Amazon Inc. is an American multinational company that was founded in 1994 by Jeff Bezos as a small online bookstore before expanding products and services to become a global retail. The company was reincorporated in 1996 in the State of Delaware, although the company headquarters are in Seattle Washington (Amazon, 2019). Today, Amazon is a global online retailer that sells nearly everything including grocery, apparel, software, electronics and multimedia content. Besides the retail business, Amazon has ventured into offering technology services such as cloud computing, machine learning, artificial intelligence and digital streaming (Amazon, 2019). Currently Amazon controls 4% of the global digital retail market and 44% of the world online business. As of January 2019, Amazon employed a total of 647,500 both full and part-time employees excluding independent contractors (Amazon, 2019). The stock prices for Amazon rose by more than 8,000% since the initial public offering of 1997. Jeff Bezos is an iconic leader in the company acting as the president until June 1999 before resuming the position in October 2000 to 2021 (Amazon, 2019). Amazon’s classical organizational structure has been largely effective in promoting growth and efficiency.
Amazon Inc. uses the classical organizational theory. The theory consists of scientific, bureaucratic, and administrative concepts. The scientific management practices advanced by Taylor encourages planning, standardizing, specializing, and simplifying the employees’ roles and responsibilities to enhance efficiency ( Ferdous, 2017) . Employees’ roles and responsibilities are broken down into fine details that focus on a specific skills to reduce multitasking. The theory suggests mutual trust and benefit between workers and an organization and is characterized by economic incentives and an improved working environment. Under Weber’s bureaucratic approach, the employees are organized in a hierarchical structure of authority and with specific roles and responsibilities ( Ferdous, 2017) . The administrative aspect covers a wide range of principles and functions that facilitate accomplishing tasks such as division of work, command, remuneration, and discipline of members ( Ferdous, 2017) . Examples of classical organization structure include Amazon’s hierarchical organization structure, human resource management and exercise of power.
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Amazon Inc. has a traditional hierarchical organizational structure. The highest level of authority works from the headquarters in Seattle, Washington, and consists of the CEO, chief financial officer, CEO of the web services segment, CEO of worldwide consumer, vice president of business and corporate development, and chief legal officer (Amazon, 2019). To enhance efficiency in the global business, the company’s top executive office delegates authority to functional groups in 25 geographic regions categorized based on customer needs and culture. The regions are then divided into availability, local, outposts, and Wavelength Zones, each with managers subordinate to those of a larger area and ultimately the top executive. The company objectives, strategies, and control flow from the top in that the subordinate managers in the various company levels are expected to implement directives from the top executive. Therefore, the CEO, senior executive, and the board of directors have absolute control over the organizational operations.
Amazon applies Weber’s recommendations about the specialization of tasks. Each of the major organizational functions such as finance, consumer services, human resource, corporate development, international business, and web services are steered by functional groups led by the senior executives who report to the CEO and board of directors (Amazon, 2019). The functional groups bring together employees with different knowledge and skills who are assigned on specific goals such as innovation, problem-solving, or improvement of consumer experience. The heads of the functional groups are experienced persons who control the quality and consistency of the groups’ performance. The functional groups at the top management provide instructions to the managers of lower functional groups in the various area categorizations in both North American and the international segments for implementation (Amazon, 2019). The functional group facilitate the specification to reduce inefficiencies.
Amazon Inc. classifies employees based on specific roles and responsibilities. All tasks pending execution are categorized into projects and assigned to the functional groups consisting of accordingly skilled employees. The functional groups are led by functional managers who serve under the instruction of departmental heads. The functional manager coordinates and approves the use of resources. The employees report to the project manager and the functional manager simultaneously in a matrix organization that eliminates inefficiencies (Amazon, 2019). Like the senior executives who have specific roles and responsibilities displayed in a functional structure, each functional group develops a chart that shows each member’s specific roles and responsibilities (Amazon, 2019). Each department’s head has a special role in tracking each employee’s performance and recommending the necessary action.
The administrative theory posits that employees should be disciplined in pursuit of organizational objectives. Amazon Inc. applies a rigorous performance evaluation system designed to improve employees’ efficiency. The data-driven process checks every aspect of employees’ performance against individual’s set objectives to determine whether they meet the threshold or not (Amazon, 2019). Underperforming employees are required to commit to performance improvement or take up a severance package and leave voluntarily. The performance analysis of employees requires managers to continually rank their subordinates from best to the worst, develop performance improvement plans for lowly performing or facilitate their exit. To encourage transparency, the company has an online feedback platform that allows employees to anonymously critique or praise their colleagues as a way of encouraging honesty ( Fisman & Luca, 2018) . Amazon Inc. has a high employee turnover rate as most employees chose to take up a severance package rather than appeal the ranking or work under career ambassadors in trying to attain the threshold. The performance evaluation system may discourage employees from engaging Amazon Inc. hence hurting the company’s reputation among consumers. High-performing employees are, however, attracted to Amazon’s performance evaluation system.
Taylor’s approach requires for continued development of employees and the need to alleviate stress and anxiety. Despite the rigorous performance evaluation process, Amazon invests significant amounts in employees’ training and career development. In 2019, Amazon Inc. committed $700 million to provide their employees with free training on essential skills such as cloud computing within a period of 5 years (Amazon, 2020). More than 100,000 employees are expected to benefit from the program, which comes with improved remuneration because of better-paying jobs. Amazon also supports employee development programs through Machine Learning University (MLU) and Amazon Technical Academy. The Machine Learning University allows employees to acquire artificial intelligence coding skills while requiring at least half a day per week. The Amazon Technical College allows non-technical employees to transition to software engineering careers, such as through tuition-free programs. Through a career choice program, Amazon pays 95% of the tuition program for employees receiving training in high-demand occupations such as machine learning, computer-aided design, and medical lab technologies (Amazon, 2020). The program has benefited more than 30,000 employees since the inception of the program in 2012.
