Amazon strategic business report - assignment 2 - introduction to strategy PDF

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strategic report on amazon w/recommendations. SWOT and VRIO analysis...

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AMAZON BUSINESS STRATEGIC REPORT Introduction The purpose of this report is to identify the business strategy that drive’s Amazon’s retail sector and analyse its internal environment. Through the application of the VRIO table and the SWOT process, an in-depth evaluation of the resources available to Amazon, and how these provide them with sufficient competitive advantages is completed. The report will finalise with recommendations on how to maintain and grow its leadership in the marketplace.

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Executive Summary Amazon, founded by Jeff Bezos in 1994, is one of the most successful businesses in the retail industry today. The Seattle-based company has penetrated the retail markets in over 185 countries and currently operates with a market capitalisation valued at $1.7 trillion and a U.S market share of 47% in quarter 4 of 2020. This places the company ahead of the second largest retailer, Walmart, at a mere 6.8%.

The organisation has one of largest product portfolios in U.S allowing them to reach an extensive number of consumers. They are consistently leading the industry with state-of-theart technologies, continuously introducing innovative new ways for consumers to browse and shop their products. In 2018, the introduction of Amazon Prime gave the company a series of distinct capabilities, situated as a not-so-secret-weapon in gaining greater consumer loyalty and thus higher profit margins. They have successfully expanded to a global scale, operating through a combination of localised portals and universal delivery and logistics platforms.

Amazon has distinct capabilities, enabling the company to consistently raise the benchmark for competitors. The organisation is extensive with its operations, however, is largely based online allowing the company to compete with particularly inimitable margins. These will be examined in detail in the VRIO table and then extended upon in the SWOT analysis, allowing for a detailed understanding of the internal and external environments of the company and its options for growth.

It is recommended that for amazon to maintain and better its competitive advantages, that an expansion of private label products should be funded and injected into their online retail

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platforms globally. Further, immediate attention needs to be focused on bettering their workplace environment and ensuring workplace culture is inclusive and productive. Moreover, this report highlights the importance of continued penetration into developing marketplaces to ensure continued growth in Amazons retail sector.

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Business Strategy Upon evaluation, it is clear Amazon has adopted a corporate strategy of concentric diversification through its retail sector. This approach is achieved through their abilities to leverage technology and achieve economies of scale, allowing them to develop retail advantage. They follow a cost-leadership business model aiming to deliver the highest value for its consumers at the lowest prices conceivable on a platform designed to achieve consumer centricity. A focus that presents an easy-to-use platform where consumers can forfill all their shopping needs in a convenient manner.

The organisation has achieved a notion of casual ambiguity, with a particular focus on characteristic ambiguity, successfully rooting their tactics and goals deeply throughout their culture. Competitors such as Alibaba struggle to meet the elevated benchmark of globality and swift innovation established by Amazon. The organisation is able to swiftly spot new trends and respond to feedback, prolonging their number one spot in the retail industry.

Further, Amazon is consistently researching and penetration developing retail markets and exploiting the growth in e-commerce retailing on a universal level. Successful entry and subsequent growth in countries like India, allow considerable expansion in consumer loyalty, target markets, product growth manifesting greater profits and global market share.

Amazon has a bundle of constituent skills and technologies, making its core competences strong and highly unique. The strong focus on obtaining competitive advantages is achieved through low cost selling points and numerous qualities of differentiation as broad as the retail market allows. Amazon identifies that one of its key retail strategies is to minimise its

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operation costs, evident in their advanced computing and technology networks allowing the company to maximise overall efficiency. Amazon places considerable significance on minimising operational costs at every stage of their business model. Amazon’s procurement of the lowest price floors in the industry and low overheads, has given the organisation a significant competitive edge.

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SWOT & VRIO Analysis Amazons presence in the retail industry submits it to numerous ever-changing factors. Amazons response to these factors, internally and externally, can be examined through a SWOT and VRIO analysis.

