The Imperatives of Customer-Centric Innovation

The Imperatives of Customer-Centric Innovation

Article | 7 min read

Daniel Slater, Worldwide Lead, Culture of Innovation, AWS

by Daniel Slater
Worldwide Head, Culture of Innovation, AWS

The ever-increasing velocity of the pace of business, constant advances in technology, and sudden shifts and upheavals in market segments—expected and unforeseen—create an acute need to innovate ahead of constantly changing customer needs and demands.

In his 2017 Letter to Shareholders, Jeff Bezos called out the underlying nature of customers’ ever-increasing expectations. “One thing I love about customers,” Jeff wrote, “is that they are divinely discontent…People have a voracious appetite for a better way, and yesterday’s ‘wow’ quickly becomes today’s ‘ordinary.’”

Andy Jassy also touched upon the need to stay ahead of fast-changing business environments and customer needs in his re:Invent 2020 keynote speech, stating that, “Speed disproportionately matters at every stage of your business, and in every sized company…Speed is not preordained. Speed is a choice. You can make this choice. And you’ve got to set up a culture that has urgency.”

As companies grow and scale, maintaining focus on meeting customers’ requirements at speed becomes more difficult as other business imperatives and pressures (e.g. cost, infrastructure, competition) arise. But the necessity of understanding your customers’ needs and desires, and rapidly inventing solutions that meet those needs, is more critical than ever for companies looking to remain innovative in an increasingly uncompromising business environment.

 Watch Andy Jassy's keynote at AWS re:Invent

It is not enough to simply react to what your customers are telling you they need. This may address prominent pain points or the highest priority issues in the short term, but does not guarantee that that you will proactively stay ahead of those needs. They will inevitably shift over time, and there is a likely chance you won’t even know when this shift occurs.

In his 2016 Letter to Shareholders, Bezos pointed out that: “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.”

Center innovation on durable needs

What it means to be customer-centric

Putting the customer at the center of everything you do, and going beyond simply knowing what customers want but deeply understanding them and the context of their needs, has many advantages. One is that it will provide endless ideas and inspiration to innovate, opening you up to explore and invent in many more areas than you may have otherwise. Another benefit is that by getting ahead of your customers’ needs, you stay relevant in providing continuous value for them. If you aren’t meeting customer needs today, they will quickly find someone else who can.

Customers have more choice than ever before in quickly finding another product, service, or offering that better meets their demands. In addition to existing competitors, there is no shortage of companies rushing in to fill identified gaps and opportunities to serve customers better. US Census Business Formation Statistics shows that the total number of new startup business applications per year grew 74% in the ten years between 2010 and 2020. The first 5 months of 2021 alone saw an increase of 72% in new business applications over the same period last year. Total startup applications in 2021 were 24% higher than 2019 compared to a yearly growth average of 4% since 2010.

While the COVID pandemic undoubtedly was a driver of new business launches, it also underscores that business environments change rapidly, often unexpectedly and disruptively. And in today’s digitally-enabled age, there can be less cost and lower barriers for competitors to rapidly form and launch services and offerings that may better meet your customers’ needs.

One way to stay ahead is to empower a culture that relentlessly focuses on customers and strives to earn and keep customer trust—each day and every day. To do so requires purposefully building an organizational capacity, and a culture of customer-centric innovation, that can proactively invent on customers’ behalf.

Center innovation on durable needs

Center innovation on durable needs

Focusing on the durable needs your customers have—not just the ones they have today but will continue to have into the future—enables long-term, sustainable innovation around the things that matter most to your customers.

An example from Amazon’s own retail business experience illustrates how we focus on long term customer needs. We built a sustainable flywheel around durable customer needs like price, selection, and convenience—things we knew would be important to customers both now and 10 years from now. We start by obsessing over the customer experience, constantly scrutinizing ways we can improve value for customers, and introducing new features or services that surprise and delight them.

