Question

Amazon to Competition: We Will Crush You! Amazon to Employees: We Will Churn You!

Globally, Amazon is one of the largest and most successful companies in any industry. Technological innovation has contributed to its success, as has its employee acquisition practices, which are exceptionally high. The question is what has allowed this company to thrive and maintain its success? This activity is important because it shows how companies like Amazon hire based on personality and individual differences. Such companies place a great deal of value on ensuring that these differences and personalities align with their overall company culture.

The goal of this exercise is to demonstrate what happens to employee retention and employee satisfaction when individual differences and personalities begin to clash with the company’s overall culture.

Read the case about the roots of high employee turnover at Amazon. Then, using the three-step problem-solving approach, answer the questions that follow.

Amazon is not just a surviving company of the 1990s tech boom; it is now one of the largest and most successful companies in the world in any industry. It has leveraged its game-changing approach to selling books to sell almost everything to almost everybody almost anywhere. Today Amazon is a leader in all things customer service, and it has achieved this leading position through groundbreaking technological innovation. Technological innovation also has made Amazon one of the largest web services companies in the world and much more than a formidable retailer. All these legendary accomplishments are the result of the commitment and contributions of thousands of extremely talented Amazonians. As you would certainly expect, the standards for hiring are exceptionally high. But what it takes to thrive and survive at the company is even more challenging.

It’s Not All Sunshine and Roses

While Amazon’s accomplishments and future endeavors are widely reported, until recently relatively little was known about its approach to managing employees. But recent reports describe a “punishing corporate environment: long hours, disparaging bosses, high stress, no time or space to recover, all resulting in uncommonly high employee turnover.”¹ Just how bad is it? PayScale ranked Amazon 464th among the Fortune 500, with median employee tenure of approximately one year! (A competing estimate puts average tenure at 18 months.)²

What pressures drive such high turnover? In a letter to shareholders in 1997, founder and CEO Jeff Bezos wrote: “You can work long, hard, or smart, but at Amazon you can’t choose two out of three.”³ This suggests that employees must always be on, be in the game, and play it well. Amazonians experience many of the common pressures of today’s workplace—80-plus-hour workweeks, 24/7 connectivity, no real vacations or holidays (no surprise given that Amazon is the largest retailer on the planet).

Amazon’s “always on” culture is manifest in a number of chilling stories, such as that of an employee who negotiated a 7 to 4:30 schedule with her boss after having her first child. The problem was that her coworkers didn’t see her arrive early and crushed her in anonymous peer feedback (which employees are encouraged to use). Her boss said he couldn’t defend her in her performance review if her own coworkers were critical of her. Can it get worse? Yes.

Amazon also uses a “rank and yank” performance management system. Employees are ranked by their managers, and those near the bottom are terminated every year. This leaves little room for taking a breath or backing off, even if you have a miscarriage, take care of an ailing parent, or receive treatment for cancer. There are stories of employees in all these predicaments who were essentially told that their lives were incompatible with working at Amazon. It is no wonder one former employee said, “Nearly every person I worked with, I saw cry at their desk.”⁴ Amazon disputes some of these claims as simply those of disgruntled former employees. And because it has so many, even a small percentage is a big number.

We Can Measure “That” … and “That” Matters

Another key contributor to the pressure cooker environment is that everything is measured. For instance, warehouse employees are monitored using sophisticated systems to track how many boxes they pack per hour. White-collar employees participate in routine “business review” meetings, for which they need to prepare, read, and absorb 50 to 60 pages of reports amounting to thousands of data points. During these review meetings employees are often quizzed on particular numbers by their managers, and it is not uncommon to hear managers say that responses are “stupid” or tell workers to “just stop it.”⁵

