Building Block 5:

High-Velocity and High-Quality Decision-Making

In most pre-digital companies, decision-making is slow. All readers probably know well about it out of your own experience.

In the traditional setup, only very few people at the top of the hierarchy, usually CEO, CFO, and the head of strategy, know the full picture and are thus capable of making a right choice with all of the right factors taken into consideration. As a result, such bureaucratic decision-making, featured by lengthy layers of approvals, intensive politics among silos, extensive gaming-of-the-system by all, and lack of transparency of data (especially lacking customer data as driving element of decision-making), is not only low in velocity, but also could be low in quality.

These processes make their own kind of sense as they are essentially designed for command and control, not for speed and agility as in the case of their digital counterparties.

What’s more: Amazon’s decision-making is not only high in both velocity and quality, but also high in scale, with a set of clearly articulated principles and a uniquely designed methodology enforced with striking consistency throughout the organization.

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

Type 2 decisions: speed matters

Bezos established speed as the top priority, both for himself and senior executives. “The senior team at Amazon is determined to keep our decision-making velocity high.”1 How to do it?

Don’t do one-size-fits-all

Bezos categorized all decisions into two types and designed different kinds of decision-making processes depending on whether they were a Type 1 or Type 2 decision.

Type 1 decisions refer to those that “are consequential and irreversible or nearly irreversible – one-way doors . . . . If you walk through and don’t like what you see on the other side, you can’t get back to where you were before.”2

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 must be made methodically, carefully, slowly, with great deliberation and consultation.”3

However, most decisions aren’t like that.

Type 2 decisions refer to those that “are changeable, reversible – they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through.”4

The distinction between these two types of decisions and the different types of decision-making mechanisms associated with each must be crystal clear. Applying the heavy-weight process on Type 2 decisions will lead to slowness, risk aversion, failure to experiment sufficiently, and diminished invention. At the same time, taking Type 1 decisions lightly is a huge mistake: one fatal mistake in Type 1 decisions could lead to extinction.

Don’t make all decisions yourself

As CEO, you should identify and delegate the Type 2 decisions, as they “can and should be made quickly by high judgment individuals or small groups.”5

No matter how hard-working you and your top team are, everyone only has 24 hours a day. Assume that if your business continues to grow, and decision-making is still concentrated at the top, sooner or later, you will become the biggest bottleneck for fast growth.

Of course, you need to give careful thought to whom to delegate, and how to make the designated individual or the small group successful. Pulling several relevant people together into a standing committee, as many traditional companies do, without necessary support in right data in the right format, clear accountability or timely coaching, will not end well.

Don’t wait for all the information

In war, when timing is even more critical, former U.S. Secretary of State and retired four-star general Colin Powell advocated a 40-70 Rule: if you have less than 40% of the information, you shouldn’t make a decision. But if you wait until you have more than 70% of the information, you have waited too long. Once the information is in the 40-70 range, go with your gut.6

In business, Bezos used a 70-90 rule instead. He stated that “most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”7

In fact, Amazon enjoys a huge built-in advantage in this way. Amazon’s real-time data transparency and anomaly detection enabled by its AI-powered data and metrics becomes extremely helpful.

Let the metrics owner make the call

At Amazon, each operation 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, so no more finger-pointing; the owner has full access to all the relevant data and analytics, so no more being handicapped by partial information; and the owner has clear authorization to take corrective initiatives, with maximum one-level of approval, so no more heavy-weight decision-making.

If cross-functional collaboration is required, the metric owner is both obliged and empowered to convince others using data analytics. If experimentation is required when facing the unknown, the metric owner can run low-cost fast-feedback pilots using data analytics. If mid-course correction is required, the metric owner can solicit valuable inputs and gain approvals from others during weekly review, again using data analytics.

In short, such data transparency, clear accountability, and liberating authorization empower the metrics owner to identify glitches faster, get to the bottom of the root causes faster, and take the corrective actions faster.

This is of crucial importance to the speed and agility required in the digital age. More importantly, this is impossible without the right people (Building Block 2) who are equipped with the right AI-powered data and metrics system (Building Block 3).

From sequential to parallel approval

High-velocity decision-making does not mean getting rid of necessary gatekeepers.

