Innovative Management at Amazon: Competitive Advantage

Introduction

Company Overview: Problem Statement

Amazon.com is world-known multinational electronic commerce retailer founded by Jeff Bezos in July 1994 (Rozdolskaya et al. 2014). The company is involved not only in selling various goods but also in manufacturing electronic (such as e-book reader Kindle) and industrial (cloud computing) products, achieving equal success in all practices. Currently, Amazon.com has over 200 million active customer accounts all over the world, and its popularity continues to grow every year. The company offers the most convenient way to deliver its products, an affordable price, exhaustive information, and a wide range of options–therefore, it has good grounds to strive for the position of the world’s most customer-oriented company. However, to achieve this ultimate goal, Amazon needs to overcome a lot of challenges and problems connected with its strategic management that is now being widely criticised. The corporate culture of Amazon.com is based on scientific management and digital Taylorism (Stefanova 2015). This approach results in a negative company image and a loss of customers while affecting its competitiveness in the market. Furthermore, despite constantly rising sales, Amazon has falling profits that are attributed to its management failures. Thus, it is crucial to investigate management practices of the company in order to identify how innovative management techniques can be implemented to increase its competitive advantage.

Research Questions and Objectives

The major research question of the paper at hand can be formulated as follows: How can Amazon.com use innovative management practices and associated activities in order to increase its competitiveness? There are four objectives that have been identified in order to guide the process of investigation of the issue:

1. to determine management practices which are currently used at Amazon.com to generate a competitive advantage;
2. to identify gaps in the current management practices which can influence the company’s competitiveness;
3. to propose innovative management practices to be used at Amazon.com;
4. to determine approaches to using innovative management practices and associated strategies at Amazon.com to increase its competitiveness.

Methodology

The research method chosen for the study is the case study based on analysing secondary data. For the purpose of reaching all the research objectives that have been set for the paper and come up with the answer to the major research question, the research must focus on the explanatory case study analysis conducted for Amazon.com with reference to examining internal and external secondary data. It has been concluded that the case study based on secondary data is most appropriate for this research to address the formulated question and objectives.

This method is selected since it manages to meet the necessity of analysing possibilities for applying innovative management practices at Amazon.com to increase its competitive advantage while evaluating the currently used managerial strategies and innovative techniques to replace the previously used strategies.

As it has been mentioned above, the research will rely on both internal and external secondary data. The former be collected for the case study will include the company’s reports, statistics, and other types of documents available online and in databases. The latter refers to articles on innovative management practices to be used at Amazon.com, newspaper articles and other media sources, as well as scholarly investigations on the topic. The practical and ethical issues related to this study are associated with the accessibility of the required data. The publicly available information on management strategies used at Amazon.com will be accessed and analysed for this case study.

Literature Review

In order to be able to choose the most effective strategy for the company, we must obtain the holistic picture of its operations and approaches. First and foremost, we need information on both presently applied practices of Amazon and innovative management alternatives that are capable of boosting the company’s performance thereby creating a competitive edge in the market.

The concept of innovative management can be defined a specific approach to managing innovations in all spheres of corporate activities, including the creation of new products and services, the work with customers, as well as the work with employees, aimed at generating a competitive advantage (Gureva et al. 2016). This management approach emphasises application of innovative techniques and newly created opportunities in order to achieve positive changes in the company’s performance and contribute to its future growth (Ejdys, Ustinovičius & Stankevičienė 2015). Understanding the idea standing behind this approach is necessary to study how innovative management can be useful to Amazon.com as compared to its current strategies.

On the other hand, it is also important to find out what approaches of those used by the company can affect it negatively. The article by Kantor and Streitfeld (2015) provided details about the mistreatment of Amazon.com employees obtained from interviews and surveys. This allows drawing the conclusion that the company has certain gaps in its HR management strategy and needs to review its policies to ensure higher job satisfaction. Stefanova (2015), on the other hand, looked deeper into the topic and provided an overview of the practices used by Amazon.com to manage its employees for the purpose of increasing competitiveness. The author outlined the basic principles of scientific management and identified its key benefits and drawbacks, arguing that scientific management hinders collaboration in the workforce and affects the establishment of a positive team dynamic. Such findings support the idea that for the case of Amazon.com, the substitution of scientific management with innovative management would offer a significant competitive advantage (Stefanova 2015).

Other articles analysed for this study are devoted to the explanation of the key ideas underlying innovative management. Thus, they provide a rationale for using the approach to alleviate management issues and promote a company’s growth. For instance, the recent study by Barnard and Van der Merwe (2016) focused on the implementation of innovative management practices in higher education institutions with a goal of improving student performance and engagement. This article is applicable to the present study because, with a high level of staff turnover, Amazon.com has ongoing training practices in place to introduce new employees to their duties–the idea that seems to be less effective than it was supposed to be. In this case, applying innovative management practices would not only help ensure the effectiveness of training thereby promoting the effectiveness of the workforce but may also reduce the turnover rates. Furthermore, Amazon.com operates in an extremely competitive market, in which each creative idea can be used to trigger the appearance and elaboration of a new product or service to attract customers.

