The Bregman Leadership Podcast
Episode 222

Ram Charan

The Amazon Management System

How can you replicate Amazon’s growth within your own workplace? Ram Charan is a bestselling author, an expert on business strategy, and is most recently the co-author (with Julia Yang) of The Amazon Management System. Discover the six building blocks, the magic of six-person teams, and a discussion on people as multipliers.

About

Get the book, Return on Courage from Amazon here:

Learn more

Bio: Ram Charan is the coauthor of bestsellers Execution and Confronting Reality and the author of What the CEO Wants You to Know and 10 other books. A noted expert on business strategy, execution, building a high-performance organization, 21st century leadership, corporate boards and succession, he has worked with leaders of some of the world’s most successful companies, including GE, Bank of America, Verizon, Coca-Cola, 3M, Merck, Aditya Birla Group, and Tata Group.

Video

https://youtu.be/uYFxQc3j9HE

Transcript

This transcript is unedited.

Peter:

With us today is Ram Sharan. He’s the author of 27 books that have sold over 3 million copies and include the New York times best seller execution, which I thought was an absolutely excellent book. He’s a world renowned advisor to CEOs, business unit managers and boards of directors who value his practical solutions to complex business problems. He has written most recently, a book that I enjoyed called the Amazon management system, the ultimate digital business engine that creates extraordinary value for both customers and shareholders. And that’s what we are here to speak with them about today. Rom welcome to the Bregman leadership podcast.

Ram:

Thank you. I’m honored to be on it.

Peter:

What inspired you to write this book? I mean, obviously Amazon is one of the, you know, probably the most stellar organization in terms of its ability to sustainably manage massive operations and and, and be very profitable with a hugely growing stock price, right? So it’s a model that a lot of people would have why this book, why now

Ram:

It happened to me, a Chinese company came to me and said, we want to learn what is the management system of Amazon? Because in lots of decades, this is the only company that is able to deliver consistent value to the customer, better price, better convenience, faster at the same time and nor must cash generation and the shareholder value. So this is a new method of serving customer creating value using digital tools on a larger scale.

Peter:

So one of my questions is I read this book and also read any book like this is specificity versus universal applicability, right? So this question that like, can you really take something that works perfectly well for Amazon based in a sort of peculiar combination and integration of people and systems and an idea and, and apply it to, you know, any number of other businesses in, in your research and then looking at it, did you leave feeling like this is truly applicable anywhere? Or is there some specificity to it that says, you know, be careful of the idea of best practice here?

Ram:

Yeah, Peter, I was lucky to work for Jack Welch. When I went to see him, he says, bring tools for me, tools is one thing you choose from this book has tools. It’s an awesome fancy theories, the number of tools that are very applicable to most businesses. So all of my books are designed, but tools, social tools, technology tools, what example, there is a tool here in the book, how to have fast innovation with fewer people full time they’re called single thread. No other thing to do for a number of companies. If so, to most companies is going to adopt their, got to learn how to adopt that because fast customer innovation for the customer is the new game. Those are don’t do, they will suffer.

Peter:

Right. And, and can you, and is the tool let’s talk to us a little bit about that tool, right? Because I think you’re, you’re legendary in your ability to take tools and apply them into organizations. And, and, and, you know, that must mean that across the board, with varying skill levels, competency levels, capability levels, they’re still able to take these tools and integrate them. So, so could you sort of share a little bit about that tool and, and how it works when you apply it internally into an organization?

Ram:

The tool is somebody comes with an idea. That idea has to be edited in less than six pages. It must include first. What is the benefit to the user, to the customer? What is different about this benefit? Why the customer consumer need needed? Is this a benefit customer? Can’t see it yet, does not know how to use it. Then describe what are the inputs to make this happen? And what are the hurdles it has to be formatted to. It is not a PowerPoint. You’re going to think this one through. Then you create that piece of material. And then the company will assign a leader or a team which could be six to 12 people. This team is total time or located. This team does nothing else. It just dedicated from conceiving. The idea brought or typing it, testing it, installing it and operating it and doing so this way they build ownership.

