You are to read the Amazon as an Employer article, and to research other sources of insight into how Amazon is led and managed.? The Final Paper will assess these aspects of Amazon: –

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AMAZON AS AN EMPLOYER1 Jyotsna Bhatnagar and Shweta Jaiswal wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2016, Management Development Institute Gurgaon and Richard Ivey School of Business Foundation Version: 2016-03-07

Amazon was the biggest Internet-based retailer in the United States and had frequently been featured in Fortune magazine’s Elite List of the World’s Most Admired Companies, ranking second in 2014 and fourth in 2015.2 However, in 2015, controversy erupted on social media when an article in The New York Times portrayed Amazon as a company that was “conducting an experiment in how far it [could] push white-collar workers to get them to achieve its ever-expanding ambitions.”3 Many leading technology wizards, such as former Twitter chief executive officer (CEO) Dick Costolo, as well as venture capitalists Marc Andreessen and Keith Rabois, dismissed the criticism, arguing that such practices were part of what made “disruptive companies disruptive.”4 The New York Times article focused on the unconventional office culture promoted at Amazon. Particular attention was paid to the practice of encouraging employees to be ruthlessly critical of each other’s ideas in meetings and to surreptitiously send feedback to each other’s bosses.5 The article also mentioned the physical stress of Amazon’s workplace. Employees were expected to put in long hours and were reprimanded when they failed to respond to emails that arrived at midnight. This was the inevitable by- product of a policy that demanded that all employees work overtime, effectively forcing employees to work harder and faster until they quit, collapsed, or were terminated.6

As a result of its workplace policies, turnover at Amazon was high: most employees did not stay for more than a few months.7 Nonetheless, Amazon had climbed the ladder of achievements and accomplishments in an unrelenting, expeditious manner. It had surpassed Walmart as the most highly ranked retailer in terms of market valuation.8 The company was as continuously innovative as a new start-up.9 Amazon was on the verge of opening several new multi-floor offices in diverse locations, which would expand its operating capacity to approximately 50,000 employees.10 The question that arose at this critical juncture of its growth was whether Amazon would be able to attract and retain the engaged talent it required to fill these vacancies despite The New York Times exposé. Would Amazon’s demanding corporate culture continue to lead to innovation?

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Page 2 9B16C006 WORKPLACE CONUNDRUMS AT AMAZON Amazon had always maintained a strict emphasis on customer satisfaction. The business was built around this principle.11 Customers around the world were familiar with Amazon, but life inside the organization had been impenetrable until it was probed by The New York Times article. In a letter to shareholders, Amazon CEO Jeff Bezos wrote, “You can work long, hard, or smart, but at Amazon.com, you can’t choose two out of three.”12 In late 1999, when the Internet boom took a precipitous fall after years of exhilarating success, Amazon was burdened with debt and spiralling losses. Bezos needed to convince Wall Street that he was determined to cut costs. But what costs were left to cut? Unlike other competing firms in Silicon Valley, the company had never provided perks and benefits to its employees. The only “perk” Amazon had offered was free Aspirin, and this was taken away.13 Many considered the frequent temper tantrums of Bezos to be key to the survival and success of Amazon. Employees described Bezos’ outbursts as “nutters.”14 His favourite quips were, “Why are you ruining my life?” and, “If I hear that again, I am going to have to kill myself.”15 In spite of his infamous temper, Bezos was ranked as the top innovator in 2013.16 When The New York Times published its article, Bezos immediately sent out a company-wide memo in which he expressed his disagreement with the article’s portrayal of the company work environment. Bezos noted that anyone working in such an environment would be crazy to stay, and he ended his memo by saying, “hopefully you don’t recognize the company described [in The New York Times article]. Hopefully you’re having fun working with a bunch of brilliant teammates, helping invent the future, and laughing along the way.”17 Indeed, “work hard, have fun, and create history” seemed to be the motto of employees at Amazon.18 Over-achievers bubbling with innovative ideas and eager to collaborate with and learn from brilliant co- workers thrived in the challenging, fast-paced environment and seemed to embrace the extreme demands placed upon them — not as a problem to run from, but as an opportunity to grow.19 Many such employees were excited to be working on cutting-edge projects that would impact millions of people and felt that working at Amazon advanced their careers.20 The star performers or winners would visualize the innovations, implement them for a quarter billion customers, and accumulate wealth from rising stock prices.21 Amazon’s unconventional style extended beyond its office culture and into its business development processes. Software developers were required to write an imaginary press release and complete a list of frequently asked questions for an envisioned product before they began programming it. This strategy of working backwards from a vision of the finished product forced the developers to detect and confront any difficult post-production issues before moving ahead with the product. This ensured that the developers understood the product’s unique proposition and appeal to potential clients from the very beginning of the development process. If the developers could not write a convincing press release, then the product was discarded as not worth the effort.22 Many employees found this rigorous approach to software development exciting and argued that such rigour made Amazon the best place to work for those who were passionate about their profession. However, such employees were a small minority. In 2013, Amazon had the second-highest turnover among the Fortune 500 companies, with a median tenure of one year.23 The office culture cultivated at Amazon led those outside of the company to think negatively of Amazon’s ex-employees. Many recruiters were hesitant to hire ex-employees, believing they had been trained to be aggressive. Amazon employees were also known to be belligerent and work-fixated. A

