Strategic Management at Amazon

Abstract

Strategic management is a business concept that consists of decision-making, analysis and actions an entity undertakes with an aim of establishing and sustaining a competitive advantage. The concept entails three continuous processes, which are analysis, decisions, and actions.

It involves the analysis of strategic goals (vision and strategic objectives), as well as, the internal or external environments of the entity. After the analysis, leaders make strategic decisions. This covers local and international operations. Implementation of strategies requires effective allocation of the necessary resources. Therefore, strategic managers have to show how an entity should compete to create and maintain the advantages in a marketplace. This article discusses Amazon’s strategic management with a focus on the company’s competitive advantage and its customers.

Amazon.com, Inc. is a global company that offers internet retail shopping services. Jeffrey P. Bezos started it in July 1994. Amazon is headquartered in Seattle, Washington. Strategy is about being unique from competitors. Amazon positions itself as a low-cost retailer and offers a wide range of products and services, which unique in the internet retail business. The company’s management team strives to compete healthily and preserve its competitive advantages over a long time.

 

 

Introduction

Between 2009 and early 2013, Amazon had rolled out a global strategy through the effective utilization of its resources and strategic capabilities. The strategy was about global dominance through the development and the use of technology, acquisitions and alliances to offer an increasing range of products and services. The strategy also entailed increasing the customer experience. Mckeown argues that operational effectiveness alone cannot achieve a sustainable competitive advantage[1]. Thompson and Strickland  highligts that operational effectiveness means carrying out similar activities better than the competitors do.  This involves business process reengineering, benchmarking, outsourcing and just-in-time. These concepts are important, but they do not give a sustainable competitive advantage. According to the Management Study guide, sustainable competitive advantage is achievable through performing similar activities in a distinctive style or carrying out different activities from competitors[2]. Amazon has established a distinctive, difficult to imitate and internally consistent operational systems, which have ensured them with a sustained competitive advantage.

As of April 2013, Amazon.com, Inc. had a market capitalization of $120.0 billion[3] and employed 88,400 full-time and part-time employees globally. Amazon was a strong global business, and it had established primary international locations in Canada, China, Rica Costa, Germany, France, Japan, Italy, Ireland, India, Luxembourg and the United Kingdom.

It also had software development centers in Dublin (Ireland), Edinburgh (Scotland), Cape Town (South Africa), Bangalore and Chennai (India)[4].

The company and more that 1 million third party resellers provides a variety of  unique, refurbished, new and used items in different categories. These includes Automotive & Industry; Books; Shoes and Jewelry; Video games; Home and Garden; Electronics and Computers; Toys; Kids; Clothing; Sports & Outdoor; Health & Beauty; Tools; and Music. Amazon had also restructured itself as a major company in cloud computing with the provision of cloud computing services[5].

Amazon’s Global Strategy

Central to Amazon’s strategic management was growth. Amazon focused on being customer-centric by continuing to offer a wider selection of products and services at an affordable cost. Improved the customer experience is aimed at increasing the number customers and sellers that use of the company’s websites. The benefit of this growing number is then fed back to innovation programs designed to improve the customer experience, and the strategic global cycle continues. Bezos highlighted that the company’s brand name was to steadily serve customers by enhancing the customer experience. Amazon’s corporate logo had continually transformed over the past decade to complement its dynamic business offerings. This is an indication of internal expertise and strategic flexibility.

Amazon’s global strategy is built on three pillars: affordable price, wide selection pool and convenience. The company is committed to continuously offer affordable prices without compromising the quality of its products and services. Amazon also provides a wide range of retail products and services. For example, in 2013, it introduced Amazon coins and Amazon Cloud Player[6]. The company also expanded its Global App distribution to approximately 200 countries. This included Vatican City, Brazil, South Korea, Mexico, Australia and Papua New Guinea[7]. Other services include cloud computing offerings, Amazon currency converter and Amazon’s developer software. The third strategic pillar is customer satisfaction. This is implemented through customer reviews and online feedback forms on various products. In addition, the company’s main pillars are supported by its commitment to investing in R&D and innovation.

