Ruthless Management Tactics Foster Innovation
Named Wired magazine’s most innovative company for 2017, Amazon.com operates according to principles many people find shocking, such as forbidding Powerpoint presentations and requiring employees to write six-page reports. The precise management approach keeps this e-commerce icon efficient and employees confident.
Ruthless Management Tactics Foster InnovationBy Liang-Rong Chen
From CommonWealth Magazine (vol. 630 )
“10704 NE 28 St., Bellevue, Washington 98004.” Amazon.com’s first address.
The building from which Amazon sold its first book remains an otherwise unremarkable residence today.
This bit of intelligence in hand, we found a single-story, somewhat worn building with wood siding in a residential area of the Seattle suburbs. In front was a simple garage with two cars parked inside.
As related in The Everything Store - Jeff Bezos and the Age of Amazon, the best-selling biography of Amazon founder Jeff Bezos by Brad Stone, Bezos and his wife MacKenzie started the company out of a converted garage in a rented house. This is where they built the website and sold their first book.
A tall, slender white man in workout attire emerges from the house, smiles and waves. This is clearly not the first time strangers have come around to peer outside his stoop. However, asked whether this is indeed where Bezos lived, he is coy, saying “I just know it’s in the neighborhood. I’m not sure.”
Among the converted garages that birthed some of the most storied names in tech history, the Palo Alto garage where Hewlett-Packard got its start was designated as a California state historical landmark. Likewise, the garages that first housed the nascent Apple and Google companies have been rightfully preserved as important symbols of company history.
In contrast, according to a report in local on-line media, Amazon’s original “garage” changed hands after Bezos moved, and the current resident has no connection to the on-line retail giant.
Founder Does Not Want Property Where Company Started
“What’s different about Bezos is that, incredibly, he doesn’t want the place where he started,” says one Taiwanese-born software executive residing in the area.
Another aspect separating Amazon from other new tech giants like Google and Facebook is that, at Amazon, “there is no such thing as a free lunch.”
One unique phenomenon around Seattle’s various Amazon offices is the food trucks parked all over the streets nearby at lunchtime each day. Employees stream out of their offices and queue up in long lines at the trucks serving pizza, Indian food, and even Taiwanese-style pork belly buns.
This is a stark difference from the five-star meals prepared by the head chefs at Silicon Valley’s big tech companies.
As employees are aware, bridging both high tech and retail, the makeup of Amazon’s personnel is incredibly complex. Among the company’s more than 300,000 staff, the majority are blue-collar workers in warehousing and logistics making barely over the minimum wage.
Knowing that favoring a group of tech elites competing with Silicon Valley through generous benefits and incentives could easily provoke sensitive class tensions, the company has opted not to grant any such perks.
Even when Jeff Bezos travels on business in a private plane, he stresses that he pays for it out of his own pocket, as the company does not foot such expenses. And most Amazon executives fly Economy Class on business trips.
Though it may have fewer employee perks, Amazon has introduced a number of popular and acclaimed innovations, such as the voice-activated Echo series, Amazon Web Services, and staff-free Amazon Go retail outlets.
Moreover, Amazon is the unabashed leader in current hot trends like Cloud computing and services, Big Data, the Internet of Things, and artificial intelligence, surpassing Microsoft, Google and IBM.
In his early 50’s, Bezos is older than the current crop of 30- and 40-something CEOs at the top Silicon Valley companies, a non-issue for the corporation Wired magazine named 2017’s most innovative company.
How did they do it? What separates Amazon’s corporate style from that of other tech giants?
Teams Smaller than Two Pizzas Could Feed
“High efficiency. The whole company is like thousands of startups put together,” says one engineer who has worked at Amazon for three and a half years.
One organizational approach credited to Bezos is called the Two Pizzas Rule. This principle holds that
a group (usually a product or R&D group) should never be larger than the number of people that can be fed with two pizzas. This usually comes in at five to seven people, and no more than 10.
“If it gets too big, it’s split up,” relates the R&D executive.
One famous Amazon vignette aptly illustrates this concept.
One time at a meeting, an executive made a seemingly reasonable suggestion calling for improved communication within the company. Bezos stood up and bellowed, “No! Communication is terrible!” His emphatic assertion shocked everyone in attendance.
However, what Bezos meant was that any team that was too large for effective communication would be plagued with all kinds of organizational issues, like factional infighting. Accordingly, a completely new way of thinking was called for - maintaining the scale of a small elite team from the start.
