The Role of Technology in the Attainment of Strategic Objectives and Advantage: Amazon.com - Essay Example

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The Role of Technology in the Attainment of Strategic Objectives and Competitive Advantage: A Case Analysis of Amazon.com Table of Content Introduction...........................................................................................3 Amazon.com.........................................................................................4 Traditional Business Model..................................................................6 Centralized Operations..........................................................................6 Competitive and Strategic Terrain of Industry......................................10 Value Chain Analysis & Competitive Advantage of Amazon ….........11 Amazon Operations Systems................................................................12 Inputs of Amazon..................................................................................13 Transformation Processes of Amazon...................................................14 Outputs of Amazon................................................................................15 Amazon Information Systems...............................................................16 Conclusion.............................................................................................18 References.............................................................................................19 Introduction Systems operation analysis is a method of evaluating and analysing business process models in order to examine their linkages, systems and structures (Haplin, 2011 p1). This often involves the processing structures, information systems and other relevant arrangements that allows the organisation to take inputs from the society, process them and offer them to consumers (Koontz and Weihrich, 2006 p430). Amazon.com is an American e-commerce company that has a global reach. The company was established in July 1995 with the focus of facilitating business over the World Wide Web, which became the biggest marketplace in the world a few years after Amazon was established (Amazon Shareholder Letter, 1997). In 1997, the company attained an 838% revenue growth (Amazon Shareholder Letter, 1997). This was done solely through the use of the Internet and online commerce which sought to save consumers money and time. The company seeks to provide personalizations and a wide range of options to consumers in all parts of the world. Amazon.com operates through franchises that are opened to enhance its growth and operations. They also maintain a sophisticated supply chain system that ensures that there is proper sourcing and delivery of services to people who really need them. In the 2011 financial statement, the President and CEO, Bezos announced that their success is based on the following core systems and structures: 1. Focus on customers. 2. Focus on long-term market leadership with an inclination towards short-term profitability. 3. Measurement of programs for effectiveness in terms of returns on investment. Amazon's system is based on a sophisticated operations management and information system structure which ensures that the company remains popular with consumers in different parts of the world. Technological advancement of the modern era has contributed to the success of the company. The company has innovative products and systems that allows it to provide innovative systems and products to individuals and organisations. Amazon's business model relies heavily on Information Systems and Technology to boost its system operation model and business architecture. This paper will examine the main components of technological advancement that enables Amazon.com to thrive as the market leader. In attaining this end, the research will address the following objectives: 1. The elements of traditional and old business models which existed prior to the 1980s amongst businesses similar to Amazon.com. 2. A critical analysis of Amazon.com's operations system, information systems and technological structures that are responsible for the success of Amazon. 3. Identification of key strategic and operational systems and structures in the industry and why Amazon's systems are superior through the analysis of the elements of competitive advantage, supporters of change and innovation and strategic competencies. Amazon.com Unlike traditional businesses, Amazon was set up to coordinate business over the Internet. Whereas traditional traders will set up shops and other outlets to carry out business, Amazon seeks to acquire its customers through the Internet. Amazon provides a wide range of services to different stakeholders. Davis identifies the core stakeholders of Amazon to include: 1. Consumers 2. Sellers, 3. Enterprise 4. Businesses (2012). Basically, consumers are the core target of Amazon's operations. This include people who visit the various retail websites of Amazon and make orders. The CEO of Amazon states that their focus include providing a wide diversity of products and providing a convenient and easy method of getting consumers to shop without having to go leave their computers (Bezos, 2011). Hence, Amazon has a system of websites which provide important options that consumers can browse through and select. Amazon's system is complemented by an easy to use, fast and reliable system that allows customers to make orders and get them without having to move. Amazon also offers a program to sellers. Sellers who sign up with the Amazon program are allowed to sell on the Amazon e-commerce portal (Grawitzky, 2010). In this situation, the sellers are given a website of their own and they are able to connect to the centralized Amazon system. When orders are made, the Amazon.com network is used to ship