Amazon is the largest internet-based company in America with headquarters located in Washington and Seattle in the United States. The company was founded in 1995 by Jeffrey Bezos and it started as online bookstores then diversified to selling videos, CDs, MP3 and DVDs. Today, Amazon offers about 4.7 million books, computer games, DVD and a wide variety of items of all kids. Ever since Bezos opened the doors of Amazon, online retailing has been defined and redefined for the rest of the Internet retail worldwide, and today it offers the customers a superior shopping experience through the provision of a high level of customer service. This research paper will discuss the impact of the Amazon’s mission, vision and primary stakeholders’ overall success, while analyzing different forces of competition and how they impact the business of the company. SWOT analysis will also be performed to determine the strengths, weaknesses, opportunities and threats. In addition, various types of strategies the firm uses to maximize the competitiveness and profitability will also be discussed as well.
The impact of the company’s mission, vision and primary stakeholders on overall success
One of the most important steps when beginning an organization is creating a clear and coherent vision and mission statement. This is because the mission and vision are critical elements of the company’s organizational strategy. Many companies establish mission and vision statements that serve as a foundational guide in the establishment of the company objectives. For instance, the company’s mission statement assist company employees with its navigation, and in relation to the organizations customers, it is an assurance that the company is for sure committed to the clients’ purpose. The mission statement also articulates the front line of an organization by reminding the stakeholders of the firm how the business would be seen by the customers.
Amazon has had a solitary mission since it began and apparently the vision and mission statement are the same “Our vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online” (Amazon.com, 2014). With customer base of not less than 60 million shoppers, research has shown that Amazon has indeed been true to their vision statement.
In 2012, there were about 3,300 shareholders on record of the company’s common stock, however it is noted that there are still much larger number of beneficial owners. The primary stakeholders of Amazon are people who have rights of declaring dividends, who own share, as well as people who have right to vote in regards to the matters of the company (Amazon.com, 2014).
Analyze the five forces of competition to determine how they impact Amazon
According to Porter, he refers to the five forces of competition as tools used in organizations to understand where power lies within a business setting. The tools are important in understanding both the strength of the current competitive position as well as, the strength of a position an organization is considering to move into (Porter, 2005). These five forces of competition are noted as the potential of new entrants, the bargaining power of buyers, the bargaining power of suppliers, threat of substitute products, along with the rivalry among competitors.
(a) Threat of new entry
Here, power is affected by the ability of people to enter into the new market; these include capital and economies of scale that may limit the entry of new competitors (Porter, 2005). New entrants in a market pose threats by gaining a large market share of the industry. The possibility of firms to enter into an industry is as a result of factors such as; barriers to entry and reprisal expected from the existing industry participants. It is noted that since Amazon was established, the company has been very successful because its potential competitors come from different industries such as e-commerce services, retailers as well as other web services. In addition, the company’s primary source of revenue is by selling quality products and services to customers while focusing on the long-term sustainable growth in free cash flow. Currently, the threat of new entrants is relatively low or does not affect the business of Amazon bearing the stability, familiarity, fame and financial establishment that Amazon has toiled to establish over the years.
(b) Buyer power
Bargaining power of the buyers give customers the ability to either make or break a product. This may happen when the buyers want to buy products at a lower price, while the industry on the other side earning the lowest rate of returns on its invested capital. Amazon has managed to solve this issue by listening carefully when their buyers speak and making sure that the interested buyers find the lowest prices possible on their website. Amazon increases their sales of products and services by improving the customers’ experience, improving availability, lowering prices and offering faster performance times. The company also increases its selections, expands product information as well as, improving ease of use. With Amazon model, the merchants have lowered their prices so as to get their merchandise sold.
(c) Supplier power
Here, one determines how easy it is for the suppliers to drive up their prices on the products they sell. It is the concentration of the suppliers and availability of the substitute suppliers which tend to be the most important factor in determining the supplier power (Porter, 2005). For example, Amazon Company offers the third party seller the opportunity of competing with Amazon for sale, whereby, the merchants sell new and used products, while Amazon itself receives the commissions on the products sold through its marketplace. This model has significantly increased the company’s selection of the available products. In this case, one can note that the bargaining powers of suppliers are not with Amazon, but it is with the merchants who sell the products on the Amazons website.
(d) Threat of substitution
This refers to the power of substitutes for a company’s product which affect the changing cost. For example, if the company supplies a unique product such as software that automates an important process, then the buyers may substitute these products by outsourcing them (Porter, 2005). The substitute goods perform same functions as products produced by that Industry. For example, Amazon started as a bookseller and today its great deal in business comes from the selling of both books and media products offering more than 4.7 million books and videos in stores (Amazon.com, 2014). However, it is evident that with the growth of downloadable electronic books, music, software and other digital products, Amazon is on a high risk of losing business. However, Amazon preempted this and has the option of softbooks in their Kindle application, they also have video hiring services and online buying of videos as well in a bid to lower the threat of substitution in their business.