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Page 3 9B16C006 Seattle-based technology recruiter who had worked at Amazon for four years said that he was still struggling with the workaholic nature from within and trying to control the urge to verbally eviscerate any colleagues who did not perform up to his expectations.24 PEOPLE MANAGEMENT PRACTICES AND DIVERSITY The talent acquisition process at Amazon was rigorous and included screening by the company’s star performers and part-time interviewers brought on to ensure the company hired only the best. New employees had to sign a contract that required them to repay the signing bonus in the event that they left the organization within a year of signing and to repay part of their relocation expenses in the event that they left before the completion of two years. Performance management at Amazon continued to be based on a bell curve approach when other companies were moving away from it.25 Every year, a company-level review was conducted in which managers discussed their subordinates’ rankings. Managers came to such meetings armed with documents and evidence to defend their key members and to incriminate the employees of competing groups. To protect critical talent, managers chose team members who could be sacrificed in the review process. Employees were encouraged to criticize their colleagues by sending feedback to management using a confidential online feedback tool. Because employees were constantly under scrutiny, and bottom performers were unceremoniously thrown out, everyone tried to outperform or sabotage everyone else. Indeed, many employees reported in their performance reviews that they felt sabotaged by their colleagues’ negative comments.26 Amazon did not have female employees in the top leadership team. Many attributed this gap to Amazon’s system of competition and elimination. Many female employees believed that some of Amazon’s “leadership principles worked to their disadvantage”; for example, being encouraged to “earn trust,” “have backbone,” and “disagree” with colleagues was seen as difficult for female employees to practice in the workplace.27 Many key employees at Amazon were told that raising children could hinder their chances of advancing their careers because child-rearing would prevent employees from putting in long working hours. Despite working full-time, one female employee was criticized by her boss because the employee’s colleagues often saw her leaving early, not realizing that she was also coming in early to complete the required hours. Another female employee who, for years, had consistently exceeded expectations was criticized by her boss when she began taking time off to care for her critically ill father. This employee mentioned that those who were unable to give their “absolute all” and put in 80-hour workweeks were perceived as weak.28

Some male employees also had to quit Amazon — or consider quitting — because the workplace pressure was forcing them to spend less time with their families. Older employees were worried that they would be replaced by younger employees with fewer commitments and more time to focus on work.29 Dick Finnegan, a consultant specialized in talent retention, cautioned organizations about the cost of mandatory cuts in the workforce:

If you can build an organization with zero deadwoods, why wouldn’t you do it? But I don’t know how sustainable it is. You would have to have a never-ending two-mile line around the block of very qualified people who want to work for you.30

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Page 4 9B16C006 AMAZON WORKPLACE: FUTURE DIRECTION In 2014, Harvard Business Review ranked Bezos as the top CEO.31 Yet, just 12 months later, his ranking fell to the 87th position32 largely because, in 2015, CEOs were evaluated not just on the basis of their financial success but also on the basis of their performance with respect to social responsibility criteria. However, with topline growth and controlled spending, Amazon stock prices had more than doubled.33 In response to The New York Times article, Bezos sent the following message to Amazon employees:

The article doesn’t describe the Amazon I know or the caring Amazonians I work with every day. But if you know of any stories like those reported, I want you to escalate [them] to HR. You can also email me directly at [email protected]. Even if it’s rare or isolated, our tolerance for any such lack of empathy needs to be zero.34

Given its work culture, would Amazon continue to be a competitive employer and offer an attractive employee value proposition? Did the strategy of keeping employees on the edge always result in innovation?

