Analysis Of Corporate Entrepreneurship And Innovation At Amazon
In the last reported year, Amazon, the multinational e-commerce company's net revenue was almost 177. 87 billion U. S. dollars, up from 135. 99 billion US dollars in 2016. Also, in 2018, Amazon is listed as the 5th most innovative company in the world by Forbes. Hence, it will be exciting to analyse Amazon’s system for corporate innovation and entrepreneurship and how does it help Amazon to achieve such substantial growth. Amazon’s innovation does not only happen in R&D but incorporated in many other different sections of the corporation. This report will be analysing Amazon’s culture, its design for innovation system, how innovation is led and how it manages multi-business units in across industries and geographies.
Organisational culture of Amazon
To understand the culture in Amazon, we must first look at the vision and values that Amazon upholds. Amazon’s mission statement is “Our vision is to be Earth's most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online”. Amazon is “customer-obsessed” as it has describes itself and its innovation system design is evolved around the principle of focusing on solving customer needs. Just like how Mark Parker, the CEO of Nike encourages invention, Jeff Bezos, the CEO of Amazon advocates innovation and embraces failure. Leaders of a company play a huge role in determining and cultivating the culture of a company. Bezos believes that customer obsession is not just listening to the customers, but also inventing on their behalf. The necessary creativity comes from meeting customers’ needs. Amazon started because Bezos who was then working in a quantitative analysis group at an investment firm saw an opportunity to sell books on the internet and jumped right into it. Since its founding, the firm has continued to show a knack for spotting white spaces and a willingness to jump into them, even as it works to make spaces it already occupies more productive.
As stated in the article “What Every CEO Should Know” that new ventures flourish best in open, exploratory environment. What Bezos is cultivating is an environment where people are encouraged to try out and not afraid of failure. In Bezos’ 2015 Letter to Amazon Shareholders, he says "one area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins.
The culture that Amazon has is one that is adventurous and brave to invent, the general culture is very much conducive for employees to build on their innovative ideas. Moreover, failure is a norm when new business ideas emerged: Sizable corporations divested or closed 44% of their internally generated start-ups and 50 % of their joint ventures in the first six years. In Amazon, failure is constantly spoken of as something that is expected and even celebrated at Amazon. It is important that wild ideas are being encouraged in a firm for innovation to flourish. Innovation can be a numbers game, even though a majority of the attempts might end up going nowhere, with enough tries, quantity will yield quality. Besides the infrastructure in place for innovation, the firm’s innovation culture started from its hiring process. Amazon signals during an employee’s first interview that it wants people inventing. Jeff Bezos’s hiring ideology will be “hiring great people who in the core of their DNA want to invent”. For innovation to happen in a firm, the employees must possess both expertise and creative-thinking skills. Amazon wants to have a “builder’s culture” and it is clear right from the hiring process. Comparable to Valve which is highly selective in hiring as they want highly productive, creative and self-motivated individuals to work for the firm. Amazon has the financial capabilities and brand name to be selective in hiring and employ both deep specialists and broad generalists. Furthermore, rewards for risk-takers are given, even if they were unsuccessful.
It is crucial for Amazon to place innovation as its priority considering the industry that it is currently placed in – digital commerce in which constant invention is vital for survival and long-term sustainable growth.
Leading in Innovation
Besides, the analysing Amazon’s organisational culture which encourages innovation, it is essential to understand how who in Amazon drives innovation and how new initiatives are started. It is difficult for companies to decide on a spectrum between centralisation and decentralisation, where they should position themselves. Centralisation is necessary to ensure efficiency but comprises the open and free environment for innovation. A top-down approach often leads to a conservative environment for innovation and when ideas have to go up the chain of command, a rejection at any level will kill the idea. Unlike W. L. Gore where it is bureaucracy-free and a product or project concept was usually formed by an individual, Jeff Bezos personally set the trajectory for his company's myriad experiments and imposing ever-loftier demands on the smart creatives at his company.
A certain degree of centralisation is necessary especially for a firm with around 566, 000 employees which is 8 times than Google and 55 times than W. L. Gore. Without Bezos and other leaders to set a clear direction in innovation for the whole firm, it will be difficult if Amazon adopts a purely decentralized model for innovation. Especially in an increasingly volatile business environment which requires firms to react and adapt fast. It will require an organisational level of consensus to understand the turbulent environment and correct direction that the company should go. However, for a large corporation, it will be difficult for everyone to have the equal level of knowledge and forward thinking. Hence, it is critical for leaders to have strategic intervention from the top management when necessary especially for larger corporations. Bezos mentions that it’s important to be stubborn on the vision and flexible on the details. Changes and improvement will be made during execution. Amazon stands in the balance state in the Birkinshaw model which overall goal but considerable latitude in ways to achieve the goal for direction management. Amazon did its best to eliminate the effects of top management imposing goals which might lead to a much conservative environment for innovation. New ideas from different levels of organisations are encouraged, the concept of “the Institutional Yes” where anyone can say yes as long as they have the resources to support the idea. It is similar to W. L. Gore’s approach regarding how they form product or project concept by individuals which garnered support to move forward. It is more of a controlled decentralized model for innovation in Amazon.
