Strategic Management - Amazon.com - Case Study Example

Running Head: AMAZON.COM BUSINESS MODEL Strategic Management (Your Name) (Institution’s Name) Saunders (2001) defines a business model as the mechanism by which a business intends to specify a value cluster or a value proposition for targeted customers, a market offering and financial model. Being a summary of how a firm plans to serve its clients and identify its product offering, the model involves both strategy and implementation. Upon its establishment, Amazon.com employed Online Retailers of Physical Goods as one of its business models which was designed for the delivery of goods, services and information to the final consumers. This model has been taking title to the recently manufactured products sold by Amazon.com and it always depends on third party providers. Upon its launch, the company was heralded due to its feel-friendly culture that attracted brilliant young people to apply for employment there. The company insisted on hiring the most intelligent, brightest and resourceful people who could not only share the company’s vision but also willing to work to achieve it. The management tried to institute a sense of community by sharing hard work as well as fun with other employees. Although Amazon.com paid its employees less than market salaries, it gave them ownership in the company which made them (employees) happy. This gave it a competitive advantage ahead of its competitors who includes eBay.com, NowEssay.com, DjMixTapez.com among others. (Saunders, 2001) Amazon.com has been able to increase its competitive advantage after employing three operational strategies, these includes, customer differentiation, focus and cost-leadership strategies. In the first strategy i.e. customer differentiation, Amazon.com has provided both its prospective and current customers with differentiation through design, convenience or quality. The company always selects a diverse differentiator among the competitor. This makes it possible for Amazon.com customers to differentiate and recognise its product from those of its competitors. The second strategy is focus strategy. Focus strategy takes either cost-leadership or customer differentiation strategies where it applies them to a niche contained by the market .the company focuses on excellent customer service as a niche and not the whole market because every niche has its own demand as well as requirement. The last strategy the company uses is a cost-leadership strategy, this it pursues through differentiating itself mainly on the basis of price. Following this strategy, Amazon.com often ensures that it presents the same quality products as those of its competitors but for a significantly less price. (Geoffrey, 2004) Values have also played an important role in the success of Amazon.com. A value is said to be a goal which forms a partial objective. Values and philosophy has been at the centre of this company and has always determined the distinction between failure and success of the organisation. We have two strong values which are currently practised by Amazon.com that is, operational frugality and customer satisfaction. These two values harmonize Amazon.com’s operational strategies in maintaining and achieving a successful competitive advantage and in encouraging corporate and employee performance The top management has always made tough decisions on how to move the organisation to achieve continued growth and eventual profitability. There have been four primary drivers for growth: i). Product focus-Amazon.com has been focusing on making products that suits the interest of its consumers. ii). Customer focus-the organisation has been looking for ways to adequately satisfy the consumer’s needs as well as expectations through a range of products and services. iii). Technology focus- the company has attempted to apply technology in solving actual problems. Currently, technology is used for securing customer credit card numbers, easy ordering (for example, One-Click System), speeding delivery plus new and stirring offerings that attract people to check it out. iv). Distribution focus- the organisation has made major strides in expanding its business, this has seen the expansion of its products distribution. At present, Amazon.com operates its retail websites not only in the US, but also in the UK, Germany, Japan, Canada, France among others. (Saunders, 2001) The increased awareness on individually-customized, information-intensive and electronically wired global marketplace has largely contributed to Amazon.com’s explosive growth and widened penetration. The organisation has been applying agility model in its effort to lead accelerated, uncertain, constant and unpredictable change. Agility as defined in the business language is the ability of a business to prosper in competitive marketplaces that are characterized by accelerated, continuous, and unpredictable types and rates of change that are synonymous with the e-Commerce, World Wide Web and Internet environments. The present occurrence of change in the international business environment has forced companies like Amazon.com to practice swift business practices so as to grow and survive in the turbulent market environments. Speed has been the heart of agility in this company where Amazon.com has been able to quickly implement decision making processes as well as the operational cycles. Decision making process execution has been involving four distinctive though interdependent stages: Stage one involves absorbing or observing information from the environment through all possible means, the company has been very keen in observing any useful information from the surrounding environment and using it to increase its competitive advantage. Stage two involves orientation; Amazon.com places the observed information into a medium of individual understanding