313-080-1 CASE DEVELOPMENT CENTRE Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F264968 Retailing Giant to High Tech Player? Alan N. Hoffman Rotterdam School of Management/Erasmus University and Bentley University This teaching case was prepared with the support from Rotterdam School of Management Case Development Centre. We wish to thank Barbara Gottfried, Jodi Germann, Lauren-Ashley Higson, Faith Naymie, Faina Shakarova, Jamal Ait Hammou, Muntasir Alam, Shaheel Dholakia, Xinxin Zhu and Will Hoffman for their research and contributions to this case. This case is based on published sources. It is to provide material for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The author has disguised identifying information to protect confidentiality. Copyright 2013 Rotterdam School of Management Case Development Centre, Erasmus University. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner. case centre Distributed by The Case Centre www.thecasecentre.org All rights reserved North America t +1 781 239 5884 f +1 781 239 5885 e info.usa@thecasecentre.org Rest of the world t +44 (0)1234 750903 f +44 (0)1234 751125 e info@thecasecentre.org Purchased for use by Brandon Carroll on 27-Jan-2016. Order ref F264968. You are permitted to view the material on-line and print a copy for your personal use until 27-Jan-2017. Please note that you are not permitted to reproduce or redistribute it for any other purpose. Amazon.com, Inc: 313-080-1 AMAZON.COM, INC: RETAILING GIANT TO HIGH TECH PLAYER The name \"Amazon\" was evocative for founder Jeff Bezos of his vision of Amazon as a huge natural phenomenon, like the longest river in the world. The company would be "Earth's most customer-centric company . . . a place where people can come to find and discover anything they 1 might want to buy online.\" Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F264968 By 2008 Amazon had become a global brand (see Exhibit 4), with websites in Canada, the United Kingdom, Germany, France, China and Japan, with order fulfilment in more than 200 countries.2 Its operations were organized into two principal segments: North America and International Operations, which grew to include Italy in 2010 and Spain in 2011. By 2012, Amazon employed more than 56,200 people around the world working in the corporate office in Seattle, and in software development, order fulfilment, and customer service centers in North America, Latin America, Europe, and Asia. Amazon Corporate Governance Jeff Bezos is the Chairman of the Board and CEO of Amazon and owns 19.4% of the company. The next highest single shareholder is Diego Piacentini and he owns just .25 of 1% of Amazon (see Exhibit 1). Amazon has three board committees of which two are standard: the audit committee and the governance committee. The third committee, the Leadership Development and Compensation Committee is uncommon. Most publicly traded companies have a compensation committee, however, it is unusual for the compensation committee to have leadership development as part of its mandate. The Leadership Development and Compensation Committee, \"monitors and periodically assesses the continuity of capable management, including succession plans for executive officers.\" Amazon's board is not populated by CEO's or retired CEO's. It includes several venture capitalists, a number of senior level executives from varied industries, an eminent scientist and a representative from the non-profit sector. Amazon's board has served together for a long time. This implies a deeper understanding of the company and increasing familiarity and even friendship amongst the group. This tends to discourage independent thinking and objectivity. Further proof that Jeff Bezos is a strong CEO and runs the company. Retail Operations As people became more comfortable shopping on line, Amazon developed its website to take 3 advantage of increased internet traffic and to serve its customers most effectively. The hallmarks 1 Amazon.com FAQs. 2011. December 2011 http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-faq 2 Chaffey, D. Amazon.com Case Study. http://www.davechaffey.com/E-commerce-Internet-marketing-case-studies/Amazon-case-study/ 3 Mind Tools. PEST Analysis - Problem-Solving Training from MindTools.com. Management Training, Leadership Training and Career Training. Mind Tools Ltd.. 12 Dec. 2011. http://www.mindtools.com/pages/article/newTMC_09.htm 2 Purchased for use by Brandon Carroll on 27-Jan-2016. Order ref F264968. You are permitted to view the material on-line and print a copy for your personal use until 27-Jan-2017. Please note that you are not permitted to reproduce or redistribute it for any other purpose. Founded by Jeff Bezos, online giant Amazon.com, Inc. (Amazon), was incorporated in the state of Washington in July 1994, and sold its first book in July, 1995. In May 1997, Amazon (AMZN) completed its initial public offering and its common stock was listed on the NASDAQ Global Select Market. Amazon quickly grew from an online bookstore to the world's largest online retailer, greatly expanding its product and service offerings through a series of acquisitions, alliances, partnerships and exclusivity agreements. Amazon's financial objective was to achieve long-term sustainable growth and profitability. To attain this objective, Amazon maintained a lean culture focused on increasing its operating income through continually increasing revenue and efficiently managing its working capital and capital expenditures, while tightly managing operating costs. 