Identifying Amazon's Strategy - Assignment Example

Amazon

• Introduction of the organisation and identifying its Strategy.

Amazon. com. Inc. is an extremely large e-commerce company headquartered in Seattle, the United States of America. It was founded, in 1994, by Jeff Bezos. The company specialized on the Internet-based retail and operates worldwide. Nowadays, Amazon is a large-scale retailer of a huge variety of goods including books, video games, electronics, music, films, apparel, furniture, toys and even food. To be more specific, the company is a multi-sided retailer, whose main aim is to meet customers’ needs on a large scale. It would be appropriate to say that the management of the company tends to change the main strategy of the company taking into consideration the conditions in the markets.

Nevertheless, in general, Amazon applies a multi-level electronic commerce strategy, which includes a lot of directions. For instance, the organisation focuses on B2C and B2B relationships, as well as facilitate C2C relationships within its platform that provide additional profits for Amazon. The company makes use of drop shipping method, as well. Primarily, the company uses a competitive strategy aimed at Economies of scale and Differentiation. Amazon plays a role of intermediaries between suppliers and customers earning money by means of a fee for sales on its platform.

According to Brad Stone, “Amazon’s early strategy: maximizing the Internet’s ability to provide a superior selection of products as compared to those available at traditional retail stores” (Stone, 2013, pp. 55). The main competitors of the company are eBay, Netflix, Time Warner Cable, Apple’s iTunes, Play Store of Google. The main supplier of the company is Ingram Content Group, Nevertheless, the are hundreds of others suppliers due to the Amazon’s approach to an intermediation.

II. Evaluation of the Suitability, Acceptability, and Feasibility of the strategy taking account of key factors relating to the strategic position of the organisation and the strategic choices it faces.

Primarily, it would be appropriate to determine Suitability of Amazon's strategy. Drawing on Jonson and Scholes, Suitability signifies if the strategic directions suit and compete within the current and prospective external environment (Jonson & Scholes, 2010, pp. 4). In order to evaluate the suitability, it is necessary to use an external analytical model called PESTEL analysis, which is used so as to define some future trends in the environments. The main aim is to predict their possible influence on the company’s activity and well-being.

Political: Today, international policies facilitate the strategic direction of Amazon through a purposeful promotion of e-commerce business. Moreover, in the vast majority of countries, where the company operates, the governmental sector actively investing in the development of the Internet infrastructure. In turn, it provides the company with a wide range of opportunities as the main activity of the company is directly related to the Internet.

Economic: According to the significant growth of Indian and Chinese economies, the sales of the company would definitely increase in these countries. The stable economy in Japan and Australia also ensure the same growth in sales. Nevertheless, the European union is expected to face some changes due to the forthcoming referendum in the UK with regard to a secession from the European Union. It would affect the economy of the UK and each member of European Union due to a slowdown in economic growth (Fidler, 2016).

Social: The Internet’s growth rate goes off-scale as the number of internet users increases every single month. It would enable Amazon to increase its market share in the world area. Taking into consideration the tendency of Amazon to cooperate with various social networks, the company would increase the awareness of the brand by means of Social Media Marketing

Technological: The digital progress enables people to have an access to the Internet everywhere using devices with 3G or 4G capabilities. It signifies that Amazon can lure new customers by means of the lower prices on the goods and flexibility of its services. The economy of scale and differentiation are advantages under these circumstances. Drawing on Amazon annual report, net sales increased 20% to $107.0 billion, compared with $89.0 billion in 2014 (Press Release Amazon.com, 2015).

Environmental: The online shopping contributes a lot to the reduction of pollution from vehicles around the world. The reason is that one delivery driver can drop off the purchases of one thousand customers instead of this number of clients coming to the store to purchase the goods.

Legal: Operating overseas, the company should be aware of a variety of international laws. For instance, the age limitations and laws for purchasing alcohol or chemicals are different in various countries. Moreover, it is sufficiently hard to respect a huge variety of rights around the world.

Summary of PESTEL.

The international promotion of e-commerce is extremely beneficial for Amazon as the organisation would definitely gain more market share. Furthermore, a growth of Chinese and Indian economies is a positive factor for the organisation’s activity. Nevertheless, the forthcoming referendum in the UK regarding Brexit can reduce sales of Amazon in the UK and Europe. In turn, social networks along with the digital progress contribute a lot to the prosperity of the company. The appropriate attitude of the company to the pollution is an advantage due to the increasing environmental awareness around the world. Eventually, the global type of the company’s activities means that developed strategies must comply internationally with various legal obligations. Therefore, it would be appropriate to say that Amazon’s strategy is absolutely suitable to the current external conditions. The ability of the management to adapt to the changes is a vast advantage, as well.

Undoubtedly, it is necessary to evaluate Feasibility of Amazon’s strategy. This criterion focuses on whether the company has resources to pursue strategic choices. In order to evaluate Feasibility, it is necessary to conduct 6M analysis, which includes markets, machinery, manpower, money, materials, and make up (Jonson & Scholes, 2010, pp. 5).

Money.

According to Amazon’s annual report, operating cash flow increased 74% to $11.9 billion for the trailing twelve months, compared with $6.8 billion for the trailing twelve months ended December 31, 2014. Free cash flow increased to $7.3 billion (Press Release Amazon.com, 2015). Thus, it would be proper to assume that the company is able to expand its activity and increase market share using a new flow of money. In addition, this report means that the management of the company is able to manage finances properly. Drawing on Haydn Shaughnessy, “Amazon’s stock is volatile as management makes surprise shifts in strategy with substantial capital investments and with long lags to positive cash flow” (Shaughnessy, 2012).

