Question
see case to answer question only you don't need no other reference. Case Overview Founded by Jeff Bezos, online giant Amazon.com, Inc. (Amazon), was incorporated
see case to answer question only you don't need no other reference.
Case
Overview
Founded by Jeff Bezos, online giant Amazon.com, Inc. (Amazon), was incorporated in the state of Washington in July, 1994, and sold its first book in July, 1995. In May 1997, Amazon (AMZN) completed its initial public offering and its common stock was listed on the NASDAQ Global Select Market. Amazon quickly grew from an online bookstore to the world's largest online retailer, greatly expanding its product and service offerings through a series of acquisitions, alliances, partnerships, and exclusivity agreements. Amazon's financial objective was to achieve long-term sustainable growth and profitability. To attain this objective, Amazon maintained a lean culture focused on increasing its operating income through continually increasing revenue and efficiently managing its working capital and capital expenditures, while tightly managing operating costs.
The name "Amazon" was evocative for founder Jeff Bezos of his vision of Amazon as a huge natural phenomenon, like the longest river in the world. He envisioned the company to be the largest online marketplace on earth someday.
By 2008, Amazon had become a global brand, with websites in Canada, the United Kingdom, Germany, France, China, and Japan, with order fulfillment in more than 200 countries.1 Its operations were organized into two principal segments: North America and International Operations, which grew to include Italy in 2010 and Spain in 2011. By 2012, Amazon employed more than 56,200 people around the world wo
Amazon Corporate Governance
Jeff Bezos is the Chairman of the Board and CEO of Amazon and owns 19.4% of the company.
Amazon has three board committees of which two are standard: the audit committee and the governance committee. The third committee, the Leadership Development and Compensation Committee, is uncommon. Most publicly traded companies have a compensation committee; however, it is unusual for the compensation committee to have leadership development as part of its mandate. The Leadership Development and Compensation Committee "monitors and periodically assesses the continuity of capable management, including succession plans for executive officers."
Amazon's board is not populated by CEOs or retired CEOs. It includes several venture capitalists, a number of senior-level executives from varied industries, an eminent scientist, and a representative from the non-profit sector.
Amazon's board has served together for a long time. This implies a deeper understanding of the company and increasing familiarity and even friendship amongst the group. This tends to discourage independent thinking and objectivity.
All of it is further proof that Jeff Bezos is a strong CEO and runs the company.
Retail Operations/Amazon's Superior Website
Retail Operations/Amazon's Superior Website
As people became more comfortable shopping on line, Amazon developed its website to take advantage of increased Internet traffic and to serve its customers most effectively.2 The hallmarks of Amazon's appeal were ease of use; speedy, accurate search results; selection, price, and convenience; a trustworthy transaction environment; timely customer service; and fast, reliable fulfillment3all of it enabled by the sophisticated technology the company encouraged its employees to develop to better serve its customers. The site, which offered a huge array of products sold both by itself and by third parties, was particularly designed to createa personalized shopping experience that helped customers discover new products and make efficient, informed buying decisions.
Key to Amazon's success was continual website improvement. A huge part of the technological work done for Amazon was dedicated to identifying problems, developing solutions, and enhancing customers' online experience. Jacob Lepley, in his "Amazon Marketing Strategy: Report One," notes that, "when you visit Amazon...you can use [it] to find just about any item on the market at an extremely low price. Amazon has made it very simple for customers to purchase items with a simple click of the mouse....When you have everything you need, you make just one payment and your orders are processed."4 This simple system is the same whether a customer purchases directly from Amazon or from one of its associates.
Pursuing perfection, Amazon was aggressive in analyzing its website's traffic and modifying the website accordingly. Amazon particularly excelled at customer tracking, collecting data from every visit to its website. Utilizing the information, Amazon then directed users to products that it surmised they might be interested in because the item was either related to a product that they had previously searched for or purchased by another Amazon customer looking for a similar product.
Recommendations were also customized based on the information customers provided about themselves and their interests, and their ratings prior purchased. Amazon also collected data on those who had never visited any of its websites, but who had received gifts from those who had used the site.
One of Amazon's most distinctive features was the community created based on the ratings/reviews provided by private individuals to help others make more informed purchasing decisions. Anyone could provide a narrative review and rate a product on a scale of 1-5 stars, and/or comment on others' reviews. Individuals could also create their own "So You'd Like..." guides and "Listmania" lists based on Amazon's products offerings and post them or send them to friends and family. To streamline customer research, Amazon also consolidated different versions of a product (e.g., DVD, VHS, Blu-ray disk) into a single product available for commentary that simplified commentary and user accessibility.5
To further target potential customers, Amazon engaged in permission marketing, eliciting permission to e-mail customers regarding specific production promotions based on prior purchases on the assumption that a targeted e-mail was more likely to be read than a blanket e-mail. This strategy was hugely appreciated by Amazon customers, further contributing to Amazon's success.
In addition, Amazon purchased pay-per-click advertisements on search engines such as Google to direct browsing customers to its websites. The ads appeared on the left-hand side of the search list results, and Amazon paid a fee for each visitor who clicked on its sponsored link.
At the same time, as "TV and billboard ads were roughly ten times less effective when compared to direct or online marketing when concerning customer acquisition costs"6, Amazon reduced its offline marketing. The strategy was simple: as customers shopped online, online marketing was key. However, in 2010, Amazon initiated a small television advertising campaign to increase brand awareness.
