Economics Executive Summary

Write an Executive Summary.

3. Executive summary of project

 

Amazon, founded by Jeff Bezos in 1994, is the largest e-commerce company in the world. The company began first by selling books and has since then grown into the largest giant in the e-commerce industry. Amazon today has built its industry and has expanded to logistics, data storage, media, payments, and hardware.  This industry is for online shopping of merchants alike. Amazon also offers a membership called “Amazon Prime” which provides a membership to its subscribers that allows free shipping on products and services. With a one year subscription members can also watch videos, read books, and use other services with no additional costs.

 

Amazon’s founder Jeff Bezos had one thing in mind when he began his company and that is, “to be the world’s most centric company” (Del Rey, 2015). Brazos stated, “We should be afraid of our customers…..they are loyal to us right up to the second that someone offers them a better service” (2015). Bezos focused his company on the customers and not his competitors.The main concerns is for their customers to provide convenience at a low cost while offering the best selection in products and services.

 

Amazon based out of Seattle, Washington, offers a full range of products susteming from books, videos, digital downloads, laptops, desktop computers to jewelry, clothing, household furnishings, healthcare products, and automobiles just to name some of what they carry. If they do not carry the item a customer wants, they provide additional resources to obtain the item the customer is searching for. Amazon has merchants who rent space from them to sell their products so the customer never has to leave Amazon to start a new search. One of the major products that Amazon carries is their online streaming devices for digital television which has been a significant change in the cable industry. Amazon has increased in business since 1995 from selling books to hundreds of millions of products including their own tablets and cell phones. They offer free shipping to their Prime subscribers and ship anywhere around the world. Bezos plans to use drones for package delivery in the future.

 

Amazon’s stock in 2007 of $1000 is now worth $12,388 which clearly demonstrates the company’s ability to remain competitive. Over the last five years Amazon has more than tripled its sales while chopping its profits by more than half. Jeff Bezos has more than proven his skills to turn a profit to shareholders throughout the history of Amazon. From losing profits in 2002 to exceeding a complete turnaround in 2009 at $902 billion in profits. Bezos puts all his faith in making his customers happy first and the profits will come, so far he has proven that theory throughout the history of Amazon.

 

4. Company background/history

 

Amazon was launched in 1995 as the self-proclaimed, “Earth Biggest Bookstore”. And thus began their path towards fulfilling founder Jeff Bezos’ visions of Amazon becoming an everything and anything store. Using major book distributors and wholesalers to fill its orders, Amazon was able to slip the constraints of physically housing product, and by 1997, carried more than 2.5 million titles. And by the time Amazon went public in 1997, they had 1.5 million customers in more than 150 countries (Easter, M. &Paresh, D., 2017).

 

Logically, they began adding to their repertoire of online sales, first with music cds, dvds and then later, with the purchase of the “Junglee Corporation, which operates a service that lets people shop for everything from clothing to computers (Hansell, S., 1998),” they expanded dramatically. In 2000, they opened up to third-party sellers and even started offering free shipping on orders over $100 (Sherman, E., 2015).

 

By 2002, it occured to Amazon that they weren’t utilizing a significant portion of their vast computer systems, and so Amazon Web Services (cloud computing) was launched to capture that opportunity. This move was bolstered by Apple’s iPhone popularity and the wave of apps and games created for it. These creators “tapped Amazon’s systems because they were simple and affordable (Easter, M. &Paresh, D., 2017).” Despite robust competition from Alibaba, Google, Microsoft and IBM, Amazon managed to garner no less than $15 billion in sales in 2017 (Easter &Paresh).

 

Still on their technology roll, Amazon unleashed the Kindle e-reader in 2007, with an estimated $5 billion worth sold by 2014. Similar devices followed, some met with moderate success and others were discontinued. And in 2015, we saw the introduction of the Echo, creating a new product category of voice-enabled assistants (Easter &Paresh).

 

Amazon Studios was the company’s breakthrough into the entertainment business in 2010. The operation, run by Roy Price, formerly of Walt Disney Co., initially “solicited online script submissions, receiving thousands of screenplays for feature films and television pilots but developing few of them (Easter &Paresh).” It wasn’t until 2017, that Amazon was considered real competition for Netflix. That was the year that Amazon became “the first streaming company to score an Oscar nomination for best picture, with the Casey Affleck drama “Manchester by the Sea (Easter &Paresh).” The company has continued to grow the media division through acquisitions in video game studios and Twitch, (think YouTube-like video player), and continues to launch TV shows, and movies. Along side of streaming movies and shows, Amazon added music to it’s list of credits with a music-streaming subscription service known as Music Unlimited, all to compete with Spotify and Pandora.

 

Following a completely different track, Amazon went into the grocery delivery service with AmazonFresh, in 2007. The initial offering was in a select affluent Seattle suburb, Mercer Island, and later added two additional nearby locations. But in 2013, AmazonFresh expanded into Los Angeles and San Francisco, then further, into San Diego, New York, Philadelphia, London, and even Tokyo (Easter &Paresh). In August of 2017, Amazon acquired Whole Foods market in a $13.7 Billion dollar takeover. This latest addition will be fully integrated into Amazon’s Prime Now and Prime Pantry and available for delivery in select cities (Gara, A., 2017).

