Tag Archives: Amazon

Innovative Thinking at Amazon: Paying Employees $5,000 to Quit

Amazon continues to be innovative not just in technology but with management thinking. Jeff Bezos has rejected the dictates espoused most vociferously by Wall Street mouthpieces and MBAs that encourage short term thinking and financial gimmicks which harm the long term success of companies.

Most CEOs and executives are too fearful or foolish to ignore what they are told they must do because Wall Street demands it. CEO’s and boards often ratchet up the poor management thinking by tying big bonuses to financial measures which are much more easily achieved by gaming the system than by improving the company (so companies get the games there boards encouraged through their financial extrinsic motivation focus).

Amazon does many good things focused on making Amazon a stronger company year after year. These innovative management practices seem to largely be due to the thinking of the strong willed founder and CEO: Jeff Bezos. Jeff was smart enough to see the great things being done at Zappos by Tony Hsieh and bought Zappos.

Jeff Bezos has added his letter to shareholders to Warren Buffett’s (for Berkshire Hathaway) as letters worth reading each year. In the latest Amazon letter he includes many worthwhile ideas including:

Career Choice is a program where we pre-pay 95% of tuition for our employees to take courses for in- demand fields, such as airplane mechanic or nursing, regardless of whether the skills are relevant to a career at Amazon. The goal is to enable choice. We know that for some of our fulfillment center employees, Amazon will be a career. For others, Amazon might be a stepping stone on the way to a job somewhere else – a job that may require new skills. If the right training can make the difference, we want to help.

The second program is called Pay to Quit. It was invented by the clever people at Zappos, and the Amazon fulfillment centers have been iterating on it. Pay to Quit is pretty simple. Once a year, we offer to pay our associates to quit. The first year the offer is made, it’s for $2,000. Then it goes up one thousand dollars a year until it reaches $5,000. The headline on the offer is “Please Don’t Take This Offer.” We hope they don’t take the offer; we want them to stay. Why do we make this offer? The goal is to encourage folks to take a moment and think about what they really want. In the long-run, an employee staying somewhere they don’t want to be isn’t healthy for the employee or the company.

A third inward innovation is our Virtual Contact Center. It’s an idea we started a few years back and have continued to grow with terrific results. Under this program, employees provide customer service support for Amazon and Kindle customers while working from home. This flexibility is ideal for many employees who, perhaps because they have young children or for another reason, either cannot or prefer not to work outside the home.

The first point reinforces Dr. Deming’s words encouraging companies to do exactly that – pay for education even if it wasn’t related to the work the employee was doing or would do for the company. Still quite rare decades after Deming’s advice.

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Zappos and Amazon Sitting in a Tree…

Amazon is acquiring the unique company – Zappos: we have written about Zappos previously: Paying New Employees to Quit. Jeff Bezos uses the webcast above to talk to the employees of Zappos. Excellent job. The letter from Tony Hsieh, the Zappo’s CEO, to employees is fantastic. This is a CEO that respects employees. These are leaders I would follow and invest in (and in fact I am glad I do own Amazon stock).

First, I want to apologize for the suddenness of this announcement. As you know, one of our core values is to Build Open and Honest Relationships With Communication, and if I could have it my way, I would have shared much earlier that we were in discussions with Amazon so that all employees could be involved in the decision process that we went through along the way. Unfortunately, because Amazon is a public company, there are securities laws that prevented us from talking about this to most of our employees until today.

Several months ago, they reached out to us and said they wanted to join forces with us so that we could accelerate the growth of our business, our brand, and our culture. When they said they wanted us to continue to build the Zappos brand (as opposed to folding us into Amazon), we decided it was worth exploring what a partnership would look like.

We learned that they truly wanted us to continue to build the Zappos brand and continue to build the Zappos culture in our own unique way. I think “unique” was their way of saying “fun and a little weird.” 🙂

Over the past several months, as we got to know each other better, both sides became more and more excited about the possibilities for leveraging each other’s strengths. We realized that we are both very customer-focused companies — we just focus on different ways of making our customers happy.

Amazon focuses on low prices, vast selection and convenience to make their customers happy, while Zappos does it through developing relationships, creating personal emotional connections, and delivering high touch (“WOW”) customer service.

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Jeff Bezos Spends a Week Working in Amazon’s Kentucky Distribution Center

Photo of Jeff Bezos, Amazon CEOPhoto of Jeff Bezos during the 2005 O’Reilly Emerging Technology Conference by James Duncan.

Jeff Bezos, Amazon CEO, is working for a week in Amazon’s Kentucky distribution center. I hope, and based on his past, I believe, that he is going to the gemba (Genchi Genbutsu) to learn more about how Amazon operates. That would be great.

He worked on wall street and understands the fake constraints they attempt to put companies (you must focus on short term profits, you must focus on pleasing wall street analysts not customers…). He understood the importance of managing cash flow and the unimportance of short term profits. And he understands the importance of customer focus. He understands lean thinking. We need more CEO’s like him.

