Amazon’s Innovation Philosophy

Amazon's Innovation PhilosophyWhat may have started with a question from @evanjacobs at Amazon.com’s 2011 shareholder meeting, ended with interesting commentary from Amazon’s CEO – Jeff Bezos – on their philosophy around invention, innovation, and risk taking.

The key insights I extracted from Bezos’ response to the question about their lack of big visible market failures and whether Amazon is continuing to take bold enough risks are as follows:

1. Invention versus Innovation

It was very interesting that Jeff Bezos only used the word innovation once in his response, choosing instead to focus on talking about invention. I think that there is an interesting distinction and an important point there. Innovation is not something you do it’s something you’ve done. It’s backward looking to some extent because innovation requires widespread adoption. Innovation definitely can be a goal, while invention can be seen as a component of the pursuit, the attempt to innovate. One important point to remember is that inventions typically cross the bridge from invention to innovation because the solution is not only useful but it is valuable, and the customer makes this determination not you. Another important point – not made by Bezos – is that there are many other factors that go along with invention to create innovation that must be managed, including: psychology, communications, education, trends, politics, legal, and more. This leads me to the second insight extracted from Bezos’ response.

2. “We are willing to be misunderstood for long periods of time”

You may have a great vision for what is possible, but customers may not be ready. There may be incremental improvements or complementary products that must come onto the marketplace before your product can succeed. The political or legal climate may not be right for the transformation your product or service may enable (think Segway). You must seek to understand where you will be misunderstood so you can make plans to address the misunderstandings. If you assume people will ‘just get it once they see it’ you will fail. Also, the more disruptive or radical an innovation the more your communications must shift from explanation to education. But frankly, you can invent amazing things but just be too early. Corning’s Gorilla Glass was invented 50 years ago, and only now is becoming successful. Kindle wasn’t an overnight success, neither was Amazon’s third party seller effort – it took three tries to get it right. Which leads me to the third insight…

3. “We are stubborn on vision. We are flexible on details.”

How many leaders can make this distinction accurately between vision and details? How many leaders can throw away their execution to start again in service of their vision? Apple threw away the Motorola ROKR and tried again and came up with the iPhone. Amazon tried three different times to get the third-party sellers just right because they believed in the vision that opening up their store to outside sellers was the right direction to take their business. The key distinction here and the questions to ask yourself when something is failing are the following:

  • “Do we have the wrong vision for where the market is moving or do we have the wrong details?”
  • “Have we misjudged key timing, legal, political, or other aspects in our pursuit of this vision?”

4. “We are planting more seeds right now, and it is too early to talk about them”

This is one of the keys to the pursuit of innovation – not going public too early. Bezos’ captures it perfectly with his comment about it being very difficult to innovate “if you are not willing to be misunderstood”, and I would add that it is very difficult if you are not PREPARED to be misunderstood. You must have a plan. So, innovate early and often, place lots of small bets, continue to invest in the ones that fit your vision and overcome key hurdles, and most importantly keep things quiet until you have a good grasp on exactly how you plan to explain your invention or educate people on its potential value BEFORE you go public – or the road from invention to innovation will only get harder.

What do you think about the Jeff Bezos commentary below?

Continue reading for an excerpt of the text of Bezos’ response, transcribed from the company’s webcast.

“You should anticipate a certain amount of failure. Our two big initiatives, AWS and Kindle — two big, clean-sheet initiatives — have worked out very well. Ninety-plus percent of the innovation at Amazon is incremental and critical and much less risky. We know how to open new product categories. We know how to open new geographies. That doesn’t mean that these things are guaranteed to work, but we have a lot of expertise and a lot of knowledge. We know how to open new fulfillment centers, whether to open one, where to locate it, how big to make it. All of these things based on our operating history are things that we can analyze quantitatively rather than to have to make intuitive judgments.

When you look at something like, go back in time when we started working on Kindle almost seven years ago…. There you just have to place a bet. If you place enough of those bets, and if you place them early enough, none of them are ever betting the company. By the time you are betting the company, it means you haven’t invented for too long.

If you invent frequently and are willing to fail, then you never get to that point where you really need to bet the whole company. AWS also started about six or seven years ago. We are planting more seeds right now, and it is too early to talk about them, but we are going to continue to plant seeds. And I can guarantee you that everything we do will not work. And, I am never concerned about that…. We are stubborn on vision. We are flexible on details…. We don’t give up on things easily. Our third-party seller business is an example of that. It took us three tries to get the third-party seller business to work. We didn’t give up.

But. if you get to a point where you look at it and you say look, we are continuing invest a lot of money in this, and it’s not working and we have a bunch of other good businesses, and this is a hypothetical scenario, and we are going to give up on this. On the day you decide to give up on it, what happens? Your operating margins go up because you stopped investing in something that wasn’t working. Is that really such a bad day?

So, my mind never lets me get in a place where I think we can’t afford to take these bets, because the bad case never seems that bad to me. And, I think to have that point of view, requires a corporate culture that does a few things. I don’t think every company can do that, can take that point of view. A big piece of the story we tell ourselves about who we are, is that we are willing to invent. We are willing to think long-term. We start with the customer and work backwards. And, very importantly, we are willing to be misunderstood for long periods of time.