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Page 5 9B16C006 ENDNOTES 1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of Amazon or any of its employees. 2 Christopher Tkaczyk, “The World’s Most Admired Companies,” Fortune 171, no. 3 (March 2015): 97–104. Also available as an online feature at http://fortune.com/worlds-most-admired-companies, accessed January 19, 2016. 3 Jodi Kantor and David Streitfeld, “Inside Amazon: Wrestling Big Ideas in a Bruising Workplace,” The New York Times, August 15, 2015, accessed September 20, 2015, www.nytimes.com/2015/08/16/technology/inside-amazon-wrestling-big- ideas-in-a-bruising-workplace.html. 4 Jon Russell, “Jeff Bezos Says the New York Times’ Amazon Exposé Got It All Wrong,” Tech Crunch, August 16, 2015, accessed September 20, 2015, http://techcrunch.com/2015/08/16/computer-says-no. 5 Jodi Kantor and David Streitfeld, op. cit. 6 Spencer Soper, “Workers Complain About Amazon Warehouse Jobs,” Seattle Times, September 24, 2011, accessed September 20, 2015, www.seattletimes.com/business/workers-complain-about-amazon-warehouse-jobs. 7 Lisa Mahapatra, “Amazon.com Has Second Highest Employee Turnover of All Fortune 500 Companies,” International Business Times, July 26, 2013, accessed December 22, 2015, www.ibtimes.com/amazoncom-has-second-highest- employee-turnover-all-fortune-500-companies-1361257. 8 Simon Head, “Worse Than Wal-Mart: Amazon’s Sick Brutality and Secret History of Ruthlessly Intimidating Workers,” Salon, February 23, 2014, accessed September 20, 2015, www.salon.com/2014/02/23/worse_than_wal_mart_amazons_ sick_brutality_and_secret_history_of_ruthlessly_intimidating_workers. 9 Peter Cohan, “Amazon’s One-Hour Delivery: Another Reason to Sell Apple and Bet on Bezos,” Forbes, November 17, 2015, accessed January 7, 2016, www.forbes.com/sites/petercohan/2015/11/17/amazons-one-hour-delivery-another- reason-to-sell-apple-and-bet-on-bezos. 10 Jodi Kantor and David Streitfeld, op. cit. 11 Ibid. 12 Jeffery Bezos, Letter to Shareholders, 1997, accessed December 21, 2015, http://media.corporate- ir.net/media_files/irol/97/97664/reports/Shareholderletter97.pdf. 13 David Streitfeld, “Expecting the Unexpected From Jeff Bezos,” The New York Times, August 17, 2013, accessed September 20, 2015, www.nytimes.com/2013/08/18/business/expecting-the-unexpected-from-jeff-bezos.html. 14 Joshua Kandall, “The Temper Tantrum: The Key to Smart Management?” Fortune, November 22, 2013, accessed September 20, 2015, http://fortune.com/2013/11/22/the-temper-tantrum-the-key-to-smart-management. 15 Ibid. 16 Joel Holland, “The New Establishment: 2013,” VF News, October 31, 2013, accessed September 20, 2015, www.vanityfair.com/news/business/2013/11/new-establishment-2013. 17 John Cook, “Full Memo: Jeff Bezos Responds to Brutal NYT Story, Says It Doesn’t Represent the Amazon He Leads,” Geek Wire, August 16, 2015, accessed December 20, 2015, www.geekwire.com/2015/full-memo-jeff-bezos-responds-to- cutting-nyt-expose-says-tolerance-for-lack-of-empathy-needs-to-be-zero. 18 Larry A. Downs, “Work Hard. Have Fun. Make History,” LarryADowns.com, August 8, 2013, accessed January 7, 2016, www.larryadowns.com/2013/04/english/work-hard-have-fun-make-history. 19 G. Sampath, “In Love With Work, Amazon Style,” The Hindu, September 17, 2015, accessed September 20, 2015, www.thehindu.com/opinion/op-ed/in-love-with-work-amazon-style/article7659931.ece. 20 “Amazon.com Reviews,” Glassdoor, accessed September 20, 2015, www.glassdoor.co.in/Overview/Working-at-Amazon- com-EI_IE6036.11,21.htm. 21 Jodi Kantor and David Streitfeld, op. cit. 22 Jillian D’Onfro, “Here’s the Surprising Way Amazon Decides What New Enterprise Products to Work on Next,” Business Insider, March 12, 2015, accessed September 20, 2015, www.businessinsider.in/Heres-the-surprising-way-Amazon- decides-what-new-enterprise-products-to-work-on-next/articleshow/46544156.cms. 23 Lisa Mahapatra, op. cit. 24 Jodi Kantor and David Streitfeld, op. cit. 25 TNN, “Accenture Too Drops Bell-Curve Appraisals,” Economic Times, July 27, 2015, accessed September 20, 2015, http://economictimes.indiatimes.com/news/international/business/accenture-too-drops-bell-curve- appraisals/articleshow/48230902.cms. 26 Jodi Kantor and David Streitfeld, op. cit. 27 Ibid. 28 Ibid. 29 Ibid. 30 Ibid. 31 Adi Ignatius and Daniel McGinn, “The Best-Performing CEOs in the World,” Harvard Business Review, November 2014. Available from Ivey Publishing, product no. R1411B. 32 Ibid. 33 Rose Pastore, “Amazon’s Jeff Bezos Takes Dramatic Plunge Down List of Top CEOs,” Fast Company, October 13, 2015, accessed September 20, 2015, www.fastcompany.com/3052272/fast-feed/amazons-jeff-bezos-takes-dramatic-plunge-down- list-of-top-ceos; Peter Cohan, op. cit. 34 John Cook, op. cit.

