A CASE STUDY A Critical Analysis and Evaluation of Amazon.com
This essay utilized Amazon.com as the model organization to review its present global business policies and strategies and how they dealt with critical situations. From the analysis, key trends in the operations management were then identified, how they worked and their effectiveness in dealing with critical situations were ascertained. The paper then moved on to assess the decision-making capabilities and strategies of Amazon.com with regard to their suitability to critical situations, during which the internal capabilities of these strategies in relation to the business policies being followed were determined also. An overall analysis of the performance and effectiveness of Amazon.com through the e-commerce business model was also conducted to assess and compare the capabilities of the company’s business model with those of others. Gaps in the operations management capabilities and environment where then identified.
Finally, several choices of strategies to improve the operations management of Amazon.com as effective means in critical situations were recommended and evaluated in terms of appropriateness to the issues reviewed, feasibility in carrying out the options and acceptability within the key stakeholders and decision makers. Several key implementation issues related to managing strategic change were also addressed as well.
As a person with knowledge of the history of Amazon.com, the author has always brought up to his superiors the viability of strategy formation regarding the analysis of the operations management and business strategies of Amazon.com and at times fail to understand the reasons or logic behind certain strategic implementations imposed on it.
By delving into this project paper, the author intends to have better insights into how Amazon.com’s operations and business management are thought up, formulated and then imparted down into its subsidiaries. The author hopes to have an in-depth understanding as to how the operations and business management of Amazon.com enables them to compete effectively and profitably in this era of internationalization where competition is extremely intense.
In order to reinforce the learning objectives, two key focal issues were focussed upon, i.e. innovation and diversity. Innovation was discussed with regard to operations and business management of Amazon.com where they were renowned for their developmental capabilities to constantly innovate. Diversity came under strategic thinking and formation as the author considered the diverse culture, political climate, economic surroundings, social environment, technological settings, government policies and legal systems in order to better analyse and evaluate the case of Amazon.com.
- Company Mission / Corporate Objectives
Amazon.com aims for sustainable growth as a broad market leader in global online service industry as well as for segment leadership. In both cases, Amazon.com will play a crucial part. The company is able to establish its broad leadership usually by acquiring other strong online service providing companies and their services, which are then combined into a new, larger company. Offering training to its employees, improving the company operations, and the introduction of new technologies then reinforces the positions of Amazon.com and its websites. This practically results in economies of scale that is able to create a distribution network for the local and international Amazon.com websites. If a market is already in the control of other online service companies, Amazon.com devotes its attention towards the development of a premium segment with its various Amazon.com websites.
The mission of Amazon.com is to secure the growth of the business in a sustainable manner, while at the same time constantly improving the company’s profitability. The strategy to achieve this involves four elements:
- Striving in order to reach a leading position in attractive markets
- Focusing on securing a competitive share of the online service market segments.
- Working in order to improve the company’s efficiency and cut costs in operations.
- Continuous growth through selective acquisitions for as long as they are able to create shareholder value.
Amazon.com SWOT Analysis
- Sells products that boast of a very powerful retail. This includes a reputation for value of money, convenience and a wide variety of products
- Has grown significantly over the years, and has experienced global expansion.
- Amazon.com’s main competence lies on the use of information technology (IT) to fully support its international logistics system. Therefore, the company can see how their individual products perform within the United States, or even at other areas at a glance. IT also supports the company’s efficient procurement.
- Is able to deliver good customer care, as the limited amount of work would mean plenty of time to devote to customers.
- The company’s lead consultants have established a strong reputation within the market.
- Can afford to change direction quickly if its management finds that the company’s marketing strategy is not effective.
- Has recovered from deficits and overheads. Therefore the company can offer good value to customers on a consistent basis.
- Is one of the world’s largest electronic commerce companies but has a weak control of its empire, despite its IT advantages. This could lead to a decrease in productivity in some areas where they have the least control of.