VRIO VRIO analysis aids in establishing whether an organisation possesses the distinct capabilities to achieve a sustainable competitive advantage (barney, J. B.). The VRIO analysis helps to uncover and protect the resources and capabilities that give Amazon its competitive business strategy. A VRIO diagram can be found in Appendix 1.

Value Amazons business strategy is extremely successful in providing extensive amounts of value and thereby allowing them to achieve highest levels of distinctive competitive advantages. Through Amazon’s years of operations, they have established a trustworthy brand image and reliable brand equity, providing even greater value to consumers. It is important for an organisation to take advantage of opportunities and neutralise their threats. Through the development of the pandemic, Amazon took advantage of the growth in online retail, developing platforms, increasing online marketing and thus neutralising any threats to margins. Further their growth in brick-and-mortar presence adds value to brand name and to potential consumers, however it is imitable and not rare, thus amazon must be strong in other areas as well. The organisations growth in private label products futher establishes value and establishes competitive parity.

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Rarity Amazon pride themselves on “being the first at what they do, and being the best at it” (Jeff Bezos). Competitive advantage is longer-lasting when an organisation leads the pack in terms of technology and innovation, and when they possess these qualities uniquely. Amazons unique collection of combined skills of the personnel on the board means that its internal knowledge and skill sets, manifest a sustainable competitive advantage in the retail market. It aids amazon to utilises past e-commerce experience to develop their own online retail, presenting them with extensive networking powers that other competitors simply lack. Further the company operates an extensive delivery network, on a domestic scale through to international scales. The strategic supply chain supply’s them with a sustainable competitive advantage, with companies like Walmart struggling to manifest global penetration parities. A supply chain this cohesive and with an organisation is rare to establish without competent skill sets and thus is a rarity.

Inimitability Amazons internal and external linkages are complex and vast, delivering unmatched customer value. The various and expanding strategic relationships with delivery partners makes this ‘activity map’ hard to replicate, as it has expanse complexity in the interactions and tightly knit and loyal relations with such companies. Further, the casual ambiguity imbedded in Amazon’s operations, makes it difficult for contending competitors to imitate the business strategy and helps to protect amazon from superior firm performance. Moreover, Amazon possess well developed path dependency and Taken-for-granted activities that have been developed over its 25 plus years of operation. These social interactions and interpersonal relations that Amazon enjoys, internally from the organisation, and external

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with partners and sponsors, gives it great competitive advantage and longevity. Greater advantage is again achieved through Amazons deployment of resources, through their stateof-the-art drone delivery, and moreover through their accomplishment of recruiting pragmatist leaders. Extreme value-for-price benchmarks are set by amazon that competitors can rarely match. This can be partly denoted to their leading progressions in artificial intelligence capabilities, of which are extensive and evolving. If the company continues to be a leader in AI, their competitive advantage remains sustainable, however any slow in this innovation will result in a diminishing temporary advantage as competitors match their scales.

Organisational support Amazon has various programs and systems in place to ensure that their rare and inimitable factors can be supported by the organisation. Formal and informal management control systems need to support and facilitate the exploitation of such resources. To maintain Amazons global momentum, they must ensure they can support and sustain their quality of product and loyal customer base. Amazons sales force, for example their marketing team, are extremely proficient in driving the company forward and supporting the various capabilities to achieve either temporary or sustainable competitive advantage. However, it’s been reported that employees are growingly unhappy in their work conditions, if Amazon ignores such claims, their potential to reach optimum competitive advantage will decelerate as their human resource branch is clearly not appropriately equipped to fully exploit all strengths.

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SWOT By conducting a SWOT analysis of Amazon in the retail industry, one can understand what the organisation has and how it can be used to achieve advantage, and what the company lacks, and hazards that they face. Amazon has numerous factors that can be listed under each of the SWOT headings, however the report focuses on the major trends. A summary SWOT table can be found in appendix 2.

