BM627: Amazon's Innovation Capabilities in the Retail Industry

This report assesses Amazon's innovation strategies within the competitive retail industry, focusing on e-commerce trends and future predictions for 2020 and beyond. It highlights the growing dominance of Digitally Narrative, Vertically Integrated Brands, the rise of omnichannel commerce, the integration of Augmented Reality and Artificial Intelligence, and the continued importance of physical stores. The report emphasizes Amazon's business model innovation as a key competitive advantage and identifies the company's innovation requirements, including access to advanced technology, simplified business processes, and a positive organizational culture. It recommends a systems thinking approach to stakeholder engagement and deep engagement at multiple levels to promote innovation. The report also addresses potential change management issues, such as resource limitations and skill gaps, and suggests strategies for building future innovative capabilities within Amazon.

Managing Innovation
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Executive Summary
This report focussed on Amazon and the retail industry is considered to be very competitive in
nature owing to the numerous of firms competing in the industry. The assessment of the e-
commerce demonstrates that evolving technologies and customer expectations will lead to retail
innovations across the industry, from online-only brands to retail giants. Based on the current
trends which are shaping the e-commerce sector, the various predictions which can be made
regarding the future of the e-commerce industry in 2020 and beyond are namely growing
dominance of Digitally Narrative, Vertically Integrated Brands, growth of omnichannel
commerce, growth of Augmented Reality and Artificial Intelligence for create more connected
experiences and increase in the number of physical stores. The business model innovation of the
company empowers them in delivering a wide portfolio of customer value propositions further
serving as its primary competitive advantage. Amazon demonstrates that even when the
customers are equipped with many choices, their business model innovation has eventually made
it possible that revenues and opportunities of growth flow from elementary way a business is
placed together. The main innovation requirement of the company is access to advanced
technological which will enable them to create extraordinary customer experiences which will
help in driving the sales of retail products of the company. The other vital innovation
requirement of the company is simplified business process and positive organization culture as it
will help in determining the efficiency and productivity of the innovation initiatives and projects
of the company. The type of stakeholder approach which the company should adopt in order to
promote innovation in the organization is systems thinking approach in which the company will
engage stakeholders who impact the company’ system or sector and also should engage
marginalized people or individuals who possess lesser power. The type of stakeholder approach
which should be adopted by Amazon with intent of promoting innovation in the organization is
systems thinking approach in which the company will engage stakeholders who impact the
company’ system or sector and also should engage marginalized people or individuals who
possess lesser power. The level of engagement which Amazon must follow is deep engagement
in which the company will focus on multi-level engagement which also includes the internal
stakeholders of the company on various material issues which impact the corporate culture of the
company. There are various change management issues which can be faced by Amazon
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regarding developing future innovation capability such as lack of resources and in-efficiency of
the human resources of the company regarding lack of required skills.
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Contents
Executive Summary.........................................................................................................................1
Introduction......................................................................................................................................4
Discussion........................................................................................................................................4
Conclusion.....................................................................................................................................13
References......................................................................................................................................15
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Introduction
Amazon has established itself as the leader in the world’s e-commerce industry owing to the
strength and core competencies of the company. The company has managed to sustain the level
of competition in the retail industry owing to the innovation approach adopted by the company.
The innovation approach which is adopted by the company helps in offering products and
services to the customers which exceeds the expectations of the customers. The main purpose of
the assignment is to analyse the future of the retail industry beyond 2020 which will help
Amazon to analyse whether they have the necessary infrastructure to sustain in the industry in
the future and accordingly developing strategies in order to remain aligned with the future
requirements of the retail sector. The current assignment also helps in analysing the innovation
requirements of Amazon for meeting the future expectations of the buyers and also for remaining
aligned with the future state of the retail industry beyond 2020. The current report also helps in
analysing the ways Amazon can build future innovative capabilities so that it can accomplish the
future innovation approach of the company. The current report also focuses on identifying the
issues which the company can face regarding incorporating changes in the company and the
strategies which can be implemented to address those issues. In order to innovate effectively in
the future it is recommended to Amazon to pursue an innovation strategy which supports the
growth and vision of the company and should maintain an organizational culture which will help
in fostering innovation in the organization.