products to the customers and Amazon supports sellers with after sales services and other relevant e-commerce products and arrangements (Davis, 2012). Amazon earns a fixed fee and revenue share per unit of activity (Bezos, 2011). Amazon also provides web and technology infrastructure for businesses. They do this by providing portals and other IT systems and structures for businesses that need them. Through this portal, businesses can use Amazon's systems to sell their products either individually or with the help of Amazon's network. They are currently developing products that will allow individuals to also own back offices that they can use to sell and promote products by other enterprises in return for commission (Davies, 2012). Amazon also runs a major online marketing and promotion system. This is based on the premise that more and more people are using the Internet and the best way to reach consumers is through online advertising (Grawitzky, 2010). Hence, Amazon runs a system of coordinating online advertisement and content creation to support third party businesses to carry out their business functions and operations. Amazon also maintains strategic alliances with important partners. This include postal services, delivery networks and warehouses that enable orders to be successfully shipped to consumers in different parts of the world Figure 1: Amazon's Core Operational Activities Traditional Business Model Putterman suggests that there has been a tremendous evolution in the way businesses were done in the 1980s, before the proliferation of the Internet and the advancement of Information Technology (2009). Businesses that were of a model similar to Amazon.com in the 1980s used very traditional systems and methods to carry out their activities. This was more or less like the traditional system and it was characterised by several trends and activities in their operations. Centralized Operations A business like a bookshop or supermarket would have a centralized operation. The centralized operation will be headed by a strategic management team who will be stewards directly appointed by the owners or board of directors (Zalman, 2007). The business would have strategic business units, like marketing, sales, procurement amongst others (Zalman, 2007). With the strategic unit heads based in the headquarters of the company, there will be various outlets scattered in the geographical area within which the organisation operates. Each shop or unit will have its independent manager. The manager will ensure that all the core functions of the strategic business unit are kept within the unit. Thus, the manager will take instructions from the top level management. Typically, a 1980s business would have a warehouse or outlet that exists in various geostrategic locations. The warehouse would be headed by a strategic manager who has close links to the centralized management unit. This warehouse head will have contacts with suppliers and other wholesalers. He will make sure that each warehouse is stocked with sufficient products that would be needed by the various branches or outlets of shops. Shops will also keep inventory closely. Priori to the information age, the inventory was taken with pen and paper. This inventory will be guided closely by the local stores clerk. When stocks were diminishing, he will send a message to the nearest warehouse. The warehouse would take the message, analyse it over a few days and then make sure that the products are supplied to the outlet at the earliest possible time, this could take several days and hence cause a lot of delays, stock outs and fall in consumer confidence. For consumers to purchase anything from such traditional shops, they had to drive to the nearest outlet and go through the shelves. This meant considerable waste of time and transportation costs. This meant that only things that were really urgent were purchased by people in such conditions. Also, the geographical limitations meant that people had to only purchase from their local stores and could not purchase anything from far-away place. This came with four major disadvantages: 1. Consumer Dissatisfaction: Consumers were likely to be dissatisfied with the service because they had limited choices. The geographical scope was absolutely limited and there was little opportunities to purchase anything outside a person's local area. Hence, a British national on a foreign mission in a place like Africa could not get most of the things he was used to. As such, it was difficult for people to move outside their normal area of domicile. Also, stock outs and other delays were likely to cause consumers to be very upset with their local outlets. Also, the lack of quick and efficient accounting systems meant that there were many delays in serving customers who came to acquire things in the shops. Customers also had to compromise on their convenience. They had no option of ordering their products. Hence, they had to put what they were doing aside to go to shops and acquire them. 2. Delays and issues in the supply chain: The supply chain system was clearly problematic. The fact that shops had to record everything manually and analyse them periodically meant that there was likely to be delays. This is because shop clerks could not analyse sales of every item every day. As such, in cases where there were likely to be surprises, there was a major chance that the shop would not inform the warehouse in a timely manner. Also, each warehouse served a number of different shops in a given region. Whenever information was received for the restocking of a given outlet, the warehouses had to follow due processes. This could take days. Hence there was a natural delay that was bound to occur at that level. Another issue with the supply chain had to do with the lock up of capital. This is because the management of the company had to ensure that enough funds had been made available for the acquisition of sufficient products to stock the warehouse. This was often based on guess work because there was no reliable way of telling the future demands. As such, the shops had to spend money to keep what they considered to be a suitable stock level in the warehouses. If this stock level was not moving at an appreciable pace, it would mean that the company would lock up its working capital in stocks and this will lead to slack and a loss of revenue. 