Finally, to round out its customer care, Amazon expedited shipping by strategically locating its fulfillment centers near airports7 where rents were also cheaper, giving Amazon the two-pronged advantage of speed and low cost over its competitors. Furthermore, in the United States, the United Kingdom, Germany, and Japan, Amazon offered subscribers to Amazon Prime the added convenience of free express shipping. Amazon Prime's free next-day delivery endeared it to Amazon customers, again contributing to the customer loyalty that was key to Amazon's success. Amazon Prime cost $79 annually to join and included free access to Amazon Instant Video. The overarching objective of the company was to offer low prices, convenience, and a wide selection of merchandise, a pared down, yet wide-reaching strategy that made Amazon such a huge success.
Diversified Product Offerings
Amazon diversified its product portfolio well beyond simply offering books, which in turn allowed it to diversify its customer mix. In 2007, Amazon successfully launched the Kindle, its $79 e-book reader, which offered users more than one million reasonably priced books and newspapers easily accessed on its handheld device. Competitor Apple, Inc., then introduced the iPad, the first tablet computer, in January 2010, sparking further development of mobile e-readers. E-book sales took off immediately, increasing by more than 100%, according to the Association of American Publishers. Eager to compete in a market for which it was uniquely positioned, Amazon quickly developed its own low-cost tablet, the Kindle Fire, an Android-based tablet with a color touchscreen priced at $199, more than $300 lower than the iPad, sacrificing profit margins in search of sales volume and market-share gains. Other tech giants such as RIMM and HP were unable to compete with the iPad. Only the Sony Nook, the Amazon Kindle and Kindle Fire, and the Samsung Galaxy and Series 7 tablets challenged Apple's consistent 60% of market share. Ultimately, however, Amazon's huge growth derived not simply from the sale of Kindle hardware and the growth of e-book sales, but from its diversification and the continual expansion of the easy website access created by mobile devices.
By 2010, 43% of Amazon net sales were from media, including books, music, DVDs/video products, magazine subscriptions, digital downloads, and video games. More than half of all Amazon sales came from computers, mobile devices including the Kindle, Kindle Fire, and Kindle Touch, and other electronics, as well as general merchandise from home and garden supplies to groceries, apparel, jewelry, health and beauty products, sports and outdoor equipment, tools, and auto and industrial supplies.
Amazon also offered its own credit card, a form of co-branding that benefited all parties: Amazon, the credit card company (Chase Bank), and the consumer. Amazon benefited because it received money from the credit card company both directly from Amazon purchases and indirectly from fees generated from non-Amazon purchases. In addition, Amazon benefited from the company loyalty generated by having its own credit card the consumer sees and uses every day. The credit card company gained from Amazon's high visibility, increasing its potential customer base and transactions. And the consumer earned credit toward gift certificates with each use of the card.
Partnerships
Amazon leveraged its expertise in online order taking and order fulfillment and developed partnerships with many retailers whose websites it hosted and managed, including (currently or in the past) Target, Sears Canada, Bebe Stores, Timex Corporation, and Marks & Spencer. Amazon offered services comparable to those it offered customers on its own websites, thus freeing those retailers to focus on the non-website, non-technological aspects of their operations.8
In addition, Amazon Marketplace allowed independent retailers and third-party sellers to sell their products on Amazon by placing links on their websites to Amazon.com or to specific Amazon products. Amazon was "not the seller of record in these transactions, but instead earn[ed] fixed fees, revenue share fees, per-unit activity fees, or some combination thereof."9 Linking to Amazon created visibility for these retailers and individual sellers, adding value to their websites, increasing their sales, and enabling them to take advantage of Amazon's convenience and fast delivery. Sellers shipped their products to an Amazon warehouse or fulfillment center, where the company stored it for a fee, and when an order was placed, shipped out the product on the seller's behalf. This form of affiliate marketing came at nearly no cost to Amazon. Affiliates used straight text links leading directly to a product page and they also offered a range of dynamic banners that featured different content.
Amazon's Acquisition of Zappos, Quidsi, Living Social, and Lovefilm
On July 22, 2009, Amazon acquired Zappos, the online shoe and clothing retailer, for $1.2 billion. At that time, Zappos was reporting over $1 billion in annual sales without any marketing or advertising. According to founder Tony Hsieh, the secret to Zappos' success was superior customer service, from its 365-day return guarantee to the company tours with which it regaled visitors, picking them up at the airport, then returning them to the airport afterward. Zappos' employees were also very well treated, earning it a place at the top of the list of the "best companies to work for." Tony Hsieh felt that Amazon was the perfect partner to fuel Zappo's sales growth going forward.
On November 8, 2010, Amazon announced the acquisition of Quidsi, the parent company of Diapers.com, an online baby care specialty site, and Soap.com, an online site for everyday essentials. Amazon paid $500 million in cash, and assumed $45 million in debt and other obligations. As Jeff Bezos explained, "This acquisition brings together two companies who are committed to providing great prices and fast delivery to parents, making one of the chores of being a parent a little easier and less expensive."12
On December 2, 2010, Amazon announced that it had invested $175 million in Groupon competitor LivingSocial, a site whose up-to-the-minute research offered users immediate access to the hottest restaurants, shops, activities, and services in a given area, while saving them 50% to 70% through special site deals.
On January 20, 2011, Amazon acquired Lovefilm for 200 million, a 1.6-million-subscriber-strong European Web-based DVD rental service based in London. Lovefilm had followed Netflix's business model, offering unlimited DVD rentals by mail for a monthly subscription fee of 9.99, but planned to challenge Netflix and expand its digital media business by entering the live-streaming subscription business.
