Amazon.com (AMZN) SWOT Analysis / TOWS Matrix / MBA Resources
Retail (Catalog & Mail Order)
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for Amazon.com (United States)
Based on various researches at Oak Spring University , Amazon.com is operating in a macro-environment that has been destablized by – increasing commodity prices, there is increasing trade war between United States & China, customer relationship management is fast transforming because of increasing concerns over data privacy, wage bills are increasing, supply chains are disrupted by pandemic , central banks are concerned over increasing inflation, challanges to central banks by blockchain based private currencies,
increasing inequality as vast percentage of new income is going to the top 1%, 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 Amazon.com can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Amazon.com, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Amazon.com 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 can be done for the following purposes –
1. Strategic planning of Amazon.com
2. Improving business portfolio management of Amazon.com
3. Assessing feasibility of the new initiative in United States
4. Making a Retail (Catalog & Mail Order) sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Amazon.com
Strengths of Amazon.com | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Amazon.com are -
Training and development
– Amazon.com has one of the best training and development program in Services industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Low bargaining power of suppliers
– Suppliers of Amazon.com in the Services sector have low bargaining power. Amazon.com has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Amazon.com to manage not only supply disruptions but also source products at highly competitive prices.
High switching costs
– The high switching costs that Amazon.com 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.
Digital Transformation in Retail (Catalog & Mail Order) industry
- digital transformation varies from industry to industry. For Amazon.com digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Amazon.com has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Operational resilience
– The operational resilience strategy of Amazon.com comprises – understanding the underlying the factors in the Retail (Catalog & Mail Order) 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.
Innovation driven organization
– Amazon.com is one of the most innovative firm in Retail (Catalog & Mail Order) sector.
Ability to lead change in Retail (Catalog & Mail Order)
– Amazon.com is one of the leading players in the Retail (Catalog & Mail Order) industry in United States. Over the years it has not only transformed the business landscape in the Retail (Catalog & Mail Order) industry in United States but also across the existing markets. The ability to lead change has enabled Amazon.com in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Analytics focus
– Amazon.com 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 Retail (Catalog & Mail Order) industry. The technology infrastructure of United States is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Highly skilled collaborators
– Amazon.com has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Retail (Catalog & Mail Order) industry. Secondly the value chain collaborators of Amazon.com have helped the firm to develop new products and bring them quickly to the marketplace.
Superior customer experience
– The customer experience strategy of Amazon.com in Retail (Catalog & Mail Order) industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Strong track record of project management in the Retail (Catalog & Mail Order) industry
– Amazon.com is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Cross disciplinary teams
– Horizontal connected teams at the Amazon.com 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.
Weaknesses of Amazon.com | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Amazon.com are -
High cash cycle compare to competitors
Amazon.com has a high cash cycle compare to other players in the Retail (Catalog & Mail Order) industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Compensation and incentives
– The revenue per employee of Amazon.com is just above the Retail (Catalog & Mail Order) industry average. It 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.
Employees’ less understanding of Amazon.com strategy
– From the outside it seems that the employees of Amazon.com don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
High bargaining power of channel partners in Retail (Catalog & Mail Order) industry
– because of the regulatory requirements in United States, Amazon.com 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 Retail (Catalog & Mail Order) industry.
Workers concerns about automation
– As automation is fast increasing in the Retail (Catalog & Mail Order) industry, Amazon.com needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Ability to respond to the competition
– As the decision making is very deliberative at Amazon.com, in the dynamic environment of Retail (Catalog & Mail Order) industry it has struggled to respond to the nimble upstart competition. Amazon.com has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Skills based hiring in Retail (Catalog & Mail Order) industry
– The stress on hiring functional specialists at Amazon.com 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.
Products dominated business model
– Even though Amazon.com has some of the most successful models in the Retail (Catalog & Mail Order) industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. Amazon.com should strive to include more intangible value offerings along with its core products and services.
Capital Spending Reduction
– Even during the low interest decade, Amazon.com 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 Retail (Catalog & Mail Order) industry using digital technology.
Increasing silos among functional specialists
– The organizational structure of Amazon.com is dominated by functional specialists. It is not different from other players in the Retail (Catalog & Mail Order) industry, but Amazon.com needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Amazon.com to focus more on services in the Retail (Catalog & Mail Order) industry rather than just following the product oriented approach.
Need for greater diversity
– Amazon.com has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Amazon.com Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Amazon.com are -
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.com 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.
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.com can use these opportunities to build new business models that can help the communities that Amazon.com operates in. Secondly it can use opportunities from government spending in Retail (Catalog & Mail Order) sector.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Amazon.com 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 Amazon.com to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Loyalty marketing
– Amazon.com 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.
Better consumer reach
– The expansion of the 5G network will help Amazon.com to increase its market reach. Amazon.com 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.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Retail (Catalog & Mail Order) industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Amazon.com 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.com 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Amazon.com in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Retail (Catalog & Mail Order) industry, and it will provide faster access to the consumers.
Manufacturing automation
– Amazon.com can use the latest technology developments to improve its manufacturing and designing process in Retail (Catalog & Mail Order) sector. 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.
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.com can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Developing new processes and practices
– Amazon.com can develop new processes and procedures in Retail (Catalog & Mail Order) 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.
Use of Bitcoin and other crypto currencies for transactions in Retail (Catalog & Mail Order) industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Amazon.com in the Retail (Catalog & Mail Order) industry. Now Amazon.com can target international markets with far fewer capital restrictions requirements than the existing system.
Creating value in data economy
– The success of analytics program of Amazon.com has opened avenues for new revenue streams for the organization in Retail (Catalog & Mail Order) industry. This can help Amazon.com to build a more holistic ecosystem for Amazon.com products in the Retail (Catalog & Mail Order) industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Retail (Catalog & Mail Order) industry, but it has also influenced the consumer preferences. Amazon.com can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Threats Amazon.com External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Amazon.com are -
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Amazon.com 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 Amazon.com prominent markets.
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.
Increasing wage structure of Amazon.com
– 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.com.
Consumer confidence and its impact on Amazon.com 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 Retail (Catalog & Mail Order) industry and other sectors.
Stagnating economy with rate increase
– Amazon.com 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 Retail (Catalog & Mail Order) industry.
Shortening product life cycle
– it is one of the major threat that Amazon.com is facing in Retail (Catalog & Mail Order) sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Amazon.com business can come under increasing regulations regarding data privacy, data security, etc.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Amazon.com in Retail (Catalog & Mail Order) industry. The Retail (Catalog & Mail Order) 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.
Regulatory challenges
– Amazon.com 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 Retail (Catalog & Mail Order) industry regulations.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Amazon.com may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Retail (Catalog & Mail Order) sector.
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.com needs to understand the core reasons impacting the Retail (Catalog & Mail Order) industry. This will help it in building a better workplace.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Retail (Catalog & Mail Order) industry are lowering. It can presents Amazon.com with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Retail (Catalog & Mail Order) sector.
Easy access to finance
– Easy access to finance in Retail (Catalog & Mail Order) industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Amazon.com can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Weighted SWOT Analysis of Amazon.com Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Amazon.com 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 Amazon.com 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 Amazon.com 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 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.com needs to make to build a sustainable competitive advantage.