LCBS5001 Strategic Management: A Comprehensive Analysis of Amazon

This report provides a detailed strategic analysis of Amazon Inc., evaluating its business strategy through various strategic tools and models such as Porter's Five Forces, SWOT analysis, VRIO analysis, strategic fit model, strategy clock, and warfare perspective. The analysis identifies Amazon's cost leadership strategy and its reliance on operational excellence, innovation, and customer obsession. The report assesses the competitive forces affecting Amazon, including supplier power, buyer power, competitive rivalry, the threat of substitutes, and the threat of new entrants. It also delves into Amazon's strengths, weaknesses, opportunities, and threats, concluding with strategic recommendations for maintaining a competitive advantage in the global market, including diversification and addressing online security concerns. The report leverages Rumelt's criteria to evaluate the effectiveness of Amazon's strategies and suggests future adaptations for sustained success.

Running head: STRATEGIC MANAGEMENT
Strategic Management
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Executive Summary
This report evaluated the business strategy of the organization named Amazon Inc. Strategic
analysis had comprised of the various strategic tools and models such as Porter's Five Forces,
SWOT analysis, VRIO analysis, strategic fit model, strategy clock and warfare perspective.
These tools evaluated Amazon’s business strategy to provide valuable insights on the
organization’s strategy and reason for their success in the market. The report has chosen Amazon
as the company as it is the market leader in their segment and they have been able to capture
majority of the share in the global market. The findings of the report shows that Amazon uses
cost leadership strategy but they would have to slowly adapt to different strategies if they want to
maintain their market share.

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Table of Contents
Introduction......................................................................................................................................3
Background of Amazon Inc.............................................................................................................3
Amazon’s Strategy...........................................................................................................................4
Strategic Analysis............................................................................................................................4
Porter’s five forces.......................................................................................................................5
SWOT analysis............................................................................................................................7
Porter’s Generic Strategy for Amazon........................................................................................8
Strategic fit Model.....................................................................................................................10
VRIO framework.......................................................................................................................13
Strategy Clock...............................................................................................................................16
Warfare perspective.......................................................................................................................20
Rumelt’s Criteria...........................................................................................................................21
Recommendation...........................................................................................................................23
Conclusion.....................................................................................................................................24
References......................................................................................................................................25

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Introduction
This report will evaluate the business strategy of the organization named Amazon Inc. A
strategic analysis will comprise of the various strategic tools and models such as Porter's Five
Forces, SWOT analysis, VRIO analysis, strategic fit model, and strategy clock and warfare
perspective. These tools will evaluate Amazon's business strategy to provide valuable insights
into the organization's strategy and the reason for their success in the market. The report has
chosen Amazon as the company as it is the market leader in their segment and they have been
able to capture the majority of the share in the global market. This repor will also identify the
appropriateness of the business strategy used by Amazon in the global business market. The
report will also provide a suitable recommendation based on the analyzed business strategy so
that the organization can hold on to their competitive advantage in the market.
Background of Amazon Inc
Amazon is one of the major companies in the Fortune 500 and has been known for
revolutionizing the ecommerce industry. The organization is the first movers into the
ecommerce business and sells a large number of products on the online platform. The founder of
the organization is Jeff Bezos who established the organization in 1994 (Schneider 2018). The
organization started as a bookstore on the online platform, but they were quick to diversify their
product portfolio by adding other products such as video games, clothing, music, DVDs and
electronic goods. The organization has been successful within a very short period and has been
able to popularize online shopping. The organization considers them as customer-centric, and
they are always focused on gaining feedbacks from the consumers. According to Jeff Bezos, a
company is sure to fail if they do not listen to their consumers. The organization stated that they

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are eager to capitalize on any market opportunity due to the advent of the technological
revolution of unprecedented level. The firm not only believes in providing the consumers with
top priority but also ownership from their respective teams. The company perspective states that
ownership matters for the employees as they will be empowered. This will enable them to have a
long-term perspective and challenge the authorities' regarding decisions. This will lead to the
generation of new ideas. The organization has set a high benchmark for all its employees where
it is tough for the candidates to get into the organization and it is even tougher for them to
survive with the organization. However, the policies and the strategies used by the organization
have been effective in delivering competitive advantage.
Amazon’s Strategy
The business strategy of Amazon can be considered as extreme cost leadership strategy.
The organization has been working with minimum profit margin, and the organization has been
able to increase their profit margin due to the effective use of innovation in the business
processes, diversification of business and economies of scale. There are four principles which
the company focuses on which are operational excellence, invention, long-term perspective and
customer obsession (Schneider 2018). The three cornerstones of business strategy in Amazon
are the reinforcement of the ecosystem in Amazon, developing new niche segments at regular
intervals and emphasizes on the leadership values in Amazon.
Strategic Analysis
The strategic analysis will use tools to examine the current business strategy of Amazon
to evaluate the appropriateness of the strategic initiatives taken by the organization. These will

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consist of evaluating the keys success pillars of the organization to provide recommendations for
developing new business strategies.
Porter’s five forces
The Porter’s five forces consist of five factors which are used to evaluate the competition
and the position of the organization in the industry. The five factors are bargaining power of the
supplier, bargaining power of the buyer, competitive rivalry, threat of substitutes and threat of
new entrant (E. Dobbs 2014).
Bargaining power of the supplier
The numbers of suppliers in the industry are lower which causes the organization to
experience the stronger force from the suppliers. The changes in the price of the equipment of
the suppliers will directly affect the operating cost of the company. Amazon uses moderate
integration to minimize the effect of the suppliers, and as the sizes of the companies are
moderate, they will have less amount of effect on Amazon (Sec.gov 2018). However, the overall
evaluation shows that there is the moderate force of the suppliers on Amazon.
Bargaining power of the buyer
The consumers in the retail industry have access to all the information they need before
purchasing the products. Therefore, the consumers can identify the alternatives in the market
which affects the business of Amazon. Moreover, the lower switching cost makes it easy for the
consumers to move to other substitute products. This shows that due to the availability of the
high number of substitutes in the market the organization experiences higher and stronger
bargaining power of the buyers.

