"Jeff, What Does Day 2 Look Like?"

Jeff Bezos of Amazon began his 2016 Annual Report with this question that most people asked him recently at an all-hands meeting: "Jeff, What does Day 2 look like?" If you have been following Jeff Bezos over the last two decades--since his 1997 annual letter to shareholders--you well know what Day 1 means. Reflect on what Bezos wrote in 1997:

...this is Day 1 for the Internet and, if we execute well, for Amazon.com. Today, online commerce saves customers money and precious time. Tomorrow, through personalization, online commerce will accelerate the very process of discovery. Amazon.com uses the Internet to create real value for its customers and, by doing so, hopes to create an enduring franchise, even in established and large markets.

In my book, The Digital Matrix: New Rules for Business Transformation through Technology, I argue that digital giants such as Amazon--along with Alphabet, Apple, Facebook, Microsoft and others--now have the digital capabilities to influence the future evolution industries and companies at scale and speed--that we haven't seen before. And "Day 1 mindset" that Bezos has written about every year since 1997 is the single biggest threat facing established companies that operate with "Day 2 mindset" that Bezos writes about in his 2016 Annual Report.

To Bezos, Day 2 is what he doesn't want Amazon to get to.

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”

His way to defend the continuance of Day 1 relies on the following:

1. True Customer Obsession

customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it, and I could give you many such examples.

Staying in Day 1 requires you to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight. A customer-obsessed culture best creates the conditions where all of that can happen.

2. Resist Proxies

As companies get larger and more complex, there’s a tendency to manage to proxies... and a common example is proxy as process. 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.

3. Embrace External Trends

The outside world can push you into Day 2 if you won’t or can’t embrace powerful trends quickly. If you fight them, you’re probably fighting the future. Embrace them and you have a tailwind... We’re in the middle of an obvious one right now: machine learning and artificial intelligence.

Over the past decades computers have broadly automated tasks that programmers could describe with clear rules and algorithms. Modern machine learning techniques now allow us to do the same for tasks where describing the precise rules is much harder.

At Amazon, we’ve been engaged in the practical application of machine learning for many years now. Some of this work is highly visible: our autonomous Prime Air delivery drones; the Amazon Go convenience store that uses machine vision to eliminate checkout lines; and Alexa,1 our cloud-based AI assistant. (We still struggle to keep Echo in stock, despite our best efforts. A high-quality problem, but a problem. We’re working on it.)

But much of what we do with machine learning happens beneath the surface. Machine learning drives our algorithms for demand forecasting, product search ranking, product and deals recommendations, merchandising placements, fraud detection, translations, and much more. Though less visible, much of the impact of machine learning will be of this type – quietly but meaningfully improving core operations.

4. High Velocity Decision Making

Day 2 companies make high-quality decisions, but they make high-quality decisions slowly. To keep the energy and dynamism of Day 1, you have to somehow make high-quality, high-velocity decisions. Easy for start-ups and very challenging for large organizations. The senior team at Amazon is determined to keep our decision-making velocity high. Speed matters in business – plus a high-velocity decision making environment is more fun too.

Day 1 versus Day 2: It's about Different DNA

• Day 1 is about customer obsession where products, technology, business models and competitors become secondary. Even in Day 2 companies--that may have started with Day 1 entrepreneurial obsession--the focus has somehow shifted over time away from customers to products and technologies or organization and business models with metrics that are largely away from customer obsession. In my book, I talk of the third phase of digital business transformation as reinvention at the core--where the focus is on solving customer problems at scale with pervasive and widespread use of digital technologies in ways that we couldn't have done before. So, the question for both Day 1 and Day 2 companies is: "What thorny customer problems are you solving today and how are you using the development in digital technologies to do so?"
   
• Day 2 organizations fall prey to processes. We all know that; we have seen it; we have lived through it. Processes to select talent--try deviating from established norms to recruit someone different from the skill set and experience base of the past and see what happens in Day 2 organizations! Try making a business case for innovations to compete against Day 1 type companies and you will be mostly be asked to support your spreadsheets with assumptions and analysis just to go through the process (without much conviction).
   
• Day 2 organizations are more like to be be late embracers of external trends than enthusiastic champions. Why? the processes, resource allocation mechanisms and the continuation of status quo, all reinforce to reject discontinuous shifts. Steve Ballmer's Microsoft resisted mobile and cloud and now has belatedly embraced both trends under Satya Nadella. Are you resisting 3-D printing, machine learning & AI, blockchain and other developments that may look like experiments-at-the edge today or are you actively understanding their potential impacts?
   
• High-quality versus High-velocity decisions. Perhaps the single biggest difference between Day 1 and Day 2 organizations in my view lies in how they make the trade-off between quality versus speed. High quality decisions fall prey to a false sense of completeness (with data, information and analysis). High speed decisions involve trail-and-error, learn-from-failures, pivot fast, continuous experimentation and power of data to guide and modify decisions.

Bezos wants Amazon to Stay as Day 1 Company. Does that challenge your business model?

What's the single biggest challenge facing Jeff Bezos? Not to let Amazon become "Day 2 company.' In his view, that would be his failure. Incumbents in traditional industries face competitive threats from digital giants such as Amazon and others and from focused, nimble ambitious start-ups that are born-digital--both these types of players that I discuss in my book follow "Day 1 mindset.' Incumbents follow Day 2 processes.

Bezos strives to prevent Amazon from becoming 'Day 2 company'. but what does it mean for most Day 2 companies: they cannot turn back their clocks and overnight become Day 1 companies. But, they can assess their capabilities against Day 1 companies and assess the areas of vulnerabilities and work to overcome the deficiencies. Moreover, they have to think about how best to balance the preservation of their current core (Day 2 DNA) while creating tomorrow's future (Day 1 DNA).

Are you vulnerable against Day 1 or Day 2 type competitors? 

The four points of distinction between Day 1 and Day 2 that Bezos identified in his 2016 Annual Report are by no means complete nor comprehensive. He has shown remarkable ability to create Amazon at the nexus of scale, scope and speed by investing in the digital business infrastructure of the 21st century.

Beyond Amazon, the contrast between Day 1 versus Day 2 is timely and relevant for every company as it seeks to preserve its current revenue and profits with Day 2 DNA while creating the foundation for future growth with Day 1 DNA.