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Working Backwards

Planning by envisioning a destination and then designing the process to get there.

Associated with Amazon:

cf Theory of Change

book Working Backwards - Colin Bryar

Partial Excerpts (antilibrary)

Introduction

essential causes of its singular success

Amazon believes that long-term growth is best produced by putting the customer first. (Create A Customer)

Our culture is four things: customer obsession instead of competitor obsession; willingness to think long term, with a longer investment horizon than most of our peers; eagerness to invent, which of course goes hand in hand with failure; and then, finally, taking professional pride in operational excellence

14 Leadership Principles

broad set of explicit, practical methodologies, that constantly reinforce its cultural goals

finally there is the product development process that gives this book its name: working backwards from the desired customer experience.

2004

Steve informed me that Jeff had decided the time was right for Amazon to start enabling our customers to buy and read/watch/listen to books/videos/music digitally

Jeff often used an analogy in those days when describing our efforts to innovate and build new businesses. “We need to plant many seeds,” he would say, “because we don’t know which one of those seeds will grow into a mighty oak.”

Both of us moved on from Amazon to pursue new endeavors—Colin in 2010 and Bill in 2014

they often respond with some version of, “But you had a lot more resources and money, not to mention Jeff Bezos. We don’t.”

we hope you’ll see that being Amazonian is not a mystical leadership cult but a flexible mindset

Introduction to Part One

We will tell some of the origin stories of these principles and processes to demonstrate that they were solutions to problems that were impeding our ability to invent freely and satisfy our customers consistently

Our emphasis is on what we call controllable input metrics, rather than output metrics.

1. Building Blocks: Leadership Principles and Mechanisms

From the tone of customer emails to the condition of the books and their packaging, Jeff had one simple rule: “It has to be perfect.”

People worked a minimum of 60 hours per week

Customer Obsession

Ownership. Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results.

Invent and Simplify

Are Right, A Lot.

Learn and Be Curious

Hire and Develop the Best

Think Big

Bias for Action

Frugality

Earn Trust

Dive Deep. Leaders operate at all levels, stay connected to the details

are skeptical when metrics and anecdotes differ

Have Backbone; Disagree and Commit. Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting.

Deliver Results

The nature of the Amazon Leadership Principles is borne out in processes and practices throughout the company

even though the Leadership Principles are embedded into the fabric of the company, they cannot effectively enforce themselves—that’s the job of something that Amazonians call mechanisms

Mechanisms: Reinforcing the Leadership Principles

Three foundational mechanisms are: the annual planning process; the S-Team goals process (the S-Team consists of the senior vice presidents and direct reports to Jeff Bezos); and Amazon’s compensation plan, which aligns incentives with what’s best for customers and the company over the long term.

Annual Planning: OP1 and OP2

Amazon relies heavily on autonomous, single-threaded teams

their autonomy must be paired with precise goal-setting to align each team’s independent plans with the company’s overarching goals

The S-Team begins by creating a set of high-level expectations or objectives for the entire company

“Grow revenue from $10 billion to $15 billion” or “Reduce fixed costs by 5 percent.”

Once these high-level expectations are established, each group begins work on its own more granular operating plan—known as OP1—which sets out the individual group’s “bottom-up” proposal

6. Metrics: Manage Your Inputs, Not Your Outputs

2000 when Amazon recognized $2.76 billion in annual revenue and its famously data-driven culture was prevalent throughout the company. During the fourth quarter—in which our net sales ended up increasing by 44 percent over Q4 of the previous year—there was a daily “war room” meeting where the senior Amazon leaders would analyze a three-page metrics deck and figure out what actions we’d have to take to successfully respond to the demands of what was shaping up to be a record-breaking holiday season. A key component of the deck was the backlog

Shortly after that holiday season we held a postmortem, out of which was born the Weekly Business Review (WBR). The purpose of the WBR was to provide a more comprehensive lens through which to see the business.

Small teams, business category lines, and the entire online retail business all have their own WBRs

When the retail, operations, and finance teams began to construct the initial Amazon WBR, they turned to a well-known Six Sigma process improvement method called DMAIC, an acronym for Define-Measure-Analyze-Improve-Control

Define

Donald Wheeler, in his book Understanding Variation, explains: Before you can improve any system … you must understand how the inputs affect the outputs of the system.

