Amazon’s Culture: a Source of Advantage?
Amazon’s success over the last two decades is staggering. Its stock price has multiplied more than 491 times since its IPO in 1997, making it one of the world’s most valuable companies. The company has done many things right. However, when renowned international newspapers repeatedly write about a “killer company culture”, a „bruising workplace“, or a “brutal work culture”, t deserves attention all the more. “I strongly believe that anyone working in a company that really is like the one described in the NYT would be crazy to stay. I know I would leave such a company”, counters CEO and founder, Jeff Bezos. What is clear: The company’s culture is unlike any in the Fortune 500. I argue that Amazon’s culture is irrevocably linked to its business model, but rests on principles that should be applied in other companies as well. I also argue that its culture naturally promotes certain types of individuals, which does not imply that it is categorically “abusive”. Thus, in a first step, I will look at Amazon’s business model.
A customer-driven business model as a foundation for culture
Amazon calls itself “the Earth’s most customer centric company”, which means as much as “putting the customer at the center of everything we do”, says Bezos. This core philosophy drives everything the company does, and it shapes its business model too. “A good customer experience […] is the key to growth, and growth is the key to lower prices, which leads to a better customer experience”, encapsulates McClelland in Mother Jones. A great customer experience also drives traffic, which attracts more sellers to the Amazon’s “Marketplace”, integrating thousands (if not millions) of third-party retailers into Amazon’s network. Growth eventually allows offering lower prices and a wider product selection.
Bezos himself captured this in the shareholder letter of 1997: “The stronger our market leadership, the more powerful our economic model. […] we choose to prioritize growth because we believe that scale is central to achieving the potential of our business model.” He adds that “we first measure ourselves in terms of the metrics most indicative of our market leadership”, which demonstrates how connected Amazon’s business model is with its culture. Thus, the understanding that growth, which leads to cost leadership, a wider product selection and ultimately to a better customer experience, is crucial when analyzing Amazon’s culture.
A culture of “Purposeful Darwinism”
Pursuing this business model from the beginning, Amazon enjoyed magnificent growth and expanded into many new business areas. Bezos, however, is convinced that as companies become more complex, they start losing customer obsession, begin to manage proxies and adopt slow decision making. In short: they slip into the infamous “Day 2” mode: “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1”, asserts Bezos. Thus, to execute on its business model and to avoid becoming a lethargic, convoluted behemoth, plagued by operational mediocrity and the inability to react on market shifts, Amazon needed a “distinct” culture — a culture of “purposeful Darwinism”. What does this mean? Let’s imagine a stage play.
First, in order to perform the play of “purposeful Darwinism”, Amazon hired a group of actors, which are among “the best of the best”, to build a group of talented “Amazonians”, as they call themselves.
Second, Amazon established a set of principles according to which the actors had to act in their play. These, so-called “Leadership Principles” allow the company to keep the culture on “Day 1” and to connect seemingly unrelated business units with a shared belief. We “share a distinctive organizational culture that cares deeply about and acts with conviction on a small number of principles”, he says. “I’m talking about customer obsession rather than competitor obsession, eagerness to invent and pioneer, willingness to fail, the patience to think long-term, and the taking of professional pride in operational excellence”, Bezos adds. These principles are summed up in 14 rules that are inscribed in laminated cards for each “Amazonian” and include things such as “Ownership”, “Invent and Simplify” or “Disagree and Commit”. Nevertheless, these principles should not foster conventionality, but quite the contrary: Amazon fights conformity and impedes groupthink. “Leaders do not compromise on the sake of cohesion”, according to one of the principles. In short: Harmony is overrated. Thus, employees should excel in their roles as critical and unconventional thinkers. “We want to be a large company that’s also an invention machine. We want to combine the extraordinary customer-serving capabilities that are enabled by size with the speed of movement, nimbleness, and risk-acceptance mentality normally associated with entrepreneurial start-ups”, says Bezos.
And third, these actors had to be objectively measured and rewarded. Thus, a set of performance metrics and promotion practices were put in place. These include:
- Organization and Leadership Reviews (ORL’s): In a set of biannual meetings, leadership debates and decides over the promotion of subordinates based on a “staggering array of metrics”. Amazon itself says that “OLRs give us the opportunity to identify our future leaders and prepare them for their next challenging role”, making sure that the least effective 10% of employees is “targeted for appropriate action”.
- Data-driven management: Is it in its large distribution halls or in its offices: Amazon measures every step of a working day. This philosophy that has been engrained in the company’s culture from the very beginning: “Amazon is in the vanguard of where technology wants to take the modern office: nimbler and more productive, but harsher and less forgiving”, write Kantor and Streitfeld for The New York Times. In fact, “Big data” is increasingly applied across various management disciplines to make more effective decisions.
- Limited number of promotions: Besides making promotions contingent on a general consensus by the use of OLRs, Amazon also limits the number of promotions that are approved every year. This makes it painfully hard to progress the career latter, writes Stone in his book.
All in all, these three steps created what I call an orchestrated meritocracy. This produces a working environment in which employees owe their success to effort and talent, which demands excellence and disruptive thinking, and in which performance is not dependent on luck, but meticulous metrics and measurement.
