Managing Strategy
Amazon
Amazon
Abstract
This project will provide analysis of Amazon company discussing the history of Amazon company, who invented it, how the business started, its main success points strength and competitive threats faced throughout its journey. An overview of the different concepts of its strategic management aiming to determine its core competencies and enhancement of its competitive strategy. As well assessing the criteria of Amazon through its vision and mission, analyzing porter’s five forces and determining the available resources and capabilities. In addition to applying the SWOT analysis to identify the major strength of Amazon that helped in controlling its weaknesses. Recommendations to Amazon are provided to establish sustainable competitive advantage. Finally, concluding the whole project with the main points.
Introduction
Amazon an online American multinational technology company created by Jeff Bezos in 1994. It started as an online retailor along with other previous industries such as Silicon Valley bookstore and Computer literacy in 1991. Amazon worked hard on being differentiated form other industries who developed as an online retailer along with brick and mortar retail industries offering similar product line with low prices. Amazon is a multi-business offering up to eight subsidiaries the main four includes cloud computing (web service), autonomous vehicles (zoox), satellite internet (Kuiper systems), Computer Hardware (R&D Amazon lab). In addition to other subsidiaries such as (Ring, Twitch, IMDb and Whole Foods Market as a physical retailor. The net revenue of Amazon has reached up to $386.06 billion by the year 2020.
Background
Jeff Bezos the founder and executive chairman of Amazon company in 1994. At the beginning company started with selling music and videos in 1998 before it narrowed its line into other items such as books, video games, electronics for home, software’s, and toys.
Like any other company Amazon had fallen into lawsuits due to their low quality and manipulation of the products being sold claiming that their products are copied and not the real brand. What encouraged this counterfeit is the mix of items among sellers and producers of those items forming mixed inventories between the copied items and what are supposed to be sold. This includes items such as (apple products, gloves, tweezers, umbrellas, and other grocery items were their products were copied as well). Other issues the company faced such as encouraging E-books through Kindle reader which lead people go for tablet reading instead of holding a physical book resulting in less customers visiting bookshops.
Visions and mission
Vision: “To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices”. (Amazon’s global vision).
| Effective elements | Shortcomings | |
| Flexible | Be forward-looking | Not feasible |
| Be graphic | Indicate why the directional path makes good business sense | Not memorable |
| Keep it focus |
Amazon’s Five Forces Analysis
The five forces model of porter help analyze the five competitive forces of an organization and help improve its strategy were profitability and the strategy of the business are identified. Environmental conditions change from day to day which forces organizations to keep on changing to adapt and keep up to date of what is new in market. The most two factors impacting Amazon are the bargain power of customers and rivalry competitors as competition is high in market and many firms offering similar products and services as Amazon does. The following are the five forces that impact Amazon:
Competitive Rivalry with Amazon (Moderate to high Force)
Amazon deals with huge number of competitors who offer similar products and services as they do. The thing that allowed Amazon to succeed is through building brand loyalty and focusing on switching costs from shifting to another rival industry as many new entrants had recently joined the market offering similar products for online retail. Amazon focused on what customers needed and cut off costs by inventing solutions for their technology in-house which helped in reducing M&A costs. Their low pricing strategy, offering customers ease of use regarding the e-commerce website, presenting recommendations of customers who previously purchased the products, automatic ordering and one-click ordering and to check out, investing in high quality products are key differentiating factors contributing to building customers brand loyalty and making competition less efficient for their rivals. What really differentiate Amazon from other competitors is the ease of use it provides to its customers, previous purchasing rankings and one-click ordering to checkout.
Bargaining Power of Buyers (Strong Force)
With the presence of technology were customers can easily navigate through websites and get any accurate information they need in just a second this options among different companies much easier to choose. Higher buyer pressure is put on Amazon due to selective number of online and low price shops alternative to Amazon. The stronger the buyer bargain power the less the firm will be profitable as firm will be forced to produce high quality products with less prices offered to customers, otherwise customers will shift to another company. The most products having high bargain power are household products, Kindle due to high substitute products and competition, as well for online streaming services. (products with less bargain power are those that have no alternative or less competitive).
