Amazon Case Study
When Jeff Bezos launched Amazon.com, the online bookstore, people had different reasons for thinking that the business would fail. During the 1990s when the company was being launched, technology was still backward, and people did not believe that e-commerce had any future. They did not think that people would change their traditional retail practices as regards to buying books from bookshops and not over the internet. Another reason that would contribute to Bezos’ failure was that he had no prior experience in the business of selling books and, therefore, lacked knowledge of the company and did not have the necessary networks needed for success. The retail of books was a very traditional business since customers would search shelves of their local bookshops, feel and touch a book and even flick through pages before purchase. Book buyers at the time were frightened of the internet and disclosing their credit numbers over the web thus, the business would never be able to get to its clientele, and if it did, it would be difficult to sell.
When a business grows and expands, it gains certain advantages in the market that enable it to increase the variety of products it can sell with an aim of gaining more profits. When companies like Amazon grow, they get to the point where they are big enough to influence the market price and become price setters. As businesses expand, they tend to enjoy economies of scale since they can buy their raw materials cheaply in bulk and spread the cost of overheads and marketing across larger sales (Schwenker & Bötzel, 2007). The cheaper costs of production and market share enable them to produce a variety of products that they feel their consumers demand. The expansion of Amazon has enabled it to give its customers what they want at very low prices with vast selections to choose from that can be delivered at extreme convenience.
Amazon’s vision statement is quite general as it states that the corporation intends to be the world’s most customer-centric corporation that can build a place where people visit and discover anything they might want to purchase online. It is rather difficult for such a vision to be achieved since it would require the corporation to convince every producer all over the world to sell their products on Amazon for customers to access. However, with e-commerce, Amazon can embark on achieving this by gradually forming partnerships with those producers who have embraced the platform to sell their products on Amazon. It is rather impossible to have everything included in Amazon, but the corporation can strive to include anything legal that can be sold online on its platform in a bid to achieve that vision.
It took Amazon eight years to make a profit because the e-commerce industry was at an infant stage during the founding of the company and the company had to grow with it concurrently to start getting the rewards that it is getting currently. As the company grew, there was need to enter into new categories and markets, and this meant that the company had to develop its business accordingly before getting profits. When a business ventures into new platforms and activities in its efforts to grow, it is bound to take risks that might lead to losses in the short run (Evans, 2014). However, in the long term, these investments pay off, and this is what Amazon has been doing for the past eight years. Even though the company has managed to make a profit, it still needs to invest in the future since technology is changing rapidly and it needs to adapt so as to maintain its competitive edge.
Amazon.com was founded on July 16, 1995 by Jeff Bezos as an online bookstore that had few people packing and shipping books from a garage in Bellevue, Wash. The only thing that had been purchased online at the time was a pepperoni pizza from Pizza Hut, and the sale of books online was a curious idea for many as they preferred to buy books from bookstores. However, the online platform provided consumers with more variety at a cheaper cost, and this enabled Amazon to gain a fair market share. The company actively took part in the normalizing of giving out personal information online and gradually consumers gained so much trust in the corporation that they allowed retailers to save their credit cards and shipping information (Webley, 2010). The company made the online experience to be like that of an in-store shopping trip, and other corporations joined in on the e-commerce platform that led to the rise of online shopping. Currently, 83% of shoppers are buoyant in making purchases after conducting their research online, and this has boosted Amazon’s commerce.
In 1997, when Amazon engaged in an Initial Public offer of $18 with a $2.1 billion debt, I would have been very skeptical about purchasing those shares. On one hand, the company is already in many debts and it is not making any profits, let alone offering dividends to its shareholders. On the other hand, the e-commerce industry at the time was developing, and Amazon’s revenues seemed to rise as the company expanded its business. I would have purchased the shares with the idea that this was an expanding business with a steady revenue growth and would have never regretted the decision since it is now a more profitable business with a good share value.
Amazon decided to go public with its business because it wanted to secure financial resources for business expansion and to pay off its debts. A public entity offers its securities for sale to the public and can be referred to as equity securities or even debt securities but individuals who purchase the stock can trade in the stock market (Houtz, 2011). Most investors prefer to purchase shares from corporations whose growth prospects can be analyzed and this, in turn, makes it easier for that company to raise its needed capital.
