Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 210

4 rules Amazon uses to avoid painful decline

Any company whose brand becomes a common noun (without the capital letter, called an eponym) must have made a big impact. Generations have cleaned the house with a hoover, blown their noses with a kleenex, stored hot drinks in a thermos and xeroxed a document. Most of us google rather than search.

Although not exactly the same thing, the goal of many new companies is to become ‘the Amazon of’ something. In wealth management, many new roboadvisers describe their strategy as aiming to become ‘the Amazon of financial services’.

Well, good luck with that, because not only is Amazon a unique company, it may well want to become the Amazon of financial services itself. FinancialAdvisorIQ (part of the Financial Times group) recently published an article titled ‘Betterment Yearns to be Amazon of FAs. Does Amazon?’, including:

“Amazon entering wealth management would cause a major disruption to the advice industry, pushing down prices and driving up demand for far faster delivery of financial services.”

Jeff Bezos annual letter to shareholders

Amazon has disrupted many industries, and destroyed companies like Borders, but in its 20 years, it has had negligible impact on financial services.

We all know that Warren Buffett produces his famous annual shareholder letter which is widely quoted, but it’s less well-known that Amazon’s CEO Jeff Bezos does the same. It’s a completely different style. Buffett focuses on his returns and investments, and it’s clear that making money is the main game. In his 2016 letter published a few months ago, Bezos does not mention ‘profit’ once, while ‘customer’ receives 19 hits.

The full text of Bezos’s latest letter is linked here, and it’s much shorter than Buffett’s.

There are a few highlights that every company can learn from, although the vast majority of large companies do not have the internal structures and processes to make them work. Bezos wants his company to always operate as if it’s Day 1, as Day 2 is a step to an excruciating, painful decline followed by death. For him, Day 1 vitality requires obsessive customer focus.

He identifies four rules for making high quality decisions:

  1. High velocity

Large organisation struggle to decide quickly because they fear failure. Speed matters, and where a decision is reversible, it should use a lightweight process. Most companies overestimate the cost of being wrong, whereas being slow will be expensive.

  1. Don’t wait for certainty

There is usually uncertainty around a decision, yet most companies want to check off on everything.

“Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions.”

  1. Disagree and commit

It’s often difficult to achieve consensus, as nobody can know with certainty the outcome of a new initiative. He says ‘disagree and commit’ saves a lot of time:

“If you’re the boss, you should do this too. I disagree and commit all the time … They had a completely different opinion and wanted to go ahead. I wrote back right away with “I disagree and commit and hope it becomes the most watched thing we’ve ever made.” Consider how much slower this decision cycle would have been if the team had actually had to convince me rather than simply get my commitment.”

  1. Recognise misalignment

Misalignment between teams and objectives must be identified early and addressed, or the problem will lead to 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. It’s slow and de-energizing. Go for quick escalation instead – it’s better.”

Does it work?

Many analysts have criticised Bezos over the years for reinvesting in the business rather than generating profits and paying dividends. When $10,000 invested in 1997 now has a value of about five million dollars, in a company with a market cap of nearly US$500 billion, it’s hard to criticise success and the way Amazon is challenging other businesses the world over.

 

Graham Hand is Managing Editor of Cuffelinks.

RELATED ARTICLES

It’s good Amazon and Buffett pay no dividends

‘Multidiscipline’: the secret of Bezos' and Buffett’s wild success

Business model disruption has barely begun

banner

Most viewed in recent weeks

Are term deposits attractive right now?

If you’re like me, you may have put money into term deposits over the past year and it’s time to decide whether to roll them over or look elsewhere. Here are the pros and cons of cash versus other assets right now.

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

How retiree spending plummets as we age

There's been little debate on how spending changes as people progress through retirement. Yet, it's a critical issue as it can have a significant impact on the level of savings required at the point of retirement.

20 US stocks to buy and hold forever

Recently, I compiled a list of ASX stocks that you could buy and hold forever. Here’s a follow-up list of US stocks that you could own indefinitely, including well-known names like Microsoft, as well as lesser-known gems.

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Latest Updates

Property

Financial pathways to buying a home require planning

In the six months of my battle with brain cancer, one part of financial markets has fascinated me, and it’s probably not what you think. What's led the pages of my reading is real estate, especially residential.

Meg on SMSFs: $3 million super tax coming whether we’re ready or not

A Senate Committee reported back last week with a majority recommendation to pass the $3 million super tax unaltered. It seems that the tax is coming, and this is what those affected should be doing now to prepare for it.

Economy

Household spending falls as higher costs bite

Shoppers are cutting back spending at supermarkets, gyms, and bakeries to cope with soaring insurance and education costs as household spending continues to slump. Renters especially are feeling the pinch.

Shares

Who gets the gold stars this bank reporting season?

The recent bank reporting season saw all the major banks report solid results, large share buybacks, and very low bad debts. Here's a look at the main themes from the results, and the winners and losers.

Shares

Small caps v large caps: Don’t be penny wise but pound foolish

What is the catalyst for smalls caps to start outperforming their larger counterparts? Cheap relative valuation is bullish though it isn't a catalyst, so what else could drive a long-awaited turnaround?

Financial planning

Estate planning made simple, Part II

'Putting your affairs in order' is a term that is commonly used when people are approaching the end of their life. It is not as easy as it sounds, though it should not overwhelming, or consume all of your spare time.

Financial planning

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.