 

Speculation mounts regarding what Amazon’s next move will be, but according to some, like “Billionaire media titan John Malone”, “Jeff [Bezos] is gonna be the most disruptive. As [his] Death Star moves into striking range of every industry on the planet.” Thus describing Amazon’s growing business dominance (Kim, T., 2017).

 

5. Analysis Section

 

Mission, Vision, Values and Corporate Governance

 

Based on their strong mission and vision statements, Amazon.com has become one of the largest online retailers in the world. The success of the company is attributed to their strict measure towards ensuring that the mission and vision are fulfilled. Amazon’s vision is to To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online. Their vision is characterized by global reach, customer prioritization and a wide range of products (Odeh et al., 2015). Amazon’s mission is as follows: We strive to offer our customers the lowest possible prices, the best available selection, and the utmost convenience.The mission statement has the following characteristics: lower prices, utmost convenience, and the best selection. These features make it outstanding and give it an edge over its competitors.

 

Amazon.com has supportive stakeholders, and this has led to its rapid growth in the e-commerce industry due to its ability to satisfy their needs. The stakeholders in this organization have a variety of interest because the company operates globally. Amazon has strived to ensure that the diversified needs of their stakeholders are achieved, and this has helped in keeping their position in the market. However, the company still needs to do more to revise its comprehensive corporate social responsibility strategy (Hofmann &Osterwalder, 2017). It needs to improve to have the changing interest of the stakeholders in the global online industry improved.

 

PESTEL Analysis

 

PESTEL is a tool that identifies external environmental factors or conditions which shape the company’s macro-environment. Amazon.com Inc. has done well in covering the elements of PESTEL analysis of its online business and the macro-environment. The first element is political factors. The company operates alongside the influence of politics. There are governmental activities which have a direct or indirect effect on Amazon’s business. The first is political stability; this brings an opportunity for the company development in the country of operation. Next is the government support for the e-commerce. This is an opportunity as more people get to know about the business. It is also a threat since there will be government regulation of the business. There is an increased government effort on cybersecurity which also provides opportunity.

 

The next element is the economic factors. The success or failure of this organization is based on the financial stability of wherever the organization operates its online business. Financial offers the company an opportunity for development. Increase in the disposable income in a country is an opportunity and lastly, the potential economic recession is a threat. Next is the social-cultural factors (Odeh et al., 2015). These are social and cultural conditions prevailing in wherever the company operates. Increase in wealth disparity is a threat to the organization success, on the other hand, increase in consumerism is an opportunity especially in the developing countries. Increase in digital purchasing is an opportunity. Next is technological factors. Technology is the center of the E-commerce. For instance, rapid technology obsolescence provides both threat and opportunity to Amazon.com. On the other hand, increase in Information technology efficiency is an opportunity since the company is online based. Lastly, Cybercrime increase is a threat to the company. Amazon’s operation is also a subject to influences of the natural conditions in the environment. Rising interest in an environmental program and emphasis on the business sustainability provide an opportunity for the company. Legal factor includes regulations on productions and easing exports and import regulations.

 

Five Force Analysis, and Its Driving Forces

 

Amazon.com has continued dominating the online industry because it has continued integrating the issues identified in the five force model. Amazon has strong competitions such as the Walmart stores. There are a high aggressive force, low switching costs and high availability of substitution. The company has high bargaining power. There is high-quality information, low switching cost, and availability of substitutes. Further, the company competes with substitutes in the online marketing. Also, there is a threat of new entrants. The consumers can easily transfer to new firms.

 

Strategic Group Map in the Industry

 

Based on its history, Amazon.com has undergone five stages to become the world largest online retailer. The company began as one of the first corporate firms to sell books online or through the Internet. The company was only known for selling books online before venturing into other lines of products. Diversification of the market was the third stage of the Amazon development, and it comes up with many products line and services. Globalization followed this stage. The company went global, and this was its breakthrough. It was globalization which resulted in the world largest retail shop in Amazon.com. The competition level in the e-business is very stiff. Amazon faces stiff competition and substitutes from some companies such as The Walmart stores. Most competitors such as Walmart are upgrading their technology to maximize efficiency in services provision. They are installing the one-click system and enhancing expertise in technology to improve their services (Hofmann &Osterwalder, 2017). Other competitors are making use of their financial power to become very powerful in the industry. These are done by enhancing hiring of talented workforce and enhancing company culture. Other firms in the same industry are majoring in marketing and advertising using their reputation and brand names such as Walmart. However, the company has managed to overcome all these challenges based on their overall cost leadership business strategy which they have employed and have used for many years. This implies that the company sales its products and offer its services at low prices. The product differentiation has also been used to help this company overcome some of its challenges.