Perhaps Bezos had in mind the lessons learned from Seattle neighbor and software giant Microsoft.
Microsoft experienced organizational bloating in the 1990s as the result of overstaffing.
One senior R&D executive who has worked at both Microsoft and Amazon explains that Microsoft has too many organizational strata, so that a product team could have over a thousand engineers. This leads to “70 percent of the people managing, with 30 percent of the people doing the work,” he says.
Amazon’s reasoning is to keep each team’s work as simple as possible, putting it in charge of one specific product or function. This also makes rights and responsibilities across the organization especially clear.
The main key to this approach is that Amazon’s software infrastructure is completely modular: Each function is like a building block that can either stand alone or fit together with other blocks. And each block is a “two pizza” team.
Thanks to full implementation of “organizational flattening,” Amazon has been able to turn the formula on its head to achieve “30 percent of the people managing, with 70 percent of the people doing the work.”
One consequence of Amazon’s encouragement of executives to work proactively, so that each “two pizza” team fights aggressively for resources, money and people, is internecine conflicts.
“There is no such thing as normal, accepted human virtues here,” one retail operations department executive states bluntly.
This executive worked at a large Asian consumer electronics company for over a decade, where he took pains to consider the sensitivities of his superiors, direct reports, and everyone else. This helped earn him a reputation for simply being a good person.
He took that approach with him to Amazon at first as well. At meetings, he would typically open with an introduction, then have his staff report on the areas they were responsible for. “After all, they were the ones doing the work,” he says.
Eventually, a direct superior took him aside and cautioned him that this was not how Amazon went about its business, saying, “Sometimes you have to take credit.” These words left him dumbfounded.
Observers are divided about the “Amazonians” produced by this approach. Many former Amazon engineers are coveted in the job market, with a whole host of jobs waiting for them when they leave.
However, in some circumstances, the predatory nature of Amazonians can be intimidating.
For instance, Samsung Electronics recruited several executives from Amazon, who persisted in their accustomed approach in the belief that one should fight for what is right. “It took some time for them to adjust to a hierarchical Asian company,” a former colleague said tactfully.
However, the company was filled with over a thousand aggressive, tenacious fighting teams. How could it not become a mess?
But it does not. Because “this company has a strong corporate culture,” says one person after another.
This is most readily exemplified in the 14 leadership principles Bezos swears by.
Know Founder’s Principles Backwards and Forwards
Talking with a group of Amazonians is an unusual experience.
Discussing this and that, they frequently cite the 14 principles Bezos holds so dearly. Then something like this dialogue ensues:
You need to insist on the highest standards, dive deep, and have backbone. Even if someone outranks you, you can still challenge him. And then it’s important to disagree and commit.”
Four of Bezos’s principles were referenced in this short conversation. Noticing our shock, one finance executive laughed and said, “A lot of Taiwanese companies just stick their principles on the wall, but Amazon puts them into practice.”
How so? They are incorporated into everything.
For instance, before new job candidates are interviewed, executives decide which of the leadership principles to make the priority for their evaluation.
After coming aboard, superiors frequently lecture newcomers about things they could have done better, citing ways in which they failed to conform to a given principle. More importantly, this is one of the key benchmarks for evaluating advancement and promotions.
However, they are selectively adopted. For instance, the Think Big principle is for middle managers and up, and does not apply to younger staff members.
Six-page Reports and No Powerpoint
If after having read this far you are incredulous that an American company could follow such a management system, here is something even more incredible - the Six Pager.
The Six Pager is the one aspect of the company’s unique management system new Amazonians have the hardest time getting used to.
Amazon employees can bring their dogs to work, giving the appearance of a happy workplace. Yet the high-stress, high-standards work environment has given the company a less shining reputation among locals of Chinese origin, who describe it derisively as “America’s Hon Hai Precision (Foxconn).”
At meetings, presenters do not use Powerpoint presentations. Instead, the room is filled with silence as everyone focuses on reading a written memo (usually one or two pages in length, and at most six A4-sized pages). They are given half an hour to read the memo before beginning discussion.
Bezos believes that using presentation software like Powerpoint or Excel is lazy, and that making employees write their opinions out in long-form essays forces them to put their thoughts in order and express them in the most complete fashion.
Of course, one can imagine the high English writing standards to which staff are held. Understandably, Taiwanese employees shake their heads and relate a litany of travails with the Six Pagers.
