Guest Post: “Your Amazon.com order has shipped…from a sweatshop?!”

Image Courtesy Fast Company

I recently read a blog post by fellow Kellogg professor Jan A. Van Miegham about some harsh accusations made against Amazon by American Rights at Work, an organization that describes itself as “inform[ing] the American public about the struggle to win workplace democracy.” The post struck me because of the harshness of the alleged conditions and the reputational risk posed to Amazon.  How these accusations, originally published in The Morning Call, a Pennsylvanian newspaper, pan out is yet to be seen, but Miegham breaks down the story and provides an interesting look at how the Internet can promote social responsibility as much as it can fuel a potential corporate crisis.

Three days ago, my friend Sheri forwarded me an email she had received from American Rights At Work (excerpts below) about sweatshop conditions in an Amazon warehouse.  I told my executive MBA class yesterday that I should write a blog entry about this for two reasons:

1. Illustration of the social power of the Internet to force change for the better. This story will quickly make it to the major newspapers which will force Amazon to quickly address this before it becomes a PR crisis.  (My colleague Daniel Diermeier will surely write about the reputation management principles that Amazon should follow.)
2. The use of performance measurement and temporary workers in a warehouse/service operation where every employee move is recorded.

On to the first item: The social power of the Internet to force change for the better.  The email started as follows:

Dear Sheri:

When you order a book from Amazon, do you know why it’s so cheap and arrives so fast? Because employees at an Amazon.com warehouse are literally working in a sweatshop.

New details have emerged that working conditions are so horrendous – with temperatures inside a Breinigsville, PA, warehouse often soaring above 100 degrees – that Amazon keeps an ambulance parked outside.¹

Amazon would rather pay to take sick, overheated workers out on stretchers than turn up the air-conditioning.

The email cited a local newspaper that interviewed multiple people who work(ed) at Amazon’s Lehigh Valley warehouse.  I see no reason not to believe this article and, at the same time, I recognize that it may be “difficult” to control temperature in a large warehouse and that this may have been an outlier during some hot summer days. However, let us not forget that “difficult” in business means “costly.”  Surely, temperature control in large areas can be done—Costco’s large warehouse stores have pleasant temperatures all year round—it just can be expensive [I don’t often run the AC at home for that reason].  But Amazon clearly can afford it when rakes in $33 billion in revenues.

So my first point is: When managing an organization, don’t simplistically follow short-term profit maximization.  Rather ask yourself at the end of each the day before you go to sleep: did I do the right thing? Can I sleep well at night?  The answer here seems obvious to me…

Now on to the second item: performance metrics and temp workers. The email continues and states:

Amazon’s outrageous behavior includes:

• Demanding work at such backbreaking speeds that employees suffer injuries and face constant threats of termination for being too slow.
• Forcing employees to stay in an unsafe working environment where the heat index can hit 114 degrees.
• Relying on temporary workers to drive down wages and make it hard for workers to collectively stand up for their rights.

While Amazon is an Internet company, these allegations are reminiscent of similar issues at the dawn of the Industrial Revolution when scientific management would use time and motion studies to set minimal standards.  In Amazon’s setting, every move of an worker is recorded because each item is scanned when retrieved or packet into a tote or box. So there is a wealth of detailed information and no space to hide.  Should a good operations manager not use this data?

The question is to what extent and how that data is linked to incentives.  It is not uncommon for sales people to be measured in terms of the numbers of calls made per day and to be summoned by their manager when they fail to reach their quotas.  So, there is nothing new here, except perhaps the moral/ethical implication: is Amazon pushing it to far?

