Amazon and Knowing That One Thing That Drives Your Strategy
The next big theme I want to talk about is a little bit close to me because I used to be a corporate strategy senior partner, is what I call Amazon and knowing that one thing that drives your strategy. As you know, Jeff Bezos is stepping down as CEO from Amazon and will take over as executive chairman. Of course, he’s done a tremendous job in creating Amazon, the culture, and the way he’s catalyzed the change of digital e-commerce around the world. He’s done a phenomenal job, and I think he’ll do many other big things because he’s still young, energetic and obviously he knows what he wants to achieve. But the lesson here is not about Jeff Bezos.
I’m going to talk about a client I had many, many years ago. This company was an investment firm. I did one piece of work for the CEO, and we became very good friends, but I never worked with that CEO again—but not because I didn’t like her. I thought she was amazingly talented, and she went on to do many big things in the world. But I felt that she didn’t have the backing of the board, and any work we did for her was just never going to be approved, and that was the case.
So, we were good friends, and she would tell me what she was doing. But every six or seven months she would bring in a new consulting firm, and that partner would give her a new strategy. She liked bringing in partners from the London office. We’d talk about the strategy, and I would counsel her because we were friends. Every six or seven months, she’d come up with a new strategy, and she would be so excited about it, and we would talk about it. She spent a lot of money on this—millions of pounds. But ultimately, none of it was implemented.In the resources-based view of strategy, you say that as your resource or asset mix changes, you have to think of better ways to deploy your resources. That is not a good way to think about strategy. Click To Tweet
This is the insight. Her customers never changed. For the business she was in, for the assets she had, her customers never changed. Every time she told me that this firm developed a strategy for her, she was impressed by a strategy or a partner, I would ask her a simple question. If your customers have not changed, why is your strategy changing? She would tell me, “Well, we’ve acquired new assets, and because we have new assets, the other partners think that the assets need to be deployed in a different way.” That’s called the resources-based view of strategy. In the resources-based view of strategy, you say that as your resource or asset mix changes, you have to think of better ways to deploy your resources. That is not a good way to think about strategy.Amazon hadn’t changed their strategy since around 1994, when Amazon was created. Their strategy has always been: How do we reduce the time to deliver, and how do we reduce the cost to deliver? Click To Tweet
Recently, I had a discussion with Ram Charan on the Strategy Skills podcast. We spoke a lot about Ram’s recent book The Amazon Management System, and Ram is a very nice guy to talk to because he gets to the point quickly. Amazon hadn’t changed their strategy since around 1994, when Amazon was created. Their strategy has always been: How do we reduce the time to deliver, and how do we reduce the cost to deliver? That’s not to say that they were the lowest cost and the fastest initially. As one of my colleagues once told me, initially, Amazon was not the cheapest, and they weren’t the fastest, but they realized that to compete they had to get there. Everything they did from that point on was to arrange themselves to get there, and the strategy has not changed because their customers are the same, and they know what their customers want, so they’re always trying to reduce the cost and reduce the time of delivery while making sure customers have what they want.If you are in any business and your strategy is changing every year, but your customers are the same, then you probably have a strategy dilemma. Click To Tweet
If you are in any business and your strategy is changing every year, but your customers are the same, then you probably have a strategy dilemma. If your customers are the same and you understand your customers and you know what they want, then your strategy should be how to give your customers what they want. The only reason your strategy should change is that maybe you’ve realized what you’re giving your customers is not what they wanted, which means you don’t understand your customers, which means you should understand your customers first before you develop your strategy. But a lot of companies conflate the two. They say, “In my strategy, I’m going to determine what my customers want.” I would tend to separate that. It can be done, and I’ve done that in many, many strategy engagements for clients where I combine the two. But that’s a distinct phasing where one part is to understand customers, and the other is to roll out the strategy to give customers what they want.The only reason your strategy should change is that maybe you've realized what you’re giving your customers is not what they wanted, which means you don't understand your customers, which means you should understand your customers first before… Click To Tweet
I’ll give you another example of this. SLIDES members will see this update sometime later this year. We’re going to put together a marketing strategy for a company. I was assigned to do similar work many years ago, and I don’t have a marketing background. Many partners in the office said, “Why do you have a strategy partner doing a marketing engagement?” And the client said, “We like this partner, and we’ve known him for a long time.” When I did this study, I came up against a lot of pushback from the traditional strategy partners and from the marketing strategy partners and teams because they said I was doing it differently from how they would do it. A very big part of the strategy engagement was understanding who the customers are, what they want and what they don’t want. Then I simply said, “This is what they want and what they don’t want, so how do we reconfigure the business to give them what they want, and how do we market it and brand it to them?”If we don't have this capability, but we need this capability to give our customers what they want, then let’s get this capability. Click To Tweet
That’s an example where I didn’t just start with a strategy, looking at competitors and what’s happening in the market. No. You need to know who your customers are first and give them what they want. Amazon has done that very well. They know who their customers are, and all the decisions they make revolve around: “If we don’t have this capability, but we need this capability to give our customers what they want, then let’s get this capability.” Versus other companies would say, “These are the assets we have. Now, which customers should we serve with these assets?” That’s a resource-based view of strategy. The problem with the resource-based view of strategy is that you must make decisions in terms of what to do based on where the market is going. You always have to look at the market.
Every single company I’ve ever served, if you look at their strategy, it’s probably 200, sometimes 300 slides, but there’s always one chart that captures their strategy. We have one chart called the Growth-Growth Matrix, where we take the growth in revenue for each sector in the economy and plot it against the growth in employment. (FIRMSconsulting Insiders have access to these analyses in the Market Entry Strategy Study and SLIDES members have access to those editable files.) The strategy for the bank—if they want to make the investment—is to always invest in sectors that are productive where the growth in employees is slightly less than the growth in revenue—not a lot less but slightly less. That became the slide that all the strategy decisions were based on.
In the Corporate Strategy and Transformation Study, SLIDES members will soon be able to see all of the slides, and FIRMSconsulting Insiders can see quite a lot of the videos that have already been released. The entire discussion with the board came down to one slide where we plotted the geographic distance from the domestic market on one axis. So, you have the domestic market, region, rest of continent, rest of the world. On the other axis, we have distance—or adjacency to the core business—which is electricity, electricity support, energy and other. We took all of their businesses and investments, and we worked out the economic profit. Then we plotted it on that three-by-three or four-by-four matrix. For those that made an economic profit, we made it one color, and for those that destroyed economic value, we made it another color.
It just jumps out that as you stray further from the core, you destroy economic value. So, in that study, there are lots of slides, but everything comes back to this.
As you’re doing strategy work, the first question you must ask yourself is: Who are my customers, and how do I serve them? You don’t need tons of analysis to prove the case of where to play. It’s usually just one analysis.
This is an excerpt from Monday Morning 8 a.m. newsletter, issue #15.