What's Wrong With Amazon’s Low-Retention HR
Strategy?
SUMMING UP Does Amazon's "only
the strongest survive" employee-retention policy make for a better company
or improved customer relationships?
This past month, a New York
Times report on Amazon’s personnel strategies prompted several days of
intense debate. A number of questions can be raised about the article
itself, given the fact that much of it was based on interviews with those who had
left an organization that clearly placed severe restrictions on the reporter’s
movements and contacts within the company.
But let’s assume for the moment that the
article was even-handed and accurate. It portrayed an organization with a
“churn and burn” personnel strategy offering exciting jobs, creative freedom
among talented co-workers, and the opportunity to earn high compensation--but
jobs that often become too demanding for some employees, particularly those
with health problems or family obligations.
Former employees complained about bosses who
lacked empathy for their problems and that kicked back when personal priorities
supplanted job priorities. No data was provided, but the impression left
by the article was that because so many good people have left Amazon, it
pursues either intentionally or unintentionally what can be called a
low-retention strategy when it comes to people.
It’s one that has produced remarkable service
for customers and long-term profits to patient investors but disappointment for
some people who have gone to work there.
In fact, if Amazon is pursuing a
low-retention HR strategy, its customers probably regard it as a highly
successful application of that idea. Advocates of a high-retention
strategy may wonder why Amazon hasn’t learned something from online retailer
Zappos, a high-retention, “best place to work” company that
Amazon owns.
Several years ago, Wayne Cascio compared the
high-retention strategy of Costco (high wages, high productivity, high employee
retention, low employee replacement costs, low prices, substantial profit) with
the low-retention strategy of Sam’s Club (low wages, lower productivity, much
lower employee retention, high employee replacement costs, low prices, and
substantial but lower profit than Costco). The implied conclusion was
that high retention strategies like Costco’s can be more attractive for
employees, customers, and investors alike. (The irony here is that
David Glass, when he was CEO of Walmart, Sam’s Club’s parent, once said: “Give
me fewer, better-trained, better-paid people and they’ll win every time.”)
But think a minute. We’ve mentioned
four organizations that all have been quite successful pursuing both high- and
low-retention HR strategies. It raises questions about whether we have
painted too attractive a picture of high-retention organizations (Costco,
Zappos) in competition with those characterized by low retention (Sam’s Club,
Amazon). Both apparently can provide good service and make a lot of
money. If that’s the case, which strategy is most appropriate?
Under what conditions?
What’s wrong with a conscious pursuit of a
low-retention strategy if it is based on providing exciting, demanding jobs,
even if they lead to “burn out” among some employees? Is it a problem of
sustainability? After all, McDonald’s and others have been able to
sustain competitive success with high employee turnover for many years.
To read more:
Wayne F. Cascio, The High Cost of
Low Wages, Harvard Business
Review, December 2006, pp. 23-33. See also
Cascio’s paper, “Decency Means More Than Always Low Prices: A Comparison
of Costco to Wal-Mart’s Sam’s Club,” Academy of
Management Perspectives, August 2006.
Readers
Respond: Employee-Retention Strategies and the Future
Employee-retention strategies in business
quite logically vary from one industry to another. Perhaps even more
important for today’s society, they vary from one job and type of employee to
another within the same organization.
It applies to Amazon, this month’s poster
child as a low-retention employer. That’s the general message that comes
through in responses to this month’s column.
Some respondents suggested that it is only
natural to find different strategies depending on the nature of the business.
As Himanshu Pant pointed out, a strategy of higher employee turnover
works best "in companies like Amazon where the loyalty of customers
is relatively more towards the product & its prices," and less towards
its rarely seen employees.
The most frequently expressed view was that
it is natural to gear a retention strategy to the job--to the nature of the
work to be performed. Ivar put it this way: “When talking of turnover, it is
important to know who is leaving the company." For companies such as
Amazon, he said, "if well-paid, smart techies making things happen in AWS
(Cloud computing) leave because they are treated poorly ... that is a problem.”
ITG added, “Amazon’s business model is
perhaps about scale, automation and efficiency. I will imagine the HR or people
strategy would be geared towards attracting and retaining the employees that
will help to accelerate and improve these key performance and competitive
advantage factors.” Gopal Parmeswar summed up this view commenting, “the
retention strategy should be governed by the role of the employee in the
organization. Our company has successfully strategized a two track policy.”
All of this sounds as if low-retention
policies will continue to play an important role in HR strategies--there were
certainly strong opinions about such policies.
As TNoble101 said, “a low retention, ‘chew
‘em up and spit ‘em out’ strategy highlights the negative side of unbridled
capitalism against which the current populist movements are reacting. It works
well for dictators building pyramids and great walls, but for a healthy
democracy … not so much."
Finding a high correlation in his research
between disgruntled employees and employee sabotage, Murray Burt advised us to
“Stray into unhappy employee territory at your peril. I suspect Amazon’s
profits are a lot lower than they could be.” Eric Morehead added: “I think
there may be too many variables left out here… The relative happiness of an
employee base has bottom-line repercussions far beyond customer satisfaction.”
What’s to be done? At the very least,
FISSINNF suggests that greater transparency in recruiting would be helpful.
“Amazon is an easy target for people to criticize… If it is promoting its jobs
as sitting in a laid-back, laissez-faire environment and the reality is far
different, then that is wrong… (but) surely, most people know the business
demands much of its staff.”
The comments raised interesting questions
about the future of the workplace. Michael expressed that the industry/culture
has been disrupted by emerging technological and economic change that forces
the lower-retention model. "It looks like we will end up with a very much
smaller semi-permanent work force, a larger number of fly in, fly out
subcontractors, higher productivity, and higher individual remuneration.”
by James Heskett
https://hbswk.hbs.edu/item/is-something-wrong-with-amazon-s-low-retention-hr-strategy
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