The Art of Entrepreneurship and Management - Amazon - Literature review Example

Case Study: Amazon The Art of Entrepreneurship and Management Introduction It has been argued that effective management requires an inter-linkage between entrepreneurial talents and general management skills to bring an organisation value, growth and sustainability. Larger organisations, it has been asserted, need to identify methods to fuel enthusiasm for identifying potential new business opportunities and address the conflict that occurs between strategic management and corporate entrepreneurship. Rae (2007) is a major proponent for this ideology in his Entrepreneurial Management Model. It is asserted that entrepreneurial working, including seeking opportunities and developing rapid innovation, when combined with strategic focus and managing relationships (to name only a few fundamental aspects of both theories), ultimately creates new value for a firm (Rae). This essay explores the fundamental aspects of entrepreneurship and management in order to clearly define the differences between the two conceptions. Secondly, the essay explores the theory of the Entrepreneurial Management Model proposed by Rae (2007) and applies this theoretical model to a real-world organisation, Amazon, to determine how a potential blend of entrepreneurship and management contribute to providing superior value for a firm. This approach will determine whether the theoretical model, integrating management with entrepreneurship, is viable for an organisation to achieve its strategic goals and inject value into the business model. Entrepreneurial working Entrepreneurship can be defined as maintaining a focus on innovation, requiring flexibility, the willingness to absorb risk, and foresight to make a dream into a business reality. Hisrich and Peters (2002) see entrepreneurial behaviour as having the capability to open new markets, create a product that is considered valuable by important target consumers, and seeks financial gain to enhance long-term capital growth for the enterprise. Entrepreneurs are visionary, always seeking opportunities to capture a market and successfully position the business over the long-run against competing players in an industry. Innovation, therefore, is the most primary aspect of entrepreneurial behaviour necessary to strategically guide an enterprise (Antoncic and Hisrich 2003). Challenge of the status quo, the orthodox business model, as iterated by Rae (2007, p.174) represents how innovation becomes a primary ideology within a successful enterprise. Creating a type of customer appeal is included in entrepreneurial behaviour, using various imagery, stories and myths, to develop close interpersonal relationships with important customer segments (Rae). The literature on entrepreneurship states that many enterprises fail as a result of business leaders that do not fully understand the intricacies and challenges associated with their business models and the external market (Chwolka and Raith 2011). Failure to innovate and change according to fluctuating or uncertain market conditions can potentially erode an organisation achieving its goals and achieving enhanced corporate value. This is supported by Covin and Miles (1999), who suggest that innovation is the largest predictor for an enterprise achieving competitive advantages over competition in an established industry. Innovation is therefore a key activity of entrepreneurial behaviour and must be manifest to bring an enterprise closer to its objectives and goals. Furthermore, the literature on entrepreneurial working indicates that traditional, authority-driven, centralised models tend to choke the entrepreneurial spirit in an enterprise (Dess, Lumpkin and McKee 1999). This is because genuine entrepreneurship requires team-working and the provision of autonomous working to fuel innovative spirit (Hayton 2005), something conflicted by a hierarchy-driven model. Rae (2007) again supports this, suggesting that hierarchical relationships are far less valuable than trust and autonomy. Authority-driven models are more concerned about controls and compliance than networking and providing employees with opportunities to express their creativity and ingenuity. Hence, as proposed by Rae (2007), challenging the orthodoxy in traditional business models underpins what constitutes successful entrepreneurial behaviour. Compliance and rigid control systems are not conducive to allowing employees to take ownership of decision-making and Langfred and Moye (2004) found that an autonomous working environment improves employee motivation and commitment toward achieving organisational strategic goals. Rae (2007) sees entrepreneurial working, in his model, as ensuring an organisation has efficient working systems, cost controls, and being apt in engaging customers in unique and creative ways. Hence, in a sense, challenging the orthodox business model represents innovation, improves customer service strategies, and guarantees a type of productivity in an organisation by providing autonomy that can successfully motivate deep organisational dedication necessary to ensure all value chain-related activities maximise total enterprise value. Managerial working The traditional model of management consists of planning, organising, leading and controlling. Figure 1: The functional inter-dependencies of the traditional management model Source: Modified from - Lamond, D. (2004). A matter of style: reconciling Henri and Henry, Management Decision, 42(2), pp.341. Planning, as shown by the POLC model in Figure 1, is determining a vision, determining