Crises draw us back to where we are comfortable. Through the recent global crisis, many companies focused on preserving capital and hurrying to protect their core business. At times like these, adjustments can be modest; change is more incremental and plans for broader innovation can be cast aside. But the innovation imperative continues, and those who innovate now will thrive in the recovery.
First, let’s take a trip down recent memory lane. During the 2007-2008 global financial crisis, when many were concerned about the future of the travel and hospitality industry, innovations in business models, customer engagement, and technology emerged to create the marketplace we have today. Airbnb launched in August 2008, Uber in March 2009, followed by Square later that year. By 2010, we were able to use our third-generation iPhones to conduct business that was not even possible when the first model was launched three years earlier.
But these companies were startups with little at stake and everything to gain. What is an established company to do? According to a Harvard Business Review article titled “Roaring Out of Recession,” only 9% of established companies emerged stronger after the Great Recession while 17% went bankrupt, and the rest performed roughly the same as pre-recession. So what did that 9% do differently? They ‘reduce costs selectively by focusing more on operational efficiency than their rivals do, even as they invest relatively comprehensively in the future by spending on marketing, R&D, and new assets.’
Through the ongoing pandemic, companies are beset by challenges–and surrounded by opportunities, too. To thrive, companies are going to have to do (even) more with (even) less. Amazon’s approach to innovation is one way of tackling the challenge. Our customers often ask us how Amazon innovates, and it’s possible that our approach may contain elements helpful to others. In our experience, innovating successfully depends on rapidly determining where to innovate, what solution to focus on, and how to build.
To determine where to innovate–the ‘innovation space’—it is vital to rapidly differentiate between one-way and two-way doors. One-way doors are those decisions that are hard to undo–those impacting life and health, major capital investments, or decisions that could damage customer trust. Even during times of crisis, those decisions should be carefully thought through. By contrast, two-way door decisions are easy to undo and offer great potential for learning–more so by taking action than by further analysis. We encourage leaders to walk through the two-way door and see what may be on the other side. Put more bluntly, if your team is motivated to experiment, the cost is low and there is the chance to learn—why not give it a try?
When you have determined where you’re going to innovate, investing in the right innovations is more important than ever. Moving fast can also mean moving further in the wrong direction if you make an early error. At Amazon, we focus relentlessly on our end customer to guide our innovation. In his 2016 letter to shareholders, Amazon founder and CEO Jeff Bezos said, “Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf.”
So—very practically—we ask ourselves some searching questions. First, who is the customer? Not a segment of people or a generic persona that could be anyone’s customer, but who is our customer? Next, what is their most pressing problem or opportunity? Again, we try to be very specific. Given the already-massive challenge of innovating successfully, our chances of solving two or more problems at once is vanishingly small. We choose one and focus on it. At this point we have not–yet–even thought about a solution. We are just understanding, empathizing, considering.
Then, given this customer with that problem or opportunity, how can we delight them? We enter a process of iteration. We sketch out a solution and–again being specific–describe what the main benefit or opportunity would be to this customer. Have we delighted them? Perhaps not. Does that mean the solution is not yet right? Probably. Or perhaps we have learned something new about by looking at them and their problem in this way and need to go back to the previous step.
As we think deeply and iterate, we should end up with a customer, a problem, and a solution. At Amazon, the next step in our process is to produce a document. First, we write a press release as if the product or service has been launched. This helps frame the issue at hand. We focus on the customer’s need and how we believe this solution will delight them, and not how it keeps us competitive or drives profit. We are careful not to use industry jargon as everyone should be able to understand it. The one-page press release is accompanied by ‘Frequently Asked Questions’ (FAQ), where we list all of the questions a customer or internal stakeholder may have–and then answer them one by one. This sharpens the idea, and saves time because a single document should answer most questions a reader may have. We then add visuals which brings the solution to life showing the desired customer experience and workflow. This document is the PR-FAQ, and underpins every innovation at Amazon. It guides our experimentation–which is what comes next.
To experiment quickly you need to defray the costs of innovation. This means making experimentation fast and easy by using tools, automation, and agile development to rapidly build, validate, test, scale, or abandon experiments. It helps a lot when you use cloud services where you pay only for what you use rather than capacity that sits idle. And it also means that once you have a winner, you can scale securely and reliably to all your customers at once—without complicated and costly roll-out plans. With these in place, only one’s pride is at stake when an experiment does not work out. But you can embrace the rich lessons obtained at low cost and apply those lessons as you move on to the next project.
There is no surefire way to innovate, but you can improve your chances of success. As Jeff Bezos said in his 2015 letter to shareholders, “Given a 10 percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of 10.” However, taking those bets is crucial because, “Big winners pay for so many experiments.” Looking at the world right now, there has never been a time when this is truer.
For more insights and strategies, visit AWS Executive Insights online.