 

SWOT Analysis

 

SWOT analysis gives a clear picture why Amazon.com has dominated the e-commerce industry. Based on its strengths, the cost leadership, cost focus, and the cost differentiation are the main strength of this company. This has helped it make impressive sales, and its stakeholders derive values from the company. Its superior IT also is a massive advantage, and the company has done remarkably well with it (Odeh et al., 2015). The company also has excellent logistics and distribution channels, and this has resulted in better customer fulfillment. The company also has some weaknesses. The first weakness is that the company has been recently narrowing on its product line as it majors on other specific books. This has created some limited diversification of its products. Further, cyber crime vulnerability is another potential weakness. Despite these weaknesses, there are many opportunities which the company can utilize to continue dominating the online market. The company is yet to roll out online payments. This will boost the company as efficiency will be given due considerations. Also, product portfolio still has the potential of increasing. The company can still have a wide range of product online, and this would be an opportunity. Despite this opportunity, Amazon is faced with different threats. First are the identity theft and hacking due to its increasing sales online. This is a threat to even other companies in the same industry.

 

Value Chain Analysis

 

The company has inbound logistics. It gets its products from the third party buyers. Once their product is ordered, they are sent to the warehouse owned by the company. This is where the products are packed (Ritala et al., 2014). After the operation, there is the outbound logistics. In this stage, the product is sent to the destination. The use of Cookies enhances sales and marketing at Amazon. These are pop INS which tend to appear as people read news from other websites. The Amazon’s customer services are excellent. They are specialist in making customers happy (Hofmann &Osterwalder, 2017).  For instance, the customer is allowed to return and get a refund in case they are not satisfied with the products.

 

Benchmarking

 

Benchmarking is an evaluation by analysis of the company’s operations with industry performance. In this case, Amazon scores highest. The company is one of the high performing firms in the e-commerce industry. This is attributed to its cost leadership business strategy. Also, the company generates high revenue which is standard to this online sector (Odeh et al., 2015).  This has contributed to its significant economies of scale which has made it dominant in this sector.

Competitive Strategies

Identify and compare key strategies pursued by major players in the industry; you are also expected to discuss which strategy seems to be most successful in the industry, and the rationale for this success

 

The key strategy for Amazon is to adapt their company. They do this by expanding the services and products that they offer. One of the ways that Amazon accomplishes adaptation is through their strategic alliances and by acquiring other companies. This strategy has been successful for Amazon because they have grown from a company that only sold books to a company that sells anything and everything.

 

The key strategy for Wal-Mart is to have low prices. The company believes that low prices will keep the consumers happy and that will cause them to be returning customers. Wal-Mart has been expanding their business and their strategy into e-commerce in order to compete with Amazon. This strategy has been successful for Wal-Mart because they have been able to keep consumers by offering lower prices than their competitors.

 

The key strategy for Best Buy is to offer a physical demonstration of a product in the store and then to have the customer order that product online. “To combat increasing customer preference to buy electronics online after a physical demonstration in the store, the company increased its focus on online sales and expanded its ship from store network. We believe innovations in the e-commerce space with faster delivery options and better in-stock availability will be another key driver for Best Buy’s growth in future” (Trefis Team, 2015). This strategy has been successful for Best Buy because consumers like to have a physical demonstration of a product before they make a purchase, especially for a large electronics purchase.

 

The key strategy for Target is to integrate the experience in the store with the experience online. “The retailer is taking a channel-agnostic approach to growing its business, driving a total Target experience across stores, online and mobile. Guests who shop Target in stores and online generate three times the sales compared to guests who shop in stores only” (Target Shares Roadmap to Transform Business, 2015). A streamlined approach to shopping creates an easy experience for the consumer, which creates returning consumers. This is why the approach has been successful for Target.

 

Amazon has the most successful strategy in the industry. There are three tests that a strategy must pass in order to be a winning strategy: the fit test, the competitive advantage test, and the performance test (Thompson, Peteraf, Gamble, & Strickland, 2018, p. 12). The strategy for Amazon passes the fit test because the strategy fits the company’s situation. Since Amazon is an e-commerce business, they have to adapt in order to keep up with the changes in technology. The strategy for Amazon passes the competitive advantage test because the strategy helps Amazon achieve a sustainable competitive advantage. The adaptation allows Amazon to adapt the competitive advantages that they have in order to sustain those competitive advantages. The strategy for Amazon also passes the performance test. The adaptation strategy is helping Amazon produce superior company performance.

Offensive and Defensive Strategies, Vertical Integration and Strategic Alliances

 

The strategy for Amazon is more defensive than it is offensive. Part of their defensive strategy is to acquire other companies. “The first tenant of Amazon’s defensive acquisition strategy is that it’s focused on defense, not offense. Zappos and Quidsi, specifically, were purchased after an all-out price war. Bezos forced these founders to capitulate rather than driving their respective companies to insolvency” (Offense vs defense: Amazon and Walmart’s diverging acquisition strategies, n.d.). Amazon wanted to purchase Zappos at a cheaper rate than the company was worth. In order to do this, Amazon created an external website to compete with Zappos. Eventually Zappos was forced to make a deal with Amazon since they were taking a direct hit from the website that Amazon created. Amazon was actually losing money through the external website that they created. The defensive strategy for Amazon is so strong, that the company is willing to lose money in order to acquire competitors.

