SIM336: Strategic Management Analysis of Amazon's Business Model

This report provides a strategic analysis of Amazon, focusing on its value chain and the application of Porter's Five Forces model to address the challenges it faces. The analysis covers Amazon's inbound logistics, operations, outbound logistics, marketing and sales, and customer service, highlighting the company's strengths and areas for improvement. The report also discusses the impact of international performance, competition, investment balancing, and government scrutiny on Amazon's strategic direction. By examining these factors, the report aims to provide insights into how Amazon can maintain its profitability and development in a highly competitive environment. This student contributed the assignment, and similar solved assignments and past papers are available on Desklib.

Strategic management
1

Contents
Executive summary:........................................................................................................................3
Introduction......................................................................................................................................4
MAIN BODY..................................................................................................................................4
Explanation of the Comparison of theory and practise:..............................................................4
Critique of the theory...................................................................................................................6
Application of the theory.............................................................................................................7
Effectiveness for the organisation.............................................................................................14
Failure areas of Amazon by use of specific theory....................................................................18
CONCLUSION..............................................................................................................................21
REFERNCE...................................................................................................................................22
2

Executive summary:
Strategic management is a tool that can help in achievement of certain laid down objectives.
There are certain frameworks such as value chain analysis and porters five force analysis are the
two major strategies that can help a organisation in understanding various external forces and
their positive and negative impact on the functioning of an organisation. Strategic management is
a great tool for various strategies that can help organisation in dealing with different challenges
that are present for them in the market scenario. There is a need for proper strategic development
plan in order to achieve some laid down specific objective definite time period.
3

Introduction
Strategic management is related to the different strategic approaches that are applied by
an organisation to deal with certain prevailing issues and challenges. It can be defined as use of
different theories that are in relation to diverse range of objectives, analysing the different
internal factors, analysing the external competitive environment and ensuring the role of
administrative rolls for formation of all the strategies within company. Amazon is an American
multinational technology company that is based in Seattle and has approximately 750000
employees that are working with this organisation. Present report is based on the value chain
analysis of different aspects of primary and supporting activities for Amazon and application of
porters five Force model for strategically dealing with these issues.
MAIN BODY
Amazon is a globally recognised and a world famous brand that started facing some issues
related to the clanging market inception in the year 2002, there were many challenges related to
high customisation and use of update technology. There were some recent changes that had to be
made in the recent model and overall value chain process used by this organsuiation. So,
Amazon started focussing on its core strength and then using it in their overact process of
managing of their practises.
Explanation of the Comparison of theory and practise:
Case study approach:
Amazon started focusing on that is” instant order update” that actually wants their customers
that are about to buy a same item repeatedly. Further it can be said that there are some of the five
biggest challenges that have been identified for Amazon in 2019 these challenges are mentioned
below:
4

Figure 1Mission of Amazon: “Our goal is to be earth’s most customer-centric company”.
(Source: Amazon Supply Chain & Logistics, 2018)
1) Keeping a pace with international performance: In the year 2019 in October there has
been week that is recorded for Amazon. CFO Bryan recently pointed out that there has
been a weak growth in various countries such as India, that is leading to all operating
segment suffering as there has been a substantial slowdown in the overall revenue growth
of Amazon(Bammann, 2019).
2) Dealing with Rivals: There are many competitors of Amazon that is WalMart that are
leading to decrease in the overall revenue and market share for Amazon. In the year
2019, in December Amazon has pulled back their overall promotional and pricing
strategies that is resulting in high competition.
3) Balancing profits versus investment: Amazon is making efforts in different sectors
such as Healthcare and logistics. so, that they are able to get back overall earnings to their
business. There are many initiatives in different sectors such as Logistic payment health
care for maximizing investor Returns(Mudambi, and Puck, 2016). There is requirement
of detailed research for making some investment in these new sectors, by Amazon so that
there is efforts by the research and development department that is again a challenge for
this global organization.
4) Dealing with intense government scrutiny:In case, of different countries such as,
France have formed regulations and different taxation rules for major tech companies
such as Amazon (Bhargava, Bafna, and Shabarisha, 2018). In UK Amazon's HQ2
5

Expansion has led to large breaks in tax. It was a flash point of Criticism in last year
because of changes policies because of changing privacy concern and different antitrust
concerns were also a major key failure areas of Amazon.
Above mentioned are some of the major failure and issues that have been faced by
Amazon in 2019. There is need of some strategic formulation in order to cope up some
strategies to deal with such challenges. So, that they are able to maintain their present
graph of profitability and development (Hishe, Asfaw,and Giday, 2016).
Critique of the theory
Value chain analysis approach:
According to (Rothaermel, 2016) Value chain analysis basically refers to an analytical
framework that helps in identification of different business activities that can actually lead to
creation of value and increasing competitive advantage for a business. In present study it has
been identified that there are various issues that are being faced by Amazon in their overall
supply chain and logistics management. So, there is a need to do a value analysis to be used as a
strategic analysis tool. It is a method that is based on analysis of different activities of Amazon to
review how various activities can help them in adding value at each step. Also, there is
Requirement to maintain cost effectiveness at each step.
6