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________________________________________________________________________________________________________________ Professor David A. Garvin, Alison Berkley Wagonfeld, Executive Director of the HBS California Research Center, and Senior Researcher Liz Kind prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School, and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2013 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

D A V I D A . G A R V I N

A L I S O N B E R K L E Y W A G O N F E L D

L I Z K I N D

Google's Project Oxygen: Do Managers Matter?

In November 2012, Prasad Setty, Google’s vice president, people analytics and compensation, was smiling as he stepped into Union Square in San Francisco. Google executives had organized a celebratory dinner at one of San Francisco’s top restaurants to recognize a cross-section of Google employees who had been working on manager-related initiatives over the past several years. Setty’s people analytics team was well represented at the dinner, and he was particularly proud of the team’s work on Project Oxygen. The initiative had contributed to what Laszlo Bock, senior vice president, people operations, had deemed ‘‘a revolution in people management at Google.’’

The Oxygen initiative had started with a fundamental question that Google executives had raised in the early 2000s: ‘‘Do managers matter?’’ The topic generated a multiyear research project that ultimately led to a comprehensive program, including surveys, feedback, training, and rewards, designed to help Google employees become better managers. By November 2012, the program, with its focus on eight key management attributes, had been in place for several years, and the company could point to statistically significant improvements across managers overall.

Buoyed by the success of Project Oxygen, Setty was already thinking ahead. As he stepped into the Google bus that would take the group back to Google’s Mountain View headquarters that evening, his attention turned to his goals for 2013. He wondered how the people analytics group, and the broader people operations group, could build on the success of this project. Now that they knew what made a good manager, what other types of training could they create? Should they focus more on senior managers who might require greater attention to leadership skills? Would it make sense to hire differently? Should they invest more in helping managers get up to speed? These questions flashed through Setty’s mind as he settled into his seat. He was tempted to start talking to his team about plans for 2013, but then reminded himself that there would be plenty of time for those discussions back at the office.

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Company Background Google was founded in 1998 by Sergey Brin and Larry Page, two computer science doctoral

students at Stanford University who developed an algorithm that ranked Internet search results based on which sites had the most links directed at them. Within a year, Page and Brin raised $26 million from investors to turn the idea into a company, and in late 1999, Google moved into new headquarters in Mountain View, California, dubbed the Googleplex. Page and Brin established an informal culture from the very beginning: exercise balls were repurposed as moveable office chairs; desks were made from wooden doors; and dogs were permitted at work. In addition, the founders hired top chefs to provide free meals for all employees. The culture was designed to encourage collegiality and to break down barriers to the rapid development of ideas.

Business Overview

By late 2000, Google had established partnerships with leading websites such as AOL and Yahoo! and was responding to 100 million search queries each day. That same year, Google introduced a keyword-targeted advertising program called AdWords. Advertisers could buy keywords, and Google displayed the advertisers’ text ads when users entered those words in the search box. Google found that its targeted advertising software provided click-through rates that were four times higher than the industry average at the time.1 Google’s advertising services enabled the company to start making money, and by late 2001, Google was profitable. Page and Brin hired former Novell CEO, Eric Schmidt, as Google’s CEO in 2001, and Page and Brin took the titles of president, products and president, technology, respectively.

