A Critical Analysis of Amazon’s Approach to People Management
Amazon was established by Jeff Bezos in 1995 as an online bookstore, but it has rapidly developed into one of the largest e-commerce companies with 224,000 employees worldwide (Rossman, 2016). In 2018, Amazon became the world’s second largest company by market value with over $900 billion (Bhatnagar & Jaiswal, 2018). Its great business success is closely related to the unique business model and people management. However, the company has also received much criticism due to its harsh approach to manage employees. According to a report released by Kansas University, comparing to other internet companies (e.g. Apple, Google), employees of Amazon are less satisfied with their jobs (Matthews et al., 2018). That is to say, there are still some drawbacks in the company’s human resource management HRM practices. Based on relevant concepts, theories, and facts, this paper critically analyzes Amazon’s approach to people management and makes recommendations for its future HRM practices. Specifically, this paper describes, analyzes, and evaluates Amazon’s strategic human resource management (SHRM), recruitment and selection, performance and reward management, and finally makes suggestions for the company.
2. Strategic Human Resource Management (SHRM)
Since the first day of sales, Bezos has always been dedicated to improving social efficiency and creating more value (Rossman, 2016). Amazon’s strategic goal is abandoning short-term profits but aiming to obtain long-term competitive advantage. Amazon is a just company, but it has a flexible and dynamic structure. To support Amazon’s corporate strategy, the company has established a unique “two pizza rule”, namely teams should be as small as only need two pizzas as a meal. Small teams ensure high sensitivity and high involvement (Rossman, 2016). Besides that, Amazon’s corporate culture pushes staff to go beyond conventions to develop innovative ideas and solutions. Amazon has a complete employee training program. The company sees each employee as a growing talent, and makes staff training as an important way to develop personality and capability of employees (Amazon, 2018). For example, Bezos often stressed that, employees’ personality should be treated equally with group character of Amazon through training (Kantor & Streitfeld, 2015). In particular, Amazon’s training program helps employees to get involved in the organization culturally and spiritually. When they have an in-depth understanding of Amazon’s business philosophy, they will be able to better perform their personality and ability.
Amazon’s above practices can be explained by SHRM theory. SHRM indicates that an organization should find a way to connect HR decisions with strategic goals or to make best practices a way to improve organizational performance. Pfeffer (1998) summarized seven best practices, including reducing status differences, high pay contingent on group, employment security, practicing open-book management, organizing staff into self-managing teams, investing in people, and being selective in recruitment. In addition, Schuler and Jackson (1987) argued that HR policies and employee behaviour should be fit with strategy of an organization. Amazon’s HR practices to a large extent are consistent with Preffer’s seven best practices. In particular, the company organizes small teams to reduce differences in status, encourages self-management of employees, and invest much in staff training and development. Amazon also advocates in-group and departmental sharing to trigger creativity. The SHRM model of “best fit” explains how senior management decisions effectively align with employee behaviour to develop Amazon into a successful e-commerce giant. As employees clear understand and recognize the corporate culture and work in a flexible team-based manner, they will be motivated to propose new ideas and improve organizational performance.
Research findings of SHRM to a large extent can explain Amazon’s HR policies. For example, Amazon’s “two pizza rule” and aggressive corporate culture fit Preffer’s best practices in several aspects. Besides that, Amazon really systemically designed and arranged its human resource activities (e.g. staff training) to support pursuit of strategic goals (e.g. constant innovation, create added-value to society), which is consistent with the definition and characteristics of SHRM (Wright & McMahan, 1992). However, SHRM theory still has some limitations. For example, Amazon has multiple departments with different functions and job positions (e.g. technical, financial, marketing, logistics), which leave a question with SHRM, that is whether it is necessary to develop different HR polices for different employees. If so, a variety of broader fairness issues will occur. Besides that, the concept of “best practices” is paradoxical, because they are situational and not the norm in many cases.
3. Recruitment and Selection
Bezos has made a strict process to recruit talents and select candidates. Amazon implements a standardized and simplified recruitment mechanism supported by Bar Raiser. The company has two mandatory recruitment standards, including performance and qualification (Rossman, 2016). Meanwhile, the company attaches much importance to potential long-term value contribution of employees. Amazon assigns Bar Raisers to strictly evaluate candidates from the perspective of corporate culture and leadership principle (Heskett, 2015). Bar Raisers also discuss with other interviewers at the final selection stage and have the veto right, so as to ensure candidates can improve talent standards of the entire organization. Bezos believes that having a diverse staff team is the key to Amazon’s constant innovation and long-term competitiveness, so he embraces creative talents from diverse backgrounds (Bhatnagar & Jaiswal, 2018). As a result, Amazon’s staff team includes professional skater, literature scholar, artist, rock singer etc. To control recruitment cost, Amazon does not adopt traditional writing test, but implements online application and screening.
Recruitment and selection are two indispensable HR policies in most modern organizations. The process usually consists of business or workforce needs, job-competency analysis, job description and personal specification, attracting application, candidate selection, make appointment, joining and introduction, which is valid in the case of Amazon (CIPD, 2013). Barber (1998) defines recruitment as activities with the basic purpose of attracting and identifying potential employees. Obviously, Amazon’s activities and practices around recruitment can profoundly influence the specific type and number of candidates, job acceptance and whether applicants withdraw from the recruitment process. For Amazon, recruitment is of great importance to organizations because less applicants can lead to lack of talents, while improper recruitment can bring extra costs on training. Amazon has developed a “brand” as an ideal place to work (CIPD, 2015). The company always stresses “we are creating history” and “we were establishing a permanent enterprise” to attract innovative talents with a belief in Amazon. As for selection, it is a process that managers adopt certain tools to choose from a pool of candidates for job vacancies (Bratton & Gold, 2012). Memon et al. (2014) argue that, when selecting people, organizations need to apply person-organization (P-O) fit, because it helps organizations gain competitive advantage, attract and retain talents for long-term development, and reduce turnover. Amazon attaches extreme importance to P-O fit. For example, the company only selects those candidates with a great understanding of its 14 leadership principles and a firm belief in Amazon’s future (Rossman, 2016).
