What can we learn from Jeff Bezos about Performance Measurement?

Written by Rob Highett-Smith, Head of Performance Measurement at Fiftyfive5, part of Accenture Song

Jeff Bezos is famous for many things, not least building Amazon into one of the largest and most successful businesses of the internet era. From humble beginnings in 1994 to an “Everything Store” with a market cap of almost US$2 trillion, Bezos oversaw an incredibly successful growth story.

Given this commercial success, Bezos’ insights on business have frequently appeared across the media landscape. And there is a lot to explore; Bezos has many distinctive and forthright views. Many of which were aired in his annual letters to shareholders penned between 1997 to 2020. These have included gems of insights such as:

• “There is no rest for the weary. I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers. We consider them to be loyal to us – right up until the second that someone else offers them a better service.” (1998)

• “Start with customers and work backwards. Listen to customers, but don’t just listen to customers – also invent on their behalf.” (2009)

• “Failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.” (2015)

• “If you want to be successful in business (in life, actually), you have to create more than you consume. Your goal should be to create value for everyone you interact with. Any business that doesn’t create value for those it touches, even if it appears successful on the surface, isn’t long for this world. It’s on the way out.” (2020)

It’s always Day 1 at Amazon

One of Bezos’ most famous philosophies is his “Day 1” manifesto; The mindset of approaching every day with the energy, passion, and hunger of a startup on its first day:

• Constantly striving to innovate and improve, never becoming complacent or stagnant.
• Obsessing over customer needs and delighting customers, even before they realize their own desires.
• Embracing trends and change rather than fighting against them or being disrupted.
• Making quick decisions and taking risks like a nimble startup.

At an Amazon all hands, he was once asked ‘Jeff, what does Day 2 look like?’ His answer:

“Day 2 is stasis. Followed by irrelevance.

Followed by excruciating, painful decline. Followed by death.

And that is why it is always Day 1”.

The Danger of Managing to Proxies

In his shareholder letter that year, he explained this philosophy, outlining the key ways to maintain ‘Day 1’ thinking. The first is to maintain a true customer obsession.

The second is to “resist proxies.”

But what does he mean? And how does it help avoid an ‘excruciating, painful decline followed by death’? Let’s turn to Bezos again:

“As companies get larger and more complex, there’s a tendency to manage to proxies. This comes in many shapes and sizes, and it’s dangerous, subtle, and very Day 2.

A common example is process as proxy. Good process serves you so you can serve customers.

But if you’re not watchful, the process can become the thing. This can happen very easily in large organizations. The process becomes the proxy for the result you want. You stop looking at outcomes and just make sure you’re doing the process right.

Gulp. It’s not that rare to hear a junior leader defend a bad outcome with something like, “Well, we followed the process.” A more experienced leader will use it as an opportunity to investigate and improve the process. The process is not the thing.

It’s always worth asking, do we own the process or does the process own us?

In a Day 2 company, you might find it’s the second.”

Managing to Proxies is a Measurement challenge

Amazon is a data-driven company that obsessively tracks metrics that represent their key tenets. Bezos’ point is that while metrics are critical, many are proxies for something else. They are indicators developed by someone, at some point, that become embedded in the management processes of the company.

At the time, the designer understands what the metric represents and the relationship it has with the commercial outcome that we ultimately care about. This is fine, so long as the metric continues to be well understood and its relationship to the outcome is maintained.

But over time, the link can become less salient or even be forgotten. Or the strategy or the market or the process changes and that indicator becomes less relevant… or even irrelevant. Yet the focus on the-metric-as-the-objective continues regardless.

Roger Martin calls this surrogation: when the “performance measure becomes the goal in the minds of workers”. In other words, managers focus on optimising for performance on that indicator – without regard to the original objectives and strategy.

The key to avoiding Proxies

Proxies can be found everywhere, although they commonly represent outputs (e.g. campaign reach, likes or impressions) rather than outcomes (e.g. sales or sales inquiries).

Too often, these proxies are used because they tell a story (usually a story we want to tell) or because they are the metrics that we have always used.

To some extent, proxies are inevitable and can be useful, the key is to avoid surrogation. Here are five key steps to avoiding Proxies:

• Always include Measurement in the Objectives & Strategy setting process
• Agree as a team what constitutes success and, critically, how it will be measured
• Implement a Measurement Framework so there is a clear, shared understanding of Metrics and their relationships to Commercial Outcomes
• Validate and quantify these relationships
• Review the Framework & Process periodically, the same as you would your Strategy

Getting the team to agree, not only on the objectives and strategy, but also how best to measure success and diagnose performance will bring a critical, deeper, shared understanding and source of creativity and inspiration to execution.

Conducting a review of the Metrics and Measurement programs in use to explicitly agree and validate the relationship to Commercial Outcomes is also one of the most important things a business can do. It will quickly highlight any fallacies and unproven relationships.

Taking this approach leverages Measurement best practices from other domains: namely, being hypothesis driven and data-led, with a focus on consensus-building and empowered debate.

Just imagine the levels of performance your team could be achieving with these characteristics at the core of their processes and culture!