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March to the Beat of Your Own Drummer: Amazon’s Executive Compensation Practices

Howard Berkower is partner at McCarter & English LLP. This post is based on an article by Mr. Berkower originally published in the  New York Law Journal . Andy Tsang, a senior financial analyst with the firm, assisted in the preparation of the article. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here ).

I am honored and humbled to continue the column on executive compensation and corporate governance that Joseph E. Bachelder III wrote for the New York Law Journal for over 30 years. Joe was my esteemed colleague and dear friend at McCarter & English, LLP for more than 8 years. His keen analytic mind, encyclopedic knowledge, attention to detail, concise writing skills, dogged work ethic and relentless pursuit of excellence greatly influenced me and all that knew him. He was a wonderful teacher and mentor who was always generous with his time. Joe Bachelder is and will always be sorely missed.

Earlier this year, in connection with Amazon’s public announcement of its record-breaking annual financial results for 2020, Jeffrey P. Bezos, the company’s founder and board chair, CEO or president since its 1994 inception, announced that he would be relinquishing those positions to become Amazon’s executive chairman sometime this autumn. To say Amazon’s 2020 financial results were “record-breaking” understates the matter: assisted by the effects of the global pandemic, Amazon’s sales of $386 billion represented a 38% increase from 2019 and its net income of $21.3 billion amounted to a whopping 84% increase from 2019. What an opportune time to announce an executive transition! In this post I trace Amazon’s spectacular long-term success and examine its unique executive compensation practices.

Amazon went public in May 1997 when it raised $54 million by selling 36 million shares at $1.50 per share on a post-split basis. As disclosed in its prospectus, the company had no specific plan for its initial public offering (IPO) proceeds but was going public “to create a pubic market for its stock to facilitate future access to public equity markets,” and “to provide increased visibility and credibility in a marketplace where many of its current and potential competitors are or will be publicly held companies.” Upon completion of its IPO Amazon’s market capitalization was about $430 million and Mr. Bezos and his family controlled about 48% of the outstanding shares.

Its IPO prospectus disclosed that Amazon was founded in 1994 “to capitalize on the opportunity for online book retailing” and its strategy was “to use technology to deliver outstanding service and achieve significant economies inherent in the online store model.” Amazon sought “to build strong brand recognition, customer loyalty and supplier relationships, while creating an economic model that is superior to that of the capital and real estate intensive traditional book retailing business.”

While you can still order books from Amazon today, online book retailing is, at best, a minute fraction of Amazon’s business. Amazon is everywhere: It has revolutionized the retail market and has leveraged its online distribution network to process and fulfill the sale of products of third party sellers. Its Amazon Prime memberships offer access to proprietary and third party content of all kinds, including digital video. It also manufactures and sells electronic devices, including Kindle and Fire tablets. Amazon’s most profitable business, however, is Amazon Web Services (AWS), the dominant cloud service business in the world. For 2020, while AWS generated only 12% of Amazon’s annual sales, it was responsible for 59% of Amazon’s annual operating income.

In its IPO prospectus Amazon warned that it “intends to invest heavily in marketing and promotion, site development and technology and operating infrastructure development,” and expects to incur “substantial operating losses for the foreseeable future.” Indeed, during its first 6 years as a public company, Amazon incurred more than $3 billion of cumulative net losses under U.S. generally accepted accounting principles (GAAP) before recording $35 million of net income for 2003. It took the company another 6 years to earn back the $3 billion losses to “break even.” Amazon’s annual income tends to fluctuate widely from year to year with large increases often followed by large decreases, as Amazon continues to evolve.

Amazon’s $1.59 trillion market capitalization as of April 1, 2021, is surpassed only by Apple ($2.06 trillion) and Microsoft ($1.83 trillion). Interestingly, the price earnings ratio for the trailing 12-months (PE Ratio) for Amazon is 76 times earnings, more than twice as much as Apple (33 times) or Microsoft (36 times) as both companies continue to be substantially more profitable than Amazon.

To give some perspective to how profitable an investment in Amazon has been, had you been fortunate to have purchased 100 shares in its IPO at the IPO price of $18.00 per share, your $1,800 investment would now be 1,200 shares after giving effect to stock splits and, as of March 31, 2021, would be worth about $3.7 million. The compound annual growth rate (CAGR) of your investment would be about 37%. Were you to have invested at the same time $1,800 in the S&P 500 and reinvested the dividends earned thereon, the CAGR of your investment would be 8.6% and your investment would now be worth only $13,000. Significantly, Amazon achieved a 33% CAGR for 10-year period ending March 31, 2021, slightly less than the CAGR since its IPO. Furthermore, Amazon’s CAGR exceeded the CAGR of an investment in either Apple or Microsoft for the recently ended 10-year period and the 24 years since Amazon’s IPO.

Compensation Practices

Amazon recognized in its IPO prospectus that the internet and online commerce industry is susceptible to rapid technological change and the importance of the need to continually evolve. Amazon acknowledged that its long-term viability depended on its ability to “identify, attract, hire, train, retain and motivate” its executive officers, key employees and “highly skilled technical, managerial, editorial, merchandising, marketing and customer service personnel.” Amazon noted in its Compensation Discussion and Analysis section of its 2020 Proxy Statement that its compensation philosophy seeks to “encourage motivated, customer-centric employees to think and act like owners” and to provide “strong long-term incentives that align the interest of its employees with those of its shareholders.” Further, its compensation program reflects the company’s “core values, including customer obsession, invent and simplify, bias for action, acting like owners and thinking long term, hiring and developing the best, and frugality.” As a result, stock-based compensation comprises the overwhelming majority of an employee’s compensation package.

Base Salary. Salaries at Amazon are extremely modest. As disclosed in its IPO prospectus, Mr. Bezos, as Amazon’s principal executive officer, received compensation for 1996, the year prior to its IPO, of only $64,333 and no executive officer met the SEC’s definition of “highly compensated executive officer” for such year, meaning that no executive officer received compensation in excess of $100,000. In addition, Amazon disclosed in its IPO prospectus that it did not have long-term employment agreements with any of its key personnel or have any “key person” life insurance policies. Fast forward to today, Amazon continues to pay a very modest salary: for 2019 no named executive officer had a base salary of more than $175,000, including Jeff Bezos, who was paid only $81,840 and whose annual cash compensation has never exceeded $81,840.

