Innovation for Sustained Competitive Advantage: Amazon Strategy

This report provides a comprehensive analysis of Amazon's innovation strategy, examining how the company utilizes innovation to achieve a sustained competitive advantage in the e-commerce market. It begins with an introduction to innovation and its significance, followed by a background of Amazon and a critical analysis of its external environment using SWOT, PESTLE, and Porter's five forces models. The report then delves into the internal environment, employing value chain analysis to assess how Amazon currently addresses its innovation strategy. Recommendations are provided to adjust or reinvent a new strategy that capitalizes on innovation opportunities, followed by implications for stakeholders and a concluding summary. The report highlights the dynamic nature of the external environment and the importance of innovation for long-term sustainability and competitive advantage, focusing on Amazon's ability to adapt and leverage technological advancements.

STRATEGY
[HOW INNOVATION CAN BE USED USED
AS A SOURCE OF SUSTAINED
COMPETITIVE ADVANTAGE]
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Table of Contents
Introduction .........................................................................................................................................3
Background of the company.......................................................................................................3
Critical analysis of the organization's external environment and an assessment of how it impacts its
choice of strategic position in its innovation strategy .........................................................................3
SWOT analysis............................................................................................................................4
PESTLE analysis.........................................................................................................................4
Porter's analysis...........................................................................................................................5
Critical analysis of the internal environment of the firm and how it impacts its strategic position in
its innovation strategy ..........................................................................................................................6
Value Chain Analysis..................................................................................................................7
How the organization currently addresses innovation strategy ...........................................................9
Recommendations to adjust or re-invent a new strategy that takes advantage of innovation
opportunities.......................................................................................................................................10
Implications for stakeholders ............................................................................................................12
Conclusion .........................................................................................................................................13
References..........................................................................................................................................14
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Illustration Index
Illustration 1: Porter's five forces ........................................................................................................7
Illustration 2: Value chain analysis ......................................................................................................8
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INTRODUCTION
Innovation is the method through which new techniques can be adopted for business
purposes for achieving more opportunities of growth and success (Lewis and Wright, 2012).
Business entities who emphasizes more on innovative strategies generate more opportunities of
sustainable competitive advantage. The present research study been made on Amazon which has
range of products and services due to focus on innovation and creativity. Thus, regarding this
external and internal environment of the organization has been scrutinized through using strategic
models. Furthermore, researcher has also discussed the ways through which challenges and issues
related of organizational strategies are managed. Apart from this, several recommendations are also
stated in the study regarding reinvention in innovative strategies. Lastly, implications for
stakeholders have been stated regarding organizational innovative strategies.
Background of the company
Amazon plc is an American electronic commerce and cloud computing company which
delivers wide range of products to customers through the internet based retailing system. Amazon
has its separate retail websites for many countries in the world and along with this, it also offers
international shipping to certain countries for some of the products (Amazon.com Continues to Be
the Most Innovative Retailer in the World. 2014). From historical point of view, Amazon started its
business as a online book seller; however after a certain period of time, the company started
producing consumer electronics. Thus, Amazon is now considered as a world's largest provider of
cloud infrastructure services. In the year 2015, Amazon surpassed Walmart as the most valuable
retailer in United States by market capitalization (Why Amazon wins | Innovate the core, innovate to
transform. 2015). At present, company is considered as the best e-commerce entity in terms of
service delivery as it make sure that product ordered by the customers are delivered within the
specific period of time or even before.
CRITICAL ANALYSIS OF THE ORGANIZATION'S EXTERNAL ENVIRONMENT AND AN
ASSESSMENT OF HOW IT IMPACTS ITS CHOICE OF STRATEGIC POSITION IN ITS
INNOVATION STRATEGY
Amazon has been working in competitive market place where numerous business entities
sells same sort of products and services. As per the market situation, environment keeps on
changing and it also brings varied opportunities for business entities. In the below mentioned
section, information about macro and micro environment has been included so as to get clear idea
about external environment.
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SWOT analysis
Opportunities
 Amazon can come up with its own
brands in different product categories
(Lewis and Wright, 2012).
 Expansion in Asia and developing
economies will enhance success aspects
because of low competition in E-
commerce industries (Why Amazon wins
Innovate the core, innovate to transform,
s2015).
 It can also acquire E-commerce
companies so as to decrease the
competition level (Baer, 2012).
Threats
 Low entry barriers affects the current
business through competition, price wars
and shrinking margins (Stylianou-
Lambert, 2012).
 Issues in multi branding retailing is a big
hurdle for Amazon's success (Lewis and
Wright, 2012).