(e) Competitive rivalry
Competitive rivalry states that the competition among the competitors in the same industry and market is co-dependent upon the actions of the competition (Porter, 2005). Therefore, actions taken by one company may on the other hand create a competitive response from other companies. Buyers generally bargain for lower prices and better services, however, with the third party seller marketplace, Amazon checks the competitive rivalry within the marketplace. The company uses the concept of First in First out (FIFO) allowing the inventories to be sold before the new inventory. Sellers also usually have hopes that their merchandise will be sold despite the reduction in price.
In summary, it can be argued out that, the five forces of competition as discussed above can impact Amazons’ competitive environment in many ways, as a result, the company has made sure that it has identified its competitive environment using the Porters tools.
Create a SWOT analysis for Amazon to identify their strengths, weaknesses, opportunities, and threats
In the SWOT analysis of Amazon, identified as well as discussed are the strengths, weaknesses, opportunities and threats for Amazon.
Amazon is a huge profitable company that sells globally as well as shipping internationally (Jurevicius, 2013). In 2007 the company’s net sales increased more than three times and in 2011, its net sales were forty eight million dollars (Freisner, 2014) . Amazon Company has innovative ways that involves the use of technologies to attract the consumers. For instance, the use of Information Technology (IT) and Customer Relationship Management (CRM) for many years has been supporting the company’s business strategy, whereby the company carefully records its data on customers buying behavior. The innovativeness within the company has seen it set pace in most technological innovations and modes of reaching the customer from the far flung areas across the globe. This has enabled the company to offer bundles of items to individuals based upon preferences demonstrated through purchase (Freisner, 2014).
The company is exposed to a range of inventory risks which may negatively affect the operating results of Amazon. For instance, Amazon is put at risk due to changes in product pricing, launching of new products as well as changes in consumer demand and consumer spending patterns. Conversely, the company lacks physical presence like other retailers such as Wal-Mart and Target, where people are able to see and touch the products while buying them instantly (Jurevicius, 2013). The other weakness is the problem of currency exchange rates across the globe that may fluctuate over a day hence leading to change in spending preference. Again there are clients who are skeptical of buying an item that they have not physically seen hence creating a market void for Amazon.
The primary source of revenue for Amazon Company is in its sale of products and services to its customers. Amazon’s financial focus is majorly on a long-term sustainable growth in free cash flow per share. Amazon has several opportunities that make it gain its competitive advantage by reducing their variable costs and work to leverage their fixed costs. The other opportunity is the online payment system where the Amazon has the capability of extending its current payments systems as well as introducing similar to that of PayPal (Jurevicius, 2013). The company’s model also allows them to quickly turn their inventory and have cash generating operating cycle. With the opportunity of access to large market, Amazon could benefit by realizing more branded products given that this will help to increase revenue and performance (Jurevicius, 2013). Being a leader in innovations, Amazon standsa chance of utilizing every new technological advancement that may come into existence, indeed the noble idea of using drones to deliver parcels could easily come into being due to the vast opportunities Amazin stands to exploit this means.
There are several threats that present themselves against the Amazon including online security, lawsuits, strategic alliances and many others (Jurevicius, 2013). The research has shown that, Amazon relies on government regulation of online services and e-commerce: therefore, changes to these laws can be a threat to their business. Other threats may include; changes in business licensing, the certification requirements for imports and regional low cost online retailers. Due to the growth of many downloadable books, music and other digital products, Amazon can also be at high risk of these media business (Jurevicius, 2013). The difference in regulatory law as in many countries outside U.S. has made it also difficult for Amazon to operate freely and profitably as some countries have accused it for killing the library and bookshop businesses within those countries hence received wit skepticism and this is a threat to the profitable existence of Amazon in such countries.
How Amazon may capitalize on its strengths and opportunities and minimize its weaknesses and threats
Amazon is a successful company not only because they serve over 60 million customers and one of the first online retailers across the world, but because it successfully uses the internet in creating global businesses that has tripled its profits. The company’s model offers selection and convenience by striving to offer their customers the lowest prices possible. Amazon also offers one stop shopping destination with a consistent experience for their customers. The Company’s ability to meet the customer’s aspects during online shopping experience has enabled the company to acquire its competitive advantage as well as decreasing risks of competition over the years (Amazon.com, 2014).
