Lessons from Amazon on High-velocity and High-quality decision making

Amazon has a reputation for decision making that is not only high in both velocity and quality, but also high in scale, with a set of clearly articulated principles and a unique methodology. And they follow these methods with striking consistency across the organisation.

I dug into Ram Charan’s The Amazon Management System to unearth how such a large organization handles decision making without compromising on speed.

How does Amazon upgrade its decision making and achieve seemingly conflicting goals of speed, quality and scale at the same time?

Type 2 Decisions: Speed Matters

Bezos maintained speed as a top priority when he said —

“The senior team at Amazon is determined to keep our decision making velocity high”

Bezos categorized all decisions into two types:

  • Type 1: Decisions that refer to those that are “consequential and irreversible or nearly irreversible — one way doors”
  • Type 2: Decisions that are changeable and reversible. If you made a suboptimal type 2 decision, you dont have to live with the consequences for long.

Because of the long term implications, Bezos suggested that Type 1 decisions should go through a heavy weight process to ensure they are of high quality. These decisions should be made methodically, carefully, slowly, with great deliberation and consultation.

Bezos suggested that Type 1 decisions should go through a heavy weight process to ensure they are of high quality. These decisions should be made methodically, carefully, slowly, with great deliberation and consultation.

Applying heavy weight processes on Type 2 decisions will lead to slowness, risk aversion, failure to experiment sufficiently, and diminish invention.

As a CEO, you should identify and delegate the type 2 decisions, as they can and should be made quickly by high judgement individuals or small groups.

If your business continues to grow and decision making is still concentrated at the top, you will become the biggest bottleneck for fast growth.

If your business continues to grow and decision making is still concentrated at the top, you will become the biggest bottleneck for fast growth.

Don’t wait for all the information

Bezos uses a 70–90 rule. Most decisions should probably be made with around 70% of the information you wish you had. If you wait for 90%, you are probably being slow. Either way, you need to be good at quickly recognizing and correcting bad decisions.

If you are good at course correcting, being wrong may be less costly than you think, whereas slow is going to be expensive for sure.

Let the metrics owner make the call

At Amazon each operations has a set of metrics to ensure operational excellence, and each metrics has one designated metrics owner.

In this way, the metrics owner is the single point of accountability. The owner has full access to all the relevant data and analytics. The owner has all the authorization to take corrective initiatives, with maximum one level of approval, so no more heavy weight decision making.

From sequential to parallel approval

High velocity decision making doesnt mean getting rid of necessary gatekeepers.

Type 1 Decisions: Focus on a few

These decisions are few but destiny defining.

What is an example of Type 1 decision?

For eg, when Bezos took the decision in 2004, to get into the cut-throat consumer electronics market with no hardware expertise, a decision which led to invention of Kindle, Echo and Alexa.

Who should be help accountable for Type 1 decisions?

For Bezos, it was he, himself as the chief decision making officer.

“As an executive, you are paid to make a small number of high-quality decisions. Your job is not make thousands of decisions everyday.”

Once accountability gets clarified, how to ensure high-quality and high-velocity for these decisions?

  1. FIND THE BEST TRUTH
  2. COMBAT GROUP THINKING
  3. HAVE BACKBONE; DISAGREE & COMMIT
  4. MINIMIZE REGRETS.

FIND THE BEST TRUTH

In many legacy organisations, due to layers of relayed information from bottom to top, many decisions are often made far from the truth, the whole truth. Jeff Bezos always strived to reach to the best truth.

COMBAT GROUP THINKING

Bezos places huge emphasis on fighting conformity, challenging group thinking, and resisting the overrated importance for harmony.

HAVE BACKBONE; DISAGREE & COMMIT

While having every individual involved on board for key decisions is nice, there is a cost for having this as a policy — everyone can certainly recall certain experiences, of postponed decision-making, due to one or few people’s objections.

While having every individual involved on board for key decisions is nice, there is a cost for having this as a policy — everyone can certainly recall certain experiences, of postponed decision-making, due to one or few people’s objections.

Bezos suggested the phrase, “disagree and commit” as a heuristic way to save time.

Here’s how you say it:

“Look, I know we disagree on this, but will you gamble with me on it? Disagree and commit? “

By the time you are at this point, no one can know the answer for sure, and you’ll probable get a quick yes.

This is a two-way approach. Leaders can use this approach with high-velocity decision making.

MINIMIZE REGRETS

Bezos uses the regret minimization framework for his destiny defying decisions.

“All my best decisions in life have been made with heart, intuition, guts, and not analysis. When you can make a decision with analysis, you should do so, but it turns out in life your most important are always made with instinct, intuition, taste and heart. When I am 80, I want to have minimized the number of regrets that I have in my life. And most of the regrets are acts of omission, the things we didnt try, the paths untravelled. Those are the things that haunt us” — Bezos

What if a decision goes wrong?

We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not. And we will have learned another valuable lesson in either case.

A wrong decision may not be career-ending in Amazon, but Bezos will make sure that the lesson is learnt well.

People are asked questions such as:

  • What factors should have been considered and possible weren’t?
  • What assumptions were made and why some of them were unreasonable?
  • What critical technological breakthroughs was bet on and why it did not happen?

Much more important than post-portem is mid-course correction.

Building nextgen real estate platform at PriceHubble & podcaster at productlessons.com. I blog about products, business around products, and growth strategies.