The article by Sadriev and Pratchenko (2014) offered an introduction to the interpretation of the idea management in innovative management practices. The authors explained the importance of this idea and provided an overview of practices for companies to implement. This is directly related to the proposed research as Amazon.com needs practical guidelines to switch from its ineffective practices to innovative ones. Finally, the article by Nedelko and Potocan (2013) reported on a study of innovative management that aimed to outline the role of this approach in the development of novel working systems for organisations. This study applies to the paper at hand as it shows how the use of innovative management techniques can align employees with the company’s vision and standards, improving both their commitment and increasing effectiveness of their work.

Advantages and Disadvantages of Amazon’s Scientific Management

Before passing on to innovative management techniques, it is essential to have an insight into the method that Amazon currently applies to its management practices in order to find out why it can undermine profitability of the company and therefore has to be replaced.

Although scientific management can be traced back to the works of Charles Babbage, who introduced this concept at the beginning of the 19^th century, the approach is usually connected with the name of Frederick Winslow Taylor since he was the one who made scientific management popular all over the world. He strived to eliminate all kinds of wastes and inefficiency that came as a result (Rozdolskaya et al. 2014). Taylor believed that the only way to do it was to introduce clearly stated laws, regulations, and working principles that could be universally applied to households, firms, universities, governmental bodies, churches, and all kinds of social institutions. That was the initial mistake of the author as he did not take into the account particularities of each organisation, which should be the major consideration when choosing a management approach (Donate & de Pablo 2015).

Initially, scientific management was mostly implemented in engineering industries but later gained popularity in business. Despite its evident disadvantages, it would be wrong to state that scientific management does not accomplish what it promises. In fact, in the short term, this approach allows to achieve considerable profits (Donate & de Pablo 2015). The example of Jeff Bezos, who managed to build the largest global online retailer, proves that there are advantages that can be achieved through application of scientific management (Kianto et al. 2014). Here are some of them:

1. The approach relies on qualified and well-trained minds–this allows achieving meet high standards of excellence in all business branches (Kianto et al. 2014).
2. It provides a comprehensive control system that determines layout, routing, scheduling, storing, selling, and delivering methods (Engel et al. 2015).
3. This style of management helps company leaders standardize all the methods, tools, materials, and equipment in order to facilitate the process of work (Kianto et al. 2014).
4. The approach offers facilities allowing to divide labour and to ensure narrow specialization, which means that each employee professionally performs a particular, limited set of duties (Villar, Alegre & Pla-Barber 2014).
5. Scientific methods rely on evidence unlike the traditional rule of thumb and do not violate human rights (Engel et al. 2015).
6. In general, scientific management usually achieves significant improvements in the working process: It prevents production delays, helps workers avoid bodily strains, reduces wastes, and supports proper utilisation of resources (Holahan, Sullivan & Markham 2014).
7. It assures cooperation of the employer and the employee as they work together to achieve common goals (Járgensen, Becker & Hyland 2014).
8. Scientific management makes it possible to reduce costs through increased output and helps the company to enlarge the market (Járgensen, Becker & Hyland 2014).
9. In its ideal version, the method results in higher wages for workers thereby eliminating unrest on this topic and leading to higher standards of living (Engel et al. 2015).

However, despite these appealing advantages, scientific management continues to provoke disputes and, in case of Amazon.com, has already become a point of severe criticism. The validity of the approach is not questioned not only by the company’s employees but also by managers and psychologists, who believe that it ruins the working atmosphere. The major disadvantages of this approach to management can be summarized as follows:

