Strategy at Amazon Based on the External Environment and the Internal Resource Capability - Case Study Example

Amazon.com Understanding the Strategy of the Company by looking at the External Environment And the Internal Resource Capability Year Level, Section, Course Title Professor Date Submitted Amazon.com Amazon.com: Defining its Company Values and Business Framework The primary vision of Amazon.com is to become the most consumer-centric online company. As such, Amazon.com develops ways to answer both their consumers’ expressed and unexpressed needs and wants. In this light, Amazon.com serves to three distinct groups of customers: consumer customers, seller customers, and developer customers. Firstly, consumer customers are comprised of individuals who buy the company’s products through its online retail stores. Secondly, seller customers are composed of people who use the company website as an online venue to sell their own products and services. Lastly, developer customers are comprised of online merchants who use the company’s website technology and infrastructure to conduct their own businesses. Being customer-oriented, in this regard, drives the company to continually enhance the customer experience through product innovation. In the end, Amazon.com aims to run its primary and secondary business operations under these three pillars: selection, price and convenience. Firstly, selection means providing a wider selection of products and services to three customer groups. Secondly, price means maintaining price leadership without sacrificing its product quality. Lastly, convenience means enriching the purchase decision cycle of the three customer groups from making the product selection easier to keeping efficient purchase, payment, and delivery schemes. Amazon.com: Understanding the External Environment The key to understanding the external environment of Amazon.com lies on revisiting its three customer groups. Firstly, in serving the consumer customers, Amazon.com serves both as retailer and producer. Secondly, in serving the seller customers, Amazon.com stands as retailer. And lastly, in serving the developer customers, Amazon.com acts as producer. With this, it can be claimed that the presence of Amazon.com in both digital and physical environments makes it susceptible to various macro-environmental forces, which can be observed by using two frameworks: PESTEL and Five Forces Model. A. PESTEL Analysis Firstly, different political factors continue to influence the business operations of Amazon.com. As such, it can be said that the company does not only need to abide by the rules of honest e-commerce transactions, it must also ensure effective and efficient dealerships with the suppliers of its products and services. However, difficulty arises by the time the applicable cyber laws are considered. Since transactions happen digitally, the adoption of critical laws may or may not be based on the geographical location of the customers. Secondly, economic factors also affect the operations of Amazon.com as they comprise mainly of interest rates, taxation changes, economic growth, inflation, and exchange rates. For one, higher interest rates may deter the possible plans for investments of Amazon.com. Also, strong domestic currency may also make the shipping of ordered products more challenging. On a more positive note, growth in national income may also boost the demand for Amazon.com’s products and services. Thirdly, social factors describe social trends as having an impact on the demands for the firm’s products and services. Changing preferences in lifestyles, attitudes, and general outlook in life all play a vital role in the direct or indirect shaping of the company’s profitability. Fourthly, technological factors directly impact the business operations of Amazon.com since innovation is at the core of its framework. As such, innovations in technology can directly lead the enhancement of the company’s customer services, distribution network, and other added services. Fifthly, environmental factors can also provide some direct or indirect effects on the business of Amazon.com. The presence of the company’s physical distribution hubs all over the world makes the company open to environmental issues. Lastly, legal factors also shape the business of the company as it guides it in both its internal and external operations. Internally, it provides the company with proper perspectives on how it intends to act as a business in relation to its daily operations and human resource. Externally, it depicts the proper behavior of the company amidst cultural, political, and social factors. B. Five Forces Model The use of Michael Porter’s Five Forces Model can help in better understanding the state of the industry where Amazon.com is part of. With this, it can be claimed that knowing the barriers to entry, power of the buyers, suppliers, substitutes, and intensity of rivalry can help determine the fate of the company. However, before going into a detailed discussion of each force, it must be pointed out that Amazon.com generally participates in the online retail industry. In terms of barriers to entry, there is low threat of entry as new entrants will find it difficult to survive in the industry that invests heavily on technological innovations and complex distribution system. To be more specific, the presence of various software programs that help the company in providing fast and reliable service can truly appear costly for those players who are starting up. Also, the company’s relationship with key suppliers can help it attain economies of scale which, obviously, cannot be achieved instantly by new players. As such, there are two ways for new players to survive in this industry: firstly, by having a robust financial back-up, and secondly, by sharing its business operations with the incumbent players of the industry. In terms of the buyers, it can be said that they display more power and control in terms of their purchase behavior. One obvious reason is the fact that they well-informed about the products and services that they intend to purchase via Amazon.com. The presence of online reviews and other personal commentaries about Amazon.com and other related firms in various social networking sites can equip the customers with the power to choose the right venue for their online purchase. In terms of the suppliers, it can be claimed that they generally have more power than most of the players in the industry as they have more options as for their own consumers. For one, suppliers of the physical products being sold in Amazon.com have other direct or indirect alternatives to selling their products (either through another online retail store or to a physical retail store like Wal-Mart). However, for suppliers of the company’s own products such as the Kindle and the online MP3 store, the power is more concentrated on the company as they can dictate the cost of the product based on its quality. In terms of the intensity of rivalry, the primary competitors of the company can be categorized alongside the three main functions of Amazon.com, as a