Introduction
Amazon.com, Inc. known in the business setting simply as Amazon is one of the largest Fortune 500 companies in the world. In 2018, it was ranked at position 8 with total revenue of $177.866 billion for the fiscal year ended December 31 st 2018. The corporation participates in e-commerce and cloud computing business with its headquarters in Seattle Washington. The firm was founded by Jeff Bezos in 1994 who continues to serve as the Chairman, President, and Chief Executive Officer to date. Amazon has received recognition as the largest internet retailer in terms of revenue and market capitalization but is beaten to top spot in sales only by Alibaba Group. The company initially began as an online bookstore before diversifying its products and services to include video and MP3 streaming along with downloads, video games, electronics, software, audio books, toys, apparel, jewelry, and cloud infrastructure services. The CEO and founder has been an integral factor in the continued growth and success of the company. The following comprehensive analysis evaluates the corporate strategy of Amazon as it gears towards increasing competitive advantage.
External Stakeholders
Since the creation of the company, Amazon has taken up the role of fore runner in the development and innovation of the industry. As mentioned earlier, the firm initially started as an online bookstore. It was evident that Amazon recognized the needs of the customers and sought the most appropriate means of fulfilling them. Selling the books online would result in lower overhead costs meaning that the books were far cheaper and enabling the company to attract large numbers of customers while also achieving high profits. The firm’s recognition of the external stakeholders and the manner in which it adjusts its practices is a corporate strategy that has worked so far. In terms of competitors, industry, vendors, customers, government entities, and communities, Amazon positioned itself strategically to achieve its goals while maintaining high standards of fulfilling the expectations of these groups.
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Competitors
The company was first created as an online bookstore hence its major competitors were the myriad of physical stores available in every town across the country. Amazon’s approach to selling books at a cheaper price than all major bookshops was an effective measure towards engaging in a health and fair competition. The firm was able to reduce the significant costs incurred per unit and instead works towards leveraging on fixed costs. The practice has been a major factor towards ensuring competitive advantage over its rivals. The firm would continue to identify the importance of its services in other major retail practices. Amazon would then leverage its interactions with manufacturers to provide consumer products of all kinds. As a result, the number of competitors significantly increased.
Walmart has been a direct competitor to Amazon for the better part of the 21 st century. The multinational chain store had been a major provider of retail products to consumers at extremely low prices. However, the physical stores that Walmart operates significantly increased the costs incurred thus reducing the revenues earned. Amazon on the other hand would minimize its costs based on the lack of physical stores and its elimination of intermediaries who drive up the prices of products and services. Other competitors include publishers, producers, and distributors of physical, interactive, and digital media of all types. Amazon also faces rivalry from all major internet-based websites, search engines, and portals that are used in discovering, or acquiring goods and services that are either direct or in collaboration with retailers. Its internet focused systems have been identified as an effective means of gathering information and implementing it to improve logistics and the supply management chain. As a result, it has attracted significant competition in the modern business practice.
Industry
The primary source of Amazon’s major revenue is in the sale of a wide range of products and services to customers and businesses alike. The retail industry serves as a major source of the company’s income as it sought to provide consumer products from furniture, toys, apparel, consumer electronics, jewelry, and groceries among other food products. Through the Amazon.com platform, reports show that the company sells approximately 562.3 million of a variety of products. On the other hand, Walmart only offers its online customers 38 million stock keeping units which equates to about 7% of the total products offered by Walmart. The practice has ensured that online shoppers are more likely to visit Amazon stores than that of Walmart. The strategic practice of cost cutting has been an integral factor towards the development of improved services and sales of the firm. The organization identifies that customer satisfaction is a critical factor to the achievement of steady growth and achievement of higher income.
Other than selling consumer products, the enterprise recognizes the importance of big data in the modern business environment. The individualistic interaction between the organization and its consumers ensures that it can gather information on consumer preferences and utilize it in improving sales. The information may be provided to third parties including advertizing firms, vendors, and manufacturers who can further utilize it to further develop their goods such that they meet customer expectations. Compute, storage, and database offerings are other technologically based services that the Amazon offers usually to its business clients. The need to protect data from theft or loss has become critical in the modern age where widespread use of computers and the internet has brought about large-scale risks for business corporations. In turn this incidence has turned into an opportunity for the company to increase its revenue.