Cash Bonuses. While from time to time Amazon has paid annual cash bonus particularly during the a few years following the burst of the “tech bubble” in 2000, it generally only pays a cash bonus in connection with the hiring of an executive officer a component of which is to replace compensation the executive forfeited to join Amazon and to cover relocation expenses. A signing bonus is usually paid over 2 or more years requiring the executive to remains employed by the company.

Stock-Based Compensation. Amazon employed stock option grants during the period from its founding through 2002, and in response to the significant market downturn that occurred during 2000-2001, like other companies, it exchanged “out of the money” options for new options exercisable for fewer shares at a lower strike price. However in November 2002, Amazon revamped stock-based compensation system by replacing stock option grants with restricted stock awards. Among the reasons given for this change was to limit overall shareholder dilution and the overall simplicity of restricted stock awards.

In connection with an executive’s annual review, the CEO and the head of human resources consider whether to recommend to the company’s compensation committee a restricted stock award, including the number of shares and the vesting criteria. Amazon avoids establishing pre-determined objective performance criteria as conditions to the award or its vesting. Instead, it focuses on subjective performance achieved and projected to be achieved which it believes provides flexibility and better fosters long-term growth, creativity and innovation. Among the factors considered are an executive’s level of responsibility, past contributions to the company’s performance, expected future contributions, the compensation of similarly situated executives at other companies and the expected value of the executive’s existing equity awards and the expected value of the proposed award. Awards typically vest over 5 or more years and are “back-end loaded” as vesting begins on the third or fourth anniversary of the award. Frequently, an executive may have to wait a few years to receive a new restricted stock award.

To illustrate, during the 3-year period ending December 31, 2019, Andrew Jassy, the chief executive officer of AWS who will be replacing Jeff Bezos as Amazon’s CEO later this year, received restricted stock awards only in 2018, but the value of those awards, that is, the total number of shares (assuming full vesting) times the average high and low trading share price on the date of the award was $19.5 million. Should Amazon stock continue to appreciate at the 33% CAGR it achieved for the 10-year period ending March 31, 2021, when the restricted stock awards begin to vest on the third anniversary, the shares would be valued at about $46 million. Indeed, as of December 31, 2019, Mr. Jassy held 53,874 unvested restricted shares valued at $99.6 million (inclusive of his 2018 awards). In addition, during 2019 he benefited from the vesting of 28,326 restricted shares then valued at $50 million.

Other Compensation and Perquisites. While executive officers receive vacation, medical, 401(k) benefits and other benefits generally available to all Amazon employees, they are not provided with benefits under nonqualified deferred compensation or supplemental executive retirement plans or cash severance programs. In connection with perquisites, the bulk of Mr. Bezos’ annual compensation every year is in the form of his security arrangements which in 2019 amounted to $1.6 million.

Bezos’ Compensation. Any discussion of Amazon’s compensation practices would be incomplete without addressing how it compensates Mr. Bezos in his capacity as the company’s chief executive officer, or more accurately, that Amazon does not compensate Mr. Bezos for his services. As previously mentioned Mr. Bezos’ annual cash compensation has never exceeded $81,840 since the company’s inception. In addition, unlike other successful tech company founder-chief executive officers who periodically receive substantial stock-based grants, for example, Elon Musk at Tesla, (see Tesla’s Stock Option Grant to its CEO , by Joseph E. Bachelder III, New York Law Journal (May 1, 2018 and Part 2 on June 22, 2018)), Mr. Bezos has never received any stock based compensation from Amazon. Mr. Bezos has regularly sold Amazon shares under a 10b5-1 plan beginning in 2003 and based on his most recent Form 4 filed with the SEC, he now holds 53.2 million Amazon shares representing more than 10% of the total shares outstanding which as of March 31, 2021 are worth $164 billion.

Compensation Practices Employed Throughout the Company. Amazon employs its stock-based compensation practices widely throughout the entire company. Blogs can easily be found on the internet for individuals seeking employment at various divisions of the company advising on what to expect the compensation package to look like and the extent to which these features can be negotiated: below market annual base salary, cash signing bonus payable over two years to ease the sting of the low annual salary and restricted stock award that starts to vest on the third anniversary of employment. Significantly, Amazon’s directors do not receive cash compensation for their service but receive restricted share awards every few years.

Amazon’s pervasive use of stock-based compensation is quantified in the company’s annual reports and proxy statements filed with the SEC. For example, its 2020 annual proxy statement disclosed that “the total number of restricted stock units granted to our named executive officers during the three-year period from 2017 to 2019 represented (i) 0.27% of the total number of restricted stock units granted to all employees during the same three-year period and (ii) less than 0.01% of the weighted-average number of shares outstanding for the same three-year period.” An analysis of the notes to its audited financial statements contained in its most recent annual report reveals that for 2020 Amazon’s stock-based compensation expense exceeded $9.2 billion and was allocated to its employees throughout its operations as follows: 55% to technology and content, 19% to marketing, 15% to fulfillment, and 11% to general administration and others. Furthermore, Amazon stockholders regularly approve the “say on pay” advisory vote on the compensation paid to is named executive officers with approval rates exceeding 95%, including most recently, 97% for its 2020 annual stockholders meeting.

Amazon has enjoyed phenomenal success during its 24 years as a public company. There are likely many reasons for the company’s success and its ability to remain a leader on the cutting edge of the rapidly-changing technology revolution, however it is clear that Amazon’s unique “eat your own cooking on steroids” compensation policy complements its outstanding historical long-term performance and bodes well for its future prospects.