Markets.

The rapid growth of Chinese and Indian economies, gradual growth of Japanese economy and stable development of the European Union provide the organisation with an opportunity to increase the sales rate. However, the problem can occur if the UK would secede from EU (Fidler, 2016). It would cause a slowdown of economic growth of these countries. In turn, it would lead to shrinkage of the markets.

Machinery.

The machinery of Amazon is the company’s platform that consists facilities that manage and organise “the commerce engine, its reviewer database and community, the apps community, the Amazon marketplace, the vendors who sell through Amazon, digital rights management, and the writing community that self-publishes to Amazon” (Shaughnessy, 2012), Moreover, this platform enable the organisation to use a tremendous Cloud capability, which is one of the key tools of the company.

Manpower.

The company employed 230,800 full- and part-time employees, in 2015 (Number of Amazon.com employees, 2015). It means that Amazon has more personnel than Google. In addition, the company intends to hire new workforce in proportion to its growth and needs in the next year. There are not explicit obstacles for this taking into consideration the increase or revenue.

Materials.

As Amazon operates as an intermediary providing the platform, where their partners and clients can sell their goods, it would be appropriate to say that the company does not experience a shortage of materials. Moreover, the company practices drop shipping technique which means that the “retailer does not keep goods in stock but instead transfers customer orders and shipment details to either the manufacturer, another retailer, or a wholesaler, who then ships the goods directly to the customer” (Li, 2006).

Make Up

According to Drake Bear, a founder, CEO and chairman of Amazon called Jeff Bezos has a specific approach to the organisational structure and formation of teams. It is named Two Pizzas Rule, which means that the team should not be larger than can be fed with two pizzas (Baer, 2014). It signifies that teams perfectly follow the aims and bring new ideas without unnecessary outside critique. Therefore, it is easier to ensure an absolute commitment to the company’s strategies and goals.

To sum up, according to 6M analysis, Amazon has enough necessary resources and even more so as to reach its strategic objectives in the long term perspective. In addition, the organisation always seeks to increase the number of necessary resources. The main threat is a possible exit of the Great Britain from the European Union. It can considerably reduce the sales markets.

Unconditionally, Acceptability of Amazon’s strategy is an extremely important aspect of evaluation. Acceptability means financial aspect, which focuses on return to risk profile of each alternative, and stakeholders’ aspect, which focuses on an interaction between strategic choices and reaction of stakeholders to these choices (Jonson & Scholes, 2010, pp. 6). According to the Wall Street Journal, Amazon Prime membership grows worldwide each single month. “The reason for quoting the aforementioned facts was to demonstrate the efficiency, popularity, and acceptability of Amazon Prime among a large base of customers worldwide”. The company’s Net Income Growth is +125.23% during the last year (The Wall Street Journal, 2016). In addition, the prospective fee increased by $20 to $40. It would benefit investors in the course of time as the company has experienced a significant growth during the last few years. The strategic choices of the management have caused increase of Amazon’s profitability. In turn, the stakeholders’ reaction reflects the growth of Amazon’s Prime membership.

III. Consider the relative merits of a potential alternative strategy for the organisation.

Unconditionally, it would be appropriate to consider relative merits of a potential alternative strategy. Hence, it is necessary to determine this strategy. For instance, the generic strategy of growth means the expansion of a company to acquire new assets such as new businesses, facilities, as well as develop new products. As can be seen, Amazon applies this strategy to some extent; nevertheless, there remain some options, as well. Today, Amazon operates only in the developed countries throughout Europe and Asia. However, there are a lot of developing countries where the services of Amazon are unavailable. It means the fast delivery and other features that are available in the city of New-York, Chicago or London. Therefore, it would be appropriate to assume that Amazon can start to buy up necessary facilities and business in the developing countries in order to increase its influence and channels of sales; thereby, increase the sales rate and ensure a constant rapid growth. For instance, in first terms, the organisation can open a few fulfilment centres and warehouses. It would provide a quick and uninterrupted delivery, as well as enable to develop a supply chain to neighbour countries.

Besides, there are a lot of attractive industries that can be captured by Amazon in some undeveloped countries. For instance, in Georgia, Ukraine, and Moldova, the sector of services significantly lags behind in development in comparison with the US or Germany. Thus, if the company expand its activity to such countries, it would obtain a dominant position due to its capabilities. Consequently, the company would be able to start operating in absolutely new fields and fight off a competition. For example, Amazon can set up a company, which would provide a full range of logistics services, fast and reliable delivery of documents, correspondence and letters. It would be convenient for Amazon in terms of own need for delivery. The reason is that the corporation would have to organise and manage the delivery system for distributing own products. As a result, Amazon would be able to efficiently superpose these activities. Consequently, it would provide Amazon with absolutely new opportunities and channels for sales. In addition, it would definitely enhance financial statements of the company, as well as guarantee the space for the necessary growth. Drawing on John Rampthon, “a company with increased market share and a solid financial position can typically acquire financing with little to no problem” (Rampton, 2015).

Therefore, in a long-term perspective, the organisation can turn into one of the most influential transnational corporations with a huge variety of sphere of action. Amazon would be able to launch any kind of products or services, as well as enter to any market around the world, due to this strategy. The unbounded capabilities would provide the unlimited range of opportunities for the company. To sum up, the company would be able to completely overcome its competitors and gain more power and influence on the world’s area by means of the generic strategy of growth.