What Amazon Can Teach Us About Innovation

Do you know how Amazon structures its business operations and manages employees?

The National Convergence Technology Center (CTC) recently attended a session at the Innovations conference entitled “The Culture of Innovation at Amazon.”  Led by an executive from Amazon Web Services, the session took a deep dive into the corporate culture of one of the world’s most successful companies.  It’s also, of course, one of the most innovation companies, pivoting from an online bookseller to an online “everything seller” and along the way also creating new (and very lucrative) businesses in cloud storage and entertainment.  Here are a few highlights of the presentation.

• Amazon starts with the customer and works backward.  Amazon wants to be world’s most “customer-centric” company and do more than simply address customer complaints.  They want to be more strategic and forward-looking.  The idea is that if you focus on the customer, “they will pull you in the right direction.”
• Amazon’s four pillars of innovation are Culture, Mechanisms, Architecture, and Organization.

Culture manifests itself at Amazon in the hiring process, in the employee reviews, and in business meetings.  Specifically, Amazon Culture relies on 14 “Leadership Principles.”  See the chart below.  Job interviews cover these principles in detail, digging far deeper than the technical skills.  In fact, the hiring manager doesn’t own the hire.  An interview panel addresses those principles, with a third-party employee evaluating the overall interview.  The company is decentralized and relies on the individual teams to lead their own mission and own their work.  In other words, Amazon hires builders and then lets them build.  Further, there is a raise the bar element to hiring.  Only if a new hire would be better than 50% of current employees in that position will the person get the job.

Mechanisms refers to the encoded behaviors and processes that facilitate innovation.  The best example of an Amazon mechanism is the “PRFAQ.”  Any new service or product or tool starts first with a one-page press release and five pages of FAQs.  Rather than document what you already decided to do, Amazon starts with how the new service will be clearly explained and sold.  The FAQs address concerns of the executives (what will the new service do? what will it not do? what are the possible problems? how do you know this new service is needed?).  At meetings, the executives will spend 30 minutes quietly reading a PRFAQ before discussing it.  Revisions are common.  Only after the leadership is satisfied will the company move forward with development.  One fun detail: Amazon doesn’t allow weasel words in the PRFAQ.

Architecture refers to the software structure that supports rapid growth and change. Like so many complex online services, Amazon is comprised of thousands of single-purpose microservice APIs that work together. Each API is owned by a single team.  The presenter likened it to a Jeep without springs.  It may not be elegant but it works well.

Organization refers to the aforementioned small, decentralized teams.  The idea is to foster ownership and autonomy.  You own what you build.  And the teams are always six- to eight-person “two pizza teams” – the teams should be able to be fed by just two pizzas.  There is an expectation that teams will work together as needed to arrive at an agreeable solution.

• There are “one way” doors and “two way” doors.  This is a frequent question in innovation: if we proceed, what kind of door are we opening?  “Two way” doors refer to a reversible change.  If you get it wrong, you can go back and fix it.  This plays into the company’s nimble approach: get on with it and do it.  But “one way” doors require more caution.  These are decisions that cannot be reversed.  You need a VP to approve opening a “one way” door.
• A 2015 Amazon shareholder letter stated that “failure and innovation are inseparable twins.”  Invention requires experiments. If you know in advance that it works, then it’s not an experiment.  This approach requires big bets.  Amazon Prime was an idea from a junior executive that the more senior employees did not like, but it ended up completely reinventing the company.