What are your decision-making rules?

A look at how Jeff Bezos used decision rules in the early days of Amazon and how you can do the same.

Hello everyone 👋

This week we are looking at the concept of decision rules, a meta approach to making better strategic decisions. The story starts in one of the many shareholder letters Jeff Bezos wrote over his tenure at Amazon. He maintained a small list of decisions rules that helped him and his team turn Amazon into the behemoth it is today.

I. Jeff Bezos’s Decision Rules

In the 2005 shareholder letter, Jeff Bezos captured the decision-making philosophy that drove many of the early Amazon decisions and would eventually be responsible for the creation of Amazon Web Services (AWS), Prime and others.

Here are the four bullet points that underpinned Amazon for many years:

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.

Notice the simple language behind them and how unrevolutionary they were. 

Many organizations claim to make bold decisions but few are able to qualify what this means. Amazon looks for decisions where they can gain “market leadership advantages.”

Jeff Bezos provided countless examples of how the organization was using these rules to drive growth, revenue and profit (cash flow in their case). 

These meta-decision rules can be powerful when adopted correctly. In this week’s newsletter, we will look at how you can do exactly that.

II. The Benefits of Decision Rules

Creating and adopting clear decision rules will pay dividends for your organization.

Every organization is forced to make hundreds (or thousands) of decisions daily. As the organization gets larger, decisions require a larger investment of time. An organization like Amazon cannot decide to drop a division overnight. They need to slowly divest the division, something that might take months or years.

Decision rules ensure that you’re only working on the most valuable decisions while rejecting external pressure.

Amazon experienced incredible growth in the first years, initially focused on creating a great customer experience. They slowly added other product lines such as toys, DVDs until they became the “everything store.”

The possibilities of what they could do were endless, especially considering they grew up in the dotcom hype bubble of the late 90s. Investment money was frothy but they resisted the pressure to become Pets.com or many of the other failed e-commerce companies.

In your organization, decision rules will help you reduce the metaphorical cognitive load on your team. You can identify the handful of decisions that will have the largest impact on your bottom line, growth or whatever metric you care about.

Let’s look at the three ways to create these meta-decision rules.

III. Creating Your Own Decision Rules

While you could create your own decision rules out of nothing, here are three ways that have expedited the process for clients in the past.

The first option is to look at your strengths. One organization was fantastic at identifying the best approach for their patients, even if the approach contradicted the academic literature. It became clear that one of the decision rules was to look for efficaciousness regardless of the academic backing.

Take a look at the initiatives that have worked in the past and identify the strengths that drove success. They could be at the organizational level—market position, historical credibility—they could be at the team level—industry experience, unconventional approaches—or they could be at the external level—savvy customers, major socio economic trends.

The second option is to look at your values. Almost every organization has a list of values and this is your opportunity to turn those from merely words on a wall to tangible rules that anyone can use within the organization.

One organization took values such as innovation and converted it into a rule where they would invest 20% of resources knowing that only 10% of ideas would work.

The third option is to look at your strategic priorities. I always get clients to rewrite strategic priorities into a one sentence statement. A priority like operations would become “we will optimize our operations to proactively tackle challenges instead of reacting to what comes our way.”

Regardless of what option you choose, the goal is to end up with several bullet points anyone can use to guide their decisions. 

Decision rules establish the rules of the game and make it easier to win.

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I love the idea of designing meta-decisions that make it easier to tackle countless other decisions. Enjoy the rest of your week!

Ruben

P.S. If you’re interested in getting external help in the creation and adoption of these decision rules, get in touch. These “systemic tweaks” are often more powerful than making merely tactical changes.