0:27

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1:05

Welcome to the HB our idea cast from Harvard Business Review, I'm Alison. If you had to name the
most successful business leader alive today, who would you say, I can't hear you from my basement
podcasting room but I would bet that for many of you, the answer is Jeff Bezos CEO of Amazon. This
is a man who over the past 25 years turned his online bookstore start-up into a diversified company
valued at $1.6 trillion. Amazon is a digital retailing Juggernaut, a web services provider media
producer and manufacturer personal technology like Kindle and echo. Oh and Bezos also owns the
Washington Post, and Blue Origin, a space exploration company, Forbes tells us he is the richest
person in the world. How did he accomplish so much. How did he change the business landscape.
What mistakes is he made along the way, a new collection of business his own writing, which full
disclosure, my colleagues at Harvard Business Review Press have published offer some insights. The
book is called invent and wander and our guest today, who has spent years studying both Amazon
and Bezos is here to talk with me about some of the key themes in it. We'll discuss the broad drivers
of both the company and the CEO success. Sunil Gupta is a Professor of Business Administration at
Harvard Business School and co-chair of its executive programme on driving digital strategy, which is
also the title of his book. So Neil, thanks so much for being on the show. Thank you for having me.

2:45

So, invent, and wander. I get that Bezos is inventive, you know, he created a new way for us to buy
things, everything. How is he also a wanderer. So he's

2:57

full of experiments, his company and his whole style is known for experimentation, and he says it in
so many words that if you want big winners, then you have to be willing to have many failures. The
argument is one big winner will take care of 1000 failed experiments. So I think that's the wandering
part, but also his experiments are not aimless, there is a certain thought and process behind what
experiments to do, and why they will connect to the overall picture of what Amazon is today, and
your expertise is in digital strategy, how does he break the traditional rules of strategy.

3:38
So for the longest time the way at least I was taught in my MBA programme and the way we teach to
our MBA students and executives is strategy is about focus. But if you look at Amazon, Amazon
certainly doesn't look like it's focusing on anything, so obviously Jeff Bezos missed that class.
Otherwise, it's a very different thing. And then you say why is that a so called lack of focus strategy
seems to be working for Amazon? And I think the fundamental underlying principle that he's guiding
his, his whole discussion of strategy is.

He's changed the rules of strategy.

So the old rules of strategy were the way you gain competitive advantage is by being better or
cheaper, but the inherent assumption in that strategy statement is, I'm selling one product to one
customer, and what Amazon is basically arguing is digital economy is all about connections, we got
to connect products and connect customers.

Let me explain what why that is so powerful.

So connecting products here the idea is I can sell you this is a classic razor and blade strategy, I can
sell you razor cheap in order to make money on the blade, so I can sell you Kindle cheap in order to
make money on the ebooks. Now at some level, you might say hey razor and blade have been
around forever. What's so unique, today, I think is razor could be in one industry and blades could be
in completely different.

So for example if you look at, Amazon's portfolio of businesses, you sort of say, not only Amazon is
an E commerce player, but also is making movies and TV shows his own studio, or why does it make
sense for an E commerce player an online retailer to compete with Hollywood or Walmart doesn't
make movies Macy's doesn't make movies so why does it make sense for Amazon to make movies. I
think once you dig into it the answer becomes clear that the purpose of the movies, is to keep, and,
and again, the Prime customers today.

Free shipping is fine, but if you ask me to pay $99 or $119 for today, free shipping, I'm outside doing
the math in my head and say okay how many packages do we expect to get next year and is the
prime membership worth it or not, but once you throw in, in addition to the two day free shipping,
you throw in some TV shows and movies that are uniquely found only on Amazon. I can't do this
map.