For Type 2 decisions, when multiple functions need to be involved in approval, you can transform the traditional sequential process into a parallel operation for high-velocity decision-making.

For example, at Amazon, project teams are free to choose between internal services and external vendors. By the traditional sequential selection and approval process, this could take two to three months. To ensure speed, Amazon forms a cross-functional team composed of people from procurement, technology, finance, legal and other required functions.

With such a team in place, the lengthy sequential approval process is replaced by an effective group discussion with all the available relevant facts, analyses and perspectives, effectively considered and efficiently decided.

For most cases, multi-function, multi-layer, multi-people involvement in the approval processes can prevent clear accountability. When one person is appointed to be accountable, decisions happen faster. For example, at Amazon, each project team is assigned a senior executive as project sponsor. One level approval from one single person always accelerates decision-making.

Digitize math-based routine decisions

Amazon’s powerful data, metrics, and AI-powered tools, mean that many sophisticated but routine operational decisions that used to be handled only by long-term industry veterans with decades of experience and expertise, can now be digitized.

One typical example: how to manage inventory purchasing. The right balance needs to be found in managing conflicting needs of keeping enough in stock to ensure immediate availability to customers, and inventory turnover as high as possible, while at the same time, keeping the inventory level and inventory-associated costs as low as possible.

Given the availability of vast amounts of historical data about customer orders, seasonal volatility, and replenishment speed of vendors, and all the AI-powered analytics and prediction tools, this is a typical math-based routine decision that can be largely digitized.

In the same spirit, decisions such as location picking of the next fulfillment center have long been digitized, as we mentioned in the chapter of AI-Powered Data and Metrics System (Building Block 3).

Type 1 decisions: focus on a few

While powerful digital tools can indeed free us from many routine mundane math-based decisions, not all decisions can be delegated or digitized.

What to do with the important Type 1 decisions? These few decisions, though small in absolute number, are one-way, consequential, and destiny-defining. Unlike the math-based routine decisions, these destiny-defining decisions are usually very controversial and inevitably end up in heated debates.

There are plenty of such examples in Amazon’s 25-year history. In the cases of ground-breaking inventions, there is no precedent to follow, no luxury of solid historical data to analyze. There was no roadmap to follow, for example, 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 the invention of Kindle and accelerated Amazon’s endeavor into Echo and Alexa.

For these tough Type 1 decisions, who should be held accountable?

To Bezos, the answer is crystal clear. He himself, as the founder and CEO of Amazon, is first and foremost the chief decision-making officer. In an interview last year, Bezos actually said, “As a senior executive, you get paid to make a small number of high-quality decisions. Your job is not to make thousands of decisions every day.”8

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

Find the best truth

In many legacy organizations, due to the inevitable delay, distortion, and manipulation through layers of relayed information from bottom to the top, many decisions are made far from the truth, the whole truth, and nothing but the truth.

For example, in the Challenger disaster, Nobel laureate Richard Feynman revealed the simple truth via his famous C-clamp experiment, dropping a piece of the O-ring material squeezed with a C-clamp into ice water.9 It showed that the rubber sealing could become frozen, brittle and easily breakable in cold temperature (31°F/-0.5°C) during the launch, something that had not been duly considered in the final decision-making process.

If this piece of critical information and the corresponding high likelihood of devastating results had been brought to the full attention of the final decision-makers, the tragedy might have been avoided.

As well documented in a 2013 HBR (Harvard Business Review) article, Bezos’ right-handed man Rick Dalzell said, one of the two things that Bezos does better than anyone else is that “he tries to find the best truth at all the time.”10 This may sound too obvious to even be mentioned, but it is actually a big challenge for traditional organizations usually characterized by strict hierarchy, managing by fear, and a command and control modus operandi.

Imagine the possible change

In addition to the best truth in a static sense, Bezos takes it to one step further, i.e., always using future-back perspective, thinking about how things will change going forward.

For example, back in 2005, most Amazon executives opposed Bezos regarding the launch of Prime. Brad Stone actually used the word “almost alone” to describe the lonely fight Bezos had back then.

