Lessons from Amazon’s Annual Letter 2017

Jeff Bezos

As you may know, I’ve been following Warren Buffett’s Annual Letter to Berkshire Hathaway shareholders since I started investing for the nuggets of wisdom Buffett offers freely. Apparently, Amazon’s CEO Jeff Bezos does the same thing with his annual letter to shareholders, which was released in the past week. The letter has been touted as a must read for business executives as it offers a view of Bezos’ management style and philosophy. Curious about what he had to say (and because I’m vested in Amazon now), I read the 6 page letter and here are some learning points.

Keeping ahead of Customer Demands through High Standards

This year’s letter shares Amazon’s learnings on maintaining high standards in its vast organisation. Bezos contends that inculcating high standards has 4 key elements:

  1. They are teachable
  2. They are domain specific
  3. You must be able to recognise them
  4. You must coach a realistic scope of achieving them

Are High Standards intrinsic or teachable?

Bezos expresses that it is definitely teachable through exposure and experience. Standards are contagious, if you bring a person into a high standard team, the person has to adapt or fall behind. Conversely if you bring a person into a low standard team, the environment further cultivates laxness amongst the team.

Are High Standards universal or domain specific?

Bezos argues that it is domain specific from his own personal experience. He had high standards on invention, customer service and hiring but was woefully lacking in operational standards when he first started Amazon.com. He had to learn it from scratch from his colleagues. To him, it was more important to recognise that he could have low standards in certain areas and work towards bringing up the standards through experience and learning. Through this awareness, he remains humble and strives towards improving himself.

Bringing about High standards through recognition and realistic scope

Bezos feels that in order to bring about high standards in teams, it requires you to recognise what high standards looks like and also coaching a realistic scope or time frame to achieve those standards. Scope is particularly important in preventing you from giving up too early. To that end, he illustrates this through 2 examples.

1. Instagram worthy handstand training

A friend wanted to learn to perform a handstand without leaning against the wall (ie instagram worthy handstands). She engaged a handstand coach who told her to expect to only be able to do it after 6 months of daily training, instead of the 2 weeks she may expect. If not, she would give up at the 2 week mark of the training.

Recognising the high standard – being able to do a Instagram worthy handstand
Setting a realistic scope – only achievable through 6 months worth of training.

2. 6 page narrative memos

Apparently at Amazon, 6 page narrative memos are written to be read during meetings instead of PowerPoint slides. High standard memos are harder to define, you basically know it when you read it. That said, high standard memos typically require at least 1 week of work and editing in order to be produced. This is contrasted with low standard memos which are typically written in 2-3 days due to the authors’ unrealistic expectation to be able produce high quality memos in that short time frame.

Recognising the high standard – High quality narrative memos
Setting a realistic scope – High quality memos require at least 1 week of work to be written

But what about skill?

Bezos feels that you just need 1 person with the necessary skill to craft a cohesive memo but a whole team to polish it to perfection. He even states that at Amazon, memos are crafted as a team, with no individual credit being given to the memo.

Some thoughts

Much of Bezos’ thoughts generally make sense and reasonate with my personal experience. High performance teams tend to be set and guided from the top. If the leader is undemanding and lax, it tends to breed low standards within the team as there is no impetus and drive to produce quality results.

That said, Bezos’ thoughts hinges on the assumption that individuals inherently want to do well for high standards to be teachable. If the individual simply does not want to improve, they are simply incorrigible. I suppose that’s where hiring processes come in to select at least decent individuals who endeavour to continuously improve themselves.

Summary

Amazon’s annual letter to shareholders offers a rare perspective into Jeff Bezos’ management philosophy and culture at Amazon. I will probably add it to my list of annual reads from now on to learn more about the things that make Amazon tick.

Happy Hunting,
KK

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