Constant focus on improving the end-to-end customer experience and making it faster, easier, and more convenient to find, buy and receive products leads to more traffic—from new and existing customers, and by millions of third party sellers who can reach millions of Amazon customers globally. This in turn increases the selection available to customers on Amazon, further improving their experience. At the same time, it helps us achieve additional scale and a lower cost structure, which we can pass on to customers in the form of lower prices. This creates a closed loop, self-sustaining flywheel.

Closed Loop, Self-Sustaining Flywheel

Closed Loop, Self-Sustaining Flywheel

These core, durable values—of price, selection, and convenience—led us to innovate services like Prime. We knew customers would value faster two-day delivery across millions of items with no minimum purchase requirement. While Prime was a success with customers, we didn’t stop innovating there, relentlessly looking for ways to continuously add value for Prime members. In addition to expanding the selection that qualified for Prime delivery over time, we also added benefits for subscribers such as Prime Video, Amazon Music, Amazon Photos, Prime Gaming, Prime Reading, Amazon Fresh, Prime Wardrobe, Amazon Pharmacy, and more.

At first glance, these appear to be wildly disconnected businesses—across digital media, consumables, hard and soft retail goods, and more. They may not make sense to all be together from a traditional program or product portfolio management perspective. However, they made a lot of sense to use as we stayed close to Prime subscribers and evolved our thinking about them as customers. Prime was predicated on delivery benefits that were made to customers at their homes. And in thinking about our Prime customer as a household as opposed to an individual shopper ordering online, and the things you do with friends and family within your home—listen to music, watch TV, stock a pantry for family meals, etc. —these disparate benefits simply made sense to offer to a household together.

And of course, we remained obsessively focused on improving the core shipping benefit to customers, adding free One-Day Delivery on 10 million items and Same-Day Delivery on over 3 million items for qualifying orders of $35.

By building a closed-looped flywheel around customers’ durable needs in our retail space, and by staying close to our customers and continuing to think about how their needs evolve, Amazon drives continuous innovation that delights customers and helps fuel our retail growth.

Working Backwards: Amazon's customer-centric innovation approach

Working Backwards: Amazon's customer-centric innovation approach

At Amazon, the focus on our customers isn’t an idle tenet; it is the very root of our approach to innovation. Amazon’s mission is to be Earth’s most customer-centric company, and the very first of our 16 Leadership Principles—Customer Obsession—states that, “Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.”

There are a few core concepts in this Leadership Principle that help Amazon drive and sustain its customer-centric culture. The first concept of “working backwards” is both a mental model and an innovation mechanism that keeps customers at the center of everything we do. Working backwards involves starting the innovation process by thinking deeply about your customer, about the persistent problems they face, and what their long term needs are.

We believe that centering innovation efforts on our customers ensures we aren’t innovating in isolation or building technology or services for their own sake. We remain close to customers, and focus on elements we know they will value over the long-term (e.g. price, selection, and convenience in our retail businesses; performance, security, breadth and depth of features and functionality, and cost performance of AWS’s cloud services). And by diving deep into the context and situation behind those needs, we are better able to react and anticipate what will surprise and delight customers as we invent on their behalf.

By way of example, 90% of what we build at AWS is driven by what customers tell us matters to them. One example is Amazon SageMaker, the most comprehensive machine learning (ML) service that helps prepare, build, train, and quickly deploy high quality ML models. Tens of thousands of customers—such as the NFL, 3M, General Electric, T-Mobile, and Vanguard—love Amazon SageMaker’s integrated capabilities for ML development, making it one of the fastest growing services in AWS history. They also love how quickly it iterates. Last year marks the second year in a row where we added over 50 new features in twelve months. We did this by actively soliciting our customers’ feedback and what we can build for them.

A frequent request was helping to make data preparation for ML easier. This is hard for customers, who need to collect the right data from different sources and across myriad formats; normalize data to incorporate it correctly into ML models; select and transform the most relevant features for predictive model algorithms—even combining different features—all of which is difficult and takes a lot of time. You then need to look for missing data or outliers to see if your feature engineering works before you apply transformations across your data set.