strategic goals and putting forth an organisational mission. This planning leads to the organisational structure design of the business and building socio-professional relationships and the establishment of a cohesive organisational culture. Research indicates that having a cohesive culture that follows a reiterated vision can bring a business substantial competitive advantage. In fact, a study conducted by Kotter and Heskett (1992) investigated a sample of large corporations over an 11 year period and found that having a unified culture led to a 765 percent increase in profitability for this basket of large firms. Leading, under the POLC model, cannot be understated as a significant managerial activity necessary to gain the type of commitment and dedication needed to achieve organisational goals and objectives. This is about motivating others, building a team ideology, and opening lines of communications. Fairholm (2009) describes the transformational leadership model where a manager consistently reiterates a firm’s vision and mission, serves as a mentor and teacher, allows for free and open communications, and champions a vision through role modelled behaviours. Rae (2007) sees management working as having minimal hierarchical structures, creating self-managed teams, and maintaining a focus on positive stakeholder relationships. Under the traditional management model, there must be some dimension of control. This can be accomplished through reward systems for achieving performance goals through a well-developed human resources strategy. This illustrates the congruency between entrepreneurship and management, as Rae (2007) asserts that entrepreneurship links rewards with performance and this is a fundamental control aspect of traditional management working. Control in management serves to minimise organisational risks, simplifies the supervision process, and determines future action and behaviours of employees (Banerjee 2012). Control in management and entrepreneurial behaviour, therefore, go hand-in-hand, which lends support for Rae’s Entrepreneurial Management Model where value comes with congruency between both activities. The company under analysis: Amazon Amazon is a retail company operating under an online model that is headquartered in the United States. Jeff Bezos, the 1994 founder of the company, launched the online website in 1995, spotting opportunities to achieve profitability using a non-traditional, non-bricks and mortar business model during a time period where Internet-based businesses were just becoming a new business trend. Right away, this illustrates the foundation of entrepreneurial behaviour, spotting an opportunity and taking steps to make the vision of a successful online retailer a reality, as asserted as part of entrepreneurial behaviour by Rae (2007). Initially an online bookstore, Amazon achieved rapid success. Within a short period of time, Amazon had sought a diversification strategy for growth, selling new products such as CDs, video game products, toys, and other consumer electronics. Shareholders at the time of the firm’s initial public offering in the securities market and industry critics suggested that Amazon did not have a sustainable business model and would likely not be profitable in the long-term. However, Bezos proved these shareholders and critics wrong, achieving over $1 billion in revenues by 2001 (Payroll Blog 2013). Through this diversification growth strategy, Amazon has, today, grown to an enterprise employing over 90,000 individuals and achievement of $61 billion in revenues. Recognising opportunities in foreign markets, Amazon has also established websites servicing such countries as Spain, the United Kingdom, Germany and Italy. The firm’s main vision: to be a very customer-centric organisation where international and domestic consumers can find anything they want (a diverse product line) at the lowest possible price. Amazon, for its competitive pricing structure on millions of units of diverse merchandise and its focus on providing variety, has built a very positive brand reputation built on the initial entrepreneurial spirit of founder Jeff Bezos. Theory versus practice: Amazon as support for the Entrepreneurial Management Model The Amazon model and its management ideologies support the merging and entrepreneurship and managerial activity as proposed by Rae (2007) as being vital for a firm achieving maximum, total value. At the time of the launch of the company, online business models were just getting there start and there was no absolute guarantee that online retailing would be embraced by a new generation of technologically-savvy consumers. This is part of entrepreneurial behaviour that is consistently iterated as being critical to enterprise success: the willingness to embrace risk (Macko and Tyszka 2009). Figure 2 illustrates how Bezos absorbed this uncertainty by illustrating the expenditure patterns of online retailing in the UK. Figure 2: Growth in online retailing – 1998 to 2012 Source: Skinner, C. (2013). Retail banking?...you must be joking. [online] Available at: http://thefinanser.co.uk/fsclub/2013/01/retail-banking-you-must-be-joking.html (accessed 18 April 2015). As shown, even by 1998, there were very low expenditures in online retailing in the United Kingdom. This same trend was similar in the United States. In 1994, there were no metrics illustrating how many users were actually on the Internet (Hoffman and Novak 1996). Retail marketers also did not understand the dynamics of consumer behaviour related to Internet activity or how to satisfy consumer needs using an online business model (Hoffman and Novak). Hence, Bezos launched a business in a highly uncertain environment in an effort to try to outperform major booksellers in the United States such as Barnes & Noble, bricks-and-mortar businesses with long brand histories in the country. This was strong entrepreneurial behaviour which supports the theoretical assertion that risk absorption and spotting potential opportunities are necessary for an enterprise to achieve long-term value. Under the traditional management model, POLC, this also showed planning behaviours of Bezos. He established a vision of low prices and variety, set the goals and objectives of being able to compete effectively with traditional bookstores, and seeking a diversification model as part of strategic focus, which are all fundamental aspects of management working in an enterprise. Bezos organised Amazon under a decentralised model, fostering creativity and ingenuity, which provided opportunities for autonomous work and personal job role accountability in self-managed teams. Bezos was also a believer in corporate frugality, whereby employee desks were made from recycled wooden doors and computer monitors that sit on telephone books to avoid the high costs of workspace equipment (University of Graz 2013). These are also elements of entrepreneurial behaviour, seeking opportunities to control costs throughout the internal model and gaining employee commitment to follow this same vision of frugality and thrift. Figure 3: Elements of Management AND entrepreneurship at Amazon Figure 3 shows that Bezos was a transformational leader, one who inspires a vision. Leadership, as part of management, meant building team ideologies, using supervision practices under a non-hierarchy driven model, and corporate frugality (a type of control tactic to ensure less overhead costs). Did blending entrepreneurship with management, as iterated as valuable by Raes (2007), actually bring Amazon enhanced value? Absolutely. Frugality as a corporate culture normative value system ensured that costs were mitigated throughout the entire value chain which, in turn, allowed Amazon to offer customers products at affordable and competitive pricing. Lower operational costs represent the foundation of a cost leadership strategy, where efficiency values achieve a low total cost structure (Stahl and Grigsby 1997). Entrepreneurship is rewarding employees for adhering to frugality expectations and cost controls, thereby motivating team dedication and more efforts toward cost control ideologies. Giving Amazon value was absolutely a product of merging entrepreneurship with traditional management, from an economic perspective. Efficiency and cost leadership as normative cultural values make it possible for Amazon to maintain a lower price structure on countless merchandise selections, something that satisfies price-sensitive consumers and strategic objectives of being the most consumer-centric online retailer. Amazon has also illustrated an innovation focus, which is part of entrepreneurial activity. Amazon was a first-mover, market pioneer when the business developed and launched the Kindle device. The Kindle is an e-book reader technology launched in 2007 that allowed users to read electronic texts, shop for e-books and other reading materials. The device was the first of its type which could potentially revolutionise the consumer experience. Even Apple did not launch its first generation iPhone until 2007. For consumers, the Kindle was an ingenious and revolutionary technology that radically changed the mobility of reading magazines, newspapers and e-books. Research indicates that first-to-market pioneers have a considerable advantage over late movers as consumers tend to judge later entrants unfavourably compared to the market innovator (Kalyanaram and Gurumurthy 2008). This Kindle as a market innovation gave Amazon rarity, uniqueness in its market that differentiates Amazon as a creative innovator, with the device’s launch achieved through teamwork, group brainstorming, and understanding how to create a production system that could launch Amazon-branded products with market appeal based on years of brand loyalty that had been achieved since 1997. This, again, asserts that Amazon recognised a potential business opportunity, sought the product development strategies needed to capture new markets’ attention, and launch a device faster than competition could seek to replicate the offering: entrepreneurial behaviour and management planning as well as organisation. The planning, development and final launch of the first Kindle technology, also the first with text-to-speech capabilities, illustrated the convergence of entrepreneurship and management that brought the firm much more brand-related value and economic value. Management at Amazon recognised that this new e-book reader could be a ground-breaking technology for consumers in the United States and abroad. Under its earlier business model, prior to 2006, Amazon had an inventory and logistics centre and sold all of its products online. The new Kindle required creating a production system, procuring production technologies, creating teams associated with research and development, changing supply chain strategy to include more technology vendors, and altering marketing strategy and retail channel strategy. Hence, entrepreneurship was reflected by aggressively going after a potential market opportunity as first-to-market with such a device and conducting appropriate management activities to ensure the business’ value chain was adjusted to actually be a product maker rather than just procuring retail stock