Competitors
Competition was fierce for Amazon on all fronts, from catalogue and mail order houses to retail stores from book, music, and video stores to retailers of electronics, home furnishings, auto parts, and sporting goods. Amazon's Kindle contended with Apple's iPad, among many lesser competitors. And Amazon's competitors in the service sector included other e-commerce and Web service providers. The company faced direct competition from companies such as eBay, Apple, Barnes & Noble, Overstock.com, MediaBay, Priceline.com, PCMall.com, and RedEnvelope.com. Amazon had to compete with companies that provided their own products or services, sites that sold or distributed digital content such as iTunes and Netflix, and media companies such as The New York Times. Many of the company's competitors had greater resources (eBay), longer histories (Barnes & Noble), more customers (Apple), or greater brand recognition (iTunes).
The companies offering the most direct threat to Amazon were eBay and Metro AG. Pierre Omidyar founded eBay in 1995, a website that connected individual buyers and sellers, including small businesses to buy and sell virtually anything. In 2010, the total value of goods sold on eBay was $62 billion, making eBay the world's largest online marketplace, serving 39 markets with more than 97 million active users worldwide.10 eBay and Amazon subscribed to similar growth strategies: each acquired a broad spectrum of companies. Over the 15 years from 1995-2010 eBay acquired PayPal, Shopping.com, StubHub, and Bill Me Later, which have brought new e-commerce efficiencies to eBay.
Metro AG, headquartered in Dusseldorf, Germany, one of the world's leading international retail and wholesale companies, was formed through the merger of retail companies Asko Deutsche Kaufhaus AG, Kaufhof Holding AG and Deutsche SB-Kauf AG. In 2010, the total value of goods sold by Metro AG was 67 billion.11 Serving 33 countries, Metro AG offered a comprehensive range of products and services designed to meet the specific shopping needs of private and professional customers. Metro AG, like Amazon, focused on customer orientation, efficiency, sustainability, and innovation.
Amazon had to be vigilant, negotiating more favorable terms from suppliers, adopting more aggressive pricing and devoting more resources to technology, infrastructure, fulfillment, and marketing. To maintain competitiveness, Amazon also strengthened its edge by entering into alliances with other businesses (i.e., Amazon Marketplace). Nevertheless, growing competition from global and domestic players continually threatened to erode Amazon's desired share of the market. Across the industries in which it competed, however, Amazon fought to maintain its edge based on its core principles of "selection, price, availability, convenience, information, discovery, brand recognition, personalized services, accessibility, customer service, reliability, speed of fulfillment, ease of use, and ability to adapt to changing conditions, as well as...customers' overall experience and trust."12
Frustration-Free Packaging
To stay current, Amazon took the initiative to reduce its carbon footprint by implementing a "Frustration Free Packaging" program. Recyclable Frustration Free Packaging came without excess packaging materials such as hard plastic enclosures or wire twists and was designed to be opened by hand without a scissors or a knife. Amazon then went one further and worked with the original manufacturers to package products in Frustration Free Packaging right off the assembly line, further reducing the use of plastic and paper. Units shipped that utilized Frustration Free Packaging has increased very rapidly, from 1.3 million in 2009 to 4.0 million in 201013. Amazon also utilized software to determine the right size box for any product the company shipped, achieving a dramatic reduction in the number of packages shipped in oversized boxes and significantly reducing waste.
Financial Operations
Amazon sales doubled from 2009 to 2011, growing from $24,509 million (2009) to $48,077 million (2011) (see Exhibits 1a and 1b), growth attributable especially to increased sales in electronics and other general merchandise, and the adoption of a new accounting standard update, reduced prices (including free shipping offers), increased in-stock inventory availability, and the impact of the acquisition of Zappos in 2009.
Imcome Statement Exhibits 1a
| Amazon.com Inc. | BUS 480 | |||||||
| Consolidated Statements of Earnings | ||||||||
| ($ in millions, except per share amounts) | ||||||||
| Common Size Percentages | ||||||||
| Income Statement Currency in (Millions of U.S. Dollars)as of: | December 31, 2008 | December 31, 2009 | December 31, 2010 | December 31, 2011 | 2008 | 2009 | 2010 | 2011 |
| Revenues | 19,166.0 | 24,509.0 | 34,204.0 | 48,077.0 | ||||
| Total Revenues | 19,166.0 | 24,509.0 | 34,204.0 | 48,077.0 | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of Goods Sold | 14,896.0 | 18,978.0 | 26,561.0 | 37,288.0 | 77.7% | 77.7% | 77.7% | 77.6% |
