Demystifying One of Amazon’s Secret Weapons for Retail
By Anurag Mehta. January 9, 2019.
Turmoil in Retail
The world of retail is in an unprecedented state of change. With shopping power shifting towards millenials, price and convenience have yielded to cross channel customer experience as the new currency for loyalty. This transition is fueled by massive advances in ecommerce and mobile-commerce technology, in packaging and distribution automation, and in frictionless payments.
Amazon, and a whole brigade of innovative tech-first companies have taken over Retail in much the same way they have conquered banking, insurance, hotels, taxis and virtually every other traditional business. For traditional retailers, this is no longer a question of market share or profits, but of survival. This is evident from the rate at which retailers are closing stores and filing for bankruptcy.
So, how must a retailer act?
The Penney Approach to Innovation
Most retailers know that the answer obviously lies in turning the business on its head and completely reimagining customers, brand, products, price, locations, touch points, technology, distribution and everything in between. While the end goal is correct, the journey is equally important. Many retailers have adapted an innovation and turnaround strategy that is the traditional top-down and big bang.
In software, we call this approach “waterfall”. You put a hard stake on a future position, map out the path from “as-is” to “to-be”, design and plan every step in this path deliberately, execute meticulously against this plan, launch and then measure the results. In a world that is continuously shifting and traversing unknown territories daily, this approach to innovation can be near fatal, as JC Penney learned the hard way.
How Amazon Does It?
Tech-first companies, from their experience in building software, already knew 25 years ago that this approach was flawed. Infact, their modern approach to business change mirrors their approach to software – agile and continuous, as opposed to waterfall and adhoc. Instead of one big bang change, they package their changes as continuous cycle of small bite size deltas. These deltas are delivered frequently and rapidly, without dramatically disrupting the customer‘s experience. Their impact is measured easily and in real time using direct feedback from customer. If the data proves that the variation meets its objective, it is retained, propagated and evolved further. If it fails, it is discarded. By keeping the change small and low risk, the cost of failure is kept low. Low cost allows this process to be applied to every aspect of the business and technology.
Amazon has very successfully applied this model of software innovation to its Retail business. In a letter to the shareholders, Jeff Bezos explained this philosophy:
…One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and 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…
…Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Some decisions are consequential and irreversible or nearly irreversible—one-way doors—and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. 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. We can call these Type 1 decisions. But most decisions aren’t like that—they 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. Type 2 decisions can and should be made quickly by high-judgment individuals or small groups.
As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention…
You can read the full letter here.
Experience Variation Management for Retail-Tech
To compete with Amazon, traditional retailers must start cultivating this culture of rapid, omnipresent experimentation and data driven decision making. This must be done at scale, while reducing risk of user disruption and cost of failure. The best place to start on this journey is where this strategy has already proven to work — within their technology domain. Forward thinking retail CIOs are already transitioning their tech stack from release-every-six-months monolithic applications to a more agile, distributed, cloud ready, micro-services oriented environment. This will allow them to make changes to every aspect of their technology quickly and cheaply, thus keeping it in lock step and even ahead of evolving business models, customer touch points and journeys, payment services and other changes in the industry.
The next step for them is to invest in the culture, method and tools for continuously experimenting with small variations everywhere in the stack, and rolling out these changes in a controlled, low risk manner to minimize customer disruption. To do this at scale and to make it low risk and cost effective, they need to make this process repeatable and reusable.
At Variant, we are building the next generation enterprise grade experience variation management technology that enables engineering and product teams to continuously experiment with and rollout new product features at scale. Variant is radically different from all existing experimentation and feature management tools, because it is built on a novel domain model, and supports experience concurrency, distributed host applications and native integration with the live application data.
Learn more about Variant’s raison d’etre here.