Business Level Strategy (BLS) is a collection of obligations and measures a company uses to secure a sustainable competitive advantage by exploiting the core competencies in a particular industry[8]. With the implementation of the integrated cost leadership/differentiation strategy, Amazon gains a competitive advantage on the basis efficiency and the perceived uniqueness in affordable product value. This fusion of strategies involves engaging in critical and supportive activities that would allow Amazon to simultaneously pursue differentiation and low cost. This strategy is also known as best cost strategy.

In relationship to the existing stiff competition from eBay and Netflix, customers would remain loyal to Amazon’s affordable and differentiated products[9]. Amazon also enjoys the fact customer sensitivity to price increase is reduced due to the reliability and uniqueness of its products. In the event that product substitutes emerge in the market, Amazon would be firmly positioned by its customers’ loyalty. Uniqueness at affordable cost also provides substantial barriers for potential entrants in the market. Differentiation spontaneously leads to the high quality components, which may drive up Amazon’s cost. However, the cost can be passed on to its loyal customers.

For the past several years, the company had faced numerous challenges. However, it has stayed afloat due to its strong corporate culture and brand stability in the retail industry. Some of the challenges include disruptive technologies, deteriorating shareholder sentiments and global financial crisis. Amazon is characterized by long-term strategic investment decisions under CEO Jeff Bezos. Jeff pointed out that the company’s investments take 5 to 7 years before any reasonable impact on the company’s economics is realized[10].

As 2013 rolled on, some of the strategic issues that were observed and the company needed to consider included creating a balance between the focus on Amazon’s various customers, continuous investment in technology, and how to handle consumer or shareholders sentiments as a result of the recent financial crisis on its growth.

The Management Team

As of 2013, Jeff Bezos (the founder) was the CEO of the company[11]. Bezos is a strategic and visionary leader with a background in Electronic Engineering and Computer Science. He believed in the power of the internet technology and he still emphasizes on technology as the company’s competitive advantage[12]. Bezos choose the name of the company with respect to the power of the world’s largest river, Amazon. The company’s brand name is widely accepted globally thus plays a role in sustaining its market share. Bezos is reported to have done a lot of manual work during the early growth of the company[13]. The company’s success is attributed to the working culture he had cultivated during the company’s growth phase. Amazon is also characterized by a strategic approach in employing its staff. For example, the company employed a former Wal-Mart Vice president, Richard Dalzell and the Chief Information officer (CIO). Other senior leaders had been recruited from a variety of top performing companies such as Microsoft, Apple and Delta Airlines. The CEO added that hired with the focus on the need to meet the customer’s satisfaction.

Vision

The company’s vision has gradually transformed since its inception in 1994. Its primary goal was to become the world biggest and the best online bookstore. This has changed to be the world’s best customer-centric retail business where consumers can search, find or discover various products they want to buy online. In the 1997, as well as, the 2012 Letter to the Stakeholders, Bezos explains what it means to be consumer–centric[14]. The first argument was to discover customer needs and figuring out how to give them. He also pointed out the importance of innovating on behalf of the customers. The last meaning was being unique in the internet by providing an array of products for all customers. In 2013, Amazon served four distinct customer groups. These include consumer customers, seller customers, developer customers and enterprises.

 

Amazon’s Internal and External Environments

Amazon’s operations and resources represents its current or potential strengths and weakness as compared to its competitors in the world. The availability of internal resources maximizes productivity thus increase performance. Effective and efficient operations also minimize cost. Amazon must continue utilize its internal resources to produce or deliver high quality products and services to the global economy at an affordable cost. Competition and threats of existing or new market entrants or product substitutes can be curbed through extensive Research and development programs to come up with new ideas. Amazon should also continue to come up with aggressive product promotion and marketing strategies. By defining the broad functions stakeholder management, customers’ value is created thereby increasing performance. Affordable cost and efficiency can serve a barrier to potential entrants.

External environment has a significant effect on an organizational strategy which then influences its performance. The environment determines the opportunities or threats facing an entity. Some of the external environmental aspects to be dealt with include competitive rivalry, socio-cultural factors and technological factors[15]. Political and economic factors usually determine currency stability. Unstable American dollar would increase production costs and risks hence reducing Amazon’s performance. An insight on the influence of external environmental factors by strategic leaders would translate to informative decision making which improves performance[16].

The company’s performance can be based on operational efficiency, introduction of new products, market share growth and product/service quality.