Why Amazon’s workplace is not “abusive”
Based on the observation that Amazon’s culture and its business model is innately linked, I would like to counter the narrative that the working environment described above is “abusive”:
First, I believe that cultures need to be aligned with and support overall strategic goals of a company. A famous example of a company that excels in doing that is Starbucks, promising to create the “third place” beyond home and the workplace. “Walk into a Starbucks anywhere in the world and you will find a consistently comfortable and welcoming ambiance. But you don’t get that simply by telling your staff to be warm and friendly. […] it exists because the people behind the counter understand how their work fits into a common purpose”, argue Leinwand and Davidson in the Harvard Business Review. The same holds for Amazon: competing on low costs (and low margins) and serendipitous innovation (also described as “Chaos Theory”) to achieve growth, it needs outstanding people and operational excellence — and culture that supports that, says Stone.
Second, I argue that every company needs a distinct culture to differentiate itself in an increasingly globalized and competitive job market. This entails, however, that not every culture is for everyone. “If it’s a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people self-select”, says Bezos. Amazon’s culture is distinct, as it was purposely engineered to support its business model from the beginning. Thereby, it attracts achievers and critical thinkers who are more likely to be extraverted than introverted and who value a clear set of rules, but also the possibility to push their careers forward. “The world doesn’t stand still. If you don’t evolve, you perish”, writes a current Amazon employee. According to the Big Five Personality model, such people are achievement-oriented, hardworking and set themselves high standards — which is exactly what Amazon needs to execute its long-term strategy. Orchestrated meritocracy is not so much different, however, to the meritocratic narrative which is prevalent in capitalistic societies — and at our workplaces too: “Young employees shun hierarchies”, titles the Financial Times and claims that “meritocracy is at the core of the millennial mindset. Buckingham, founder of TMBC, a firm which consults large companies on employee evaluation and performance, puts it straight: “[…] many of the overachievers who are candidates for upper management at companies like Amazon welcome the breakneck pace and unyielding expectations. They just want to know that the system will be meritocratic. ‘We don’t mind competition,’ he said. ‘We mind unfair competition’”. This is ultimately the reason, why certain individuals chose to work for Amazon (besides many factors not related to culture, of course, and certain do not. It also explains, why many current employees thoroughly enjoy the work at Amazon. Holland’s personal-job fit theory (since jobs are shaped by an organization’s culture) and the person-organization fit reinforce that argument. If there is a mismatch between personality and culture, however, this will naturally cause dissatisfaction and frustration, which can be picked up by the media to paint the unfavourable narrative of an “abusive” workplace (also consider a potential sampling bias). It follows that the higher the distinctiveness of the work environment, the higher the potential level of frustration, but the higher the business model-culture fit.
And third, by fighting conformity and groupthink “Amazon is acting consistently with the principal findings of decades of research in behavioral science”, to increase overall team performance, argues Sunstein in the Harvard Business Review. It does so without compromising the dignity of an individual employee. “Recognition of the dignity of each and every employee underlies the belief that harmony is greatly overrated”, says Sunstein.
All in all, I believe that Amazon’s workplace and culture cannot be categorically described as “abusive”. As it is carefully engineered to fit a certain type of people and support overall strategic goals, it naturally brings a lot of potential for frustration for people who do not fit in. Furthermore, research supports Amazon’s practices, as long as an individual’s dignity is not compromised.
What can other organizations learn from Amazon?
Strong cultures are distinct and can therefore not be replicated. However, I think that every culture has a set principles from which other companies can learn from. What is there to learn from Amazon?
First, to establish a set of underlying leadership principles and preferred modes of behaviour, called instrumental values. Thus, a set of broad and generic values is not enough: It has to be so specific that employees can act upon them in day-to-day interactions. Look at Netflix, for example, who meticulously laid out its principles in a 127-slide PowerPoint deck and with which every new hire is carefully screened. Sheryl Sandberg calls the presentation “one of the most important documents ever to come out of Silicon Valley.
Second, adapt the thinking of “Day 1” and “Day 2” to resist slipping into mediocrity and becoming a behemoth prone to disruption. This includes, above all, the promotion of operational excellence, critical and original thinking, and quick decision making.
And third, be bold enough to develop, live and propagate a distinct culture that serves as a guidepost for current and future employees, even though it limits the circle of potential applicants. Reed Hastings, Netflix’s CEO, encapsulates this in the following statement: “We are modelled on sport and if you want to win a championship you have to have an incredible player in every position,” he says. “It’s not for everyone. If you want job security you don’t go into sports — and you don’t join Netflix”. Thereby, Netflix consciously limits who fits in, and who does not. And so does Amazon. However, writing it down is not enough. “You can write down your corporate culture, but when you do so, you’re discovering it, uncovering it — not creating it”, says Bezos. And thus, value and enforce culture above all else: top-down through a CEO who publicly speaks out and advocates it and bottom-up by making performance and career progression dependent on it.
Eventually, “companies can do both well and good”, says Sunstein. “They do well because they take full advantage of the ideas and imagination of those who work for them. They do good because they never embarrass or humiliate their own people”, he explains. And he is right: besides a distinct culture, propelled by clear principles and values, a company should never forget that a large part of its success can be attributed to the well-being of its people.
 Darwinism is the theory by Charles Darwin of the “evolutionary mechanism […] as an explanation of organic change” and is based on the assumption that “evolution is driven mainly by natural selection” (Encyclopaedia Britannica, 2013).
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Originally published on www.marcb.ch.