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Amazon's (NASDAQ: AMZN) rise over the past two decades has seen it upend not only the retail market but also the enterprise IT industry with its Amazon Web Services division. The shareholder returns have been nothing less than incredible.

So how did Amazon do it?

Each year, founder and CEO Jeff Bezos gives glimpses into his business philosophy in his (usually very brief) annual letter. Last year's letter focused on being a "Day One" company, but this year's letter, revealed something much broader, giving a clue as to how Amazon can execute a dizzying number of innovations every year with remarkable consistency.

Here's a look at the company's secret sauce.

Image source: Getty Images.

High standards

Bezos outlines the importance of instilling a culture of high standards in business.

According to Bezos, the benefits of high standards are many. For one, your business will provide better products and services. But the side effects are just as important: Having high standards also helps to attract like-minded people, which continually raises the bar, and it enables the "invisible work" that gets done behind the scenes of any company to be of high quality -- even when no one is watching.

The last point is especially important to mitigating risk. At the end of last year, Amazon employed 560,000 people. Obviously, there is no way a single CEO or manager can keep tabs on all of them, but a company that devotes itself to setting high standards across the board will have a much better chance of avoiding problems that may be lurking in the shadows.

Imagine how different things might have been at scandal-plagued companies like General Electric, Equifax, or Wells Fargo had employees operating "in the shadows" held themselves to higher standards. Perhaps the calamities that befell these companies might have been avoided if rigorous standards had permeated throughout the organization.

But establishing such a culture is not as easy as it looks, so Bezos gives us tips on how to achieve them.

Raising the bar

There are a few aspects of high standards that Bezos outlines:

1. High standards are teachable, not inborn.

2. They are usually domain-specific, not universal.

3. They don't come easy but must be worked on for a sufficient amount of time, with correct "scope".

On the first point, Bezos believes that they are "contagious" within an organization and can be taught to new employees. You can see how this culture can snowball -- as it's followed by more and more employees, the organization improves, raising the bar even higher for new hires.