Key Industry Success Factors of Amazon - Research Paper Example

?Amazon.com Key Industry Success Factors In any industry, planning and strategy are paramount to success. Thus, in order to come up with good strategies, certain elements are critical. One of such elements is the critical success factor. The critical success factor helps an organization to meet the objectives of the project it is pursuing. In other words, these are activities that ensure success of an organization. This neither means that without these elements, a manager or an organization is nor assured of success. Critical success factors provide an avenue of managerial and enterprise performance, and, therefore, any organization that hopes to achieve its mission must give these elements special and continual attention. Success factors determine the success of both current and future operating activities within an organization. There are different success factors that define the success of an organization. The key industry success factors depend on the nature of the organization and they vary from one organization to another (Rockart 81-93). For instance, market share is one factor that determines the success if an organization. Depending on the market share, some companies will have a competitive advantage over the rest. For example, Amazon, the biggest online retail shop that also deals with other products such as electronic commerce is the world leader in selling various products online. With a market share of 29 percent, Amazon has a competitive advantage as compared to other competitors such as eBay, eMusic, Bol and many more. Another key industry success factor is customers. Organizations that have mastered the art of meeting the demands of the customers are successful and they understand market segments well (Daniel 111-121). Competition is also another industry success factor. Here, just like the competitors, Amazon strategizes on how to dominate the market by beating their competitors. For example, with retails shops all around the world, Amazon controls over 30 percent of the world’s consumer electronics and other online retail products due to its burly distributive and networking power. Lastly, the corporation itself is a key industry success factor. Amazon has huge resources and thereore; this makes it more competitive in the market. Additionally, the burly innovativeness experienced in Amazon is vital to its market dominance and has made it to have a competitive advantage over its rivals (Boynlon and Zmud 17-27). Company distinctive competences and competitive advantages Organizations, for example Amazon, which enjoys massive sustained profits within an industry, always have a competitive advantage over competitors. However, it is paramount to note that in order to have a prolonged competitive advantage, business strategy is vital. There are two forms of competitive advantage: cost advantage and differentiation advantage. The company’s distinctive competencies exhibit when the company is able to generate the same revenue as those of the rivals but at lower operating costs—cost advantage. On the other hand, a company that acquires more benefits than those of other rival companies experiences competitive distinctive competencies—differentiation advantage. Thus, competitive distinctive competencies are useful to the company since they help it to fashion better-quality value first for itself, and secondly, the buyers. It is competitive advantage based on cost and differentiation that defines the company’s success history and business success strategies. Through resources and capabilities, big firms such as Amazon have had a competitive advantage over their rivals in the consumer electronics market and sporting products, which has led to advanced value creation (Porter 3-24). In order to create a company’s distinctive competences, there are two things to consider: resources and capabilities. A company with superior resources and capabilities is already having an edge over its competitors. For example, with market share of 29 percent, Amazon already has a competitive advantage over their rivals. If the competitors are unable to match the superiority of resources and capabilities, it means they won’t replicate the strategies of another firm hence no competitive advantage. Through resources, companies are able to fashion either cost or differentiation advantage or both, which apparently, not all companies can match. For instance, resources such as patents and trademarks, proprietary experience, and inaugurated customer pedestal have made Amazon to have a competitive advantage over the rest. Other resources include brand equity and the reputation of the company. On the other hand, capabilities show the company’s capacity to use resources efficiently. For instance, Amazon is capable to fetch new consumer electronics and other online retail products into the market faster as compared to other rivals. In fact, the capabilities of firms lie in the habitual practices of the company and therefore it is not easy to pick them and implement them in another company. The company’s distinctive competences and competitive advantages are the sources of novelty, effectiveness and quality. Competitive advantage also leads to customer responsiveness, which is a business strategy for success (Porter 74-114). There is no doubt that in order for a company to create a competitive advantage, it must have resources and capabilities that are superior to those of other competitors. In fact, superior resources and capabilities reduce the cost configuration and even those of differentiated commodities. Additionally, the two places the company’s reputation in a favoured position—central component—hence, enhancing the company’s competitive plan. In a broad market segment, Amazon has used their superior resources and capabilities to identify generic strategies that have so far spurred the company into greater heights of success. The company’s distinctive competences and competitive advantages are also responsible in value creation. Notably, Amazon has created a series of activities under the banner of value chain thus, gaining a competitive advantage over competitors. Thus, it is paramount to note that without value creating activities, it is hard to realize distinctive competences and competitive advantages (Houston 1). Analysis of the company- SWOT analysis In performing company analysis, experts use a SWOT analysis in order to measure the financial and operational facts of a company. A SWOT analysis, strengths weaknesses opportunities and threats, method helps people to understand the operational and financial activities of the company for further decision-making (Spector 10). Liquidity In business, the liquidity of a particular company is the measure of average in which the company operates. As one of the biggest online retailer shops, there is no doubt that Amazon has an average liquidity, meaning that it has sufficient liquid assets that favor its obligations. However, it is vital to note that