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Amazon Stakeholders, CSR & ESG

Amazon’s ability to satisfy stakeholders supports organizational growth in the e-commerce industry. In Archie Carroll’s model of corporate social responsibility (CSR), stakeholders are individuals or groups linked to the organization based on their stake in what the business does. The company affects its stakeholders, and vice versa. In the case of Amazon, stakeholders have widely varying interests, considering the global reach of the organization and the diversity of its products. This condition requires a broad scope for the company’s corporate social responsibility and environmental, social, and governance (ESG) strategy, policies, and programs. Satisfying stakeholders’ interests helps maintain Amazon’s brands and competitive market position.

Amazon responds to stakeholders through a CSR and ESG strategy for sustainability, corporate citizenship, and business ethics. While its CSR and ESG programs evolve, Amazon’s corporate citizenship goals account for the stakeholder management efforts of competitors, including IT and consumer electronics firms, like Google (Alphabet) , Apple , Microsoft , and Samsung , as well as e-commerce and retail firms, such as Walmart , Costco , Home Depot , Aldi , and eBay . Amazon’s CSR and ESG programs also consider other entertainment content producers and distributors, like Netflix , Disney , Sony , and Facebook (Meta Platforms) . Competitors’ sustainability and corporate citizenship influence customers’ perception of Amazon’s corporate social responsibility programs.

Amazon’s Stakeholder Groups, CSR & ESG Initiatives

Amazon maintains corporate social responsibility initiatives to target the interests of its main stakeholder groups. The e-commerce organization experiences pressure from a variety of stakeholders and their interests. Amazon’s corporate social responsibility programs are designed to address and satisfy the interests of the following stakeholder groups, arranged according to the company’s prioritization:

• Customers (most important)
• Communities

Customers . Amazon’s corporate social responsibility strategy gives the highest priority to customers as the most important stakeholder group. The company considers customers as the primary determinant of its e-commerce business success, especially because these stakeholders directly affect revenues. This prioritization agrees with Amazon’s mission statement and vision statement , which highlight the centrality of customers in the business and its development. The interests of these stakeholders are fair pricing, convenience of service, high-quality products, and online security in transacting with the company. Amazon satisfies these interests through emphasis on service and technology. For example, the company uses advanced information and communication technologies for secure transactions and for efficient purchase and delivery processes. Amazon employees are also trained to maximize the benefits of these technologies and to ensure customer convenience. In addition, fair pricing is maintained through competition among sellers on the company’s online marketplace and through the market-based pricing strategy included in Amazon’s marketing mix (4P) . Thus, Amazon’s corporate social responsibility approach addresses the interests of customers as the primary stakeholder group.

Employees . Amazon values employees as significant determinants of organizational performance and corporate social responsibility policies and programs. This stakeholder group is interested in competitive compensation and career development. Employees are important because they support competitive advantages based on Amazon’s organizational culture (work culture) . The company’s human resources facilitate the development of ideas to increase business efficiency. Amazon satisfies the interests of these stakeholders through leadership development and an appropriate compensation policy based on the organization’s high growth potential. For example, the company provides high compensation, especially for IT personnel directly involved in developing and maintaining the technology assets of the e-commerce business. Amazon’s continuing growth and global expansion also creates career advancement opportunities for employees, especially in leadership and management positions. Thus, competitive compensation and organizational cultural support are the main thrusts in Amazon’s corporate social responsibility strategy to address the interests of this stakeholder group.

Communities . Amazon maintains a corporate social responsibility program for communities. These stakeholders are significant because they influence consumer perception of the company’s goods and services. The interests of communities include development support, such as through education, healthcare, and environmental conservation. These interests reflect relevant social and ecological trends, such as the ones noted in the PESTEL/PESTLE analysis of Amazon . The company’s corporate citizenship efforts address these interests through charitable contributions, like donations for various causes involving nonprofit organizations. This approach enables the broad reach of Amazon’s corporate social responsibility strategy in satisfying the interests of communities as a significant stakeholder group in the information technology and e-commerce business.

Amazon’s Corporate Citizenship Performance & Stakeholders’ Satisfaction

Amazon integrates stakeholders’ interests into its corporate social responsibility (CSR) and ESG strategy, which also influences the CSR and ESG programs of its subsidiaries, such as Whole Foods Market . Amazon considers these interests as significant influences on the e-commerce business. Such a strategy supports Amazon’s mission and vision and their effect on organizational development. It is appropriate for the company to prioritize customers as the primary stakeholder group, considering the online retail nature of the business. The inclusion of employees and communities is one of the strengths of the strategy. The company’s corporate social responsibility approach is also flexible because it supports various charitable organizations and their diverse programs and causes. However, the interests of governments and investors as stakeholders are not clearly included in the strategy. Amazon’s corporate social responsibility efforts must consider investors’ interests regarding the financial performance of the business. The company must also address governmental interests linked to consumer protection and intellectual property protection. These considerations show that Amazon’s corporate social responsibility strategy is satisfactory but has room for improvement.

• Amazon.com, Inc. – Form 10-K .
• Amazon.com, Inc. – Our Impact .
• Amazon.com, Inc. – Our Planet .
• Amazon.com, Inc. – Our Workplace .
• Fatima, T., & Elbanna, S. (2023). Corporate social responsibility (CSR) implementation: A review and a research agenda towards an integrative framework. Journal of Business Ethics, 183 (1), 105-121.
• Jayachandran, A., John, J., Thomas, A. S., & Smiju, I. S. (2024). Evolution of CSR and ESG Concepts in the Frame of Sustainability: Insights from Thematic Evolution Across Nations. In ESG Frameworks for Sustainable Business Practices (pp. 1-30). IGI Global.
• U.S. Department of Commerce – International Trade Administration – Retail Trade Industry .
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Inside Amazon’s Growth Strategy

If the key to success is focus, why does Amazon work?

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Since Amazon started as an online retailer in 1994, it has expanded into streaming, cloud computing, content creation, and even groceries. But traditional business strategy tells us that the key to success is focus. So, why does Amazon work?

“I think in Amazon’s case, everything is very tightly connected. If you remove one part, the whole becomes less,” says Harvard Business School professor Sunil Gupta . “That’s the key question: are the pieces fitting together nicely, or they just happen to be another business because it’s profitable?”

