Strategic IT Management: Amazon Company - Case Study Example

1.0 Introduction Information Systems form a crucial part of every organisations strategy (Kaplan & Norton, 2004 p2). Information Systems contribute to organisations in all departments; finance, marketing, research and development, operations and distribution as well as strategic management (Symons, 2005 p1). Amazon.com is one of the largest and most successful e-commerce ventures in the world. They have an impressive system for online sales and distribution which has earned the owners billions of dollars in sales. However, Amazon.com was developed from the traditional bookselling model and became a popular online retail outlet around the globe. Amazon.com has a strategy that is strongly steeped in its information systems and supply chain management.. Amazon.coms survival can be attributed to its ability to manage its information system needs in a very competitive manner. This has kept Amazon at the forefront of its business sector and has captured a substantial share of the market. This paper examines the role that Management Information Systems (MIS) have played in the evolution of the bookshop industry. It examines the limitations in the traditional bookshop company and how Information and Communication Technology has forced the Strategy of these businesses to change. To this end, the paper examines the successes of Amazon.com. It evaluates the relationship between MIS and the overall strategy of Amazon.com. The paper delves deep into Amazon.com and examines the companys utilisation of information systems and the benefits it brings to the overall operations of the company. 2.0 Fundamental Components of Information Systems in the Bookshop Industry Osterwalder et al (2010 p19) identify some key components that determine the role of information systems in the strategy of businesses. They include: 1. Customer relationships 2. Customer segments 3. Value proposition 4. Distribution and sales channels and 5. Revenue streams For a business to succeed, it would have to invest in these five things and consolidate its position on the markets. Through this, a business could ensure the best sales levels and enhance returns on investments. The way a business is set up and ran is strongly connected to its positions in relation to how it values and utilizes these information-related components of the business. The information needs of a business converges with the business objectives and determine the strategy of the business (Al-Hakim & Memmola, 2009 p4). The information requirements of company affects and is affected by the company aims, resources, market conditions and business environment. Clearly, the information systems that exists in every era determines the dominant corporate strategies that exist in a given era. Twenty years ago, the only way a person could purchase a book was to go to a bookshop, pick up a book and pay at the counter. Most books were sold through display in the shop counter. Customers would have to move from their homes to the bookshops, go through the shelves that contains books s/he is interest in, go to the counter and purchase it. Typically, most book shops would own a chain of shops that would operate throughout a given nation. The chain of bookshops would have a centralised management that would ensure that the shops were earning sufficient revenues to remain productive. The main strategies of chains of bookshops included certain key elements of the book trade: 1. Locational issues: Management had to ensure that your bookshop was located in a good place that customers would want to visit like university campus or off a residential neighbourhood to attract the elites. 2. Expansion matters: Some bookshops sold franchises to people who opened up branches whilst others expanded through acquisitions by renting or purchasing properties that were used as shops. 3. Marketing: Most of these bookshops promoted their services through adverts in the media. Others ran events and reading campaigns that increased demand. 4. Accounting: Each outlet of a chain of bookshops kept a bookkeeper. The bookkeeper collected details of sales on a day to day basis. The typical bookkeeper would render sales to his supervisor who would collect the funds and bank it or keep it in the safe. The supervisor would render accounts to the Manager. Periodically, Accountants from headquarters would claim the accounts and enter it to the centralised books of the bookshop. These were consolidated quarterly and collated to form the financial statements at the year end. 5. Inventory & Distribution: Typically a bookshop chain maintained a strong link with publishing companies. Most bookshops had contracts with famous publishers like Macmillan, Oxford University Press, Heinemann amongst others. The contract indicated that the bookshops ordered given quantities of books based on demand. Most bookshops had centralised warehouses. So once stocks were received, they were kept in the central warehouse and distributed to the various shops as and when requests were made. 6. Strategic Department: This include managers at headquarters who had to monitor and review the activities of each and every bookshop outlet. They had the duty of evaluating activities in the various shops and then put in place measures to resolve problems and ensure that optimum results were met. They also implemented the longer term and organisationwide plans of the people charged with governance like the board of directors. 