Amazons identified strengths and weaknesses in the retail industry are established further from the results of the above VRIO analysis. Strengths -

Market share. In the US, amazon is the leader in e-commerce retail at 39.7% according to eMarketer. In scope, the second largest leader has a share of merely 5.3%. this prolongs the organisations image as reliable and thus its consumer loyalty.

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The establishment of a strong and unmatched Supply chain. The company has partnered with over 1300 companies across 400 delivery stations in the US alone. The expansive system paired with its innovative, state-of-the-art drone delivery gives the company impressive distinct capabilities.

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Cost leadership. The organisations brick-and-mortar presence is kept low. operating largely online and ongoing achievement in economies of scale, Amazon is able to keep operational costs low through exponential use of advanced computing and networking technologies.

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Board of directors. Amazon has achieved a diverse skill set through its employment of high-achieving board personnel. The board includes a former CEO of multinational

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company Starbucks, a former dean from MIT, a former CEO of Pepsi and more.

Weaknesses -

Lack of employee morale and indecent work conditions. Amazons warehouse workers in the US have recently been engaging in walkouts and strikes in demand of greater health protection and better pay. Further, a VOX article (Lieber, C. 2018) asserted that employees were subject to poor air conditioning, timed bathroom breaks and video surveillance. Poor HR management affects their reputation, and subjects them to comparisons to other resilient and innovative workplaces such as Google.

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Free-shipping offer. Whilst this entices consumers and can promote loyalty and satisfaction, by offering free shipping they are submitting their breakeven points to a higher value. This is a costly approach and could lead to future operational problems if not monitored correctly.

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Sustainability. Amazon has poor programs in place to keep up with the evolving sustainability requirements of the 21st century.

The heavily evolving commerce markets provide a series of opportunities for amazon to capitalise on, and simultaneously create threats which the organisation must balance. Opportunities -

Expansion in developing markets. There is immense opportunity to expand Amazons global market share in the retail industry through emerging markets such as India. Penetration into such markets before other competitors will offer opportunities for greater profit margins, growth in consumer loyalty and longevity of the company.

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Expansion of brick-and-mortar retail operations. By establishing a greater physical presence, they are more able to compete with key competitors such as Walmart, whom

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have a substantial physical retail presence. Further, they would be able to reach a greater number of consumers and encourage impulse purchases, whilst also leading in the e-commerce world. -

Growth in private label products. Amazon has great capitalisation potential by developing and marketing a greater range of product under their own brand instead of drop-shipping others’ products. If successful in this strategy, they will build consumer confidence of the brand, gain traction amongst the retail industry and improve consumer loyalty.

Threats -

Quality control and cybercrime. Third party sellers account for 53% of amazons retail operations, leaving the company open to poor quality products and the possibility of even stolen goods being sold through the platform. Further its increase presence in ecommerce retail, leaves its consumer data exposed to potential hacking events or identity theft.

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Government regulations. As the retail industry is ever evolving, new regulations and laws are consistently updated as new innovations come to market. Further, any penetration into international markets may require changes to operation standards if that market has differing legalities. For example, in the early stages of COVID, the Indian government instated a ban of non-essential goods sales. This resulted in a revenue loss of $398 million (AUD).

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Growth in competition. Companies like Walmart, Shopify and Alibaba are imitating amazons retail strategies, and so are becoming growing competitors in the market. Whilst amazon still dominates market Share, it is expected that the gap between them and its competitors will exponentially grow through the coming years.

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Recommendations and Business Strategy options

A series of recommendations are suggested for amazon to maintain its number one role in the retail market, and to sustain its competitive edge through opportunities and growth potentials.

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Increase profit margins by releasing a greater range in private label products. For example, Alexa sales lead to a heightened profit margin of $540 million in Q4 of 2020 alone. Increase of product portfolio will help amplify operating margins.