3. Room for fraud and error: Also, the traditional shop model of the 1980s was a problematic one. The way through which the different shops recorded sales manually gave room for misstatements and errors. This is because there was little monitoring at the sales point and people could connive and falsify figures. Also, there were risks of relevant misstatements in the collation of information that could have far reaching influence on the accounts of each of the outlets in question. Additionally, evidence could be easily destroyed in order to perpetrate fraud in a manual system. 4. Communication problems: Basically, there are inherent issues in the old business model for the commercial industry. This is because where there is a lack of real time communication systems and structures that can aid the tracking of information and audit trails, was a major issue with communication. More importantly, the top level management of organisations need information in a timely manner. This way, they can make important decisions that can have widespread impacts on the organisation as a whole. Without this, managers in leadership positions would have to rely on estimates which might not be sufficient to provide accurate information. With these inherent weaknesses and issues with the traditional business model, an organisation like Amazon filled the vacuum and provided important solutions that both businesses and consumers found convenient. This can be said to be the basis and the foundation of the successes of Amazon. As it stands now, Amazon had an asset base of $25.278 billion in 2011, which was a rise from the past year of $18.197 billion (Bezos, 2011). This shows that the company's business model seem to be providing a credible solution to the society. This solution is popular with the stakeholders who are more than willing to spend money on Amazon's services. Competitive and Strategic Terrain of Industry According to Rath (2005), Business, Technology and Strategy are utilized and integrated into the corporate setting to attain the 4Es, economy, efficiency, effectiveness and excellence. These 4Es enables an organisation to attain the best results in what the organisation does. Effectiveness refers to the attainment of stated outputs (Collis and Moonen, 2001 p112). The main focus of effectiveness involves cost effectiveness whereby costs are cut down to the lowest levels and return on investments (Collis and Moonen, 2001 p111). Technology used by Amazon.com seem to reduce the company's costs tremendously. Unlike the old traditional system which was expensive, information systems are relatively cheaper. Amazon.com's source of revenue is that they spend a lot of money on research and create systems that are compatible with different systems and can be integrated by different organisations. As such, technology provides a cost efficient system that gives a symbiotic solution to both Amazon.com and their customers. This is because most of the businesses that utilize Amazon.com's e-commerce platforms save millions of dollars. This is because if they are to pay for the development of bespoke platforms, they would have to pay a considerable sum of money which would not be cost effective. As such, technology provides a system that cuts down costs for all the businesses that use the system. Also, to customers who shop via the Amazon portal and system, they get a convenient and effective system of purchasing things they need without having to leave their computers. Also, customers get the chance to compare prices and select the most affordable products. This makes the Amazon portal an economical one. Efficiency relates to input-output relationships (Pine and Gilmore, 2011). Efficiency means meeting a given objective with a given amount of resources. It relates to the optimisation of resources. Technology enables organisations to get the best results from the inputs that they put out. This is because technology enables the organisation to reach consumers all over the world. It enables an ordinary shop in an isolated place to reach different parts of the world. Also, technology allows the supply chain management system of an organisation to become more accurate because the firm can get high quality information to run its affairs and operations. In terms of equity, the main thing that technology adds to organisations is accuracy and a basis for the attainment of equal and fair treatments for different people. Information systems promote transparency and fairness which allows organisations to fulfil their obligations like taxation and the like. Also, technology helps to preserve the ecology and protect the environment. Although it might come as a minor issue, Amazon's system ensures that people cut down on the use of paper and do more things electronically. Also, the fact that people can place orders right from their laptops means that they will have to rely less on transportation and the driving of cars which is known to add up to carbon emissions. From these advantages, it pays to examine the fundamental operation systems and information systems that allows Amazon.com to deliver value to customers. Also, there need to be some analysis of how Amazon's services to third party businesses are designed and how they enable them to attain competitive advantage and strategic superiority. This is because Amazon has capitalized