Friday, August 9, 2013

Management Style, Culture, and Innovation

How Bezos will navigate the intersection of his management style versus the cultural differences at the Washington Post will highlight one of the most important qualities of disruptive innovation, namely how an organization is structured around business, operational, and cultural lines. For instance, think about the below article from the Harvard Business Review in regards to Bezos' management style. Not that it will be impossible for Bezos to innovate at the Washington Post, but he will most likely face an uphill battle considering the entrenched culture. The strategic path and choices made will be interesting to watch, not only in regards to the Washington Post but also in relation to how you should think about other companies integrate acquisitions and cultures.

Transformationally speaking, technological innovation is easy. Culture change is not. Jeff Bezos knows this. If he wants to kindle his newly-acquired Washington Post into Amazon Prime, he's free to do so. Technically enhancing the Post will be a digital snap. Getting his paper — pun intended — to adopt, adapt to or embrace an authentically customer-centric Bezosian vision, however, will prove very, very hard.
The reasons for that resistance will have little to do with money but almost everything to do with the Post's proud, defiantly elitist and self-righteously professional self-image (a self-image equally ensconced in papers like The New York Times, The Boston Globe and Los Angeles Times, as well). That prideful culture is simultaneously responsible for the paper's greatest successes and most humiliating journalistic and commercial failures.

As a former reporter and columnist there, I genuinely admired and respected both my newsroom colleagues and our business counterparts. But the Post's brave new entrepreneurial owner undeniably embodies two values that were never part of the paper's cultural norms: (1) being data-driven and (2) providing measurably superior customer experience. That's simply not what newspapers do.

Almost everything that makes Jeff Bezos Jeff Bezos as an innovator is organizationally alien to what made The Washington Post The Washington Post as a newspaper. At the Post, reporters report, editors edit and ad sales people sell ads. Journalists tell stories and report news; they don't do UX. Newspapers are indeed in information and digital content businesses. But their decision-making is typically far less data-driven than the big box retailers whose advertising they're so desperate to get. As a rule, newspapers know less about their readers and advertisers than an Amazon, Google or Facebook does.

These institutions built their brands not by focusing on customer experience or using strategic analytics but by successfully defining the most important and newsworthy stories in their communities and beyond. Those days are officially gone. So are the business models that made them profitable. The competition has both bigger and better data while offering much better customer experiences. There's little these papers do that deserves to command a marketplace premium from customers.

Serious innovators look to Amazon, not The Washington Post, The New York Times, The Wall Street Journal or The Boston Globe for innovation inspiration. Being a better newspaper or having better reporters, editors, web masters and ad salespeople doesn't solve the problem. They're no longer fit for purpose. The whole is worth less than the sum of its diminishing parts.

So when Bezos writes, "We will need to invent, which means we will need to experiment. Our touchstone will be readers, understanding what they care about — government, local leaders, restaurant openings, scout troops, businesses, charities, governors, sports — and working backwards from there. I'm excited and optimistic about the opportunity for invention," he effectively acknowledges that the status quo he purchased is unsustainable and — more importantly — existing cultural norms cannot endure. Can elite — and elitist — journalists who professionally prefer to tell readers what's important reinvent themselves as interlocutors and explainers who can digitally engage to inform? Will editors who've learned how to motivate prima donna reporters be able to turn themselves into "crowdsourcing shepherds" capable of tapping the collective intelligence of reader communities into stories everyone tweets, links to and talks about?

Can people who went into publishing precisely because there was no math learn how to take statistical advantage of petabytes of data to better customize, personalize or illuminate a customer app or experience? Will an industry that has institutionally treated customer feedback as an irritant — look at the online comments section of any major newspaper — finally have the wit and innovation to monetize their readers' best, brightest and most provocative comments?

The answers, as Bezos surely knows, have little to do with the Post's technical abilities to interoperate with Amazon Web Services and everything to do with profound cultural transformation. You can't lead at Amazon unless you're willing to be data-driven and relentlessly invested in improving customer experience. Will that Bezosian ethos be true for the Post in three or four years? Or will Amazon's founder be demonized and dismissed as someone who "just doesn't get" what elite journalism is supposed to mean?

These cultural challenges aren't unique to the Post; they're endemic to the industry. Nate Silver, arguably the most innovative data-driven journo-blogger in America, recently left The New York Times for ESPN. John Henry, the billionaire investor who brought Bill James and "Moneyball" insight to the Boston Red Sox — and winning the World Series in the process — just purchased The Boston Globe from The New York Times Company. Could a Bill James/Moneyball approach transform newsroom culture and best practice much the way it did for baseball? Of course. Then again, there's already a Bill James/Moneyball innovator in the daily news business; it's called Google. Bezos knows about competing with them, too.

For now, Bezos is keeping the current leadership of the Post in place. The Washington Post I know was a "lead by example" place. What data-driven decision and customer experience leadership examples will they now set? What do they want to learn from their new owner to help transform their old newspaper? How will they reinvent themselves?

Because if the paper's leaders don't embrace and enact Bezos' values, you can be sure the newsroom won't either. That would truly be the end.

