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 - – supply chains are disrupted by pandemic , customer relationship management is fast transforming because of increasing concerns over data privacy, challanges to central banks by blockchain based private currencies, cloud computing is disrupting traditional business models, competitive advantages are harder to sustain because of technology dispersion, there is backlash against globalization, increasing transportation and logistics costs,
banking and financial system is disrupted by Bitcoin and other crypto currencies, technology disruption, 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 -
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.
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.
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.
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.
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.
Ability to lead change in Strategy & Execution field
– Amazon Alibaba is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Amazon Alibaba in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
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.
Superior customer experience
– The customer experience strategy of Amazon Alibaba in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
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.
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.
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.
Low bargaining power of suppliers
– Suppliers of Amazon Alibaba in the sector have low bargaining power. Amazon.com, 2016 has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Amazon Alibaba to manage not only supply disruptions but also source products at highly competitive prices.
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 -
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.
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.
Capital Spending Reduction
– Even during the low interest decade, Amazon Alibaba has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
No frontier risks strategy
– After analyzing the HBR case study Amazon.com, 2016, it seems that company is thinking about the frontier risks that can impact Strategy & Execution strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Amazon.com, 2016, in the dynamic environment Amazon Alibaba has struggled to respond to the nimble upstart competition. Amazon Alibaba has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Amazon.com, 2016 HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Amazon Alibaba has relatively successful track record of launching new products.
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.
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.
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.
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.
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.
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 -
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.
Learning at scale
– Online learning technologies has now opened space for Amazon Alibaba to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
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.
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.
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.
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.
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.
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.
Better consumer reach
– The expansion of the 5G network will help Amazon Alibaba to increase its market reach. Amazon Alibaba will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Amazon Alibaba can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Amazon Alibaba can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Amazon Alibaba can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Amazon.com, 2016, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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 international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Amazon Alibaba can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Amazon.com, 2016 .
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.
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.
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.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Regulatory challenges
– Amazon Alibaba needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Strategy & Execution industry regulations.
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.
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.
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.
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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Amazon Alibaba in the Strategy & Execution industry. The Strategy & Execution industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
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.
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.
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.