I believe if you don’t have that set of things in your corporate culture, then you can’t do large-scale invention. You can do incremental invention, which is critically important for any company. But it is very difficult — if you are not willing to be misunderstood. People will misunderstand you.

Any time you do something big, that’s disruptive — Kindle, AWS — there will be critics. And there will be at least two kinds of critics. There will be well-meaning critics who genuinely misunderstand what you are doing or genuinely have a different opinion. And there will be the self-interested critics that have a vested interest in not liking what you are doing and they will have reason to misunderstand. And you have to be willing to ignore both types of critics. You listen to them, because you want to see, always testing, is it possible they are right?

But if you hold back and you say, ‘No, we believe in this vision,’ then you just stay heads down, stay focused and you build out your vision.”

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Braden KelleyBraden Kelley is a popular innovation speaker, embeds innovation across the organization with innovation training, and builds B2B pull marketing strategies that drive increased revenue, visibility and inbound sales leads. He is currently advising an early-stage fashion startup making jewelry for your hair and is the author of Stoking Your Innovation Bonfire from John Wiley & Sons. He tweets from @innovate.

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15 Responses to Amazon’s Innovation Philosophy

  1. Greg Satell says:

    Braden,

    For me the key to his remarks was “Ninety-plus percent of the innovation at Amazon is incremental and critical and much less risky.”

    That’s very realistic and Amazon does a great job at it. Amazon is a great site and a great business for a 1000 little reasons. They build up over time. Jim Collins called this “the flywheel.”

    Another thing that people often lose sight of is that incremental innovation leads to an innovative culture, familiarity with experimentation and change and a track record of success which makes the big things much easier for the organization to swallow.

    Finally, it’s important that to focus on very few big projects (like Kindle and AWS). That brings feasability and therefore credibility to the table.

    - Greg

    • John Wolpert says:

      Hi Greg…I wonder if that is true, what you said about incremental innovation (aka, Improvement) leads to a innovative culture). I mention in a recent post on http://innosanity.com that Bezos and team are effective innovators in that they know how to consistently change the paradigm of the company, shifting how it perceives and organizes itself from bookstore, to device maker, to the cloud in cloud services. These are very different businesses, but the pivoted deftly from one to the other.

      In my experience, improvers – who are fantastic, and usually the people you want around – are not typically adept at paradigm shifting. The “lets do something different” guy often is not loved by the “let’s do something better” guy. For one thing, if you spend a lot of time improving a business, it’s not a good day when someone comes along and turns that business inside out..or makes it irrelevant.

      Innovation can come from anyone at any time, but it is not for everyone all the time.

      I think companies that manage Improvers, Inventors and Innovators all the same are doing damage to each of these very different competencies.

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  3. John Persico says:

    Dr. Deming always talked about the importance of continuous incremental improvement. He said in America we always seem to swing for the homeruns and in Japan they swing for the base hits. Enough base hits and you usually win the game.

    Perfecting a culture of continuous improvement or continuous innovation in products, processes, services, delivery, pricing and planning is something many companies still need to learn. I have always been amazed at the steadfastness of Amazon during many long years of its rise to success.

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  8. Venky says:

    Thanks for this wonderful post! Like Greg mentioned, I was thrilled to hear Jeff talk about Incremental Action. In today’s networked world, I think, incremental action has deeper implications in looking at the way we design products in the future. This post inspired me to write a post in my blog about Incremental Action. http://www.venkinesis.in/2011/08/innovation-is-like-joke.html Would love to hear your thoughts on it!

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  11. I don’t think it’s an “either/or” between incremental and disruptive innovation, whether on what you do or on what is or isn’t “true” innovation. The key is to have a portfolio which is balanced in a way appropriate to your industry, your company’s position and your vision of what you want it to be. I agree with Greg that continuous incremental innovation helps to build an innovative culture, because it’s all about improvement and change, and how to get better. It strengthens a company’s ability to execute innovation (in the positive sense…) which is crucial to the success of the more disruptive stuff. I don’t think people necessarily get stuck in paradigms because of incremental innovation – what matters is that they’re the right people with the right attitude.

    I like Bezos’ comment about the critics. It’s sometimes difficult to distinguish between the negative and positive ones, the latter can offer an awful lot of value to your innovation, so it’s important to listen objectively.

    • John Wolpert says:

      Kevin, what are your thoughts about this perspective on the “improvement” leads to “innovation” path: http://innosanity.com/does-improvement-lead-to-innovation/

      I can really see two ways of approaching it, one suggesting that perhaps improvers can have trouble moving to innovation (improvement being what some call “incremental innovation,” which I find confuses the subject), and the other suggesting that continuous improvement keeps the firm limber for the kind of innovation Andy Grove describes in Only the Paranoid Survive – where the company must undergo paradigm shift in how it perceives and organizes itself.

      Amazon is one of the best paradigm-shifting companies in the world, one of the very few that actually attack paradigm shifts rather than having to react to existential threats (which is sadly how most companies wind up reinventing themselves…because they have to). Going from bookseller to device maker to the “cloud” in cloud services…those are really different businesses, and Amazon went all-in, making these fundamental moves in their business model. One of the best examples of actual proactive innovation today. Because they also do improvement very well, it suggests that at least in Amazon’s case, improvement and innovation work pretty well together.

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