and experience. Stage Three, after observing and orientation, the company makes a decision in selecting a succeeding course of action that is based on the possibility of either defensive nullification or offensive achievement. Action becomes the final stage where the company attempts to carry out or operationalize previously absorbed decisions. Collectively, the stages are known as an OODA loop Amazon.com has embraced agility whose major objective has been minimal resistance to change in any direction. The Agility’s encompassed metrics of change includes; the speed with which a company is capable of introduce change, the cost related to the incremental change, changed state’s stability, the breath of change or scope from the initial state, the frequency with which the firm is able to change, the correctness or accuracy of the organisation's identified change target and the precision in which the organisation achieves its change objective. (Smith, 1999) Amazon.com has been implementing agility in two strategic modes: either reactively (i.e. responding to change, either degenerative or opportunistic) or pro-actively through leading change i.e. disrupting competitors and markets. The organisation prefers pro-active mode which keeps its competitors in a reactive and defensive operational posture, thus stopping them from defining the market on their own terms. This has been very significant in the e-Commerce environment where change can, and has, directly destroyed existing markets generating new worldwide products and competitors. Presently, Amazon.com applies three operational Agility spheres: A) Mass customization- the organisation has been able to fragment its market into ever smaller niche and has been treating the niches with specialized services and products B) The organisation has been able to achieve accelerated change rate, where change is a constant in the marketplace and escalating clock speed is a predictable and expected characteristic. This sphere has been evident in, and is driven by, high tech environments. C) Dynamic organizational reinvention- Amazon.com has been able to transform rapidly through reconfiguring its business processes, management structure and market/channel relationships in response to an unforeseen and paradigm shift-inducing threat or opportunity. (Smith, 1999) Moving faster than one's competitors has been the key to successfully managing consumers’ relationships and competing in the e-Business/e-Commerce environments. Amazon.com has been applying speed in command and control i.e. the organisation has been shortening the time needed to plan, to make decisions, communicate and coordinate. The company’s speed has been a critical component of Agility and particularly so in environments that are complex, large, non-linear, continuously changing and unpredictable. These are the exact characteristics that mark worldwide business competition today and will continue to build up even in the future. Given that business is competitive, absolute speed does not matter, what matters is the speed that is relative to one's customers and competitors. Amazon.com has been faster in OODA processing than its competitor(s), and has been leading in responding to opportunities and challenges within a customer's time requirements with successful, customized solutions. Focused solutions provide significantly greater customer value than is achievable through the production and delivery of commodity-type or non-customized products and services. (Rayport, 2001) Speed differential does not necessarily have to be a large one, if exploited repeatedly a small advantage, can quickly lead to significant results. By continuously operating faster within its competitors' OODA cycles, Amazon.com has placed those competitors in the unpleasant position of constantly reacting, rather than pro-acting, in the marketplace. As a result, the potential to interrupt competitors' focus and concentration, as well as the consequent worsening of their competitiveness has been enhanced greatly. Amazon.com operates and powers retail web sites for Sears Canada, the NBA, Bebe Stores, Sears UK, Marks & Spencer, Timex Corporation, Benefit Cosmetics Bombay Company, and Mother Care. In addition to the web site the organisation also provides multi-channel solutions i.e. it powers customer-service applications, phone-sales terminals and the in store terminals. The company's has diversified its services by opening offices all over. It employs software developers in its modest to large size centers across the world. Some of its international locations include; Slough (England), Cape Town (South Africa), Iaşi (Romania) Bangalore, Chennai, and Hyderabad (India), Beijing (China) among others. The company has got fulfilment and warehousing centers located near airports at cities like Arizona, USA: Phoenix, Nevada, USA: Fernley and Red Rock (near 4SD), Ontario, Canada: Mississauga, Kansas, USA: Coffeyville, Amazon.co.uk warehouse, Glenrothes, Saxony, Germany: Leipzig, Loiret, France: Orléans-Saran (2007), Chiba, Japan, Shanghai, China among other cities. Unlike its competitors Amazon.com has a well established Product line. The company has progressively branched into retail sales of videotapes and DVDs, music CDs, tools, toys & games, sporting goods, consumer electronics, software, kitchen items, health and personal-care items, lawn and garden items, baby products, apparel, beauty products, watches, gourmet food, musical instruments, jewelry, groceries, industrial & scientific supplies, and many more. The organisation launched its own Web auctions service, Amazon.com Auctions, in March 1999. Nevertheless it failed to beat eBay's juggernaut growth the industry pioneer. In September 1999, shortly after the launch of web auctions service Amazon launched zShops, a fixed-price marketplace business and later in November sothebys.amazon.com