What is Amazon’s business strategy? What tools do they use to grow as a company?
Amazon’s business strategy centers on four tools: the product development proposal, the deep thinking document, the DMAIC process, and big-picture planning. Seeing the way that Amazon uses each of these tools is a great way to grow your own business strategy.
Keep reading for an in-depth look at each of these tools.
Amazon’s Four Tools for Strategy Development
Amazon found success by specifying guiding principles and designing the company in a way that aligned with those principles. In this article, we’ll explain this in more detail—how Amazon designed its company’s business practices to reinforce their principles, and Amazon’s business strategy more generally. Some of these practices are meant to encourage Amazon employees to work backwards, while others are meant to reinforce some of Amazon’s other important guiding principles.
In this article, we’ll discuss four tools Amazon’s workers use for strategy development; that is, to identify what to do to succeed. This not only includes tools to help them envision the customer experience (working backwards) but also tools to help them create and refine the customer experience after they’ve defined it.
- Tool #1: The Product Development Proposal
- Tool #2: The Deep Thinking Document
- Tool #3: The DMAIC Process
- Tool #4: Big-Picture Planning
Tool #1: The Product Development Proposal
The first tool we’ll discuss is what we call the Product Development Proposal (PDP). This is a type of document Amazon uses to apply the guiding principle of prioritizing the customer experience when coming up with new product ideas. Any team with an idea for a new customer-facing product must create a PDP before starting work on it.
The document consists of two parts: a press release and a set of frequently asked questions. (For this reason, Amazon refers to the Product Development Proposal as the “PR/FAQ.”)
Tool #2: The Deep Thinking Document
Next, let’s discuss a tool we’ll call the Deep Thinking Document (DTD). Whenever an Amazon employee wants to propose any course of action, they’re expected to write a detailed argument in a DTD rather than present it in a slideshow presentation. Similar to the PDP, the DTD serves as the central focus of group meetings. However, Amazon employees use DTDs in practically every meeting about anything in the company, not just product development—for example, proposed process improvements or budget changes. (At Amazon, this document is known as the “Six-Pager.”)
How the Deep Thinking Document Works
Over time, Amazon employees discovered that traditional slideshow presentations made it difficult for meeting participants to understand and accurately judge the ideas being presented. As a medium, slideshows can only convey very basic ideas. Slides lack the space necessary to convey complex ideas via text, and the linear presentation of slides makes it difficult to illustrate how a web of ideas connect.
According to Bryar and Carr, the DTD solves the problems with slideshows: Detailed text documents give presenters the space they need to fully explain complex concepts. Additionally, Amazon employees dedicate the first several minutes of any meeting to a silent read-through of the presenter’s DTD. This allows all meeting participants to engage with the presenter’s ideas nonlinearly, flipping through the document at their own pace—which enhances their understanding—rather than passively listening to the ideas just once from beginning to end.
Tool #3: The DMAIC Process
The next tool we’ll discuss is the DMAIC process—Amazon’s five-step procedure for evaluating progress and discovering business solutions. DMAIC is an acronym for Define, Measure, Analyze, Improve, Control—the five steps to improving any part of your business. Amazon didn’t invent this process; rather, they adopted it from a set of business practices invented in the 1980s called Six Sigma.
Defining Your Metrics
Amazon uses the DMAIC process to implement its principle of prioritizing the customer experience and working backwards, as we can see in step one: Define.
Specifically, define a set of metrics to track and optimize that accurately represent the quality of the customer experience. In other words, you must identify ways to assess how well you satisfy customers before working backwards to figure out how to satisfy customers even more (in the rest of the DMAIC process). These metrics should be quantitative—expressible in numerical data—so you can analyze them clearly and precisely. For example, if you’re managing a fast food restaurant, one of the metrics you define could be “average time between customer order and food delivery.”
Additionally, the metrics you define should be input metrics rather than output metrics. In other words, focus on aspects of your business you can directly control rather than those you can’t. Speed of food delivery, as in the example above, would be an input metric, while statistics like your total number of customers or percentage of five-star user reviews would be output metrics.
| Using the Scientific Method to Choose Metrics In The Lean Startup, Eric Ries offers a more specific technique that entrepreneurs can use to choose metrics that accurately reflect their business’s success. Ries contends that the best way to learn how to improve your business is to run it like a science experiment: Develop hypotheses about what you’re selling, then launch and see if your hypotheses are true. In particular, develop a “value hypothesis,” which theorizes that customers want to pay for what you’re selling, and a “growth hypothesis,” which is a theory that describes how your company will grow after early success. According to Ries, the best metrics are typically those with the power to prove or disprove these hypotheses. If your core assumptions about the business are false—if it’s not valuable or doesn’t have the potential for growth—your business is doomed to fail. Thus, metrics that verify these hypotheses are the most accurate indicators of your business’s health. For example, if your business is an app that helps pet owners find pet-sitters, your value hypothesis might be “If people can instantly find pet-sitters for a low enough price, they’ll gladly pay strangers through my app.” Your growth hypothesis might be “If users have a good experience on my app, they’ll refer enough of their friends to support the business.” Then, you could identify metrics to track that prove or disprove these hypotheses: Track the number of customers you get on an average day (value hypothesis) and the number of referrals per 100 users (growth hypothesis). You decide that if you get 10 users a day and 10 referrals per 100 users, your hypotheses are correct. These metrics reflect customer satisfaction (more users and referrals indicate that your product is better). However, they might argue that they’re output metrics rather than input metrics. That is, even if you track these statistics, they don’t tell you how you can improve. Instead, some recommend you measure input metrics you can directly influence, like the price at which you can afford to offer the pet-sitting service. |
Measure, Analyze, Improve, Control
After you define your metrics, step two of the DMAIC process is Measure: Set up tools for continually gathering data on the metrics you’ve defined. Step three is Analyze: Identify all the determining factors that influence your input metrics. Then, Improve: Change the determining factors you’ve identified in a way that improves your metrics. Finally, Control: Monitor your improved processes and make sure your input metrics don’t show signs of backsliding.
Let’s return to our restaurant example. If you’ve defined one of your restaurant’s input metrics as the speed of food delivery, the last four steps of DMAIC might look like this:
- Measure: You create software that automatically times how long it takes for your fast food employees to cook and serve each meal.
- Analyze: You discover that the speed of food delivery depends on how long the food takes to prepare and how busy the restaurant is.
- Improve: You simplify the recipe of your most popular menu item to shorten the time it takes to prepare.
- Control: You continue monitoring your food delivery speed and investigating if it ever slips up.
Tool #4: Big-Picture Planning
The last of the strategy development tools we’ll be discussing is the big-picture planning process. This is the procedure Amazon uses twice a year to determine what universal company goals all employees should prioritize.
First, the highest-level executives in the company set some broad goals that all teams in the company can collectively work toward; for instance, for the company to earn a certain amount of revenue this year. Then, leaders from each team write DTDs proposing numerous strategies and projects—the ways their specific team will help the company reach its goals in the coming year. In these narratives, they formally request the funds and other resources they need to accomplish their goals.
Last, executives review these proposals, and the highest-level executives choose a certain number of them for each team to prioritize over the others. For example, if a marketing team proposes a social media advertising campaign, a new email newsletter, and a partnership with a YouTube influencer, the executives might approve all three goals but request that the team prioritize the email newsletter.
This back-and-forth process where team leaders and executives build off of each other’s proposals ensures that team leaders and executives agree on what each team can and should be doing.