 

The defensive strategy of acquiring competitors should be no surprise because Amazon has a strong horizontal integration strategy. The company is built upon acquiring and using marketplaces and other sellers. Amazon even utilizes their warehouses to store products for these third-party sellers. A large majority of the products offered through the Amazon website are manufactured by other companies, or by companies that Amazon has acquired. The Amazon website is a marketplace that is made up of many different sellers and many different marketplaces.

 

Amazon has many strategic alliances that it utilizes. One of the alliances is with multiple companies. “Tech titans Amazon, Netflix, Cisco, Microsoft, Mozilla, Google, and Intel have banded together as the Alliance for Open Media to come up with a new standard for online video” (Weinberger, 2015). There are royalties that have to be paid to companies that own thepatents to the codec that is used to stream videos to the end-user. Amazon, Netflix, Cisco, Microsoft, Mozilla, Google, and Intel have created a strategic alliance in order to create a codec to stream videos in order to avoid paying royalties. This way they can avoid having to pass the royalty cost on to the consumer. If they can create their own codec to utilize, then it would not cause any extra costs for the consumer because the company would not have to pay any royalty fees.

 

Another strategic alliance for Amazon is with Microsoft for eBooks. “Under a strategic alliance announced today at Seybold San Francisco/Publishing 2000, Microsoft will create a customized Amazon.com version of Microsoft Reader, giving consumers the ability to purchase and download eBook titles directly from Amazon.com and read them in Microsoft Reader format” (Microsoft Announces Strategic e-Book Alliance with Amazon.com, 2000). This strategic alliance was formed as eBooks were coming out and starting to grow. The alliance worked out nicely for both companies because eBooks have grown into a large aspect of Amazon’s business.

 

Amazon also has a strategic alliance with Netflix. Netflix utilizes the Amazon web-based cloud services. This alliance has had a positive impact on Amazon because a majority of their revenue is earned from their cloud infrastructure. “But Amazon’s revenue is almost entirely driven by cloud infrastructure, bare bones rental of its cloud data centers…Despite Microsoft’s efforts to compete with Amazon on price regarding bare bones infrastructure, Amazon’s lead there continues to grow (Blankenhorn, 2016).”

International Strategies

Global/local market position (e.g., size of major markets, products, customers and end users, pricing structure)

 

Amazon has a strong presence in the international market, which makes sense since they are an e-commerce company. This makes it somewhat easier to enter the international markets. Amazon uses a global strategy because they utilize the same basic competitive approach in all countries. This is evidenced through their Prime service which they utilize in international markets. In some of those markets it has succeeded, but in other markets it has not succeeded. “The challenge for Amazon is to sign up more Prime users internationally. Outside of the US, the company’s biggest markets are Germany, the UK and Japan, all of which have Prime. The three countries account for four-fifths of Amazon’s global sales. Prime is also available in six other European countries, although its offering differs slightly in each” (Hook, 2016).

 

Amazon has 10 international websites, or online marketplaces. The countries that have the international websites are: Canada, Mexico, the United Kingdom, Germany, France, Italy, Spain, Japan, China, India, and Australia. “In addition to its 11 global marketplaces, Amazon also boasts more than 100 fulfillment centers and over 30 listing categories globally, along with buying customers in nearly 200 countries” (What countries is Amazon available in? n.d.). Also, the products that are available on the website are able to be shipped to over 100 countries. And, Amazon help their third-party sellers learn how to export their products to international consumers in order to sell their products globally.

 

The products that are available in the international market are the same products that are available in the local market. This is because AmazonGlobal allows consumers to shop from global marketplaces. Also, the pricing structure in the international market is similar to the pricing structure in the local market. This is part of the global strategy that Amazon uses where a company employs the same basic competitive approach in all countries.

 

Corporate Strategies

 

The main objective of the corporate strategy for Amazon is cost leadership and diversification. “Amazon business strategy is guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking” (Dudovskiy, 2017). There are three cornerstones to the business strategy of Amazon. First is to regularly enter new niches and segments. This is how Amazon is able to sell anything that a consumer could think of. Second is to strengthen the ecosystem of Amazon. There are many components that make up ecosystem for Amazon. It is important to engage in each component in order to gain the maximum benefit from each component. All of the components also need to have a relationship because that strengthens the Amazon ecosystem. Third is to focus on leadership values. This helps Amazon to build upon its competitive advantage by utilizing the contribution made by human resources.

 

Ethics, CSR and Environmental Sustainability

 

Amazon does not submit an annual CSR and Sustainability report, making the official company website the sole source of this information.  Additionally, Amazon didn’t have a Sustainability Executive in its ranks until 2014. Many of their initiatives have only recently been employed. Such initiatives include:

 

*Supporting local communities: by aspiring to hire 25,000 veterans and military spouses by 2021, hosting “Girls Who Code” events, Amazon’s Device Donation Program which donates electronic device and gift cards to schools near their fulfillment centers in the US, providing resources to Kenyan public libraries, donating excess food to the Feeding America program, and donating over 1,600 volunteer hours and $65,000 in products to nonprofits (Dudovskiy, J., 2017).