Bargaining Power of Suppliers (Low to Moderate Force)
Its known that suppliers are providers of retailers with the products needed to continue their e-commerce business. Supplier bargain power is low to moderate because Amazon is the upper handed over their suppliers due to strict rules and regulations imposed by Amazon on their suppliers. The more there is competition between suppliers the less their power will be, while if Amazon is dealing with low number of suppliers then their power will gradually increase.
Threat of Substitutes (High Force)
The biggest threat to Amazon is the low switching costs due to many other industries offering similar products and services either online or physical retail. Amazon like other retailors serving similar (no uniqueness) in their products makes competition higher which leads Amazon to focus more on customer’s experience with the company and how to serve customers in the best way possible, because this is what going to build loyalty making it much harder for customers to switch to other industries.
Threat of New Entry (Weak Force)
As discussed in previous points, Amazon put much efforts on producing high quality and low price products, invest in customer’s experience like delivery time and return of goods and building customer friendly website, as well building reputation all these made the company number one in the online retail which limited the rival’s economies of scale. Amazon’s main focus were on building brand loyalty, strong economies of scale and increased switching costs throughout their extensive investment activities.
According to the Five forces analysis, Amazon must continue investing in high quality products and high quality customer services as they are in a market surrounded with large number of competing industries and their products are not really differentiated from other companies so their main focus is on the quality of the products being offered to customers and how these products are being delivered. As well placing much concern on R&D, to make prompt improvements related to updated technological offerings. This will satisfy the expectations and preference of customers, gaining competitive advantage by being the leading e-commerce brand and cloud player in the world.
A selective group of tangible and intangible resources that Amazon relied on to achieve and reach competitive advantage over rivals. Competitive advantage can be achieved when a company offers products and services that are differentiated from other industries in the market, such as being rare, hard to imitate, cannot be substitute with other products provided by other competing firms. Resources are classified as tangible were physical resources (distribution centers) were centers are located beside each countries airport were they are operating, allowing them in cutting off extra transportation costs and offering lower prices on end products. Amazons employing staff is very important, choosing skilled senior managers from various company’s helped in adding value and more capabilities to firms. The way Amazon allocated its resources is what made it hard for other companies to imitate or even obtain. Building successful value chain also played an important role for attaining a successful future. Amazon put huge reliance on customer satisfaction following the strategy of “consumer-centric”, were the main focus is to provide customers with what they really need and paying for Amazon’s products without hesitating because they will be getting benefits from. This strategy is what lead to building brand loyalty reaching a brand value of $254.2 billion in 2021.
According to Amazon’s outsourcing and insourcing activities, it’s the opposite compared to other companies were Amazon insource logistics and outsource their products to be allocated in the warehouse of other parties.
| Resources and capabilities | Valuable | Rare | Difficult to imitate | organized |
| Technology | Yes | Yes | Yes | Yes |
| Human resources | ||||
| Brand image | yes | yes | yes | yes |
| Supply chain | yes | yes | yes | yes |
| Customer loyalty | yes | yes | yes | yes |
SWOT analysis
SWOT analysis will give us an overview of how well the company is doing in the market by identifying its main point of strength and weaknesses (internal factors), opportunities and threats (external factors). Amazon SWOT is as follows:
| Strengths: – Strong Brand Name.Brand valuation.Cost leadership.Superior logistics and distribution systems.Differentiation and Innovation. | Weaknesses: – Its products can be easily imitated.Product Failure (Fire phones and Kindle had a limited growth).Delivery employees are treated in inhuman (due to ling work ours and making prompt deliveries), as well employee unsafety (due to unsafe working conditions).Reduction in consumer safety (due to more offers provided puts pressure on safety issues making it hard to be all covered). |
| Opportunities: – Expanding physical stores (company will be me more well-known than just operating online and reached by more customers). Obtaining more assets (will raise market share and less competition). Self-driving technology (by acquiring (zoox Inc), were delivery will be improved).Differentiating the offerings of “Amazon basics”, by expanding in-house brands production. | Threats: – Regulatory threats (shipping not allowed in some countries like Syria, Cuba, Iran, Sudan).Business model can be easily imitated by new entrants.Increased fake reviews (this damages the quality of products being offered by Amazon and the whole brand image).High competition (with the presence of big firms like Walmart, Target, eBay) serving similar product line with low prices as well. |
Corporate Social Responsibility
Amazon, like any other leading corporation, pays considerable attention to corporate social responsibility (CSR). The group undertakes policies and has policies created with the goal of creating positive impact on the world (Amazon). The chief objective behind Amazon’s CSR is to pursue other pro-social goals, in addition to expanding its profits. Amazon pays much attention to its CSR initiatives because it believes that buyers will be more appealed to engage in business with brands that they consider to be more ethical (Amazon). It views the practice as providing it with an opportunity to improve its public relations. It is the reason why the multinational retailer adopts a multifaceted approach to handling its CSR program.