Ram:

And this is how the iPhone was invented in the iPhone. You have the signatures, all of the people on the motherboard who had mentioned that. So there’s that end to end accountability. People love it because they have something accomplished. Millennials love it. This is now being put into actions and the companies I’m working with, and they have made a difference in that industry because some of the things that developed was in eight weeks last year, this company produced 72 new products and the people are coming to the CEO and saying, why not us? We want to do that. So that is a tool that is very applicable on a larger scale. Got it.

Peter:

And the speed with which that happens is that based on the culture of the organization, is there a specific focus from the tool itself? Does it vary based on what the innovation is?

Ram:

Yes. The key point is you arrange a team of six to 12 people full time, which is that culture that matters selection of people, selection of leaders. And then the CEO, all his direct reports create information, package, task, permanency, what’s happening, not happening. And there’s only one level of approval. You don’t go through levels of approval.

Peter:

Curious what the magic of six to 12 people is because I actually think that’s a magic number also. And I’m curious what you found.

Ram:

Yeah. The magic of six, usually a four that can work together. They can fight together. They can listen to each other. Is there you have more than that? You create layers, even though they may not be hierarchical, right? The intervention is done through simultaneous dialogue, listening, adopting ginger. Everybody hears everybody without filters, without roadblocks. That’s the reason

Peter:

It seems like probably 70% of it is having the right six to 12 people

Ram:

And conducting the dialogue and the narration that description of the bull’s-eye trying to achieve and the tenacity to do it.

Peter:

Right. And that lot. So when, when you find that the narrative, the tenacity, the you’re, you’re, you’re finding that in those six to 12 people, right? Because ultimately those are people who are making those, you know, who are, who are, who are conducting the narrative and challenging each other.

Ram:

Yeah. But the leader is very important. Leader is not necessarily an expert leader, expand capacity of each of these people leaders think, and listen, how do we get somebody is stretch the imagination, think of innovation. They may not be expert in that area. Right. Let’s go through all of them. VW called them multipliers. The market of live people, skippable

Peter:

Suppliers. That’s a Liz Wiseman term.

Ram:

Yeah. She probably used it. I just don’t know.

Peter:

Oh yeah. That’s interesting. But so you call them, you call them multipliers of people who are able to multiply there,

Ram:

No multiply other people.

Peter:

Right. So they, they multiply output by leveraging other people’s capability and making those other people better than they would be otherwise.

Ram:

Yeah. I think the last part there can double the capability of a human being. Wow.

Peter:

So that’s interesting. So what, what do they I want to get to each of these building blocks, but I’m so curious what multipliers do in your view or what you’ve seen in your research that allows, that enables them to double the capability of yeah.

Ram:

Yeah. Basically two things. One they try to see what is the potential of this person for the imagination. Second, they see what is constraining them to open that one up on that one. The people talk that ideas get developed better, faster, broader, multiple ways. So everybody learns from each other. Right,

Peter:

Right. Do you know a lot of multipliers when you go into our organization, do you see a lot of multipliers?

Ram:

I think many of the multipliers are hidden in the companies because most of them are not great functional experts. I’m trying to do that and telling you last time, these guys create a separate pipeline and reward them.

Peter:

You know, it’s so profound what you’ve said, and I want to slow down a little bit around it because it feels super important because you know, almost always we promote and reward functional experts because they’re the talent. And they’re the ones who are able to like achieve, you know, they’re the top technologist or the, and, and yet often the greatest talent executional talent is not at all the greatest people management talent and the leader

Ram:

Got it. But remember no CEO in the world, but maybe few exceptions knows everything about the company. Right. They have to be multipliers. Right,

Peter:

Right. But they’re there, you know, when, when you’re the talent, you’re almost constitutionally obstructed. Like you, you, you there’s, there’s, you know, the talent, there’s an ego drive to the talent that makes it hard often to multiply the people around them.

Ram:

Of course. But we want that exceptional talent that can do both a hundred percent.

Peter:

So how do you help someone? And I don’t know if you’ve done this, but how do you help someone who is not constitutionally oriented to be a multiplier, someone who you don’t know?

Ram:

Well, you know, we find the right job for them.

Peter:

Got it. So David McClelland, you know, David McClelland, who was from Harvard, you know, of course in mind is yeah. One of my favorite quotes of his was he was asked cause he created the theories of social motivation about achievement drive, affiliation and power achievement. At the time, this was in the seventies. And at the time achievement was, you know, the, they thought was the penultimate and he was asked the question, can you develop a achievement drive in person and hang on Peter. Sure.