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Competitive rivalry
The organization competes with strong companies in the market, and they exert string
force against Amazon. The major competitors of the companies are Wal-Mart, eBay and
Flipkart. The availability of the substitutes in the industry is also high which shows that products
offered by Amazon are available at lesser known retail stores and brick and mortar outlets. The
switching cost for the consumers is also low in the industry which means that they can easily
transfer to other retailers without having the significant effect on their wallet size (Sec.gov
2018). This shows that competitive rivalry in the industry is strong.
Threat of substitutes
The number of rivals companies in the market is high, and there are smaller companies
offering substitute products. This affects the performance of Amazon as the consumers
experience low switching cost, so there is less affect on the consumers. The consumers have
plenty of options in the market which is a major thereat for the organization. This shows that
Amazon faces high and string threat from substitution.
Threat of new entrant
In an ideal situation, a new entrant can easily capitalize on the retail market due to the
growth in the market and low switching cost experienced by the consumers. However, the cost of
developing brand n the retail industry is very high which reduces the influences of the new
entrants in the market. Amazon is the first mover in the industry, and they have been able to

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develop very strong economies of scale which is very difficult to attain for the new entrant in
such a short period as it requires high volumes of investments (Sec.gov 2018). Therefore, the
threat of new entrant in the industry is very low for Amazon.
SWOT analysis
Strengths Weaknesses
Amazon is the market leader in the
ecommerce business
The first mover's advantage provides
extensive utilization of experience
Effective use of cost leadership as a
business strategy
Effective use of relationship
management
The profit margin of the company is
low due to the use of cost leadership as
a strategy.
The organization does not focus on the
service or the product categories.
The business experiences seasonality
trends
The competitive positioning of the fire
phone is weak compared to the rival
companies which lead to the failure of
the product.
The organization has experienced
degradation in their brand image due to
the tax avoidance scandal in the United
Kingdom.
Opportunities Threats
The organization has the opportunity of
diversifying the business segment.
The organization faces threats due to
the online security issues as privacy

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Amazon should also focus on their
products and brands
The organization has the opportunity of
increasing their physical presence
The organization should increase the
number of local sites in the global
market
The organization has the opportunity of
forming strategic alliance and
collaboration with similar companies in
the market. The organization also has
the opportunity of acquiring companies
like Flipkart to reduce their market
competition.
breaches in the online medium have
increased significantly in the past few
years.
The organization has faced lawsuits
and patent infringements which are
major threats to the organization.
The low-profit margin reduces the
profitability of the organization.
There has been a significant weakening
of entry barriers in the e-commerce
industry
(Table 1: Phx.corporate-ir.net 2018)
Porter’s Generic Strategy for Amazon

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(Figure 1: Ahmed 2018)
The generic strategy used by Amazon is concentric diversification where the organization
aims to leverage the technological capabilities to develop for success in the business
environment. This has been achieved by using the cost leadership strategy to provide the
consumers with the maximum value at the minimum price possible. Moreover, the business of
the organization revolves around the consumers which ahs made Amazon the go-to portal for
fulfilling the needs of the consumers (Wicker et al. 2015). The above figure shows that Amazon
will fall under the first quadrant which represents cost leadership strategy. Amazon provides
steep discounts to all its loyal consumers through Amazon prime which consists of facilities such
as express and timely delivery of the products. Moreover, Amazon also removes the shipping
charges which reduce the prices of the products even further. Therefore, the organization focuses
on providing the consumers with the seamless and smooth shopping experience.
The main cornerstone of the business model is economies of scale where the company
has leveraged the efficiencies between the internal resources and external drivers. The

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organization also uses big data analysis for mapping the behaviour of the consumers. The
organization has incorporated this analytical part in such a way that it can provide service to
other companies in the market (Tansey, Spillane and Meng 2014). This can be seen by the ability
of the company to predict the future behaviour of the consumers. The biggest example of this is
the recommended products that can be seen on the ecommerce site for individual consumers.
These recommendations vary depending upon the search history and their purchases.
There is little product differentiation in the products offered by Amazon which means
that competitive pricing is the basis for the key way of gaining competitive advantage and sales.
This means that the products sold on the Amazon website are also available on other websites.
Therefore, the product lines are not unique, and products are available on other company
websites. However, there are certain private labelled products which are only available on the
company website such as Amazon Echo (Phx.corporate-ir.net 2018). The current strategy in
Amazon is based on the aspect of convenience where the companies promise their customers to
deliver products at express speed. There are countries where the products are delivered within a
day, and the company is toying with the concept of drones of delivery the products with
astonishing speed. Moreover, the organization has been focusing on non-retail products such as
cloud based services which has been addressing the problem of differentiation and too much
reliance on cost leadership. Amazon has also been providing AWS services to different
companies requiring cloud based services.
Strategic fit Model
Strategy FIT Justification

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Opportunities Diversification of the
business segment
Yes The organization has
already accomplished
supremacy in their
business process and
diversifying their
business segment will
be ideal to boost their
increasing threat to
substitution in the
ecommerce industry
Focusing on their
products and brands
Yes The organization has
been customer-centric
for a long time, but the
number of private
labelled products that
the company has is
quite less. Therefore,
the organization current
needs products
differentiation.
Increase in physical
presence and increase
in the number of local
sites
Yes The physical presence
of the organization is
less so this will help in
better interaction with
the consumers.