3 Amazon Shareholder letters teach us about Strategic Decision Making

COVID-19 gives companies great uncertainty yet huge opportunities. But when the new strategy season gets started, decision-making becomes even more critical, but also more complex.

In general, there are 3 sets of things to consider in strategic decision making: Data vs Judgement, Interval vs External, Speed vs Quality.

A few weeks ago, an inspiring talking with a cohort in leadership program made me read all Amazon annual stakeholder letters. Here I select 3 as my personal favorite; they provide very helpful perspectives for decision-making.

2005 How to make a decision

“Math-based decisions command wide agreement, whereas judgment-based decisions are rightly debated and often controversial, at least until put into practice and demonstrated. Any institution unwilling to endure controversy must limit itself to decisions of the first type. In our view, doing so would not only limit controversy —it would also significantly limit innovation and long-term value creation”.

Take-away

In the trend of big-data, one more lean more into data over judgement in decision-making. It may not always be the case.

Some decision, especially those short-term and operational decisions can be driven by data; human judgement can come into play only as a minor part; for example, to decide how much inventory to hold for a certain product, Amazon looks into historical purchase data and forecast customer demand to make decisions and this approach is able to yield excellent outcome.

In contrast, long-term and strategic decisions are relying more on judgement and less on data; those decisions are often controversial but bearing huge business impact; for example, to bring 3rd party sellers into Amazon platform to compete with Amazon itself is a decision more from judgement; on the other hand, in 2000, there was not much data analysis to start with since Amazon is a pioneer for this topic.

What’s more important, judgment-based decision shall be aligned with the company’s vision. Looking at all Amazon’s decisions from pricing to service, they are all aligned with its vision – It’s All About the Long Term and Obsess Over Customers – and those decisions have brought Amazon where it is now.

2012 customer centricity

“We are internally driven to improve our services, adding benefits and features, before we have to. We lower prices and increase value for customers before we have to. We invent before we have to. These investments are motivated by customer focus rather than by reaction to competition.”

Take-away

Many talk about “Customer First” but a few walk the talks. Amazon makes Customer Obsession to their heart.

Amazon did not “have to” on-board third-party sellers; they choose to do so because they want to give customers more choices and better prices. Amazon did not “have to” actively telling customers they’re paying more than they need to; they choose to do so to bring more value to customers. For Amazon, such choices are made in line with its long-term thinking: if the scale and customer loyalty are what matters in the long-run, then proactively delighting customers earns trust, then trust earns more business from those customers.

So, Amazon’s decision-making framework is internally driven and customer-focused. Such a framework may not be applicable to all; however, a clear and aligned decision-making framework is essential to build consistency in its all strategic moves.

2016 make high-quality yet high-velocity decision

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1…Day 2 companies make high-quality decisions, but they make high-quality decisions slowly….”

Take-away

Among the four strategies Bezos offers to keep the energy and velocity of Day 1, I like “high-velocity decision making”: to keep the energy and dynamism of Day 1, Amazon values high-quality yet high-velocity decision-making. Bezos shared four thoughts for how to make that happen:

  • Never use a one-size-fits-all decision-making process.
  • Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow.
  • Use the phrase “disagree and commit.” This phrase will save a lot of time.
  • Recognize true misalignment issues early and escalate them immediately.

Particularly, “Disagree and Commit” makes so much sense to me. It can be applied to cross-functional decision-making as well as in the context of team empowerment. Bezos shared a story about an Amazon Studios original; he had a different view with the team, but he shared his views and respected the team to make the final decision. What he wrote is quite touching,

“It’s a genuine disagreement of opinion, a candid expression of my view, a chance for the team to weigh my view, and a quick, sincere commitment to go their way. And given that this team has already brought home 11 Emmys, 6 Golden Globes, and 3 Oscars, I’m just glad they let me in the room at all!”.

*Feasured Image: Photo by Felix Mittermeier, from Unsplash.

 

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