1.Comment on Amazon’s approach to International Business Strategy by evaluating its structure, resources and culture.
2.With regards to its E-commerce business since 1994, how well has Amazon responded to macro (PESTEL) and micro (Internal control) environment factors and managed its value chain?
1.Instead of believing in the maximization of the short term profits, Amazon opted for the strategy which encourages long term investment, value creation and market gains. Therefore, reinvestment of the profits was made by the company in its own business and took investment decisions by keeping in mind its objective of becoming a long term market leader instead of focusing on the short term profitability. Since the inception of Amazon, its core strategy is to offer persuasive value to its customers. This was done with the help of offering products to the customers at lower prices with quick deliveries along with offering a variety of services that attracts the customers the customers towards Amazon. In other words, the strategy of Amazon was to make the customers as happy as possible. Therefore, for success of the strategy, the adoption of a definite structure, resources and culture was required.
Amazon adopted the ultimate divisional organizational structure with small teams with first- level managers. A company- wide rule was instituted in the form of two- pizza team this meant that the number of members in the team should be small enough such that they can be fed with two pizzas (Hoffman, 2017). Therefore, pizza was used as a metric for the purpose of selecting the size of the teams. If two pizzas were not enough for the purpose of feeding the team then the size of the team was estimated to be too large. This concept imposed limitations on the number of members in the team to 5 to 7 members. The basic purpose of the concept was to provide autonomy and accountability to the team as small teams are capable of communicating effectively and perform work better (Dyer & Gregersen, 2013). Also, they are easily able to test and introduce innovation in ideas independently. This structure helped Amazon in terms of setting their internal priorities, pursuing creative strategies and freely executing the ideas. Moreover, Amazon has formed structure based groups for the purpose of facilitating successful operations management in the entire organization. This function also supports in establishing operations in new markets by taking into consideration its ongoing global expansion. Also, geographic divisions are made in order to easily manage economic conditions of various regions. Due to a variety of differences in the regional markets, geographical divisions are made such that different issue and concerns can be handled appropriately.
The resources and capabilities of Amazon include its technology, human resources, digitally driven supply chain, product development process, partnerships, customer service, etc. Such capabilities are based on the internally developed strength of Amazon over the years.
Technology
The most important resource for Amazon is the use innovative technology. The use of best technology was the primary requirement of Amazon as it operates in e- commerce business. Amazon has found its ranking among the most innovative companies in the US. Even since its foundation it has always been at the forefront of innovation by making the use of latest technology in order to provide best experience to its customers. The achievement of competitive advantage by Amazon was a result of the development of proprietary technologies by Amazon itself along with use of technologies that was licensed from third parties. Moreover, the transaction processing system of Amazon supported various methods for shipment, multiple shipping addresses and therefore millions of items. Also, the customer recommendation system was upgraded through its big data resources and was integrated with almost all the parts of the process of purchasing starting from product search by the customer till checkout.
Human Resource
Human resources i.e. the employees are the biggest resource of an organization. Amazon had 1,83,100 employees reportedly in the year 2015. Amazon did not believed in group thinking and preferred individual ideas and it is a decentralized company. At the time of hiring, Amazon essentially looks for people who are smart and innovative in order to increase the productivity of the team they will join. The organization is divided into small teams as it helps in working more effectively along with bringing an ease in communication (Kantor & Streitfeld, 2015). Moreover, decisions can be made faster and ideas can be tested quickly and more effectively. The business model adopted by Amazon has helped it in attracting and retaining the best talent (Harrison & John, 2009).
Digitally Driven Supply Chain
The well- developed supply chain of Amazon acted as a powerful resource for Amazon in the implementation of its international business strategy. It included inbound and outbound shipping, inventory planning, demand forecasts and warehouse and transportation management. The adoption of advanced technology in terms of supply chain leads to the minimization of human intervention in various processes. Moreover, the team managing the supply chain of Amazon basically focused on vendor management along with the customer experience. Also, Amazon has made the installation of robots in the warehouses in order to manage the quick the satisfaction of the customers with the help of quick deliveries. Sortation centres are built by Amazon which receives the packed orders from their nearest Amazon fulfillment centres for the purpose of sorting them in accordance with the zip codes before sending them to the shipping carriers for the purpose of delivery to the Amazon customers.