Here again I would suggest any manager to not simplistically follow short-term economic profit
maximization but to also consult their heart.  While cold economic thinking can say: “well, there’s a deep pool of labor available so we can afford the turnover,” a sensible and wise manager will always ask: “Did I do the right thing?”  When ever in doubt, it is useful to ask: How will I feel if this appears in the newspaper?”  Again, the answer here seems obvious to me…

Last: in contrast to the two earlier points, the critique about using temporary workers is without merit.  We have recorded in this blog the huge demand swings that Amazon must accommodate: up to a fourfold increase for the holiday period.   Staffing up to the peak with permanent employees that for 80% or more of the year are idle is not advisable to either the employees or the firm…

Jan A. Van Mieghem is a professor of managerial economics and operations management at the Kellogg School of Management at Northwestern University. From 2009-2010, he served as one of the two Senior Associate Deans at the Kellogg School. He is the author of Operations Strategy and writes the blog The Operations Room, a forum for discussing current topics in operations management (OM).

Read Full Post »

Crisis Management Essentials: A Primer

Business, it seems, has entered the age of crisis. Almost every day, another venerable company or institution finds itself in the headlines, and usually not in a flattering context. In addition to a long list of global corporations, public sector institutions and non-profits are increasing forced to deal with serious crises. Yet, despite this significant change in business climate, the nature of corporate crises is frequently misunderstood. Such misconceptions can lead to severe management mistakes in a crisis situation.

1. First, all too often crisis management is viewed as the sole responsibility of the public relations or the legal department. This approach overlooks the fact that crises need to be viewed as business issues closely connected to a company’s identity and position in the market-place. Managing these challenges frequently requires a trade-off between different risks such as legal and reputational risks. By delegating these decisions to any functional unit managers effectively abdicate their responsibility.Delegation to functional experts also makes it much less likely that crises are prevented before they occur – the most effective form of crisis management. The reason is that once PR specialists or the corporate attorneys become involved the crisis is usually already in full swing – too late for effective crisis management.A much more effective approach is to view the prevention of crises as the responsibility of management. On the one hand, a company has most control over the situation in the pre-crisis state. On the other hand, many crises originate in routine management decisions. This emphasizes the value of prevention and preparation strategies applied to everyday business practice.

   The goal of prevention strategies is to eliminate or significantly reduce crisis risks. In the case of manufacturer this includes quality controls, in the case of an accounting firm or financial services a strong set of values. Adopting such safeguards (and allocating resources to pay for them) is the responsibility of managers.

2. Second, the crisis is misunderstood. Companies frequently focus on who is at fault (usually somebody else, e.g. a supplier) and who is liable (ideally not the company, of course). While the assessment of potential legal liabilities is an important part of any crisis management strategy, it is only a part. Other important issues that need to be considered are damage to a company’s reputation, its supplier relationships, its effect on customer loyalty, its potential damage on employee morale, and its relationship to regulators, to name just a few. Managers need to balance those effects and integrate them into their strategy choice.The most important task during a crisis is to reassure all stake-holders. Brands are promises, and these promises needs to be reaffirmed to a crisis. To preserve and rebuild trust companies need to focus on four dimensions: transparency, expertise, commitment, and empathy. Unfortunately, many companies focus on expertise alone, in part because their expertise is their comfort zone, giving them an illusion of control. Leaders need to actively resist this temptation and emphasize all four dimensions.
3. Third, crises are not only threats. They can also present a (hidden) opportunity. Once a company is in the media spotlight it is effectively on stage, and customers, employees, business partners and external stakeholders are paying attention. Once we pay attention, we remember. So, whatever course of action management takes, it will define its reputation for a long time. Effective crisis management can significantly enhance a company’s reputation, as in Johnson and Johnson’s famous decision to pull Tylenol from retail shelves, or it can damage it as in the case of the Exxon Valdez. These crises happened over two decades ago. Yet, they define the companies’ perceptions to this day.
4. Finally, crises provide supreme learning opportunities. But too often early warning signs are ignored or the wrong lessons are learned. After settling with the SEC in the Waste Management accounting fraud case, Arthur Andersen changed its document retention policy. It did not sufficiently investigate its culture, value system, or incentive structure.

A company’s values are its guide in a crisis. In turn, a crisis is a great opportunity to see whether these values still govern day-to-day decision making.

This post originally appeared on TanveerNaseer.com.