| Gross Profit | 4,270.0 | 5,531.0 | 7,643.0 | 10,789.0 | 22.3% | 22.3% | 22.3% | 22.4% |
| Selling, General, & Admin | ||||||||
| Expenses Total | 2,419.0 | 3,060.0 | 4,397.0 | 6,864.0 | 12.6% | 12.6% | 12.9% | 14.3% |
| R&D Expenses | 1,033.0 | 1,240.0 | 1,734.0 | 2,909.0 | 5.4% | 5.4% | 5.1% | 6.1% |
| Other Operating Expenses | 29.0 | 51.0 | 106.0 | 154.0 | 0.2% | 0.2% | 0.3% | 0.3% |
| Other Operating Expenses, Total | 3,481.0 | 4,351.0 | 6,237.0 | 9,927.0 | 18.2% | 18.2% | 18.2% | 20.6% |
| Operating Income | 789.0 | 1,180.0 | 1,406.0 | 862.0 | 4.1% | 4.1% | 4.1% | 1.8% |
| Interest Expenses | -71.0 | -34.0 | -39.0 | -65.0 | -0.4% | -0.4% | -0.1% | -0.1% |
| Interest and Investment Income | 83.0 | 37.0 | 51.0 | 61.0 | 0.4% | 0.4% | 0.1% | 0.1% |
| Net Interest Expense | 12.0 | 3.0 | 12.0 | -4.0 | 0.1% | 0.1% | 0.0% | 0.0% |
| Income (Loss) on Equity Investments | -9.0 | -6.0 | 7.0 | -12.0 | 0.0% | 0.0% | 0.0% | 0.0% |
| Currency Exchange Gains (Loss) | 23.0 | 26.0 | 75.0 | 64.0 | 0.1% | 0.1% | 0.2% | 0.1% |
| Other Non- operating Income (Expenses) | 22.0 | -1.0 | 3.0 | 8.0 | 0.1% | 0.1% | 0.0% | 0.0% |
| Ebt, Excluding Unusual Items | 837.0 | 1,202.0 | 1,503.0 | 918.0 | 4.4% | 4.4% | 4.4% | 1.9% |
| Gain (Loss) on Sale of Investments | 2.0 | 4.0 | 1.0 | 4.0 | 0.0% | 0.0% | 0.0% | 0.0% |
| Gain (Loss) on Sale of Assets | 53.0 | 0.3% | 0.3% | 0.0% | 0.0% | |||
| Other Unusal Items, Total | -51.0 | |||||||
| Legal Settlements | -51.0 | |||||||
| Ebt, Including Unusal Items | 892.0 | 1,155.0 | 1,504.0 | 922.0 | 4.7% | 0.0 | 4.4% | 1.9% |
| Income Tax Expense | 247.0 | 253.0 | 352.0 | 291.0 | 1.3% | 0.0129 | 1.0% | 0.6% |
| Earnings form Continuing Operations | 645.0 | 902.0 | 1,152.0 | 631.0 | 3.4% | 0.0337 | 3.4% | 1.3% |
| Net Income | 645.0 | 902.0 | 1,152.0 | 631.0 | 3.4% | 0.0337 | 3.4% | 1.3% |
| Net Income to Common Including Extra Items | 645.0 | 902.0 | 1,152.0 | 631.0 | 3.4% | 0.0337 | 3.4% | 1.3% |
| Net Income to Common Excluding Extra Items | 645.0 | 902.0 | 1,152.0 | 631.0 | 3.4% | 0.0337 | 3.4% | 1.3% |
| Report Data Issue |
Balance Sheet Exhibit B
| Balance Sheet Currency in Millions of U.S. Dollars as of: | December 31, 2008 | December 31, 2009 | December 31, 2010 | December 31, 2011 |
| Assets | ||||
| Cash and Equivalents | 2,769.0 | 3,444.0 | 3,777.0 | 5,269.0 |
| Short-term Investments | 958.0 | 2,922.0 | 4,985.0 | 4,307.0 |
| Total Cash and Short-Term Investments | 3,727.0 | 6,366.0 | 8,762.0 | 9,576.0 |
| Accounts Receivable | 827.0 | 988.0 | 1,587.0 | 2,571.0 |
| Total Receivables | 827.0 | 988.0 | 1,587.0 | 2,571.0 |
| Inventory | 1,399.0 | 2,171.0 | 3,202.0 | 4,992.0 |
| Deferred Tax Assets, Current | 204.0 | 272.0 | 196.0 | 351.0 |
| Total Current Assets | 6,157.0 | 9,797.0 | 13,747.0 | 17,490.0 |
| Grosss Property Plant and Equipment | 1,078.0 | 1,517.0 | 2,769.0 | 5,143.0 |
| Accumulated Depreciation | -396.0 | -418.0 | -587.0 | -1075.0 |
| Net Property Plant And Equipment | 682.0 | 1,099.0 | 2,182.0 | 4,068.0 |
| Goodwill | 438.0 | 1,234.0 | 1,349.0 | 1,955.0 |
| Deferred Tax Assets, Long Term | 145.0 | 18.0 | 22.0 | 28.0 |
| Other Intangibles | 332.0 | 758.0 | 795.0 | 996.0 |
| Other Long Term Assets | 560.0 | 907.0 | 702.0 | 741.0 |
| Total Assets | 8,314.0 | 13,813.0 | 18,797.0 | 25,278.0 |
| Liabilities and Equity | ||||
| Accounts Payable | 3,594.0 | 5,605.0 | 8,051.0 | 11,145.0 |
| Accrued Expenses | 632.0 | 901.0 | 1,357.0 | 2,106.0 |
| Current Portion of Long- Term | ||||
| Debt/Capital Lease | 59.0 | 395.0 | ||
| Current Portion of Capital | ||||
| Lease Obligations | 395.0 | |||
| Unearned Revenue, Current | 461.0 | 858.0 | 964.0 | 1,250.0 |
| Total Current Liabilities | 4,746.0 | 7,364.0 | 10,372.0 | 14,896.0 |
| Long- Term Debt | 409.0 | 109.0 | 184.0 | 255.0 |
| Capital Leases | 124.0 | 143.0 | 457.0 | 1,160.0 |
| Other Non- Current Liabilities | 363.0 | 940.0 | 920.0 | 1,210.0 |
| Total Liabilities | 5,642.0 | 8,556.0 | 11,933.0 | 17,521.0 |
| Common Stock | 4.0 | 5.0 | 5.0 | 5.0 |
| Additional Paid in Capital | 4,121.0 | 5,736.0 | 6,325.0 | 6,990.0 |
| Retained Earings | -730.0 | 172.0 | 1,324.0 | 1,955.0 |
| Treasuy Stock | -600.0 | -600.0 | -600.0 | -877.0 |
| Comprehensive Income and Other | -123.0 | -56.0 | -190.0 | -316.0 |
| Total Common Equity | 2,672.0 | 5,257.0 | 6,864.0 | 7,757.0 |
| Total Equity | 2,672.0 | 5,257.0 | 6,864.0 | 7,757.0 |
| Total Liabilites and Equity | 8,314.0 | 13,813.0 | 18,797.0 | 25,278.0 |
| Report Data Issue |
Amazon's annual net income for 2009, 2010, and 2011 were $902 million, $1,152 million, and $645 million, respectively. The significant increase from 2009 to 2010 was due in large part to aggressive net sales growth and a large portion of its expenses and investments being fixed. Management explained that net income decreased from 2010 to 2011 as a result of: (1) selling Kindle hardware at a market price slightly below the cost of manufacture; (2) increased spending on technology infrastructure; and (3) increases in payroll expenses.