Their objection was well-founded. Given an eight dollar logistics cost per order, and assuming twenty orders a year on average by each Prime member, it would cost $160 a year in shipping — more than double the $79 membership fee. Amazon executive Diego Piacentini recalled, “Every single financial analysis said we were completely crazy to give two-day shipping for free.”11

So what gave Bezos such unwavering conviction despite the siege from all sides?

The key factor we would like to explore here is logistics cost. As you see, most people think in a static and linear sense, so they would merely see that logistics cost is eight dollars per order.

But Bezos thinks in a different way. Unfettered by the status quo, he envisions the future and then works backwards to create a strategy to make it happen, by asking the obvious but commonly neglected question: how will it change?

Back then, Bezos firmly believed that logistics cost, just one of the many factors in play here, would drop and that when put in a holistic future perspective, prime would become profitable in the future.

Why? Because when customers spent more, Amazon’s volume would increase, and the increased scale could help Amazon negotiate lower prices from shipping vendors, and decrease the amount of fixed-cost allocation on each shipment. In addition, with a continuous system upgrade, Amazon’s logistics system would continue to “drive down Amazon’s transportation costs by double-digit percentages each year.”12 Furthermore, more spending per customer and higher value per order would generate higher gross profits than what would be needed to cover the shipping costs.

In fact, Bezos has been proven right. Morgan Stanley research13 found that, on average, Prime members spent 2.7-time higher than non-prime member, and Prime actually enjoyed nineteen percent order margin, after logistics costs deducted.

Combat group thinking

Bezos recognizes the built-in human weakness in decision-making, and the subsequent biases and misjudgments (regardless of how great the person is) so well that he places huge emphasis on fighting conformity, challenging group thinking, and resisting the overrated importance of harmony.

He expects people to challenge him. He clearly demands a quality discussion where people introduce new ideas, different perspectives, and, even better, disruptive thinking. He “believes that truth springs forth when ideas and perspectives are banged against each other, sometimes violently.”14

At Amazon, team players are not defined as “people who go along with the group’s consensus.”15 Instead, leaders are “obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting; they do not compromise for the sake of social cohesion.”16 (Our emphasis). People at Amazon tend to understand this obligation, not only to the company, but also to the customer and to the shareholder.

Many CEOs claim that they welcome different viewpoints. But unless you actually walk the talk, people will fear the “shooting the messenger” syndrome.

Have Backbone; Disagree and Commit

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

In most functionally organized companies, critical decisions are made by leaders through committees or through seeking consensus among the participants who are dedicated functional executives. These players rarely have an integrated picture of the customers, and as a result, instead of someone taking full ownership to decide, the group makes consensus-based decisions that usually inadequate in quality, slow in speed, and lacking in individual accountability.

Such a problem can be greatly exacerbated when decisions at hand have both innate uncertainty and pressing urgency. Nobody is a fortune teller, no one can be 100% sure regarding what will happen in three or five years down the road. How to solve the deadlock?

Bezos suggested the phrase “disagree and commit” as a heuristic way to save time. He notes that after all the facts have been considered and all views expressed, “if you have a conviction on a particular direction even though there’s no consensus, it’s helpful to say, ‘Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?’ By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes.”17

This is not a one-way approach, but a two-way approach. Leaders can use this approach for high-velocity decision-making, and in fact should be prepared to practice this principle themselves. For example, when Bezos and the team had differing views regarding one particular Amazon Studios original, Bezos himself chose to greenlight it by following “disagree and commit.” Staying consistent to his espoused principles in this case saved the group enormous time and resources.18

Minimize regrets

When facing high-stakes destiny-defining decisions of enormous uncertainty, Bezos will resort to the ultimate weapon in his decision-making armor: the regret minimization framework.

He explained, “All of my best decisions in business and in life have been made with heart, intuition, guts and, you know, not analysis. When you can make a decision with analysis, you should do so, but it turns out in life that you most important decisions are always made with instinct, intuition, taste and heart . . . . When I’m 80, I want to have minimized the number of regrets that I have in my life. And most of our regrets are acts of omission, they’re things we didn’t try, it’s the path untraveled. Those are the things that haunt us.”19 This is how Bezos made his destiny-defining decision twenty-five years ago when the Internet was still in its infancy: whether to continue his lucrative and promising Wall-Street career or to embark on an unknown adventure of starting his own business.