Discussion
The future of the Industry 2020 and beyond
As stated by Progressive Grocer India (2019) since its introduction in the 1990s, the ecommerce
industry is yet to stop growing. Market experts predict that ecommerce retail sales in the US will
reach over $560.7billion in 2019, which is greater than $446.8 billion, which was its value two
years earlier. The analysis of the e-commerce demonstrates that evolving technologies and
customer expectations will lead to retail innovations across the industry, from online-only brands
to retail giants. Based on the current trends which are shaping the e-commerce sector, the various
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predictions which can be made regarding the e-commerce industry’s future in 2020 and beyond
are as follows:
Growing dominance of DNVB brands- As opined by Babelytė-Labanauskė and Nedzinskas
(2017) Digitally Narrative, Vertically Integrated Brands or DNVBs are online based companies
which sell their own products on their own websites. Digitally Narrative, Vertically Integrated
Brands remain competitive against retail giants such as Amazon and Walmart by reducing their
middleman and selling directly to their customers. The Digitally Narrative, Vertically Integrated
Brands often fit a specific niche and connects effectively with their specific target audiences
which help them to stand out among the noise. As opined by Cole and Letchinger (2016)
according to Internet retailer, Digitally Narrative, Vertically Integrated Brands are growing at
nearly three times faster rate than other average e-commerce retailer and they are not showing
any signs of slowing down. Going by the growth and popularity of the brands, it can be predicted
that these brands will dominate the market in the near future and will provide competition to the
e-commerce owing to their connectivity with their target customers, which they develop through
communication via e-mail or the development of a following on social media platforms.
Growth of omni-channel commerce- Though the concept of omni-channel commerce is not
new in nature, but it will not go anywhere, anytime soon. According to Harvard Business Review
a study conducted, it was revealed that 73% of the customers use multiple channels to shop. One
of the most vital things which should be kept in mind regarding the continuous rise of omni-
channels is a constant customer experience across every channel. As opined by Lopez et al.
(2018) omni-channel helps in blurring the line between physical and digital stores and making a
connected shopping experience imperative throughout the entire process. A customer can use
mobile, desktop and physical channels all throughout regarding a single purchase decision and it
is perceived as seamless.
AR and AI to create more connected experiences- The concept of augmented reality, artificial
intelligence and machine learning is becoming indispensable for various retail brands as it helps
in providing their customers with an unmatched shopping experience and therefore the above-
mentioned concepts are estimated to have a major say in the future of e-commerce. According to
Mele, Colurcioand Russo-Spena (2014) it is observed that e-commerce industry leaders are
currently using Artificial Intelligence for setting the standard of future e-commerce by providing
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more and more personal omnichannel experiences which surprise and delights customers
whenever they prefer to shop online. There are various game changing examples of artificial
intelligence in the retail sector to applications of augmented reality in retail sector which help in
bridging the gap between physical and digital experiences and therefore more and more e-
commerce retailers are implementing these next generation technologies in order to enhance
customer experiences. Retail Dive has estimated that yearly spending on Artificial Intelligence
will rise to $7.3 billion per year by 2022, from just $2 billion in 2018.
Increase in number of physical stores- Previously, the e-commerce sector focussed on
eliminating the need for physical stores but as late as 2021, physical stores are predicted to
account over 80% of retail. Digitally Narrative, Vertically Integrated Brands are estimated to set
up 850 physical stores in the coming five years. From Amazon’s book store to niche luxury
brand boutiques, retailers of all sizes are moving to online platform. As stated by Segarra et al.
(2016). The brands which do not want to commit to a permanent store, they set up pop-up stores
and therefore the popularity of pop-up-stores is on the rise. Store Front estimates that temporary
retail will generate close to $80 billion each year, in the coming 5 years. Pop-up shops helps in
generating social buzz through curated shopping experiences made to attract customers with
limited time-based offers and beautifully designed spaces.