Ram:

It’s a well known observable phenomenon. If somebody loves something motivation comes, right. It gets accelerated when you succeed in doing something degraders, motivators success,

Peter:

Right? Yeah. I agree. He said, so here’s his quote. He said, you can teach a squirrel, sorry. You could teach a Turkey to climb a tree, but you’re better off hiring a squirrel,

Ram:

Do that. But we have to see just the different way. We find a human being and try to figure out what is it in this person, God given talent, natural talent and find something in which this person can succeed.

Peter:

Do you think we should be, do you think we should be developing people at all?

Ram:

They develop themselves. We facilitate.

Peter:

So our role should be to say, here’s some opportunities if you’re interested, but my goal is not to change anything about you. It’s just to figure out what about you can help contribute.

Ram:

No, no, no. More than that. What is it that you are going to grow and develop and change yourself in the future? You cannot be static.

Peter:

Right? Okay. So we have aspirate, but, but it’s, it’s gotta be your choice and your decision.

Ram:

We give you ideas. We facilitate, we let you experiment. You let you discover yourself. I love it. We can give you tools. Right? We can pay your tuition fee. Right. I was in Australia at 1960 poor. I told my bosses boss, I was going to school five nights a week. He says, who pays that out? I do say, hell no, we gotta pay $2 a week. That’s one of the best thing that would happen to me. Right,

Peter:

Right. Let’s let’s just shoot through the, the six building blocks just to, you know, top line so that we can kind of understand each of the six components.

Ram:

Just one at a time, Peter.

Peter:

Yeah. So customer obsessed business model.

Ram:

Yeah. What it means, you got to observe the customer, see the pain points, see what will help the customer become more lenient, get things faster and cheaper, then work backwards to your company, product development, logistics, et cetera, cost structure.

Peter:

Now this has always been considered Amazon’s sort of golden strength, right. Which is this idea that, that, and you know, it’s their mission, right? To, to be the most customer focused organization on the planet. Yeah.

Ram:

Hang on, hang on Peter. Yeah. Every corner store has this habit. They’re not local people, they know their name, but I was my shoe shop. I knew the names. I knew the size of their feet. I would take four pairs on my bicycle to service them. What Bezos has done is to take that to larger scale using digital technology, collecting data and reusing data, creating shareholder value.

Peter:

Right. And that’s the only way you could do it, right? Because Amazon can’t know a billion people’s names and their address and bike their shoes over to them though. They do the best that they can to actually make that happen. Right. well, let’s go to the second one. Continuous bar raising talent pool,

Ram:

Correct. Now people have done in the past intuitively you’re hiring a new person for, let us say in marketing. So the boss has been saying, is this person going to be increasing the capability of the company and raising the bar? Or is this person just going to be at the same average? So Amazon has certified people who interview people final interview. And then they say, is this new person going to really increase the capability and the expectations this person has a veto power.

Peter:

And what does, what does that mean? Oh, the, the, one of those 35 interviewers has the veto power. You got it. And the question they’re asking is a team based question, not an individual based question. It could be both, but they’re asked, they’re saying, will this person raise the bar of who is currently here organizationally? Or are they just saying, who’s going to, are they going to raise the bar period?

Ram:

No, no, no. She, the raising the body’s a broader concept that can bring new ideas that we never had before. Right. They can take the board approach of you never thought a little, right. They can recruit better people in the future have a better network of right. So those are the dimensions of the bar.

Peter:

Right. And the bar that they’re raising is the standard that we are currently operating at as an organization. Yes. Right. Great. So I think that’s a beautiful way of thinking, right. Which is to say, we already exist with a certain capability. What’s this person, what are you adding to the team? What are you going to be able to do?

Ram:

Give me an idea that you take a Harvard business school, the tenured faculty, right. But this faculty is not ahead of others. The institution will suffer. Right. So when they recruit young people, PhDs coming in, is this person really going to raise the bar of the average faculty, right? New ideas, new Nobel prize winner people, right. The cargo do 12 economics. Princeton does what economics is. Stanford does for economics. Harvard does split economics.