Gupta has studied Amazon’s growth strategy and he tells Cold Call host Brian Kenny how Amazon looks beyond traditional industry boundaries to define their competitors and why connecting products and services with their customers is at the core of their strategy.

Key episode topics include: business models, growth strategy, operations and supply chain management, innovation, technology and analytics, online retail, customer-centricity, customer experience, competitive strategy.  

HBR On Strategy curates the best case studies and conversations with the world’s top business and management experts, to help you unlock new ways of doing business. New episodes every week.

• Listen to the original HBR Cold Call episode: If the Key to Business Success Is Focus, Why Does Amazon Work? (May 2019)
• Find more episodes of Cold Call .
• Discover 100 years of Harvard Business Review articles, case studies, podcasts, and more at HBR.org .

HANNAH BATES: Welcome to HBR On Strategy , case studies and conversations with the world’s top business and management experts, hand-selected to help you unlock new ways of doing business. Amazon started as an online retailer back in 1994. Since then, it has expanded into streaming, cloud computing, content creation, and even groceries. But if traditional business strategy tells us that the key to success is focus – why does Amazon work ? Today, we bring you a conversation with Harvard Business School professor Sunil Gupta – who has studied Amazon’s growth strategy. You’ll learn how Amazon builds its business around its customers — rather than its products and services. You’ll also learn how they look beyond traditional industry boundaries to define their competitors – and why connecting products and services with their customers is at the core of their strategy. This episode originally aired on Cold Call in May 2019. Here it is.

BRIAN KENNY: In the world of computer science, Jon Wainwright is kind of a big deal. A pioneer of computer languages, he was the principle architect of both Script 5 and Manuscript. What makes Jon a legend has nothing to do with programming. Let me explain. On April 3, 1995, Jon was in need of some work-related reading material. So, he fired up his T1 modem and navigated the fledgling internet to the beta version of a new online bookstore. With the click of a mouse, he became the very first customer to make a purchase on Amazon.com. Fluid Concepts and Creative Analogies, the book he purchased, never became a best seller. But Amazon took off like a rocket ship and hasn’t slowed down since. With a market cap larger than all other retailers combined, including Walmart, Amazon owns 49% of all online sales. In the time it takes me to read this introduction, the company will earn over 300,000 dollars. Will we ever see the likes of it again? Today, we’ll hear from professor Sunil Gupta, about his case entitled, “Amazon in 2017.” I’m your host Brian Kenny. You’re listening to Cold Call, part of the HBR Presents network. Sunil Gupta is an expert in the area of digital technology and its impact on consumer behavior and firm strategy. He is the author of the recently published, Driving Digital Strategy, a guide to re-imagining your business. This case is the perfect stepping off point to cover some of the ideas in that book, Sunil. Thank you for joining me today.

SUNIL GUPTA: Thank you for having me.

BRIAN KENNY: This is your second spin I think on Cold Call. We appreciate you coming back.

SUNIL GUPTA: I enjoy doing this.

BRIAN KENNY: Good, as long as it’s not too painful for you. I like having you here. I’ve had an opportunity to read the book. The case I think is really kind of a great foundational piece to launch into some of the ideas. I’m going to assume anybody listening to this podcast has purchased something on Amazon or watched something on Amazon Prime. I had forgotten about their modest beginnings and just how much they’ve grown and expanded and changed. The case was a great reminder of that. We’ll get into some of that. Let me start by asking you, just to set it up for us. What led you to write the case?

SUNIL GUPTA: As you said, everybody knows Amazon. At the same time, Amazon has become quite complex. I mean, they have gone into businesses that defy imagination. That raises the question, is Amazon spreading itself too thin? Are they an online retailer? Are they video producers? Are they now making movies? In strategy, we learn, everybody should focus. Obviously Jeff Bezos missed that class.

BRIAN KENNY: He didn’t come to HBS by the way.

SUNIL GUPTA: You sort of start wondering as to, what is the magic behind this? What is the secret sauce that makes Amazon such a huge success? The market gap almost touched a trillion dollars a few months ago.

BRIAN KENNY: Insane.

SUNIL GUPTA: That was the reason why I thought A, everybody knows about it, and B, it’s hugely successful and C, his business model seems to defy logic.

BRIAN KENNY: The case we know by the title takes place in 2017. Maybe you can just start us off by setting it up. How does the case open up?

SUNIL GUPTA: At that point in time, Amazon had just bought Whole Foods, which was very counterintuitive because Amazon has been an online player. So why is it getting into offline business? That was against his grain as an online player. The second thing is food is a very low margin category. You sort of say, Amazon is a technology company, its stock is going to stratosphere. Why buy a low margin business that Amazon actually had been trying Amazon Fresh for 10 years and hasn’t succeeded? Why don’t they give up? That was a starting point. But of course, the case describes all the other 20 different things that they have done in the last 20 years and asked the question, what is Amazon up to?

BRIAN KENNY: Amazon and Jeff Bezos are sort of synonymous. He’s a cult of personality there, kind of like Steve Jobs was with Apple. Jeff’s been in the news a lot lately for other reasons, you know, personal reasons. He is still obviously, probably one of the best known CEOs in the world. What’s he like as a leader?

SUNIL GUPTA: I don’t know him personally. Based on the research that I’ve done, he certainly is very customer obsessed. He’s focused on customer. He always says, “You start with the customer and work backwards.” He still takes evidently calls on the call center. The culture is very entrepreneurial, but also very heart driven. I mean, the idea for example of Amazon Prime evidently didn’t come from Jeff Bezos, it came from a low person in the organization. He’s quick to adapt the ideas if he sees some merit in it. It’s almost a 25-year-old company that still works like a startup.

BRIAN KENNY: Was the original concept for Amazon … I mean, I know he sold books originally. Was it ever really a book company?