Product Development Process
The product development process adopted by amazon has acted in its benefit as a biggest resource as it is customer centric and focuses on the value delivered to the ultimate customer (Schermerhorn, 2010). A unique philosophy is followed by Amazon while developing the products known as ‘working backward’. This means that the products are developed keeping in mind the customer’s perspective such as the expectations of the customers from the product and then allowing the team to meet such expectations (Lee & Yang, 2015).
Partnerships (Acquisition led)
The success of Amazon is also the result of its acquisitions and partnerships with the companies of different sectors such as Pets.com (pet supplies), Living.com (furniture), Drugstore.com (pharmacy), Wineshopper.com (wines), Kozmo.com (urban home delivery), Sothebys.com (auctions) and HomeGrocer.com (groceries). Moreover, third parties are also enabled to sell their products on Amazon under programs such as ‘Syndicated Stores’ and ‘[email protected]’. Such partnerships and programs has acted as a resource for amazon as it provides its customers a wide range of products and ultimate satisfaction which is the basic motive of Amazon (Zhu & Liu, 2016).
Proper utilization of these capabilities was a bit difficult but Amazon managed to properly use these capabilities and achieved success with the help of it
Amazon has adopted a service culture within the organization which has three important aspects namely loyalty, customer service and customer retention (Byers, 2007). The core strategy of Amazon is to provide compelling value to its customers since the time of its incorporation. Amazon is completely consumer focused and tries to make them happy by offering lowest prices with large variety of products and prompt delivery. The culture adopted by Amazon is dependent upon its objective of achieving growth in the long run. Therefore it provides excellent customer service and user friendly website in order to increase the customer base. Moreover, advanced technological infrastructure is built and huge amounts are also spent on the customer loyalty and service programs even when it significantly affected the company’s operating margins. This is done with the view to promote its service culture within the organization (Quelch & Boudreau, 2016).
This culture is taken into account while hiring the employees for the company. They look for smart and innovative people in order to increase the productivity of the company. the company has also initiated a ‘bar raiser’ program in which selected employees of Amazon form a part of the committee, they spent 20-30 hours a week in interviewing the prospective employees of the company in addition to their duties and responsibilities. Bar raisers evaluate the best candidate to be selected in the company. The basic purpose behind this approach is to raise the bar for the next hiring such the talent within the organization is always improving (Clampitt, 2016).
The culture of Amazon is such that the employees are allowed to make decisions quickly. Amazon has promoted individual ideas in employees over group thinking. They also promote autonomy and accountability within the teams for better working, effective communication and the generation of innovative ideas among employees. Therefore, employees are motivated to bring innovative ideas such the e- commerce business can be brought to its maximum potential (Kaufman & Stenburg, 2010).
Amazon also provides flexibility in the workings of employees through the introduction of concept of Virtual Contact Center in order to enable the employees to work from home. The employees of Amazon are held at an unreasonably high standards and the internal phone directory presented employees the manner of sending confidential feedbacks to the bosses of others (Rogelberg, 2016).
2.Amazon was started in the year 1994, the internet was evolving as a potential business medium and started gaining popularity. Ever since its inception it faced unique challenges in its external environment.
The macro environment also known as the external environment of Amazon relates to PESTEL factors i.e. political, economic, social, technological, environmental and legal factors. It always comes up with unique challenges in the growth of Amazon which need to be dealt with in order to proceed with the way to success.
The regulations framed by the governments of the countries in which Amazon operates have always been a matter of concern for Amazon. . With the passage of time, the disposable incomes of people have increased and the ongoing economic trends benefitted Amazon. But stable economic conditions also developed competition for Amazon in the market.