Amazon has invested significantly in supporting local communities, educating communities, and empowering workers. In 2020, the e-retailer formed the Amazon Relief Fund where it invested $25 million to support its provision of services and partnership with other stakeholders to mitigate the effects of COVID 19. The group also runs the Device Donation Program, which is a group of facilities that donate electronic devices and cards to learning institutions located near Amazon facilities across the U.S. (Amazon). Another initiative by Amazon aimed at helping local communities is “Girls Who Code” events, that are enacted with the goal of helping girls improve their skills in coding, an initiative that has gone a long way into empowering young girls, and turning them into productive individuals (Amazon). Another way in which the company supports local communities is that it offers immense financial aid to national and local firms with cash and donations that impact on their operations significantly. Concerning educating and empowering employees, the Amazon Career Choice Program contributes significantly towards educating and training employees (Amazon). The Program offers about 95% of the tuition fees for workers to pursue courses for in-demand areas, such as nursing and mechanic without worrying much on whether the skill is applicable to Amazon or not. The Program has assisted at least 10,000 workers globally since its inception (Amazon). The group’s Virtual Contact Centre is another initiative that has significant impact on how workers perform their duties. The platform allows the company’s customer service workers to serve from home. Based on these evidence, it is apparent Amazon has invested significantly in SCR initiatives.
The giant retailer engages in other activities that fall part of its CSR plan. Its impact on the environment is outstanding, especially in the way it tries to mitigate adverse effects. The company has invested immensely in the production of renewable sources of energy in various plants, with the objective of lessening people’s reliance on fossil fuels that contribute significantly towards climate change and global warming (Amazon). So far, Amazon manages about 125 solar energy projects and about 62 wind energy initiatives in various locations across the globe (Amazon). The chief objective of Amazon is to achieve 100% transition into renewable energy use by 2025. Regarding water consumption, the company has created various fulfilment centers that have the capacity to gather and recycle water, often tapped from rain water (Amazon). Amazon pays equal attention to reducing waste reduction using various approaches, including recycling. The firm manages packaging initiatives in various cities to reduce wastage and to safeguard the environment from inappropriate littering. More fundamentally, the company pays much attention to reducing carbon emissions. The firm’s abuse carbon emissions intensified by 19% in 2020, but overall intensity dropped by 16% (Amazon). Therefore, the analysis indicates that the company has an elaborate CSR plan that enables it to achieve its objectives in this area.
PESTEL Analysis
Political Factors
The company operates alongside political factors and influences. This aspect of the analysis pays attention to the impact the government has on its operations or on the firm’s internal and external environments. In the case of Amazon, various political factors are essential in the development of the e-commerce retailer. One of the political factors that matter to Amazon is political stability (Amazon). The group pays much attention to markets that enjoy political stability to safeguard its operations from potential harm and disruptions. Moreover, the group conducts its operations in accordance with existing federal and state regulations that are all tied to the political aspect. For example, the firm abide by taxation laws, e-commerce regulations, and cyber-security laws (Sadq et al. 65). The firm’s commitment to follow political regulations and policies shows the group’s compliance level, and suggests that the corporation is focused on continuing with its operations undisrupted.
Economic Factors
The performance of Amazon entirely depends on the condition of the economies where the company operates its online and non-online operations. The impact of economic trends and transformations on the micro or macro-environment are diverse, and the company must pay considerable attention to each of them to avoid unnecessary disruptions (Sadq et al. 66). The economic strength of various markets, particularly in the U.S. and European nations where the firm has most of its stores improves the possibilities of success for the retailer. The economies of developing nations also matter to Amazon because the company has plans to increase its presence in these regions. For instance, the growing disposable incomes in developing markets can enhance the group’s financial outcome (Sadq et al. 66). However, cases of recession have adverse impact on how the company performs. Consequently, Amazon would target markets where the national economy is strong, and where the individual and household income is sustainable.