on some of these weaknesses and established a successful business. Value Chain Analysis & Competitive Advantage of Amazon According to Porter (1985), value chain is a sequence of activities that add up results to a firm. The base activities of a firm enables it to construct its value chain. Products go through the chain as inputs, operations, output and marketing. Thus, the costs of activities produces in the value chain produces the base cost of the firm. The difference between the costs of maintaining the value chain and the revenue attained from sale is a margin for the firm. Figure 2: Value Chain Model (Porter, 1985) Primary activities include those activities directly related to processing a product and selling them to consumers. Secondary activities include those essential overhead costs that a firm incurs in producing a given product. Amazon's operations have elements of this. The operations management system ensures that the company produces services that are made available to consumers around the world. Amazon Operations Systems Operations create goods and services by taking inputs and transforming them to outputs (Niewenhuizen, 2010 p119). In other words, operations is a set of processes that add value to products and services for people. Inputs include transformed resources, capital, research and development, energy and materials. Transformation systems include micro and macro processes and operation systems that causes a firm to add values to a given project. Outputs are the valuable good and services provided for consumers. Operations management gives way for organisations to monitor the effectiveness of their operations and increase revenue by producing more optimal results (Les Galloway, 1993). Operations management involve decision making, forecasting and planning to enable an organisation to meet its core production objectives and plans (Shim and Siegel, 1999 p3). Operations management succeeds when there is a clear-cut mission, vision, strategy and standards meant to attain those ends (Young, 2009). Operations management is responsive to the changes in the external environment like market segmentation, service mode development and the modification of operation strategy (Affisco and Soliman, 2006). Figure 3: Amazon.com Business Model Inputs of Amazon The main inputs that Amazon puts into its production systems include technological portal, software portals, research and development staff and resources and legal right to strategic partners. Amazon has created numerous technological portals and software plug-in systems that allows different businesses to build their own websites. They also possess websites and other systems and structures which allow Amazon to provide services to consumers and other people. Another set of inputs include research and development staff and resources that allow the company to develop new and better systems that adds up to Amazon's competitive advantage. Transformation Processes of Amazon There are different transformation processes that allow Amazon to provide service to their client. One of them is the business integration processes which allows businesses to link up and connect with the Amazon system. Also, the research projects allow the company to discover and find out new systems and methods of doing business and providing solutions for people in the industry. Also, marketing projects and the delivery of orders for customers allows Amazon to do something for humanity which brings revenue to the company. Procurement: Amazon.com maintains a sophisticated procurement system. It maintains websites that allows customers to make purchases online. It has direct linkage to sellers who get information on purchases the moment they are made. The sellers produce the product ordered instantly. Amazon keeps a limited warehouse range that is shared by sellers on its network. As such, when orders are received, the sellers provide the items. In-Bound Logistics: Since sellers on Amazon.com are independent shops, they are in charge of acquiring the logistics and stocks. This is an independent function that Amazon has no primary control over. The stocks are kept by the sellers who have real time information about changes in the quantities of stocks they hold. Due to this, they can make changes wherever the need arises. IT Infrastructure and Executive Systems Structure (ESS): Amazon's portal allows sellers to keep storage space on its system. The storage space provides websites and other linkages to warehouses and finances which allows Amazon.com to keep track of what is going on between sellers, customers and delivery companies. Also, sellers' information is linked to their suppliers who get updates of changes in stocks and can supply whenever stocks reach a certain level. Out-Bound Logistics: When an order is made, the sellers are alerted to dispatch the item by post to the customer. Due to this, the need for warehousing and holding costs are transferred by Amazon to the sellers. The sellers also have an advantage because Amazon's system provides them with real time information which allows them to monitor operations and make changes wherever the need arises. Finance: Information about purchases are sent directly to the interested parties. This is relayed to the Amazon.com centralized portal which is forwarded instantly to sellers and their suppliers. This way, accounts are updated immediately and managers can always tell where they stand at each and every point. This aids decision making. Knowledge Management: Information is readily available to Amazon instantly. This is because the technological systems allows the company to maintain real time systems. This means that managers always have information about what is going on at every point in time. Also, knowledge management allows the company to keep top notch researchers who are well versed with the system