Amazon CEO comes to Lexington

“Thanks so much for your interest in speaking with our CEO Jeff Bezos,” said spokeswoman Patty Smith. “Unfortunately, I’m not going to be able to arrange any interviews or photos this week while he is in Lexington.

“He is there to work,” Smith said, “and, unfortunately, we are just not scheduling any interviews while he is in town.”

Local Amazon employees say Bezos is working in the warehouse with the company’s hourly employees to see what they do and hear their comments about their work. Most CEOs would benefit from spending a few days on the shop floor.

Once again his actions indicate he is the type of CEO I want to invest in.

via: Jeff Bezos Works In Kentucky Distribution Center For A Week

Related: Jeff Bezos and Root Cause AnalysisManagement by Walking AroundAmazon InnovationAmazon’s Amazing AchievementLouisville Slugger, Deming PracticesManagement Excellence

Jeff Bezos and Root Cause Analysis

Jeff Bezos and Root Cause Analysis by Pete Abilla

There are several things amazing about this experience:

  1. Jeff Bezos cared enough about an hourly associate and his family to spend time discussing his situation.
  2. Jeff properly facilitated the 5-why exercise to arrive at a root cause.
  3. He involved a large group of stakeholders, demonstrated by example, and arrived at a root cause and he didn’t focus on symptoms of the problem.
  4. He is the founder and CEO of Amazon.com, yet he got involved in the dirt and sweat of his employees’ situation.
  5. In that simple moment, he taught all of us to focus on root causes — quickly — not heavily relying on data or overanalysis of the situation, and yet he was spot-on in identifying the root causes of the safety incident.

Using quality tools really works. Lots of people don’t use them. Improving is often not any more difficult than just applying tools that have been used for decades. Improving does not require rocket science. Just do the simple things and you are well on your way to great success. Of the 10 stocks in my original 10 stocks for 10 years post Amazon is one of 4 that are up.

Related: Bezos on Lean ThinkingAmazon InnovationBezos Webcast on the Internet BoomImprovement Tools and Improving ManagementRoot Cause AnalysisEuropean Blackout is Not “Human Error”

The Power of Small Teams

The power of small teams by Avi Muchnick

Choose a project that is simple to implement. Don’t try to create a complex suite of applications… Focus on solving a single problem. Philip Kaplan made email more efficient to use by stalling it instead of managing it. Dead simple approach and a great idea.Take the easier approach when possible.

Choose people that can wear multiple hats. Can your designer code? Can your programmer manage a community? Can your marketing guru fund raise? Can one guy do it all?

All documentation should be available via a central location. A wiki can work really well for this purpose. Good documentation lessens the loss from communication failures.

Arrange your workspace in common areas. Segregating your team in different offices is a recipe for lost communication data and with it, a need for additional people. You’d be surprised at how many roles can be shared by multiple people, so long as they have the ability to communicate instantly and unimpeded with each other. Put people between walls, and those shared tasks will need to be managed by additional team members.

Amazon and Google do a lot with small teams and I think they have it right. I have worked on small IT teams for several years now and find it great. Combine with agile management methods small teams allow for great focus (you are naturally guided toward appropriate project sizes instead of huge monster projects), great results and joy in work. I have no desire to work in large teams.

Related: Team HandbookMeasuring and Managing Performance in OrganizationsKeeping Track of Improvement OpportunitiesCurious Cat Management Articles

Amazon S3 Failure Analysis

Amazon Simple Storage Service (S3) is a service providing web hosting. The cloud computing solution has been used by many organizations successfully. However the solution has experienced some problems including failing for much of the day on July 20th.

Amazon S3 Availability Event

We’ve now determined that message corruption was the cause of the server-to-server communication problems. More specifically, we found that there were a handful of messages on Sunday morning that had a single bit corrupted such that the message was still intelligible, but the system state information was incorrect. We use MD5 checksums throughout the system, for example, to prevent, detect, and recover from corruption that can occur during receipt, storage, and retrieval of customers’ objects. However, we didn’t have the same protection in place to detect whether this particular internal state information had been corrupted. As a result, when the corruption occurred, we didn’t detect it and it spread throughout the system causing the symptoms described above. We hadn’t encountered server-to-server communication issues of this scale before and, as a result, it took some time during the event to diagnose and recover from it.

During our post-mortem analysis we’ve spent quite a bit of time evaluating what happened, how quickly we were able to respond and recover, and what we could do to prevent other unusual circumstances like this from having system-wide impacts. Here are the actions that we’re taking: (a) we’ve deployed several changes to Amazon S3 that significantly reduce the amount of time required to completely restore system-wide state and restart customer request processing; (b) we’ve deployed a change to how Amazon S3 gossips about failed servers that reduces the amount of gossip and helps prevent the behavior we experienced on Sunday; (c) we’ve added additional monitoring and alarming of gossip rates and failures; and, (d) we’re adding checksums to proactively detect corruption of system state messages so we can log any such messages and then reject them.