Vendors
The suppliers control the availability of materials that Amazon requires to effectively perform its e-commerce operations. The suppliers have significant influence on the environment of the online retail industry. The bargaining power of that Amazon experiences with its suppliers is moderate considering some of the external factors. The small number of suppliers available in the market provides the suppliers with a strong force to influence Amazon’s ecommerce business. It is evident that a significant fluctuation in the prices of equipment that suppliers utilize particularly the large suppliers will directly impact the operational costs of the online store. The organization will have to increase the prices of the products they offer or alternatively minimize the profit margins to cover the costs.
Moderate forward integration, however, lessens the impact that suppliers have on Amazon. This external factor of the business practice means that the suppliers have a limited control of the sale of their products to the ecommerce business. In this external factor, it is evident that the Amazon bears significant power of the variety of products they would wish to sell on its platforms. The firm can choose alternative suppliers if they are cheaper but do not compromise on the quality. The moderate size of the majority of equipment manufacturers has minimal effect on the business operations of the company. It is evident that the Amazon heavily depends on technological equipment as an effective measure of ensuring that its online platforms function appropriately and serve the needs of the customers. However, the manufacturers of these technologies are merely medium-sized hence do not pose significant bargaining power against the retail giant.
Customers
As in any business, the customers form an integral role in the operations of the company and may influence the nature of their practices. Since Amazon opened its virtual stores, the company seeks to be the most customer-centric company. In this practice, the aim is to demonstrate a customer obsession that drives the operations towards achieving the highest level of customer satisfaction. The consumer becomes the firm’s priority as opposed to focusing in competitors. Therefore, the impact of consumers on the corporations and the industry environment at large provides them with a strong force of bargaining power in influencing the operational practices. For instance, the fact that consumers have access to high quality information as it pertains to the services of ecommerce traders and the products they offer makes them capable of finding alternatives. Amazon has to ensure that it maintains a diverse offering of products and services while maintaining high quality to prevent substitution by other retailers.
The consumers also experience low switching costs from one online retailer to another. All that a customer needs to be effectively purchase goods from one retailer to another is registration on its online platform. There are no costs incurred by the customer by switching from Amazon to another firm like Walmart. Therefore, the organization has to maintain a certain level of performance to keep the consumer from switching to alternative retailers. The extensive availability of substitutes from online platforms to physical stores provides clients with the option of switching from one retailer to the other. In areas where customers may lack access to the internet or increased costs of shipping, the shopper may easily opt to visit a physical store like Target that offers similar products.
Governmental Entities
The ecommerce industry operates effectively alongside the influences of the government entities where they are located. The governmental activities offer firms like Amazon the opportunity to operate in their remote areas or macro-environment. There are various political factors that act in the eternal environment that are integral to the development of the industry and the growth of the company. Political stability in the developed countries is one of the areas where the Amazon benefits in its business operations. Such conditions enable the enterprise to diversify product and service offerings to complement its business model. For instance, the political stability of the US offers the organization an opportunity to expand on its brick and mortar stores so as to effectively boost the ecommerce practices.
Governmental support is one of the critical factors that influence the modern business practice and is integral to continued growth. Towards the end of the fiscal year 2017, Amazon faced criticism from President Donald Trump that it should receive higher charges from the US Postal Service delivering packages. Such comments from the leader of the free world grabbed headlines and highlighted the importance of creating allies in the federal government. However, the ecommerce giant has been furiously expanding lobbying efforts to become one of the most influential tech companies in Washington. Over the past five years, lobbying spending has increased by 400% a rate that exceeds that of its closest rivals. Only Google outspends Amazon in the industry. Government entities in their support for ecommerce business significantly increase the competition in the market with the entry of Chinese corporations like Alibaba Group.
Communities
The ability to satisfy the firm’s stakeholders is an important factor that enables the growth of the organization. The communities are considered critical stakeholders in the operations of the ecommerce giant. Considering the global reach of Amazon, the communities it associates with have widely differing interests which make it even more difficult for the company to satisfy their needs. However, the firm maintains a strong corporate social responsibility program for communities. As a major stakeholder in the company, communities are particularly important in influencing the perception of company goods and services. Some of the major interests of communities that Amazon serves include development support that is possible through environmental conservation, education, and healthcare. Through Amazon Smile, the firm has been able to expand its reach on corporate social responsibility where a percentage of sales revenue is donated to charitable organizations of the customer’s choice.
