Editor’s Note: During a time of change, it’s always a good idea for business leaders in industries undergoing disruption to look at the disruptors and learn from them. Amazon is a prime example, and there are many lessons for insights organizations there. Larry Gorkin lays them out.
By Larry Gorkin
Amazon has been in the news more than usual lately. The company announced 20% revenue growth for its most recent quarter, but disappointed Wall Street analysts who expected more, and who also want a greater focus on profits. Amazon’s stock dropped 10% the next day.
Still, for me, the big news is that Amazon continues to be a juggernaut, with achievements that few companies approach. Amazon’s success is more than circumstantial, and instead reflects a set of implicit strategies that are instructive for everyone.
Leaders wanting to accelerate top line growth should look to Amazon as a model. From its start 20 years ago as an online bookseller, Amazon has become a $74B enterprise, dominating ecommerce, and a leader in businesses like cloud computing, tablet devices, and video streaming. Following are five Amazon strategies that can help others achieve similar (if not equal) success.
1. Target Growth Markets–One foundation of Amazon’s success is that it competes in the fast growth digital market that includes retail, devices, and infrastructure. It’s easier to grow your business when the market is expanding rapidly versus flat or declining. That’s obvious.
But, how many companies deliberately realign their strategies and resources to focus on growth categories? Many leaders invest in emerging geographies, but fewer actively de-emphasize a mature category in favor of an expanding one. IBM’s recent decision to sell its low-end server business to Lenovo is a good example that will allow investment in growth opportunities like cloud and big data.
Is your company over invested in a business with inherently limited upside potential?
2. Leverage Core Skills and Assets--Amazon has been superb in turning its core skills and assets into new businesses. For example, Amazon used its technology prowess to launch Amazon Web Services (AWS), a now industry leading cloud computing business. Similarly, Amazon provides store front and fulfillment services to thousands of small merchants, leveraging its core retail infrastructure.
The lesson for leaders is to identify their core institutional skills and assets; and then determine if/how they can be monetized. This can be a large or smaller initiative. As a large example, UPS leverages its logistics expertise to manage supply chain for other companies. Perhaps somewhat easier, Lucas Films licensed its Star Wars brand to Lego for a line of children’s toys. Both approaches work.
3. Sell More to Current Customers — Amazon thrives on selling more stuff to its current customers; it’s hard to imagine anyone is better. First, Amazon sells virtually everything. Second, Amazon meticulously mines shopper data for aggressive marketing of cross sell and up-sell opportunities. Finally, free shipping with its Prime membership program encourages best customer loyalty.
The high cost of winning new customers generally makes growth among current ones a better opportunity. The first goal is to maximize your share of customer spending within current categories. Second is to capture spending for related/adjacent purchases that fit with your business. In both cases, leaders need to know where they stand today, and then set a goal to grow.
4. Make Continuous Improvements — Amazon has driven success with continuous improvements in its offerings and capabilities. It does so in both big and small ways, all focused on better customer value. For example, Amazon invests relentlessly in its supply chain infrastructure to reduce delivery times for shoppers, and has continuously reduced the price of its cloud computing services. Competitors can’t keep up.
The opportunity for leaders is to focus on meaningful improvements for customers versus just creating “news”. Do improvements address a core customer need? Are they likely to change the purchase preference long term? If you can’t answer “yes”, it’s probably not meaningful.
5. Think Long Term — As an overlay to all of its initiatives, Amazon prioritizes long term franchise building versus near-term profits. It is famous for ignoring Wall Street calls to focus on profitability. CEO Jeff Bezos has repeatedly asserted that shareholder value is best served by building and extending Amazon’s market leadership; and that he will sacrifice short-results for that goal.
Amazon’s long term approach may be unusual in today’s world, but it’s an issue leaders should consider. Short term financial objectives implicitly limit investment levels, potentially reducing the funds or time needed for an initiative to achieve market success. Short-term profit pressures are a reason many firms go private when major investments are needed to improve results. Leaders should consider whether a longer term investment view would help their business.
To be clear, Amazon is far from a perfect company. But, it’s definitely doing many things right. Most leaders would do well to have a little Amazon in their strategies and plan.
Questions: How many of these strategies are yours? Which would benefit your business most?