- Since Amazon.com sells products across many sectors, the company may lack the flexibility that some of its more focused competitors possess.
- Operates globally, but its presence is located in only relatively few countries worldwide.
- Some of the company’s weaker branches lack market presence or reputation
- Some of the company’s personnel still lack the essential skills base in many areas.
- The company is still vulnerable to the temporary losses of its vital staff.
- The company’s cash flow is unreliable especially in the early stages of a new customer innovation development.
- Taking over, merging, or forming strategic alliances with other IT companies while focusing on strong markets like Europe or the Greater China Region.
- The branches of Amazon.com operate only on trade in a relatively small number of countries all over the world. Thus, this would open the opportunities for future businesses in expanding various consumer markets, such as those in China and India.
- The opening of new locations and branches offer Amazon.com the opportunities to exploit market development. This could lead to the diversification of the company’s branches from large countries to local-based sites.
- Opportunities exist for the company to continue with its current strategy of establishing large branches worldwide.
- Is continuously expanding, with plenty of future opportunities to exploit for success.
- The local councils of Amazon.com are in the process of encouraging local businesses with work whenever possible.
- The competitors of Amazon.com may be slow to adapt to new technologies especially the ones that the company utilizes.
- Being on top means that Amazon.com is the target of competition, the company to beat, both locally and globally.
- Being a global retailer means that the company might be exposed to political problems in the countries where the company has operations.
- The production costs of most consumer products have the tendency to fall because of lower manufacturing costs. Manufacturing costs fall because of outsourcing to low-cost regions around the globe. This phenomenon could lead to competition in prices, which in turn would result in the deflation of prices in various ranges. Intense price competition must definitely be considered a threat.
- The latest developments in information technology which could possibly change the markets might challenge the company’s ability to adapt to these changes
- A slight shift in focus of a large competitor might wipe out any market position that Amazon.com has achieved over the years. This could force the company to specialize in rapid response but good value services to local businesses. This would put so much pressure on the company’s consultancy staff to keep informed with the latest changes in technology where possible.
BUSINESS POLICIES AND STRATEGIES
In order to sustain its growth on the international level, Amazon.com builds its business on four (4) main positioning strategies.
- The first is building a strong local operating platform, and then testing it over time to determine if profitable growth would be possible through the selection of the right brands and creation of the structures fro distribution to supply a local national market.
- The second is broadening the portfolio in order to make way for international brands to give access to those not supported by the local brands. Global perspectives are also gathered to help optimize both the local and global brands. By broadening the portfolio, Amazon.com is able to meet the consumer’s needs and minimize the costs of local infrastructures.
- The third positioning strategy involves a balanced portfolio of countries among established and developing markets. In this instance, the established markets such as those in North America and Europe will provide the funds to invest in developing markets like those in Asia that have lower GDPs but possess a tremendous potential for growth and development.
- The last positioning strategy involves market consolidation which would help in the securing of positions and the creation of shareholder values. Amazon.com strives to be in the top position on each market
Responding to changes in the Business Environment
1) Development of Strategic Market (1995)
- Product-Service Market
Beginning in 1995, Amazon.com started including selling smart-phones and handheld electronic gadgets aside from being an online bookstore. These were equipped with Personal Information Management (PIM) software and other note-taking applications. A range of additional features including high resolution coloured screens and wireless capabilities ensured that there’s a product designed to meet the needs of clients anywhere in the world.
- Design Philosophy
The products that Amazon.com sells online focus more on the management and access of information rather the creation and editing of documents. For this reason, Amazon.com has developed a unique set of guiding principles – simplicity, efficiency and mobility. Total commitment to these principles makes Amazon.com very user-friendly to its customers.
A majority of Amazon.com’s customers are professionals who rely on mobile gadgets and expect seamless handoffs every time they make calls or purchases.