SUNIL GUPTA: I think it started more as an online retailer. Book was an easy thing because everybody knows exactly what you’re buying. It’s no concern about the quality. His premise in the online store was a very clear value proposition of three things. One was convenience that you can shop in your pajamas, so we don’t have to fight the traffic of Boston or Los Angeles. The second was infinite variety. I don’t have the constraint of a physical store. Even if I have Walmart, which is a huge store, I can only stock so many things. As a result, you only have the top sellers. In Amazon, I can have the long tail of any product if you will. The third was price. It was cheaper, simply because I don’t have fixed costs of the brick and mortar store. I can reduce the cost structure and therefore I can be cheaper. Those were the three key value propositions. That’s how it started. The idea was, I’ll start with books and then move on to electronics and other things. But then of course, it moved far beyond being an online retailer.

BRIAN KENNY: This gets into some of the ideas in your book. I was really intrigued in the book about the notion of what kind of business are we in? Just that question alone. At face value, it looked like Amazon was a retailer. They went in directions that nobody could have imagined. The case really goes into some of a litany of all the things they tried.

SUNIL GUPTA: Right. Again, the purpose of the case was to illustrate as to how these are all connected. From a distance they look completely disconnected and completely lack of focus. Let’s start with how the concept evolved. The first thing was, as I said was online retailer. Very soon it became a marketplace. Now, what is a marketplace? They basically allow third party sellers also to sell on the Amazon platform, which is distinct from a traditional retailer. Walmart doesn’t allow me to set up shop within Walmart, but Amazon allows me to do that. Now, why would they do that? Simply because it increases the variety that they can sell on the platform. Therefore, consumers are quite happy with the variety of the product they can get on Amazon. Amazon gets commission without having the inventory and the capital cost. Perhaps the most important thing of becoming a platform is it creates what we call the network effects. If there are lots of products, everything I can buy is available on Amazon. More consumers are likely to go there. Because there are more consumers, more sellers are likely to go there. It just feeds in itself. More consumers mean more sellers, more sellers mean more consumers, and it becomes a virtual cycle. That’s why there is only one Amazon. Even if I start an online retail, which is in many ways better than Amazon, nobody’s coming to gupta.com, because buyers and sellers are not there. That became the next phase, change from online retailer to marketplace. Then it went into AWS, and you sort of say, “Well, how can it go into a technology company and compete with IBM and Microsoft?” It was competing with Walmart before.

BRIAN KENNY: That’s the web services division.

SUNIL GUPTA: That’s the web services. In fact, at that point in time, Wall Street was very down on that. They said, “What is Bezos thinking?” The idea again, if you think about it, it was very simple. Amazon was building this technology for its own purpose. And then, they started giving this technology, using this technology for the third party sellers, who were selling on its platform.

BRIAN KENNY: Let me just interrupt for a second. That’s a marked, a marked change in direction. They had always been a consumer platform. Now they’re in a business-to-business play. I bet a lot of consumers don’t even know about Amazon Web Services.

SUNIL GUPTA: Correct. Again, not in a traditional sense saying, “This is my market.” That’s simply saying, “I have this capability. There’s a demand for this capability. Can I do it?” Part of that was opportunistic also. If you remember in 2001, the dot.com bubble crashed. If you’re a B2C company, you hedge your bets and get into B2B business. Part of that may have been luck. That was, again, a change of direction. And then, Amazon started producing hardware, Kindle, and now competing with Apple. You sort of say, why is an online retailer getting into hardware production? If you think a little bit about it, the answer is very easy. Kindle was designed to sell eBooks as people move from buying the hard copy books to downloading the eBooks. The Kindle is the classic razor and blade strategy. I sell razors cheap in order to make money on the blades. I’m not making that much money Kindle, but I’m making money on eBooks, which is very different from Apple’s strategy. Apple actually makes money on devices, but Amazon is not making money on devices, or at least not making huge money on devices. Similarly, it moved into online streaming of the video content and suddenly became a competition on Netflix. You sort of say, “Why is a retailer becoming a competition on Netflix?” Again, if you think a little about it, the answer becomes clear. As you and I moved on to not buying DVDs, but actually streaming the stuff, that’s what Netflix did. They used to send the DVDs to us.

BRIAN KENNY: I remember that. I still have a couple.

SUNIL GUPTA: Amazon is very good in sort of moving with the customer. If the customer moved from buying books to eBooks, I move in that direction. If customers move from buying DVDs to streaming, I move in that direction. Now, can Amazon do it? Of course, they can. They have AWS. Netflix is one of the largest customers.

BRIAN KENNY: Are they leading or following? Are they creating a market? In the beginning it seemed like they created something entirely new. Now, are they anticipating, or are they just sort of reacting to what’s happening?

SUNIL GUPTA: No, it’s a combination of both. In some ways they are actually following the consumer behavior and say consumers are moving to a streaming and move with that. They were not the first ones. Netflix actually started the streaming thing. Then, they sort of come up with it. If you think about it, Amazon became not only distributing third party content on videos, but now they have Amazon Studio. I mean, they are making movies, and the competition now becomes Hollywood instead of Walmart. You sort of say, “What has gone wrong with Jeff Bezos? Why is he making movies?” Movies are pretty expensive business and highly risky. The key to that is to understand the purpose of the movies. The purpose of the movies is to hook the consumers from Amazon Prime. If you remember, Amazon Prime started with 79 dollars per year. The benefit at that time was two-day free shipping. Now, you and I are smart enough to sort of do the math in our heads saying, how many shipments do we expect next year, and is 79 dollars worth it or not? Bezos does not want you to do that math. He basically says, “Oh, by the way, I’ll throw in some free content, some free music, some free unique movies.” Now you can’t do the calculation. Why does he care about Prime? Right now, Amazon has about one hundred million Prime customers globally. Let’s say I get an average 100 dollars per year, that’s 10 billion dollars in my pocket before I open the store.

BRIAN KENNY: Right.

SUNIL GUPTA: The research also shows that Amazon Prime customers buy three to four times more than non-Prime customers. I mean, if you’re a Prime customer, you don’t even price shop.

BRIAN KENNY: Once you’re Prime, you’ve got to justify being a member. You buy everything on Amazon.

