Strategic Management of Amazon: Ownership, Governance, Cost and Differentiation Advantage, Value Chain and VRIO Analysis

This report discusses the strategic management of Amazon, covering ownership structure, internal and external governance mechanisms, cost and differentiation advantage, value chain and VRIO analysis. It also includes recommendations and conclusion.

Running Head: Strategic Management
Amazon
Strategic Management

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Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................3
Ownership structure.....................................................................................................................3
Internal and external governance mechanism..............................................................................3
Cost and differentiation advantage..................................................................................................5
Value chain Analysis.......................................................................................................................6
VRIO Analysis.................................................................................................................................8
Recommendations............................................................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

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Executive Summary
This report will discuss the strategic management of Amazon. It is the largest e-commerce
company across the globe in terms of market capitalisation and revenues. First section of the
report will evaluate ownership structure of the organization along with the discussion regarding
internal and external governance mechanisms which affects organizational performance. These
mechanisms are external forces and in relevance with reducing their impacts appropriate
strategies will also be discussed. Next section of the report will include the strategies adopted by
organization in order to differentiate its image from its competitors. Further, report will focus
over the value chain and VIRO analysis framework with regards to the identification of
organizational actions which have helped the organization to attain competitive advantage in the
global online retailing industry.

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Introduction
Amazon is an online retailing company based in Seattle, Washington. Amazon.com, Inc. is
known as Amazon across the globe. Company is delivering its products and services in more
than 188 countries through e-commerce platform along with 12 registered offices in different
countries. It was founded by Jeff Bezos in 1994 and initially, Amazon was selling books from a
garage. Jeff Bezos, CEO of Amazon Inc. once dreamt for selling everything on internet which
was, later on, came true and today Amazon is one of the largest online retailers across the globe
with millions of product and service offerings. The company is present in Asian countries,
United Kingdom, United States, and Australia and in various other countries. With its huge
product and service offerings, organization has developed its effective place in the e-commerce
industry. Amazon is on the leading position in the e-commerce industry in terms of revenues and
market capitalisation while, in terms of total sales, Amazon is holding second place after Alibaba
Group (Amazon.com, 2018).
Primary objectives of organization are to set up their presence in those parts where organization
is not yet present. Amazon’s CEO has adopted the GLOCAL strategy which is efficient in terms
of market entry and organizational growth strategy. Motto of this strategy is to expand
organizational business in the national as well as in international market. This strategy says “go
global, think local”. With relevance to this strategy, organization has attained sustainable growth
and development objectives along with the development of an effective brand image in the target
market (Hill, Jones & Schilling, 2014).
This report will cover the aspects such as ownership structure of organization, external and
internal governance mechanisms and different types of external controlling factors which affects
organizational performance. This helps organization to develop unique and advanced strategies
in order to deal with these factors so that organizational performance does not get affected.
Further, the report will aim over the aspects of basic sources of cost and differentiation
advantage in the industry. Along with this, the report will also cover the aspects under which
organizational position will be analysed amongst the competitive business environment. Next
section of report will aim over value chain analysis in relation with identification of sources of
gaining competitive advantage. Last section of the report will discuss VIRO analysis in relation

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with determining whether the acquired position is adequate for organization or not so that the
corporate governance mechanism could be analysed.
Ownership structure
Amazon is a fourth most valuable public company across the globe. Apple, Alphabet, and
Microsoft are ahead of Amazon. Apart from this, Amazon is the largest Internet Company in
terms of revenues across the globe and it is the second largest employees in United States after
Walmart. Along with this, Amazon has acquired Whole Foods Market in $13.4 billion and this
helped the organization to increase its presence in terms of a brick-and-mortar retailer. Further,
in 2018, Jeff Bezos, CEO of Amazon released its shareholder letter the number of Amazon
Prime subscribers. It is approximately 100 million which is 64% of households in the United
States (Hitt & Duane Ireland, 2017).
Internal and external governance mechanism
It is necessary for an organization to set effective corporate governance in order to set as well as
to meet with its strategic goals. Structure of corporate governance combines policies, guidelines,
and controls which helps the organization to move towards the appropriate direction for the
attainment of set goals and objectives (Wheelen, Hunger, Hoffman & Bamford, 2017). These
mechanisms also help the organization to satisfy its stakeholder’s needs along with developing
an effective brand image in the competitive and dynamic business environment. In corporate
governance, numerous mechanisms are involved which are as follows:
 Internal Mechanism: Primary controlling measures are part of internal mechanisms.
These are the controlling measures which monitor the progress and the activities of
organization. With regards to these mechanisms, corrective actions are being taken by the
organization when business goes off track in order to get in on the track. It is necessary
for an organization to adopt appropriate measures through which internal factors could be
dealt with in an effective manner. Along with this, these measures also help the
organization to serve the internal objectives of the organization including stakeholder's,
employees', managers' as well as owners' needs. Internal factors need to be controlled in
relation to the attainment of internal objectives. These objectives include clearly defined
reporting lines, performance management systems and smooth operations. Whereas,

