growth

Focus and business fortunes

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How to get things out of the too-hard basket.

Focus and business fortunes

Louis Coutts

Things can be complicated or they can be simple. It is a matter of choice and it is up to us.

I was reminded of this when reading an interview with Jeff Bezos, (founder of Amazon), by journalists at Harvard Business Review (See October 2007 edition at page 75).

However before I talk about this interview, permit me a detour, because I was reminded of a conversation I had one evening with a professor at Colombia who was conducting a program in which I was the student.

I said “John” (his name was John Whitney, and for those who were interested in the Deming article, he was a friend and student of Deming), “I have four rules of management”, to which John replied “That’s funny Lou, I only have two”.

So I thought that it would be better to hear John’s rules than to impose mine upon him. His first rule was that the customer was always right and his second was that “if you forget it, go back to rule number one”.

Getting back to Bezos – he talked about Warren Buffett and said he had adopted Buffett’s filing system at Amazon. They had an “in” basket, an “out” basket, and a “too hard” basket.

If something got into the too hard basket (Amazon is a very collegiate culture where even Bezos has to work from time to time in the customer service centre and gain re-certification; hell! this is getting to be a long story) they ask themselves a simple question, “what is best for the customer?”, and almost always that process simplifies and resolves the issue. That is the simple side of things.

The complicated side of things once again comes out of Harvard by virtue of its competitive guru Michael Porter (who, quite a few years ago, was said to have offered a discount to the Victorian Government to give it half a day of his time for $60,000 because he was already in Australia). Porter says that there are three competitive strategies and five competitive threats. (Once again, if people are interested in these they can email me a request).

Growth, or even survival, according to Porter, is dependent upon being aware of the various competitive threats out there in the market place and having a specific competitive strategy to address those threats. Brilliant stuff, but not what we would call simple.

Bezos was asked about this and how Amazon (he always got the conversation back to Amazon and his people and its culture rather than himself) is “customer centric”. While one has to be aware of one’s opposition, the simple formula for success at Amazon is the culture of everyone being “customer” and not “competitor” focused. He finds it so simple, as do the people at Amazon.

This prevents Amazon from getting on the wrong tram so far as strategy is concerned. They don’t get involved in the Porter calculus. Rather, it looks at what enduring principles are important to the customer.

Two important principles that are the corner stone of Amazon are:

  1. It is low priced.
  2. It is quick in delivery.

Bezos points out that if Amazon constantly focuses on these corner stones, it can only fail if customer expectations alter. He then comments that he is hard to convince that one day customers will defect from Amazon because its prices were too low or its service was too quick.

So, here you have a company that has grown since 1996 from sales of $15.7 million to projected revenue for 2007 of $13.4 billion based on the simple formula of being customer and not competitive focused.

That is not to discourage people from being competitive focused and being more aware of the contribution of Porter to the growth debate, but it does remind us that sometimes the simple is just as good as the complex.

 

To read more Louis Coutts blogs, click here.

 

Comments

Alan S. Michaels writes: I bet Jeff Bezos does think about their current competitors; and he must think about vendors to make sure deliveries are made quickly. That represents three out of five in the Porter five forces model. Bezos may not think too much about substitutes because he represents the substitute to brick-and-mortar bookstores. So if you are correct that he only focuses on customers and speed of delivery, then Amazon’s biggest vulnerabilities will come from new competitors and new substitutes, possibly from companies like Google, Microsoft, Facebook, eBooks.com, or from yet-to-be-known companies.

My guess is that Jeff Bezos fully understands, appreciates and has even internalised the whole Porter model, which is a straightforward method for analyzing any industry. In fact, I believe Bezos talks about being only customer-focused because, as Porter would say, that is a great way to align Amazon employees with their customer service and low-cost strategy, as well as signal to buyers that Amazon is focused on them and will deliver as promised. Amazon’s brand then increases in value with repetition that they are customer focused – including from your blog and this sentence.

 

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