from various domestic and international vendors. Without the convergence of entrepreneurship and management, as iterated by Raes’ Entrepreneurial Management Model, Amazon would not have achieved the approximate $35 billion in sales revenues provided solely by the Kindle device that now gives the firm long-term opportunities to plan further diversification, expansion and innovation. In a market environment where even the smartphone maintained uncertainty about whether consumers would adopt this technology (which has been proven market success by 2015), Amazon took the risk of investing considerable financial resources toward product development, something Amazon maintained little experience engaging with, both managerially and structurally in terms of reorganisation of the organisational structure and recruitment for technology development specialists. Amazon transformed the business, through entrepreneurial opportunity spotting, from a strictly online retailer to a business that was creating innovative consumer technologies. Though entrepreneurial spirit was a considerable asset to the firm, without the tangible management planning, organising, leading and controlling, it is doubtful that the firm could have developed the competencies to beat later market entrants in this industry and build a model that can now sustain production as well as retailing. This, again, confirms that the Entrepreneurial Management Model by Raes (2007) is a viable model for achieving total enterprise value both from a consumer perspective and an economic perspective. Ropega (2011) states that many enterprises fail as a result of entrepreneurs maintaining an apathetic attitude associated with proper planning, tending to overlook different activities along the value chain that are critical to the achievement of industry and economic success. It is common, according to Ropega (2011) for entrepreneurs to maintain an apathetic attitude as it pertains to proper planning processes, with failures occurring as a result of overlooking important activities inter-linked and critical to achieving business success. This assertion again reinforces the viability of Raes’ model, showing that management activity, in this case planning, must accompany entrepreneurial behaviour if the firm is to be sustainable and achieve longevity and profitability in its desired market environment. Bezos was not apathetic as an entrepreneur, seeking every effort to promote change in the Amazon business model and internal culture to achieve a market position as technology producer and developer. This has led to new business strategies that include cloud computing for users in need of affordable technology usage because the firm is now equipped, because of the Kindle development, with the competencies, technologies and systems needed to support a radically different product line. This is aligned with the firm’s main strategy of diversification as a growth driver which asserts a correlation between strategic planning, moving aggressively to achieve a new market opportunity (entrepreneurship) and restructuring the internal model to support team innovation. Amazon also recognised that packaging was a problem from the consumer perspective and environmental perspective. Working as teams, Amazon promoted the development of its frustration-free packaging concept, which would provide consumers with hassle-free opening of product with less impact on the ecological environment. Amazon, exploiting its scope and growing bargaining power along the supply chain, has begun an initiative that forces manufacturers to comply with the frustration-free concept, with less packaging waste and recyclability. This represented a significant marketing innovation to help differentiate the business from competition (Gopaldas 2014). Frustration-free packaging gave consumers a better sense of firm value, especially with a growing trend in ethical consumerism, a phenomenon where many consumer segments will have more favourable attitudes toward a business with social responsibility values and ethics (Oh and Yoon 2014). Entrepreneurship was reflected by Amazon recognising an opportunity to build a more positive brand identity throughout its existing markets and began a planning process to determine how this could be achieved. This led to the idea of coercing suppliers throughout the supply chain to recognise the benefits of reducing packaging waste and providing opportunities for consumers to have more convenience in product consumption. Management strategies included building a model with more cooperative supply chain strategy, changing the expectations of relationship management with executives, and organizing the value chain to support a more convenient packaging strategy with emphasis on marketing effectiveness. In this instance, again, Amazon illustrates how the firm achieved more value by gaining more interest from ethically-oriented consumers, reducing the costs of procurement by lessening packaging costs, and ensuring an opportunity to promote how the business works diligently with corporate social responsibility to give the firm a brand-related competitive edge. This is another instance where entrepreneurship and management go hand-in-hand and are inextricably linked if the firm wants to achieve legitimate value both economically and related to brand management and brand identity. Raes (2007) also iterates that an aspect of a successful enterprise, on that brings value, is to give employees autonomy and focusing on relationship development, an aspect of leadership in management and entrepreneurial behaviour. Amazon has built a culture