313-080-1 of Amazon's appeal were ease of use; speedy, accurate search results; selection, price and convenience; a trustworthy transaction environment; timely customer service; and fast, reliable fulfillment;4 all enabled by the sophisticated technology the company encouraged its employees to develop to better serve its customers. The site, which offered a huge array of products sold both by itself and by third parties, was particularly designed to create a personalized shopping experience that helped customers discover new products and make efficient, informed buying decisions. Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F264968 Pursuing perfection, Amazon was aggressive in analyzing its website's traffic and modifying the website accordingly. Amazon particularly excelled at customer tracking, collecting data from every visit to its website. Utilizing the information, Amazon then directed users to products it surmised they might be interested in because the item was either6: similar to what the user was currently searching for (on-the-fly recommendations) related to what the user had searched for or clicked on at any time in the past, or had been purchased by other people who had searched or bought the same item user searching for. Recommendations were also customized based on the information customers provided about themselves and their interests, and their ratings prior purchased. Amazon also collected data on those who had never visited any of its websites, but who had received gifts from those who had used the site. One of Amazon's most distinctive features was the community created based on the ratings / reviews provided by private individuals to help others make more informed purchasing decisions. Anyone could provide a narrative review and rate a product on a scale of 1-5 stars, and/or comment on others' reviews. Individuals could also create their own "So You'd Like..." guides and "Listmania" lists based on Amazon's products offerings and post them or send them to friends and family. To streamline customer research, Amazon also consolidated different versions of a product (i.e. DVD, VHS, BlueRay of a video) into a single product available for 7 commentary that simplified commentary and user accessibility. To further target potential customers Amazon engaged in permission marketing, eliciting permission to email customers regarding specific production promotions based on prior purchases on the assumption that a targeted email was more likely to be read than a blanket email. This strategy was hugely appreciated by Amazon customers, further contributing to Amazon's success. In addition, Amazon purchased pay-per-click advertisements on search engines such as Google to direct browsing customers to its websites. The ads appeared on the left hand side of the search list results, and Amazon paid a fee for each visitor who clicked on its sponsored link. 4 Chaffey, D. Amazon.com Case Study. http://www.davechaffey.com/E-commerce-Internet-marketing-case-studies/Amazon-case-study/ 5 Marketing Plan. Marketing Strategies of Amazon.com. http://www.marketingplan.net/amazon-com-marketing-strategies/ 6 Chaffey, D. Amazon.com Case Study. http://www.davechaffey.com/E-commerce-Internet-marketing-case-studies/Amazon-case-study/ 7 Layton, J. How Amazon Works . Retrieved from How Stuff Works http://money.howstuffworks.com/amazon3 3 Purchased for use by Brandon Carroll on 27-Jan-2016. Order ref F264968. You are permitted to view the material on-line and print a copy for your personal use until 27-Jan-2017. Please note that you are not permitted to reproduce or redistribute it for any other purpose. Key to Amazon's success was continual website improvement. A huge part of the technological work done for Amazon was dedicated to identifying problems, developing solutions, and enhancing customers' online experience. Jacob Lepley, in his \"Amazon Marketing Strategy: Report One\MGMT 479- Strategic Management ANALYZING A CASE STUDY (Revised January 25, 2016) Rubric for Case Study - Maximum Points Available (100 Points) The purpose of the case study is to let you apply the concepts you've learned when you analyze the issues facing a specific company. To analyze a case study, therefore, you must examine closely the issues with which the company is confronted. Most often you will need to read the case several times - once to grasp the overall picture of what is happening to the company and then several times more to discover and grasp the specific problems. The detailed analysis of the case study will include the following areas: 1. Analyze the company's history, development and growth (20 Points) 2. Identify the company's internal strengths and weaknesses and Evaluate the SWOT analysis (20 Points) 3. Analyze the external environment (20 Points) 4. Analyze corporate-level strategy Analyze business-level strategy Analyze structure and control systems (20 Points) 5. Make recommendations (20 Points) The following is a summary of the steps to take to analyze the case material: ~~\\.