Figure 2VALUE CHAIN ANALYSIS
(SOURCE: Amazon Value Chain Analysis. 2020)
Application of the theory
Amazon inbounds logistics:
Figure 3: Increasing logistics cost in Amazon
7

(Source: Amazon Supply Chain & Logistics, 2018)
Amazon has recently started providing services that is being offered to other organisations.
For example, in Beijing Century Jyo a courier service that is subsidiary of Amazon registered
with government of UK and is shipping provider of this organisation.
Figure 4: Amazon warehouses in France
8

Figure 5: Products categories stocked in warehouse of Amazon
(Source: Amazon Supply Chain & Logistics, 2018)
Amazon has an efficient system of Logistic infrastructure that provides them a competitive
advantage, below discussed is the value chain analysis of primary activities case of Amazon
(Amazon Value Chain Analysis. 2020).
Operations:
Operations of Amazon are basically divided into three segments:
First is North America: It is a segment that is operating in North America and has focused
website such as www.amazon.com www.amazon.ca. Sales in this segment have been increased
by 33% in the year 2018 and 2017 as compared to previous years.
International: It is a segment that is having a internationally focused website such
as www.amazon.com.br and www.amazon.com.au. International operations of Amazon can are
getting affected because of the changes that are taking place in exchange rate of currency rates
like changes taking place in foreign currency exchange rates.
9

Third is: Amazon Web Services: It is a segment that is dealing with the Global sales of storage
database computing, services for Enterprises start-ups, academic Institutions and government
agencies. Overall sales in an AWS has observed rise by 43 percent and 47 percent in 2017 &
2018, compared to previous years.
It can be said that an innovative and creative approach is required for solving various problems
that is related to major source of creation of value for operations in Amazon. The Tech initially
developed some Cloud Computing resources and cloud storage as a part of creating value in their
business operations. Amazon has also commercialized their services of cloud for enhancing their
overall benefits.
Amazon outbound Logistics:
There are some aspects of outbound logistics in Amazon Integrated in their following segment:
Figure 6: Machine learning technology in Amazon
(Source: Amazon Supply Chain & Logistics, 2018)
Fulfilment centres: These are the tour operators that are operating in 109 fulfilment centres
10

across the globe and Amazon is using a robotic technology in extensive manner for the purpose
of managing the stowing, picking, receipt and shipment of their products. There is also use of
machine learning technologies in Amazon.
Physical stores: Amazon has recently acquired the whole food chain in the year 2017. This
organisation has generated 4.3 billion revenues from their physical stores alone in the year 2018.
It can be concluded from the above discussed points that there is a strong outbound logistics that
are present for Amazon and they have an increasing number of ships planes trains truck that is
helping them in increasing the effectiveness of their logistics system. Further, the online retail
also has announced the Amazon Prime air that is a system of drone delivery and also Amazon
flex that is related to metro delivery services that is additional services in their outbound logistics
system. There is a great opportunity for Amazon to create maximum value in their logistics
Network. According to industry analyst, Amazon can compete with Global Delivery business
and also with Global Delivery giant that is fed EX.
Amazon marketing and sales:
Annual Global marketing expenses have been a major issue that is a concern for Amazon
as it is increasing in the past 7 years and has exceeded to 8 billion in the year 2018. It consists of
promotional cost and other advertisement expenses that are amounted to US dollar 5.0 billion
and 2.2 billion in the year 2016 and 2018 respectively. After making a comparison with other
competitors such as Best Buy, Kroger ant target it has been identified by Amazon, that marketing
and sales activity can be a major source of creation of value in their chain of operations for
Amazon. Marketing message of Amazon also conveys the Promises of selection of different
products and services at great ease. Furthermore, the Attractive prices that are being offered to
people superior provided to their customers. Apart from these different aspects of marketing mix
such as communication strategies of media and print advertising events, experiences public
relations are also offering an effective medium and channel to communicate with their target
customer segment by Amazon.
11

Figure 7Nets sales of Amazon since year 2004 to 2017
(Source: Amazon Supply Chain & Logistics, 2018)
Figure 8: Turnover of Amazon per country
(Source: Amazon Supply Chain & Logistics, 2018)
12