Updated: Dec 3, 2021
I believe Amazon is the world’s best innovator. It has accomplished this through building a culture of innovation, starting with a strategy that explicitly states the goal of a “passion for invention”. That goal is propagated through every aspect of the company: from the Leadership Principles that define its internal culture and how employees should think, work, and make decisions, to use of a highly decentralized organization structure, which enables organizations to identify and pursue their own innovations. The combination of its massive resources and that culture of innovation allows it to create tremendous innovation: it regularly creates new technologies, industries, markets, and ideas. That has resulted in Amazon’s long-term 30%+ average revenue growth.
But here’s the ugly secret: internally, Amazon is poor at reliably innovating. Yes, it’s beaten the industry averages where 90%+ of innovation projects fail to provide a return on their investments. But I wouldn’t be surprised if at least 50% or more of Amazon’s innovation projects still fail! With $40 Billion in Research and Development investment in 2020, that’s many billions of wasted effort every year! That’s what I mean when I say Amazon is wasting Day One – its current approach is causing huge numbers of innovative ideas to fail, or be scrapped, before even getting off the ground.
So why does it still fail so much? It’s simple: it lacks a systemic approach to innovation. Amazon has been able to accomplish the innovation it has through providing good conditions for innovation to spontaneously occur: it created a customer-focused vision to orient employees, built a culture that is ground-up designed to support organic innovation, hired great employees, and then poured tremendous investment and resources into it. That approach has worked great when compared to the market standards, and is something every company can learn from, but 50% failure should still not be considered great!
Amazon’s current model of innovating is highly resource intensive and high risk: it’s reliant on continual heroic efforts by its employees to move quickly and accomplish extreme feats, causing significant strain on employees (and attrition). It’s decentralized decision-making and resource allocation process naturally pits every organization against each other, fighting for the resources to operate and scale existing capabilities, let alone investing in new innovations. Individual employees are often prompted for new, innovative ideas, but they typically have no time to develop them, and various levels of mid-management filter out innovative ideas that may not align to their understanding of the team’s future strategy. Even worse: most mid- and even senior-level managers are so focused on today’s issues and firefighting, they rarely can consider and prepare well for the 3-, 5- or 7-year innovation horizon.
Once an innovative product launches, it’s only half-way to success. It still has to fight for resourcing to fix all the issues that it probably deprioritized to launch its Minimum Viable Product (MVP) on time. It needs to convince a myriad of unrelated teams to support the new, critical customer capabilities it provides (like Customer Service). It has to prove itself in the market place, and innovate faster than competitors. And it needs to retain employees, who likely get a promotion from the MVP launch and jump ship to another team.
All these issues, plus more, have caused many new and innovative products Amazon has launched
to be scrapped. Everyone is aware of the Fire Phone of course, but what about projects like “Amazon Local” (Groupon competitor), or “Amazon Restaurants” (food delivery). These products were launched with significant cost, established, and then shut down, amongst many others. I worry for Amazon Explore, which I think is an awesome and disruptive product, but doesn’t yet seem to have the visibility and internal backing to create the virtual tourism market. Complex and disruptive projects, such as Amazon Astro (Alexa Robot), are perpetually delayed and often feature-poor, due to how the disruptive innovation is managed.
I started this blog post saying that Amazon is the world’s best innovator, and I believe that! But it is clear it is not perfect and has a lot of room to improve. So how could Amazon improve its approach to innovation? Since leaving Amazon earlier this year, I’ve spent a lot of time considering this. My answer is that it needs to move beyond the organic innovation approach that it leverages today, to define an Innovation Management System (IMS) that can be reused across Amazon to increase the success of innovation efforts.
An IMS is a new(-ish) concept. Most importantly, an IMS is not a technical system, but the collection of everything a company does that enables (or discourages) innovation. As a result, an IMS spans every part of a company, from its guiding vision to employee performance management. For example, can you expect employees to generate innovative ideas, if you don’t hire employees who demonstrate curiosity and a passion to problem solve? It’s not likely: no matter how much you encourage the employees, the number of high-quality ideas going into the innovation pipeline is likely to be low.
The intention of an IMS is to explicitly define and standardize best practices that increase the likelihood of successful innovation, instead of just leaving innovation to chance or heroic employee efforts. There are many different frameworks for innovation, including the draft ISO 56000 standard being created. With nebulous terminology and broad complexity and impact, however, it’s no wonder companies struggle with implementing them.
That’s why I am striving to create an innovation system model that incorporates not only the best of current innovation theory, but organizes and leverages the best practices Amazon has found that have enabled it to succeed as well as it has. Amazon has done well at innovation compared to the market—but I firmly believe it could do much better if it structured innovation better. It wouldn’t be wasting so many Day Ones. More importantly, I believe that any company can improve its innovation efforts, and Amazon’s approach gives a good and proven foundation to build upon.
In the coming weeks I’ll be posting on the components of an innovation system, with some examples and ideas for how Amazon and other companies can leverage it. Please stay tuned, and if you have any questions or comments, or just want to connect, reach out!