SUNIL GUPTA: Exactly. Your purchase increases. You become price sensitive, which is fantastic. In fact Jeff Bezos has gone public and say that every time we win a Golden Globe award for our content, we sell more shoes. The purpose of creating their own content is not to make money on the content. This is another different razor to sell you more shoes. Once you understand that, what looks like disparate business is actually extremely tied together.

BRIAN KENNY: It all comes right back to the core. They haven’t always had good ideas. Have they had some misses along the way too?

SUNIL GUPTA: I think the biggest failure was Fire phone.

BRIAN KENNY: Remind us what that was?

SUNIL GUPTA: Amazon launched their own phone. They were obviously very late in the market. iPhone was already there. Samsung had done very good. You have two major players, if not many others, who are very well established. Consumers love their iPhones. The question of course was, why is Amazon launching the phone? What are the odds of success? Clearly the odds of success were low. The reason to launch it was they didn’t want to be beholden to the iPhone or the Googles of the world. They know that the world is moving towards mobile, in terms of shopping, certainly in emerging markets, everybody’s moving to mobile shopping. If tomorrow Apple or Google sort of restrict the Amazon use, or availability of Amazon, because they’re all competing with each other now. It becomes a challenge. To Amazon’s credit, I mean, it’s true for all innovations. Not all innovations succeed. You’ve got to take a shot. If you think about it, all the technology and thought process that got into Fire phone, was not completely a waste. That went into Echo. Now Alexa is a big hit.

BRIAN KENNY: They’re a market leader in that in that. Let’s talk a little bit about the ideas that underlie his Amazon case. I think it starts with knowing what business you’re in. Your book addresses this. I think I know we’re in the education space here at Harvard Business School. Should we be thinking about other businesses?

SUNIL GUPTA: You’re right. The bigger question that Amazon case raises is: how do you define what business you are in? Most of us tend to define business by the traditional industry boundaries. If I’m a bank, I’m in banking and other banks are my competition. I think industry boundaries are getting blurred today. Amazon can get into banking. I have lots of customers, I can start giving loans to small and medium enterprises.

BRIAN KENNY: They know a lot about those customers.

SUNIL GUPTA: They know a lot about customers. The key asset is now customers and data, and not the product and services that you offer. Once you know about customers, you can do lots of different things. One thing is, I would say is the industry boundaries are getting blurred. You need to think about not competition, but what do customers want. Do I have capabilities to serve that? The second thing is the traditional definition of where competitive advantage comes from is changing. What I learned, in doing my MBA class many years ago, we used to read Michael Porter’s competitive strategy stuff. If I were to simplify and summarize what I learned in competitive strategy was competitive advantage comes from making your product better or cheaper. Differentiation or cost leadership, which makes sense. If you think about it, it’s very much product-focused. I think in today’s world, competitive advantage comes from connecting products and connecting customers. The Kindle and eBooks is an example of connecting products, multiple products right? Making movies of Amazon and selling more shoes is connecting products. Razor and blade have been around forever. I think what is different today is razor and blade could be in completely different industries. Movies and shoes. The other side is connecting customers. We are in a network economy. That’s why there is only one Facebook, or one WhatsApp. If you are the only person on Facebook, what’s the value of Facebook? Not much, unless you love yourself. As more and more people get onto Facebook, the value of Facebook increases. It’s not about improving product. Without changing product, Facebook value increases. I think in this connected world that we live in, it’s about connecting products and connecting consumers.

BRIAN KENNY: We’ve got a lot of listeners out there. Many of whom are probably leading firms of one kind or another. How do they even go about exploring redefining their business?

SUNIL GUPTA: I think again, you need to think about what is your key asset? Everything starts with the consumer. In the Amazon case, you move with the consumer to some extent. I asked the same of a company for a medical device manufacturer. I said, “Who’s your competition?” The typical answer is: the other medical devices. Medical business is now becoming a lot about data. Google is getting into that. Apple. iPhone is becoming a medical device. Suddenly you have a very different kind of player getting into this thing. When I say, “What business are you in?” You need to think about who might actually get into that business and that changes the whole picture.

BRIAN KENNY: Why is Amazon so good at engaging customers?

SUNIL GUPTA: I think it comes from the culture of being customer obsessed, that no matter what the customer is right. They deliver on that promise. I mean, the level of convenience that customers expect from companies has changed. It used to be, if a company delivers a product within a week, that was considered good. Now, if you don’t deliver on the same day it just seems awful. They’ve raised the bar in everything. Of course, they’re using technology very effectively, whether it’s in their warehousing, whether now they’re investing in drones. I think they’re still a 25-year-old startup.

BRIAN KENNY: That’s another point that I wanted to touch upon. They’re able to adapt their supply chain it seems almost effortlessly to whatever business direction they move in. Is it possible for another entry to come into this space and scale in the same way that Amazon has? Is this a once-in-a-lifetime type thing?

SUNIL GUPTA: That’s a tough question. I think Amazon, it’s not that they’re adapting supply chain for everything, right? For example, I don’t think Amazon supply chain is ready for delivering frozen food yet. If I have a supply chain to ship you electronics, I can use the same supply chain to ship you prescription medication. That opens up another billion dollar, several billion dollar market. If I call myself an online retailer, I will never think of prescription drug delivery. If I think of my capabilities, I have the warehouse to deliver electronics and books. Why can’t I deliver your prescription medication? That opens up completely different businesses.

BRIAN KENNY: What are the kind of pitfalls that you need to be careful of, as you start to move into adjacent markets?

SUNIL GUPTA: I think definitely the big challenge is: how far do you go? On one hand it’s good to expand the business scope because the industry boundaries are getting blurred. The danger is do you lose focus? The classic challenge of losing focus. There’s a balance. I think in Amazon’s case, if you notice, everything is very tightly connected. If you remove one part, the whole becomes less. That’s the key question: are the pieces fitting together nicely, or they just happen to be another business because it’s profitable?

