10 Feb 2021

From Harvard Business School to Amazon: A Q+A with Derek van Bever on His Conversation with Andy Jassy

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Last September, Derek van Bever interviewed Andy Jassy (MBA 1997) for an episode of The Disruptive Voice podcast. In the conversation, they discuss his path to HBS and to Amazon, his learning from working closely with Jeff Bezos, and the backstory behind the launch of Amazon Web Services (AWS). With the news that Jassy was moving from leadership of AWS to all of Amazon when Jeff Bezos steps aside later this year, we asked van Bever about that conversation.

What was your reaction to learning that Jassy was taking over as CEO of Amazon?

A colleague sent me a link to an article with the headline “Bezos to Step Aside,” and I thought “Oh! Could it be Andy?” But the link didn’t work, so I wrote back frantically asking who it was, and learned that it was indeed Andy. He is such a great guy, which you can hear in the podcast. So open, down to earth, and humble.

How did the podcast interview come about?

We reached out to him in 2017 at Clay Christensen’s suggestion as part of research we were doing together on the challenge that we refer to as “the Capitalist’s Dilemma,” our concern that companies are using metrics to assess innovation investments that favor efficiency over growth—that judge innovations that pull capital out of the business and eliminate jobs as more attractive than those that create new growth and jobs. Amazon is obviously the anomaly to this rule: They're 27 years old and still say they’re in “Day One.” That's always been Bezos's caution to the company: Don’t get too comfortable—keep growing and expanding.

Andy never had Clay as a teacher here, but he reached out to him when he came to campus in 2008 for a reunion, right around the time Amazon was launching AWS. One of the many remarkable things about Clay was that, while he was one of the world's busiest people, he always somehow seemed available when people needed to see him. Andy sat down with Clay and got his perspective on how to think about growing this new business. The rest is history.

We regarded the 2017 interview as team-confidential, as Andy shared really interesting and valuable insights about how Amazon thinks about innovation. After Clay died, I reached out to see if Andy would do a podcast interview with me in Clay’s honor because Clay had so wanted to connect with Andy again but his health hadn't allowed it. Andy agreed, and actually he shared pretty much all of the things we had talked about off the record in 2017.

What are some of those insights?

The episode is a real master class in how to think about innovation—how to approach it and some of the pitfalls to avoid. There’s a lot to learn for anyone who wants sort of an insider’s view on how Amazon goes about identifying and prioritizing innovation investments.

One of the things I found most revealing was Andy’s description of how he and Jeff came to the realization that using Net Present Value (NPV) as a gating metric in ranking proposed innovations naturally favors the most conservative projects—projects where the returns are most certain and most rapid. Efficiency innovations, to use our terminology. As Clay was fond of observing, however, you should never begin or end an investment conversation with reference to a spreadsheet, and indeed that insight is at the heart of how Amazon now manages innovation. I like to think that that conversation Andy had with Clay contributed to Amazon’s confidence in taking a risk like AWS.

Andy also tells the story of the lightbulb-moment that led to AWS, which came about as a result of a need within Amazon for a shared, on-demand computing resource. And when Andy and the team looked outside Amazon to see if other companies had a similar need, they discovered that the big server companies did offer what we would now call “cloud” service to their largest customers, but they priced the service high to discourage its use. After all, those companies were in the business of selling hardware, not time. Jeff and Andy put their heads together and concluded that Amazon could offer the service for much lower cost, on more favorable contract terms, and thereby expand the market to serve many more companies.

How do those concepts intersect with Christensen’s principles?

That story of AWS is really Clay's prescription—it is a textbook market-creating innovation. When we teach our students about disruptive innovation, we note that if you can take a product or service that has historically been available only to the rich and skilled and make it available to a much larger universe of customers, that is how to create disruptive growth. That’s exactly what Andy and Jeff did with AWS.

And the concept of not being constrained by metrics such as NPV, which are so easily manipulated, was super important to Clay. If you're guided by NPV, you're always going to choose the least risky investments that offer the fastest payback, and that is not the pattern that disruptive innovations follow.

One of the reasons that Clay felt such urgency around promoting market-creating innovation was that he worried about the job destruction that characterizes most big-company innovation. Incumbent companies have perfected the process of efficiency innovations that liberate capital and destroy jobs. One of the signal virtues of market-creating innovations is that they require the creation of a lot of jobs—to develop, sell, service, provision, and repair the new products and services. We asked Andy about whether Amazon tracks how many jobs they create, and he said they do so very, very carefully. I’m sure that one of the biggest challenges Andy will have on his plate as he steps into this new role is figuring out how to meet Amazon’s needs for workers, as well as what the workforce needs from Amazon. I’m proud that HBS had a role in Andy’s development, and I know Clay was too.

Listen to the full podcast episode with Andy Jassy.

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