On January 28, 2016, Amazon announced record 2015 operating profits of $2.2 billion on $107 billion of sales, and the markets responded with cautious optimism. For years, founder and CEO Jeffrey Bezos had prioritized growth and investment in new business areas over profits, but pressure from analysts was mounting as growth was slowing and profits were failing to materialize. In 2014, Amazon had recorded a net loss of $241 million on revenues of $89 billion, in stark contrast to China's leading Internet player Alibaba, which reported $3.9 billion of net income on revenue of $12.3 billion. While Alibaba was a third-party marketplace with no distribution or inventory holding, Amazon's business model was more diverse. Amazon was primarily an online retail department store, offering a wide range of product categories, but it also maintained a significant third-party marketplace where it offered shipping, customer service, payment processing, and return services to independent retailers. Amazon also offered software and cloud storage services, online video streaming, and its own line of electronic hardware (mobile, e-reader, and smart television products). In addition, Amazon published books, hosted its own app store, funded video content development, and operated Amazon Prime, an annual membership program with a wide range of benefits. Indeed, Amazon's activities overlapped with those of Apple, Google, eBay, Alibaba, and many other companies. Amazon provided little information on the profitability of its lines of business, many of which were believed to be unprofitable. Which businesses would drive Amazon's future growth? Would the investments Amazon was making in market share eventually translate into profits? Or would another major competitor or business model replace Amazon? On a visit to the United States in June 2015, Jack Ma, chairman of Alibaba, stated, "We're not coming here to compete." Could Amazon or its investors afford to believe him?
Authors :: John R. Wells, Galen Danskin, Gabriel Ellsworth
Topics :: Strategy & Execution
Tags :: Business models, Business processes, Competition, Data, Financial management, Growth strategy, Human resource management, International business, Internet, IT, Marketing, Mobile, Policy, Professional transitions, Workspaces, SWOT Analysis, SWOT Matrix, TOWS, Weighted SWOT Analysis
Swot Analysis of "Amazon.com, 2016" written by John R. Wells, Galen Danskin, Gabriel Ellsworth includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Amazon Alibaba facing as an external strategic factors. Some of the topics covered in Amazon.com, 2016 case study are - Strategic Management Strategies, Business models, Business processes, Competition, Data, Financial management, Growth strategy, Human resource management, International business, Internet, IT, Marketing, Mobile, Policy, Professional transitions, Workspaces and Strategy & Execution.
Some of the macro environment factors that can be used to understand the Amazon.com, 2016 casestudy better are - – there is increasing trade war between United States & China, customer relationship management is fast transforming because of increasing concerns over data privacy, increasing inequality as vast percentage of new income is going to the top 1%, technology disruption, there is backlash against globalization, cloud computing is disrupting traditional business models, central banks are concerned over increasing inflation,
increasing transportation and logistics costs, increasing government debt because of Covid-19 spendings, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Amazon.com, 2016 case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Amazon Alibaba, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Amazon Alibaba operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Amazon.com, 2016 can be done for the following purposes –
1. Strategic planning using facts provided in Amazon.com, 2016 case study
2. Improving business portfolio management of Amazon Alibaba
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Amazon Alibaba
Strengths Amazon.com, 2016 | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Amazon Alibaba in Amazon.com, 2016 Harvard Business Review case study are -
Analytics focus
– Amazon Alibaba is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by John R. Wells, Galen Danskin, Gabriel Ellsworth can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Ability to recruit top talent
– Amazon Alibaba is one of the leading recruiters in the industry. Managers in the Amazon.com, 2016 are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
High switching costs
– The high switching costs that Amazon Alibaba has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Strong track record of project management
– Amazon Alibaba is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Sustainable margins compare to other players in Strategy & Execution industry
– Amazon.com, 2016 firm has clearly differentiated products in the market place. This has enabled Amazon Alibaba to fetch slight price premium compare to the competitors in the Strategy & Execution industry. The sustainable margins have also helped Amazon Alibaba to invest into research and development (R&D) and innovation.
