Professor of Strategy and Entrepreneurship; Academic Director, Institute of Entrepreneurship and Private Capital
“Amazon is the single best example of a serial business model innovator,” says Julian Birkinshaw, Professor of Strategy and Entrepreneurship at London Business School and Academic Director of the Deloitte Institute of Innovation and Entrepreneurship. “It’s a company that has relentlessly built new businesses alongside its existing ones. Some of these new businesses have been complementary; some have cannibalised the existing ones. Protecting existing earnings is not a priority.” What can we learn from this master of reinvention?
Amazon’s continual self-reinvention flows naturally from Jeff Bezos’ famously customer-focused approach. “We’ve had three big ideas that we’ve stuck with for 18 years, and they’re the reason we’re successful,” he has said. “Put the customer first. Invent. And be patient.”
There’s a difference between being patient and holding back. “If you’re competitor-focused, you have to wait until there is a competitor doing something. Being customer-focused allows you to be more pioneering. We innovate by starting with the customer and working backwards.”
When disruption hits, in any industry, the incumbent can struggle to address the threat, aka the opportunity, because they’re so stuck in what they are used to doing. One of the ways of overcoming this is to “eat your own lunch,” Silicon Valley-speak for building a business that cannibalises your existing offerings. So, in 2007, Amazon launched the Kindle, an electronic book reader which, if successful, would directly affect its existing business of selling traditional books. The sceptics (“Nobody is going to sit down and read a novel on a twitchy little screen. Ever” – fiction writer Annie Proulx) were proved wrong within weeks.
Late-adopters still opined that Bezos was trying to kill people’s love of reading. Which leads us to another of his maxims: “You have to be willing to be misunderstood if you’re going to innovate.” Amazon continues to self-reinvent at dizzying speed. BusinessWeek called Amazon Web Services “so far from Amazon’s retail core that you may well wonder if [Bezos] has finally slipped off the deep end”. Did Bezos care?
Amazon’s innovations include Amazon Affiliates and Amazon Prime – a massively different delivery model, creating a club of people who pay a fixed price per month rather than for individual items. In the last few years Amazon has shifted from being a vehicle for the movies we watch into producing its own content, snapping up the Top Gear team and hiring the likes of Woody Allen and Ridley Scott to work on new movies with Amazon Studios.
Now there’s Amazon Fresh, just launched in the UK, which expands the shopping on offer to fresh food groceries – and Amazon Restaurants, promising takeaway food delivery within an hour in London.
The pace of innovation at Amazon is made possible by Bezos’ belief that most problems can be solved through invention, through bringing smart people together to find a better way. The old-fashioned view of strategy – that you figure out what your core competencies are and build everything around those – is turned on its head. Here, you’ve got the exact opposite: “We can always learn to do new stuff – if there’s a customer need we can buy and find the skills to do it.”
Inevitably there are some failures along the way. “What really distinguishes Bezos is his harrowing leaps of faith,” said Alan Deutschman in a Fast Company article. Some of these leaps end up the corporate equivalent of a sprained ankle. Take the Fire Phone – Amazon’s push into smartphones – which launched with considerable fanfare in 2014. It was quietly withdrawn a year later. And the company has continued to face questions about its overall strategy. With such a diverse portfolio of businesses, how can the company continue to succeed on all fronts? Is Amazon’s unusual model truly sustainable?
Time will tell, but a man who persuaded his parents to put a large chunk of their life savings into a business that he told them was 70% likely to fail should never be underestimated. Bezos raised US$1 million from friends and family to launch Amazon in July 1995 from a garage with five employees.
His organisation has maintained a flat hierarchy, where every employee is allowed, in fact expected, to show initiative. Another of Bezos’ mottos is, “It’s always day one” – in other words, even though the company is now vast, it still aims to function like a start-up.
Bezos has generally ploughed profits straight back into growing the company, but in July Amazon revealed a record-setting quarterly profit for the third straight quarter: it earned US$857 million, or $1.78 a share, in the second quarter on $30.4 billion in revenue, surpassing analyst estimates of earnings per share of $1.11 on $29.5 billion in revenue. As one commentator recently put it, “Bezos’ vision has no end, because the Amazon model is limitless.”
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