3 Weaknesses in the Traditional Bookshop System Although this system was ideal in the post World War economy of the UK or US, it came with some inherent disadvantages: 1. Location was a problem that stood in the way of business. A British national that was sent off to work in a report part of the world could not acquire book from booksellers. The best bet of such a person was to make a special arrangement by calling or writing to a relative in the UK, remit money and wait for months until the book is sent by this relative in the UK. Also, there were some people who might want to read more but because of their busy schedule, they might never find time to go to a bookshop to acquire books of their choice. 2. It was capital intensive to set up new outlets. This is because the management of the bookshop had to spend money to rent a new premises, recruit new staff members and set up the whole shop and make it a decent place for shopping. So whether it was an acquisition or franchising, a bookshop chain had to sink some funds it the set up of new outlets. 3. Marketing was somewhat ineffective. This is because most traditional bookshops assumed that it was only school children and young adults who read. Thus, they fashioned most of their advertising campaigns to meet the needs of this target group. Due to this, a vast portion of the market was not targeted by most of the market campaigns of these companies. 4. The manual accounting system was extremely limited. It was so much work to put together the figures in a day-to-day fashion. There was room for embezzlement and risks of fraud. Also, collecting data and piecing them together by the Chief Accountant was onerous. It involved extra administrative cost since more employees had to be brought on board. Also, a key component of financial reporting is that it must be timely otherwise it would become worthless. The sheer need to collate information from all branches each and every year was extremely problematic since it took a lot of time to put all information together in piecemeal fashion. 5. Inventory and distribution was a major source of extra costs. Each bookshop company had to set up a regional distribution depot. This was a huge fixed cost. Secondly, because there was no source of reliable information about the stocks levels at every outlet, there was a major problem because a bookshop could not tell exactly which books are in demand and which books are short in supply. If a business waited for a shortage before ordering, it meant other bookshops could take advantage and capture the market in that short while. The only option was to acquire sufficient stocks to ensure that there were no stock outs. This meant that the bookseller had to keep a sufficient stock of different books in its warehouse to meet demand as and when other branches request for them. This meant that at every point in time, capital locked in various quantities of books that were kept in warehouses. 6. Monitoring the operations of the different bookshops and other departments of the shop was really difficult for top level management. This is because they had to rely on slow information build ups and remain distant from the various branches and units. They did not have access to quick and/or real time information about the different activities in different branches of the bookshop company. Due to this, management was a problem and there was a high degree of autonomy in the different branches which could lead to a lot of waste and inefficiency. 4 The Development of Information Technology and the Book Selling Industry Over the past three decades, there have been a lot of development in information systems around the world. It all started with the standardisation of computer software and applications in the world (Reading, 2004 p49). This led to large scale system compatibility and set the stage for widespread networking. Numerous networks were utilised by businesses until the Internet was formed to become the worlds largest communication network (Symons, 2005 p7). There are two things that can be identified in this transformation. First of all, the development of networking makes it possible for the various departments and partners of a business to communicate effectively in real-time flow. Secondly, the internet provided a vast market for the sales of products and services to a vast population of people around the world. This means that a bookselling company could set up a strong information and Communication Technology (ICT) networking system and structure that could link up with all the units of its operations, cut down cost on some unwanted infrastructure and enhance communication with departments, partners and customers. Due to the nature of bookselling, the obvious advantages of ICT, convenience, global reach and speed (Mazzucato, 2002 pp10 – 11) could be tapped for the benefit of the company. 1. The use of the Internet means that anyone can buy books at the convenience of his or her home. Therefore there is no need to rent new outlets and open up new shops. Bookshops just need to maintain cheaper web hosting and web designing services. 2. Marketing could be undertaken effectively since ICT supports a wider range of buyer information which can be closely monitored and served the markets in an efficient manner. 3. The use of Information Technology can ensure that the Accounting department can remain in constant touch with the head office. This can ensure the flow of timely information and enhance monitoring and control. 4. More importantly, Information Technology can be utilised to keep a close eye on the flow of inventory. Through information technology, the headquarters of a bookselling company can always get live information about the volume of sales that occurred at a moment. From that information, they can order and receive stocks just before a branch encounters a shortage. This leads to timely delivery and efficiency. 5. The top-level management can also get timely information about what is going on in all departments and branches of its operations. They can therefore get live updates and make changes as and when necessary. 