December 5, 2013
Einar Gislason examines the future of Amazon according to company founder and CEO Jeff Bezos.
“Amazon is not happening to book selling, the future is happening to book selling,” says Jeff Bezos in an interview with Charlie Rose which aired last Sunday on 60 Minutes. Producers at the iconic CBS news show were offered a peek behind the closed doors of the retail giant, promising to reveal “what happens after you’ve clicked”.
The report comes hot on the heels of a BBC Panorama exposé with a remarkably similar theme. As Martha recently brought to our attention, in The truth behind the click Panorama sent a young Welshman by the name of Adam Littler to work undercover in one of Amazon’s UK fulfillment centers. But where Panorama finds pressed working conditions, 60 Minutes find the real-life version of Santa’s workshop.
With thousands of sales per second during the Christmas shopping period, Amazon today is nothing like the operation Bezos started 18 years ago in his proverbial garage. The self-made billionaire used to drive parcels to the post office while dreaming of one day affording a forklift – something that looks a relatively antiquated part of today’s automated operations. Both news shows give a glimpse at Amazon’s technically impressive and ruthlessly efficient operations, where even the conveyor belts are intelligent. The process by which items are shelved is the product of seven iterations of fulfillment center design.
To veteran journalist Charlie Rose, a book on Zen resting casually on Mrs. Potato Head is nothing short of extraordinary. Asked if he thinks the way products are organized makes sense, Amazon VP Dave Clark says it does. Why? Because they have algorithms in place that help optimize the available space at any given time.
There’s an optimal solution to this problem of mass storage behind what looks like meaningless disorder to the human observer. This is why shelvers and pickers are armed with scanning devices that tell them where to go next, what to do, and how long they have to do it. “We like to go down dark alleys and see what’s on the other side,” says Bezos to explaining the company’s approach to innovation. Apart from having to navigate narrow aisles in the dark when the lights go out, as they regularly seem to do in Wales, the technically-enhanced working conditions in Amazon’s warehouses don’t seem too terrible.
Yet the experience reported by Panorama suggests something different from the romantic visions people may have of Santa’s workshop filled with hundreds of little helpers. Fall short, and you don’t meet your target for the day. Fall way short, and a disciplinary mechanism kicks in, under which employees accumulate points. The blisters that appear on Littler’s feet are dramatic evidence of the effort required to meet daily performance targets in this heavily monitored environment. When the points stack up, you risk losing your job.
This is a working environment where everyone, including supervisors and managers, are simply following the orders of, and interpreting, a network of optimization processes. People merely fill a gap at the interface between the algorithms that control operations and their execution in three-dimensions. “We don’t think for ourselves, maybe they don’t trust us to think for ourselves as human beings, I don’t know,” says Littler.
Constantly taking orders from the little beeping scanner, never accumulating a sense of anticipation as to where he might be told to go next, it seems that the only experience that Littler can accumulate is how to, in the simplest of terms, jog the aisles, manipulate the trolley and preserve energy during algorithmically optimized shifts.
The future, Bezos tells us, is further automation, most notably in the form of drones, of all things. The promise of 30-minute deliveries by air is but a few years away. And unlike military drones which have ground crews telling them where to go, The Amazon drones will not only renders delivery drivers redundant, they won’t need a desk-pilot.
This is the future that is “happening” not just to Amazon’s rivals, but to the company itself. As profit margins close, so do the margins for operational error. Increased automation controls are envisioned to deal with uncontrollables such as the human element itself. In the future according to Amazon Santa’s little helpers are redundant because a robot won’t need an off day or develop foot blisters.
Rose is visibly in awe of the entrepreneurs’ cerebral brilliance when he asks Bezos whether Amazon is pricing smaller publishers and retailers out of the market. Bezos’ retort is the one quoted at the beginning of this post. People can complain about the disruptive nature of internet ventures, he says, “but complaining is not a strategy.”
And Bezos is nothing if not a man with a strategy.
Einar Gislason is a PhD candidate in the Department of Accounting at LSE.
- In the absence of context, it appears that Clark understands the system insofar as he understands that there is a computer algorithm according to which the order of things makes sense. It is highly doubtful that he himself understands the intricacies of that algorithm. ↩
- Guardian journalist Carole Cadwalladr also worked undercover at the Amazon fulfillment center in Swansea, albeit only for a week. And, before you ask, no – she did not secretly interview Adam Littler (or vice versa). Their experiences are, unsurprisingly, very similar. I recommend her article, which places Amazon’s practices and site-selections in more of a socio-economic context. ↩
December 4, 2013
A recent panel session on bank culture at the LSE has unearthed three intriguing practices that could make a difference in reforming the City.
As readers of this blog know, I have become very interested in the problem of cultural reform at banks. Bank culture presents a notable paradox — it is perceived by specialists to be a key cause of the credit crisis, but the solutions that those same specialists propose are purely formal and structural, ignoring the role of people, social interaction, existing beliefs, values, etc. (See more on this paradox here).
How to make culture a central part of bank reform? Nina Andreeva, Jean Pierre Zigrand and I recently organized a panel event abut this very issue. This was composed of four academics and four practitioners. It included bankers but also a consultant, a journalist and a regulator. Its aim was to discuss what was working and what was not in bank reform. See here for a description of the event (thanks to Neguine Zoka). And see here an article about it.
As it is inevitable among academics, the discussion at the panel sometimes took a philosophical turn. “What is culture?” one attendee asked. Is it just a wishy-washy idea (as some economists argue), meant to allow banks escape caps on bonuses? Or is it a set of abstract beliefs that magically snatch the minds of individuals and control their actions? While I take delight in such cogitations, my instinct is to keep things real. And go back to the original question, namely, how to reform the banks in the City. What practices are banks putting in place that work? What problems do they address? In this regard, the panel offered three original ideas.
