The importance of controlling and project management with Amazon’s HQ2
As many of you probably already know, Amazon is planning to expand their grasp on American consumers by building a second primary headquarters in addition to their existing Seattle headquarters. Amazon recently released a short-list of cities that are still in consideration for the site of this “HQ2,” further pushing the conversation about the economic impact of the project on a city. Considering the exponentially growing size of Amazon, the new HQ2 will no doubt be one of the single-largest projects in recent times based on economic impact and influence. From 2010 through 2016, Amazon’s investments contributed an estimated $38 billion to Seattle’s economy. Now, as Amazon is bigger than ever in 2018, that economic contribution is certain to continue growing.
With HQ2, the stakes are incredibly high and all of Amazon’s project decisions are now in the public eye from start to finish, making their project management process crucially important. Amazon has certainly already laid out first three steps of their project planning process. At least within their organization, they have defined their scope and resources, organized a work breakdown structure, and planned their start to finish path, leaving some room for slight changes based on city choice. With $5 billion of estimated investment being put into this project, every day that they fall behind and every road block that comes up could cost millions of dollars to the project. Not to mention that any slip-ups will be in the public eye and have an effect on investor sentiment.
Certainly Amazon has already assessed their risks dozens of times, so as they push forward with this project, the crucial task is controlling. The first wall they will hit in the process that they must control for influence from the city they choose. Many cities on the short list are pitching their own ideas for HQ2. For example, if Dallas is chosen, they want to build a $15 billion bullet train transit system around the headquarters. Although proposals such as this sound attractive, they are examples of scope creep which would ultimately cause alterations the construction plans and set the project back on time and resources. A second conflict that Amazon will need to control for is community backlash. With cities offering money and resources to attract Amazon, residents are increasingly concerned about their taxes going towards “corporate welfare.” This is in addition to their prior concerns about Amazon running other local employers and businesses out of business. Such backlash may only heighten as construction begins, leading to protests and bad publicity for the company.
With the power that Amazon possesses to bolster an economy, they have a chance to lead a prosperous and successful partnership between themselves and their host region. The last thing that Amazon wants to do is isolate itself from its host city and its residents, so it is vital that they balance and control such issues throughout the project process. They must limit their scope creep while still working closely with the municipalities, and they must handle resident backlash while maintaining a positive image.
Do you see any other risks or dangers with Amazon’s HQ2 project? How do you think Amazon can best control these risks? Where do you think they will end up building HQ2 and why (just curious)?
Sources:
Joe,
I think the point you bring up about the issues with “corporate welfare” is an important one. With the new Amazon headquarters being shopped around, it seems as though local governments have begun to bend over backwards for the company. While I believe in the free market and a capitalistic economy, it seems as though the degree to which some governments are able to vary their treatment of larger companies to those of smaller companies could be unfair. While Amazon grows in a wide variety of industries, the margin for competition is becoming slimmer and slimmer. Will this be good for the economy in the future? I think that is still uncertain.
Joe,
I think this is a great example to highlight the major themes and topics of the project management. It will certainly be an interesting case study to follow in the coming months.
At this current juncture, I believe that Amazon is in the organizing phase of this project. In your post, you focused on the importance of Amazon’s ability to control risk. I wholeheartedly agree that Amazon’s monitoring and control of risk will be a critical factor in the success or failure of this project. That being said, given how early Amazon is in the project management process, proper organization and planning can help the company mitigate risks before they occur.
For instance, in your post you mentioned that Dallas is one of the cities on Amazon’s short list for HQ2. I did not know this yet, but Dallas’ desire to build a $15 billion bullet train system around HQ2—if chosen—present an interesting organizational challenge for project leaders. This bullet train system is a complicating factor in Amazon’s HQ2 decision, and I’d be willing to bet that many of the other options also have factors adding layers of complexity to the project. In regard to mitigating risk during the organizing phase, effective site selection and clear communication between Amazon’s leaders and the community leaders of the selected site concerning both parties’ expectations are crucial.
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Joe –
I always love reading about Amazon because they really do a spectacular job of holding all different aspects of their business to the same high standard of quality. Something you said particularly resonated with me, “all of Amazon’s project decisions are now in the public eye from start to finish, making their project management process crucially important,” which I could not agree more with. Everything Amazon does is scrutinized and then copied by other firms. I have full faith that their project management team will execute this project in a way that meets the high standards set by the firm.
With such a complex to-do list to get Amazon from the idea of another HQ to the point where they have physical buildings on the ground in their chosen city, it is hard to even conceptualize how they jump from Point A to Point B. I think it would be extremely interesting to be able to see a Gantt chart for this project. It is highly doubtful that would be made available to the public eye, however.