The organization innovation Requirements 2020 and beyond
As stated by Lichtenthaler (2018) the real innovation within Amazon lies inside the reinvention
of their business model and to identify newer ways of creating values, conducting business and
getting paid for it. The nature of business model innovation is not a new innovation concept. The
business model innovation of the company allows the company in delivering a wide portfolio of
customer value propositions serving as the key competitive advantage. Philosophically, the
attention on constant focus on business model innovation keeps Amazon connected with the
entrepreneurial roots of the company, a coveted leverage which must be desired greatly even by
the biggest of the industry player. As stated by Tikasand KB (2017) Amazon demonstrates that
even when the customers are equipped with many choices, the business model innovation of the
company makes it feasible for revenues and the opportunities of growth in flowing from the
elemental way a business is placed together. The analysis of Amazon through the Pentathlon
Framework will help in getting an idea regarding the innovation requirements of the organization
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As opined by Yablonsky (2017) the five interlocking elements which are present in the
pentathlon model are ideas management and creativity management, prioritization, selection and
portfolio management, implementation management, innovation strategy and human resource
management. As opined by Dolkiewicz (2016) the pentathlon framework helps in
accommodating a greater range of softer organizational issues than the other traditional linear
innovation model. It helps in overcoming the deficiencies of the typical phased models by
including human resource management, ideas and creativity management, the selection of
priorities, and the importance of market conditions in context of the products, processes and
services. At the top of this particular model, lies the role of an innovation strategy which helps in
dictating what is required in terms of the focus and goals, communication, technology and
measure of success. In the middle of the model, a flow is frequently conceptualised within a
funnel, which indicates the move of the ideas through a prioritization process as and through to
implementation and new product development interactions with the marketplace. Below the
middle section, the pentathlon model helps in depicting the formalization of the human element
in innovation. The pentathlon framework is considered as distinctive from earlier model sin
including the human factor in the process of innovation by specifically recognizing how the
people and the organizational climate play an important role and consequently the value of
seeking a conducive culture where people are motivated to innovate.
The various stages of Pentathlon model are as follows:
Idea generation- The first part of the pentathlon framework is idea generation which is one of the
vital component of the research and development process of the company. In the idea generation
process, various new creative and innovative ideas ae being developed by the research and
development team of the company based on the demand of the market and the requirement of the
customers. The 4ps of creativity namely position, paradigm, process and product will serve as
vital aspect of the idea generation process of the company.
Selection and prioritization- After the generation of ideas, the next stage in the pentathlon
framework is selection and prioritization of the ideas based on the effectiveness of the idea,
resources required to implement the idea, risks associated with pursuing the idea and human
resource requirements for pursuing the ideas. In order to select and prioritize the best possible
ideas which are generates Amazon should rely on portfolio management which helps in
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analysing an idea based on risks and returns, stability and growth and drawbacks and attractions
in order to make the best possible use of resources.
Implementation- The last stage associated in the Pentathlon framework is implementation which
involves implementing the innovative processes, products and services in the market in order to
gain a competitive advantage in the market. Amazon should rely on the strong project
management skills of the company in order to implement the new product, service or process in a
successful manner in the market. Amazon should adopt an agile methodology as a part of its
project management which involves the team workers of the company working together in a
scrum sharing task in an informal manner in order to deliver output to the company in a
relatively short time period which will ensure the success of the implementation process of the
new ideas generated by the company.
As opined by Minna (2014) in case of Amazon it is observed that the innovation strategy of the
organization helps in defining the requirement of the organization in terms of innovation and
consequently new ideas and processes are developed which are prioritized and implemented
towards new product and service development based on their importance to the organization and
the human resources of the organizations play an important role in the innovation strategy and
they are constantly motivated for innovating.
As stated by Denning (2018) the main innovation requirement of the company are access to
advanced technological which will enable them to create extraordinary customer experiences
which will help in driving the sales of retail products of the company. The company has made
rapid transitions towards augmented reality, artificial intelligence and other innovative
technological concepts which have enabled the company to create extraordinary customer
experiences in the current time and as the expectations of the customers’ increases therefore the
company will require access to further advanced and innovative technologies for driving
innovation in the company. Another vital innovation requirement of the company is simplified
business process and positive organization culture as it will help in determining the efficiency
and productivity of the innovation initiatives and projects of the company.
Building the Future Innovation capabilities for the Organization
Stakeholders Engagement
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As stated by Yaghoubi et al. (2017) Amazon can move ahead by establishing consultation with
their stakeholders in regard to corporate image besides pursuing the opportunities for driving
affect with the help of getting engaged on challenges of issues that are mutual. Currently the
main aim of stakeholder engagement in Amazon is consultation in order to consult stakeholders
for surfacing new and emerging risks of relevance to the company. The main purpose of
stakeholder engagement for the company should be innovation and collaboration which will help
in including stakeholders in co-creation and partnerships on challenges of mutual interests.
As opined by TikasandAkhilesh(2017).Amazon should broaden their frame of reference for
including not only the direct stakeholders of the company but also should focus on including the
more diverse and divergent voices associated with the company, such as the supply chain
workers of the company and the individuals who are disproportionately affected as a result of the
adverse consequences of the business operations of the company. The type of stakeholders with
whom the company engages currently are the familiar stakeholders of the company, as the
company believes in engaging the stakeholders who are of the great strategic importance for the
company. The type of stakeholder approach which the company should adopt in order to
promote innovation in the organization is systems thinking approach in which the company will
engage stakeholders who impact the company’ system or sector and also should engage
marginalized people or individuals who possess lesser power.