Customers asked us if there was a better way. Based upon that feedback, last year we launched Amazon SageMaker Data Wrangler, the fastest way to prep data for ML. Customers can simply point Data Wrangler at their AWS or third party data stores, and DataWrangler has over 300 conversions and transformations that automatically recognizes the data coming in, suggests the right transformations to apply, makes it easy to combine or create composite features in a simple console, allows you to preview and validate the transformation easily in SageMaker studio, then effortlessly apply it easily across your entire data set. This was a game changer for customers in terms of the amount of time saved in data preparation for machine learning.

While 90% of products, features and services come from customer request, the other 10% of our innovations arise from needs that customers may not be articulating, but by remaining close to our customers and relentlessly focused on their needs, we are able to read between the lines and invent on their behalf.

No one, for example, asked us for Echo, which launched in 2014. But we had a vision of how an intelligent, voice-controlled device that allowed you to get information, weather, news, listen to music, be a control hub compatible with a wide array of smart home devices and more—all completely hands-free—would be a valuable personal assistant for the home and simply make life easier for users. Flash forward seven years later, and in addition to releasing multiple generations of the Echo device, Echo Show with smart displays, Echo Auto for your car, wearables such as Echo Loop and Echo Frames, and a host of accessories, the Echo family of devices is one of the most popular products on Amazon.

Keys to sustainable customer-centric innovation

Keys to sustainable customer-centric innovation

Having a customer-centric approach isn’t unique to just Amazon and AWS. We are not the only company who state the importance of putting the customer first. What has sustained Amazon’s customer-centric innovation isn’t just an obsessive focus on customers and working backwards from their needs. Good intentions of focusing on customers only produces meaningful, consistent business outcomes if you’ve built up a culture of customer-centric innovation, with the right mechanisms to maintain that customer focus at the center of everything you do.

A few of the ways Amazon has built a culture of customer-centricity include:

  1. Bold, top-down leadership—Daring, visionary leadership starts at the top and imbues everyone at a company with the same spirit. Innovation can be led by example—being willing to take bold bets arising from ideas driven by customer needs; having the courage to make calculated risks and invent outside of your company’s core-competencies; planting many seeds and having the requisite patience to nurture them. Part of this patience is accepting that many of those experiments will fail—that is simply the nature of experimentation. But the learnings you capture from failure will, if shared and re-applied to future customer-centric invention, help better inform future ideas and helps set subsequent innovation up for more success.
  2. A widely distributed customer-centric belief system—To truly unlock customer-centric innovation at the edges of your company, you need to build a culture of customer obsession. This requires fostering autonomy at the team and front-line level for builders to stay close to their customers, allowing them freedom to experiment rapidly to meet customers’ needs. A culture of customer-centric innovation decentralizes access to technology, tools, data, and insights that fuel ideation. It empowers anyone across the company with an innovative idea to be able to articulate it, share it with stakeholders, and refine it based on feedback and experimentation. Teams need to have the explicit permission to fail fast, and the rigor to document, share, and incorporate learnings into their next innovative experiment.
  3. Practical mechanisms for customer-centric innovation—Builders need to have the right tools to test and scale innovative ideas. At Amazon, mechanisms—complete, closed-loop processes that turn inputs into outputs, and good intentions into meaningful action and results—help us make high value, high velocity decisions at speed while keeping the customer at the center of our innovation efforts. Examples of these mechanisms are our Leadership Principles, which serve as decision-making guideposts and ensure we are remaining customer obsessed. Other mechanisms, like our narrative culture and our use of PRFAQ docs (including a one-page Press Release of the intended solution, Frequently Asked Questions we expect from both customers and internal stakeholders, and visuals to provide an overview of the end-to-end customer experience) help democratize the access to innovation—anyone, at any level, can use a PRFAQ doc to bring an idea forward. These, among many other mechanisms at Amazon, help empower builders to move quickly to innovate for customers with consistency and a constantly experimental approach.
Building the Voice of the Customer

Treat data as a differentiating asset

Another core element of a customer-centric culture of innovation is ensuring your builders have access to the right instrumentation to collect, analyze, and utilize customer data. This will help you capture customer feedback to inform innovation, recognize and analyze trends in real time, and more deeply understand your customers so you can invent on their behalf.

