The digital age requires a fundamental mind-shift from the industrial-era approach of searching for sustainable competitive advantage devised from studying the past. Firms need instead to be doing the opposite: working backwards from unmet customer needs and imagining what meeting those needs would entail. It's a different world.
Thus, the key management difference between our current digital age and the industrial era isn’t any particular process or system or structure. It’s a different way of thinking.
Industrial-era strategy, epitomized by business professor Michael Porter, studied the past in massive detail in the hope of discovering a sustainable competitive advantage that could be extrapolated into the future. In a rapidly changing economy, this inevitably led to strategies of doing more of the same that didn’t fit the current marketplace.
By contrast, digital-era strategy, exemplified by Amazon’s PR/FAQ process, does the opposite. As shown in Figure 1, it starts from the customer’s needs in the future and works backwards to how that need can be met by a unique approach, regardless of the firm’s current products and services.
Working Backwards From The Future
The difference in approach is explained in detail in one of the most illuminating management books of recent years: Working Backwards: Insights, Stories, and Secrets from Inside Amazon” (Macmillan, 2021) by Colin Bryar and Bill Carr.
Amazon began to crystallize its approach to creating new businesses in the early 2000s in what it called a “PR/FAQ.” This means imagining the finished product, with a 6-page paper, which is called a PR/FAQ, i.e. a “press release” and “frequently asked questions.” It’s essentially how Amazon would announce its product in the marketplace if it was ready to launch and how it expects the product to be received. It’s replete with “imagined customer quotes,” about how it will make customers' lives better. There are no PowerPoint slides. The PR/FAQ is about two pages of press-release prose, and four pages of frequently asked questions.
There are also metrics showing how customer behavior is expected to change and what elements will need to happen from Amazon to make those behavior changes happen.
This process has led to an astonishing array of major innovations: Cloud services with AWS in 2006; Amazon’s Kindle in 2007; video on demand in 2008; Amazon Studios in 2010; Amazon Echo in 2015; and Amazon groceries in 2017, among many others.
The PR/FAQ and the metrics are reviewed by a high level committee that decides whether to proceed and, if so, how much resources will be assigned to the proposal.
Amazon’s PR/FAQ is not the only effective strategic planning process for the digital era. But along with SRI’s NABC’s process, it is one of the best.
Working Backwards explains the process in detail. But the book is not just a tale of triumph and how wonderful Amazon was or is. It gives a blow-by-blow account of why Amazon arrived at the process, including what went wrong along the way.
Why The Famous Two-Pizza Teams Didn’t Work So Well
For instance, Working Backwards explains why Amazon now puts much less emphasis on its famous two-pizza teams. It was a seductive idea, but it didn’t work as well as Amazon had hoped. “We all agreed at the outset that a smaller team would work better than a larger one,” the authors write. “But we later came to realize that the biggest predictor of a team’s success was not whether it was small but whether it had a leader with the appropriate skills, authority, and experience to staff and manage a team whose sole focus was to get the job done.” Many tasks couldn’t be broken down into pieces small enough to be handled by a small two-pizza team. And in any event, Amazon didn’t have enough leaders with those kinds of CEO-type skills.
The book explains how Amazon now puts more emphasis on concept of a “a single threaded team.” That means a team that can operate independently. Why the odd name? The authors explain: “Nothing catchy came to mind, so we leaned into our geekdom and chose the computer science term ‘single-threaded,’ meaning you only work on one thing at a time. Thus, ‘single-threaded leaders’ and ‘separable, single-threaded teams’ were born.”
Why Amazon’s Famous ‘Forcing Function’ Didn’t Work
Working Backwards also explains the problems with Amazon’s idea of having a single equation or “forcing function” that could measure team performance in a single figure.
Custom-tailored fitness functions were equations which combined the directional components of each aspect of a team’s velocity. By pointing each team in the right direction and alerting them early if they drifted off course, fitness functions were supposed to align the team uniquely to its goals. But it didn’t work. “We tried them out for more than a year,” write the authors, “but fitness functions never really delivered on their promise for a couple of important reasons. First, teams spent an inordinate amount of time struggling with how to construct the most meaningful fitness function.…. Second, some of these overly complicated functions combined seven or more metrics…. Combining them into a single, unifying indicator was a very clever idea that simply didn’t work.”
Chapters 7-10 of Working Backwards give four detailed examples of how this process worked in practice: Kindle, Prime, Prime Video and AWS.
The Authors
The authors have the background to speak with authority. Colin Bryar joined Amazon in 1998 — four years after its founding — and spent the next 12 years as part of Amazon's senior leadership team as Amazon grew from a domestic (US-only) seller of books to a global, multi-dimensional powerhouse and innovator. For two of his years at Amazon, Colin was "Chief of Staff" to Jeff Bezos, AKA "Jeff's shadow", during which he spent each day attending meetings, traveling with, and discussing business and life with Jeff.
Bill Carr joined Amazon in 1999 and spent more than 15 years with the company. In 20th century firms, planning typically looks at competitors and then seeks to create a future that will enable them to stay ahead of the competition.
The clarity and frankness of the book make for essential reading.
And read also:
What Killed Michael Porter’s Monitor Group
It’s Official: The End Of Competitive Advantage
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