BRIAN KENNY: We’ve done a couple of cases on Cold Call that touch on the organizational impact of firms that move into new businesses. Some of them are examples of where it’s benefitted the employees. In other cases, it seems to have disrupted the culture in negative ways. How do you see this playing out at Amazon? Does it impact them in any way?

SUNIL GUPTA: If you look at Amazon, it has grown the top line 20, 25% every quarter without fail, except for one quarter in 2001. Right now, it’s in 2019, their sales are 232 billion. I don’t know that many companies, which grow at that rate, even when they’re over 200 billion. I think, if you’re on a winning team, that as an employee, it has to energize you. If you are in a culture which encourages experimentation and innovation, it has to excite you. At the same time, I’m sure it’s a very demanding culture, and there have been reports about how demanding the culture of Amazon is. It probably is not for everybody. For the people who are innovative, who are entrepreneurial, who want to be on a winning team, I’m sure it’s an exciting place.

BRIAN KENNY: There are sort of shades of Apple there. I mean, I think Apple had the same reputation. You’ve discussed this case in class with students.

SUNIL GUPTA: Oh, many students.

BRIAN KENNY: What are sort of the top line things that surprise you as you discuss it?

SUNIL GUPTA: The nice thing about this case is, everybody knows Amazon as a consumer. Everybody has shopped at Amazon. It’s very easy case. In fact, it’s a very short case that I give, at the opening of most sessions. People see it as very surface level. They sort of don’t realize the deep insights that comes out. As a three page case, you sort of say, I will be done in ten minutes, but then you peel the layers of the onion. That was a shocking thing to them, as to how you peel the layers of the onion and how you see the connection across different things. Why did Amazon buy Whole Foods? It makes no sense. Why did they get into AWS? It makes no sense. When you start un-peeling that layer, you see the connection as to why Amazon is doing all these different things. I think that’s the “A-ha” moment that comes across.

BRIAN KENNY: Much more on that in your book. How’s the book doing?

SUNIL GUPTA: Book is doing great.

BRIAN KENNY: Great.

SUNIL GUPTA: Fabulous. It was released in August. I’ve been going around on tour for many, different parts of the world.

BRIAN KENNY: I bet you can buy it on Amazon.

SUNIL GUPTA: You can certainly buy it on Amazon.

BRIAN KENNY: That’s great. Sunil, thanks for joining us today.

SUNIL GUPTA: Thank you very much Brian.

HANNAH BATES: That was Harvard Business School professor Sunil Gupta – in conversation with Brian Kenny on Cold Call . If you liked this episode and want to hear more of Harvard Business School’s legendary case studies in podcast form – search for Cold Call wherever you get your podcasts. We’ll be back next Wednesday with another hand-picked conversation about business strategy from the Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review. We’re a production of the Harvard Business Review – if you want more articles, case studies, books, and videos like this, be sure to subscribe to HBR at HBR.org. This episode was produced by Anne Saini, Ian Fox, and me, Hannah Bates. Special thanks to Maureen Hoch, Adi Ignatius, Karen Player, Ramsey Khabbaz, Nicole Smith, Anne Bartholomew, and you – our listener. See you next week.

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How did amazon achieve csr and some sustainable development goals (sdgs)—climate change, circular economy, water resources and employee rights during covid-19.

1. Introduction

2. literature review, 2.1. development of csr and csd, 2.2. csr and corporate image in global context, 2.3. critical analysis of csr and amazon enterprise.

• Q1. How did Amazon achieve the balance between the profit generation and the CSR activities?
• Q2. How do Amazon, one of the world’s largest multinational enterprises, deal with the challenges brought by globalization?
• Q3. What kind of innovation management does Amazon adopt to deal with these challenges caused by globalization?

3. Methodology

Csr development at amazon, 4. results discussion, 4.1. environmental aspects of amazon, 4.1.1. climate change and carbon emissions, 4.1.2. water uses at amazon, 4.1.3. amazon’s circular economy, 4.1.4. amazon’s product sustainability, 4.1.5. the environmental impact of covid-19, 4.2. social aspects of amazon, 4.2.1. employee rights and the impact of covid-19, 4.2.2. the union issues, 4.2.3. supply chain of amazon, 4.2.4. contribution of amazon to the community, 5. conclusions, author contributions, institutional review board statement, informed consent statement, data availability statement, conflicts of interest.

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Yu, W.; Hassan, A.; Adhikariparajuli, M. How Did Amazon Achieve CSR and Some Sustainable Development Goals (SDGs)—Climate Change, Circular Economy, Water Resources and Employee Rights during COVID-19? J. Risk Financial Manag. 2022 , 15 , 364. https://doi.org/10.3390/jrfm15080364

Yu W, Hassan A, Adhikariparajuli M. How Did Amazon Achieve CSR and Some Sustainable Development Goals (SDGs)—Climate Change, Circular Economy, Water Resources and Employee Rights during COVID-19? Journal of Risk and Financial Management . 2022; 15(8):364. https://doi.org/10.3390/jrfm15080364

Yu, Wenxuan, Abeer Hassan, and Mahalaxmi Adhikariparajuli. 2022. "How Did Amazon Achieve CSR and Some Sustainable Development Goals (SDGs)—Climate Change, Circular Economy, Water Resources and Employee Rights during COVID-19?" Journal of Risk and Financial Management 15, no. 8: 364. https://doi.org/10.3390/jrfm15080364

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Case Study: Strategizing at Amazon When Globalization Comes Under Pressure

• First Online: 10 September 2019

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• Jeremy Ghez 2  

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Amazon’s success depends on the access it enjoys to a single and global market. While this has been true for now, the firm’s CEO wonders whether he and others have taken globalization for granted. The case reviews the evidence and discusses the extent to which globalization could go into reverse mode. It then explores the options a firm like Amazon would have to hedge against this risk. The case has several implications for architects of change. In particular, it shows how important it is for them to consider what they are taking for granted and how much they depend on it. It also shows the importance for actors looking for impact of remaining nimble in a turbulent business environment.