{ 1. Analyze the company's history, development, and growth. A convenient way to investigate how a company's past strategy and structure affect it in the present is to chart the critical incidents in its history - that is, the events that were the most unusual or the most essential for its development into the company it is today. Some of the events have to do with its founding, its initial products, how it makes new-product market decisions, and how it developed and chose functional competencies to pursue. Its entry into new businesses and shifts in its main lines of business are also important milestones to consider. o~~ l Identify the company's internal strengths and weaknesses. Once the historical profile is completed, you can begin the SWOT analysis. Use all the incidents you have charted to develop an account of the company's strengths and weaknesses as they have emerged historically. Examine each of the value creation functions of the company, and identify the functions in which the company is currently strong and currently weak. Some companies might be weak in marketing; some might be strong in research and development. Make lists of these strengths and weaknesses. The SWOT checklist giv~s examples of what might go in these lists. Evaluate the SWOT analysis. Having identified the company's external opportunities and threats as well as its internal strengths and weaknesses, you need to consider what your findings 1 mean. That is, you need to balance strengths and weaknesses against opportunities and threats. Is the company in an overall strong competitive position? Can it continue to pursue its current business- or corporate-level strategy profitably? What can the company do to tum weaknesses into strengths and threats into opportunities? Can it develop new functional, business, or corporate strategies to accomplish this change? Never merely generate the SWOT analysis and then put it aside. Because it provides a succinct summary of the company's condition, a good SWOT analysis is the key to all the analyses that follow. ~~~~ 3. Analyze the external environment. The next step is to identify environmental opportunities and threats. Here you should apply all information you have learned on industry and macroenvironments, to analyze the environment the company is confronting. Of particular importance at the industry level is Porter's five forces model and the stage of the life cycle model. Which factors in the macroenvironment will appear salient depends on the specific company being analyzed. However, use each factor in tum (for instance, demographic factors) to see whether it is relevant for the company in question. ~ 4. Analyze corporate-level strategy. To analyze a company's corporate-level strategy, you first need to define the company's mission and goals. Sometimes the mission and goals are stated explicitly in the case; at other times you will have to infer them from available information. The information you need to collect to find out the company's corporate strategy includes such factors as its line(s) of business and the nature of its subsidiaries and acquisitions. It is important to analyze the relationship among the company's businesses. Do they trade or exchange resources? Are there gains to be achieved from synergy? Alternatively, is the company just running a portfolio of investments? This analysis should enable you to define the corporate strategy that the company i.s pursuing (for example, related or unrelated diversification, or a combination of both) and to conclude whether the company operates in just one core business. Then, using your SWOT analysis, debate the merits of this strategy. Is it appropriate, given the environment the company is in? Could a change in corporate strategy provide the company with new opportunities or transform a weakness into a strength? For example, should the company diversify from its core business into new businesses? Other issues should be considered as well. How and why has the company's strategy changed over time? What is the claimed rationale for any changes? Often it is a good idea to analyze the company's businesses or products to assess its situation and identify which divisions contribute the most to or detract from its competitive advantage. It is also useful to explore how the company has built its portfolio over time. Did it acquire new businesses, or did it internally venture its own? All these factors provide clues about the company and indicate ways of improving its future performance. Analyze business-level strategy. Once you know the company's corporate-level strategy and have done the SWOT analysis, the next step is to identify the company's business-level strategy. If the company is a single-business company, its business-level strategy is identical to its corporate-level strategy. If the company is in many businesses, each business will have its own business-level strategy. You will need to identify the company's generic competitive strategy differentiation, low cost, or focus - and its investment strategy, given the company's relative competitive position and the stage of the life cycle. The company also may market different products using different business-level strategies. For example, it may offer a low-cost product 2 range and a line of differentiated products. Be sure to give a full account of a company's businesslevel strategy to show how it competes. Identifying the functional strategies that a company pursues to build competitive advantage through superior efficiency, quality, innovation, and customer responsiveness and to achieve its business-level strategy is very important. The SWOT analysis will have provided you with