1. In spite of the idea of cooperation of the employee and the employer standing behind scientific management, it rarely happen when it is implemented in practice. Employees are constantly afraid of losing their jobs and feel that they have to compete with their colleague in order to stay afloat as the company clearly states that it wants only the best professionals. This leads to a complete deterioration of team work. However, no matter how talented individual workers may be, any company still needs to ensure their collaboration in order to achieve outcomes that would surpass any individual progress (Stefanova 2015). On the contrary, scientific method heavily relies on individuality: They are encouraged to compete and to work on their own to demonstrate with best traits and outperform everyone else. Furthermore, they are under constant pressure as those who drag behind everyone else are usually fired no matter what their previous achievements were. This leads to scheming and lack of trust (Holahan, Sullivan & Markham 2014).
2. Scientific management dehumanizes labor and has a negative impact on the morale. Statistics shows that only 13% of workers across the world feel emotionally engaged in their work and more than a half are deeply unhappy with their jobs. The reason for their dissatisfaction is rarely connected with the financial aspect or the nature of the work–on the contrary, even those people have decent salaries state that they feel the lack of commitment and interest as their managers cannot motivate them (Albrecht et al. 2015).
3. This approach to management is too much concentrated on achieving short-term goals while ignoring long-term prospects. As a result of the desire to achieve immediate progress, Amazon and other corporations that use scientific management fail to invest in the future of their business. The company’s employee’s are encouraged to hit the expectations of the company’s investors, which leads to the neglect of long-term goals (Stefanova 2015). As a result, most of people working for Amazon do not consider their job as a lasting career as the demands are too high whereas profits are not numerous. Burnout creates high turnover rates–therefore, the company does not have any human reserve, upon which it could always rely (Albrecht et al. 2015).
4. As a result of stress, the approach completely destroys loyalty to the company. Since employees are always worried about losing their jobs, they can even feel adverse to their company. Consequently, those workers who are sure that the company is not going to stand by them and support them will never take any risk for its sake and will prefer setting their personal goals as a priority (Albrecht et al. 2015). Amazon’s experience shows that in many cases employees were willing to work in collaboration, however, in critical situations, the company did not provide them with reciprocal support: Amazon never rendered any help to those who fell terminally sick or had lower ratings owing to some other serious reasons. The major task is to complete all the planned work no matter what circumstances may emerge. Thus, employees feel that they are treated like inanimate objects and are not willing to sacrifice their time and effort for the sake of such companies (Stefanova 2015).
5. Scientific management does not encourage innovation that would go beyond those methods that were initially introduced as innovative. Innovation is the most important factor to ensure the company’s growth and success. However, companies using the scientific approach to management are unwilling to introduce new ways and methods that would not align with the initial strategy as they are afraid of break-through ideas that may present risks to the current profitability (Stefanova 2015). In case of Amazon, the situation is aggravated by the fact that employees are measured against hundreds of metrics on a daily basis, which makes them focus exclusively on their performance indicators and eliminates all innovative ideas that may appear. Although the company encourages its employees to speak up, in fact, their openness and criticism are typically punished. Thus, the company’s leaders rarely practice what they preach in terms of innovation and collaborative efforts as in practice talent and individuality are not supported (Liu et al. 2016).
6. The approach is costly and savings are infrequent and rather small. Since scientific management insists on a total control over all the company’s operations, expenses turn out to be rather high (Liu et al. 2016). Moreover, lack of innovation leads to higher costs of production as no new methods that would allow saving money are introduced (Helper & Henderson 2014).
7. Scientific management tends to speed up the workflow. Since all leaders and employees are tasked to reach specific goals, processes have to speed up to meet their needs. At the same time, no structural changes take place (Liu et al. 2016). As a result, workers have to complete their tasks faster without receiving any incentives.
8. The company gradually transforms into an autocratic unit. Since bosses have an absolute control, the organization soon becomes totally undemocratic and a natural working process is reduced to a set of instructions that have to be followed (Helper & Henderson 2014).
9. The approach is financially unfair to workers. The whole profit the company receives generally goes to the employer whereas employees’ wages can even be lowered in certain circumstances. This is quite a typical practice applied by Amazon.com in cases of emergency (Subramanian & Gunasekaran 2015).
10. Scientific management creates public unrest and provokes labor unions’ activity. Work dissatisfaction usually brings about trade union movements, striving to achieve justice and equality. Even if this does not lead to any real changes, the reputation of the company is threatened. Amazon is now frequently discussed in the media as a company that does not take care of its workers (Helper & Henderson 2014).
11. This style of management does not provide any non-financial incentives whatsoever. It has been proven that these components of job satisfaction are often more important than financial benefits. Nevertheless, Amazon has been widely criticized for ignoring this aspect (Ma Prieto & Pilar Perez-Santana 2014).

As we can see from the analysis of scientific management, although this approach was innovative in the 19^th century and provided a lot of benefits to businesses that ventured upon this new method, it can hardly be applicable in the present-day business world that fosters collaboration, team work, modernization, and involvement. That accounts for the fact that Amazon gradually loses its competitive advantage in spite of growing sales. That is why it becomes particularly crucial for the company to leave behind its old-fashioned practices and become open for the new.

Advantages of Innovative Management for Amazon

Companies using innovative management techniques are those who generally lead the way with their prospective vision, new technological advances, high quality products, and humanized approach. For instance, such industry giants as Apple and Google foster innovation and constantly review their management strategies in order to ensure that organizational issues should not stand on their way to success (Watada, Xu & Wu 2014). Any progressive company knows that the influence of innovation and technology in the world of globalization is overwhelming indeed. Companies, which set innovative management as a priority, not only win enormous profits but also position themselves as organisations that care for their employees and do their best to ensure their commitment. This always attracts investors and guarantees workers’ loyalty (Jain & Jeppe Jeppesen 2013).