Social Factors
Social factors have significant impact on how Amazon conducts its operations. The aspect of the PESTEL analysis identifies and determines the effects of sociocultural transformations or trends on the firm’s outcome as a leading online operator and provider of IT-based goods and services. Taking into account such factors in the micro and macro-environments, the company faces sociocultural issues such as escalating wealth disparity, which is an evident threat, growing consumerism in developing nations, which is an opportunity, and growing online buying behavior, which is also an opportunity (Sadq et al. 66). The widening wealth disparities refer to the widening gap between the rich and less unfortunate in many nations. Higher consumerism is a social factor that impacts on how the company operates because this marks a social transformation in the way consumers in developing nations conducted themselves in the past.
Technological Factors
Technological advancements directly impact on Amazon, taking into account the primary role technology plays in the company’s operations. One of the major concerns for Amazon, and which acts as a threat is the rapid rate at which technology grows, thus forcing the firm to constantly update its applications and innovations (Sadq et al. 67). Other retailers are equally developing their structures and any reluctance in this area could derail Amazon’s attempts to maintain its lead. The cost for developing, acquiring, and maintaining emerging or needed technology is high and unless the company pays considerable attention to how it would generate the needed revenue it may be unable to venture as effectively as it desires in this area. Another technological factor that really matters to Amazon is the expanding efficiencies of IT resources that comes as an opportunity (Sadq et al. 67). The company uses such innovations to expand its practices and to come up with effective solutions to some of the challenging issues. Finally, the increasing incidences of cybercrime is a major technological concern for Amazon that is continuously improving its systems to avoid being a victim of cyber-attack. Thus, technological factors impacts significantly on how the corporation performs its activities.
Environmental Factors
The company pays considerable attention to environmental factors, while paying much attention to safeguarding the natural environment. Even though the firm’s operations happen online, its activities are subject to the impact of the environment. One of the major environmental concerns for Amazon is the growing interest that businesses have on environmental programs, an aspect that the group views as an opportunity (Amazon). For instance, more groups have renewed their interest in developing renewable sources of energy to minimize reliance on fossil fuels. Another environmental concern for Amazon is to comply with the increasing desire to achieve business sustainability, which entails being able to operate over and over again in an environment that replenishes itself. More fundamentally, the company has much interest in embracing a lifestyle where rate of carbon emission is low, and the rate of climate change is insignificant (Amazon). The company pays attention to all the factors knowing very well the influence they have over business practices.
Legal Factors
Amazon conducts all its operations with the objective of adhering to legal directives. The firm understands that non-compliance could have adverse effects on the firm, and how it conducts its activities (Amazon). Consequently, management takes time to understand all legal aspects before taking any measures or decisions that could influence how the company acts or relates with clients and other key stakeholders.
Mckisny 7s Model
Mckisny 7s model identifies the seven key elements that help Amazon to attain its objectives and execute change. The first three hard elements that impact on the company’s operations, and which the management can directly influence are the organizational strategy, structures such as its reporting lines and organization charts, and systems such as IT systems and formal processes. The strategy refers to Amazon’s plan for developing and upholding a competitive advantage over its rivals. Structures, on the other hand, refers to how the firm is organized, particularly in the way the teams and departments are structured, encompassing who reports to the various units. Systems in this case refer to the daily actions and procedures that employees use to perform their duties. The four remaining soft elements are share values, skills, style, and staff. The shared values reflects the firm’s general work ethics, style refers to the approach leaders take to conduct business operations, staff are the workers and their general strengths and weaknesses, and skills are the needed competencies of the retailer’s workers. The group while applying the McKinsey 7-S model follows the recommend steps to achieve the targeted goals. For instance, it begins by focusing on the hard elements before progressing to the soft elements.
Works Cited
“Amazon Sustainability 2020 Report: Further and Faster, Together.” Amazon, 2020,
https://sustainability.aboutamazon.com/amazon-sustainability-2020-report.pdf. Accessed 3 Apr. 2022.
Sadq, Zana, Hawre Sabir and Vian Saeed. “Analyzing the Amazon Success Strategies.”
Journal of Process Management – New Technologies, International, vol. 6, no. 4, 2018, pp. 65-70. doi:10.5937/jouproman6-19264