Cross disciplinary teams
– Horizontal connected teams at the Amazon Alibaba are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Operational resilience
– The operational resilience strategy in the Amazon.com, 2016 Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Organizational Resilience of Amazon Alibaba
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Amazon Alibaba does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Effective Research and Development (R&D)
– Amazon Alibaba has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Amazon.com, 2016 - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Training and development
– Amazon Alibaba has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Amazon.com, 2016 Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Diverse revenue streams
– Amazon Alibaba is present in almost all the verticals within the industry. This has provided firm in Amazon.com, 2016 case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Learning organization
- Amazon Alibaba is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Amazon Alibaba is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Amazon.com, 2016 Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Weaknesses Amazon.com, 2016 | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Amazon.com, 2016 are -
Skills based hiring
– The stress on hiring functional specialists at Amazon Alibaba has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Amazon.com, 2016, is just above the industry average. Amazon Alibaba needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Interest costs
– Compare to the competition, Amazon Alibaba has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
High cash cycle compare to competitors
Amazon Alibaba has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Amazon Alibaba supply chain. Even after few cautionary changes mentioned in the HBR case study - Amazon.com, 2016, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Amazon Alibaba vulnerable to further global disruptions in South East Asia.
High bargaining power of channel partners
– Because of the regulatory requirements, John R. Wells, Galen Danskin, Gabriel Ellsworth suggests that, Amazon Alibaba is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Low market penetration in new markets
– Outside its home market of Amazon Alibaba, firm in the HBR case study Amazon.com, 2016 needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Slow to strategic competitive environment developments
– As Amazon.com, 2016 HBR case study mentions - Amazon Alibaba takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Aligning sales with marketing
– It come across in the case study Amazon.com, 2016 that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Amazon.com, 2016 can leverage the sales team experience to cultivate customer relationships as Amazon Alibaba is planning to shift buying processes online.
Increasing silos among functional specialists
– The organizational structure of Amazon Alibaba is dominated by functional specialists. It is not different from other players in the Strategy & Execution segment. Amazon Alibaba needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Amazon Alibaba to focus more on services rather than just following the product oriented approach.
Products dominated business model
– Even though Amazon Alibaba has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Amazon.com, 2016 should strive to include more intangible value offerings along with its core products and services.
Opportunities Amazon.com, 2016 | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Amazon.com, 2016 are -
Manufacturing automation
– Amazon Alibaba can use the latest technology developments to improve its manufacturing and designing process in Strategy & Execution segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Amazon Alibaba is facing challenges because of the dominance of functional experts in the organization. Amazon.com, 2016 case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Strategy & Execution industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Amazon Alibaba can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Amazon Alibaba can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Using analytics as competitive advantage
– Amazon Alibaba has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Amazon.com, 2016 - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Amazon Alibaba to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Amazon Alibaba to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Amazon Alibaba to hire the very best people irrespective of their geographical location.
Buying journey improvements
– Amazon Alibaba can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Amazon.com, 2016 suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Loyalty marketing
– Amazon Alibaba has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Amazon Alibaba can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Amazon Alibaba in the consumer business. Now Amazon Alibaba can target international markets with far fewer capital restrictions requirements than the existing system.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Amazon Alibaba can use these opportunities to build new business models that can help the communities that Amazon Alibaba operates in. Secondly it can use opportunities from government spending in Strategy & Execution sector.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Strategy & Execution industry, but it has also influenced the consumer preferences. Amazon Alibaba can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Developing new processes and practices
– Amazon Alibaba can develop new processes and procedures in Strategy & Execution industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Amazon Alibaba to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Threats Amazon.com, 2016 External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Amazon.com, 2016 are -
Increasing wage structure of Amazon Alibaba
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Amazon Alibaba.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Amazon Alibaba.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Amazon.com, 2016, Amazon Alibaba may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Strategy & Execution .
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Amazon Alibaba needs to understand the core reasons impacting the Strategy & Execution industry. This will help it in building a better workplace.
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Amazon Alibaba can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Amazon Alibaba will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Shortening product life cycle
– it is one of the major threat that Amazon Alibaba is facing in Strategy & Execution sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Amazon Alibaba with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Technology acceleration in Forth Industrial Revolution
– Amazon Alibaba has witnessed rapid integration of technology during Covid-19 in the Strategy & Execution industry. As one of the leading players in the industry, Amazon Alibaba needs to keep up with the evolution of technology in the Strategy & Execution sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
High dependence on third party suppliers
– Amazon Alibaba high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Consumer confidence and its impact on Amazon Alibaba demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Stagnating economy with rate increase
– Amazon Alibaba can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Weighted SWOT Analysis of Amazon.com, 2016 Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Amazon.com, 2016 needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Amazon.com, 2016 is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Amazon.com, 2016 is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Amazon.com, 2016 is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Amazon Alibaba needs to make to build a sustainable competitive advantage.