A Glimpse Of Bezos, A Long-Term Focused Innovator

This is a fascinating look at Amazon's CEO. Not only does it give a glimpse of one of the most important aspects of any company, i.e. management, it also provides a glimpse into what has helped develop an innovative culture at the company. Originally posted to WP here.

In the relentlessly efficient world of Jeffrey P. Bezos, Amazon employees quickly learn when they have overtaxed the attention of their chief executive. He quietly pulls out his smartphone and starts replying to e-mails. In extreme cases, Bezos will walk out.

This demanding style is as much a signature of the founder as his famously long-term approach to developing new products or services, say people who have worked with the man who this week agreed to buy The Washington Post for $250 million. Bezos (pronounced “BAY-zohs”) has developed a precise and inventive approach to management that has powered Amazon to the top ranks of U.S. technology companies.

He favors a nimble, loosely organized company in which “two-pizza teams” execute important corporate tasks, because a work group requiring three pizzas over a lunch meeting is inherently too cumbersome. And he often requires employees pitching new ideas to write mock news releases for their product’s imagined launch, a way of focusing their minds on what will most excite customers.

Annual salaries at Amazon are modest by the standards of the technology industry, with compensation weighted toward lucrative stock benefits designed to instill a sense of ownership and long-term purpose among employees. The key is measurable performance. His management team produces what some have called ruthless annual evaluations; top performers get larger stock benefits while laggards sometimes face pointed suggestions that they find new jobs.

“One thing I learned is when you got a meeting with him, you’d better be ready,” said Nadia Shouraboura, who until recently worked on Amazon’s senior executive team reporting directly to Bezos. “He will figure out something you haven’t thought of. . . . If you haven’t thought through exactly how to delight our customer, that’s a bad thing.”

There is an outwardly genial side to Bezos, 49, a father of four who has an outsize laugh and appears to revel in the salesmanship of a product launch as he strides the stage in jeans and a dress shirt. But inside is a drive for perfection, manifested by an unwillingness to waste time or energy.

The recruiting motto: “Work hard, have fun, make history.” Or, as Bezos put it in his first letter to shareholders, in 1997, “It’s not easy to work here (when I interview people I tell them, ‘You can work long, hard, or smart, but at you can’t choose two out of three’).”

Kal Raman, a former top Amazon executive who is now chief operating officer for Groupon, recalled the consuming sense of mission instilled by Bezos. “When you try to rewrite history, it doesn't come without blood, sweat, tears and sacrifice. He doesn’t hold you to any standard he doesn’t hold to himself.”
In describing Bezos, the most common comparison is to Apple co-founder Steve Jobs, who was single-minded in his devotion to every new product. But while Jobs, who died in 2011, is often described as a design visionary, capable of discerning what consumers one day will want, Bezos has focused on delivering whatever they currently desire — as quickly as possible. Delays are not accidents or misfortunes but “defects” to be eradicated, he has said.

The result is a company that has become among the world’s most powerful retailers, a leader in the burgeoning world of cloud computing systems and a player in a range of other businesses — book publishing, television production, electronics manufacturing.

Bezos, who founded Amazon in his Seattle area home in 1995, meanwhile has become one of the country’s wealthiest men, with an estimated $25 billion in assets and plaudits from Time, Harvard Business Review and legendary investor Warren Buffett, who has hailed Bezos as “the ablest CEO in America,” according to Washington Post Co. chief executive Donald E. Graham.

Bezos has no patience for bureaucracy, and employees are encouraged to put a stop to anything that smacks of jumping through hoops. A rule requiring that employees who brought their dogs to work sign in the animals disappeared soon after complaints. Bezos also disdains the formality of job titles, encouraging employees to work outside the scope of their titles if it helps the company.

One of the most coveted honors at Amazon is the “Just Do It” award, given to an employee every couple of months who strays from his or her job title to do something that will help Amazon. Bezos helps choose the employee himself and then hands the award — an old Nike shoe — to the winner at a company-wide event.
Those who win the award proudly hang the shoes in their cubicles; in the online directory, a small icon is placed next to the names of those who win.

“It was not the title but rather who’s got the best idea,” said John Rossman, who worked at Amazon from 2002 to 2005 as an executive and is now managing director at Alvarez & Marsal, a consulting firm. “Who’s bringing the solution to the table? That’s what was most important.” What is not clear, even to some of those who have worked for Bezos, is how his management style translates into running a newspaper amid a historic decline in readership and revenue that has afflicted the entire industry.

Bezos has said little about his plans for The Post since the sale was announced Monday, though in a letter to employees he made clear his desire to accelerate the pace of innovation at a company that for years has struggled amid the same digital transition that made online companies such as Amazon rich. The company, which will have no ownership stake in The Post, declined to comment for this story.

“The Internet is transforming almost every element of the news business: shortening news cycles, eroding long-reliable revenue sources, and enabling new kinds of competition, some of which bear little or no news-gathering costs,” Bezos wrote. “There is no map, and charting a path ahead will not be easy. We will need to invent, which means we will need to experiment.” Bezos encouraged a culture of experimentation at Amazon, where failure is accepted so long as it yields new lessons.

