What Can Procurement Learn from Amazon?
Do you like Jeff Bezos?
He seems a little intimidating to me.
But isn’t his company is excellent? Constantly changing, constantly evolving, constantly challenging traditional business models. Books, Food, Movies, Music, Nicolas Cage pillows, it appears everything Amazon turns its hand to is a success.
So it was with great anticipation that I read Jeff Bezos’ letter to shareholders yesterday. He spoke a lot about trying to keep Amazon in ‘day one’ mode, which I didn’t entirely understand. I think he was referencing the need to stay switched on and to keep looking for new approaches. Perhaps day 2 is the start of apathy; I don’t know.
Anyway, Jeff pointed out four key areas that Amazon is focusing on to ensure it keeps its ‘day one’ mentality. Here they are:
True customer obsession
Jeff outlines that Amazon doesn’t focus too much effort on competitors, products or technology. Rather, it focuses or obsesses over its customers. Everything else falls into place off the back of that. Bezos stresses that the business is not beholden to every customer request, but rather that they try to get ahead of what customer will want.
“No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it, and I could give you many such examples.”
Resist Proxies
This is a pet favorite of mine. Jeff suggests we all should stop spending so much measuring things we believe are an indication of an end goal. Processes he argues, are a proxy. Processes help you serve your customers. But it’s easy, particularly as firms become larger to focus so much on managing the process that the customer gets lost along the way. Metrics must not define or dictate everything we do. Cost savings, I would suggest, are a proxy and a proxy that procurement has been enslaved to for too long now.
Embrace External Trends
“Fighting trends is fighting the future” according to Jeff. In his letter, Bezos goes into detail discussing the current external trends of AI and machine learning and how they will impact Amazon and its customers. I’ll let you read about that yourself, but he also stresses that its tough for big business to continually embrace external trends. In the past, big businesses have succeeded by doing something right and repeating that process over and over. This success may be the very reason they come unstuck in the future.
Where does procurement fit into embracing external trends? Well, who is the external facing arm of the business? Who talks to suppliers, understands market trends and movements and has access to innovations coming down the line? If you’re not sure, you’re probably not doing your job right.
High-Velocity Decision Making
This one is his piece de resistance. Jeff’s letter stresses the need to make fast decisions, not just quality decisions. Jeff believes that big business takes too much time finding information that will support quality decisions. More often than not, by the time they have the information to make a quality decision the opportunity has passed.
The challenge Bezos suggests is to make quality decisions but to make them more quickly. This easy in the agile, ‘fail fast’ world of startups, but more of a challenge as businesses grow.
Jeff provides the following pointers for making quality decisions quickly.
- There is no one-size-fits-all approach to decision making
- Make decisions when you have 70% of the information you think you need
- Disagree and commit.
- Recognize misalignment and escalate immediately.
Point 4 I find fascinating and highly applicable to procurement and supplier relationships. I’ll let Jeff elaborate;
“Sometimes teams have different objectives and fundamentally different views. They are not aligned. No amount of discussion, no number of meetings will resolve that deep misalignment. Without escalation, the default dispute resolution mechanism for this scenario is exhaustion. Whoever has more stamina carries the decision.
I’ve seen many examples of sincere misalignment at Amazon over the years. When we decided to invite third party sellers to compete directly against us on our own product detail pages — that was a big one. Many smart, well-intentioned Amazonians were simply not at all aligned with the direction. The big decision set up hundreds of smaller decisions, many of which needed to be escalated to the senior team.
“You’ve worn me down” is an awful decision-making process.”
Jeff closes with this, which I think applies to any business in any industry.
“So, have you settled only for decision quality, or are you mindful of decision velocity too? Are the world’s trends tailwinds for you? Are you falling prey to proxies, or do they serve you? And most important of all, are you delighting customers? We can have the scope and capabilities of a large company and the spirit and heart of a small one. But we have to choose it.”
This story originally appeared on Vizibl.co. If you’d like to learn more about supplier innovation, check out our library.