And why are Prime customers important to Amazon? Because Prime customers are more loyal. They
buy a three or four times more than the non-Prime customers and they're also less price sensitive.
And in fact, Jeff Bezos has said publicly that every time we win a Golden Globe Award for one of our
shows. We sell more shoes. So this is and he said it in the, in your book and when wonder also that
we might be the only company in the world, which has figured out how winning Golden Globe
Awards can actually translate into selling more products on the online commerce, so this is a great
example of a razor being in a very different industry and blade being in another industry.

Take another example. Amazon has a lending business where they give loans to small and medium
enterprises. If Amazon decides to compete with banks tomorrow, Amazon can decide to offer loans
to the small merchants at such a low price, that banks would never be able to compete. And why
would Amazon be able to do that because Amazon can say hey, I'm not going to make money on
loans as much money on loans, but I'll make more money. When these businesses, small businesses,
grow and do more transactions on my marketplace platform, I get more commission from them.

So again, loan can become my razor, you know, to help the merchants grow and make money on the
transaction of the commission that I get from the moment I make something else's, in this case,
bank's core business, my razor, they will have a very hard time competing so I think that's, that he
changed the fundamental rules of strategy and competition in that direction. The second part of
connection is connecting customers, and this is the classic network effects. So Marketplace is a great
example of network effects, the more buyers I have the more sellers I have, the more sellers I have
the more buyers I get because the buyers can find all the items, and then becomes a flywheel effect
and it becomes a situation where it's very hard for a new player to compete with Amazon.

7:55

In this diversification that Amazon has done, how have they managed to be good at all of those
things, how have they succeeded when other companies might have failed because they lacked that
expertise or they were spreading themselves too thin.

8:11

So I think it depends on how you define focus most of us when we define focus we sort of define
both focus by traditional industry boundaries that I'm an online retailer therefore going into some
other business is lack of focus. The way Amazon thinks about is focus on capabilities. So if you look at
from that point of view, I would argue that Amazon had three fundamental core capabilities.

Number one, it’s highly customer focused not only in its culture, but also in its capability on terms of
how it can actually handle data and leverage data to get customer insight. The second key core
capability of Amazon is logistics. So it's now a world class logistics player right he uses the frontier
technology, whether it's keyword robotics computer vision in his warehouse will make it much more
efficient. And the third part of Amazon's skill, or the capability is technology. And a good example of
that is Amazon Web Services or AWS.

I think if you look at these three core capabilities, customer focus and the data inside that it gets
from that, the logistics capability and the technology, everything that Amazon is doing is some way
or the other connected. In that sense, there is no lack of focus, in my judgement on Amazon. Now, if
we started doing… starts making cream cheese tomorrow or starts making aeroplane engine, then I
would say yes is indeed a lack of focus. But one of the other things that Jeff Bezos has said again and
again is this notion of work backwards and skill forward.

What that means is, because your customer obsessed us sort of find ways to satisfy customers, and
if that means developing new skills that we don't have, because we are working backwards from
what the customer needs are. Then we'll build those skills. So a good example of that is when
Amazon started building Kindle, Amazon was never in the hardware business, it didn't know how to
build hardware, but Bezos realised that, as the industry moved people are beginning to read more
and more online rather or at least on their devices rather than the physical paper copy of a book. So
as a result he says how do we make it easier for consumers to read it on an electronic version. And
they spent three years learning about this capability of hardware manufacturing, and by the way,
Kindle came out long before iPad came out, and of course that capability now has helped the launch
echo and many other devices. Right?

10:36

So it's the focus on the customers, plus, a willingness to go outside your comfort zone, the wander
part. Yeah. How would you describe business's leadership style?

10:49

So I think there are at least three parts to it. One is, he said right from day one that he wants to be a
long term focused. The second thing is being customer obsessed, and in many times he has said that
he can imagine in the meetings he wants people to imagine an empty chair that is basically for the
customer, and he says we are not competitor focus we are not product focus we are not technology
focus we are customer focused. And the third is willingness to experiment and fail, and build that
culture in the company, that it's okay to fail.

11:21

What about personally though, is he a hard charger? is he an active listener? You know, what's it like
to be in a room with him?