Input metrics track things like selection, price, or convenience—factors that Amazon can control through actions such as adding items to the catalog, lowering cost so prices can be lowered, or positioning inventory to facilitate faster delivery to customers. Output metrics—things like orders, revenue, and profit—are important, but they generally can’t be directly manipulated

1. The Flywheel: Input Metrics Lead to Output Metrics and Back Again

In 2001 Jeff drew the simple diagram below on a napkin to illustrate Amazon’s virtuous cycle, also called the “Amazon flywheel.”

The Amazon flywheel captures the major aspect of what makes Amazon’s retail business successful. Therefore, it should be no surprise that almost all the metrics discussed in the WBR can be categorized into one of the flywheel elements

2. Identify the Correct, Controllable Input Metrics

One of the metrics we initially chose for selection was the number of new detail pages created, on the assumption that more pages meant better selection.

We soon saw that an increase in the number of detail pages, while seeming to improve selection, did not produce a rise in sales, the output metric. Analysis showed that the teams, while chasing an increase in the number of items, had sometimes purchased products that were not in high demand

we changed the metric to reflect consumer demand instead

evolved over time from number of detail pages, which we refined to number of detail page views

which then became

the percentage of detail page views where the products were in stock and immediately ready for two-day shipping, which ended up being called Fast Track In Stock.

we decided that in each category, we wanted 95 percent of detail page views to display a product that was in stock and ready for immediate shipping.

Most of the examples we give in this chapter are of large companies with substantial resources. But DMAIC and the WBR process is eminently scalable

Measure

Having an independent person or team involved with measurement can help you seek out and eliminate biases in your data

make sure they are measuring what you think they are measuring. Diving deep to understand exactly how the data is collected helps spot potential problems. Consider the metric “in stock,”

Analyze

the Analyze stage is all about developing a comprehensive understanding of what drives your metrics

When Amazon teams come across a surprise or a perplexing problem with the data, they are relentless until they discover the root cause. Perhaps the most widely used technique at Amazon for these situations is the Correction of Errors (COE) process, based upon the “Five Whys” method developed at Toyota and used by many companies worldwide

When you encounter a problem, the probability you’re actually looking at the actual root cause of the problem in the initial 24 hours is pretty close to zero, because it turns out that behind every issue there’s a very interesting story.

if you stick with identifying the true root causes of variation and eliminating them, you’ll have a predictable, in-control process that you can optimize

Improve

if you reach the point where you can reliably achieve a weekly 95 percent in-stock rate, you can then ask, “What changes do we need to make to get to 98 percent?”

Control

it’s common for the WBR to become an exception-based meeting rather than a regular one for discussing each and every metric.

Another thing that can happen in this stage is that you’ll identify processes that can be automated

Forecasting and purchasing are two examples of processes that were eventually automated at Amazon.

The WBR: Metrics at Work

Each meeting begins with the virtual or printed distribution of the data package, which contains the weekly snapshot of graphs, tables, and occasional explanatory notes for all your metrics

The deck represents a data-driven, end-to-end view of the business

This flow from topic to topic can reveal the interconnectedness of seemingly independent activities

It’s mostly charts, graphs, and data tables. With so many metrics to review, written narrative or explanatory notes would undercut the efficiency

How many metrics should you review? There is no magic number

Emerging patterns are a key point of focus

Graphs plot results against comparable prior periods.

Graphs show two or more timelines, for example, trailing 6-week and trailing 12-month

Anecdotes and exception reporting are woven into the deck

The Meeting

A well-run WBR meeting is defined by intense customer focus, deep dives into complex challenges, and insistence on high standards and operational excellence

Yes, executives know their output metrics backward and forward. But if they don’t continue to focus on inputs, they lose control over and visibility into the tools that generate output results

The deck is usually owned by someone in finance. Or more accurately, the data in the deck are certified as accurate by finance

the audience for the WBR is the CEO and CFO

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