To be sure, the company succeeds in large part because of the immense customer data it collects and uses to select and sell its products. The plan is to use data the same way to make performance management an efficient and effective everyday process, rather than a once-a-year event. However, many employees describe the result as “purposeful-Darwinism”⁶ in which every employee constantly competes with other employees. Such relentless and pervasive competition, while well intended, has many undesirable consequences. For instance, it is common for employees to hoard ideas and talent, because sharing becomes a personal loss for the sharer and a gain for somebody else. Moreover, other’s ideas are not just scrutinized; they are undermined. Groups of employees often conspire against others on the peer feedback system to get ahead (or to put somebody else behind). As for managers, they must both defend the direct reports they deem most valuable to their own performance, and at the same time determine whom they can sacrifice—not everybody can pass the performance test.⁷

Amazon = Bezos

Much of the praise and many of the complaints are directed to Jeff Bezos. Not only is he the founder and CEO, but he also is the chief architect of all things Amazon. His personality is embodied in the company values and the way it operates. Like Bezos himself, employees are expected to use data, confront, persevere, and win. This approach appeals to and is sustainable for only a very specific type of employee. One former employee described Amazon’s hiring process as “panning for gold.”⁸ The company is looking for the rare stars who can thrive in its demanding environment, and it must sift through many, many people to find them.

This strategy is a real challenge for Amazon. Its size, growth rate, and turnover require the company to hire thousands and thousands of employees every year, and this doesn’t include the thousands of temporary workers it hires to meet the holiday rush. Interviews with male employees in their 40s revealed that many are convinced Amazon will replace them with employees in their 30s, who worry in turn that the company prefers employees in their 20s. The implication? Younger employees have fewer commitments and more energy.⁹

What Are We Going to Do About It?

To combat the churn, Amazon has structured its stock options to vest (transfer to the employee as owner) on an unusual schedule. Instead of vesting evenly over a period of years, Amazon employee options vest at 5 percent in year one, 15 percent in year two, 40 percent in year three, and 40 percent in year four. Employees who leave within one year of hire must repay part of their signing bonus, and if within two years they must repay their relocation package if any. Many experts question the effectiveness of such policies, however. Lindsey Thorne, manager at a Seattle recruiting firm that places many former Amazon employees, says, “The potential payout of waiting for stock to vest won’t tie down unhappy employees who are ready to jump ship.”¹⁰ Still others question whether Amazon can continue to innovate and lead in the marketplace if its most valuable asset is ground up and discarded in such a way and at such a high rate.¹¹

To be fair, surely some percentage of the company’s more than 150,000 employees is quite satisfied and successful. The system works for some, and for many it works for some period of time. And the incredibly high bar, marquee name, and extreme work ethic required to get hired at Amazon make former Amazonians very valuable to the company’s competitors and many other companies both inside and outside the technology industry.

Apply the Three-Step Problem-Solving Approach to OB

Step 1: Define the problem.

• Look first at the Outcome box of the Organizing Framework in Figure 3.4 to help identify the important problem(s) in this case. Remember that a problem is a gap between a desired and current state. State your problem as a gap, and be sure to consider problems at all three levels. If more than one desired outcome is not being accomplished, decide which one is most important and focus on it for steps 2 and 3.
• Cases have protagonists (key players), and problems are generally viewed from a particular protagonist’s perspective. You need to determine from whose perspective—employee, manager, team, or the organization—you're defining the problem. As in other cases, whether you choose the individual or organizational level in this case can make a difference.
• Use details in the case to determine the key problem. Don’t assume, infer, or create problems that are not included in the case.
• To refine your choice, ask yourself, Why is this a problem? Focus on topics in the current chapter, because we generally select cases that illustrate concepts in the current chapter.

Step 2: Identify causes of the problem by using material from this chapter, which has been summarized in the Organizing Framework and is shown in Figure 3.1. Causes will tend to appear in either the Inputs box or the Processes box.

