Strategic IT Management: Amazon.com - Case Study Example

MANAGEMENT INFORMATION SYSTEM Introduction Ecommerce is a new trend in the high-tech world of business and in the age of intense globalisation. Ecommerce applies to businesses using the virtual world of computers and the internet. It refers to businesses conducted by firms with the use of electronic tools such as computers and the internet, and includes buying and selling, collaborating or cooperating with partners. Technological advancement and continuous innovations have motivated organisations and businesses to react to changes in the global competition. Many of these organisations have reorganised, re-evaluated and reprogrammed their outdated functions and activities, and realigned them with the present trends for improvement and competition. Personnel and field people, ordinary employees, including middle-level and top management have to refocus along the line of technological innovations. IT applications provide easy handling of strategic operations and other supervisory and managerial functions of the organisation. Ecommerce has emerged as the primary tool in conducting business while the traditional one has taken a back step, confined to smaller roles of delivering products and services. But these smaller organisations still use Information Technology and the internet in conducting business. Information is easily shared through the internet; business can be conducted even through the remotest areas of the globe. Businesses are spending more on website infrastructure. Firms utilise the internet in supply chain, in delivering products and services with speed and accuracy. They also use this in business-to-business transactions. Another new innovation is mobile transaction, using cellular phones that connect or communicate to computers. Management Information System A simple definition of this term includes a computer-based system to provide speedy access to data and information. An information system can provide service to personal, professional and organisational functions. It can go as far as national or international in scope. In a larger sense, it involves sophisticated, structured and of immense significance to the organisation. The term MIS is common to managers in many sectors of private and commercial world. This is a trend in most organisations. But MIS is not properly defined because to many, it merely involves computers, management or merely technologies. But to clearly define it, Management Information System is a philosophy in the truest sense of the word. It involves decision making that should be supported by accurate data, and not only data, but vast data coming from databases and various sources. (Sadagopan, 2004, p. 3) Data and information coming from different sources have to be sorted out, with the clearest and most important ones significant to decision making. This is the role of MIS. It would then mean computers, the internet, managers, people, decisions with the right knowledge and expertise. That in essence is MIS. Effective management of information systems is an important prerequisite for a manager and a must in these competitive times. New business opportunities, both involving information technology and the different functions of business, are coming at a fast pace. A manager has to understand it and determine “what IT to invest in and how to use it most effectively” (Reynolds, 2010, p. 16). The internet is one of the most important technological discoveries that influence activities of people, countries and organisations. Businesses use this to promote and advertise, to expand and to improve, to acquire more data and information, and for research and development or to build new products. Most companies, especially the global ones, have their own websites connected to the web. Customer and business interaction with the use of the internet is common business activity. Organisations who want to attain customer satisfaction and loyalty offer 24-hour service, 7 days a week over the internet. Doing this on their websites, with an employee to answer to customers’ queries, can provide a lot of savings for their companies that will result to customer satisfaction. Customers can also pay their bills through the websites by means of credit cards. Models for innovation to gain edge in the competitive world of ecommerce include IBM, Amazon.com, Apple Inc., Sprint Nextel, and many more. IBM formed the Innovation Factory to collect software services for IBM. It designs innovations from the time of R&D to commercialization. Features include social networking and information discovery capabilities, and such other web-based features like blogs, wikis, tagging, surveys, and so on. (Reynolds, 2010, p. `138) Google.com is also one of the leading innovators of this century. Its mission is to be in the forefront of the information revolution and is now the main gateway to the digital world. Google can handle billions of searches over the internet every single day. Google uses advertising based on a combination of “web page ranking mechanism” and target advertising. (Reynolds, 2010, p. 253) Google’s web platform rests in its well-designed infrastructure architecture consisting of interconnected computers and half a million servers. Its architecture enables it to run its core business processes and receive and dispense with huge amounts of data in its vast databases. Google employees are spared of the voluminous high-order thinking through its enterprise architecture. An important feature is Google Earth which is combined with Google Search and satellite technology that produces images, maps, buildings and other landscapes presented in a three-dimensional platform. The world’s geographic information is easily put to the client’s usage for free. YouTube, a popular site for video clips and frequented by millions of viewers as a sort of entertainment, is one of the many web features acquired by Google. Amazon.com, the Twenty-first Century Innovator An organisation