Since Amazon is a retail business, its growth was completely associated with the social and cultural trends due to different tastes. Over a period of time, the use of mobile and digital technology has set trends of online shopping which has significantly boosted the sales of Amazon. Moreover, the increasing use of smartphone has even made it easier to shop online from anytime, anywhere. The demographics of customers have changed a lot after the incorporation of Amazon which has positively affected it. Consumers now believe in getting the best product at the lowest price at their doorstep. Therefore, Amazon has stroked deeper connections with the customers by offering the same.
The first country where Amazon started its business in the year 1994 was Seattle and was selected by Bezos due to its technology cluster. It always makes the use of modern technology in order to provide hassle free experience to their customers in a way such that they receive the product through a simple order process as quickly as possible. In the year 2006, the costs associated with the Amazon’s technology and development investments were found to be growing a large pace. As a result, the stock of Amazon sank due to high operating expenses and technology and content cost. This led Amazon to drop the rates of its technology. But this did not stop Amazon from pursuing growth. In the year 2012, it made an investment of 6% of its revenues in technology and content which includes licensing for music, new product development and video streaming.
Amazon has also focused on areas such as waste reduction, packaging and energy consumption in order to conduct the business sustainably.
The rates of sales tax varied from state to state and averaged about 6% of the sales. The major advantage of Amazon over others bookstores was its lack of sales tax. Wherever the books were shipped in the United States by Bezos, he would not have to levy sales tax. The warehouses of Amazon in the United States were originally located in the states with no sales tax as it was exempted by the laws from the collection of sales tax in those states where it does not have factory locations. This helped Amazon in keeping its prices low and having a kick start for its new business. Basically, Amazon was just testing the international market in the US.
With the passage of time, the market demand of Amazon increased, disrupted other online retailers and traditional stores and leveraged its e-commerce operations in order to become a retail monster. The competitors of Amazon include Wal-Mart, Alibaba.com and Google Shopping. Amazon was also facing tough competition from tech giants such as Google Inc. and Apple Inc. The development of path breaking products became the requirement for Amazon in order to stay competitive. In order to grow in the less friendly macro-economic environment, proper compliance of the laws and regulations of different countries are required to be made along with constant innovations for staying competitive and analyzing the latest trends to identify the opportunities on time.
The internal environment or micro environment of Amazon encourages the success of company with the help of innovative ideas and collaboration with other companies. The success of Amazon was the result of its internal activities such as first mover advantages by constantly analyzing the trends and opportunities in the market (Mennen, 2010). Amazon is a customer friendly website with low cost structure which provides a wide range of products. Therefore, it has necessary skills in relation with website, customer relationship, e- commerce and related services. Moreover, the hiring, retention and performance of employees has played a major role in the internal environment of Amazon (Stone, 2013).
Delivery businesses such as TNT, FedEx, and UPS are relied upon by Amazon. The management of value chain is also dependent upon internal and external resources and accordingly FDI and assets are arranged. Location advantages has been beneficial for the purpose of effective management of value chain (Dudovskiy, 2017).
Amazon came up that time with the idea of selling books with the help of internet to a mass audience. Its business model was based on the strategy “sell all carry few” where more than millions of books were offered online while it actually stocked only around 2000. Moreover, Amazon Associates Program was launched by Amazon in order to attract more customers. This program allowed the posting of links of the books on the smaller websites and in return these websites received commission on the purchase made by the customer through that link and therefore the program gained popularity (Edelman & Brandi, 2015).
With the passage of time, Jeff Bezos, the founder and CEO of Amazon, realized that the business model which was earlier adopted was not capable of providing the kind of growth that he was looking for and therefore he opted for diversification (Zott & Amit, 2008). In the year 1998, the business of Amazon was expanded beyond goods and started to include almost all kinds of shippable consumer goods such as toys, videos, electronics and games (King & Baatartogtokh, 2015). This led to the change in the business model adopted by Amazon to “sell all, carry more” model from “sell all carry few” strategy (Grant & Jorden, 2015).