There are a few vectors to consider—including capturing a wide, diverse breadth of data to represent your customers’ end-to-end experiences, ensuring data quality and hygiene, and having the right tools and analytics to help separate signal from noise. The most challenging part for many enterprises is often the last element—generating the most impactful analytical insight to inform what is most important to customers, and what you as an organization should prioritize for focus and funding.

Building a data-driven organization that treats data as a differentiating asset is one key to unlocking customer-centric innovation. With the right data, you can identify and improve processes and performance to drive better customer experiences, deepen customer engagement, and create greater business efficiency with faster decision-making. This helps builders move from idea to innovative experimentation more rapidly.

The “right” input metrics and KPIs to measure are naturally dependent upon the unique nature of your customers, business, and offerings. But two suggestions based on our own experience at Amazon are 1) ensuring you are capturing data around both the inputs and outputs of your business; and 2) supplementing quantitative data with qualitative anecdote and feedback.

You want to measure and track data pertaining to the outputs of your business (e.g. sales, revenue, margin, production, subscription, sell-through, NPS, etc.). But you should have as much if not more focus on the input data that provides strategic insight into the underlying drivers of your business (e.g. efficiency, productivity, customer behavior and engagement, conversion, etc.). These input metrics are the more controllable aspects of your operations and business, and understanding how they are impacting your outputs can help drive better decisions.

As important as input and output data are, it’s also crucial to capture customer anecdote and feedback. Qualitative feedback is often harder to instrument. But it provides a balanced diversity and breadth of data, and a check on trends and areas of improvement that aggregate metrics may hide. For example, looking at quarterly sales data, you might see continued steady growth rates. A few recent customer anecdotes about experiencing frustration with your order process might be dismissed as outliers given continued quarterly growth. But a customer-obsessed approach would look at where data and anecdote diverge, and dive deep into the anecdote to validate it. Doing so could point out deficiencies you need to fix before they impact a much larger customer base. It may even unearth new use cases or customer segments around which you can drive new business innovation and growth.

Becoming a data-driven organization—one that captures and analyzes a broad range of the most important inputs and outputs of your business—and building a robust “Voice of the Customer” data set will inform faster decision-making. It will maintain focus on the right metrics and trends that impact your customers, and help you build customer-centric data and analytic capabilities that better inform innovation decisions.

Developing a Voice of the Customer for your business—a purposeful analytical approach that puts the customer at the heart of everything you do—allows you to obsessively and relentlessly monitor, iterate, and continuously improve the customer experience. It enables a customer-centric culture of innovation, one that is more agile and performant to respond to your customers’ needs, and better helps you proactively invent on their behalf.

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About the author

Daniel Slater, Worldwide Innovation Programs, AWS

Daniel Slater, Worldwide Head, Culture of Innovation, AWS

Dan Slater oversees Culture of Innovation as a part of AWS’s Digital Innovation team which uses methodologies inspired by Amazon’s innovation mechanisms (e.g. Working Backwards) to help customers develop and deliver new solutions on AWS. Dan joined Amazon in 2006 to launch the company’s first direct-to-customer digital content offerings. He helped launch the Kindle device and Kindle’s global content marketplaces, as well as Amazon’s self-publishing service, Kindle Direct Publishing (KDP). After overseeing the digital business of the top 60 trade publishers, Dan led content acquisition, demand generation, and vendor relations for KDP. Prior to Amazon, Dan was a Senior Acquisitions Editor at Simon & Schuster and Penguin, and led sales for a publishing IT firm (Vista, now Ingenta). Born in Toronto, Canada, Dan lives in Seattle with his wife and two children. He earned his MBA from the Fuqua School of Business, Duke University, and completed a dual Bachelor of Arts degree at Cornell University.

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