where trust is a primary goal of socio-professional relationships and where building social and intellectual capital are critical to innovation and organisational efficiency (Horwitz, Heng and Quazi 2003). Amazon devotes considerable HR strategy toward allowing employees to gain multiple talents and skills which, in turn, provides cross-training that makes employees much more aware of the business model and its inter-dependent value chain systems. This improves competencies in areas such as marketing, technology development, procurement, team ideologies, and operations. Value, therefore, is achieved by having more robust and skilled human capital that ensures efficiency when dealing with external stakeholders including customers, vendors and even shareholders. This value related to autonomy, skills development through HR-based training and becoming a knowledge organisation to facilitate more intellectual capital illustrate the congruence of entrepreneurship and management. Amazon illustrates entrepreneurial behaviour by spotting an opportunity to use human talent and capability as a competitive advantage. When others in the industry use pricing to differentiate, variety, or product-related benefits to position their businesses, Amazon found an opportunity to strengthen its focus on its core vision, of consumer-centricity, by planning, organizing, leading and controlling internal systems that would promote a learning organization, cross-training, teamwork, and facilitating these competencies in a way that has value and deeper meaning for consumers that demand exemplary service. Entrepreneurship seizes the opportunity and rewards employees according to their performance and dedication whilst management designs the systems and processes by which to facilitate human capital that gives the firm more economic and brand-related advantages and more recognised market position for innovative service systems. As asserted by Raes (2007), the ability of the firm to satisfy customers in unique and innovative ways underpins a firm’s total value. Amazon, in support of the Entrepreneurial Management Model, inter-links entrepreneurship with management to make Amazon more profitable and attractive to consumer segments that have their consumption behaviours influenced by service competency, convenience and innovation. Conclusion The basis argument was that to achieve enterprise value, it is necessary to have an inter-linkage between entrepreneurship and management. Rae proposed the model that shows this inter-dependency and how it translates into giving a firm growth opportunities, market longevity and value from a consumer and economic perspective. Amazon represents a very valid case which strongly supports this assertion, showing how Bezos initially recognised an opportunity where there was substantial uncertainty and risk associated with the sustainability and profit potential for an online retailing model. Throughout the business’ years of operations, the firm also remained focused on innovation, a primary and critical factor of entrepreneurship necessary to achieve enterprise success and growth. This entrepreneurship, in terms of opportunity spotting, was the development of the revolutionary Kindle device, using market bargaining power to coerce vendors to change packaging strategy on its many product lines, and using innovative HR strategies to facilitate knowledge exchanges, learning, teamwork, and cross-training to build intellectual human capital that would translate into better service systems and service competency. Seeking opportunities to promote the firm’s ethical stance, in the face of changing market conditions, represent another innovative method of opportunity spotting, as an entrepreneurial behaviour, to effectively position the business among competition to build brand loyalty and a better market reputation. All of these entrepreneurial strategies (and others aforementioned in this essay), could not have been implemented or come to fruition without traditional planning, controlling, organising and leading that is critical to achieve strategic goals and organisational objectives. Amazon had to coordinate a wholly-new value chain to support a model of technology development and innovation if the firm was to have adequate marketing for these technologies, support sales, provide customer service, procure raw materials, and structure job roles to support a completely different and diversified product strategy. Whilst entrepreneurship aggressively pursues innovation and new business opportunities, it is the management function that successfully facilitates these activities. Hence, the Entrepreneurial Management Model proposed by Raes (2007) is not only legitimised when examining Amazon’s explosive market success, but valid as value cannot be achieved in a firm without a merging of both behaviours; entrepreneurship and management talent. Amazon provided the most substantial support for the integrity of the Entrepreneurial Management Model which focuses on cultural development, seizing market opportunities, adopting risk and uncertainty, and structuring the organisation to support new strategies and systems when new operational strategies are planned and require implementation. Value is achieved only by blending entrepreneurship and management activity, a framework of value creation that emphasises better strategic focus, opportunity focus, innovation focus and allocation of resources in a way that is efficient (especially for a cost leadership enterprise) and productive toward new strategic objectives. 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