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internal mechanisms include independent internal audits, oversight of management, and
segregation of policy development (Akter & Wamba, 2016).
 External Mechanism: External control mechanisms are controlled by the external bodies
of an organization and these mechanisms serve objectives such as regulators,
government, financial institutions, etc. Objectives in relation with external mechanisms
include management of debt and legal compliance. External stakeholders of organization
act as the external mechanisms for organization and with regards to this, Amazon and
other companies report the status and compliance of external corporate governance
mechanism for controlling functions of external stakeholders (Chaffey, 2015).
Apart from these mechanisms, there are various other forms of control which need to be adopted
by an organization with regards to the controlling of organizational operations. In relation to this,
it is necessary for the organization to determine the significance of their external bodies which
could affect the performance of the organization (DeFranco, Morosan & Hua, 2017). These
forms of external control are as follows:
Independent audit: It is a crucial part of corporate governance structure. Independent external
audit is executed for the purpose of analysing the organization's financial statements. Results
originated from the execution of independent audit helps the organization to serve its internal as
well as external stakeholders. This audit portrays clear picture of the organization amongst the
stakeholders and it helps them to take decision on the basis of financial performance portrayed
through financial statements. Controlling or amending organizational financial performance is
not in hands of organization and on the basis of financial performance, stakeholders create
picture for the organization. Independent audit is a primary tool through which organization
could easily attract the investors and public to invest in the organization as well as to build an
effective image amongst them (Hua, Morosan & DeFranco, 2015).
Cost and differentiation advantage
Amazon has acquired leading position as an online retailer in the global e-commerce industry.
Primary reason for organizational success, growth, and development is their strategies and
approaches (Liu & Hong, 2016). Basic sources through which an organization could enhance its

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effectiveness in the market are cost management and unique measure adopted for differentiating
its products and services from the competitors. Amazon is operating in various parts of the globe
and every country has different conditions, thus, it is necessary for the organization to adopt
advanced level strategies which could generate positive outcomes irrelevance to the type of
market conditions or strategies needs to be designed as per the market conditions. Amazon
designs their strategies on the basis of organizational requirements and market conditions so that
set goals could be accomplished (Boyd & Solarino, 2016).
Amazon mainly focuses over cost management, reduction in cost and in terms of waste
management so that the profit margin could be maintained along with the objective of attainment
of competitive advantage (Formentini & Taticchi, 2016). Following strategies have been adopted
by Amazon with regards to the attainment of organizational goals and objectives along with
differentiating its products and services from its competitors:
 GLOCAL: It is a primary tool adopted by Amazon in relation to setting up an effective
image in the international market along with gaining a competitive advantage. This
strategy’s motto is “go global and think local”. Whenever Amazon enters into a new
market, the GLOCAL strategy is being executed in order to accomplish its desired goals
and objectives with regards to the attainment of an effective brand image in the target
market along with the attainment of competitive advantage in the new target market
(Aguilera, Desender, Bednar & Lee, 2015).
 IMC Plan: Integrated marketing communication plan of Amazon is also one of the most
effective strategies which have helped the organization to differentiate its image from its
competitors. Amazon has adopted both traditional as well as non-traditional forms of
communication with regards to the positioning of brand image amongst the target
audience. Every communication medium has its own advantage and with regards to this,
Amazon has integrated traditional and non-traditional forms of communication. This
helps the organization to approach to large section of the target market which ultimately
enhances scope for organization in terms of attainment of desired goals and objectives
(Sørensen & Torfing, 2016).
Amazon is a largest online retailer across the globe in terms of revenues and their operations area
is also wide. It operates mainly in three segments i.e. media, electronics and other merchandise.