Existing theories of recruitment and selection to a large extent can well explain Amazon’s activities and practices. The company makes recruitment and selection a key part of HRM and sets strict standards to achieve P-O fit. Amazon’s recruitment policies have a strategic basis, because senior management see talents as a source of sustainable competitive advantage. In addition, Amazon’s recruitment and selection activities demonstrate validity and value of employer branding. Specifically, Amazon has successfully branded itself distinctive with intangible qualities and attributes to attract to talents who will perform their best in the organizational culture. However, many studies show that interviews cannot ensure P-O fit effectively, because an interviewee may conceal the true self intentionally to appeal to the potential employer (Pilbeam & Corbridge, 2010). It is paradoxical that Amazon and many other organizations still adopts the interview approach to select candidates.
4. Performance and Reward Management
Amazon has a controversial performance and reward management system. Amazon (2018)’s compensation system consists base salary, signing bonus, and restricted share units (RSU). It also provides many welfares to employees, including medical insurance, 401(k) plan, family support network, adoption subsidy, Leave Share and Ramp Back, employee discount, and paid leave. Amazon offers limited incentives to new employees, but provides more incentives to those who have served the company for two years or more, so as to reduce costs and retain talents with a high involvement in the organization. Amazon implements a comprehensive performance management system. There is no specific team performance evaluation, because it is determined by the performance of team leader (Matthews et al., 2018). The company organizes a simple mid-year assessment in each September, and conducts year-end review from December to next April (Bussin, 2016). Meanwhile, decisions about salary adjustment and promotion mostly occur at the end of each year. Performance assessment requires staff to offer self-evaluation and peer review based on the 14 leadership principles, so the workload is very heavy. Also, the company encourages employees to inform against each other, while the management can receive instant feedback. Before the 2016 reform, Amazon even ranked employees’ performance and dismissed those who performed most poorly(Kantor & Streitfeld, 2015).
Performance management is widely seen as a connection between individual contributions and organizational targets. Performance management can be divided into a harder performance improvement approach and a softer motivational and developmental approach (Houldsworth, 2004; Tuytens & Devos, 2012). In the case of Amazon, the harder approach of performance improvement is applied, because the company imposes much stress on staff through transparent peer review. Meanwhile, unlike typical American internet enterprises, Amazon is more of a traditional organization. Traditional performance assessment systems offer a standardized process to review employee performance (Houldsworth, 2014). The systems in Amazon are designed centrally by HR functions and require line manager to appraise staff performance within a set of performance review meetings or reports. In addition, performance-related pay is adopted by many organizations, including Amazon. Based on McGregor’s Two-Factor Theory, employees’ reward perception can be divided into internal (e.g. work-life balance, development opportunities) and external (e.g. salary level, working environment) (Pilbeam & Corbridge, 2010). In Amazon, human resource value consists of two parts. One is labour reward or traditional salary, and the other part is capital reward or RSU. When maintaining a competitive basic salary, Amazon also implements employee stock ownership, which realizes a close combination between individual goals and organizational goals.
Existing concepts and theories can effectively explain Amazon’s performance and reward management. In order to attract and retain talents, Amazon shares its profits with each employee. This can be explained by the Two Factor Theory. Besides that, Amazon’s performance appraisal mechanism shows that the organization is traditional and strict in performance management. Scholars found that, performance-based pay is controversial, because it can lead to pressured working environments, internal competitiveness, and unfairness (Marchington & Grugulis, 2000). This might be true in Amazon, because the organization was criticized as bringing excessive pressure on managers and employees with the transparent peer-review, relentless criticism to employees, overtime, and crazy pursuit of high performance.
5. Conclusions and Recommendations
In conclusion, Amazon’s approach to people management has both strengths and drawbacks. The company implements effective SHRM practices and standardized recruitment and selection process with a focus on P-O fit. Therefore, Amazon has established its brand as an innovative and efficient company that always pursues to create more social value. It also attracts many creative talents who have a firm belief in Amazon’s culture. The company also implements a cost-effective reward management system to attract and retain talents, especially with abundant welfare and stock ownership. However, Amazon’s performance management is too harsh. The company always pushes employees to work more with excessively high requirements. As a result, many employees are unsatisfied with the highly pressured working environment and fail to balance their work and life. Amazon’s extreme pursue of high performance has led to a relatively high turnover, which inevitably damages the company’s reputation and increases human cost. Paradoxically, Amazon claims to be a company of pioneers, but it did not offer proper treatment to pioneers, the most important asset for competitive advantage.
It is suggested that Amazon should adjust its performance and reward management system to reduce unfairness, stress, and unreasonable internal competitiveness. For example, Amazon should improve its supporting network to help employees balance work and life more effectively. Instead of rigidly pushing high performance, Amazon should understand real needs of employees, so as to adopt proper spiritual incentives to motivate enthusiasm and innovation. Amazon should create a more favorable working environment to employees to avoid overexploitation and high turnover. In all, Amazon’s HRM should be more people-oriented rather than performance-centered.
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