5 The Strategy of Amazon.com & Information Systems Strategy is defined by Ulwick & Greenwood (2000 p4) as the long-term, organisationwide plan that is formulated and implemented by top-level management. Strategies with elements of information technology are Customer-Driven Mission Achievement Processes (CD-MAP) (Ulwick & Greewnood, 2000 p12). Amazon.com is ran by an Internet Service provider based in an obscure part of Arizona (Lucey, 2004 p72). Amazon.com entered the business of selling books to consumers around the world. As a fundamental policy, Amazon.com has no retail outlets but rather maintains a highly centralised system and runs affairs from its Arizona headquarters (Lucey, 2004 p72). Amazon.com maintains a Business-to-Customer model of business which ensures that books are sold directly to customers over the Internet (Canzer, 2005 p191). Amazon.coms growth and expansion is based on the benefits it attained from changes in the business environment of the book sales industry (Reading, 2004 p49). Amazon assesses the number of internet users and tries to satisfy them by offering them an opportunity to buy online. They maintain a number of strategic partnerships with shops and postal services. Once a customer places an order, Amazon processes the request, sends it to the appropriate merchant and the merchant ships the book in a short time. This ensures the removal of overheads and provides quick and efficient delivery to customers (Reading, 2004 p49) Figure 1: Value of MIS the Strategic Business Units of Amazon.com From the diagram, it is clear that all the departments of Amazon.com have a strong reliance on information to execute the specific requirements of their strategic business units. This is because the department relies heavily on the modern and sophisticated information system that they get real-time. This forms the crux of the operations of Amazon.com which maintains the outlook of a modern bookseller with sophisticated systems and structures steeped in IT. 6. The Role of Management Information System in Amazon.coms Strategy Management Information System (MIS) is a key component of Amazon.coms growth and strategic successes. Unlike the traditional bookseller, Amazon.com relies heavily on MIS to maintain its position as leader in online book sales. Crosson & Needs identify four major reasons why Amazon.com needs MIS to survive: 1. Planning: Managers need to use MIS to develop forecasts and budgets for existing operations and create plans for new value added products and services. 2. Performing: The managers of Amazon.com need to use supply chain and value-chain software to manage operations to ensure accurate order fulfilment and timely delivery. 3. Evaluating: They need to ensure timely comparison of actual performance with expected performance. Amazon.coms MIS allows managers to reward good performance promptly and take speedy corrective actions to develop and revise performance plans. 4. Communicating: The managers of Amazon.com can consolidate consumer profiles from their sophisticated database into real-time reports and monitor changing trends closely. Conclusion Traditional book selling companies that existed several decades ago used manual systems that had little connection with information technology. Due to that, most of their strategies were based on such manual systems and methodologies. However, the introduction of Information and Communication Technology has caused a change in the business structures and operations of modern book sellers. Amazon.com is one of such portals which utilises the most sophisticated IT and MIS tools to run its internal and sales systems. Amazons reliance on MIS has allowed it to cut costs and enhance productivity. Amazon.com has benefited from internal use of MIS and the Business-to-Customer model in growing a multi-billion dollar company that was built on the old bookseller model of business. Amazon.com set out a strategy that utilises the Information and Communication Technology. This led to the cut down on cost in terms of infrastructure, rent and other inefficiencies. Internally, all the strategic business units of Amazon.com relies on sophisticated databases and real-time information. This supports in planning, performing, evaluating and communication. It keeps Amazon.com at the edge of what it does and ensures that it remains a profitable and competitive business. Externally, Amazon.com has access to the global customer base of book buyers and other retail clients. This is because the Internet provides a network for contact with people from all over the world. Amazon.com also maintains strong ties and links with fast and efficient courier service providers who provide timely shipping to consumers all over the world. References Al-Hakim Latif & Memmola Massimo (2009) Business Web Strategy. Idea Group Inc. Canzer, Brahm (2005) E-Business Mason, OH: Cengage Crosson Susan & Needles Belverd (2010) Managerial Accounting Mason, OH: Cengage Kaplan Robert & Norton David (2004) Balance Scorecard: A IT Perspective Harvard Business Review. Lucey Terry (2004) ELTS MIS Cengage Learning Mazzucato Mariana (2002) Strategy for Business: A Reader London: SAGE Publication Osterwalder, Alexander, Pigneur Yves & Clark Tom (2010) Business Model Generation: A Handbook for Visionaries. Hoboken, NJ: John Wiley & Sons Publishing Reading Clive (2004) Strategic Business Planning: A Dynamic System for Improving Performance London: Kogan Page Symons Craig (2005) IT Strategy Maps: A Tool for Strategic Alignment Cambridge MA: Forrester Research. Ulwick Anthony & Greenwood John (2000) Business Strategy Formulation: Theory, Process & International Revolution Information Age Publishing Inc. Read More