Finally, we want you to know that we are passionate about providing the best storage service at the best price so that you can spend more time thinking about your business rather than having to focus on building scalable, reliable infrastructure. Though we’re proud of our operational performance in operating Amazon S3 for almost 2.5 years, we know that any downtime is unacceptable and we won’t be satisfied until performance is statistically indistinguishable from perfect.

The failure was significant but in my view the advantages of Amazon S3 are still very significant. A huge advantage is how quickly you can scale if needed be. If your application is not hosted on Amazon S3 and it grows enormously you have to physically deal with buying servers, installing them, installing software… All this takes time. On Amazon S3 when you need the bandwidth you can get it, when you don’t need it you don’t have it sitting around unused. In that way it is very lean, it seems to me.

And while server infrastructure failures are bad, for most organizations the option is not Amazon S3 or some solution that is 100% reliable. Currently it is difficult to keep IT infrastructures online and operating and coping with shifting demand… For many situations Amazon S3 seems to be a great resource. They need to keep improving; and they seem to be doing so. Being open and honest about the challenges is a good sign. And improving the system, not blaming a person is another good sign.

Related: Bezos on the Internet BoomAmazon’s Amazing AchievementBezos on Lean ThinkingCERN Pressure Test Failure12 Stocks for 10 Years Update (June 2008), Amazon is up 116% in the portfolio since 2005, just behind Google and ahead of Petro China

Management Improvement Carnival #33

Shaun Sayers is hosting Management Improvement Carnival #33 on the Capable blog, some of the highlights include

Bezos on Internet Boom

The webcast shows Jeff Bezos, Amazon.com founder and CEO, speaking at TED on the internet boom. He compares the boom to the gold rush highlighting the similarities. But then he compares the internet to the development of industry around electricity. I think he is exactly right on the internet: “there’s more innovation ahead of us than behind us.”

Related: Bezos on Lean ThinkingAmazon InnovationAmazon’s Amazing AchievementInnovation Thinking with Christensenmanagement webcasts

Amazon’s Amazing Achievement

I have mentioned I like the way Amazon, and Jeff Bezos, have been managing in several posts. Recently Amazon has added very strong financial results to that portfolio of things they do well. Amazon earnings announcement:

Net sales increased 35% to $2.89 billion in the second quarter, compared with $2.14 billion in second quarter 2006. Excluding the $46 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 33% compared with second quarter 2006.

Operating income increased 149% to $116 million in the second quarter, compared with $47 million in second quarter 2006. Net income increased 257% to $78 million in the second quarter, or $0.19 per diluted share, compared with net income of $22 million, or $0.05 per diluted share in second quarter 2006.

Pretty impressive. It seems Amazon might be able to begin delivering strong current financial performance (they have done so at least twice, and maybe longer depending on how you look at it…) and continue to build and innovate for the future. That is when a company really sets itself apart from the crowd. Previously, from the investing perspective, the argument was largely based on the belief that the steps taken today were building for the future (a fine thing, but risky – without the evidence of success actually making real profit it is often easy to make a good case for why the future will be good). In an investment it is more comforting when current earning provide some evidence the profits predicted in the future have some basis in reality.

Since the beginning of April Amazon’s share price has gone from $40 a share to $70. And based on the after hours trades today it is going to be in the $80s tomorrow (though after hours trades can often be misleading – there is some more confidence based on the large volume of hour trades in Amazon, but still…). I must admit this price does seem like it might be getting a bit ahead of itself but Amazon is making an impressive case for strong future performance.

Related: Amazon Innovation10 stocks for 10 years (April 2005)12 Stocks for 10 Years Update (June 2007)Very Good Amazon EarningsBezos on Lean ThinkingIs Amazon a Bargain?

Amazon Innovation

Jeff Bezos’ Risky Bet

And, he hopes, making money. With its Simple Storage Service, or S3, Amazon charges 15 cents per gigabyte per month for businesses to store data and programs on Amazon’s vast array of disk drives. It’s also charging other merchants about 45 cents a square foot per month for real space in its warehouses. Through its Elastic Compute Cloud service, or EC2, it’s renting out computing power, starting at 10 cents an hour for the equivalent of a basic server computer. And it has set up a semi-automated global marketplace for online piecework, such as transcribing snippets of podcasts, called Amazon Mechanical Turk. Amazon takes a 10% commission on those jobs.

In my view Amazon is doing some very interesting innovation. As with most true innovation it is not easy to understand if it will succeed or not. I believe Amazon uses technology very well. They have done many innovative things. They have been less successful at turning their technology into big profits. But I continue to believe they have a good shot at doing so going forward (and their core business is doing very well I think). Innovation often involves taking risks. Bezos is willing to do so and willing to pursue his beliefs even if many question those beliefs. That means he has the potential to truly innovate, and also means he has to potential to fail dramatically.

Related: Bezos on Lean ThinkingMaking Changes and Taking Risks10 Stocks for 10 Years UpdateA9 Toolbar for Firefox Browser
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