 

*Employee Initiatives: The “Career Choice Program pre-pays 95% of tuition for employees”, The Virtual Contact Centre, which allows service center employees to work from home, and a “Pay to Quit” program offering $5,000 for warehouse workers to evaluate their options (Dudovskiy, J., 2017).

 

*Energy Initiatives: Seattle head office to be heated by “district heating” or recycling of heat from nearby buildings, “hosting solar energy systems on 15 fulfilment facility rooftops across the US, and a “goal to be powered by 50% renewable energy by the end of 2017 (Dudovskiy, J., 2017).”

*Additional Initiatives: “Amazon Smile assists customers to support their favourite charitable organization when they buy products at amazon.com.”, “providing grant funding to aspiring writers”, “in 2015, Amazon delivered 2,000 gift packages to active US military men and women serving [overseas]”, and “occasional donations as disaster relief (Dudovskiy, J., 2017).”

 

Amazon has been criticized in the past for its lack of participation in CSR and Sustainability especially for a company of its size and profitability. Some question if the company is truly involved or if their perceived efforts are a mere afterthought (Gunther, M., 2012). Even with its current listing of initiatives, their commitment is lackluster in comparison to other corporations in the industry.

 

Ethics might also prove to be a challenge for the company, because despite having a formal written policy which they post to their corporate website, Amazon has made headlines on several occasions for everything from poor treatment of their employees, to utilizing tax havens in the EU to avoid paying the full burden of their tax duties. Though the mistreatment of employees is covered in detail in the Corporate Culture section, Bloomberg reported that, “The European Union ordered Amazon.com Inc. to pay 250 million euros ($294 million) in back taxes to Luxembourg, part of a renewed push to crack down on tax loopholes (Sebag, G. 2017).” Additional work will need to done on the part of Amazon in order to convince the public that they walk the talk referenced in their own policies.

 

Organizational Structure and Skills

 

Amazon features a classic hierarchical structure typical of large corporations. Curiously, the organizational chart is available internally, but not to the public. According to a CNBC article, “there are 37 people under the CEO who report directly to him — or are one layer removed — with at least the title of vice president. Only two of them are women (Kim, E., 2017).” There are also no African-Americans, and only three of Asian decent. The lack of diversity is concerning considering that Diversity is one of Amazon’s leadership principles (Kim, E., 2017).

 

Quartz at Work writer, Oliver Stanley, provides three educated guesses as to the lack of female presence at Amazon. The first is that the industry as a whole doesn’t hire and promote enough women. In 2016, the annual diversity reports indicated that a poll of the top five companies in the tech sector, Amazon, Apple, Facebook, Google and Microsoft, included only 40 percent of women in their total workforce. That number decreases significantly when it comes to Management positions. Amazon states that women make up only 25% of their leadership. “As a whole, the industry has a woeful record of recruiting, hiring, and retaining women at all levels (Stanley, O., 2017).”

 

Stanley cites a lack of turnover within the Amazon ranks as the second plausible cause. It appears that the average incumbency in the senior leadership positions is about 15 years. Considering that Amazon, as a company, is 23-24 years old, this means that many of the roles have been filled since the early days. It is typical of  start-ups and relatively small business to rely on personal acquaintances and connections in this way, but “when founders hire the people they and their inner circle know, it inevitably perpetuates a lack of diversity in an organization (Stanley).”

 

Amazon’s culture, in and of itself, might be to blame as well. Stanley believes that what he describes as the “sharp-elbowed culture and punishing schedule”, are a formidable challenge to women with young families. These expectations, described in further detail in the article “Inside Amazon: Wrestling Big Ideas in a Bruising Workplace (Kantor, J, &Streitfeld, D., 2015)”, might be what is “making them more likely to leave the company in search of more flexibility. That means Amazon may have lost a generation of women who would now be in position to become senior leaders (Stanley).”

Operational Excellence

 

Like many major organizations, Amazon employs the Six Sigma and Lean Practices system of operations management. “Essentially, this data-driven philosophy gets its name from the six standard deviations used as guidelines to keep business defects firmly in check and within established specification limits (intelligencenode.com, 2016).” Whereas, “Lean is popular for its methodical approach to streamlining both manufacturing and service processes by eliminating waste while continuing to deliver value to customers (goleansixsigma.com, n.d.).” The two together complement each other, and Amazon has been using it since 1999 (intelligencenode.com).

 

A unique feature of Amazon’s use of the lean six sigma is the volume of robotic integration in the warehouse processes in order to gain lean efficiency. Amazon underwent a significant increase in the use of robots in their warehouses beginning in 2016. According to the Seattle Times newspaper, “the e-commerce giant now has 45,000 robots across 20 fulfillment centres.” A 50% increase over the previous year at the same time (Shead, S., 2017). Beyond their warehouses, Amazon plans on expanding their robotic presence, “In December [2016], the company announced it had made its first delivery by an automated drone in the UK. It’s also filed a patent that would allow it to use automated drones to deliver packages from large airships in the future (Shead, S., 2017).”