that we would like to use as an example is Amazon.com which uses online business in delivering millions of books throughout the world. Amazon.com is the world’s biggest bookstore, conducting online business, receiving orders and payment, and communicating to customers through the internet. Online commerce was growing fast in 2003 with a turnover of more than $93.1 billion (€77bn) in online spending but the amount reached $137 billion spent offline after information was acquired online. (Stockport, 2004, p. 2) How Amazon started In the early 1990s, Jeff Bezos, the founder of Amazon.com, saw the potential of online commerce or business using the World Wide Web. He decided to sell books online because he said he could sell books to the world at a low price. Selling books online is the most convenient way for customers to have access to books of any kind. (Damsch, 2010, p. 4) Bezos decided to name his company after the world’s largest river, Amazon.com. He was thinking if Amazon.com was the right business model for the future, and he thought he was right because he had a near accurate statistic of 2,300 percent monthly growth for electronic commerce. There were no online bookstores at that time while most were selling books the traditional way. In a short period of time, Amazon.com became the talk of the town, the largest online bookstore with a million titles. (Mennen, 2006, p. 5) At first, he did it singlehandedly delivering books to the post office for delivery to his customers. Initial capital came from private investment and funding from Silicon Valley. Amazon.com’s initial power search became an attraction to customers, for example, their personal notification system which appears to emails of subscribers when their favourite author had new releases or any information about their favourite book subjects; recommendations and new updates, and so on. This was one of a kind during those times and even up to today. In 1997, the company had 15,000 associate websites and collaborations with other internet players. A remarkable feature was the introduction of a one-click order processing wherein customers would just push the button for an order and processing began. The company also formed an executive team composed of highly trained and educated managers who came from various fields of expertise, for example Richard Dalzell, imported from Wal-Mart and was appointed by Bezos as Chief Information Officer (CIO), an expert in logistics systems, supply chain , and data mining systems. (Stockport, 2004, p. 4) Innovations after Innovations How did Amazon.com use information systems to succeed in business? Every possible innovation and every important modification in selling products, they used it. Continuous innovation is the name of the game. Amazon.com offered the following features to its millions of online customers: Browsing – The features in its websites include simple and easy-to-use searchable items; Searching – Customers can search catalogues of books, audio and video CDs, DVDs, computer games, and more. Products can be searched through keyword, title, subject, author and many other important words including publication dates and ISBNs. Reviews and content – Content features are offered to enhance customer loyalty. Contents include cover art, synopses, annotations, and reviews by customers and editors and important comments by authors and artists. Recommendations and personalisations – The company personalises its products and services by calling customers by name and offering personalised recommendations and notifications; One-click technology. This technology allows a customer to place an order by just one click of a button and without filling up a form. The customer’s billing information is automatically referenced to its secure server. Secure credit card payment – Secured payment through credit cards, paypal and other online payments are provided. The customer’s personal information and all the other confidential information are encrypted so that that they could not be hacked as they are sent through the internet . Availability and fulfilment – Most of the products are shipped within 24 hours while others are sent within two to three days but there are others that are sent within four to six weeks. (Gartner and Bellamy, 2009, p. 48) Amazon.com also introduced the recommender system, one of the early innovations in online commerce. A recommender system is an intelligent system which employs prediction techniques to determine what is and what is not interesting by learning from the user and sometimes other users. Recommenders use techniques such as information filtering, social filtering, genre-based recommendations, case-based reasoning and item-filtering. (Setten et al., 2004, p. 13) Recommenders help users to locate and choose items on sale. Amazon websites provide a recommender phrase that says: “Customers who bought this item also bought…”. And a click of the button will lead to other items of the customer’s liking. A similar ecommerce technique has been used by other companies to sell their products. The company Apple Inc. has introduced innovations in its products to produce millions of sales in its iPhone, iPod, iTunes, and iPads. They have the App Store which had more than 350 downloadable apps available to 90 countries. Categories range from games to business, news, sports, travel, and so on. Customers can also download songs and these songs have a steady price with respect to the other products. (M2 Communications, 2011) In 1997, the strategy was to lower the prices of more than 400,000 titles, from the 20% to 40% off. Online or offline, prices of books were lowered anywhere in the world. Discounts were offered on almost all items including audio books. This strategy gained for the company repeat customers. Amazon’s promotions led other companies to collaborate and ask their services. For example, Yahoo.com collaborated with Amazon.com to lead their customers to buy books from Amazon.com. Other collaborators include