and are experienced in their fields. These people always prompt innovation and make changes to promote more efficient and effective systems. Outputs of Amazon The output of Amazon is mainly difficult to evaluate because in the service sector, the production and the consumption of products are the same (Parasuraman, 1996). However, on a simplistic level, it can be identified that some important outputs include served customers who place orders and receive the orders successfully. Also, boosted business operations, system integration and the promotion of businesses mark the outputs of Amazon.com. Amazon's output measures can also be identified to be the main way of observing the contribution they make to society. With high revenues, there is clear evidence that the company's services are making an impact on the markets. Amazon Information Systems Information systems play a major role in the success of Amazon.com. The company's competitive strength and ability is steeped in their role as leaders in the information system sector. Needles et al (2010) identify some important pointers that enable Amazon to remain a leader in the commercial sector. They include: 1. Internet business model: The company has maintained a global marketplace by opening up its operations on the World Wide Web which allows customers anywhere in the world to make acquisition from businesses that partner with Amazon. This implies that the company's potential profits are not limited by geographical area because they have a potential reach over all different customers throughout the world. Local sellers who use the traditional methods of selling are likely to lose out because Amazon has a strong customer base and a wide and unlimited reach. 2. Customer experiences are enhanced because of the information systems that Amazon uses. This is because customers have so many options by purchasing through Amazon. First of all they have a searching portal that can give details about a wide range of products with just a click of a button. The buyer will not need to leave his computer nor search through a huge shop to find products available. Also, customers can compare offers being given by potential sellers. This is because Amazon always gives details about a number of potential sellers whenever people search for products. Customers can compare prices, quality and other yardsticks behind their computers. 3. Amazon maintains customers' profile: Whenever a customer purchases from them, they keep the customer's profile on their database. The database enables them to send the customer mails and keep track of the customer's affairs. Also, the customer can easily get back and make new purchases without any difficulties. Additionally, Amazon can alert the consumer about products and items that s/he is likely to be interested in through the database. The database inevitably transforms first time buyers to return customers. 4. Integrated supply chain software: Amazon has an integrated supply chain software in its systems. Thus, when an order is made by a shop, the deductions are made available to the suppliers in real time. In other words, they get updated instantly. This allows suppliers to know what is going on and re-stock their suppliers' depots when a given level of stock is reached. Due to the access to instant information, suppliers and warehouse owners can always discharge their functions at the right time. Also sellers do not need to lock up their capital in excessive stocks. Additionally, the threats of stock outs and idle time is eliminated due to the supply chain software which is integrated into the systems of the company. 5. Real time accounting: Once a transaction is completed, the appropriate account is credited and the company's systems and all relevant parties are informed instantly. Thus, the traditional problem of waiting for information to be forwarded and the threats of fraud and error are eliminated to a reasonable degree. 6. Controls and Monitoring: The company has a centralized executive support system. Through this system, the management of Amazon can always get information about what is going on at any given point in time. Also, in the management hierarchy, different managers have access to relevant information in real time. This makes it easy for accurate decisions to be taken. Also, controls can be put in place by managers whenever they get information. Due to this, the management of the company can take decisions and implement them whenever the need arises. Information systems also ensures that Amazon gets a lot of benefits at the lowest price (Rainer and Cegielski, 2010). This is because information systems cuts down costs considerably and enables Amazon to get effectiveness and efficiency (Stair and Reynolds, 2009). Conclusion Amazon provides a service to the public that is high in demand. The service involves a system that enables consumers to get the best results without spending too much. The services produced by Amazon are popular and it seems that the demand for Amazon's services will continue into the future. The use of technology by Amazon enables Amazon to assist their individual customers and business customers to cut down cost. Amazon's services promotes efficiency, effectiveness, economy and equity. The value chain of Amazon's system enables the company to maintain huge profit margins. This is because they use sophisticated systems and structures that cost less but produces solutions that consumers are willing and able to pay high amounts of money for. Amazon's business model benefits greatly from information systems. The use of information systems enables Amazon to offer its customers different options and diversity. Also, Amazon has access to the global marketplace and they maintain a database that allows them to get in touch with their customers. 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