“Most things at Amazon are viewed as an experiment,” said Jason Crawford, who worked at Amazon as a development manager from 2004 to 2007. “And that means a few things: You don’t assume it’s going to work before you try it, but that’s also okay. The goal is try things. We’re going to measure them and find out if they work.” Amazon was a pioneer of the now common practice at tech companies such as Facebook — testing different versions of the company’s Web site with different audiences to see what works, Crawford said. Half the users might see a new feature, while the others do not. Amazon employees would then measure the results to see if the features encouraged people to buy more or stay longer on the site.

Bezos has said that he intends to keep his focus on Amazon and keep his home in the Seattle area rather than becoming a fixture in Washington, as four generations of The Post’s outgoing owners, the Graham family, have been. Bezos also has agreed to keep the newspaper’s top executives in place, though they may need to work without a popular corporate management tool: PowerPoint presentations.

Bezos all but banned such presentations at Amazon around the time Edward Tufte, a computer science professor at Yale, wrote an essay saying that their bullet points encouraged lazy thinking. Amazon employees are required to write papers, known as “narratives,” that are no longer than six pages. The idea for Bezos, former employees say, is that the act of writing forces people to focus their thoughts and think them through. Bezos’s faith in the enduring power of words is evident in his own annual letters to shareholders. His letter in 1997 is regarded as something of a founding document for Amazon, highlighting his obsession over serving customers and developing plans that take years to bring to fruition. That consistent long-term view — he often talks of seven-year cycles for executing business plans — is the counterpoint to his minute-by-minute quest to avoid wasting time.

“Jeff has always been very efficient,” said Jason Kilar, who worked at Amazon from 1997 to 2006, rising to the level of senior vice president. “There is one very important thing he knows is not in abundant supply on Earth, and that is minutes.” But he added: “He has the patience to invest if he believes the strategy is the right one.”

Volume Off the High- 8/8 Trading Day Edition

Just one note, I included Dean Foods because the stock price was adjusted for a recent spin-off. The remainder of the names are primarily earnings related.

High Volume High- 8/8 Trading Day Edition

Still in earnings season, most the names jumping higher on volume followed the release of earnings. One name that is perking my interest is TSLA. Specifically, Goldie was out yesterday with a note stating no reasonable estimate can justify the car manufacturers stock price. Despite this assessment, Goldie maintained a hold on the stock. Interesting.

S&P 500 Price/Volume Heat Map- 8/8 Trading Day

Yesterday's price action broke a three day losing streak, as the S&P 500 gained around 40 basis points in value on overall weak volume (volume has been weak on the downside and upside for about a month now). Reversing recent gains, the telecom sector gave back some relative gains as the more cyclical groups attracted investor interest.

The materials sectors caught a bid in yesterday's trading, not only on a price basis but also demand wise, as the price/volume heat map reflects higher volume levels with the rise in price across the names in the sector. Ditto for the energy complex, as it concerns supply/demand characteristics, with the price action no where near as strong as materials. That said and aside from staples (a more defensive group), the supply/demand posture in yesterday's trade castes the 40 basis point rally in a weak light, with neutral and negative reading outweighing positive volume/price momentum.

An Exercise in Futility- QE, Monetary Policy, and Employment

I found the below chart rather interesting. It shows the futility of the Fed's efforts of linking monetary policy and the unemployment rate. Bernanke has stated publicly (here for instance) that the Fed's efforts in monetary policy and asset purchases are targeting higher asset prices, in the hopes that higher prices raise overall risk taking and economy with it. This transfer mechanism has been clearly debunked by many analysts, for instance see John Hussman's weekly comments at

In the last few months, the rhetoric has turned towards employment, as Bernanke and the Fed have linked their asset purchasing asset levels, or lack thereof via the taper, to both inflation and more importantly employment. The claim that monetary policy and employment levels are linked is weak at best. To prove this, I looked at the annual changes in the weekly jobless claims compared to similar changes in the Fed Funds Rate. I use the Fed Funds Rate in this analysis because it is the rate most directly under the influence of the Federal Reserve and monetary policy.

What the data shows is that the relationship between the two is, at best, week. Without delving into all the numbers, the one-year forward R-squared of the Fed Funds on jobless claims is just 23.7%. This figure shows a weak relationship between the two and that more likely other factors over monetary policy drive employment levels.

The chart below provides more damning evidence. The chart shows the rolling 1-year forward correlation and R-squared of the Fed Funds on jobless claims.

What I see here is that in some instances, a strong relationship between monetary policy and employment levels exists. However, these moments are fleeting. In all months observed, less than 27% of the months exhibited R-squareds at or above the 50% level. Additionally, roughly 10% of the months since 1968 showed a strong relationship of 75% or more. Worse still, a predominance of the R-squareds, more than 50%, exhibited a weak r-R-squared of 25% or less.

To me, this analysis suggests a weak relationship between monetary policy and employment. More so, the relational analysis implies the efforts by the Fed to raise employment via asset buying are in fact an exercise in futility .