Challenges for Amazon
1. Amazon developed very quickly into a major player in the online retail market, yet challenges remained:
From its inception, Amazon was not required to collect state or local sales or use taxes, an exemption upheld by the U.S. Supreme Court. However, in 2012, states began to consider superseding the Supreme Court decision.15 "If the states were to prevail, Amazon would be forced to collect sales and use tax, creating administrative burdens for it, and putting it at a competitive disadvantage if similar obligations are not imposed on all of its online competitors, potentially decreasing its future sales."16 Massachusetts and other states were motivated both by the desire (to tap into new sources of revenues for their state budgets and to protect local retailers.
In 2012, reports had it that Amazon was making deals to collect sales tax in all 50 states, so that they could open warehouses near population centers and provide same-day delivery, a major shift in its business model that would ratchet up competition with big box stores like Best Buy and Target as well as local retailers. However, there were no guarantees of the profitability of same-day delivery, given the added warehouse and delivery costs.
2. With the new social trend of "buying local," Amazon faced the threat of some regular consumers preferring to buy from their local stores rather than from an online retailer.17
3. Amazon always had to grapple with the threat of customer preference for instant gratification, the customer's desire to get a product immediately in the store, rather than waiting several days for the product to be shipped to them.
4. Breaches of security from outside parties trying to gain access to its information or data were a continual threat for Amazon.18 As of 2012, Amazon had systems and processes in place that were designed to counter such attempts; however, failure to maintain these systems or processes could be detrimental to the operations of the company.
5. As more media products were sold in digital formats, Amazon's relatively low-cost physical warehouses and distribution capabilities no longer provided the same competitive advantages. In addition, Amazon had felt that its worldwide free shipping offers and Amazon Prime were effective worldwide marketing tools, and intended to offer them indefinitely, yet it began to suffer from soaring shipping expenses cutting into profits. In quarter three of 2011, Amazon's shipping fees generated $360 million in revenue, which was dwarfed by $918 million in shipping expenses.
6. Amazon had to contend with absorbing losses from its unsuccessful ventures such as its A9 search engine, Amazon Auctions, and Unbox, Amazon's original video-on-demand service.
7. Recent hires from Microsoft, Robert Williams, former senior program manager, and Brandon Watson, head of Windows Phone development prompted speculation that Amazon was developing a smartphone, possibly a Kindle-branded device. Bloomberg reported that Amazon had gone so far as to strike a manufacturing deal with Foxconn, the controversial Taiwanese company responsible for assembling Apple's iPhone and Google Android devices. Amazon has not commented on the reports. A smartphone would have given Amazon another mobile device to sell, but some analysts felt it wouldn't have made sense for Amazon to enter into the already crowded smartphone arena. "Since tablets skew more heavily toward media consumption than smartphones, they are a natural fit for Amazon's commerce and media platform," said Baird & Co. analyst Colin Sebastian, in a research note. "In contrast, smartphones require specialized native apps (e.g., maps, voice, search, e-mail) that would be costly for Amazon to replicate." Sebastian also noted that hardware is a low-margin business. Amazon's Kindle Fire sold for $199, a price that some analysts believed was below cost, suggesting Amazon hoped the Kindle Fire would more than pay for itself by boosting sales of e-books and other digital content. Thus, by 2012 Amazon had proved itself as a retail giant, yet as with any vibrant company, faced continual challenges, particularly regarding the overarching questions of whether to spend its money developing media products such as the Kindle Smartphone, or to stick with its strengths as an online retailer, perhaps acquiring more holdings such as Zappos, and pushing for same-day delivery despite the added cost to compete with other online retailers, and with the big box stores as well.
In 2012, Amazon was at a crossroads. It needed to decide if it should invest in the infrastructure for same-day delivery, and take on local retailers, or invest in high-technology and compete at a deeper level with Sony, Apple, and Samsung.
EXHIBIT 7
TOWS MATRIX on AMAZON COMPANY (AC)
Internal Factors (from IFAS)
| External Factors (from EFAS) | Strengths (S) S1: Solid Brand Recognition S4: Effective Client Relations S5: Effective Supply Chain Management | Weaknesses (W) W1: Reliance on Online Sales W2: Exorbitant Shipping Costs |
| Opportunities (O) O2: Diversification and expansion of product offerings O1: Increased internet usage | S/O Strategies
| W/O Strategies
|
| Threats (T) T1: Intense competition T2: Dependence on external vendors T3: Cybersecurity threats | S/T Strategies
| W/T Strategies
|
VI. Strategic Alternatives and Recommended Strategy
A. Strategic Alternatives
Question #1
In my opinion, Yes. By researching about the current strategies that this corporation uses, Amazon can achieve its goals by implementing and improving its existing strategies in several key areas:
- Enhancing the Customer Experience: Amazon can make product discovery and purchasing easier by improving its website, mobile apps, and customer service.
- Optimizing Pricing: Amazon can maximize profitability and competitiveness by using advanced pricing algorithms and data analytics. This means analyzing market dynamics, competitor prices, and customer demand to determine optimal pricing strategies.