He's certainly a hard charger, I mean, he is also the kind of guy when he hires people he says you can
work long, hard or smart, but at Amazon, you can choose two out of three. And I think this is similar
to many other leaders, if you look at Steve Jobs. He was also a very hard charging guy. Some people
find it exhilarating to work with these kinds of leaders some find it very tough.

11:51

Do you think that he communicates differently from other successful CEOs?

11:56

So the communication style that he has built in the company is the very famous now that no
PowerPoints. So it's a very thoughtful discussion you write six page memos, which everybody when
the meeting starts everybody sits down and actually reads the memo. In fact, this was a very
interesting experience that I had one of my students who was an executive programme works at
Amazon in Germany, and he is, he was at that point in time, thinking of moving to another company
and becoming a CEO of that company.

So he says, Can I talk to you about this change of career path that I'm thinking about as a shell, so we
set up a time, five minutes before our call, he sends me an email with a six page memo. And I said
Well, shouldn't he have sent this to me before so I could at least look at it he says no, that's the
Amazon style. We'll sit in silence and read it together. Because then you're completely focused on it,
and then we can have a conversation. But this discipline of writing a six page memo..? It's a very,
very unique experience because you actually have to think through all your arguments.

13:02

You also mentioned the long term focus and that really stood out for me to this idea that he is not at
all thinking of next year he's thinking five years out, and sometimes even further. But as a public
company, how has Amazon been able to stick to that. And is it replicable at other companies.

13:20

I think it is replicable. It requires conviction and requires a way to articulate the vision to the Wall
Street, that they can rally behind. There are other examples of companies who have followed a
similar strategy I mean Netflix is a good example. Netflix hadn't made money for a long period of
time. They saw the vision of what the future will look like and Wall Street bought that vision.
MasterCard is exactly the same thing, RJ Banda is giving three year guidance to the Wall Street,
saying this is my three year plan because things can change quarter to quarter. I'm still responsible
to tell you what we are doing this quarter. But my strategy will not be guided by what happens
today, it will be guided by the three year plan that we have.

14:04

There are so many companies now that go public without turning any profit, whereas Amazon now
is printing money and thus able to reinvest and have this grand vision. So at what point was Bezos
able to say, right, we're going to do it my way.

14:21

I think he said it right from day one, except that people probably didn't believe it. And in fact one of
the great example of that was when he was convinced about AWS, Amazon Web Services. That was
back in the early 2000s When majority the Wall Street was not sure what Jeff Bezos was trying to do,
because they say hey you are an online retailer you have no business being in web services, that's
the business of IBM, why that's a b2b business you're a b2c business, why going in there, and Bezos
said well we have plenty of practice of being misunderstood. And we will continue with our passion
and vision because we see the path, and now he's proven again and again, why his vision is correct
and I think that gives more faith and conviction to the Wall Street investors, to me one key talent of
his is finding talent, right?

15:15

Oh absolutely, and he is one of the persons who has his opinion you always surround yourself with
people better than you.

15:21

How has he managed to attract that talent when it is so fiercely competitive between Google,
Facebook, all of these us technology leaders?

15:32

So, a couple of things I would say, First of all, it's always good fun to join a winning team. And all of
us want to join a winning team. So, this certainly is on a trajectory, which is phenomenal. It's like a
rocket ship that is taking off and has been taking off for the last 25 years. So I think that's certainly
attractive to many people and certainly many hard charging people who want to be on the winning
team. And the second thing is Amazon's culture of experimentation and innovation that is energising
to a lot of people is not pure bureaucracy very get bogged down by the processes.

So the two types of decisions that we talked about, he gives you enough leeway to try different
things and is willing to invest hundreds of millions of dollars into things that might may or may not
succeed in the future and I think that's very liberating to people who are willing to take on the
ownership and build something, but don't all of the tech companies offer that they do but if you
think about many other tech companies, they're much more narrow in focus.

