing an audio book by John Rossman - Part II (Principles 4 through 9; Audio 2)

This is a continuation from Part I, which covered principles 1 through 3 (Audio 1).

Overview

The Audio Book is divided into four audio files. The first three audios discuss the principles that Rossman learned while working at Amazon. The fourth is a series of appendices. This series of blog posts will discuss contents from the first three audio files. The fourteen principles are enumerated in the Table of Contents. The book's chapters describe the principles in more detail. The principles are:

Principle 1: Obsess Over the Customer
Principle 2: Take Ownership of Results
Principle 3: Invent and Simplify
Principle 4: Leaders Are Right – A Lot
Principle 5: Hire and Develop the Best
Principle 6: Insist on the Highest Standards
Principle 7: Think Big
Principle 8: Have a Bias for Action
Principle 9: Practice Frugality
Principle 10: Be Vocally Self-Critical
Principle 11: Earn the Trust of Others
Principle 12: Dive Deep
Principle 13: Have Backbone – Disagree and Commit
Principle 14: Deliver Results

These principles, according to the audio book, permeate Amazon's corporate culture. They are not just slogans. Rossman asserts that he has continued to use these principles in his career, even after he left Amazon. These principles provide a consistent philosophy for Amazon's employees and have helped the corporation to achieve its massive scale successfully. Along with an introduction and conclusion, the book's chapters coincide with the fourteen named principles. Part I covered principles 1 through 3 (Audio 1). This post discusses principles 4 through 9 (Audio 2), and principles 10 through 14 (Audio 3) will be discussed in an upcoming post.

Summaries

Principle 4: Leaders Are Right – A Lot

As an innovative company, Amazon has a high tolerance for failure. However, people are expected not to make avoidable mistakes, and once mistakes are made, not to repeat them. There is little tolerance for practices like, "fudging the numbers, guestimating, approximating, or bending the rules," and leaders are expected to be right far more often than they are wrong. Detailed, real-time metrics are used to create accountability. This leads to the closest thing to meritocracy that Rossman has ever seen in practice.

One form that this takes is the avoidance of PowerPoint. Ideas were written out in long, narrative forms of five to seven pages, then distilled down to two page summary sheets. Bezos believes that PowerPoint is an adversary of deep understanding, once explaining, "When you have to write your ideas out in complete sentences and complete paragraphs, it forces a deeper clarity of thinking." Another form that this principle takes is the search for leaders who exhibit flexible thinking. Leaders are expected to be able to adapt their beliefs when new facts and information come in.

A tool that Amazon uses to define clear, lofty, and attainable goals is the "future press release," writing a press release as if success has already been achieved and realized - imagining the date of product launch or even a later date. Once the future press release has been agreed by all stakeholders, this operates as a "forcing function," to galvanize thinking and create accountability.

In order to do measurement by the numbers correctly, Rossman says that metrics are built into the new product design from the very beginning. Amazon seeks to operate, "like a nuclear reactor," with real time instrumentation instead of outmoded 20th-century style batch processing. Measurement tools must be actionable and very current. Rossman lists several of the metrics that Amazon used during his time there, stating that 500 measurements were tracked, of which 80% related to the customer's experience.

This principle puts engineers at the forefront of corporate strategy. As Rossman states, "Whereas bureaucrats automatically obfuscate, engineers automatically clarify." Decision makers at Amazon need the clarity of an engineer.

Principle 5: Hire and Develop the Best

Rossman cites the Zappos acquisition as an example of this principle. Noting that Zappos CEO Tony Hsieh role modeled this principle with his counterintuitive program that paid dissatisfied employees to quit. It's interesting to note that Zappos was also one of the companies that employed the Holacracy organization structure that I posted about here. According to Rossman, Amazon's leaders take their responsibility to develop others seriously.

Rossman also talks about the rigor of the hiring process at Amazon, saying that he endured 23 interviews before being hired and that a typical interview day lasts nine hours. He says that it is comparable to a defense of a doctoral dissertation, and that it is an extraordinary test of commitment. In addition to this rigorous process, Amazon also includes a "bar raiser" in the hiring process. The purpose of the bar raiser is to ensure that the candidate is able to adapt to new roles in the business and that every new hire raises the average capability of the company as a whole. The bar raiser acts as an independent outsider and has veto power over the rest of the hiring team. Another tool that supported this principle was a custom interviewing application, which enables interviewers to integrate their feedback.