As opined by Chesbrough (2017) Amazon should move ahead with higher level engagement
deeper integration of stakeholder engagement within its the corporate strategy across all
departmental functions spread over different geographical location it operates into. As opined by
TikasandAkhilesh (2017) the level of engagement which is followed by Amazon currently is
high level engagement in which the company the company focuses on engagement of the issues
which are related to overall corporate reputation of the company or project level risk of the
company. The level of engagement which Amazon must follow is deep engagement in which the
company will focus on multi-level engagement which also includes the internal stakeholders of
the company on various material issues which impact the corporate culture of the company.
Knowledge Management and Knowledge Transfer
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Knowledge Assets are defined as the critical inventions, patents or personal expertise which
slings the innovation of a company in the market which could be in the form of a collaborative
discussion or by the discovery of a new formula which leads to the development of the most
competitive product of the company in the market. As opined by Carroll andHelfer (2015) in an
increasingly innovative world, business organization must remain ahead of the curve by sharing
their knowledge assets in a symmetrical manner. Amazon is considered as one of the perfect
examples in order for demonstrating how to leverage internal and external knowledge for driving
innovation.
As stated by Saunila (2016) Knowledge assets are considered as the vital ingredients for the
success of Amazon as the competitive advantage of the company lies in mining of data and
digitalization rather than their physical goods. According to World Intellectual Property
Organization, Amazon has over 5000 patents. The algorithms which determine their shopping
recommendations and recent advances regarding drone technology in shipping of the products of
the company can be considered as knowledge assets of the company which drive the innovation
strategy of the organization by optimizing their shopping experiences. The company is
continuing to innovate at a rapid pace, which is evident from the fact that the company recently
filed a patent regarding enabling customers to pay by selfie, which can help in transforming
online purchases. According to Crunchbase, Amazon has made a total of 64 acquisitions and
more than 52 investments. The company has recently invested in Ionic Reality, which is a data
security platform in its Series D venture round. These sorts of investments allow the company,
access to new technologies and provide companies the ability to benefit from Amazon’s internal
research and development through a mutual knowledge sharing. Leading the innovation process
is considered more than just protecting intellectual property, instead it is about leveraging the
knowledge assets for establishing leaderships and in turn benefiting the company in the long run.
Amazon is successful in pushing the boundaries of innovation by investing in knowledge assets
in order to offer unique and unmatched shopping experiences for the customers of the company,
notwithstanding from which point the knowledge has originated for the company. The benefits of
knowledge management to Amazon includes enabling better and faster decision making, enables
the organization to reuse ideas, avoiding making the same mistake twice, taking advantage of
current expertise and experience and promotion of standards, repeatable processes and
procedures. The limitations of knowledge management in Amazon include getting and keeping
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the staffs of the company motivated, measuring knowledge contribution of the employees,
interpreting data effectively, keeping shared information updated and accurate and determining
who will be responsible for managing the knowledge.
As opined by Váldesonand Carlos André da (2017) Amazon acts as example for other companies
regarding the process of knowledge management as it collects various types of knowledge and
information on a single platform which can be used accordingly for various purposes by the
company. The company uses knowledge management principles and practices for adding
significant values for their customers in various ways which are as follows:
One portal, one interface- A single portal and interface also enables the employees with
common, familiar and easy to use gateways to workplace knowledge in all forms.
Consistent Presentation- As opined by D'Ippolito, PetruzzelliandPanniello (2018) the employees
of the company do not require to figure out regarding how to read and interpret content because
the company displays it in a different manner to them. Metaphors, flowcharts and other
organizations structures help in exerting values, but if every company has its own presentation
strategy, which requires its own learning curve, the value of the presentation decreases which
ultimately creates problems for the employees, but in Amazon, the case is completely different as
it displays information in a different manner.
Modular Content- As opined by Zhang, Zhao, and Xu (2016) the modular content enables the
human resources of the company to quickly access only the content which they require and
relieves them wasting time regarding scanning of lengthy documents or indices in order to find
what they need.
Change Management issues and strategies
There are various change management issues which can be faced by Amazon regarding
developing future innovation capability. As the demand and nature of the job are changing with
every passing day due to increased demand for innovation, therefore it is very essential for the
company to arrange the resources which are required for building innovation capability. As
opined by DaspitandZavattaro(2014) one of the current strength of the company is the
availability of the high quality resources in the company for pursuing the current innovation
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