Excite, Webcrawler, Magellan, and others. America Online (AOL.com) provided Amazon access to its eight million subscribers through their search engines AOL.com and NetFind. Prodigy Shopping Network provided Amazon access to its millions of subscribers who were using their database which had 20,000 items available for online shopping. Other remarkable ecommerce companies that Amazon has access to their databases include Netscape Netcentre, @Home Network, Geocities, etc. (Stockport, 2004, p. 4) By careful and expert handling of management information systems, Amazon.com built a global brand to 17 million customers in over 150 countries in 1999. Its repeat customers asked for 73 percent of orders, as shown here in the figure below. Figure shows Amazon.com’s annual reports from 1997 to 1999. SOURCE: Condensed from “Amazon.com – from start-up to 2004”, by Stockport (2004, p. 6) New Products, New Innovations Amazon.com added new products to its array of products and innovations, and this includes toys, games and various kinds of electronics introduced in many stores, offline and online. It has improvement products suited for homes, and also introduced features like Amazon.com Advantage, zShops, Amazon.com Payments, countless CDs and videos, and many more. (Zheng, 2011, p. 132) Amazon.com also made alliances with computer giants like Dell Computer and acquired assets from Drugstore.com, which sells beauty and wellness products, online; Pets.com, an online pet store; Della & James’ wedding-gift registry which sells wedding gifts and accessories online; HomeGrocer.com, an online grocery store in the areas of Seattle and Portland; Gear.com, an online store for sports items and accessories; Exchange.com, a seller of hard-to-find books; Biblinfind.com and Musicfile.com, owner and online seller of hard-to-find recordings and music memorabilia; and LiveBid which allows Amazon.com wider scope to local and foreign auction houses. The company also expanded new distribution centres in the US, the UK and European countries. In 1999, employees number reached 7,600 and associates programme for customers in collaboration with other websites reached 430,000. (Stockport, 2004, p. 8) When the bubble burst occurred in 2000, Jeff Bezos and his executive team expertly handled the situation to make Amazon.com and its thousands of employees pass through the financial difficulties. Share prices began to fall from $64.56 to $15.56. Many companies were forcefully shut down but Amazon.com survived through downsizing and thrifty measures that still it was able to celebrate its five-year anniversary, having served millions of customers. Employees increased and the management team was reinforced by management experts like Paul Misener who was named Vice President of Global Public Policy. Other acquisitions during this time include Ashford.com, an online store for luxury and premium products, and eZiba.com, a source for handcrafted products. Amazon.com’s strategies enabled it to define how the internet should be used and be beneficial to individuals and organisations. It did not just apply technology to business, it allowed technology to blossom and be of benefit to people. The so-called bubble burst did not hinder Amazon.com to continue acquiring and applying new ways to improve. It continued to have mergers and acquisitions, produced new products out of “nothing” and successfully mixed technology and business a part of our everyday lives. Jeff Bezos is like Steve Jobs of Apple; they are the innovators and the Thomas Edisons of the new millennium. However, the continuous acquisitions the company applied also contributed to its downfall during the bubble burst. Media criticisms purported to show that there were many non-performing assets in the different parts of the United States and other countries. Some warehouses were reported empty, forcing management to sell many of its assets. Conclusion Ecommerce is a combination of traditional and modern strategies of business. Technology is its primary tool with the internet as a means to reach to millions of customers worldwide. Ecommerce can be applied on business-to-business and business-to-customer types and it has a wider scope and an unlimited demographic. Amazon.com’s Information Management System enabled the company to survive the hurdles of the 2000 bubble burst and the many complexities of ecommerce. It has continued to apply innovations in its many products and services. We have enumerated here Amazon.com’s many web applications, businesses, and companies acquired all through the years. Founder Steve Jobs and the company received various awards because of their relentless efforts to introduce new and creative products and ways in the new millennium and the age of globalisation and technology. References Damsch, M., 2010. Amazon marketing strategy: MBA marketing assignment. Germany: Grin Verlag. Gartner, W. and Bellamy, M., 2009. Creating the enterprise. United States of America: Thomson South-Western. Mennen, M., 2006. Global corporate strategy – a critical analysis and evaluation of Amazon.com. Germany: GRIN Verlag. M2 Communications, 2011. Ten billion apps downloaded from Apple’s app store worldwide computer products news. M2 13639889, Jan 24, 2011. Accessed 20 February 2012. Reynolds, G., 2010. Information technology management. Singapore: Cengage Learning. Sadagopan, S., 2004. Management information systems. India: PHI Learning Pvt. Ltd. Setten, M. van et al., 2004. Case-based reasoning as a prediction strategy for hybrid recommender systems. In: J. Favela, E. Menasalvas, and E. Chavez (Eds.), 2004. Advances in web intelligence: Second International Atlantic Web Intelligence Conference, AWIC 2004. New York: Springer. Stockport, G., 2004. Amazon.com – from start-up to 2004. Exploring Corporate Strategy Classic Case Studies. Available from: http://pgsm.co.uk/members/teaching/strategic/amazon.pdf [Accessed 20 February 2012] Zheng, C., 2011. Inside the giant machine – an Amazon.com story. UK: Createspace. Read More