Published on: October 3, 2018
Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.
This week, we focus on the leadership commitment required for companies to deal effectively with continued and expanding competitive threats.
And now, the Conversation continues…
KC: Last we talked, we were talking about how scalable Amazon Go was. Your exact quote was, "I do think we’ll see more momentum in the short term.” It ended up being a little shorter than probably even you thought … a day later, there was a report from Bloomberg saying that Amazon has a plan that, if implemented, would result in the opening of as many as 3,000 checkout-free Amazon Go stores by 2021. That’s roughly a thousand stores a year … it would be impressive even if Bloomberg is only half right, and Amazon opened 1500 Go stores in that time.
And then, a week later, they open Amazon 4 Star, a format that, to be best of my knowledge, wasn't even rumored to be in development. To me, this reflects a basic reality - we have no idea what Amazon may be developing in the bowels of its headquarters campus in Seattle, and that just when all the analysts think they have Amazon figured out, it is likely that it will surprise - and, often, delight - us. And that’s an enormous competitive threat.
Tom Furphy: It sure is. Amazon is an innovation machine. It is baked into the DNA of the company through the types of people they hire, the way that teams are structured and the way that performance is measured. Each team inside Amazon is charged with innovating internal processes for efficiency and effectiveness and innovating their external offerings on behalf of the customer. They are measured and evaluated based on their performance toward these.
Inside the company, each function sits as “separable, single-threaded teams” in the words of Jeff Wilke, CEO of the global consumer organization. Having each team separated from the others, is great for empowering them to innovate without being encumbered by other groups. They’ve taken the concept of a silo, which organizations naturally gravitate toward operating within, embraced it, and are using to a powerful advantage. It can make Amazon difficult to deal with from the outside, because each team doesn’t necessarily know that the others are doing, but they are all moving forward laser focused on their objectives. The teams are coordinated, and objectives coalesced, at senior management levels.
We’ll see how accurate the Bloomberg report proves to be. There is no doubt that, once something is proven and backed for scale, Amazon can roll out aggressively. And the innovation engine is clearly working on new store formats, including a reimagined grocery experience. It will be interesting to see how these evolve and how quickly and widely they scale. And it will be imperative for competing retailers to be on top of their game to keep up.
KC: What do you think this tells us about the kind of leadership that competing retailers need to have in the current environment? Does the business world today require a fundamentally different kind of leader than 10, 15 or 20 years ago? What leadership qualities should companies be developing and/or looking for outside the business? And how do often tradition-minded companies change their cultures to value and nurture those qualities?
TF: In many sectors today, and especially in retail, the pace of innovation is blinding and accelerating. As a result, companies need to increase their speed and agility. They need to experiment broadly, measure quickly and thoroughly, and implement decisively. This requires a fundamental leadership and cultural shift that is much more significant than most companies realize.
I think there are some must-have leadership principles that will endure time, such as customer centricity, team advocacy / servant leadership, focusing on metrics, etc. All of this is still critical. But the main difference today is that companies need to foster speed. It’s important to be able to experiment rapidly, read the results, modify and experiment again. I’m not talking about being haphazard, I’m talking about developing a culture and framework that encourages innovation, knows how to measure it and rewards both the failed experiments as well as the successes.
There is no silver bullet solution to being successful in retail and/or e-commerce. And even if there was, today’s bullet would not be the same as tomorrow’s. The fundamental must-have is organizational speed and agility. The longer you take in developing a strategy, the more you invest in outside consultants, the more you spend on big technology, the more vested you become in a current plan or solution, the riskier you are being. What seems safe is actually destructive. That’s a recipe for longer term disaster. Instead, spend the time now determining how you can be faster.
KC: Of course, the problem is that retailers and suppliers are dealing with far more prosaic issues, like costs going up but the need to keep prices down because of competition from discounters, not to mention the fact that format boundaries appear to be breaking down - all of which creates enormous competitive tsuris and tumult, which sort of prevents retailers from focusing on the big picture issues that Amazon is creating and on which it is focusing relentlessly. Any thoughts about what do in this situation?
TF: Before I answer, I do want to acknowledge that these are very real and difficult issues. I worry that sometimes we can come across as glib and oversimplifying as we espouse perspective through our keyboards. Running the current business and dealing with the range of external and internal issues that leaders face is hard work and impacts thousands of lives every day.
That said, businesses will not survive today and forward without a real shift in strategy, leadership and culture. This has to happen in coordination with running day to day operations. This is something Amazon does well and that other companies can emulate.
Amazon has been in business for 24 years. That’s enough time to build legacy systems and processes that they could let get in the way of their innovation and make them less agile. It’s enough time to be faced with the issues you mention. What they are good at, and what other retailers desperately need to figure out, is how to truly focus on the customer and work backward into the organization. When you do that, the framework of how to deal with the real-world issues becomes much more logical.
I would encourage companies to take an honest look at their major cost buckets across the organization. How much of that cost is truly necessary to run the company and service the customer? I bet there are several pockets of cash that can be freed up to spend on innovation.
The Conversation will continue…
- KC's View: