Innovation Strategy Report: Amazon's Approach to Innovation

This report provides a detailed analysis of Amazon's innovation strategy, focusing on its application of design thinking within its organizational environment. The report defines and explores the relationships between key concepts such as innovation trend, innovation strategy, innovation capabilities, and innovation value creation and capture, demonstrating their interconnectedness. It highlights Amazon's customer-centric approach and iterative methods, emphasizing how these practices contribute to strategic alignment and competitive advantage. The report also examines the significance of aligning innovation strategy with overall business objectives, underscoring the importance of a supportive organizational environment and robust innovation capabilities to foster successful innovation and value generation. The analysis covers Amazon's evolution from an online bookstore to a global e-commerce leader, illustrating how it has consistently adapted to market demands and consumer behavior through continuous innovation.

Running head: INNOVATION STRATEGY 1
Innovation Strategy
Name
Institution

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Table of Contents
Executive Summary.......................................................................................................................2
Introduction....................................................................................................................................3
Amazon Innovation trend.............................................................................................................4
Organizational Environment........................................................................................................6
Innovation trend............................................................................................................................7
Innovation strategy........................................................................................................................7
Innovation capability.....................................................................................................................8
Innovation value creation and capture........................................................................................8
How the creation of an innovation strategy ensures strategic alignment.................................9
Importance of strategic alignment...............................................................................................9
References.....................................................................................................................................10

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Executive Summary
This report is an innovation strategy focusing on Amazon as an online store. The report
discusses how design thinking is significant and how it has influenced innovation trend at
Amazon. The report provides a brief outlook of Amazon Company and background regarding its
innovation trend. Besides, the report focuses on various concepts such as organizational
environment, innovation trend, innovation strategy, innovation capabilities and innovation value
creation and capture. Also, the report discusses the relationship between these concepts. Lastly,
the report provided a description of how creation of an innovation strategy ensures strategic
alignment within organization as well as its significance.
Introduction
Amazon is one of the biggest retail outlet in the world and is based in Seattle,
Washington. The company is the largest in e-commerce marketplace and cloud computing
platform across the world by both revenue and market capitalization. Amazon was founded by
Jeff Bezos in 1994 as a bookstore and later grew to include other products categories. Ever since,
the company has grown to host a wide range of products on its online e-commerce platform.
Besides, Amazon is considered to be the second largest employer in the United States. In 2002,
the company started Amazon Web Services which offered a number of services to marketers and
developers. Later in 2006, the company grew and began to rent computer processors and data
storage through the internet (Halpern, Zhu & Reddi, 2016).
In the same year, the company launched its fulfillment by Amazon because it managed its
inventory from a single location. Amazon partnered with Kiva Systems to automate its
inventory. Similarly, the company has managed to form strategic alliances with various
businesses. Among some of the notable partnership include Toys “R” US, borders Group, DC

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Comics, United States Postal Service, Nike, AmazonFresh and Apple Inc. The website began
attracting huge number of visitors annually. According to statistics by the United States
government in December 2017, Amazon website received 197 million visitors. However, the
results generated by its search engine are partly as a result of promotional content.
The company depends on multi-level sales strategy which is responsible for majority of
its revenue. The company began its strategy by targeting business-to-business consumer
relationship as well as business-to-business between the company and its suppliers. In addition,
the company allows anyone to sell their products on its platform. Besides, it has an affiliate
program where affiliates earn through posting links of products and earn commissions for
directing customers to make purchases. Other e-commerce sellers have resorted to selling their
items on amazon as well as their website in order to increase sales. Another sales strategy that
the company uses is drop shipping where people advertise products on amazon and they order
from other members when a sale is made. The drop shippers often have millions of products and
are characterized with large transaction numbers that makes them appear like businesses that
have been around for a long time. The company lobbies the United States government on various
issues such as enforcement of sales taxes, transportation safety, privacy and data protection as
well as intellectual property.
Amazon Innovation trend
Amazon relies on the principle of customer first and an iterative approach that has
ensured the company’s success over the years. Amazon began as an online book seller but has
since transformed how business is conducted. Amazon has been successful in its innovation
endeavors beyond wildest imagination of other e-commerce platforms. Common innovations
include cloud web based services, drone delivery in their supply chain and Academy Award for

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writing original content. Amazon success in its innovation practices is centered on its ability to
offer competitive prices on a wide range of products (Kim, Lee & Altmann, 2015). The
company’s competitive advantage relates to its ability to foresee what the market wants and
delivering the solutions to change the consumer behavior. For instance, the company recognized
the need for a streamlined shopping experience and the company adjusted its check out and
shipping options to suit the needs of the company’s consumers.
Amazon is able to execute orders with a click or asking Alexa to make purchases of
frequently bought household goods. With services such as Prime, Amazon was able to address
specific needs that the consumers had not thought about (Rodríguez, Paredes & Yi, 2016). As a
result, many customers across the world enjoy seamless shopping experience. Besides, the
company has a huge loyal fan base that pay annual subscription fees for various types of benefits
and exclusive access. For instance, Amazon Web Services made 3.53billion in revenue in the
first quarter of 2016. The Amazon Web Service is used by numerous businesses ranging from
small businesses to large businesses like Netflix. The web services now account for a significant
share of the company’s revenue which increases competition for tech giants such as Microsoft
and Google (Dolata, 2017).
Amazon Web Services became much accessible for small businesses that would have
incurred significant cost on computing solutions. With such innovations, Amazon is considered
to be walking on its own path and many e-commerce platform watch out for the company to
adjust their businesses model based on new trends. Majority of businesses are often discouraged
from taking risks which limits opportunities for growth (Bogue, 2016). As a result, majority of
the company lag behind from innovating solutions that would directly solve specific needs for
their competitors. Amazon strategy in innovation can be explained through consistency in

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improving solutions rather than making them work for the first time. The advantage that the
company enjoys is that it is able to launch s product and improve it on real-time based on
feedback from their customers. Amazon believes that each iteration process offers new insight
and a step closer towards making innovations work for the consumers. An example of such
innovation is Amazon Custom which is a feature that allows customers to make customizable
offers through the company’s website (Sorescu, 2017). These are just among some of the
innovation trends that Amazon has managed to realize through design thinking which considers
customers’ demands and innovation solutions to address the needs.
Organizational Environment
An organizational environment constitutes forces that have an influence on performance,
operations and resources of an institution. Therefore, for managers to manage their institution
effectively, they have to depend on understanding their environment carefully. Normally,
organization environment is classified under internal and external environment.
An organization internal environment comprises entities, regulations, events and factors
within an institution that contribute in influencing activities and choices (Winkler & Marshall,
2017). These aspects may be significant in showing strength and weaknesses of an organization.
Besides, other factors such as employee behavior, organization culture, mission statement and
leadership style influence the internal environment of a company. On the other hand, external
environment involves factors outside a company that influences activities and choices. These can
be significant in determining threats and opportunities. Among common factors of external
environment that influence the performance of an institution include, customers, public opinion,
economic forces, competition and government regulation. Internal and external organizational
environment are related to other concepts such as innovation trend, innovation strategy,

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innovation capabilities and value creation and capture. This is because innovation trend is
dependent on an enabling environment which informs the innovation strategy that considered
capabilities of an organization before value is generated from a specific innovation. Therefore,
these concepts are linked in terms of process and approach required to launch a successful
innovation.
Innovation trend
Innovation trend is concept that aims to answer future needs of the consumers. This is
one particular area that is challenging for many business leaders, entrepreneurs, innovators and
marketers. Innovation trend is what informs solutions that consumers will need based on changes
in internal and external organizational environment. This concept is related to the other concept
stated under organizational environment. This is because the likely trends that a business will
choose to pursue will be informed through changes in the internal and external organizational
environment (Daspit, 2017). The trend will play a crucial role in developing an innovation
strategy which will consider capabilities of the innovation and value that the company will derive
from the use of a particular innovation.
Innovation strategy
An innovation strategy is concept that defines the framework that is going to be used in
growing market share or improving profitability position of a product or service. Innovation
strategy depends on a number of factors such as organization environment, capabilities and
value. Therefore, an innovation strategy that can be adopted has to consider whether there is
sufficient needs and support from other factors including the company resources to fund research
and development towards finding a specific solution for specific problem that is experienced
among consumers (Pisano, 2015).

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Innovation capability
Innovation capability is a concept that is used to show relationship between a new
product or service and ability of a firm to see through the creation process. In essence, innovation
capability seeks to determine whether an institution is capable of creating a new product to solve
existing needs in the market (Donate, Peña & Sanchez de Pablo, 2016). This concept is related to
other concepts discussed since an organizational environment will determine whether a firm is
capable or not. For instance, regulations may hinder the creation of a new technology and
advancement in technology may influence the duration of developing new technology. More so,
innovation capability informs the strategy that a firm will use in creating the new products or
service.
Innovation value creation and capture.
This is a concept that focuses on evaluating the benefits as a result of a particular
innovation. Different company’s often have different approach towards finding value which are
based on business objectives. Value through an innovation is therefore dependent on the mission
and goals of an institution (Bez et al, 2018). Besides, value creation concern the value that
consumers will benefit from using a particular product while capturing value concerns the
significance of the new creation on the overall impact of an organization. The link between these
concept and the rest that have been discussed is that all processes offer learning opportunities of
the significant steps that are required to develop a new product. Otherwise, this valuable
information can be used by other organizations with supporting environment and capabilities to
gain a competitive edge in the market.

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How the creation of an innovation strategy ensures strategic alignment
Strategy involves making choices between two option and innovation constitutes the
means to achieve the strategy (Liedtka & Ogilvie, 2011). Without a reliable strategy it is often
challenging to realize long-term success and gain a competitive advantage. Majority of
executives attest that aligning strategy and innovation practices is one of the priorities of many
companies. This implies that innovation strategy needs to be structured based on the overall
objectives of a company. This means that innovation strategy involves the creation of new value
which people are likely to use and pay for. However, innovation strategy is dependent on
capabilities and environment that support the success of a new innovation (Wu, Straub & Liang,
2015). Therefore, innovation strategy is more concerned with mapping an organization mission,
vision and objectives with the needs of a particular market.
This means that innovation goals cannot be separated from overall business goals because
they are linked towards achieving operational efficiency. It implies that marketing objectives of a
firm should not be separated but seen as two entities which rely on each other to accomplish the
overall objective of a firm (Gerow, Thatcher & Grover, 2015). Consequently, every innovation
strategy that is aligned to the overall objectives of an organization must strive to show how
innovation contributes in achieving the overall goals of an institution. As a result, an innovation
strategy that is aligned with business goals will state the purpose and determine the competition
for the innovation, develop value proposition and competitive advantage, determining
capabilities and support systems in place (Liedtka, 2018).
Importance of strategic alignment
Majority of organizations across the world often experience challenges with aligning
their business objectives with strategic innovation. Therefore, managers are required to be skilled

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in understanding the significance of strategic alignment as it contributes to businesses
performance (Turel, Liu & Bart, 2017). Besides, in order to remain competitive, organizations
must come up with viable strategies that support business growth and sustainability. To
accomplish these goals, firms must be able to maintain strategic alignment. Moreover, there are
various challenges that are associated with lack of strategic alignment such as lost connection
and wastage of time. However, there are numerous benefits and reasons why businesses should
maintain strategic alignment. Strategic alignment helps businesses to focus their energy in the
right areas, it plays a crucial role in reducing duplications and it eliminates conflict of interest.
Besides, it increases team coordination and communication and it helps in providing insight to
capabilities and roadmap for the employees (Vanhaverbeke et al, 2017). Also, it ensures that all
employees are motivated towards accomplishing similar goals thus increasing efficiency and
helps a firm to maneuver in rapid changing business environment.

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References
Bez, S. M., Divito De Paauw, L., Gnyawali, D. R., & Rivera, J. (2018, July). The Role of
Coopetition on Innovation, Value Creation and Value Capture. In Academy of
Management Proceedings (Vol. 2018, No. 1, p. 15630). Briarcliff Manor, NY 10510:
Academy of Management.
Bogue, R. (2016). Growth in e-commerce boosts innovation in the warehouse robot
market. Industrial Robot: An International Journal, 43(6), 583-587.
Daspit, J. J. (2017). D. Andreini and C. Bettinelli: Business model innovation: from systematic
literature review to future research directions. Journal of Management &
Governance, 21(3), 785-792.
Dolata, U. (2017). Apple, Amazon, Google, Facebook, Microsoft: Market concentration-
competition-innovation strategies (No. 2017-01). Stuttgarter Beiträge zur Organisations-
und Innovationsforschung, SOI Discussion Paper.
Donate, M. J., Peña, I., & Sanchez de Pablo, J. D. (2016). HRM practices for human and social
capital development: effects on innovation capabilities. The International Journal of
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Gerow, J. E., Thatcher, J. B., & Grover, V. (2015). Six types of IT-business strategic alignment:
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Halpern, M., Zhu, Y., & Reddi, V. J. (2016, March). Mobile cpu's rise to power: Quantifying the
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satisfaction. In 2016 IEEE International Symposium on High Performance Computer
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Kim, K., Lee, W. R., & Altmann, J. (2015). SNA-based innovation trend analysis in software
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Liedtka, J & Ogilvie T. (2011). Designing for growth: a design thinking toolkit for managers.
New York: Colombia Business School Publishing.
Liedtka, J. (2018). Why Design Thinking works: It addresses the biases and behaviors that
hamper innovation, Harvard Business Review, 96 (5): 72-79.
Pisano, G. P. (2015). You need an innovation strategy. Harvard Business Review, 93(6), 44-54.
Rodríguez, M., Paredes, F., & Yi, G. (2016). Towards Future Customer Experience: Trends and
Innovation in Retail. Форсайт, 10(3 (eng)).
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Turel, O., Liu, P., & Bart, C. (2017). Board-level information technology governance effects on
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Vanhaverbeke, W., Roijakkers, N., Lorenz, A., & Chesbrough, H. (2017). The importance of
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