Therefore, Amazon has the following possibilities to use innovative management to achieve competitive advantage:

1. The company may use innovative approaches to increase its creativity. Amazon currently employs a lot of creative and progressively thinking individuals; however, they usually strive for achieving their personal goals and do not see new products to completion (as scientific management presupposes that each employee has to be responsible for only one task). Innovative management give talented employees an opportunity to create innovations from a scratch and elaborate them into fully operating projects without having to leave the idea in the middle of its implementation. Creative employees will have a chance to conceptualise, design, and apply their innovations, and follow them up to the moment of creating a new product that would be highly desirable for potential customers. Although Amazon always emphasised the idea of seeking new talents, it actually never allowed them to act independently and go beyond their range of duties. Thus, this possibility can bring the company to a new level of performance and considerably change its corporate philosophy (Helper & Henderson 2014).
2. Innovative management fosters effective management and ensures collaboration. In spite of its growing profits, Amazon could never boast of its approach to HRM as its managers never found appropriate ways to establish contact with employees. There is always a lot of misunderstanding that often creates tension and increases the turnover. Innovation will make it possible for Amazon leaders to address conflict and solve them before they impair the company’s reputation.
3. Amazon can resort to innovative management for taking a leadership role in the industry. In fact, in any modern business, it is essential not only to have the leading position in the market but also to create an image of the leader to make other companies follow your ideas and develop them. For instance, when Apple announces its news concerning innovations, it usually raises the bar for other similar products and companies that want to achieve the same level of success and therefore have to catch up (Helper & Henderson 2014). Amazon tends to neglect this kind of promotion as scientific management is outcome-oriented (which means that the company usually ignores the impact produced by the process itself). Amazon.com could try using innovative management techniques for creating an image of a leader, which influences the public opinion (Subramanian & Gunasekaran 2015).
4. Innovative management will help Amazon gain experience in the field. The point is that occasional introduction of innovative techniques usually brings about a lot of errors and results in disappointment as the result does not meet the expectations. The company is not used to repeating the same innovative practice over and over again (Kianto et al. 2014). Therefore, customers have no chance to estimate the effort. Thus, Amazon.com could implement innovative management in order to get experience in creating new products and proving new services. This would make the company stand apart from its competitors (Subramanian & Gunasekaran 2015).
5. Name recognition is another goal for Amazon. Since the company is already the leader in its industry, it now has to maintain its position though brand equity. Innovative management presupposes that the company also puts some effort in establishing its unique name in the long-run. Amazon could sacrifice some of its short-term goals in order to achieve a long-lasting success. Although it already has a well-known name, there appear plenty of young and ambitious companies that may threaten its position in the market (Kianto et al. 2014).
6. Innovative management can be applied to open a new source of ideas for Amazon. An idea management system is required in order to capture the ideas of employees coming from all departments. At present, Amazon is notorious for its propensity to stifle any kind of innovative suggestions that may create additional risks. However. The amount of potentially applicable ideas predetermine whether the company would be able to stand against its competitors. Therefore, Amazon must encourage its employees who come up with fresh ideas for them to get the feeling of commitment and a common goal (Kianto et al. 2014).
7. Amazon can use innovative management in order to help the organization to capitalize the best ideas quicker. With scientific management it is practically impossible to identify prospective ideas and encourage their authors whereas innovative approaches shift the focus of attention to people (Kianto et al. 2014).
8. Innovative management will help the company to increase its transparency. Amazon is now highly secretive about the approaches it uses, which undermines employees’ trust. Innovative approaches can help the company to increase employee morale and commitment by showing them that they are a part of an open system, in which everyone is a partner who has the right to see what is going on even if the organisation encounters certain problems.

Conclusion

Despite being the world’s largest and most successful online retailer in the market, Amazon.com is currently experiencing a number of problems connected with its management system. The problem indicated by many consists in the fact that the corporate culture of Amazon.com is based on scientific management and digital Taylorism, which mars the image of the company and leads to a substantial loss of customers, undermining Amazon’s competitiveness in the market (Stefanova 2015). In fact, scientific management (that was innovative and highly popular in the 19^th century) now creates unfavourable conditions for employees, which leads to job dissatisfaction and high turnover rates. Innovative management that fosters transparency, collaboration, democracy, and creativity would considerably help the company to creative a competitive advantage leaving all the prejudice of the old system behind. Furthermore, innovative management would be beneficial not only for Amazon but also for its employees as it would allow them to express their ideas freely, use their creativity, and receive non-financial incentives that they have never enjoyed. Ensuring their loyalty and engagement in the process of strategic development, the company could achieve much better outcomes and make a great contribution to its future.

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