In the year 2000, technology services were started to be offered by Amazon through a platform called Amazon Enterprise Solutions. Partnerships with traditional retailers such as Borders, Inc. and Target Corporation were entered and e-commerce platform were offered to them along with customer service infrastructure for the purpose of selling their products.
New areas of growth were identified by Amazon by the launch of Amazon Web Services (AWS) which offered a platform of computing services for other websites. Amazon’s technology infrastructure could be accessed by the developers with the help of these web services that could be used for the purpose of running any sort of business virtually (Varia & Mathew, 2014). Different resources, processes and therefore a new business model were required in order to meet the needs and demands of these developer customers. Bezos took proper steps and launched AWS even when it was considered to be a risky investment for Amazon. The risk taking ultimately turned into a successful venture for Amazon within five years of its launch and made Amazon one of the biggest platforms of computing services in the globe (Smith & Linden, 2017). The growth of Amazon suggested that there is scope of growth in the international market as it has outgrown the national market.
The focus of Amazon on growth and innovation disturbed the entire online retail industry while it transformed itself to a strong digital media platform from an e- commerce player. With the motive of achieving constant growth, continuous reinventions were made in its business model and new ways were founded in order to create value for their respected customers. Bezos was aware of the fact that there is constant need for modification in the business model of the organization in order to survive in this extremely competitive online retail market. Therefore, Amazon is always engaged in continuous evaluation and experimentation in terms of its business model by the way of developing proficiency in e- commerce innovation and making investment in diversified businesses with the view to differentiate itself from traditional businesses. Amazon belongs to an industry which is super sensitive to market changes therefore, it needs to act responsively according to the demands of the market. The success of Amazon was considered to be a result of its exceptional growth in the new markets.
The net income of Amazon was estimated to be US $79 million with the market value of US $262.7 billion with 17% rise in the shares in the year 2015. The greater market share achieved by Amazon was the result of its cost saving measures which include closing of warehouses, shutting down of customer care centres and lower overhead costs as it did not have physical stores. Costs were also saved by taking the maximum advantage of technology.
Amazon captured growth with the help of innovative disruption on which its business model was entirely based as the company believed that sustainability is the result of innovation. The main pillars of the business model were- wide selection, low prices, customer service and convenience.
Amazon was started as an online bookstore and quickly expanded beyond books and started to include all types of consumer goods. Diversification was adopted and therefore the biggest range of products offered by Amazon which include the categories such as games, music, movies, electronics, clothing, health and beauty, tools, toys, home and garden, shoes and jewelry, sports and outdoors, grocery, computers and automotive and industrial (Lussier & Hendon, 2018). Amazon allowed the sellers for conducting advertising program by the way of uploading their catalogue on the website of Amazon thereby promoting their products. Such kind of ads provided a wide range of products among which selection can be made by the customers.
With the view to provide best deal to its customers, Amazon believed in keeping its prices low. For the purpose of attracting more customers, Amazon offered free shipping on products and proactively cut prices. This was done by the way of leveraging its fixed costs, bring about improvements in the operational efficiencies and allowing third party sellers to sell their products on the website of Amazon and the savings they made were passed on to the customers in the form of lower prices.
The growth of Amazon was a result of its customer service, customer retention and loyalty. Amazon took all possible steps in terms of enhancing its customer service by offering low prices, quick delivery and a wide range of product and services. It continuously developed innovative ways to provide better satisfaction level to its customers which significantly resulted in the repetition of buyers (Moore, 2017).
Convenience was one of the pillars of the Amazon’s business model which supported in growth by the way of providing hassle free services to the customers anytime, anywhere with the help of modern technology which ensured that the product ordered by the customer easily and is delivered on time. It was easy to search products on Amazon’s website with the help of product recommendations, customer reviews, browsing options, etc.
The above pillars of the business model acted as a flywheel and allowed more customers to visit the website which made the growth of Amazon even faster
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