a Sotheby's/Amazon partnership which has since failed. While zShops failed to live to its expectations, it laid the basis for the immensely successful Amazon Marketplace service that allows the customers sell used DVDs, CDs, books, and other products alongside new products. Currently, eBay's Half.com service is the only main rival of the Amazon Marketplace. According to Robert (2001), the idea of selling products under its own private label, "Pinzon" indicates that the company intends to focus on kitchen utensils, textiles, and other household goods. This saw the March 2007company application of expanding the trademark to cover a more diverse and a larger list of goods, as well as registering new design consisting of the word PINZON in stylized letters. The companies list of items registered for coverage by the trademark grew to incorporate products like carpets, hair accessories, paints, headgear, wallpaper, clothing, footwear, jewelry and cleaning products. The company’s announcement of intending to launch its own online music store, saw the launch in public beta September 25, 2007, the organisation is now selling downloads solely in MP3 format without digital rights management. In August this year, Amazon publicized Amazon Fresh, a grocery service which offers both perishable and non-perishable foods. Consumers can either pick up orders or the company can offer delivery services to their homes. However, delivery is primarily restricted to residents of Mercer Island, Washington, a wealthy suburb of Seattle. Amazon.com has a popular feature which allows its users to submit reviews to the web page of every item. Users rate the item on a rating scale from one to five stars as part of their review. The rating scales have been providing a critical idea of the popularity and dependability of an item thereby placing Amazon.com in a better position of making necessary adjustments as opposed to its competitors. The review feature has been a highly influential and important function for consumers thus a major reason for company’s success at selling books. However, buyers must know that reviewers have bias. But in most cases and under normal circumstances, these reviews will give the reader a self-effacing starting point in assessing a given book. The organisation has been putting adequate measures to avoid copyright violations. The company’s web feature do not return the computer-readable text of the book but it brings a matching page picture, with disabled printing, while it puts restrictions on the number of pages in a given book to be accessed by a single user. The company is also planning to launch Search inside the Book service internationally. I addition, clients can pay for the access to the entire book online through the Amazon Upgrade program, even though the selection of books entitled for this service is limited at present. (Cox, 2003) Information from Amazon.com discussion forums reveals that, the company derives about 40 per cent of its sales from members, called "Associates (independent businesses or sellers who receives a commission for directing customers to the Amazon.com site). These they do through placing links to specific products or on their websites. If the referral yields some sale, the Associate will then receive a commission from Amazon. In its affiliate programs Amazon, enjoys more than 900,000 members worldwide. This puts the company in a competitive advantage ahead other companies, for example, eBay.com. Being the first online businesses to set up an affiliate marketing program, Amazon has greatly benefited from the program. Amazon.com has been embracing spinoffs and acquisitions, the company bought the Internet Movie Database (April 1998), bought PlanetAll for 800,000 shares of Amazon stock in August 1998, acquired Sunnyvale-based Junglee.com, for 1.6 million shares of its stock, bought Alexa Internet, Exchange.com and Accept.com In June 1999, where most staff from the two firms were absorbed by the firm in early 1999. This workforce went ahead with building community-focused features for the organisations Web site, including Amazon.com Marketplace, Friends & Favourites, Amazon.com Auctions, and Purchase Circles. The company also acquired Mobipocket.com and BookSurge in May 2005, in July the same year the firm bought CreateSpace (formerly CustomFlix), a distributor of on-demand DVDs which later expanded its on-line services to comprise on-demand books and CDs, as well as video downloads, it also acquired Shopbop and lastly, Amazon acquired dpreview.com, a digital photography review website based in London. Some of the company’s spinoffs are A9.com the search technology company and Endless.com the shoe and handbag store. (Saunders, 2001) These acquisitions and spinoffs has seen the company cut down on its expenditure, enjoyed geographical diversification, increased market share, economies of scale, tax reduction, resource transfer and general economic development. This has in turn placed it in a better competing position even in years to come. Through the acquisitions Amazon.com has successfully adapted the expansion strategy thus increasing its returns ahead of its competitors. Reference Saunders, R. (2001): Internet Marketing, New York, Prentice Hall. Cox, B. (2003): Internet Marketing, Cambridge, Cambridge University Press. Davies, G. (2002): Amazon.com: Get Big Fast, New York, Harper Collin. Geoffrey, N. (2004): Introduction to e-business, New South Wales, McGraw Hill Rayport, F. (2001) Introduction to E-Commerce, Boston, McGraw-Hill Robert, S. (2001): amazon.com: Inside the Revolutionary Business Model That Changed the World, New York, Harper Collins Publishers Saunders, R. (2001): Business the Amazon.com, London, Capstone Publishing Limited. Smith, H. (1999): Agile Electronic Commerce, Virtual Business and the New Economy. London, Oxford University Press Read More