The classical management theory recommends that employees should be motivated using monetary rewards. Amazon’s remuneration packages include base salary, sign-on bonus, and equity (RSUs) (Amazon, 2020). Hired employees have an opportunity to negotiate the base salary after a job offer, although the negotiations depend on the anticipated length of stay at Amazon. The sign-on bonus and equity (RSUs) are designed to encourage longer stays at Amazon and productivity. Amazon, for example, pays a minimum of $15 per hour in the US which is more than twice the federal minimum rate of $7.25 per hour ( Fisman & Luca, 2018) . The bonus rates and equity (RSUs) are lower in the first year but increase with the years of service. Usually, employees receive share grants calculated at the current stock price. In owning company shares, employees develop a sense of ownership and have to be productive to maintain high share prices or incur losses.
The advantages of the classical organization structure include division of labor, monetary incentives, and control of decision-making. The specification of each employee’s tasks encourages productivity and efficiency because employees can focus on acquiring the relevant skills in a narrower area and fear of underperforming among employees ( Ferdous, 2017) . Available opportunities for career development and training bolster the knowledge base of employees, thus motivating them to be more efficient and productive. Monetary incentives such as bonuses and equity grants help to encourage and retain employees as they feel appreciated. The classical theory supports a hierarchical system where directives flow from the top executive to supervisors in the middle and lower tier. The management control wielded by Bezos has helped him to create a reputable brand that boasts more than 100 million prime subscribers courtesy of quality customer service (Amazon, 2019). Today Amazon offers competition to technology giants such as Google and Microsoft in areas such as cloud computing.
Other than the classical organization structure, Amazon Inc. has adopted certain aspects of the modern organization theory. Aspects of modern organization structure are observable in the organization’s handling of linking processes. The modern organization theory proposes the consideration of employees input in the decision making process and the efficient communication of the organizational goals to the employees ( Ferdous, 2017) . Although the directives flow from the top executives, Amazon has a platform where employees can provide feedback about the company without revealing their personal details. The employees’ feedbacks are analyzed using data analytics technologies and may be considered in decision making by top executives (Amazon, 2019). Communication between top management and the subordinate employees is made through meeting and a memo from the CEO. Normally, the letter to employees stipulate the organizational objectives and the management expectations. Amazon’s also participate in human activities in appreciation that the organization is part of the environment ( Ferdous, 2017) . The company is engaged in a vast corporate social responsibility program that involves community development programs in education, healthcare and environmental conservation (Amazon, 2019). An example is Amazon Smile program that donates a proportion of the sales revenue to charitable organizations.
Evident powers in Amazon include legitimate, reward, coercive power, and expert power. The legitimate power emanates from the hierarchical system that bestows the power to make decisions and directives to the CEO, who may delegate to the senior executives heading organizational departments (Singh, 2009). Directives flow from top to bottom, and the lower rank managers are required to facilitate the implementation of directives from top executives. Failure to implement the decisions of top executives and managers may invite disciplinary action or lower performance ranking. To avoid excessive use of legitimate power, Amazon uses reward power to motivate and retain employees. The company has expensive programs in career development and employee training ( Amazon, 2020) . The company pays a base salary at double the federal minimum rate and offers bonus and equity grants for incentives ( Fisman & Luca, 2018) . The ranking of employees from best to worst introduces an element of coercive power. Employees are bound to adhere to the quality lest they invite an encounter with career ambassadors or have to take up a severance package and leave voluntarily. The achievements made by Amazon’s CEO Bezos come with expert power. Employees in the organization look up to him as an expert with expansive knowledge about the organization and market. Employees are, therefore, likely to take up directives without question.
Although Amazon has attained significant milestones while applying the classical organization structure theory, more benefits may be attained by modifying some of the strategies. Given that Amazon Inc. has expanded to the technology industry, the success is more dependent on innovativeness than ever. The company should therefore consider introducing participative management to incorporate employees’ input before decision making. Participative management encourages creativity among employees, improves the acceptability of management decisions among workers, encourages collaboration and employee retention ( Ferdous, 2017). Despite incentives such as high pay, and funding career development, Amazon has a high employee turnover rate of 1 year. A high turnover rate limits a company’s potential to retain experienced employees. To enhance retention, the company should consider reducing coercive power, which instills fear among employees. The ranking of employees against each other and the anonymous feedback platform that sets employees against each other should be reviewed to improve the working environment. Employees should be evaluated against their individual specified tasks other than against other employees’ performance. Rather than use an anonymous platform to set employees against each other in search of their honest view, Amazon ought to invest in employees’ training to promote collaboration rather than competition.
References
Amazon. (2019). Amazon Inc. Form 10-k . https://www.sec.gov/Archives/edgar/data/1018724/000101872419000004/amzn-20181231x10k.htm
Amazon. (2020, October 3). Our upskilling 2025 programs . About Amazon. https://www.aboutamazon.com/news/workplace/our-upskilling-2025-programs
Ferdous, J. (2017). A journey of organization theories: from classical to modern. International Journal of Business, Economics and Law , 2289-1552.
Fisman, R., & Luca, M. (2018, October 10). How Amazon’s higher wages could increase productivity . Harvard Business Review. https://hbr.org/2018/10/how-amazons-higher-wages-could-increase-productivity
Singh, A. (2009). Organizational power in perspective. Leadership and Management in Engineering , 165-176.s