Nevertheless, the company’s third party marketplace of the third party sellers competes with other merchants online. The merchants therefore sell the new and used products for which the Amazon receives a commission on products through its marketplace. With FIFO concept, Amazons’ inventory turnaround time tends to be fast and quick. The FIFO concept is also significant because the old inventory is reduced, hence low inventory risks. The company is also working to release a new video download service; Unbox, which offers books as well as songs as a discount rate to those found on iTunes after the release of the Amazon Kindle.
Strategies Amazon uses to maximize its competitiveness and profitability
Amazon gets its revenue from the sale of products and services to their customers. Its business model is supported by Customer Relationship Management (CRM) that helps the company in recording the behaviors of customers when they buy goods from the company. Understanding customers buying behaviors is significant because this allows the company to continue their primary source of revenue (Amazon.com, 2014). Conversely, with the FIFO concept, Amazon has managed to turn its inventory around as well as having a cash-generating operating cycle. The company has also built its retail business with a negative cash flow cycle whereby, the company gets paid by the customers for the products before paying the suppliers for the goods. Amazon invests in other companies as well as, adding merchandising employees who help in increasing the level of technology hence enhancing customer experience.
Communications plan outline to make strategic recommendations known to stakeholders
Communication in organization plays a vital role in the successful planning of a strategic project. Today, many failed projects in most organizations are as a result of poor communication, therefore for success in organization, stakeholders should be engaged in consistent communication throughout the implementation of strategic plan since they significant role in the development of the project plan. Communication plan can be categorized into three stages, that is; the initial stage, process stage and final stage. In the initial stage of the project, the project managers ensure that the stakeholders set a realistic communication expectation; however, some stakeholders may expect frequency of communication.
Different stakeholders usually have different types of information and some of these stakeholders may require different liaison. Communication needs should therefore be identified and documented, and a copy of the final communication plan document presented to each stakeholders. After the establishment of communication, the communication preferences are then identified, whereas, the project manager ensures that each stakeholder receives consistent messages. In spite of these, the stakeholders may still receive different information or messages through different channels; however, this should not be the case, since the project manager has to ensure that different forms of communication in organization do not create messages that conflict.
Corporate governance mechanisms used by Amazon to evaluate how effective they are at controlling managerial actions
Amazon effectively controls their managerial actions by ensuring that they follow the rules and regulations as defined in Rule 13a-15 of the 1934 Act that govern how they do business online (e-commerce) (Amazon.com, 2014). This is significant because the existing and future laws and regulation may slow down the growth of the company. These laws and regulation may as well cover copyrights, data protection, electronic device certifications and many others. Conversely, unfavorable laws and regulation may on the other hand may diminish the demand for the products and services in Amazon or increase the cost of doing business. The companies also control their managerial actions by ensuring that all the audits are completed as specified in the Security and Exchange Commission (SEC) rules as well as, providing realistic assurance that the information provided is communicated to management.
Evaluate the effectiveness of leadership within Amazon and make one recommendation for improvement
One aspect of effective leadership comes from the company’s CEO; Jeff Bezos. According to Bezos’ focus which brought success to Amazon was in the way he directed his attention to his customers as well as working with his employees to make that happen. Again, the use of team dynamics in Amazon has helped in adjusting the company’s team methodology for the software development, whereas the company was able to show its effective leadership through the adoption of software development teams by having its “culture of independence and autonomy for development teams” (Amazon.com, 2014).
Assess efforts by Amazon to be responsible ethically to corporate citizen and determine the impact of these efforts on the bottom-line
The way Amazon conducts its business is different from its competitors. The Company is said to conduct its business in the most ethical manner and still strives to be an ethically responsible corporation. Amazon do businesses throughout the community, sourcing and diversity while reflecting on their mission statements every day. The company’s commitment is displayed by being a socially responsible corporation and this has helped in providing the best quality of business especially for their customers. Conversely, their ethical effort for many years have affected the bottom line and so making the company one of the most successful corporation across the world (Amazon.com, 2014).
In conclusion, Amazon is one of the first retailers having about 60 million customers worldwide. Their values and mission statements aim to please their customers and stakeholders. The company great strategic use of the SWOT analysis has enabled the company to gain the competitive advantage.
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Jurevicius, O. (2013). SWOT analysis of Amazon. Amazon SWOT analysis 2013. Retrieved October 19, 2014, from http://www.strategicmanagementinsight.com/SWOT-analyses/amazon-SWOT-analysis.html
Freisner, T. (2014). Amazon SWOT – Marketing Teacher. Marketing Teacher. Retrieved October 21, 2014, from http://www.marketingteacher.com/amazon-SWOT/
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