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In every segment, competitors exist for Amazon and in order to maintain their acquired position
as well as to differentiate its products and services from its competitors, it is necessary to adopt
unique strategies. In media segment, eBay is a primary competitor in terms of an auction site,
and Netflix is a major competitor in terms of media game changer, Time Warner Cable, iTunes,
etc. (Weber & Jones, 2016). Apart from the media segment, Amazon has several competitors in
electronics market and Alibaba Group is one of the primary competitors and it stands on the
leading position in terms of total sales. In the third operating segment, Amazon competes with
several of the world's largest companies including CDW, PC Connection, Insight Enterprises,
Oracle, salesforce.com, Accenture and Citrix Systems, among others (Heide, Kumar & Kumar,
2014). Company reported $161.15 billion revenues in fiscal year 2017 and at the beginning of
2018, the company had market capitalisation of $607.20 billion.
Figure 1: Strategic map
Strategic group is a concept which is mainly used in strategic management and primary purpose
of this concept is to combine companies of same industry, who have similar business functions,
business models and combination of strategies. Strategic group for Amazon could be defined in
different categories such as media, electronics and other merchandise. Above figure shows the

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strategic map of Amazon in terms of online retail industry. This group segregates companies
with the same business models on the basis of product’s quality, product offering, price and
presentation of products (Gereffi & Fernandez-Stark, 2016).
Value chain Analysis
It is an analytical framework which helps the business entities to identify the effective activities
in relation with the organizational operations which could create value for the organization and
ultimately, it could help the organization to attain competitive advantage.
Figure 2: Value chain analysis of Amazon
Inbound Logistics
Amazon has inbound inventory system in terms of providing products to its target audience with
regards to the increasing customer satisfaction. This also helps the organization to enhance the
reliability of customer for organization through huge product offering. Inbound logistics of
organization is FBA (Fulfilment centres by Amazon). In this case, Amazon assumes full
responsibility for logistics, customer service, and product returns. Apart from this, Amazon ships
both FBA as well as Amazon owned-inventory items in same box so that brand image could be
sustained amongst the target audience (Jaligot, Wilson, Cheeseman, Shaker & Stretz, 2016).
Operations
Amazon’s operations are segregated into three segments:

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 This segment operates majorly focuses in North-America region. In this region, company
operates as Amazon.com, amazon.ca, amazon.com.mx. This has been analysed that sales
in these segments have been increased by 23%, 25%, and 25% in 2014, 2015 and 2016
respectively in terms of the previous years (Richards, 2015).
 Apart from North-America, organization also performs in international market in terms
of websites such as amazon.com.au, amazon.com.br, amazon.cn, etc. In relation with
this, organizational international sales have been increased by 12%, 6% and 24% in
2014, 2015 and in 2016 respectively in comparison with the previous years.
 Amazon web services are another important operational aspect of Amazon which offers
pay-as-you-go cloud storage, networking, compute resources, and computing services.
This platform plays vital role in terms of building applications and major companies like
Tata Motors, Qantas, GE, etc. use this platform for building their mobile applications.
This platform provides more than 516 features and services and it also has more than
millions of customers which represents organizations of various sizes (Mudambi & Puck,
2016).
Amazon outbound Logistics
Amazon currently operates more than 100 fulfillment centers across the globe and these
fulfillment centers are huge in terms of size. For managing, stock, picking, receipt, and shipment
of product, Amazon uses robotic technology. Specifically, Amazon Robotics, which started with
the acquisition of Kiva in 2012, now uses more than 15,000 robots to support the stowing and
retrieval of products at a higher density and low costs. Along with this, the organization has also
announced the Prime Air services under which drones will be used for the purpose of delivering
products to the customers within minutes after placing orders (El-Sayed, Dickson & El-Naggar,
2015).
Amazon marketing and sales
Annual global marketing expenses are increasing rapidly as Amazon has adopted numerous
methods of marketing and promotion. Amazon is continuously enhancing its operational area
and in relation to this, it is constantly expanding its business in the international market
especially where company is not yet present. In terms of promoting its products and services, the