Whilst most memos are kept to one or two pages, more involved reports on new products, or plans requiring money or personnel, must usually be six pages. Non-native English speakers from Taiwan often need several weeks to ask superiors and colleagues to look over their reports, and then make constant revisions. The process is excruciating for them.
Thinking ahead about career advancement, some people go as far as to hire on-line English tutors and practice with them on one to three business English essays per week. A full curriculum costs thousands of US dollars. Fortunately, Amazon is willing to pay for these in full.
Normal Operation despite High Turnover
Six Pagers have another major “hidden function.”
At Amazon, where turnover is exceptionally high, each proposal is kept and made available as free archival reference.
“With a Powerpoint presentation, if you leave the company, people coming after you could have a hard time understanding it. But with a Six Pager, it’s written in such detail that anyone coming along later can easily understand it,” relates one finance executive.
Amazon’s considerable attention to data and details breeds a plethora of acid-tongued, persnickety supervisors. Consequently, even though each report is limited to six pages, the appended charts and supporting documents often reach 30 pages.
A considerably high proportion of sub-director-level employees leave Amazon in less than two years. The finance executive once experienced the uncomfortable situation in which she was the last remaining member of a six- or seven-person team. Ultimately, she relied on the Six Pagers her team members had left behind to see her through.
The question inevitably arises, even as the company’s stock continues to climb year after year, why does Amazon have such a high turnover rate? And how does the company achieve such high efficiency and growth in spite of it?
“They overwork you. A lot of people are spooked by it not long after joining,” responds one R&D executive that left Amazon after two years to join a top Silicon Valley firm. In his case, members of each product team he was on had to take turns being on call around the clock.
On numerous occasions, he was alerted by his on-call pager in the middle of the night to open up his laptop and immediately take care of some urgent matter. If he failed to do so, the system would proceed to alert his immediate superior, and so on, all the way up the line to the vice president if necessary. This group accountability is another one of Amazon’s unique methods, as well as the straw that finally broke the camel’s back and sent him packing.
He offered his analysis, saying that Amazon’s capacity for bearing a high turnover rate can be understood in the context of the aforementioned two pizza teams. In the case of R&D units, they naturally produce products that are “small and beautiful.” The damage caused by a designer quitting his job is therefore comparably minimal. “The products are not so complex that you are irreplaceable, so turnover isn’t a problem,” he says.
In contrast, Microsoft’s products are largely quite complex, so that the departure of an executive can cause severe damage.
Amazon aims to reduce delivery times to under an hour, prompting constant rumors that the company is working on setting up its own transportation and distribution fleet.
Mistakes Not Penalized
After reading about the unique aspects of being at Amazon - the high pressure, dogma, and reports described above - you might be shocked to learn that this company is possibly the most tolerant of any of the world’s top tech firms towards mistakes. For instance, a recent rumor has circulated about a Chinese engineer that crashed the entire amazon.com site for several minutes when he changed a few lines of code. Despite causing potentially incalculable losses, the engineer was not punished.
One other R&D executive interviewed by CommonWealth also made programming mistakes, causing the disappearance of half of the choices in the product listing for which he was responsible. “The boss wasn’t happy, but he wouldn’t punish me for that,” he recalled.
Why not? Because, according to former Amazon staff and executives of all levels we interviewed, the employee would then hesitate when they encountered similar situations in the future .
This all-out pragmatism is an important component of Amazon’s culture. Over the course of innovation, according to Amazon,
“No one is immune to making mistakes, but you cannot afford to create an environment in which people are afraid to make mistakes.” Many companies pay lip service to these words, but Amazon takes them as gospel truth.
It is also a key part of ownership, one of the main tenets of the leadership principles.
This approach is even implemented on Amazon’s front lines.
One former customer service center supervisor once encountered an emergency in which a customer complained of getting food poisoning. Alert to the urgency of the situation, the customer service representative that received the call made the decision to run a program that preemptively removed the suspect product from Amazon’s product listings.
How can entry-level staff on the front lines have that much authority?
That kind of authority is a similar to that of Toyota assembly line workers, who at any moment upon detecting a problem can pull a cord to make the entire line come to a halt.
The mechanism pioneered by Toyota for robust production systems is known as the “andon cord,” a term that Amazon has adopted for their own emergency alert mechanism.
“When everyone feels like they’ve been delegated responsibility, they do things with more passion,” says one former customer service center supervisor.
Translated from the Chinese by David Toman