Another part of your analysis I found incredibly insightful was the idea of consumer backlash being a major risk for this project. I found an additional article on this subject, which is titled ‘Amazon HQ2 spurs worries of a wage war in winning city’. (https://www.wsj.com/articles/amazon-thou-shalt-not-covet-thy-neighbors-employee-1517394601?mod=searchresults&page=1&pos=3) The bidding process for HQ2 reminds me so much of bidding for the Olympics. This article actually denotes the bidding as a “beauty contest” among the local governments of the proposed cities. My fear here is, as with the Olympics, we see that there is temporary economic boom that accompanies the implementation of a large-scale project, but there are also a lot of shortcomings. A city is usually ‘gutted’ of its resources with a project such as this, and finds itself in a shadow.
For me, it will be interesting to see 1. how Amazon handles and responds to these risks and consumer backlash and 2. what the long-term effects on the city that hosts HQ2 will truly be. Is this a project that will economically benefit the city or will so many resources and efforts be put into this project that the well-being of the city and inhabitants itself gets completely left in the dust? I hope that, as always, Amazon is one step ahead in this thought process. A ‘great’ company will always put their consumer above them.
Thanks!
Joe,
This is a really interesting post. Developing a new headquarter for a company the size of Amazon requires much needed planning. As you mentioned, every slip-up or another day added to the project can add millions of dollars to the cost of the project which is why project management is so crucial. The $15 billion bullet train transit system sounds like an unnecessary venture. A company this size may be able to discuss projects like these but it is not necessary for the development of a new headquarters. The project scope provides the company a clear direct direction in which to work towards. Anything not in the path can be described as scope creep. The textbook explains it best, “a thorough statement of a project’s scope, time frame, and allocated resources is essential to managing the project.”. From personal experience, new ideas always seem to arise in the middle of the project. But these ideas may not align with the project scope and will add to the delays and costs of the project. A clear project schedule must be developed and adhered to as to not extend the critical path which is outlined in the work breakdown structure (WBS).
Mark,
Although you bring up a good point about the train being very expensive, I would have to disagree with you about how unnecessary it would be. The calculated amount of new employment for HQ2 is around 50,000 people. Not only that but Amazon wants this new headquarter to be a place not only for their workers but also for the entire community that surrounds the city chosen. So, even though a $15 billion bullet train system sounds like a risky investment, in the long run it can possibly be a really good idea. It can provide an entire community with a new transportation method. Knowing how cut edge the company is, the train will not only be fast but also environmentally friendly.
Taking into account all of these facts, I believe that building a train is not such a crazy idea after all because it can be beneficial for a long period of time, it can be useful for the community and it can also help increase the economic growth of whichever city the company ends up choosing as its second headquarter.
With Amazon’s second headquarter being one of the largest projects in recent times, an excellent project management team and constant control throughout the process is absolutely necessary. For a project of such a large scale, it seems like such a daunting task for Amazon to undertake, however, they are a company that has the resources and available skill set to be able to put towards this.
Amazon is a complex and detail-oriented company and their headquarters must reflect this. The risks related to this project might be Amazon’s biggest challenge. You mentioned in your blog post the risks related to influence of the city as well as the community backlash. I do think these risks are extremely important and relevant, but it might also be helpful for Amazon to consider the risks they will run into once production actually begins.
One of the big risks is the amount of time it will take to complete this project. For one, it is a strain on the community, will determine the start dates for employees, and might take longer than expected. According to data from the IHS Global Insights, construction productivity in many areas has worsened over the past decade. This same data suggests that large projects cost 80% more than what was budgeted and run up to 20 months late. With so much at stake, I think Amazon should place an extra importance on minimizing each risk that might arise. How does such a large company do this? One suggestion that could be made is to have operations and maintenance experts hired from the start of the project and dedicated to specific phases of the overall project. While monitoring of the project can be viewed on a larger scale, taking a more narrow and detailed approach can be beneficial in the long run. In doing this, there is accountability throughout each phase and less of a risk of one small part of the process delaying the other parts of the project that depend on that once being doing. Additionally, including something like a stage-gate management system can enable continuous improvements. After completing each phase of the long-term project, quality reviews of the deliverables could be made. This way it can be determined what worked well and then implemented into future phases of the project.
For such a large company and this large undertaking, it is important to have some procedures in place when problems arise. For Amazon, I think there needs to be a heightened amount of monitoring throughout individual stages of the project as well the overall progression of the completion of the facility. I think Toronto and Houston are possible options for where Amazon could build this new facility.
Hi Jessica –
You touched upon the idea of community strain on the host city, as did I. I think your idea of having specialists to mitigate risk is absolutely necessary. To focus specifically on the well-being of the host city’s economy and citizens, economic specialists could be hired by Amazon. These people would also need to adapt project management in their work. They would need to analyze the host city’s economy and really revert to the fundamentals of economic theory. How will these plans affect the city in the most broad sense? Are these outcomes desirable, and if they are not, how do we make them as so? I think the implementation of a task force to handle these issues would be a way for Amazon to put their best foot forward and really reduce some of the local consumer backlash that Joe mentioned about in this post.