In this way, it encourages people to take risks. Also, combined with the culture that Amazon has been cultivating for years, employees are not afraid of adventure in their respective field and experiment in different ways. There will be trade-offs as innovative ideas that do not align with the general direction of the CEO and company will more likely to face rejections unless gathering enough support. However, efficiency is ensured to a large extent because a total chaotic working environment is avoided. 3. Organizational design for innovationFurthermore, Amazon has a rather unique innovation system design for their organisation. They have the renowned innovation prowess called “working backwards”. It is closely related to and reflective of their organisational vision which is to be customer-centric. For new initiatives, a product manager usually begins by writing a one-page “press release” (for an offering that doesn’t even exist and might never be commercialized) to announce the finished product. The internal press releases include the customer problem, the limitations of current solutions and how the new product will be the next mind-blowing thing for potential customers. Besides the press release, a six-page set of FAQs is required as well which includes the frequently asked questions that customers might have towards the new offerings and what are the answers from the product team. Moreover, a portrayal of the customer experience is also included such as prototypes and screen-display mock-ups. This is to define the user interaction and present how the new product will fit into broader processes or customer contexts.
All these "working-backwards" documents are then being sent to the leaders for review. Very few of them get immediate approval when being reviewed by somebody who could allocate resources, however, refinement and improvement are made until it becomes much more crisp. This format of idea generation and selection is simple and easy to be familiarized. Anyone in the ranks knows the process for proposing an innovation. Ideas can be generated across different organisational level. Moreover, such documents need to be specific and crisp which is easy for interpretation and it allows a smooth transition for subsequent engineering process.
Moreover, Amazon’s internal website for employees features a virtual idea box. This gives workers a platform to submit ideas big and small. One of the greatest innovations submitted was by software engineer Charlie Ward. He suggested there should be free shipping and the idea was later developed into the highly successful Prime program. Many firms have mission and value statements, but just like how Wawa managers and employees appeared to live them in their daily operations, Amazon’s customer-centric value is deeply cultivated as the company’s roots. The values are not just invented but embodies in the leadership of Bezos through words and actions. Innovation does not only happen in R&D or marketing, but creativity can benefit every function of an organisation. For Amazon, much of the innovation spin-off from their operational processes. Under distribution logistics, Amazon’s army of more than 100000 warehouse robots is there to carry stock around and group together all the individual items needed for a specific order. Amazon Web Services which was previously was invented to solve the challenge of separating various services to make a centralized development platform that would be useful for third parties now has become on the valuable services Amazon provides for other companies. Furthermore, Amazon is constantly inventing new user experience and engagement such as install of Amazon lockers. The most recent innovation would be Amazon Go which is a chain of grocery stores allows customers to purchase products without being checked out by a cashier or using a self-checkout station.
Management of multi-business units in across industries and geographies
Similar to Wawa which started off as a small milk plant and grew along with its existing core competency which ventured into dairy delivery business and eventually to its Wawa Food Market model. Amazon started off as started as an online bookstore and later diversified to sell video downloads/streaming, MP3 downloads/streaming, audiobook downloads/streaming, software, video games, electronics, apparel, furniture, food, toys, and jewellery.
Amazon is bold in terms of venturing out. They are expanding outside of media products, going international, entering the marketplace business with third-party sellers. It is difficult for incumbent companies to pursue new initiatives but Amazon is always not afraid to try out different projects, However, I believe their successful innovations have been always evolving around their core business. In 2014, Amazon entered the smartphone market by releasing the Fire Phone which was 3D -enabled. Amazon did not comprehend fully regarding consumers’ needs in smartphones and did not understand the market by not embracing the Google-approved version of Android. It fizzled out in 2014 but it was a valuable lesson learnt for Amazon. Amazon did not stop inventing hardware but launched Amazon Echo and other successful techs which have greater relation to Amazon’s core businesses.
Jeff Bezos believes “when we plant a seed, it tends to take five to seven years before it has a meaningful impact on the economics of the company”. In the long run, a firm which always takes bold and relevant moves will survive in the fast-changing and turbulent world. New initiates are happening every year in Amazon. In September 2017, Amazon partnered with Olo, an online ordering company, to help it ramp up its food delivery service. In 2018, Amazon acquiring online pharmacy PillPack. It shows a strong intent of Amazon to push further into the healthcare industry.
In its 2017 SEC filing Amazon describes the environment for our products and services as ‘intensely competitive’. It views itself having seven main current and potential competitors such as online, offline, and multichannel retailers, companies that provide information technology services or products, companies that provide e-commerce services, companies that provide fulfilment and logistics services for themselves or for third parties and etc.
It will definitely be a challenging task managing different business units and geographical boundaries since Amazon has ventured itself across different fields. For new initiatives, single-threaded leadership is adopted which means a leader is not expected to multitask. Also, the leader is expected to be full-time working on the project to ensure he or she has full control and planning of the project. Amazon has Global Function-Based Groups. Each major business function has a dedicated group or team, along with a senior manager. These groups enable Amazon to facilitate e-commerce operations management throughout the entire organization successfully. Considering Amazon's ongoing global expansion, having such groups in place ensures the objectives are clearly laid out and Moreover, Amazon has a global hierarchy. A senior managers' directives are applied throughout the organization, affecting all relevant offices of the company worldwide. Using such a management approach will be efficient which is important for a large corporations. However, flexibility is compromised to a great extent and limited responsiveness is allowed. One of the recommendation for Amazon will be to reduce the emphasis on such structural characteristics. Amazon could increase the empowerment of regional and local offices.
Conclusion
Overall, Amazon has the necessary infrastructure in place to support innovations. The design of the innovative system acts as a backbone for developing people’s skills and ambitions. The culture that Jeff Bezos has cultivated in Amazon has encouraged employees to not be afraid of experiment and sharing of ideas. These ideas may not be perfect but it is important for them to have a platform to showcase and improve. Lastly, if only Amazon would allow more flexibility in its organisational structure and give employees higher degree of autonomy, innovation can grow even further at an exponential rate.
