amazon-organizational-culture

Amazon Organizational Culture

Amazon’s organizational culture is characterized by four key ingredients: pride in operational excellence, an obsession with customers, long-term thinking, and an eagerness to invent.

Understanding Amazon’s organizational culture

Amazon’s success as a company has made its organizational culture the subject of much discussion.

In a 2009 interview with Slate.com, former CEO and founder Jeff Bezos was asked how he defined Amazon now that the company had transitioned from a book retailer to one that sold consumer electronics and cloud computing services. 

We start with the customer and we work backward”, Bezos replied. “We learn whatever skills we need to service the customer. We build whatever technology we need to service the customer. The second thing is, we are inventors, so you won’t see us focusing on “me too” areas. We like to go down unexplored alleys and see what’s at the end.. And then the third thing is, we’re willing to be long-term-oriented, which I think is one of the rarest characteristics.

How is Amazon’s organizational culture supported?

Here are a few of the ways Amazon supports its organizational culture and the four key ingredients on which it is based.

Writing and record-keeping 

During meetings, Amazon records opinions and ideas involved in making business decisions.

Employees discuss the contents page by page and evaluate the information before moving forward.

This ensures that individuals can have their queries addressed right away before they forget to mention them at the conclusion of the meeting.

Agility

Jeff Bezos’s famous two-pizza rule stipulates that each team must be small enough to be fed by two pizzas.

The rule was initially devised for technical teams to avoid information loss and foster smoother communication.

However, it has now permeated teams across the entire organization.

Innovation

Every Amazon employee is empowered to be an innovator.

While many companies claim they do the same, few would be able to match Amazon’s level of commitment. 

To that end, any employee with an innovative idea can outline their vision in a “PRFAQ” document.

As the name suggests, the document must also include a mock press release and hypothetical FAQ that explains customer benefits.

Once submitted, a team of innovators assesses the idea and decides whether it will receive funding to go to market.

Several of Amazon’s most successful products have been found this way. Examples include Prime Now, Alexa, and Amazon Go.

Startup culture

Despite its title as the largest online marketplace in the world, Amazon maintains the sort of youthful exuberance more commonly seen in start-ups.

While similarly mature companies slow down or rest on their laurels, Amazon maintains a culture that supports the constant pursuit of excellence.

With employees working as if they’re trying to get a new company off the ground, Amazon has been able to silence critics who repeatedly suggest that its energy and innovation potential is not scalable.

Downsides of Amazon’s organizational culture

Despite its customer-centrism, innovation ability, and long-term focus, some former Amazon employees described its culture as one that promoted burnout and stress.

After speaking to over 100 former staff, The New York Times found that Amazon’s culture was characterized by:

  • Anonymous evaluations and annual culling of low performers – where employees made informal pacts to intentionally leave negative feedback for certain employees and have them fired.
  • Hostile work environments – with individuals encouraged to debate and criticize their co-workers to the point of mortification.
  • Poor or non-existent boundaries – some were also required to attend conference calls whilst on vacation or work weekends and nights at home. This also manifested in instances where the company was inconsiderate and demanding toward individuals who had recently experienced personal hardships. 

Key takeaways:

  • Amazon’s organizational culture is characterized by four key ingredients: pride in operational excellence, an obsession with customers, long-term thinking, and an eagerness to invent.
  • Amazon supports its culture with various strategies. These include extensive writing and record keeping, agility, innovation, and the maintenance of a culture more commonly seen in start-ups.
  • Amazon’s constant pursuit of excellence can negatively impact some employees and create a toxic culture with poor or non-existent boundaries.

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Connected to Amazon Business Model

Amazon Business Model

amazon-business-model
Amazon has a diversified business model. In 2021 Amazon posted over $469 billion in revenues and over $33 billion in net profits. Online stores contributed to over 47% of Amazon revenues, Third-party Seller Services,  Amazon AWS, Subscription Services, Advertising revenues, and Physical Stores.

Amazon Mission Statement

amazon-vision-statement-mission-statement (1)
Amazon’s mission statement is to “serve consumers through online and physical stores and focus on selection, price, and convenience.” Amazon’s vision statement is “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.” 

Customer Obsession

customer-obsession
In the Amazon Shareholders’ Letter for 2018, Jeff Bezos analyzed the Amazon business model, and it also focused on a few key lessons that Amazon as a company has learned over the years. These lessons are fundamental for any entrepreneur, of small or large organization to understand the pitfalls to avoid to run a successful company!

Amazon Revenues

amazon-revenue-model
Amazon has a business model with many moving parts. With the e-commerce platform which generated over $222 billion in 2021, followed by third-party stores services which generated over $103 billion, Amazon AWS, which generated over $62 billion, Amazon advertising which generated over $31 billion and Amazon Prime which also generated over $31 billion, and physical stores which generated over $17 billion.

Amazon Cash Conversion

cash-conversion-cycle-amazon

Working Backwards

working-backwards
The Amazon Working Backwards Method is a product development methodology that advocates building a product based on customer needs. The Amazon Working Backwards Method gained traction after notable Amazon employee Ian McAllister shared the company’s product development approach on Quora. McAllister noted that the method seeks “to work backwards from the customer, rather than starting with an idea for a product and trying to bolt customers onto it.”

Amazon Flywheel

amazon-flywheel
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.

Jeff Bezos Day One

jeff-bezos-day-1
In the letter to shareholders in 2016, Jeff Bezos addressed a topic he had been thinking quite profoundly in the last decades as he led Amazon: Day 1. As Jeff Bezos put it “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”

Read Also: Amazon Mission Statement and Vision Statement In A Nutshell

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Organizational Structure Case Studies

Airbnb Organizational Structure

airbnb-organizational-structure
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.

eBay Organizational Structure

ebay-organizational-structure
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.

IBM Organizational Structure

ibm-organizational-structure
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.

Sony Organizational Structure

sony-organizational-structure
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.

Facebook Organizational Structure

facebook-organizational-structure
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams based on the main corporate functions (like HR, product management, investor relations, and so on).

Google Organizational Structure

google-organizational-structure
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.

Tesla Organizational Structure

tesla-organizational-structure
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.

McDonald’s Organizational Structure

mcdonald-organizational-structure
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.

Walmart Organizational Structure

walmart-organizational-structure
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.

Microsoft Organizational Structure

microsoft-organizational-structure
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.

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