The company has opportunities to increase its impact on the environment owing to the increasing interest by communities on environmental programs. In relation to this, the firm could participate in activities and programs that help maintain low-carbon lifestyles. It is evident that business practices have been a critical factor in the continued pollution of the environment. The government and the non-governmental corporations have been actively seeking effective measures to reduce consumption of energy. Business organizations have been encouraged to take initiative and maintain low levels of harmful gases emitted into the atmosphere. Environmental programs that the organization may participate in enhance the image of the company making it more attractive to the customers and other business clients.
Internal Stakeholders
A few decades ago, the primary aim of conducting business was to ensure high profits are earned which would serve to the best needs of the shareholders. However, with the transformation of modern business, the corporations have to take into consideration the various interests of the internal stakeholders. While the focus has usually shifted from making profits to ensuring customer satisfaction, these internal stakeholders continue to bear significant importance in the competitive advantage that the company bears. Some of these internal stakeholders include shareholders, board of directors, management, and employees.
Shareholders
In considering the interests of the shareholders it is evident that the organization has a duty to conduct its daily operations in such a way that leads to the continued profits for the shareholders. The firm encourages its shareholders to invest in its stock and promises to operate in such a way that it will be beneficial to them. The CEO is driven towards taking risks that will result in market leadership. In the creation of Amazon as a selling and fulfillment platform, it took three tries which Bezos notes was worth the risk. Making bold rather than timid investments is an appropriate approach that Amazon utilizes to achieve competitive advantage. In so doing, the firm will be able to manage
Board of Directors
The board of directors is an important internal stakeholder whose primary role is to ensure the company’s prosperity by collectively directing its affairs, whilst meeting the interests of the stakeholders. In this practice, the board of directors has had a major impact on the operations of Amazon as seen in numerous activities. The board recently approved the acquisition of Whole Foods a grocery department chain that effectively complements the objective of the company to become a leader in consumer goods. The board of directors has participated in expanding the research and development department that continues to generate ideas and innovative measures that will improve the practices and operations of the firm. In Amazon Inc, the importance of the board is stressed as it establishes and reviews corporate strategies and goals of the company to ensure that the firm is ready for any oncoming challenges and to grasp arising opportunities of the future. This practice takes into consideration ethical practices of the management personnel as well as the regular employees as they represent the image of the company.
Management
The success of large corporations heavily hinges on the management practices. The founder and CEO of Amazon, Jeff Bezos stresses that the decision-making procedures in large corporations are critical in achieving and maintaining the success. In relation, he argues that there are two types of decisions, “Type 1 decisions” which are irreversible and mainly involves the senior executives of the company. However, a large number of tactical calls identified as “Type 2 decisions” that can be reversed when things go wrong. The argument in this case is that many large companies fail due to their extensive use of the “Type 1 decisions” which results in lengthy processes and burnout for the management team. Bezos points out that the majority of decisions in the organization should employ the “Type 2 decisions” as they are made by high judgment individuals and small groups. The inability to incorporate both decision-making methods results in stagnation and risk aversion. Therefore, Amazon has taken the approach of nurturing a workplace environment where leaders and management personnel empower their employees to develop out-of-the-box ideas and innovations that will drive growth of the company.
Employees
Amazon Inc has acknowledged the importance of employees as critical determinants of organizational performance and achievements of its objectives. The retail industry is believed to have one of the highest employee turnovers as there has been a high disregard for the group. This experience is evident in retail giants such as Walmart. However, Amazon has taken an alternative approach by ensuring that it addresses the various interests of this stakeholder group to minimize this outcome. For instance, the organization offers competitive compensation and career development plans. In this case, the workers of the organization wish to feel fulfilled in as they perform their individual tasks. Through compensation strategies such as stock, bonuses, and profit sharing, the firm is able to give its workers a stake in the success of the company. In the quest to achieve these high standards of performance, it is essential that the corporation identifies skillful workers and develops those skills to the benefit of the employee and the individual as well. The firm depends heavily on IT personnel hence the ability to provide the sustainable expansion and growth. In this relation, the employees can realize career advancement opportunities especially in management and leadership positions.
Conclusion
The above analysis of the external and internal stakeholders of Amazon Inc it is evident that there are numerous forces at work in ensuring the success and continued growth of the company. The external forces may have strong to moderate influence that may be beyond the control of the company. As a result, the leaders of the firm have to conform to these influences to guarantee continued growth and high performance in their operations. However, the internal stakeholders are within the controls of the company and offer an effective measure towards the achievement of the goals set by the company. Amazon has shown strong and effective influence on the internal stakeholders to drive the company to become the largest online retailer in terms of revenue.
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