The first one, known as “facetime,” comes from Goldman Sachs. The bank is pushing its employees to take the weekend off. And to make sure that this happens, it is closing off its offices during Friday night and Saturday, and shutting off its intranet so people cannot work from home. The policy is intriguing in that it could remedy what one panelist –Joris Luyendijk– rightly called the problem of “social atrophy” among bankers (another panelists, Jean-Peter Onstwedder, calls this the “finance bubble”): by virtue of their work hours, bankers are socially disconnected from their family, friends and ultimately from society. This disconnectedness makes it easier to ignore the impact of their activity on society.
Another panelist put forth a related policy that is impressive in its simplicity: allow bankers to use Facebook and social media at work. This need not mean installing apps in the bankers’ Blackberrys, the all-time worst nightmare of the security-obsessed IT personnel. It just requires banks to recognize that, for the most part, bankers already carry their own iPhones (in addition to their work Blackberry) to use social media apps. In fact, bankers already are discreetly checking their private Facebook and Twitter accounts; they just do so under their desks. The only required change is thus to officially let them use those iPhones at work. That is, bring Facebook to the top of the desk. As with FaceTime, this would re-embed bankers in society.
A third practice that will make a difference is, again, simple but powerful, and was put in place at Goldman. To communicate the changes the bank was instituting post-crisis (a new code of conduct), its CEO met in person with each and every senior manager of the bank — about thousand of them. Those face-to-face meetings are crucial to signal the bank’s resolve to its employees (a fellow panelist, Quentin Millington, also commented on the importance of bank’s resolve), as well as to convey the meaning of the new practices. This is what sociologists call sensemaking, and it allows employees to give meaning to the new policies. I saw its importance firsthand, when a university I worked for underwent a scandal. A review was commissioned. Small changes in practices were instituted. But they were never explained in person by the heads of departments, or the leading administrators. As a result, the changes remained meaningless bureaucratic hurdles that the faculty complied with, but never embraced. Indeed, Nina Andreeva gave an excellent example of this in her presentation on stress testing: the implementation of stress testing is creating a culture of either box-ticking or game playing, and this cannot be useful to manage risks.
Taken together, practices like face-time, Facebook and personal meetings underscore to the importance of culture in reforming banks. As a colleague of mine used to say, “it’s the soft stuff that is hard.” And indeed, one can already discern some banks (Goldman?) doing better than others at this. And those that do may well be able to turn their cultural response to the crisis into a basis for competitive advantage in a post-crisis financial industry.
November 29, 2013
There’s a financial upside to addictive gambling behavior. Piles of revenue for the casino industry!
Natasha Dow Schüll, an anthropologist at MIT, has been studying how addiction and profitability have become co-conspirators in the world of digital gambling. In her book, Addiction by Design, she argues that rising rates of addiction can be directly linked to how electronic slot machines are manufactured. She documents how industrial designers engineer elaborate games that cater to a kind of player who seeks to escape into a continuous, uninterrupted rhythm of play.
Schüll’s political point is to convince regulator not to hold individual psychology responsible for the explosion of compulsive gambling. She remains diplomatically neutral on the social intentions of game developers, choosing instead to focus on the remarkable outcome of their attentiveness to the design process: a spike in personal rates of addiction among a specific kind of gambler and roaring rates of profitability for casino operators.
Gambling is a peculiar bilateral transaction where the willful participation of one party generates a direct stream of revenue for the other. Schüll’s case is an excellent example of how a consumer industry can take up consumer-centered engineering to create a risk-based product, within the bounds of the law, that maximizes returns to the corporation, but without regard for old-fashioned principles of fairness, calculation or transparency.
In a review essay published online today at the Journal of Cultural Economy, I examine the contribution of Schüll’s work to studies of financial systems. My article underscores just how creative the engineering behind these commercial systems that create risk-based products can be. Risk might produce uncertainty for some, but as Schüll provocatively shows, for others, risk is a financial certainty.
November 26, 2013
Last night, BBC Panorama aired this report on working conditions inside Amazon warehouses. The episode comes complete with secret footage from Swansea which shows how bar scanning handsets keep manual workers tied to second by second performance targets as they fetch items off the shelves to fill your order.
Life behind the click is hard. The footage allows you to see, for yourself, one part of the extraordinary technical arrangement that makes that perfectly packed Amazon package arrive so effortlessly to your desk or doorstep. This is an excellent demonstration of a people-product-machine complex built in the name of enhanced efficiency.
Unfortunately, the episode probably only streams inside the UK. For a written report, see here.
November 18, 2013
November 13, 2013
When it comes to complying with the rules that govern insider trading, wildly successful hedgefund manager Steven Cohen says “I rely on my counsel.”
Frontline PBS has posted video from Cohen’s pretrial deposition for a civil suit filed by Canadian insurer Fairfax Financial Holdings in 2011. The drama turns around the around the interpretation of rule 10b-5, a provision that restricts trading on the basis of material nonpublic information. While SAC has elsewhere claimed to have a strong ‘culture of compliance’, Cohen says he cannot remember whether he’s ever read the compliance manual.
Depositions are part of the process of discovery in which both parties to a dispute interrogate witnesses to produce evidence. Everything said is recorded, but depending on how the lawyers make their arguments, not everything will be admissible in court. Note Cohen’s lawyer repeatedly objecting off camera to the form of the question being put to the witness.
Cohen’s hedge fund, SAC Capital Advisors, has just settled a civil case with the SEC for an unprecedented $1.8 bn. The firm has plead guilty to five counts of securities and wire fraud. For two summaries of the SEC’s case see Institutional Investor and the article by James B. Stewart at the New York Times (with video).