Amazon retains its profits because it intends on reinvesting the undistributed profit in the growth and expansion of the business. The profits the company retains are stored in general reserves, and once they become large enough, they are invested in the modernization and expansion of the business. Retained earnings have various advantages on Amazon, for instance; they are the most economical and convenient source of finance as they do not necessarily involve legal formalities and expenses. They have no charge on assets, no obligation of repayment, no dilution of shareholder value, and certainly add to the earning capacity, credibility, and financial strength of the business. Amazon considered all these advantages and has always retained its earnings because it is a dependable source of finance as compared to external financing that is largely determined by market conditions, and investors’ preference (Houtz, 2011).
I have been to McDonald’s, and their organizational culture emphasizes on human resource development and efficiency by focusing on people-centricity, individual learning, organizational learning, diversity, and inclusion. The organization prioritizes employees’ needs and development by encouraging employees to engage actively management in improving processes and procedures. To promote individual learning, it offers training through internships and leadership development programs. Diversity and inclusion are key factors that the organization uses to encourage its employees, suppliers, and customers to offer meaningful feedback and conversations that are geared towards improving the business.
Insist on the highest standards, Deliver results, Invent and simplify, Customer obsession, Hire and develop the best, Bias for action, Think big, Earn trust of others, Vocally self-critical, Have backbone; disagree and commit, Dive deep leaders, Ownership, Frugality, and Are right, a lot.
Employees at Amazon distribution and fulfillment center would need to be computer literate and be physically able to walk around fetching the products that are required for distribution. They should have the necessary skills needed to inspect incoming goods so as to carry out quality checks and ensure that prerequisite standards are met. They should also be able to operate computers and handle machinery that are utilized in the warehouse. They need to be very observant and keen in following instructions to meet the needs of their clientele. It is estimated that a picker working at Amazon fulfillment centers can walk a distance of 15km per day thus they need to be physically strong and fit to meet the demands of the job.
Managers need different skills for them hem to function more effectively at Amazon as compared to those that are required by other staff. Managers at Amazon need to utilize their abilities, experiences, and perspectives to ensure they increase the productivity of those they are managing. Key among the skills that they need include technical expertise that is needed to accomplish specific tasks like those of ensuring the automated systems function efficiently and appropriately coordinate troubleshooting in case a problem arises. They should also be conversant with report writing skills and be critical and creative thinkers so as to offer solutions needed in day to day running of the business. Of critical importance to managers are human skills especially those that are required to guide interpersonal relationships as they need this to manage relationships effectively. When managers have proper human skills, they can communicate, lead, and motivate employees to work towards getting a higher level of productivity.
The Six Sigma approach would be quite useful in distribution as it would reduce variation in the process and consequently lead to a reduction of any defects in the process. The primary goal of implementing the strategy would be to focus on the distribution process improvement and utilize the Six Sigma DMAIC process to reduce any defects. The Six Sigma approach if applied to Amazon’s distribution would ensure that it applies Total Quality Management and lean manufacturing to its processes. The distribution process would be more efficient for the implementation of the warehouse automation system thereby saving on costs and reducing on any damages that arise due to carelessness.
FedEx organizes its distribution center in such a way that it provides centralized and multi-client global distribution centers that have scalable warehouse and order management capabilities. When such capabilities are integrated into customer operations, the Fulfillment Services, and FedEx Critical Inventory Logistics, work together as seamless extension of business that provide late order cut-off times that extend beyond the customer’s service day. The FedEx distribution service is quite adequate as it is an end-to-end supply chain system that is designed to meet specific distribution needs.
By purchasing Kiva Systems, Amazon has engaged in forward vertical integration as Kiva Systems was a warehouse automation company and not primarily taking part in the primary business of Amazon. Warehouse activities are within the production processes of Amazon but at the stage that focuses on the delivery to potential customer thus its acquisition deemed to be a forward vertical integration by Amazon.
The employee interviewed works at McDonald’s as a restaurant crew and receives benefits that range from competitive wages, flexible hours, medical insurance, vision discount, discounted meals, educational assistance, and term life insurance. These benefits vary slightly with those offered at Amazon due to the businesses operating in different industries. Amazon offers a health care plan, an employee support program, savings plan, employee stock, and relocation aid. The benefits that are accorded to staff working in the US are similar to a large extent due to the initiatives of labor unions.