What if a decision goes wrong?

In his first shareholder letter in 1997, Bezos stated, “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 the lesson is well learnt.

So what’s unique about Amazon’s way of learning a lesson? The secret weapon is to consider inputs. People will be asked questions such as what factors should have been considered (and possibly weren’t), what assumptions were made (and why some of them were unreasonable), what critical technological breakthrough was bet on (and why it did not happen as expected), and more.

Much more important than such post-mortem analysis is mid-course adjustment. Bezos said, “You need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”20

Scale up good decision-making

In essence, decision-making is about making choices.

Without deliberate cultivation, everyone will have different answers based on his or her own preferences. That’s natural.

However, for business-related issues, Bezos demands good decision-making from everyone at Amazon following the same principles and methodologies.

So here comes the billion-dollar question: how to scale high-velocity and high-quality decision-making?

Crystalize consistent principles

In his first Shareholder Letter, Bezos wrote: “Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than some companies. Accordingly, we want to share with you our fundamental management and decision-making approach so that you, our shareholders, may confirm that it is consistent with your investment philosophy:

• We will continue to focus relentlessly on our customers.

• We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.

• We will continue to measure our programs and the effectiveness of our investments analytically, to jettison those that do not provide acceptable returns, and to step up our investment in those that work best. We will continue to learn from both our successes and our failures.

• 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.

• When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.

• We will share our strategic thought processes with you when we make bold choices (to the extent competitive pressures allow), so that you may evaluate for yourselves whether we are making rational long-term leadership investments.

• We will work hard to spend wisely and maintain our lean culture. We understand the importance of continually reinforcing a cost-conscious culture, particularly in a business incurring net losses.

• We will balance our focus on growth with emphasis on long-term profitability and capital management. At this stage, we choose to prioritize growth because we believe that scale is central to achieving the potential of our business model.

• We will continue to focus on hiring and retaining versatile and talented employees, and continue to weight their compensation to stock options rather than cash. We know our success will be largely affected by our ability to attract and retain a motivated employee base, each of whom must think like, and therefore must actually be, an owner.”21

It is hard to make good decisions and it is much harder to crystalize decision-making principles. Just imagine how much pain and efforts this calls for. Just try to name who else has done this. The list won’t be long.

So why did Bezos choose to do this? Why did he choose to be this loud and clear, leaving himself no room for wavering in the future?

This unambiguous manifesto, specific, observable, and verifiable as it were, enabled shareholders to make informed investment decisions regarding Amazon. It also provided customers with the company’s decision catechism, so that they would be more willing to build a trust-based long-term relationship with Amazon.

But most importantly, this transparent and widely shared set of principles is for all current and future Amazon employees: a set of crystal-clear guidelines so that every single one of them can understand the decision-making logic, and be able to make the right choice when duty calls.

Specify consistent methodology: narratives

June 9, 2004 witnessed a brilliant innovation in human management practices. It all started with an email from Bezos: No PowerPoint presentations from now on at S-team (Amazon’s core executive team, including Bezos, and his direct reports and selective two-level-down executives). From that day on, Amazon started a crusade against bullet points, and embarked on a journey towards what came to be known as “Six-Page Narratives22” (sometimes two pages only).

“A little more to help with the question “why.”

Well structured, narrative text is what we’re after rather than just text. If someone builds a list of bullet points in world, that would be just as bad as PowerPoint.

The reason writing a good 4-page memo is harder than “writing” a 20-page PowerPoint is because the narrative structure of a good memo forces better thought and better understanding of what’s more important than what, and how things are related.

PowerPoint-style presentations somehow give permission to gloss over ideas, flatten out any sense of relative importance, and ignore the interconnectedness of ideas.”

You may laugh at this idea, and seriously doubt the significance of this methodology, especially in the current era when PowerPoint has become virtually the second language of business. You are not alone. In some companies, there exists a standalone functional department whose only job is to produce PowerPoint presentations.