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organization is using components such as marketing mix and in this mix, print and media
marketing, sales promotion, direct marketing, public relations in order to communicate the
message to the target customer segment (Kogut, 1985).
Amazon service
Amazon claims that it is the Earth's most customer-centric company and in relation with this,
company offers exceptional customer services. Amazon's Marketplace and Prime are two
significant service platforms which provide an effective platform to both sellers as well as to the
buyers to fulfill their needs. For sellers, Amazon offers seller coaching program where sellers
could sell their products and services to their target audience and this lead the organization to
enhance its product offerings. With the help of this product offering, organization attracts its
target audience and provides them a huge choice amongst the products and services to avail and
consume (Lin, Tsai, Wu & Kiang, 2012).
With the help of this, organization has attained leading position in terms of revenues, market
capitalisation across the global online retailing industry. With regards to the above-discussed
elements of Amazon's operations, it could be said that organization has managed its operations in
an effective manner. These have helped the organization in relation with the attainment of set
goals and objectives along with the originating opportunities for acquiring an effective position
in the international market where Amazon is not yet present (Daellenbach, 2015).
VRIO Analysis
This analysis is an analytical tool to evaluate company’s resources in relation with the attainment
of competitive advantage. The dimensions used for evaluating organizational position in the
target market as per this analysis is done on the basis of value, rareness, imitability and
organization. The major focus of this analysis is to evaluate the micro-environmental resources
of organization such as financial resources, human resources, material resources, and non-
material resources. This analysis’ primary motive is to evaluate company’s resources in order to
determine company’s competitive advantage or weakness (Sheng & Kodono, 2014).
Company is known for delivering high quality products and services to the target customer
segments and with the help of this, organization has attained an effective position amongst the

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global online industry. Company’s primary segments are inbound logistics, outbound logistics,
marketing and sales, operations and services. With regards to this, organization provides
numerous choices to its customers in order to meet with their demands and wants. Apart from
this, organization has also announced to launch Amazon Prime services as a speedy delivery
system. This delivery system will be an effective strategy for enhancing customer satisfaction
which will help the organization to improve its brand image in the target market. Strategies
adopted by organization are effective enough to generate appropriate opportunities to control the
governance mechanisms which affect organizational performance. Apart from this, it will also be
beneficial for the objective of attainment of competitive advantage in the competitive business
environment. With this regard, organization could easily accomplish its goals (Ryan, 2016).
Recommendations
It has been recommended to the organization to set certain benchmarks to maintain the quality of
their products and services for maintaining their acquired image as the giant player of e-
commerce industry. Its closest competitors are Wal-Mart, eBay and Alibaba Group. With regards
to the attainment of competitive advantage, it is necessary for the organization to adopt
appropriate strategies to differentiate its products from its competitors as well as to enhance its
market image in the target customer segment. Other crucial measures through which
organization could attain competitive advantage as well as to defend the current competitive
image in the target market, organization requires to adopt appropriate marketing and promotional
strategies for staying in touch with the target customers. Apart from this, it is required for the
organization to survey market conditions along with determining target customer’s needs so that
new products and services could be introduced for the objective of fulfilment of their needs and
wants. This is another significant aspect through which competitive advantage could easily be
attained.

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Conclusion
From the aforesaid information, it can be concluded that Amazon is one of the giant player of e-
commerce industry and in terms of attainment of its set goals and objectives, organization
regularly update its strategies on the basis of its target customer’s needs as well as on the basis of
market conditions. In this report, strategic management of Amazon has been discussed under
which organizational ownership structure has been discussed. Apart from this, internal and
external governance mechanisms have also been covered in this report with regards to the
organizational operations. Further, several strategies have also been discussed to attain
competitive advantage. VIRO and value chain frameworks have also been discussed for
determining organizational operations along with identifying resources through which
organization have attained competitive advantage.

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