 

According to a note published by Deutsche Bank in mid 2016, the robots have cut operating expenses by about 20%. The note continued, stating that “Amazon could cut another $800 million in one-time cost savings once it deploys more robots across the 110 fulfillment centers that don’t have them yet.”…”cycle times have been cut from 60 to 75 minutes to roughly 15 minutes after deploying  robots, while inventory space grew 50% due to smarter use of space, such as building narrower isles or getting rid of certain handling systems (Kim, E., 2016).”

 

Corporate Culture

 

According to Amazon, the corporate culture within the company is one of technology, along with teamwork and ownership employed toward a customer-centric philosophy. Listening to the customer is of the utmost importance, so much so that failure is believed to be an inevitable outcome if they disregard this core value. Technology and innovation is viewed as the strategic tools to best implement new and better ways to support that customer-centric tennant. Everyone in the organization is viewed as an “owner”, and  is expected to take “ownership” in the company. “Owners think long-term, plead passionately for their projects and ideas, and are empowered to respectfully challenge decisions (Schneider, L., 2017).”

 

Based on Amazon.com, Inc.’s statement, “We’re a company of pioneers. It’s our job to make bold bets, and we get our energy from inventing on behalf of customers. Success is measured against the possible, not the probable. For today’s pioneers, that’s exactly why there’s no place on Earth they’d rather build than Amazon (Meyer, P., 2017).”, one can derive the following characteristics from their company culture:

 

Boldness: Employees are encouraged to take risks, and by emphasizing an “openness toward new ideas based on an organizational diversity policy (Meyer, 2017).”

 

Customer-centricity: The company’s vision statement highlights the absolute importance of the customer to the business. Amazon is driven to extract data regarding the trends and changes in consumer preferences, and in order to incorporate that knowledge back into their services, thus maintaining effectiveness in customer satisfaction (Meyer, 2017).

 

Peculiarity: Referring to the notion of challenging the conventional, Amazon inspires employees to think outside the box (Meyer, 2017).

 

However, many question Mr. Bezos’ methods for achieving these goals. Everyone, from the low-level warehouse workers to the white-collar executives, are intentionally pushed beyond their breaking point in order to accomplish Amazon’s “ever-expanding ambitions (Kantor, J, &Streitfeld, D., 2015).”  Becker’s Hospital Review summarized the New York Times article, “Inside Amazon: Wrestling Big Ideas in a Bruising Workplace (Kantor, J, &Streitfeld, D., 2015)” by identifying, “9 key issues with Amazon’s corporate culture (beckersholspitalreview.com, 2015).”

 

  • Unreasonably high standards and expectations, which while intended to groom top-level talent, (in a survival of the fittest sort of way) the pressure to meet such demanding expectations caused significant distress among the employees. “Bo Olson, who held a book marketing role for less than two years, told NYT his lasting image of Amazon is watching people cry at their desks, a sight other interviewees confirmed as a common occurrence (beckersholspitalreview.com, 2015).”

 

  • Abrasive Management Style: Jeff Bezos has said before that Amazon’s management style is an extension of his personality, so it comes as no surprise that the organization is “largely influenced by his borderline abrasive personality, including an “eagerness to tell others how to behave; an instinct for bluntness bordering on confrontation; and an overarching confidence in the power of metrics (beckersholspitalreview.com, 2015).” The “Articles of Faith, the guidelines Amazon uses to help enlist and develop a brigade of elite workers, also instills a need in employees to constantly prove their worth, outperform their colleagues and even sabotage their careers (beckersholspitalreview.com, 2015).”

 

  • Breeding unhealthy competition among co-workers: Not only are “employees encouraged to publicly rip apart their co-worker’s ideas in meetings”,…“the Anytime Feedback Tool, that allows workers to send praise or complaints about their co-workers to their bosses, is often used to sabotage others. Since team members are ranked, and those with the lowest ranking are fired, it is in each individual’s best interest to outdo their teammates (beckersholspitalreview.com, 2015).”

 

  • Insensitive management: “Employees who endured great personal hardship — including cancer, miscarriages and other personal crises — said they were unfairly judged or pushed out without sufficient time to recover and perform at their highest ability (beckersholspitalreview.com, 2015).”

 

  • Favoring criticism over harmony: Which involves “delivering painfully blunt feedback to colleagues before agreeing on a decision (beckersholspitalreview.com, 2015).”

 

  • Lack of benefits: “Unlike its tech peers such as Google and Facebook, which motivate employees to prioritize personal wellness with gyms, meals and other special benefits “designed to take care of the whole you,” as Google describes it, Amazon does not give any hint that catering to employees is a priority (beckersholspitalreview.com, 2015).”

 

  • Disregarding employees’ need for work-life balance: “Many [Amazon workers]]said the culture encouraged them to erase work-life boundaries.”…”often spend hours working from home at nights and on the weekend. They could be required to attend conference calls on Easter Sunday and Thanksgiving, and face criticism from superiors for poor Internet connection while on vacation (beckersholspitalreview.com, 2015).”