information on the company's functional competencies. You should further investigate its production, marketing, or research and development strategy to gain a picture of where the company is going. For example, pursuing a low-cost or a differentiation strategy successfully requires a very different set of competencies. Has the company developed the right ones? If it has, how can it exploit them further? Can it pursue both a low-cost and a differentiation strategy simultaneously? The SWOT analysis is especially important at this point if the industry analysis, particularly Porter's model, has revealed the threats to the company from the environment. Can the company deal with these threats? How should it change its business-level strategy to counter them? To evaluate the potential of a company's business-level strategy, you must first perform a thorough SWOT analysis that captures the essence of its problems. Once you complete this analysis, you will have a full picture of the way the company is operating and be in a position to evaluate the potential of its strategy. Thus, you will be able to make recommendations concerning the pattern of its future actions. However, first you need to consider strategy implementation, or the way the company tries to achieve its strategy. Analyze structure and control systems. The aim of this analysis is to identify what structure and control systems the company is using to implement its strategy and to evaluate whether that structure is the appropriate one for the company. Different corporate and business strategies require different structures. For example, does the company have the right level of vertical differentiation (for instance, does it have the appropriate number of levels in the hierarchy or decentralized control?) or horizontal differentiation (does it use a functional structure when it should be using a product structure?)? Similarly, is the company using the right integration or control systems to manage its operations? Are managers being appropriately rewarded? Are the right rewards in place for encouraging cooperation among divisions? These are all issues that should be considered. In some cases there will be little information on these issues, whereas in others there will be a lot. Obviously, in analyzing each case you should gear the analysis toward its most salient issues. For example, organizational conflict, power, and politics will be important issues for some companies. Try to analyze why problems in these areas are occurring. Do they occur because of bad strategy formulation or because of bad strategy implementation? Organizational change is an issue in many cases because the companies are attempting to alter their strategies or structures to solve strategic problems. Thus, as a part of the analysis, you might suggest an action plan that the company in question could use to achieve its goals. For example, you might list in a logical sequence the steps the company would need to follow to alter its business-level strategy from differentiation to focus. 3 ~ 5. Make recommendations. The last part of the case analysis process involves making recommendations based on your analysis. Obviously, the quality of your recommendations is a direct result of the thoroughness with which you prepared the case analysis. The work you put into the case analysis will be obvious to the professor from the nature of your recommendations. Recommendations are directed at solving whatever strategic problem the company is facing and at increasing its future profitability. Your recommendations should be in line with your analysis; that is, they should follow logically from the previous discussion. For example, your recommendation generally will center on the specific ways of changing functional , business, and corporate strategy and organizational structure and control to improve business performance. The set of recommendations will be specific to each case, and so it is difficult to discuss these recommendations here. Such recommendations might include an increase in spending on specific research and development projects, the divesting of certain businesses, a change from a strategy of unrelated to related diversification, an increase in the level of integration among divisions by using task forces and teams, or a move to a different kind of structure to implement a new business-level strategy. Again, make sure your recommendations are mutually consistent and are written in the form of an action plan. The plan might contain a timetable that sequences the actions for changing the company's strategy and a description of how changes at the corporate level will necessitate changes at the business level and subsequently at the functional level. After following all these stages, you will have performed a thorough analysis of the case and will be in a position to join in class discussion or present your ideas to the class, depending on the format used by your professor. Remember that you must tailor your analysis to suit the specific issue discussed in your case. In some cases, you might completely omit one of the steps in the analysis because it is not relevant to the situation you are considering. You must be sensitive to the needs of the case and not apply the framework we have discussed in this section blindly. The framework is meant only as a guide and not as an outline that you must use to do a successful analysis. 4