Amazon’s earnings this past week are a sign of how corporate strategy has shifted. Amazon does things differently, but only as differently as Apple. What is their secret?
Nick Vitalari and I describe the evolution of a new corporate strategy in The Elastic Enterprise, where we also have a special focus on Amazon and Apple. That strategy involves harnessing 5 new enterprise dynamics, along with important but easy-to-grasp adjustments in leadership style. Here’s the detail.
First a recap of those results from Forbes’ contributor Susan Kella: Amazon’s net sales were $13.2 billion in the quarter compared with $10 billion a year ago, a 34% rise driven largely by sales of the Kindle Fire introduced in the Fall. Susan adds:
It is precisely the ability to make surprising shifts that characterises a leadership team that knows how to grow a strategic options portfolio and to master radical adjacencies. Radical adjacency is the ability to go beyond normal business practice and to seize opportunity in widely adjacent markets – think Apple in music, smartphones and, soon, TV. That, in turn, is made possible through these five new strategic dynamics.
# The new business platform
In the recent past business platforms got a bad name – they were associated with lock-in. The new business platform is something else. It powers both Amazon and Apple’s success. In the case of Amazon the platform consists of the rules and facilities that organize and manage the commerce engine, its reviewer database and community, the apps community, the Amazon marketplace, the vendors who sell through Amazon, digital rights management, and the writing community that self-publishes to Amazon, as well as its reluctant publishing partners, as well, of course, as its Cloud capability.
Like Apple, its platform is closely linked to a device (in this case the Kindle), and is tied into a system that does good digital rights management. For writers the platform is by no means seamless. There are plenty of glitches along the way to getting a book perfectly published on Amazon. But writers are tolerant of that. Amazon is an enabling platform, just like Apple’s App Store. It enables writers and booksellers. It enables people who want to sell to Amazon’s community.
And today’s business platforms enable business. They don’t just sell at you or lock customers in. They enable entrepreneurship, reputation development, and personal and professional growth, and they do it at extraordinary scale. In short, as well as providing a new way to scale business they bring value to all parties – and that is the real meaning of shared value, a term that is still badly misunderstood.
# The Amazon ecosystem
The second component is the Amazon ecosystem, made up of merchants, writers, reviewers, publishers, apps developers, and the information market of commentators, analysts, journalists and feature writers who get the word out about opportunity on the Amazon platform. Bezos is not as great as Jobs at playing the information market but he is good.
The Amazon ecosystem is made up of tens of thousands of companies whose futures rest on Amazon making the right calls, on Bezos being good. It’s main characteristics? All these people need to develop their own capabilities in order to succeed on the Amazon platform. To participate you need to be capable of growing and adapting, and of course competing – all the while putting your trust in Amazon’s ability to make the right moves.
#Amazon’s leadership values
That means all eyes are on Bezos and the calls he makes. Anybody who knows platform and ecosystem economics would not be surprised by Amazon’s adjacencies. The whole point of the platform is to tear business away from the outdated idea of core competency – the straight jacket of old management theory.
Platforms allow companies to develop complex options portfolios because the ecosystem is full of businesses that can jump quickly into new opportunity. It is also highly visible and can attract new resources when the owner makes adjacency moves into new markets.
That also highlights an important facet of the new leader – the ability to attract and retain very talented, imaginative resources. Amazon has shown it can do just that. Bezos has shown he can retain and grow the respect of his peers around the world and that is one of Amazon’s core assets into the future. Without it Amazon will not grow. Everybody invested in Amazon is also invested in the peer group of this ecosystem.
# Universal connectors
Amazon, like Apple, creates vast ecosystems of partners through terms and conditions – ultra low cost contractual arrangements that mean there is no time wasted on getting to know you and a handshake. And no effort wasted hiring people you know or friends of friends who might not perform. This is really low friction growth, a vital component of elastic enterprises. And it takes place through connectors like RSS, APIs, and universal terms. The universality of the technology channels and the business idea eliminates friction in a way we have never seen happen before.
# The cloud
And finally, the fifth dynamic, cloud computing. The ability to grow infrastructure instantaneously and to shrink it back if things don’t work out. People want to believe that agile management is important and so be it. But elasticity in resource attraction and usage is what really gives companies momentum on a vast new scale.
These five dynamics allow Amazon to make radical adjacency moves and to bring vast ecosystems of small businesses and independent creatives along with them. Amazon allows people in the ecosystem to grow too. It enables their businesses and it enables them to change direction, to reframe their opportunity horizon. Those peers are heavily invested in Amazon and in the decisions Bezos makes. It’s a scary form of management, requiring new skills, and new trust levels.
When these dynamics are in place a company like Amazon can build a complex portfolio of options. Why Susan says people are surprised by its moves is simply that Amazon, and Apple, accumulate options. Whereas many other companies are still stuck in an innovation mindset – how can I improve my product or invent a new one – Apple and Amazon are proliferating options and giving themselves the opportunity to respond to fluctuating market conditions. They are not taken by surprise. Whereas other companies like RIM seem stuck doing what they can or they must, Amazon can do what it chooses. That’s what strategic options management is all about.