Barnes and Noble is considered as one of the fiercest competitors of Amazon.com because they had a physical infrastructure, supported by an online arm. However, a review of Barnesandnoble.com’s online revenues in 2003 shows they were less than 12 per cent of Amazon .com, or around 23 per cent of Amazon.com’s US Books, Music, DVD/Video segment. Both companies claim to have strong global connections, but Barnes and Noble sells their products on local or international levels while Amazon.com sells its company name.
2) REDEFINITION OF GENERIC STRATEGY (2000)
Amazon.com’s generic strategy in the electronic commerce market changed for the better at the start of the new millennium and began pursuing customer innovation improvement through product differentiation. True enough, the differentiated Amazon.com products were able to satisfy the needs of customers through a sustainable competitive advantage. This allowed Amazon.com to desensitize the prices of their products and instead focused on the values that generated not only a comparatively higher price but also a better margin.
BENEFITS OF RESTRUCTURED MARKETING STRATEGY
Because of Amazon.com’s successful implementation of its marketing strategy, the following benefits were achieved over the years:
- Financial Stability
Financial stability is crucial especially in the pursuit of research and development activities. In the online commerce industry, it is important to remain updated with the latest technological developments to be able to stay competitive in the market.
- Excellent Product Performance and Price
The selling of the best products comes as a result of well-funded research and development activities. The strong performance of products in the market could also be linked to their cost-effectiveness. However, the company has to be aware of the positioning in terms of process so as to maintain satisfactory profits margin and remain competitive in the market.
- Effective Distribution of Products
High brand awareness among the buyers has created the need for aggressive marketing, and access to strong distribution channels is critical for the introduction of new models.
- Economies of Scale and Scope in research and development arising from its numerous facilities situated in the United States.
- Unique Quality Technology
Amazon.com’s commitment to research & development activities has always been one of its top strategies to remain competitive in the market.
- Differentiated Products
Through the marketing of differentiated products originating from their research and development activities, Amazon.com is able to create its own firm-specific advantages. The continuous pursuit of research and development processes enables the company to sell a steady stream of originally differentiated products which makes it difficult for competitors to find substitutes. Because of this differentiated approach, Amazon.com is able to market their products worldwide, which enables them in turn to maximize the returns on research and development expenditures.
Developing an E-COMMERCE BUSINESS MODEL
The e-commerce business model has been widely used by Amazon.com since the year 2001, but the application of this model has started to spread up to this time. Instead of selling the products directly, Amazon.com nowadays is doing the process of selling their monthly or yearly access to products and services. As a result, the company is able to convert a one-time sale of a product into a recurring sale of a service.
Effect on Amazon.com
Amazon.com benefits from this strategy because of the fact that they are guaranteed of a constant revenue stream. This significantly reduces the uncertainty and the risk-taking of the company. Also, most of the time, the e-commerce business model is carefully designed in order to make sure that the revenue stream from the recurring purchases could be significantly higher than the revenue coming from simple one-time purchases. In most purchasing schemes, it also induces the increase of Amazon.com’s sales through disallowing the buyer’s option to either accept or reject any specific product. This triggers the reduction of customer acquisition costs, and allows the implementation of a personalized marketing ordatabase marketing.
However, the e-commerce business model also has their disadvantages. Amazon.com still needs to invest to a large infrastructure in order to help in the management and monitoring of purchases.
Effect on Amazon.com’s Customers
Amazon.com’s consumers also benefit greatly from this strategy. If they will buy products in Amazon.com regularly, then they will significantly benefit from the convenience. However, they will only have to make one particular purchase decision, then they will just simply have to wait for the product to arrive. This model will be of great help for those consumers who are in search for structure and constancy in their hectic lives.
Deriving from the analysis between the electronic commerce industry, operations management and capabilities of Amazon.com, many strategic options would become imperative. It is therefore essential to evaluate these strategic options as to whether they are appropriate to the issues addressed, whether they are feasible enough to be implemented and their acceptability to key stakeholders.