- Streamlining Fulfillment and Logistics: To provide faster and more reliable delivery, Amazon can streamline its fulfillment and logistics operations. This includes optimizing warehouse layouts, enhancing inventory management, and utilizing automation and robotics.
- Optimizing the Marketplace: Amazon can createa better marketplace experience by enhancing support for sellers, ensuring high-quality product listings, and addressing counterfeit or fraudulent activities. This promotes a healthy and competitive ecosystem.
- Investing in Innovation and Technology: Amazon should continue investing in research and development to foster innovation. They can leverage technologies like artificial intelligence and machine learning to personalize recommendations, improve search capabilities, and explore new delivery methods such as drones.
By implementing and continuously refining these strategies, Amazon can progress towards its goals, maintain its competitive advantage, and adapt to evolving industry trends.
Question #2
These are the alternative strategies that the Amazon or any other corporation must consider, including its pros and cons.
a. Corporate Strategies:
- Stability Strategy: Focus on maintaining the current market position and operational stability. Pros: Minimizes risks and consolidates operations. Cons: Missed growth opportunities and increased vulnerability to competition.
- Growth Strategy: Expand market share, revenue, and profitability through market penetration, product development, market development, or diversification. Pros: Increased market presence and potential economies of scale. Cons: Higher risks, resource requirements, and potential dilution of core competencies.
- Retrenchment Strategy: Significantly reduce operations to improve profitability or address performance issues. Pros: Cost reduction and refocusing on core strengths. Cons: Market share loss, negative impact on employee morale, and limited future growth opportunities.
b. Business Strategies:
- Cost Leadership Strategy: Gain a competitive advantage by offering products/services at lower prices. Pros: Increased market share and improved price competitiveness. Cons: Potential compromise in quality and the need for continuous cost management.
- Differentiation Strategy: Offer unique and superior products/services valued by customers. Pros: Customer loyalty and potential for premium pricing. Cons: Higher costs and risk of competitors imitating or surpassing differentiation.
c. Functional Strategic Alternatives:
- Marketing: Develop targeted campaigns to increase brand awareness and attract new customers, supporting stability and growth strategies.
- Operations: Streamline supply chain processes to enhance efficiency, reduce costs, and improve competitiveness.
- Technology: Invest in research and development to drive innovation and stay ahead of competitors, supporting differentiation and growth strategies.
- Human Resources: Enhance employee training and development programs to build a skilled workforce and foster innovation, benefiting all strategies.
In conclusion, developing and agreeing upon corporate scenarios requires collaboration, analysis of internal/external environments, scenario planning, and consideration of the natural environment, societal factors, industry trends, and company goals. Regular reviews and adjustments are crucial to ensure strategies remain relevant in the dynamic business landscape.
B. Recommended Strategy
Question #1
Based on studying the case about the Amazon, for me, these are the strategies that they can consider using :
- Corporate Level: For the corporate level, it is recommended to combine stability and growth as the strategic approach. This means maintaining the corporation's current market position and operations while actively seeking opportunities for expansion and market share growth. By finding a balance between stability and growth, the corporation can minimize risks while capitalizing on profitable avenues for development.
- Business Level: To gain a competitive edge, the recommended business strategy is a mix of cost leadership and differentiation. By focusing on cost optimization, the corporation can offer products or services at attractive prices, attracting price-sensitive customers and increasing market share. Simultaneously, investing in innovation, product development, and branding will differentiate the corporation from competitors, appealing to customers who value unique and superior offerings.
- Functional Level: At the functional level, it is crucial to reinforce the recommended strategies. Here are some functional strategies to support the corporate and business objectives:
- Marketing: Develop targeted campaigns to raise brand awareness, communicate the corporation's unique value, and attract both cost-conscious and value-conscious customers.
- Operations: Implement efficiency measures like supply chain optimization, lean management, and process improvement to reduce costs, enhance productivity, and stay competitive.
- Technology: Invest in research and development to drive innovation, improve products, and stay ahead of competitors. This includes exploring emerging technologies, enhancing digital capabilities, and fostering an innovative culture.
- Human Resources: Implement robust talent management programs, including recruitment, training, and development, to build a skilled and motivated workforce. Cultivate a culture of innovation, collaboration, and continuous learning to support growth and differentiation strategies.
Question #2
In my view, this approach effectively resolves both long- and short-term problems and addresses the strategic factors at play. Let me explain why I am confident in this recommendation:
- Resolving Long-term Challenges: By balancing stability and growth, the organization can effectively address persistent issues such as maintaining market position, mitigating risks, and streamlining operations. Stability ensures a robust presence in the market, while growth opportunities drive expansion and long-term revenue generation.
- Addressing Short-term Issues: The combination of cost leadership and differentiation tackles immediate challenges. Cost leadership enables the company to offer competitive prices, addressing concerns like price competition and attracting price-conscious customers. Differentiation sets the company apart by providing unique and superior products or services to meet short-term customer demands.
- Strategic Effectiveness: The recommended strategies align with critical success factors. Stability and growth strategies respond to market dynamics, competition, and the need for continuous improvement. Cost leadership addresses cost optimization, competitiveness, and customer value. The differentiation strategy focuses on innovation, customer preferences, and the development of a distinctive brand.
- Adaptability and Flexibility: These strategies offer the organization adaptability and flexibility to address changing strategic factors. Stability and growth strategies enable the company to adapt to market shifts and seize expansion opportunities. Cost leadership and differentiation strategies can be adjusted based on evolving customer needs, market trends, and competitors, ensuring ongoing effectiveness.
Question #3
To guide effective implementation of the recommended strategies, the corporation should develop or revise the following policies:
- Stability and Growth Policy: Create guidelines for balancing stability and growth objectives. Define how to maintain market position, manage risks, identify growth opportunities, and drive continuous improvement.