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“The Steam Has Gone out of Globalisation,” The Economist , January 24, 2019, https://www.economist.com/leaders/2019/01/24/the-steam-has-gone-out-of-globalisation .

Martin Sandbu, “Three Reasons Why Globalisation Will Survive Protectionist Rebellions,” Financial Times , March 9, 2017, https://www.ft.com/content/1a4e31ce-0333-11e7-aa5b-6bb07f5c8e12 .

Martin Wolf, “Donald Trump Faces the Reality of World Trade,” Financial Times , November 22, 2016, https://www.ft.com/content/064d51b0-aff4-11e6-9c37-5787335499a0 .

See Wolf; Wen Wang, “Emerging Markets Are Set to Lead Globalisation,” Financial Times , April 10, 2017, https://www.ft.com/content/f60d77a4-1ded-11e7-b7d3-163f5a7f229c .

“Globalisation Has Faltered,” The Economist , January 24, 2019, https://www.economist.com/briefing/2019/01/24/globalisation-has-faltered?fsrc=scn/tw/te/rfd/pe .

Ralf Dreischmeier, Karalee Close, and Philippe Trichet, “The Digital Imperative,” The Boston Consulting Group (blog), March 2, 2015, https://www.bcg.com/publications/2015/digital-imperative.aspx .

Jeff Desjardins, “This Is What Happens in an Internet Minute in 2018,” World Economic Forum (blog), May 16, 2018, https://www.weforum.org/agenda/2018/05/what-happens-in-an-internet-minute-in-2018/ .

New York Times journalist Tom Friedman called this the Dell Theory of Conflict Prevention which he stated this way: “No two countries that are both part of a major global supply chain, like Dell’s, will ever fight a war against each other as long as they are both part of the same global supply chain.”

Niall Ferguson, The Ascent of Money: A Financial History of the World , 1 edition (New York London: Penguin Books, 2009).

Graham Allison, “The Thucydides Trap: Are the U.S. and China Headed for War?,” The Atlantic , September 24, 2015, http://www.theatlantic.com/international/archive/2015/09/united-states-china-war-thucydides-trap/406756/ .

“Why Is World Trade Growth Slowing?,” The Economist , October 12, 2016, http://www.economist.com/blogs/economist-explains/2016/10/economist-explains-5 .

Shawn Donnan, “Global Trade Slowdown Worse than Thought,” Financial Times , July 13, 2016, https://www.ft.com/content/97a10864-490b-11e6-8d68-72e9211e86ab .

World Trade Organization, “WTO Downgrades Outlook for Global Trade as Risks Accumulate,” September 27, 2018, https://www.wto.org/english/news_e/pres18_e/pr822_e.htm .

International Monetary Fund, “Global Trade: What’s Behind the Slowdown,” in World Economic Outlook , 2016, 63–87, http://www.imf.org/external/pubs/ft/weo/2016/02/ .

Greg Ip, “Can Globalization Be Salvaged?,” Wall Street Journal , November 2, 2016, sec. Economy, http://www.wsj.com/articles/can-globalization-be-salvaged-1478102789 .

See for instance Claire Jones, “G7 Signs off on Watered-down Free Trade Pledge,” Financial Times , May 13, 2017, https://www.ft.com/content/6cdbdba6-37c9-11e7-821a-6027b8a20f23; Claire Jones and Sam Fleming, “G20 Drops Vow to Resist All Forms of Protectionism,” Financial Times , March 18, 2017, https://www.ft.com/content/241cdf2a-0be9-11e7-a88c-50ba212dce4d .

Jinping Xi, “Speech to Davos” (January 17, 2017), https://www.weforum.org/agenda/2017/01/full-text-of-xi-jinping-keynote-at-the-world-economic-forum/ .

Allison, “The Thucydides Trap.”

“Globalisation Has Faltered.”

You can find a summary of the debate here: Lorenzo Bini Smaghi, “How Far Will the Pendulum Swing against Globalisation?,” Financial Times (blog), November 15, 2016, https://www.ft.com/content/0c777dda-bed4-326e-b130-2ab08079e5a9 .

Branko Milanovic, “Why the Global 1% and the Asian Middle Class Have Gained the Most from Globalization,” Harvard Business Review (blog), May 13, 2016, https://hbr.org/2016/05/why-the-global-1-and-the-asian-middle-class-have-gained-the-most-from-globalization .

Dani Rodrik, “There Is No Need to Fret about Deglobalisation,” Financial Times , October 4, 2016, https://www.ft.com/content/d9a28a08-895c-11e6-8cb7-e7ada1d123b1 .

Kim Hart, “Dave McClure’s Investment Strategy for the Trump Era,” Axios , March 16, 2017, https://www.axios.com/dave-mcclures-investment-strategy-for-the-trump-era-2316191240.html .

Gilles Sengès, “Carlos Diaz: «Le Mur de Trump, C’est La Silicon Valley Qui L’a Construit»,” L’Opinion , November 13, 2016, http://www.lopinion.fr/edition/international/carlos-diaz-mur-trump-c-est-silicon-valley-qui-l-a-construit-114167 .

“The Steam Has Gone out of Globalisation.”

Laura Stevens and Sarah Nassauer, “Amazon Fights Wal-Mart for Low-Income Shoppers,” Wall Street Journal , June 6, 2017, https://www.wsj.com/articles/amazon-fights-wal-mart-for-low-income-shoppers-1496732400 .

Louise Lucas, “Alibaba Kicks off Ambitious Plan for Frontier-Free Global Trade,” Financial Times , March 22, 2017, https://www.ft.com/content/590d815a-0ec6-11e7-a88c-50ba212dce4d .

Elizabeth Weise, “Alibaba Launches Program to Help 1 Million U.S. Businesses Sell to China,” USA Today , April 25, 2017, https://www.usatoday.com/story/tech/news/2017/04/25/alibaba-launches-program-help-1-million-us-businesses-sell-china/100827290/ .

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Ghez, J. (2019). Case Study: Strategizing at Amazon When Globalization Comes Under Pressure. In: Architects of Change. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-20684-0_8

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