High standards inspire Amazon

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Amazon.com late last month reported extraordinarily robust financial results for the quarter ended March 31. Sales at the e-commerce and technology company jumped 43% to $51 billion, while net earnings more than doubled to $1.6 billion. With ad revenue and Amazon Web Services showing notable strength, the company generated gains across the board. Of particular relevance to other mass market retailers, Amazon’s subscription services volume, which includes fees from Prime customers, jumped 60%. With more than 100 million members around the world — people who have, in a sense, made an investment in Amazon and therefore have an extra incentive to shop there — the segment generated $3.1 billion in first quarter ­revenue.

More of the same from the company is expected going forward. Amazon projects second quarter sales between $51 billion and $54 billion, and operating income of $1.1 billion to $1.9 billion. The latter set of figures is well above the consensus estimate of Wall Street analysts.

So what lies behind Amazon’s momentum? Jeff Bezos, the company’s founder and chief executive officer, provides at least a partial answer in his annual letter to shareholders. After beginning by noting some of the accolades that the company has recently received — for the eighth straight year it finished first in the American Customer Satisfaction Index; garnered the top spot in Linkedin’s list of desirable places for professionals to work; and finished first in Harris Poll’s Reputation Quotient, where consumers rank businesses on such factors as products and services, workplace environment, and social responsibility — he thanked Amazon employees for their “unrelenting customer obsession, ingenuity and commitment to operational excellence.”

The approach to business that pervades the company gives Amazon a leg up in today’s hypercompetitive business environment. Formidable rivals are at work in both the retailing and technology sectors, and the innovations they, like Amazon, are bringing to the market, are making consumers more and more demanding.

“One thing I love about customers is that they are divinely discontent,” writes Bezos. “Their expectations are never static — they go up. It’s human nature. We didn’t ascend from our hunter-gatherer days by being satisfied. People have a voracious appetite for a better way, and yesterday’s ‘wow’ is today’s ‘ordinary.’ I see that cycle of improvement happening at a faster rate than ever before. … You cannot rest on your laurels in this world. Customers won’t have it.”

Bezos acknowledges that, while no one thing can empower an organization to consistently meet and exceed rising expectations on the part of consumers, the establishment and maintenance of high standards is a prerequisite for sustained success. Drawing on Amazon’s track record — which he reminds readers includes “billions of dollars worth of failures along the way” — Bezos shares what the company has learned about setting a high bar for people throughout an organization.

After a lengthy analysis, he summarizes his insights this way: “The four elements of high standards as we see it: they are teachable, they are domain specific, you must recognize them, and your must explicitly coach realistic scope. For us, these work at all levels of detail. Everything from writing memos to whole new, clean-sheet business initiatives. We hope they will help you.”

The benefits of inculcating that ethos in an organization are many, Bezos asserts, and manifest themselves in a variety of ways: “Building a culture of high standards is well worth the effort … Naturally and most obviously, you’re going to build better products and services for customers — and that would be reason enough! Perhaps a little less obvious: people are drawn to high standards — they help with recruiting and retention. More subtle: a culture of high standards is protective of all the ‘invisible’ but crucial work that goes on in every company. I’m talking about work that no one sees. The work that gets done when no one is watching. In a high standards culture, doing that work is its own reward — it’s part of what it means to be a professional.

“And finally, high standards are fun! Once you’ve tasted high standards, there’s no going back.”

That certainly appears to be the case at Amazon, which in little more than two decades has grown from a startup online bookseller into an entity with a presence in an extensive and expanding range of retail categories and technology businesses, one that generated $177.9 billion in revenue last fiscal year. That performance and the expectation that it will continue recently prompted JPMorgan financial analyst Doug Anmuth to speculate that Amazon could well become the first company with a market capitalization of $1 trillion.

One aspect of Bezos’ letter that deserves special consideration by leaders at other companies is the need to instill high standards throughout an organization. For brick-and-mortar retailers, that inevitably draws attention to what goes on in the store. Members of management at most major food, drug and discount store chains have a good handle on their customer offer and the needs in market it is meant to address. All too frequently that vision is undone by poor execution in the field. If traditional retailers are to fend off the challenge of Amazon and other online retailers, the high standards that Bezos espouses will have to be upheld every time a shopper walks into a store.



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