- Cost Leadership Policy: Establish measures for cost optimization while maintaining product or service quality. Set targets for cost reduction and outline strategies to offer competitive prices.
- Differentiation Policy: Develop strategies for innovation, product development, and creating a unique customer experience. Emphasize building a distinctive brand and meeting customer needs effectively.
- Marketing Policy: Align marketing activities with overall strategies. Define target markets, pricing approaches, promotional channels, and brand positioning strategies.
- Operations Policy: Improve efficiency, productivity, and competitiveness through streamlined operations. Address supply chain management, production processes, quality control, and sustainability practices.
- Technology Policy: Foster innovation and technology adoption. Encourage research and development, and outline strategies for leveraging technology to enhance products, processes, and industry leadership.
- Human Resources Policy: Support strategy implementation through effective human resource management. Cover areas such as talent acquisition, training and development, performance management, and fostering a culture of innovation and collaboration.
For me, these policies should be developed collaboratively, involving key stakeholders such as management, department heads, and employees. Regular reviews and updates are crucial to ensure alignment with evolving strategies and promote successful implementation throughout the organization.
Question #4
The strategies I recommended about combining stability and growth at the corporate level, along with cost leadership and differentiation at the business level, has a significant impact on the company's core and distinctive competencies.
In Core Competencies, the strategy emphasizes leveraging the company's existing strengths and expertise. Stability ensures the company continues to excel in its established areas, maintaining its competitive advantage and market position. While in Distinctive Competencies, the strategy focuses on developing unique capabilities. Cost leadership optimizes costs and efficiency, allowing the company to offer competitive prices while remaining profitable. Differentiation sets the company apart by offering superior products or services, attracting customers who value uniqueness.
Overall, this strategy reinforces core competencies and develops distinctive ones, enabling the company to compete effectively, maintain profitability, and meet customer needs with stability, efficiency, and differentiation.
VII. Implementation
A. What Kinds of Programs or Tactics Should Be Developed to Implement the Recommended Strategy?
The following initiatives or methods ought to be created in order to carry out the suggested course of action:
- Campaigns for marketing and promotion: The marketing division should create these initiatives with the assistance of the strategy team. They ought to concentrate on promoting Amazon's services, emphasizing its competitive advantages, and luring new clients. Effective ways to reach the target demographic include online advertising, social media marketing, email marketing, and collaborations with influencers or content producers.
- Enhancement of User Experience: Programs and techniques to improve the customer experience should involve collaboration between the product development and customer support teams. Customer insights and feedback should be gathered through user research, which may then be used to optimize the website, improve the user interface, and provide personalized recommendations. Based on these findings, continuous improvements should be made to ensure a smooth and satisfying user experience.
- Strengthening Partnerships: The business development and partnership teams should take the lead in establishing and administering programs to build partnerships with retailers, independent sellers, and other businesses. These initiatives should concentrate on negotiating favorable conditions, providing partners with support and resources, and producing co-branded marketing. The company can improve its competitive position and attract a wider spectrum of customers by expanding its offerings on Amazon's marketplace through strategic collaborations.
1. Who should develop these programs/tactics?
Cross-functional collaboration comprising departments such as Marketing, Product Development, Customer Service, and Business Development should be used to build the programs and methods. These departments have the essential competence to contribute to developing programs and tactics that align with their respective areas of responsibility and may together drive the strategy's execution.
2. Who should be in charge of these programs/tactics?
These programs and tactics should be overseen by a Marketing Manager who oversees the development and execution of marketing campaigns, a Product Manager responsible for improving the user experience, a Business Development Manager leading partnership initiatives, and Project Managers who ensure effective coordination and timely implementation of the various programs and tactics. Assigning specific roles and tasks to this staff will improve accountability and streamline the Amazon execution process.
B. Are the Programs/Tactics Financially Feasible? Can Pro Forma Budgets Be Developed and Agreed On? Are Priorities and Timetables Appropriate to Individual Programs/Tactics?
The feasibility of these programs and tactics should be evaluated in terms of financial considerations, budgets, priorities, and timelines. The finance department, in collaboration with stakeholders, should analyze the financial impact of implementing these strategies. Pro forma budgets should be created to estimate the costs of each program and ensure they align with available resources. Priorities should be determined based on strategic objectives and the potential impact of each program. Timelines should be established to set realistic deadlines, considering dependencies and resource allocation. The finance department, strategy team, and relevant department heads should collaborate to develop and agree upon these budgets, priorities, and timelines.
C. Will New Standard Operating Procedures Need to Be Developed?
New standard operating procedures (SOPs) will almost certainly be required to support the recommended strategy's implementation. Marketing, product development, customer support, and business development will all benefit from these SOPs, which will provide guidelines and practices for multiple departments. They will ensure consistency and efficiency in the execution of marketing campaigns, user experience enhancements, customer support, and partnership management duties. Collaboration among department heads, team leaders, and process owners will be critical in developing clear and accessible SOPs that correspond with the organization's strategic objectives. To adapt to changing company needs, SOPs will need to be reviewed and refined on a regular basis.
VIII. Evaluation and Control
A. Is the Current Information System Capable of providing Sufficient Feedback on Implementation Activities and Performance? Can It Measure Strategic Factors?
According to the information presented, Amazon's current information system is capable of giving adequate feedback on implementation activities and performance, as well as measuring strategic elements. Amazon's emphasis on data-driven decision-making and ongoing improvement shows that they have a well-developed information system. This system most likely collects and analyzes data pertaining to various implementation activities and performance measures, allowing the organization to assess the efficacy of its plans. Furthermore, the system is likely to be developed to record and measure strategic elements including revenue growth, market share, customer satisfaction, and operational efficiencies. By having the ability to measure these strategic factors, Amazon can gain valuable insights into the success of its strategies and make informed decisions to drive long-term, sustainable growth.