• Start by looking at the Organizing Framework (Figure 3.1) and determine which person factors, if any, are most likely causes of the defined problem. For each cause, explain why this is a cause of the problem. Asking why multiple times is more likely to lead you to root causes of the problem. For example, do particular individual differences employees possess help explain the problem you defined in Step 1? This might lead to the conclusion that the characteristics Amazon uses to select and hire employees contribute to the problem.
• Follow the same process for the situation factors. For each ask yourself, Why is this a cause? For example, Amazon’s HR practices likely have some effect on the problem you defined. If you agree, which specific practices and why? Leaders (managers and Bezos) greatly influence employees’ experiences at Amazon. Do they cause the problem you defined in Step 1? If yes, then why? By following the process of asking why multiple times you are likely to arrive at a more complete and accurate list of causes. Again, look to the Organizing Framework for guidance.
• Now consider the Processes box in the Organizing Framework. Are any processes at the individual, group/team, or organizational level potential causes of your defined problem? It certainly seems that their emotions are notable aspects of Amazon employee experiences. Do they help explain the problem defined in Step 1? What about performance management? For any process you consider, ask yourself, Why is this a cause? Again, do this for several iterations to arrive at the root causes.
• To check the accuracy or appropriateness of the causes, be sure to map them onto the defined problem.

Step 3: Make recommendations for solving the problem. Consider whether you want to resolve it, solve it, or dissolve it (see Section 1.5)? Which recommendation is desirable and feasible?

• Given the causes identified in Step 2, what are your best recommendations? Use the material in the current chapter that best suits the cause. Remember to consider the OB in Action and Applying OB boxes, because these contain insights into what others have done. Details of this case, for instance, describe how Amazon has particular stock vesting practices to help ensure retention. This might be part of the solution, but is it sufficient?
• Be sure to consider the Organizing Framework—both person and situation factors, as well as processes at different levels.
• Create an action plan for implementing your recommendations.

Questions:

What is the primary problem in the case for Amazon?

Multiple Choice

• Poor financial results

• High employee turnover

• Punishing corporate environment

• “Rank and Yank” performance management system

• Lack of maternity benefits

Assume you are a hiring manager at Amazon. Which Big 5 personality dimension should you focus on to gain the best insight on a candidate’s future job performance and training performance?

Multiple Choice

• Extroversion

• Emotional stability

• Openness

• Conscientiousness

• Agreeableness

The case mentions that Amazon’s Jeff Bezos is not influenced by Wall Street analysts, challenges the status quo, perseveres, and wins. Based on the discussion of individual differences and emotions in Chapter 3, Bezos is most likely exhibiting a(n)

Multiple Choice

• high emotional intelligence.

• proactive personality.

• introvert personality traits.

• positive emotions.

• lack of ethics.

Which of the following is most likely NOT an outcome of Amazon’s “Rank and Yank” performance system?

Multiple Choice

• Groups of employees conspiring against each other

• Teamwork

• Productivity is lost in reviewing all the data from the performance system

• Employees hoard ideas and talent

• Managers are forced to have difficult conversations with under-performers

Answer 1

What is the primary problem in the case for Amazon?

The case discusses the problems that employees face at Amazon. A number of problems converge to create high turnover. The primary problem of Amazon in this case is High employee turnover

Assume you are a hiring manager at Amazon. Which Big 5 personality dimension should you focus on to gain the best insight on a candidate’s future job performance and training performance?

Given the working conditions at Amazon, employees must have emotional strength to work for a longer duration at Amazon. Therefore, I would focus on emotional stability

The case mentions that Amazon’s Jeff Bezos is not influenced by Wall Street analysts, challenges the status quo, perseveres, and wins. Based on the discussion of individual differences and emotions in Chapter 3, Bezos is most likely exhibiting a(n)

Characteristics exhibited by Jeff Bezos require high emotional stability. Problems highlighted in the question requires great mental stability to look at them. Therefore Jeff Bezos is displaying high emotional intelligence

Which of the following is most likely NOT an outcome of Amazon’s “Rank and Yank” performance system?

The Rank and Yank system of performance appraisal ranks the employees on many criteria (including feedback from peers) and performance at the bottom line are eliminated. Such an appraisal can never make cohesive teams because employees would want to out perform each other. It is a system of competing against each other. Therefore, answer for this question is Teamwork