Amazon is the World’s Best Innovator
Updated: Oct 21, 2021
Since deciding to start my business recently, I’ve had many people ask me why I am basing innovation strategy off how Amazon conducts business. Of course, I just retired after spending almost 9 years there in technology management, and so I have deep knowledge about it. Although that’s very helpful, the real reason is that I believe Amazon is the most successful, continuously innovative company in the history of the world. It’s accomplished this through building an internal business culture that creates innovation successfully at scale, and I think other businesses can adopt the same practices that Amazon has pioneered.
In study after study going back for decades, the major consultancies continually share that their research shows that almost all innovation projects fail! Depending on the year and consultancy, they typically specify innovation projects fail between 90-96% of the time. That’s abysmal! Of course, the reasons are many, and I won’t get into that here, but I can say without a doubt, Amazon’s success rate at innovation is dramatically more than 4%.
I don’t have definitive data to back that up, unfortunately, but I do have my experience and corollary data I can share. During my years at Amazon I was responsible for implementing many of the largest and most complex innovations for the groups I worked in—massive global expansion projects, support of new business strategies, and new customer offerings. My teams and I managed many hundreds of projects, bringing thousands of new capabilities to Amazon and its customers. I can say that without a doubt, most of those projects were highly successful: delivered on time, and with measurable impact and improvement against specific goals.
One program I am particularly proud of was improvements supporting the Amazon Fresh grocery business. For years Amazon Fresh was unprofitable—the cost of the infrastructure, grocery products, delivery vehicles, technology development, etc. were just too large to be offset by low grocery margins. However, due to a series of projects I owned while I was working within Last Mile Technology, we were able to dramatically lower Fresh’s cost of delivery. This enabled Amazon Fresh to finally become profitable for the very first time, which is what Jeff Bezos had required of the Fresh team before it was allowed to expand. Now you see Amazon Fresh everywhere!
From a data perspective, you can see some public data that backs up the case that Amazon is the most reliable innovator. I think the best indicator is that Amazon has grown revenue about 30% per year, every year, since founding. Of course, this doesn’t explicitly say Amazon is best at innovation, but it does implicitly specify that Amazon creates enough innovation to be able to reliably secure 30% more business every single year. This has been true the last 25 years, and it’s been true the last 5 years. Have you seen this consistent of increase of business from any other company, over any other timeframe? I haven’t, and I’ve looked! Here’s the data in a chart comparing the other “Big Tech” stocks. Notice anything different?
There are other potential ways you can try to measure innovation. For example, Amazon has increased its US patent submissions by 38% each year average since 2010, peaking at 2504 patents in 2019 (it slowed slightly in 2020 due to Covid--only 2373 patents filed). Amazon doesn’t create the most patents (IBM does—by far), but Amazon certainly wins in turning patents into revenue. IBM has been declining revenue by 3% per year on average since 2008.
You can also measure innovation by looking at products that are successful in the marketplace, and how often a company is able to create new products that win market share. I’ll come to Amazon in a moment, but let’s consider the other Big Tech competitors. If you look at what they produce, they generally still have only limited products that create their income, and have been unable to show sustained innovation into new market areas. Google's strength is clearly search and advertising. It’s a well-publicized issue that Google struggles in sustaining new products and shuts most down after several years of disappointing results. Facebook? Their one product is social media, paid by advertising. Yes, they have some spurious other services like the marketplace, or their video conferencing device, but those are insignificant in comparison. Microsoft? It created its products 30 years ago with Windows and Office, and they are still the core products today. Apple? iPhone and Mac. Apple is probably the closest competitor to being able to innovate well, with the various products that tie into its ecosystem.
So what about Amazon? Of course, there is the retail website. But keep in mind, it’s not just retail. It’s also the 3rd Party Marketplace (56% of all sales most recently), Fulfillment, Last Mile Delivery (now larger than FedEx!). Advertising is growing like gangbusters. Don’t forget AWS—establishing an entire new market with the Cloud, and AWS has somewhere around 300 different products within it, and more every month. There is Amazon Fresh and Prime Now, and Amazon Go (the Just Walk Out tech is amazing). Amazon One: user ID by palm print. Prime Video, including live events. Of course, Amazon invented Alexa and the digital assistant and smart home categories. I could go on and on. Plus, keep in mind each of these products is also localized for each different geography—Amazon is selling into over 100 unique countries today.
So how does Amazon do it? They built an organization that is singularly focused on innovating at speed. This was intentional, and they publicize much of how they do it. I like this quote from Jeff Bezos, from a 2019 speech he gave: “Our culture is four things: customer obsession instead of competitor obsession; willingness to think long term, with a longer investment horizon than most of our peers; eagerness to invent, which of course goes hand in hand with failure; and then finally, taking professional pride in operational excellence."
I refer to these as Amazon’s Four Key Principles, and they inform pretty much everything Amazon does. Amazon used these as their north star for creating a sustainably innovative company, and then built all the other organizational mechanisms to reinforce them. If you pay attention to Amazon much you hear about concepts like “Working Backwards from the Customer”. This is the idea that you need to make sure you have a compelling customer benefit identified before you start work. Although that seems obvious, many companies still don’t do this with their innovation projects, and consequently, 96% of them fail.
What I’ve done recently is taken all Amazon’s best practice mechanisms that enable their successful innovation, and weaved them together into a framework that other organizations can learn. I used my experience to identify improvements in Amazon’s practices, to create a new “Innovation Management System”. My goal is to be able to show significant, measurable improvement in innovation at companies with 3-, 6-, and 12-month benchmarks. I expect to continually refine the framework over time as I get experience implementing it at various companies, creating a cycle of innovation in how to innovate!
I am excited at the interest I’ve received on this already. Prospective clients are asking for how to adopt the framework to brand-new tech startups to create a culture of innovation from day one. I have had others ask to create individual employee training courses to train on innovation concepts. I think there is an awesome amount of amazing stuff that can be done to help any other company innovate better. I’m looking for partners to start testing this out with. If you are interested, or just want to touch-base, let me know!