 Local competition from Snapdeal and
Flipkart are taking away majority of the
market (Dul and Ceylan, 2014).
PESTLE analysis Political: Due to political stability, Amazon has the opportunity expand the business more in
new markets. At the same time, Amazon can also manage trade related practices in effective
manner due to political stability. Economical: Amazon should consider Asian markets as entry in such market could enhance
economic capacity of the business. Amazon has to adopt new economical tendencies so that
business may survive in this market place for longer time period. Social: Amazon has the opportunities to amend the market share because the company has
wide range of products and services. According to needs and preferences of customers,
Amazon is making changes in company's processes (Enachescu and Damasaru, 2013). Technological: Amazon has been using technological sources so that innovation and
creativity in the business practices can be increased. All the products and services are
distributed to the customers through electronic sources; hence this depicts that the business
is making adequate use of technological sources. Environmental: Amazon is managing the business activities in adequate manner through
adopting different methods for environmental protection. In order to manage the business
activities, Amazon is focusing on eco- packaging so that products can be properly delivered
among the customers.
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 Legal: Issues related to taxes and other subsidies are increasing because Amazon is adding
range of products in company's product list. Legal issues are increasing due to copyright
management and environmental aspects (Anderson, Potočnik and Zhou, 2014). Operating in
such a competitive environment it is important for cited firm to undertake all the legal
policies and legislations so that each and every operation is executed in ethical manner.
Porter's analysis
Forces Description High / Low / Moderate Risk
Risk of entry by potential
competitors
In the sector of E-commerce,
intensity of competition is
increasing several entities are
operating in the marketplace.
Economy of scale, new market
players, potential new market
entrants, innovative features
and capabilities are some of the
challenges which business
entities are facing from existing
firms.
High Risk
Rivalry among current
competitors
There are various companies
operating business in the same
sector; hence Amazon has
competition (Baer, 2012). The
major competitors are Barnes
and Noble.com and eBay.
Moderate Risk
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Bargaining power of buyers Bargaining power of customers
is considered to be relatively
high as customers have many
options which they use from
their mobile devices. Since,
Amazon does not have a
physical store; hence it offers
low prices goods to the
customers through internet
services. The company also
manages to use buyer power as
a source to attain competitive
advantage because products are
more valuable.
High risk
Bargaining power of suppliers Suppliers have a high power
and Amazon cannot compete
with the suppliers since they are
important and committed to the
company. Therefore, it is
important for the management
to maintain relationship with
suppliers so that they provide
quality of raw materials through
the means of which Amazon
can enhance customer service
(Dul and Ceylan, 2014).
High risk
Threat of substitute products Threat from substitute products
is increasing as there are
various entities that deliver
same sort of services to the
customers at the same
marketplace.
Moderate risk
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Hence, from the discussion it is clear that external environment of the business is changing
rapidly due to many factors. Market scenario in this sector is transforming because of range of
substitute products and services (The Innovations That Took Amazon From Online Bookseller To
Dominant Global Marketplace, 2013). Due to this facet, Amazon is required to focus more on
innovative and creative aspects so that its brand image can be developed.
CRITICAL ANALYSIS OF THE INTERNAL ENVIRONMENT OF THE FIRM AND HOW IT
IMPACTS ITS STRATEGIC POSITION IN ITS INNOVATION STRATEGY
Amazon is more focused towards innovative approaches so that long term sustainability and
competitive advantage can be acquired. According to company's vision, all the employees manage
their roles and responsibilities in prominent manner and this also assists them to utilize
organizational resources in prominent manner. In the below mentioned section, several tools are
stated through which internal environment of Amazon can be accessed.
Value Chain Analysis
With the help of this model, Amazon can analyse the business activities that create value and
competitive advantage to the business.
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Illustration 2: Value chain analysis
(Source: Yeh-Yun Lin and Liu, 2012)
Primary activities Inbound logistics: Generally, Amazon do not have long term contracts or arrangements with
its vendors to guarantee the availability of products especially in the area of making
payments for products and services. Fulfilment by Amazon is the cornerstone of Amazon's
inbound logistics for company- owned retail business (Why Amazon wins | Innovate the
core, innovate to transform. 2015). The business is entirely responsible for logistics,
customer service and product returns. Further, the use of FBA is an optional choice for
sellers and this choice makes the products of third party sellers eligible for Amazon Prime
free two day shipping, free shipping and other benefits. Operations: Market place is one of the main sources of Amazon revenues. Hosting
merchants from more than 100 countries assist Amazon to make deals with different entities.