retailer and producer, the company faces direct competition with the likes of Wal-Mart and Barnes & Noble. As a producer of technological products, the company competes with providers of digital content and gadgets (mainly Apple’s iTunes and iPad). And as a venue for retail activities, Amazon.com has to compete with other online sites that provide web-hosting services and other related programs. C. Summary of the External Environment The primary opportunities for Amazon.com lie on platform itself. Online retailing can definitely become the primary venue for shopping, especially with the rapid changes in customer lifestyles and attitudes. Thus, the customer-centric approach of the company that drives innovation in both its products and services can truly mark its presence in such industry. However, the biggest threat comes from the new entrants who can reconfigure the common business model of the incumbents in the industry. Although barrier to entry is high, they may find ways on how to bring down operational costs without sacrificing the quality of their online service. Amazon.com: Understanding the Internal Operations A. Revisiting the Value Chain As an online retail store, the business operations of Amazon.com start with the acquisition of suppliers for its products and services. At this point, critical review of the supplier’s background and the quality of its products and services are needed. However, it is crucial to note that just like any retail firm, Amazon.com has to negotiate the right price of its products to obtain marginal profits. Thus, in order to do this, Amazon.com must be seen not as an end consumer but rather as a regular retailer. After the procurement of products, Amazon.com has to store them in a local distribution hub which entails fixed costs such as electricity, maintenance, and administrative support. The challenge, in this level, lies on ensuring that products are well-kept and conveniently sorted for easier distribution. Then, the business operations transpire online, where customers visit Amazon.com and place their orders. Since this serves as the core of the business, tremendous support must be allocated at this point in order to maintain high level of customer service. As such, website development initiatives are needed to enhance the purchase experience of the customers. Operationally, the site must be easy to navigate and complete with pertinent details about the product. Since customers do not have the physical contact with the company’s products, the challenge lies on depicting them as accurately as possible through updated photos and complete product information. Visually, the site must be categorized according to product and services types in order to avoid confusion among the consumers. In this regard, proper lay-outing is needed. The last part of the business model concentrates on the actual delivery of the products to the consumers. For this matter, Amazon.com has to have a closed system with its physical distribution hubs in order to ensure the proper handling and timely arrival of the products. With this set-up, not only does Amazon.com need to coordinate with the internal staff housed at the distribution hubs, it also needs to have a close contact with the logistical providers (those that literally deliver the products). This is important as they mark the essence of the kind of service that Amazon.com provides: fast and reliable. At this point, it must be pointed out that the business operations of the company do not end at the actual arrival of the product to the customer. Although in essence Amazon.com only stands as a retail store, after-sales services must still be rendered in order to uphold its value of being ‘customer-centric’ since the Amazon.com brand is also carried along with the delivery of the product itself. Thus, investments are made on setting up customer care centers that focus on providing technical support to customers. As a venue for online sellers, the business model of Amazon.com becomes less complicated compared to the previous function. In this regard, internal web site developing staff must be ensure that it provides all the necessary technical support to the online sellers: from the placement of products to the outlining of delivery schemes. Since these online sellers carry the Amazon.com brand, it is important that the company ensures the legitimacy of these suppliers. B. Key Issues in the Business Model Since customer-centeredness defines the entire operations of the Amazon.com, it is important to note that there are three primary facets that the company must operationally maintain and enhance. These facets also render the primary operational costs for the firm. The first facet banks on the maintenance and development of innovative software programs that allow for a more customer-friendly purchase experience. As such, Amazon.com must be able to keep up with the fast-paced lifestyle of the consumer by enhancing the website functions that suit any platform: mobile internet and computer internet. The second facet highlights the close coordination between the online facility and the physical distribution hubs. The receipt and processing of purchases made online must be timely processed by the internal staff of the distribution hubs. Along with this, such hubs must be able to ensure that the products are well-maintained and are of excellent quality by the time it arrives to the customers. Therefore, distribution hubs must be in close coordination with its logistical partners to ensure that the products arrive on time and in good condition. The last facet underscores the need for after-sales service to nurture and protect the Amazon.com brand. As mentioned earlier, although the company only serves as a retail store, the customers may also associate the value of the product with Amazon.com. Thus, technical support is needed in this area. In this regard, it is worth noting that the internal challenges of Amazon.com lie on lowering the operational costs but maintaining a high quality of services. Since convenience and reliability is given to its target customers, Amazon.com employs strategic pricing structures to continue its business operations. Conclusion In conclusion, it can be said that the key strength of Amazon.com lies on the platform it uses: online. Indeed, the future of customer purchase is found online as it not only keeps up with the fast-paced lifestyle of people but also supports the various innovations in technology and gadgetry. However, the primary threat for Amazon.com comes from incoming players who may reconfigure the common business model to lower down the operational costs. Although this seems to be the case, the customer-centric mindset of the company is a strong quality that will help it differentiate itself from the rest. The creation of more customer-friendly website programs can definitely help the company enrich the meaning of its brand as a whole. In the end, it can be said that it is not the innovative software program that defines what Amazon.com is, but the commitment to make purchasing products fast, convenient and reliable. Read More