even with sufficient liquid assets, companies can still have problems such as meeting the bill demands, at least from Balance Sheet information. Owing to the volatility of liquidity, companies ought to be prepared enough—trends that make meaning out of the collected raw data. However, Amazon has been on the lookout (Financial Analysis Center 1). If for instance the liquidity trends of Amazon are on free fall, then managers have the obligation the factors behind the shift. Most probably, the first thing to look at is the manner in which the company uses its resources. Additionally, the managers can assess the company’s credit and adequate line systems. It is also important to note that the problem of liquidity in a company has no solution. Nonetheless, the swift billing of customers, checking account receivable details periodically, engaging accounts payable as much as possible, and the utilization of monthly payroll plan, will solve the liquidity quandaries. Below is a sample of a liquidity statement of Amazon Company (Mara 7-24). Financial Indicator Current Period Prior Period Working Capital $59,997.00 $73,557.00 Working Capital= Current Assets – Current Liabilities Clarification: This is the capital investment that ensures the normal operations of the company, for example, manufacturing, transporting, and buying raw materials. Subtracting the value of the current activities from the working capital, one is able to get the amount of liquidity. Accounts Receivable Days 11 Days 9.1Days Accounts Receivable Days= Accounts receivable/ Sales multiplied by 365 Explanation: the difference between the two indicates the period separating credit sales and payment receipts and it tells more about positive liquidity. Accountable payable Days 14.8 Days 9.3 Days Accounts Payable Days = Accounts Payable/COGS multiplied 365 Explanation: This represents a proportion of the days that trail off involving time of purchase and labour disbursement. Therefore, a company knows the number of days left to settle any financial bills and obligations. Inventory Days 3.6 Days 6.8 Days Inventory Days = Invoice/COGS multiplied 365 Explanation: Here, the details about the quantity of inventory available come out. In fact, these details inform the company on the days left to respond to market changes. Operating Cash Flow $250,566.00 $221,456.00 Operating Cash Flow= Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA). Explanation: This information shows the capability of the company to spawn cash for its activities from current operations. Operating Cycle 14.6 Days 14.9 Days Operating Cycle =Account Receivable Days + Inventory Days Explanation: normally, Operating Cycle is that period that separates period when products or goods came into the market and the day a customer pays for them. (Financial Analyses Center 1) Profit and Profit Margins Multinational companies such as Amazon that have a market share of 29 percent, at least according to the 2012 statistics, and superior competitive advantage always experience high profit margins. Undoubtedly, Amazon is a leader in online retail products such as consumer electronics, sports products, books and many more, and sells more than any other rival company, meaning that their net profit margins are higher. The high gross margins indicate high sales, and on the other hand if profit margins remain stagnant, then the business is in good health but not improving (Accounting Education 1; Brandt 4). Financial Indicator Current Period Previous Period Operating Cash Flow Margin 8.1% 7.8% Operating Cash Flow Margin= EBITDA divide by Sales Explanation: This is a company representation of the cash flow revenue generated from the sale of every single product. Return of Equity (ROE) 260.56% 93.50% Return on Equity (ROE) = Net profit before Taxes/Total Equity Explanation: Companies with shareholders equity measure the profit margins through ROE. Labour Cost ratio 39.60% 33.50% Labour Cost Ratio= Salary Expense divide by Sales Explanation: This formula calculates the amount of money paid in form of wages. Company goals The goal of Amazon Company is to be a global leader in consumer electronic commerce products and other retail products. With plans to use the multi-level sales strategy to upscale its sales by 40 percent, and generate more revenue in the next five years, the company also plans to add more retail stores, and enter new markets such as Japan. The company also hopes to earn customer trust through reduced prices. The company also has a goal of reducing its operating costs, flexible capital expenditures, by 2015 in order to realize high profit margins. The free shipping program developed some years ago has helped customers on Amazon products around the globe save over $800 million, which is a good strategy to keep customers (Hearst Seattle Media 1). Strategy The executive of Amazon unveiled a delivery system, order-to-go (OTD), to fast track the management of logistics and supply in order to meet the company goals. According to the GM’s head of sales, OTD is a mechanism immensely orchestrated to enhance sales, manufacturing and logistics. Precisely, OTD will address the four fundamental issues of supply chain operations, that is, the process itself, the plan, the basis, and the delivery process. When fully integrated, OTD will ensure customers get their orders without any further delay and ensure customer satisfaction (Brandt 1). Decision, Implementation with specific tactics and any relevant policies The rethinking of logistics is also a mechanism employed by Amazon to meet its goals and objectives. Amazon has partnered with other firms such as Visa, MasterCard, and merchant partners in order to establish a dual venture Vector. This Vector strategy manages Amazon’s hefty, multifarious logistics arrangement through a chain of decree centres outfitted with appropriate technology, which monitors all activities happening at all Amazon retail shops, warehouses, and customer service locations for easier supply logistics. So far, this has improved recital and visibility, leave alone the reduction of production costs by 20 percent and annual savings amounting to 17 percent. The numbers of sales have also increased significantly and this has earned Amazon a tag “the best seller” (Spector 74-96). References Accounting Education. What is Net Profit Margin? Svtuition, 2011. Web. 26 Nov. 2012. Boynlon, Andrew, and Zmud Robert. “An Assessment of Critical Success Factors”. Sloan Management Review, 25. 4 (1984): 17-27. Brandt, Richard. One click: Jeff Bezos and the Rise of Amazon.com. New York: Portfolio, 2011. Print. Daniel, Ronald. “Management Information Crisis”. Harvard Business Review, 39.5 (2007): 111-121. Print. Financial Analyses Center. Liquidity Analysis. NYSE, 2012. Web. 26 Nov. 2012. Hearst Seattle Media. Amazon.zom CEO Jeff Bezos says company goals not changed. Seattlepi, 2011. Web. 26 Nov. 2012. Houston, Elisabeth. Understanding Distinctive Competence. Dinet, 2000. Web. 26 Nov. 2012. 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