So Facebook is primarily in social media. Google is primarily in search advertising yes you have
Google X, but that's still a small part of what Google does. Whereas, if you ask yourself what
businesses Amazon and that are much broader expansive areas that Amazon has gone into. So I
think the, the limits. I mean Amazon does not have that many limits or boundaries as compared to
many other businesses in Silicon Valley.

17:00

So let's talk a little bit about business's acquisition strategy I think the most prominent is probably a
wholefoods but there are many others. How does he think about the companies that he wants to
bring in, as opposed to grow organically?
17:14

So, some acquisitions are areas where he thinks that he can actually benefit and accelerate the
vision that he already has so for example the acquisition of Kiva [now Amazon Robotics] was to
improve the efficiency and effectiveness of the systems that he already put in place. His warehouse
and logistics and warehouse is a key component or key part of Amazon business, and he saw that
the key were already was ahead of the curve in the in technology that he probably wanted to have
that in his in his own company, so that was obvious acquisition because that fits in the existing
business.

WholeFoods is kind of a slightly different story in my judgement because in some ways you can
argue why is Amazon (an online player), buying an offline retail stores. WholeFoods, and in fact they
bought it at a 27% premium. So that doesn't make sense for an online retail commerce to go to
offline job. And I think, in fact, part of the reason in my judgement is, is not just Whole Foods, but it's
about the food business per se.

Why is Amazon so interested in food? In fact Amazon has been trying this food business online for
delivery for a long period of time without much success and WholeFoods was one another way to try
and get access to that particular business and why is that so important to Amazon, even though you
could argue for a low margin business.

I would say part of the reason is food is something grocery is something that you buy every week,
perhaps twice a week. And if I as Amazon can convince you to buy groceries online from Amazon,
then I'm creating a habit for you to come onto Amazon every week perhaps twice a week, and once
you are on Amazon, you will end up buying other products on Amazon, but as if you're buying
electronics, you may not come to Amazon every day.

So, this is a habit creation activity and again, it may not be a very high margin activity to sell your
food, but I have created a habit, just like prime, I have created a loyal customer where you think of
nothing else but Amazon for your daily needs, and therefore you end up buying other things.

19:19

Amazon isn't without controversy, you know, and we should talk about that too. First, you know
there are questions about its treatment of warehouse employees, particularly during COVID and
Bezos, as you said has always been relentlessly focused on the customer, you know, but it's is
Amazon employee centric too.

19:40

So I think there's definitely some areas of concern and you rightly said there is significant concern
about the during the COVID workers were complaining about safety, the right kind of equipment.
But even before COVID There were a lot of concerns about whether the workers are being pushed
too hard. They barely have any breaks, and they're constantly on the go because speed and
efficiency become that much more important to make sure customers always get what they're
promised and in fact, more than promised. Clearly Amazon either hasn't done a good job, or hasn't.
At least done the public relations part of it, that they have done a good job. If you ask Jeff Bezos he
will claim that, no they actually they have done things for example they offer something called
carrier choice, where they give 95% tuition to the employees to learn new skills, whether they are
relevant for Amazon or not. Pretty much like what Starbucks does for its baristas for college
education or other things. But I think more than just giving money or tuition, it requires a bit of
empathy and sense that you care for your employees, and perhaps that's something that Amazon
needs to work on.

20:52

And another challenge is the criticism that it has decimated, mom and pop shops, You know, even
when someone sells through Amazon, the company will then see that it's a popular category and
created itself and start selling it itself. There's environmental concerns about the fact that, you know
packages are being driven from warehouses to front doors all over America. So how has Bezos, how
is the company dealt with all of that criticism,

21:25

they haven't. And I think those are absolutely valid concerns on both counts. That the small sellers
who grow to become reasonably big are always under the radar. And there are certainly anecdotal
evidence where small sellers have complained that Amazon had decided to sell exactly the same
item that they were so successful in selling and becoming too big, is actually not good on Amazon
because Amazon can get into your business and wipe away. So that's certainly a big concern and I
think that's something that needs to be sorted out and Amazon needs to clarify what his position on
that area is because it benefits from these small sellers on his platform. And your second question
about environmental issue is also absolutely on the money because not only emission issues but
these so many boxes that pile in, certainly in my basement from Amazon, you sort of say and it's
exactly ironical that millennials who are in love with Amazon are extremely environmentally friendly,
but at the same time they will not hesitate to order something from Amazon and pile up all these
boxes. So, I think Amazon needs to figure out a way to think about both those issues.

