Intro
I recently read “Working Backwards: Insights, Stories, and Secrets from Inside Amazon” by authors Colin Bryar and Bill Carr. It’s a fascinating book about Amazon’s operational strategies. The book is a great read, and its concepts are influencing my day-to-day work in tech leadership and as Interim CTO.
One of the concepts that is easy to get wrong is leading and trailing indicators as a critical component of the company’s decision-making process.
Let’s discuss them with some examples and how they (mostly) lead Amazon’s teams to success.
Leading Indicators
How: Leading indicators are predictive measures that provide early signs of future performance. Amazon uses these to anticipate trends and make proactive adjustments. These indicators are often related to inputs that drive outcomes, such as customer behavior, operational processes, and market dynamics.
Why: The primary reason Amazon focuses on leading indicators is to identify potential issues or opportunities before they materialize into significant problems or successes. By monitoring these indicators, Amazon can act swiftly to optimize performance, ensuring they stay ahead of the competition and continue to meet customer expectations.
Examples from the Book:
- Customer Engagement Metrics: Amazon tracks customer engagement metrics, such as the frequency of visits to the website, the number of searches performed, and the types of products viewed. These metrics help Amazon predict future sales trends and adjust their inventory and marketing strategies accordingly.
- Operational Efficiency: Metrics like order processing time and delivery speed are monitored to ensure the logistics network is running smoothly. If these indicators show a trend of increasing processing times, Amazon can investigate and resolve the issue before it impacts customer satisfaction.
Trailing Indicators
How: Trailing indicators, on the other hand, are retrospective and measure outcomes after they have occurred. These indicators are typically used to assess the effectiveness of past actions and decisions.
Why: Trailing indicators are crucial for evaluating performance and learning from past experiences. By analyzing these indicators, Amazon can understand what strategies worked well and which ones did not, thereby refining their approach for future initiatives.
Examples from the Book:
- Customer Satisfaction Scores: After implementing a new feature or service, Amazon measures customer satisfaction through surveys and reviews. These scores help Amazon understand the impact of their changes and whether they have met customer expectations.
- Financial Performance: Revenue, profit margins, and other financial metrics are trailing indicators that provide insight into the overall health of the business. These figures help Amazon evaluate the success of their strategic initiatives and make informed decisions about future investments.
Integration of Leading and Trailing Indicators
Amazon’s operational model integrates both leading and trailing indicators to create a comprehensive feedback loop. Leading indicators guide proactive measures, while trailing indicators validate the effectiveness of those measures and inform future strategies. This balanced approach ensures that Amazon remains agile, customer-focused, and continually improving.
Conclusion
Amazon’s use of leading and trailing indicators, as described in “Working Backwards,” is a testament to their data-driven culture and commitment to continuous improvement. By leveraging predictive metrics to anticipate future trends and retrospective metrics to evaluate past performance, Amazon maintains its competitive edge and consistently delivers value to its customers.