A final tool that Amazon uses is its preferential hiring of military veterans. Bezos was impressed by veterans' bias for action and logistical expertise, so the company has created a hiring team to focus on veterans and reservists.

The passing grade is "A"

Leaders are expected to work with mediocre employees to get them into the A+ category or else incent them to leave. Bezos is comfortable with a high level of employee turnover because it weeds out the "B" and "C" performers. This makes it possible to insist upon the highest standards for the company.

Principle 6: Insist on the Highest Standards

Amazon's standards would be unrealistically high in most other organizations. This is made possible by the quality of the employees that Amazon retains, by the principles that drive the culture, and by well-defined, real-time metrics.

One of the concepts that Rossman brings up under many of these principles is the "forcing function." Business processes that drive stakeholders to make the right decision. The forcing function that is used to ensure high standards is the "Service Level Agreement" (SLA). SLAs are heavily negotiated and, in Rossman's words, "Everything has an SLA.... If it can be measured, it is." At Amazon.com, "Instrumentation is a non-negotiable launch requirement."

One consequence of this principle is that none of Amazon's 14 leadership principles mentions anything like "work life balance." It takes a certain kind of personality to succeed in this culture.

Principle 7: Think Big

In this chapter, Rossman discusses an organization that Bezos associates with called, The Long Now. This organization promotes long-term thinking. They are currently building a clock that ticks once per year, the century hand advances every 100 years, and the cuckoo will come out every thousand years. This symbolizes his quest for long-term strategic thinking.

According to Rossman, Bezos' emphasis on thinking big applies mostly to himself. Bezos thinks it's still "day 1" of the Internet, and Amazon is still insignificant in comparison to where he wants to take it. This leads to a willingness to make much larger investments than someone with an incremental perspective.

Rossman says that the secret to thinking big is, "free cash flow." He quotes Bezos in a discussion of profit margins saying, "We've done price elasticity studies and the answer is always that we should raise prices. We don't do that because we believe - and we have to take this as an article of faith - that by keeping our prices very very low, we earn trust with our customers over time, and that actually does maximize free cash flow over time," and, "Do you want to be a 200 million dollar company with a 20% margin or a 10 billion dollar company with a 5% margin?" Another point that Bezos likes to raise is that if you take a long-term view, the interests of shareholders and customers come into alignment.

A tool that Bezos uses to drive this principle is his "regret minimization framework." This is a decision making tool where Bezos imagines himself some time in the future - at age 80, for example - and bases his decision on the choice that would leave him with the fewest regrets when he looks back on it.

Principle 8: Have a Bias for Action

Calculated risk taking is valued at Amazon. If in doubt, try something. Rossman cites Alan Murray saying, "It's usually easier to stop things from happening than it is to make them happen." Bias for action minimizes that effect. Rossman also attributes a quote to Bill Parcells, "Blame nobody. Expect nothing. Do something." This epitomizes the bias for action that Rossman found at Amazon, and leads to a culture where the company is continuously pushing forward.

Rossman does mention that this principle can be a two-edged sword because it can encourage a decision-maker to follow gut instinct instead of employing long-term thinking. Amazon manages that risk by developing and managing the metrics, so that they know quickly when a wrong turn has been taken.

To promote a bias for action, employees earn "merit badges" which appear on their phone tool, and a "just do it" award which is highly valued and coveted inside the company.

Principle 9: Practice Frugality

Don't spend money on things that don't matter to customers.

Bezos believes that frugality is a forcing function that encourages innovation and that the Internet is still in "day 1," so he runs the business with the cost discipline of a start-up. Early in the company's history, someone had the idea to hammer legs onto doors to make extra desks, the "door-desk." This has come to symbolize Amazon's culture for cost-savings, and Amazon now has a door-desk award. Another example is the removal of light bulbs from all vending machines to save tens of thousands of dollars per year in electricity costs.

As with the bias for action, Rossman points out that this can also be a two-edged sword, when employees interpret it is callousness. Although the company has typical health and retirement benefits, many ex-employees cite the company's frugality as one of their reasons for leaving.

Conclusion

That concludes my coverage of principles 4 through 9 (Audio 2). To revisit the discussion of principles 1 through 3 (Audio 1), please visit Part I. Coverage of principles 10 through 14 will be in an upcoming post. As with part I, if you find this information useful, I hope you will consider reading or listening to the complete book.

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@remlaps is an Information Technology professional with three decades of business experience working with telecommunications and computing technologies. He has a bachelor's degree in mathematics, a master's degree in computer science, and is currently completing a doctoral degree in information technology.