 

  • Lack of praise: “Employees said in interviews with NYT they felt their work at Amazon was never done or good enough. Noelle Barnes, who worked in a marketing role at Amazon for nine years, said a repeated saying around campus was, “Amazon is where overachievers go to feel bad about themselves (beckersholspitalreview.com, 2015).”

 

  • Unfair systems of ranking: “Amazon holds annual Organization Level Reviews, where managers discuss and determine subordinates’ rankings. Reviews begin with the discussion of lower-level employees in front of higher-level managers. Team leaders described preparing for the reviews as preparing for a court case, complete with paper trails to defend wrongful accusations or incriminate members of competing groups, or identifying sacrificial lambs to save more valuable players (beckersholspitalreview.com, 2015).” This is a practice that other large corporations have moved away from because it can force managers to lose valuable talent for the sole purpose of meeting a quota.

 

Despite the fact that this unconventional leadership style is currently functioning, as evidenced by Mr. Bezos being identified as the fifth wealthiest man in the US, it remains to been seen if it will be able to sustain itself over the long run. Amazon has also come under fire several times for its treatment of warehouse workers. Beginning in 2010, “when warehouse workers in Pennsylvania needed medical attention after waiting outside for hours in freezing weather when a fire alarm went off; they were reportedly not permitted to wait in their cars in case the alarm had been triggered as part of an attempted theft (Fox, E., 2016).” Then again the following year, the Morning Call newspaper, in eastern Pennsylvania, published an article concerning 15 warehouse workers taken to the hospital for heat related injuries, with 20-30 more being treated on site by paramedics parked outside over a period of several hot days in the region. The event was serious enough that OSHA received three separate complaints, one from a warehouse worker, another from a doctor in the local ER who had treated several of the warehouse workers and felt it necessary to report an unsafe working condition, and a security guard at the warehouse who witnessed several pregnant workers, distressed by the heat, taken to the nurse’s station. The heat index inside the warehouse was reaching and exceeding 100 degrees and Amazon refused to open the loading dock doors to allow cooler air to circulate, for fear of theft of the merchandise. After the OSHA inspection, subsequent OSHA recommendations, and the Morning Call article, Amazon did make some changes to the warehouse to improve the working conditions, like installing fans, distributing cooling bandanas and vests to employees, and making water and ice pops available (Soper, S., 2011). In 2014, workers in the Las Vegas warehouse brought a lawsuit against Amazon over the post-shift security searches that could detain them for up to 25 minutes, time which they were not paid for. The suit persited all the way up to the Supreme Court, but was ultimately unsuccessful (Liptak, A., 2014).

 

There are other related stories about shaming warehouse workers alleged of stealing by placing their information on large television screens, walls, and bulletin boards. “The workers are not identified by name; rather, they are shown as black silhouettes with the word “terminated” or “arrested” emblazoned before an account of what they stole from the company and how they got caught (Fox, E. 2016).” Or, how Amazon hires significant amount of temporary workers to avoid the compensation and benefits associated with permanent employees. And along with stories that reverberate what their white-collar counterparts experience: a grueling pace, unrealistic expectations, getting fired for inability to keep up with cycle times, and insensitive management all point to a place of business that does not value their employees.

 

Business Performance

Tracking and discussion of company performance over time (at least 5 years)

 

Financial outlook Include stock analysis if applicable

 

Amazon has had strong business performance over the past five years. This strong business performance can be attributed to their business strategy of adaptation. The net sales revenue of Amazon has risen from $61.09 billion in 2012 to $177.87 billion in 2017 (Annual net revenue of Amazon 2014-2017, 2018). Amazon has become so dominant over the past five years in its business performance, that it was able to become more valuable than Wal-Mart. “It took Amazon 18 years as a public company to catch Walmart in market cap, but only two more years to double it” (Molla& Del Rey, 2017). Not only has the revenue and value of the company been rising, but the net operating cash flow and their share of the e-commerce market have also been rising. Lastly, the stock price has skyrocketed over the past five years. The 5-year range for the Amazon stock is $245.75-$1,498.00 (Amazon.com Inc, 2018). The stock has risen by just over $1,200 in a five-year span.

 

Based upon the above findings, the financial outlook for Amazon is very strong. Every year has seen an increase in the stock price. There has also been an increase in revenue and operating cash flow every year. There is nothing in the business performance of Amazon that would suggest that they would not have a strong financial outlook. “The importance of online retail and Amazon’s dominion over e-commerce have no end in sight, according to J.P. Morgan. Citing Amazon’s growing market share and the success of Amazon Web Services, analyst Doug Anmuth argued that Jeff Bezos’ retail giant is only just getting started” (Frank, 2017).