Peter:

It’s interesting. So when so many people who, who, you know, when I think about my, my daughter is now applying to colleges. And when I think about like the colleges that she’s applying to and the, you know, I sort of think about Princeton today. I went to Princeton. Would I be able to get into Princeton today? I don’t know, like the standards. I think I probably wouldn’t get into Princeton today. And that’s what you’re talking about. You’re saying the standard has risen to a point where the, the, you know, every class that enters changes the standard of yeah.

Ram:

Excellence. It should some do some don’t. Right,

Peter:

Right, right. But that’s the goal. Right. Okay. So the third is AI powered data and metric system.

Ram:

Yeah. This is hundreds of years old. We did not have computing capacity. We didn’t have the skills. Basals got the skills. He saw the opportunity and he’s applying large scale. These tools, most of these tools are easily available. We now have talent in the nation that will connect people’s usage of data, usage of physical materials. And we’re now able to deliver it in 15 minutes in New York. Nobody ever thought that you could,

Peter:

Right. Number five, high velocity and high quality decision making.

Ram:

This is a great thing. When you have one level of approval is tied to last two decisions. High quality is database. If there’s a deviation of what you did and what’s happening, mr. Bezos has this organization, somebody in charge of it and analyze the whole process from the beginning, find the root cause and change it.

Peter:

So if you have one level of decision making, that means that you’re pushing decisions farther down into the room.

Ram:

Yes. Because data transparency because the smaller teams and because use of algorithms, database,

Peter:

Are people making decisions? Are they just following the algorithm?

Ram:

No, no algorithms can give you alternatives. It can give you data age, 90%, 70% algorithms make the decisions. Right. Other than once you got to see the new context, new context, that the algorithms don’t have forces you to use your own judgment. Right.

Peter:

And you have to trust the judgment of people. Seven layers down from the CEO.

Ram:

We don’t have to do that in these organizations because they not have four layer organizations for

Peter:

Organization. So you’ve got Bezos and you’ve got three layers underneath him, all

Ram:

For a good part of the organization. There are other parts. They have a lot larger number like in warehouses, right?

Peter:

So you’re talking about in the corporate offices, there’s only four levels in the organism.

Ram:

Well, I have companies now very large. We have four, four layers of organization. Right. Is that true for Amazon? For a good part of it

Peter:

For good part of Amazon. Right. And the last building block you talk about is forever day. One culture.

Ram:

Yeah. So Peter, Jack Welch used to say every day is a new way. He used to have a nurse that miss knew where to think. Remember every millisecond, new economy’s created some things to go bust. Some things go new. So day one means look into the, what is entrepreneurial

Peter:

And what is new that’s day one. So day one is to say, I’m like, imagine I get to the office. And I have just started here, look around what’s happening. Where are there opportunities?

Ram:

No, you don’t wait for the office. You get up in the morning, you look at the word, look at the news, what’s new and what’s new. What’s change, not change. They’re do it for the office.

Peter:

And is it, is it true when you looked at Amazon that people are really waking up each morning with this view? Or is this at a certain level of the organization? Because if this is it,

Ram:

If you leave the warehouse logistics out, you’re looking at innovation, other decisions, it is a culture, they are obsessed [with] what’s new for the customer.

Peter:

So let me ask you a question because when I worked at Accenture many, many, many years ago, and I looked at the competency model and I didn’t see creativity or innovation in and at a certain level of the organization. And I asked about it and they said, we actually don’t want it at this level because what we do is we replicate methodology across 50,000 people. And we need to make sure if we have too much innovation and creativity, we lose control of the system. How is that not happening at Amazon?

Ram:

No, no, no. And Amazon, anybody who has an idea of consent distinct right over to the top, but it’s got to not reach it. Right. Which goes back to your conversation about the six page document. You got it now. And Alibaba, Marta, how did that come? A lower level guy, picked it up, send it to Dan, the CEO at the time. And it picked it up and pony Mark, excuse me. And we’re then six weeks. Then we’re able to recreate that the foundational stone for Alibaba. Right? So that transparency is big. Right?

Peter:

Ram, thank you so much. We’re been talking with Ram Sharan, the book that he’s written most recently, the Amazon management system, the ultimate digital business engine that creates extraordinary value for both customers and shareholders. So enjoyed having you on the Bregman leadership podcast.

Ram:

Thank you. Thank you. Thanks very much.

Leave a Reply

Your email address will not be published.