When Jeff Bezos stated in1996 that an unhappy customer tells 6,000 friends it sounded like an exaggeration but the statement is true, and businesses should be careful not to agitate any of their clients. When one customer is not happy with the kind of services and goods they have been offered, they can discourage another individual from consuming the products being produced by that company. If an agitated consumer can manage to convince ten consumers not to purchase a product, and the same consumers discourage other ten consumers, if the same continues then it could easily get to 6,000 consumers, and this could have an adverse effect on the business.
There are certain advantages that in-house distribution has over outsourcing key among them being that the company owns them and that they have a complete control of all those outlets. An in-house distribution channel ensures that the corporation can develop individual relationships with customers who can, in turn, develop their loyalty to the products offered by the company. Amazon can be able to obtain direct feedback from customers and gain more understanding of the perceptions of their customers. An in-house distribution channel enables Amazon to gain greater confidentiality with information that relate to the customer. For instance, the maintenance of secrecy of customer accounts comes in handy in banking services where the direct channels can enable bankers to enjoy the confidence and trust of that segment of customers. Direct distribution virtually eliminates the role that middlemen play and hence lower distribution costs and enhance the profitability of the business. However, there are some disadvantages to direct distribution as the company bearing all the financial risks involved with owning its distribution network. Indirect distribution, corporations often do not enjoy expert services especially when they expand to unfamiliar regions and cannot adapt their business efforts to suit those local needs.
Amazon’s product, Kindle, has certain competitive advantages as compared to other e-readers as it has not tried to replace the printed book but has been developed with few differentiated features that are dedicated to improving the reading experience of consumers. The Amazon Kindle is fixated on media consumption that include books, periodicals, music, and audiovisual. It is a compact and easy-to-use tablet that can be used to watch movies, listen to music, and purchased at a lower price as compared to the iPad thus gaining a competitive advantage. The Kindle is designed in such a way that it is easy to read and has a cellular wireless connection known as e-video which is a high-speed data network. The e-video allows consumers to download books from consumers wherever they are all over the world, and this enables customers to access the books regardless of their locations. The Kindle also allows consumers to subscribe to daily newspapers and it has a keyboard that consumers can use to search the massive database that Amazon has. All these aspects are unique to the Kindle and offer the most compelling competitive advantage for Amazon as compared to other e-readers.
Over time there has been a growth of e-readers to the point that the market has grown to a multi-billion dollar trade. E-readers have consistently grown because the e-ink displays are preferred over the LCD screens that smartphones and i-pads use. The prices of e-readers continue to fall over time, and this has accorded consumers the opportunity to purchase the gadgets and recommend them to other consumers who are enthusiastic about books and specifically those from Amazon. The e-reader over the past years has enabled readers to focus solely on a single task thus allowing people to read simply and not worry about other activities like those of social networks, e-mails, and app notifications that distract one from their core objective of reading. The battery life of e-readers continues to fascinate consumers as it can last periods that can be measured in months or weeks. E-readers have continuously increased because they are smaller, more portable, and lighter as compared to traditional i-pads.
The advice I would give to Jeff Bezos to grow his business would be to add distribution to its existing products. The company has grown its market share and needs to focus more on its distribution strategies so as to penetrate more markets and expand its business. Jeff Bezos should focus on re-investment of retained profits towards growing the business to countries that the business does not operate in so as to achieve its vision of making its products available worldwide. As it grows its business in various locations all over the world, it should ensure that its distribution channels can provide management with the market and financial performance data needed to successfully excel within the market segment (Arnold, 2000). As the corporation gains entry into new markets, it should build links amongst its national distributors that can take the form of regional corporate offices. The transmission of ideas within the indigenous market improves business performance and can lead to more consistency in Amazon’s implementation of international strategies.
Arnold, D. (2000). Seven Rules of International Distribution. Harvard Business Review. Retrieved from https://hbr.org/2000/11/seven-rules-of-international-distribution
Evans, B. (2014, September 14). Why Amazon Has No Profits (And Why It Works). Retrieved from Ben-Evans Website: http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-no-profits-and-why-it-works
Houtz, J. H. (2011). Grow the entrepreneurial dream : the ultimate guide to business success. Scottsdale, Ariz: Howard Claire LLC.