Amazon works because of its org structure

This is the first in a series of posts. I will write about the Amazon way of working. You could be someone considering to join Amazon or someone working at another company that wants to adopt the Amazon way. Or, you could be just another curious person out there. A lot has been written about Amazon’s leadership principles, meetings that involve reading documents, and more. My intention is to go beyond and discuss the implementation of these ideas and more.

In this first post, I will discuss the basics of Amazon’s organization structure, how it works and its advantages and disadvantages. Amazon is a top-light company relative to other companies of its size and scope. This top-light structure is possible due to many factors like document writing culture, data oriented decision making and others, however that is a discussion for some other time. Today is about the org structure of Amazon that makes it possible to be top light. I have made a lot of simplifications to make it easy to understand.

Amazon employees are organized across 12 levels of hierarchy. At Level-12 is Jeff Bezos himself. At Level-11 are the recently announced CEOs, Jeff Wilke and Andy Jassy, and all the SVPs (about 20 senior leaders). At Level-10 are all the VPs (a few hundred). I am not aware of anyone at Level-9. Level-8 is for Directors (several hundreds), Level-7 for Senior Managers (a few thousands), Level-6, 5 & 4 for Managers and individual contributors (few tens of thousands). Levels 1, 2 and 3 are primarily for support staff, FC workers and other similar roles (several tens of thousands). Fresh graduates join at Level-4, while MBAs join at Level-6 or 5. The organization is very flat, relative to other companies of this size. While there are so many people at lower levels, the count of senior leaders is very small.

Amazon is organized into teams, each running a particular product and/or business and not a function like marketing, product or engineering. Amazon leaders are mostly strong general managers rather than functional experts.

Senior management (CEOs, SVPs, VPs) oversees multiple businesses building smooth collaboration across businesses and ensuring they leverage each others’ strengths. Directors (level-8) head each individual business almost like CEOs of small companies, while Senior Managers (level-7) at Amazon are functional heads in each such small business. Managers and Individual contributors (at levels 4, 5, 6) are essentially the workforce of these small businesses. They include software development managers, project/product managers, marketers, vendor managers, site merchandisers, engineers, etc. The strength of each such team varies greatly by the size of business and its strategic importance.

These descriptions are a bit oversimplified to make them easy to understand. I have not described the role of functions like Finance, Accounting, Business Development, and others. I have not explained the difference in operating structure between new products e.g. Echo in 2013 and established businesses e.g. retail. There are some large businesses headed by SVPs or VPs and their functional heads are VPs or Directors.

Advantages: Teams work like a small company. Decisions are made faster. Employees feel more ownership as they see the impact of their work. The primary focus is on Results, just like the do-or-die attitude seen in start-ups and small companies. Processes are not given much importance like several large companies where employees feel they just need to do their job well and not worry about the results. Yes, there are many other reasons (to be discussed in another post) for these advantages, but organization structure is one of the main reasons.

Disadvantages: Due to lack of functional expertise, most individuals relearn stuff already known by someone, causing loss of efficiency. It is not unheard that two or more teams work on almost same idea, separate from each other, again causing loss of efficiency. Lack of a process can sometimes slow things down or cause undue churn when people do not know what needs to be done to solve a problem. Most of these disadvantages are addressed through appropriate mechanisms. Functional experts are available in the form of principal engineers, principal product managers, and others. Management ensures that when multiple teams work on the same idea, they learn from each others’ mistakes and also take somewhat different paths to avoid same work in multiple teams.

In my view, the advantages far outweigh the disadvantages of Amazon’s organization structure. Amazon almost works like a large VC firm that invests in multiple ideas. The focus is on finding successful ideas, and not on avoiding failure of any idea. Like any good VC knows, one successful idea more than makes up for hundreds of failed ones.