Read Full Post »

The British Watergate

Photo Courtesy of Reuters

We are now witnessing the British version of Watergate. What started out as a sordid story about hacking into voice mail accounts and other personal information has now grown to engulf not only the Murdoch media empire, but also the British government (certainly the current one under David Cameron and, possibly, past ones), and Scotland Yard. Every day we see new resignations and arrests. Pundits, politicians, and journalists alike now deplore the decade-long stranglehold of Murdoch’s papers. Charges not only include hacking, but the bribery of police officers to derail ongoing investigations into the practices at News of the World and other tabloids. The resignation and subsequent arrest of former editor Rebekah Brooks and the resignation of Dow Jones CEO Les Hinton have cut deep into News Corp’s inner circle.

Already the British media is full of speculation of a possible arrest of Rupert Murdoch’s son James. And the public is awaiting the testimony of father and son on Tuesday.  Across the Atlantic, U.S. politicians have asked for criminal investigations for violations of the Foreign Corrupt Practices Act and the FBI has been reported to investigate potential hacking into accounts of 9/11 victims.

It is clear that the Murdoch and News Corp. is facing the biggest crises in their history. The BSkyB acquisition has been abandoned and shares have plummeted. But now the very existence of the Murdoch empire is at stake; what’s more, the crisis has now reached deep into the venerable institutions of government, leading to resignations of John Yates, Metropolitan Police’s top counterterrorism officer and Paul Stephenson, commissioner of the Metropolitan Police. Pressure is mounting on Prime Minister David Cameron regarding his cozy relationship with Brooks and Murdoch and his appointment of News of the World‘s former editor Andy Coulson as communications director.

The most upsetting case pertains to Milly Dowler, a 13-year-old girl who was kidnapped and subsequently killed in 2002. News of the World is accused of not only listening to Dowler’s voice mail messages, but deleting messages in order to make room for new ones, which potentially interfered with the missing person investigation and provided Dowler’s family with false hope that the young teenager was still alive.

Nobody knows where the crisis will end. But while breath-taking in its speed and drama, the scandal followed a familiar script.

First, newspapers and media companies are especially bad at managing reputational crises. This is not only illustrated by the News Corp. crises but other cases such as the Jayson Blair scandal at the New York Times or “Memogate” at CBS’ 60 Minutes. Operating in an intensely politicized atmosphere in their daily lives, news organizations typically interpret any criticism immediately as another politically motivated act and miss the underlying business issue—a crisis that threatens the pillars of news organizations: competence and integrity. The response is defensiveness, which further erodes trust. What was required was a sense of transparency, empathy and commitment to set things right. After almost two weeks, News Corp. finally changed course and took some of the steps that should have been taken much earlier: an apology to the victims of the hacking scandal, the resignation of Rebekah Brooks, and a commitment to reform. But after weeks of fighting back and dismissing the concerns, these steps now look calculated and reactive.

Second, good governance structures pay off in a crisis. According to the New York Times, News Corp. stock routinely trades cheaper than comparable media companies’, commonly known as the “Murdoch discount.” In the aftermath, this “discount” has since hit 30%. Ineffective boards or ill-placed personal loyalties are a problem in good times, and in bad times they are a disaster.

Third, dormant issues can very quickly become life-threatening crises if the roles of the key actors change. One of the striking aspects of the News Corp. scandal is that the allegations of hacking into voice mail messages, private accounts, and bribery of police officers were known for years. But the dynamics dramatically changed when the reports related to Milly Dowler (and other similar cases such as murder victims or soldiers killed in action) surfaced in early July. Previous tabloid targets were celebrities and politicians, parties that could count on little sympathy from a jaded public. But the horrific case of Milly Dowler and her family immediately triggered reactions of sympathy for the victims and disgust and outrage for the new villains: News of the World, News Corp. and Murdoch.

Fourth, moral outrage and fear quickly turn public opinion. Once a company loses public opinion, politicians will adjust, turning from friends to enemies in a heart-beat. At that stage politicians and public officials need to save their own skin amidst allegations of inaction or complicity.  Another illustration of the eternal law of politics: Nulli Permanentes Amici Nulli Permanentes Inimici. No permanent friends, no permanent enemies.

Read Full Post »