Google continued to attract paid advertising to its search services, generating $440 million of revenues and $100 million of profits in 2002.2 Headcount reached approximately 700, with nearly all employees based in Mountain View. Google went public in 2004 (ticker: GOOG), raising $2 billion.

Revenues grew each subsequent year, and by 2011, Google had $37.9 billion of revenue and $9.7 billion of net income. (See Exhibit 1 for Google financials and headcount statistics.) New products such as mobile advertising and productivity software were becoming increasingly popular, complementing the core business of search and display advertising. After the IPO, Google made several large acquisitions, including YouTube and Motorola Mobility. There was considerable global expansion, and by 2012, approximately half of Google’s revenue came from outside the United States. The company’s share price on November 30, 2012 was $698.37, resulting in a market capitalization of approximately $250 billion.

Organization and Culture

At the time of Google’s IPO, the company had about 3,000 employees and was run as a ‘‘triumvirate’’ with Schmidt, Brin, and Page at the helm. By November 2012, Google’s headcount had risen more than tenfold to approximately 35,000 employees; a year earlier Page had replaced Schmidt as CEO. Employees were organized into three primary functional groups: engineering, global business organization (sales), and general and administrative (G&A). Approximately one-half of its employees were based in Mountain View, with the remainder spread throughout the world.

Google had an engineering-dominated culture. Eric Flatt, software engineer, commented, ‘‘We are a company built by engineers for engineers.’’ Decision-making was described as ‘‘consensus driven,’’ and the organization was very flat. Many employees had similar titles, since Google had relatively few managers (5,000), directors (1,000), and vice presidents (100), compared with other companies of similar size. It was not uncommon to find engineering managers with 30 direct reports. Flatt Do N

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observed, ‘‘Management in the engineering organization is highly constrained, by design. There is only so much you can meddle when you have 30 people on your team, so you have to focus on creating the best environment for engineers to make things happen.’’

For much of Google’s history, there were questions internally about the overall importance and contribution of managers. Nadav Eiron, engineering director, explained: ‘‘Engineers generally want to spend their time coding and debugging. Many think that talking to direct reports gets in the way of getting that work done. And without training, some engineering managers have a hard time striking a balance between providing direction and micromanaging.’’ Jennifer Kurkoski, people analytics manager, commented, ‘‘There are many engineers—not just at Google——who tend to think that managers are, at best, a necessary evil, and at worst, destructive.’’ In fact, Page and Brin once asked Stacy Sullivan, director of people operations, if Google needed managers at all. Sullivan recalled an early experiment:

Back in 2002, we had a few hundred engineers reporting to four managers. Seeking a collegial culture similar to what they had experienced in grad school, Larry and Sergey decided to create a totally flat organization—with no managers whatsoever. That experiment lasted two or three months. Too many people went directly to Larry for things like approving expense reports and resolving interpersonal conflicts.

Google supported its rapid growth in headcount with a rigorous, data-driven hiring process. The company dedicated substantial resources to ensure that every person hired was top-level talent. Resumes were screened for markers that Google had identified as key success factors for doing well at the company, including extremely high levels of cognitive ability. Candidates who passed the resume screen were then assessed for other attributes such as initiative, flexibility, collaborative spirit, and ‘‘evidence of being well-rounded’’——all components of what made a candidate ‘‘Googley.’’

Executives believed that Google’s hiring filter was a critical component of the company’s success, helping to create a cadre of extremely high achievers. Kurkoski described her group: ‘‘We are hardworking, ambitious people. We are unrelenting perfectionists. We enjoy working together, and we never want to let each other down.’’ Google had a culture in which good ideas were celebrated, and authority was derived from peer respect. Chris Loux, head of global enterprise renewals, noted, ‘‘Managers here fail if they rely only on the authority of their position. Google has many young, high achievers who crave autonomy.’’

Google had a relatively fluid organizational structure in which groups were created and modified in response to product innovation and market needs. Sebastien Marotte, vice president, enterprise EMEA, commented, ‘‘Everything at Google moves so fast. It is a highly disruptive, unpredictable environment.’’ This dynamic led to frequent shifts in reporting relationships. Michelle Donovan, director, people development, noted, ‘‘People move all the time within Google. It is not uncommon to have three different managers over a two-year period.’’

Google