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? Jim Heskett's readers chime in.
by James Heskett

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 parlance that my co-authors and I used in a recent book that discusses Amazon, it still falls short of the “service trifecta.”) 

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.  What’s wrong with a low-retention HR strategy?  What do you think?

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.

David Glass, in a comment confirmed by email on April 10, 2002.

James L. Heskett, Earl W. Sasser, Jr., and Leonard A. Schlesinger, What Great Service Leaders Know and Do:  Creating Breakthroughs in Service Firms (Oakland, CA:  Berrett-Koehler Publishers, Inc., 2015), especially Chapter 4.

Jodi Kantor and David Streitfeld, Inside Amazon: Wrestling Big Ideas in a Bruising Workplace, The New York Times, August 16, 2015, pp. A1 and A20-22.


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 tthe 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.” What do you think?

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