22:35

So those are weaknesses possibly for the company. What are some of business's personal
weaknesses that you've seen in studying him in the company.

22:47
So I think one thing that stands out to me and at least in the public forums I have not seen any
empathy. And it's, I mean we talk about that the leaders have, should have three qualities they
should be competent, they should have a good character and they should have compassion. So he's
certainly very competent I mean he's brilliant in many aspects right from the computer vision and AI
and machine learning to the nuances of data analytics to the Hollywood production etc. He also
seems to have good character, at least I have not heard any personal scandals. Apart from his little
bit of other issues in his personal life perhaps those campuses are competence and character make
people respect you. What makes people love you is when you show compassion, and at least I
haven't seen compassion or empathy that comes out of him. He certainly comes across as a very
hard charging driven person which probably is good for business. But the question of empathy is
perhaps something lacking right now.

23:54

The other issue is his just enormous wealth. He did invent this colossally valuable company, but
should anyone really be that rich.

24:09

Well, I guess that's a you can you can say that the good or the bad thing about capitalism. But I think,
again, my personal view is there's nothing wrong and becoming rich. If you have been successful and
done it with hard work and in generally, but how you use your wealth is something that perhaps will
define Jeff Bezos going forward. I think Bill Gates is a great example of how he actually has used his
role as influence and his expertise and his brilliance in do some certain thing that actually is great for
humanity. Now, better Jeff Bezos does that down the road I don't know whether it's space
exploration provides that sort of outlet, which is both his passion as well as good for humanity, I
don't know. But at some point in time that I think it's the responsibility of these leaders to sort of
say, my goal is not simply to make money and make my shareholders right, but also help humanity
and help society.

25:03

If you're talking to someone who's running a startup or even a manager of a team and a traditional
company. What is the key lesson that you would say, this is what you can learn from Jeff Bezos, this
is what you can put to work in your own profession.

25:19

So he said, two things that, at least I would take away if I were doing a start-up one is customer
obsession. Now, every company says that, but honestly not every company does it, because if you go
to the management meetings if you go to the quarterly meetings, you suddenly go focus on
financials and competition and product, but there's rarely any conversation on customers.

And I think as I mentioned earlier that Jeff Bezos always tells his employees to think imaginary chair
in which customer is sitting because that's the person whether we need to focus on how our
shoulders does the same thing at Starbucks and that's why Starbucks is so customer focused. So I
think that's the first part and the argument that Bezos give his customers are never satisfied, and
that pushes us to innovate and move forward so we need to innovate even before the rest of world,
even sees that because customers are the first ones to see what is missing in the offering that you
have.

The second I would say that I would take away from Jeff Bezos is a conviction and passion with what
you do. and many times that goes against the conventional wisdom, and the Amazon Web Services is
a great example of that. The whole of Wall St, including the Wall Street Journal and The Wall Street
analysts were saying: this is none of Amazon's business to do web services, but he was convinced
that this is the right thing to do and he went and did that.

And part of that conviction may come from experiments part of that conviction comes from
connecting the dots that he could see that many other people didn't see. I mean that's why he went
left his job and went to Seattle to do the online bookstore because he could see the macro trend as
to what the internet is likely true so I think that's the vision that he had. And once you have the
conviction then you follow your passion.

27:04

So Neil, thanks so much for coming on the show. Thank you for having me.

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