1. Can performance results be pinpointed by area, unit, project, or function? Based on the facts given, it is reasonable to believe that Amazon's present information system provides for the pinpointing of performance results by area, unit, project, or function. With a large and complicated organization like Amazon, a detailed breakdown of performance results at multiple levels is needed. This division would allow Amazon to assess the performance of several business segments, specific units or teams, individual projects, and numerous organizational functions. Amazon can identify areas of strength and areas for improvement, distribute resources effectively, and assure responsibility at various levels of the business with this degree of granularity.
2. Is the information timely? Given Amazon's emphasis on efficiency and commitment to providing prompt customer service, it is logical to conclude that timely information is a priority. The ability to provide real-time or near-real-time feedback on progress and results is critical for monitoring implementation activities and performance. Amazon can make rapid and educated decisions, address issues quickly, and capitalize on new possibilities by having current information. This capacity to acquire current information is most certainly a critical component of Amazon's operational strategy, contributing to its ability to adapt and respond quickly in a volatile market environment.
3. Is the corporation using benchmarking to evaluate its functions and activities? Given Amazon's status as a worldwide leader and devotion to innovation, it is reasonable to assume that they use benchmarking or other comparative analysis methodologies. Benchmarking could assist Amazon in identifying areas where they can learn from industry leaders, setting performance goals, and driving continuous improvements across all functions and activities. While the particular use of benchmarking is not specified, Amazon's commitment to excellence suggests that multiple evaluating approaches are likely used to assure continual progress.
B. Are Adequate Control Measures in Place to Ensure Conformance with the Recommended Strategic Plan? Amazon is likely to have adequate control systems in place to ensure compliance with the proposed strategic strategy. This may entail regular monitoring and evaluation of plan implementation activities and performance. Amazon can track progress, discover deviations, and take corrective steps as needed to stay on track with the strategic objectives if suitable control systems are in place.
1. Are appropriate standards and measures being used?
Amazon is most likely using appropriate standards and measurements to assess the effectiveness of its strategic plan. Financial indicators such as revenue growth, profitability ratios, and return on investment, as well as operational metrics like as customer satisfaction and supply chain efficiency, could be included in these standards and benchmarks. Amazon may monitor its performance against specified targets and make educated decisions to ensure strategic alignment by using these applicable benchmarks and measurements.
2. Are reward systems capable of recognizing and rewarding good performance?
Amazon has reward mechanisms in place that can recognize and reward excellent performance. These systems contain various incentives, bonuses, promotions, and recognition programs to inspire and recognize individuals who contribute to the strategic plan's effective execution. Individual and team achievements are likely to be assessed and rewarded through performance assessments, feedback mechanisms, and goal-setting processes, building a culture of excellence and driving performance excellence throughout the business.
Explanation:
Approach to solving the question: analysis of the strategic implementation and control of Amazon's business strategy.
Detailed explanation:
The section on "strategy implementation" discusses how to put the proposed strategy into action. It addresses issues such as what activities should be taken, who should take the lead, whether the budget permits for these actions, which duties are the most critical, and whether new instructions are required.
The "evaluation and control" phase then determines whether the plan is effective. This includes ensuring that existing systems can provide relevant input and track critical characteristics. It also entails determining if we can view outcomes depending on specific aspects of the business and whether we are receiving timely information. It also evaluates whether we are comparing our actions to industry best practices.
Lastly, there are checks to make sure there are enough control measures to keep the strategy on track. This includes making sure we're using the right standards to measure progress, and if our reward systems can effectively recognize and encourage good work.
Question
In Section VI of your Strategic Audit, you have already identified the recommended strategy with its corporate, business, and functional hierarchy. The template illustrates a plan applied to the Olallieberry Pie Company's (OPC) recommended strategic alternative (growth-concentration-expand into international arena by forging strategic alliances).
Notice the template has six columns with headings: Strategic Alternative Element, Action Plan, Priority System, Who Will Implement, Who Will Review, How Often Reviewed, and Metrics/Criteria.
The first element is at the corporate level action, then there are business level actions, and then 3 to 4 important functional level actions. All these action lines or rows should be expanded into good complete discussions in Sections VII and VIII of your Strategic Audit.
Where the elements and actions come from? Review your recommended strategy ideas at the corporate, business, and functional areas in Section VI to find key elements you would like to incorporate in the implementation plan. Review your TOWS matrix to find key actions you would like to include in this plan too. Not all elements and actions mentioned in Section VI and TOWS matrix should be included, only few that you consider most relevant.
Example
EXHIBIT 6 IMPLEMENTATION, EVALUATION & CONTROL PLAN ON OLALLIEBERRY PIE COMPANY (OPC)
For Recommended Strategic Alternative #1 - Growth: Concentration - Expand into International Arena by Forging Strategic Alliances
| Strategic Alternative #1 Element | Action Plan | Priority System | Who Will Implement | Who Will Review | How Often Reviewed | Metrics / Criteria |
|---|---|---|---|---|---|---|
| New Corporate Direction | Develop, Announce, Deploy, and Champion | 1 | CEO | Board of Directors | Semi-annually | Total deployment and knowledge by entire workforce within 1 month. Additional personnel within 30 days of JV agreements. |
| Strategic Alliances | Find, negotiate and form cooperative joint venture (JV) strategic alliances with Chinese, Japanese, and Korean corporations | 1 | CEO / COO / Intl SBU SVP | Board of Di
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Global StrategyAuthors: Mike W. Peng 5th Edition 9780357512364 |