All the operations of Amazon are globally operated; hence this helps the business entity to
adopt more approaches for creativity and innovation. Nonetheless, the business is also able
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to offer fast and free shipping which enhances profitability such as economies of scale
(Amazon.com Continues to Be the Most Innovative Retailer in the World. 2014). Amazon
Web Services is also launched and it also provides a platform for building applications. Outbound logistics: Amazon operates 109 fulfilment centres around the globe and the
company uses robotic technology in an extensive manner to manage picking and shipment
of products. The company has willingly invested in massive financial investment which also
aids in managing the logistics facilities. In order to manage organizational operations,
Amazon has bought trucks and trailers as well. Marketing and Sales: Marketing budget of Amazon has been continuously increasing for
the last five years. Several components of marketing communication mix such as public
relations, direct marketing, sales and promotion are used in an integrated manner to
communicate the marketing message to the target customer segment (Yoshida and et.al,
2014). This not only generates awareness about the products; but also assists the business to
promote the services to diverse market places.
 Services: Amazon has been focusing on better customer services so that existing customer
base and satisfaction level can be increased. This is yet another approach through which
competitive advantage and long term sustainability can be acquired. At the same time,
services should be prominently delivered for customer retention. For example- Amazon has
started
Support services
 In terms of support services, Amazon is investing more in firm's infrastructure so that all the
products and services can be arranged in effective manner (Yeh-Yun Lin and Liu, 2012).
 Further, human resources of Amazon are managing their roles and responsibilities in
prominent manner which helps the business to deliver adequate services to the clients.
Similarly, HR also ensures that all the employees are taking part in organizational decision
making system so that to enhance the frequency of innovation and creativity.
 Amazon is getting huge assistance from technological facets which assists the business
entity to deliver convenient services to the customers. Moreover, extensive use of
technology also assist Amazon to amend the degree of innovation and creativity (Stylianou-
Lambert, 2012).
For continuous improvement, Amazon emphasizes on user survey through which the
business also acquires feedback from the customers regarding the effectiveness of products and
services. Amazon know that customers do not pay for waste services; thus the business focuses
more on waste prevention under the concept of lean. Company's information technology is good
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which understands the needs and preferences of customers. Thus, from the discussion it can be said
that innovation is the major aspect that needs to be considered so that competitive edge can be
created among the rivalries. At the same time, it has also been observed that Kaizen philosophy is
adopted by the business entity for continually improving the products, processes and activities of
the business (Somech and Drach-Zahavy, 2013). This also assists in meeting the changing
requirements of the organizational standards.
Core competencies and capabilities of Amazon
Amazon has the capability to retain the customers on higher extent because of the quality
and variety of products. Further, the business is also growing due to focus on innovative products
and services. All the process of Amazon are innovative from business point of view and it also
ensures that organization is creating competitive edge over the rivalries.
Strengths
 Amazon has wide range of products
which helps in acquiring greater benefits
from the market place (Yoshida and et.al,
2014).
 In order to differentiate itself, company
has created strategic alliances with other
business entities to offer superior
customer service.
 Amazon has created a deep and
structured network to make product
available to the customers.
Weaknesses
 Amazon's margins are shrinking due to
extensive delivery network and price
wars.
 In many developing nations, Amazon is
still struggling to make the business
profitable thereby it affects overall
profitability (Somech and Drach-Zahavy,
2013).
 Product flops is the most common
weaknesses of Amazon.
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Mission and vision statement
Amazon's vision is to be the most customer centric company and also to build a place where
people can explore anything they want to buy online.
Mission of Amazon is to offer quality products and services through using best technology
available at reasonable price.
HOW THE ORGANIZATION CURRENTLY ADDRESSES INNOVATION STRATEGY
Amazon is considered as the most innovative retailer in current scenario due to the product
categories and services. It is the result of innovation only that the business is able to make rapid
transformations in the existing practices. As per company's philosophy, innovation is part of the
Amazon's DNA and over the past 15 years, the company is constantly adding and refining
technology that can amend and improve the experience of customers (Oman and et.al. 2013).
Regarding this, the main focus of the company is to provide proper services to the customers so that
they can find right product for them. Apart from this, Amazon should also ensure that they are
ordering and delivering the services as fast as possible in a seamless process. Amazon has been
emphasizing on innovative prospects so that long term strategies can assist the business entity to
grow and prosper more. Amazon has been searching for more opportunities so that it can reinvent
its business models and can find new ways to create value for the business.
Innovation is also there in the area of corporate culture where in Amazon involves different
products and services so as to meet the requirements in best possible manner. The Amazon
marketplace allows thousands of UK businesses to sell their products to customers across the UK
and all over Europe through providing independent sellers (Lewis and Wright, 2012). Organization
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