Strategic Management and Strategic Competitiveness

Hitt, Ireland, & Hoskisson define strategy as a consolidated set of commitments and actions intended to exploit its potential and benefits to achieve a competitive advantage[17]. Core competencies are the pillars of a firm’s ability to earn above average and to gain both competitive and strategic advantage. Above average returns refers to the revenue in excess of the projected earnings.

As Amazon is motivated by the drive to maximize profit at low risks, it has to rely on strategies that can propel it to achievement of a sustainable competitive advantage in the global market. A sustainable competitive advantage will provide Amazon benefits that its rivals are unable to achieve. Strategic management is a continuous process that involves incorporation of business goal-action-plans with the entity’s performance objectives. Amazon has to consolidate its commitments, decisions and actions to increase its turnover and achieve strategic competitiveness. Strategic competitiveness is a desired outcome of strategic management[18]. This can only be achieved if Amazon successfully plan and implement a value creating strategy. For Amazon to achieve a strategic competitive advantage across the globe, the business has to come up with a strategy that its competitors, such as, eBay Wal-Mart and Barnes & Noble.

Amazon’s competitive advantage lies in its extensive investment in technology. The company’s corporate culture emphasizes on technology as the core element in its consumer business. Technology has led to the realization of the company goals. That is, technology improved efficiency, which ultimately led to reduced operational cost. Consequently, the company could offer affordable prices to its customers. Moreover, extensive investment in R&D enabled the company to come up with new ideas of improving the customer experience. Technology also saved the company’s need to segment its market upon conventional approaches such as human behavior and demographic. Artificial intelligence (AI) and business intelligence (BI) tools in Amazon’s websites tracked and mined customer search and purchasing patterns as people accessed the website. Additionally, the company designed a virtual salesperson and customer care representative based on the data mined from their websites. One of the outstanding products of R&D is the development of Kindle[19]. Kindle is a wireless electronic reading device. It also facilitated the download of magazines, books and newspapers. By 2009, Amazon Kindle was the highest selling device and had increased the number of book titles from 90,000 to 200,000.

Amazon’s Web Services (AWS) also gives the company an upper hand in the market.  These include Amazon Elastic Compute Cloud (Amazon’s EC2), Public Data Sets, Amazon Cloud Front and Amazon Elastic Block Store (Amazon EBS)[20]. Other key players in cloud computing revolution include IBM, Oracle and Google. Amazon’s major competitors include Wal-Mart and Barnes & Noble and eBay. Other indirect competitors include web portals, media companies, Apple and Google. Competition was based on product line. For instance, Apple and Google are competitors in cloud computing and digital devices. eBay is a competitor is the aspect that it provides e-commerce and mobile services similar to Amazon.

 

Acquisitions and alliances

Given that growth is at the center of the company’s strategy, Amazon has acquired various entities to increase its capital base and extend the range of its products and services. Acquisitions also eliminate cutthroat competition within the internet retail industry[21]. Business alliances are also strategic decisions that enabled the company to pursue technological development. Some of the acquired business entities include Fabric.com (2008), Audible (2008) and IVONA Software (2013). Alliances include the Bombay Company Alliance, National Basketball Association Alliance and Diane Von Furstenberg Alliance[22].

 

 

 

 

 

 

 

 

 

Recommendations and Conclusion

When establishing a strategy for success, an entity needs to clearly define its vision, mission, goals or objectives. The entity needs to identify how it is going to implement its wishes into realistic solutions in the presence of intense competition. Defining clear and specific goals or objectives is pivotal for an organization to compete healthily.

Amazon’s vision, mission, objectives and corporate culture greatly influence how it carries its operations. The company should maintain its strategic approach of hiring strategic leaders who can envision the potential results of the firm’s key decisions. The company’s management team must first compute revenue sources that are related to its value chain activities in both American and the international segments. Amazon should also systematically initiate its strategic behavior in response to the influence of the internal or external environment on the various performance indicators. Given that both the internal and external environments in globally have a significant impact on the company’s performance, the company should frequently monitor and conduct environmental scans. For instance, the company should watch performance indicators when simultaneously reducing costs while increasing differentiation. In doing so, the entity will formulate and implement more effective strategies.

Due to the technological dynamics, Amazon should focus on long-lasting innovation and increase consumer experience. These can be attained through Research & Development and strategic flexibility.

 

 

References

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