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Human resource management needs considerable focus. A failing HR sector will lead to eventual business failure especially if amazon continues its ignorance too employee needs and wants. It is recommended that the company spends considerable time and money on researching and improving working conditions for all employees, as to lift morale and workplace culture. By building and implementing a more sustainable workplace culture, at all levels from management to warehouse employees, it will inevitably decrease warehouse strikes and attrition rates and will simultaneously provide good press and marketing for Amazon. Optimistic and satisfied employees lead to a more cohesive and productive unit that achieves higher quality and innovative business goals.

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Tapping into the Indian and Chinese retail marketplaces could provide room for significant growths in profits. Penetration of these developing markets will further their competitive edge, by gaining consumer awareness, they increase their chances of

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consumer loyalty and thus provide greater room for profits and brings them closer to global dominance in the retail market. References Amazon. (2021, March). Amazon.com: Prime Air. https://www.amazon.com/Amazon-Prime-Air/b?ie=UTF8&node=8037720011

Amazon.com. (2020). 2019 annual report. Amazon.com

D’agostino, J. (2018). Amazon, E-commerce, and the New Brand World. (Publication No. 869) [Bachelor Thesis, University of Oregon]. Scholar Bank University of Oregon. http://hdl.handle.net/1794/23999

Flamand, O. (2020). Strategic plan: Amazon. University of Montana pp 4-18 vol 1

Heater, B. (2017, October 8). In defense of the Amazon Fire Phone. Tech Crunch. https://techcrunch.com/2017/10/07/in-defense-of-the-amazon-fire-phone/ Jelassi, T., & Martínez-López, F. (2020). External Analysis: The Impact of the Internet on the Macro-environment and on the Industry Structure of e-Business Companies. In Strategies for e-Business (pp. 49–95). Springer International Publishing. https://doi.org/10.1007/978-3-030-48950-2_3

Johnson, G. (2017) Fundamentals of Strategy EBook, Pearson Education, Limited, ProQuest Ebook Central. http://ebookcentral.proquest.com/lib/uts/detail.action?docID=5216093.

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Kim, S. C., Lee, J. S., & Shin, K. I. (2015). The impact of project management assets on the VRIO characteristics of PM process for competitive advantage. International

Naji, C. (2018, October 31). E-commerce UX lessons we can learn from Amazon. Justinmind. https://www.justinmind.com/blog/e-commerce-ux-lessons-we-can-learnfrom-amazon/ Onyusheva, I. (2018). Strategic analysis of global e-commerce and diversification technology: the case of Amazon.com Inc. pp, 49 – 62 Palmer, A. (2020, September 29). How Amazon Managed the Coronavirus Crisis and Came Out Stronger. CNBC. https://www.cnbc.com/2020/09/29/how-amazonmanaged-the-coronavirus-crisis-and-came-out-stronger.html

Pesic, M. A., Milic, V. J., & Stankovic, J. (2013). Application of VRIO framework for analyzing human resources’ role in providing competitive advantage. Tourism & Management Studies. pp, 575-586.

Snap Agency. (2018, June 18). 7 Reasons Why Amazon Is So Successful. Snap. https://www.snapagency.com/7-reasons-why-amazon-is-so-successful/

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Appendix #1 Resource of Capability

Valuable

Rare

Y

Inimitable Organisational (costly to Support imitate) Y Y

Impact on Competitive Advantage Realised temporary competitive advantage

Strong global brand equity

Y

Product range

Y

Y

Y

Y

Realised sustainable competitive advantage

High market capitalisation

Y

Y

Y

Y

Realised sustainable competitive advantage

Extensive distribution network, domestic thru international

Y

Y

Y

Y

Realised sustainable competitive advantage

Artificial intelligence capabilities

Y

Y

Y

Y

Realised temporary competitive advantage

Growing brick-andmortar presence

Y

Realised competitive parity

Private label products

Y

Brand name and reputation

Y