 

6. Important issues and problems faced by the company and reasonable solutions to these issues/problems

 

Key Strategic Issue

 

The biggest key strategic issue facing Amazon is the competition from large retail store chains that are entering the e-commerce market, more specifically Wal-Mart. Amazon has been expanding their operations, but this is causing part of the strategic issue with Wal-Mart. “And it’s winner take all strategy for the click and the brick world is turning costly – because a strategy like that requires a great deal of investment for warehouses, transportation gear, content acquisition, and so on. Worse, it pits the company against giants like Wal-Mart, and Wal-Mart has been fighting back” (Mourdoukoutas, 2014). Wal-Mart has been slowing expanding their e-commerce operations and they are becoming a serious competitor for Amazon. Wal-Mart has created a strategy to build additional warehouses and acquire online search technologies. Wal-Mart is proving that companies can compete with what was once a competitive advantage by Amazon. And, this makes it very difficult for Amazon because Wal-Mart is known for having low prices. Amazon needs to solve this key strategic issue that it is facing with Wal-Mart exploding onto the e-commerce scene. The strongest opposition of Amazon is ability to increase their e-commerce into the global expansion of China. This has become a major issue for the company to be under performing in a global market of one of the richest economies in the world. Chinese culture prefers the “brick and mortar” method of shopping, meaning the customers want to, to touch and feel their products, and ask questions at the same time before they make a purchase.

 

Alternatives

 

Although Wal-Mart continues to be a competitor to Amazon the industry in e-commerce remains to be a strong hold for the company. One specific strategy would be to implement a plan to introduce the market through a physical store which could later be flipped into a distribution center. This would engage a new market in China while developing a line of products and services at a lower cost. A market development in China means the public needs to know more about the products and services offered by Amazon. A strategic plan to implement awareness to the public through advertising, customer reviews, and a 24-hour online chat for questions about products and services. The key to success for Amazon in China is to get close to its customers by creating a new innovative plan to introduce its market and reaching the customers.

To reach the customer base of China: Variable 1

  • Establish the cultural needs and wants of the customers
  • Develop a market for the Chinese culture
  • Implement a plan to reach customers through an eco-friendly shipping system where customers receive incentives for using the service.
  • Create biodegradable plastic containers for shipping to reduce costs to customer in shipping.

Advantages:

  • Already being an eco-friendly country, this will increase awareness of their environment
  • Reduces cost in shipping and gives customer benefits based on their shipping choice
  • Amazon’s biodegradable containers will ensure safe delivery of the products
  • Will increase value while reducing cost which will increase ROI (return on investment) for shareholders.
  • Incentives for customers using a point system for refunds to use towards purchases at Amazon

Disadvantages:

  • Possible risks of customers not returning biodegradable containers
  • Customers prefer seeing and touching products before purchasing
  • Amazon R & D may not be able to keep up with demand in shipping and counting points on return of containers
  • Refunds may not meet the Chinese expectations

OR

 

Increase awareness to China customers through Brand development marketing: Variable 2

  • Create fans of your Brand and products through market share
  • Kindle in China is number one so use advertising strategies through the online bookstore
  • Develop advertising campaign to reach the customer through reviews of services and products.
  • Develop a Brand specifically for Chinese customers.
  • Invite a merchant program to increase sales and revenues

Advantages:

  • Amazon has already expanded into the global market
  • Merchant program will bring new market through local merchants who can sell on Amazon
  • The merchant program will introduce new merchants increasing customer awareness of products from local merchants
  • Amazon has the ability to implement a plan into the global market with skilled and experienced employees.
  • China is the world’s largest internet users

Disadvantages:

  • Local merchants do not want to enter the Amazon market.
  • Amazon must risk financially to introduce market to China
  • China’s internet economy is highly competitive
  • Market too competitive to introduce a new line of products

 

 

Recommended Course of Action

Amazon already has the Brand Kindle which has been the number one product in China so the ability to pursue this market is already established. They need to attract customers to their full line of products to improve their overall performance in China. There are many advantages to establishing a market in the global market, especially in China since they are big spenders. Introducing a market through the merchant program is a perfect alternative to reach the Chinese customers since they are already aware of what their local merchants carry. As the new merchants come aboard this will open the market for Amazon and allow customers to gain experience in purchasing from Amazon’s sales and services. Chinese care about their environment but not as much as their purchasing power.

 

Implementation

Amazon has proven its ability to sustain financially in a competitive market in the e-commerce industry. The new merchant program will open doors of opportunity for both Amazon and China. A new line of products and services for both will increase value and bring new customers to the industry while still satisfying their customer base they have established at their local stores. The second strategies disadvantages are easy to overcome such  as the local merchants are less likely to refuse to join the market since it will increase revenue for them as well as Amazon. Although the market is competitive, Amazon has already sold their Kindle to China and it has become the number one selling product in China. The advantages outweigh the disadvantages enough that financially Amazon can sustain the market until the revenues increase. Once Amazon gains the Chinese market, they will have the ability to increase profitability through the local merchants as well as their own product line. As long as Amazon remains competitive to other e-commerce markets, they will increase the value of the business. China and India is where the greatest market attractiveness is and with China’s economy continuing to improve, they have become one of the highest growths in the economy in the world.

 

 

 

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Last Updated on January 1, 2021