There is definitely a need to reconcile both the inside-out and outside-in capabilities. While Amazon.com’s operations management involves focusing on its core competencies with market position following its resource base, the company will be put into a disadvantageous position should it choose to neglect both the macro as well as the electronic commerce environment. Therefore, this company has to be aware of the latest operations management changes, as well as changes in political, economic, legal and even demographic trends in order to develop the outside-in capabilities, such as wine market sensing, customer linking, channel bonding and technology monitoring.
The advantages enjoyed by Amazon.com may come in the form of increased revenues. Knowing what the market demands and the latest trends could help the company fully exploit its research and development capabilities to come out with online services which are not only cost-effective but also high in quality. The strategic option can even be used as marketing tool where the focus is on staying close to the company’s customers and listening to their feedbacks. On the flip side of the coin, there will be huge mobilization of resources involved, and the associated risks bestowed on Amazon.com.
Nevertheless, the mentioned strategic option seems the most practical in the wake of globalization, since there is a sudden shift towards a more integrated and independent world economy. The key stakeholders too should not have any objections so long as the company’s core business is not threatened. By virtue of Amazon.com’s centralized control of its business, it is being expected that major barriers should not exist in carrying out such an option except additional time may be required given the scope and span of the company’s operations.
Understanding the strategic importance of operations management is something that Amazon.com has to be familiar with. This company normally practices a centralized and globally scaled configuration of operations and capabilities. This allows information dissemination to be retained.
A tie-up or merger with various electronic commerce companies offers tremendous benefits in terms of access to the company’s subscribers, infrastructure and even their resources. However, Amazon.com must not lose sight of its core competencies while pursuing these tie-ups. Otherwise, the image of the company might be put in jeopardy.
Meanwhile, the collaboration of Amazon.com with its major competitors can be seen as a ridiculous move at first. However, upon close examination, this move could pave the way for the company to increase even more its market shares and revenues. The bottom line is both sides would be able significantly gain financially in such an alliance. Amazon.com’s strengths in product selling combined with the financial capabilities of their competitors can transform them suddenly into an unbeatable force to reckon with. One possible setback, however, is the differences in the cultures of the companies involved. Another possible setback could be whether any of Amazon.com’s competitors has the need to form alliances.
The third option also focuses on alliances, but this time with either one of the suppliers specializing in manufacturing of mobile products or the product’s operating system. The benefits of these alliances should outweigh the costs in the long run.
In terms of appropriateness, all three options are able to directly address the current issues mentioned. However, the question remains whether Amazon.com could be able to implement any of these options, and whether these options can be acceptable to the key stakeholders. Any merger or alliances may also involve the sharing of expertise. The company has traditionally relied on the inside-out approach. It is important to note that any merger transactions would have many implications on the company’s values and culture as well as the resources. The key stakeholders definitely would be concerned with such options and need to be convinced of the positive aspects. Somehow, Amazon.com will be able to overcome this barrier in managing strategic changes in the process of implementing any of the above mentioned strategic options.
The results of the analysis carried out on the global business policies and strategies of Amazon.com indicated very significant advantages for the company, even amidst the threats of economic unrest. Therefore, we could conclude that Amazon.com could still be expected to grow faster than average because of its effective marketing strategy.
The review of Amazon.com’s capabilities and resources in responseto changes in the business environment revealed very little inconsistencies regarding the company’s strategies. This is coherent with the company’s traditional inside-out approach. However, the need to reconcile both the inside-out and outside-in approaches becomes imperative now for Amazon.com.
The analysis of the e-commerce business model of Amazon.com revealed certain gaps, most of which are biased towards the environment. However, these gaps paved the way towards determining a number of recommended strategic options to secure the company’s international competitiveness.
Also, Amazon.com has to find a balance between adherence to internal forces within the company and to the changing forces of the environment in order to implement such strategic options.