But Bezos was serious. This was not a capricious whim, but a well thought-through decision, particularly given the fact that the discussions and iterations required to produce a high-quality six-page memo might take a week or more. Bezos himself acknowledged that producing such documents was no small task: “Great memos are written and re-written, shared with colleagues who are asked to improve the work, set aside for a couple of days, and then edited again with a fresh mind. They simply can’t be done in a day or two.”23

Many people at Amazon vividly recall this practice even long after they left. John Rossman, a former Amazon executive, wrote, “I can’t tell you how many of my weekends were consumed by this writing and editing process.”24

So why was Bezos willing to make such a huge investment of people’s time and effort? And why do people at Amazon revere this method so highly and regard it worthy of their days, nights, and weekends?

As Bezos noted in a 2012 interview with Charlie Rose, “When you have to write your ideas out in complete sentences and complete paragraphs, it forces a deeper clarity of thinking.” This is quite a contrast with PowerPoint-style bullet points that give very little information. “This is easy for the presenter, but difficult for the audience,” Bezos explained.

Writing the six-page narratives forces the author to conduct complete analysis, to distinguish between subtle nuances, to articulate the inner logic and set priorities for various ideas, and take full accountability for specific proposals. There is no wiggle room, no hiding place, and no safe haven. Everyone must put “skin in the game” and is to be held accountable for it.

Not only were newcomers to Amazon surprised to learn of this ban on PowerPoint, but they would also be shocked to learn that nearly every meeting at Amazon starts with attendees sitting in silence and reading the narratives for 15-30 minutes.

Why no presentation, just reading? Bezos said, “Executives are very good at interrupting . . . . The person will get halfway into their presentation and then some executive will interrupt the conversation and that question . . . . probably was going to be answered five slides in. So, if you read the whole six-page memo, it often happens to me, I get to page two and I have a question. I jot it in the margin and, by the time I get to page four, the question has been answered so I can just cross it off. It saves a lot of time.25” Reading memos together is a very effective way to ensure that everyone gets the full picture and is well-equipped for a high-quality discussion afterwards.

That’s why, at Amazon, a meeting rarely ends without clear decisions or specific actions. Even those who missed the meeting can easily catch up regarding what and how a decision gets made.

Samir Lakhani, former Amazon employee, succinctly summed up the value of this practice succinctly by saying: “Bezos has given all employees a standard SOP (standard operating procedure) for ensuring the basics get done well.”26

Enforce consistent approach in every decision

As noted earlier, it is tough to make good decisions, and even tougher to crystalize decision-making principles. The toughest part is to walk the talks and consistently apply the stated principles when making every single decision.

In 2010, Bezos noted that “customers who browsed—but didn’t buy—in the lubricant section of Amazon’s sexual-wellness category were receiving personalized emails promoting a variety of gels and other intimacy facilitators.”27 He called a meeting to discuss this because he “believed the marketing department’s e-mails caused customers embarrassment and should not have been sent.”28

During the meeting, executives “argued that lubricants were available in grocery stores and drugstores and were not, technically, that embarrassing. They also pointed out that Amazon generated a significant volume of sales with such e-mails. Bezos didn’t care; no amount of revenue was worth jeopardizing customer trust. It was a revealing—and confirming—moment. He (Bezos) was willing to slay a profitable aspect of his business rather than test Amazon’s bond with its customers.”29

It is exactly such defining moments that convince others what is important to you and how you will make decisions in tough situations. As Julie Weed wrote in the foreword of The Amazon Way, Amazon’s “principles aren’t slogans printed on wall posters and coffee mugs. They are lived and breathed every day by Amazonians from the CEO on down.”

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Decision-making is about making choices. “In the end, we are our choices.”30

The really tough choices are usually not the ones between right or wrong, better or worse, but the ones between two rational and reasonable options. Different people will make their different choices based on their different values, principles and preferences.

As a company, to ensure concerted and consistent choices throughout the organization, you need to crystalize your own principles and build a corresponding corporate culture to reinforce them.

No one will deny the importance of the right culture. The real problem is how to define it and how to build it. So what’s the Amazon way? Let’s proceed to the next chapter: Forever-Day-1 Culture.

REFLECTIONS AND IDEAS TO CONSIDER FOR YOUR COMPANY