Amazon: A Critical Assessment
Background of the Company
Amazon has been in the electronic-commerce sector, and they are also growing exponentially in the wholesale as well as the retail sector. Initially a publication company, Amazon is now among the largest distributors in the world, providing millions of distinct goods and utilities. Amazon’s offices are in Seattle, and its internet businesses extend throughout 11 distinct nations. The company aims at becoming the most customer-centered business on Earth; to create a facility in which individuals can expect to encounter and acquire anything they would like to purchase digitally (Ritala, Golnam, and Wegmann, 2014). Once a business concentrating exclusively on publications, Amazon is now the go-to online for American people to meet their wants. Amazon raised over $100 billion in cumulative revenues and became the largest enterprise to accomplish that achievement. For 2015, Amazon hired over 229,000 casual as well as permanent staff, using temporary employees and contractors to reduce business expenses. Based on the most recent Market Watch, Amazon had earnings over $2 billion, rising quickly out of its total revenue of $241 million in 2014 (Chevalier, and Goolsbee, 2003).
Amazon does have numerous utilities as well as goods covering nearly any needs. If anybody needs food, they may purchase snacks from Amazon’s portal, purchase meals within a local area cafe offering prompt transportation from Amazon’s Premier Cafe facility, and even access the latest Amazon.com convenience shop. The company as well offers its supporters with Prime Video and Music, providing some other cord-cutting alternative to remain competitive to firms such as Netflix and Hulu (Chevalier, and Goolsbee, 2003). Additionally, Amazon had also developed its very own tablets or even sound systems, showcasing Alexa’s artificial intelligence allowing consumers to prompt the gadget using personal sound. It is comparable to Siri by Apple Company, although its features are much more sophisticated as Amazon continuously releases the latest improvements to Alexa equipment, which boosts Alexa’s functionality (Ritala, Golnam, and Wegmann, 2014). The firm as well provides free cloud storage to consumers, and companies may make usage of Cloud platform services by Amazon to hold personal information at a price rather than investing in personal servers. The Cloud Utilities are now among the company’s greatest inventions to present, delivering the firm’s most revenues (Ritala, Golnam, and Wegmann, 2014). Amazon is constantly seeking to grow its business by purchasing other businesses or by developing its facilities and goods.
Overall Organizational Structure at Amazon
Amazon applies a functional organizational structure, which focuses primarily on the functions of the business to determine interactions among the organization’s components. The corporate structure adopted by Amazon has three distinct characteristics which entail, hierarchy, function-based groups, and geographic divisions. A hierarchical organizational structure is a conventional model used in several organizations, characterised by a direct command chain from the senior management to the subordinates (Nouri, 2019). Proposals made by persons at the bottom of the pyramid must get approval from the supervisors before becoming operational. The structure significantly benefits large companies having many employees to enhance efficiency in management. Amazon has a global hierarchical system, coordinating the entire company through vertical lines of authority and command. A directive given by a senior manager affects the company’s pertinent offices all over the world. Amazon employs the model strategically to simplify its managerial control. Although the career progression under the hierarchical structure is explicit, the slow decision making processes impedes operational efficiency (Bragg, 2018).
Apart from the global hierarchy system, Amazon’s functional structure also involves the use of function-based units, to promote success in the management of the company’s e-commerce operations. The model dedicates all functions within the business to teams or groups, guided by a senior manager. Administration through the function-based groups aligns appropriately with the Amazon’s intensive growth strategies, by easing entry into new markets, and the prompt establishment of operations. The main function-based groups at Amazon include the CEO’s office, Finance, Amazon Web Services (AWS), Business Development, International Consumer Business, Consumer Business, Accounting, Legal, and Secretariat (Meyer, 2019). Besides, the organizational structure at Amazon also entails geographic divisions. The divisions make it easier for the organization to manage its business, with special attention to the economic conditions in particular areas. The model acknowledges regional markets’ diversity. Therefore, emergent issues at the regional front are addressed correctly, facilitating sustainable operations in international markets. The primary geographic divisions recognized by Amazon are North America and International (Meyer, 2019).
The functional organization structure used at Amazon promotes e-commerce market growth internationally. Recently, the company has continuously expanded its business, and infiltrated several markets worldwide, demonstrating the viability of the adopted organizational structure. Besides, managerial directives have effectively and rapidly been implemented, thereby addressing challenges, and enhancing customer satisfaction. Also, geographic divisions facilitate continuous market evaluations to ensure the application of the most effective marketing strategies, based on the prevailing economic conditions in specific areas. However, restrained responsiveness and flexibility of the structure form the greatest barrier towards scaling greater heights in terms of business success. The dominant global hierarchy, and function-based groups, limits the company’s capacity to respond rapidly to emerging issues, and business-related problems.
Amazon’s Five Forces Analysis (Porter’s Model)
The Five Forces Analysis, a model developed by Michael Porter, serves as an invaluable instrument for the external assessment of businesses or organizations. To maintain the company’s position at the market, Amazon must perform regular evaluations of all external factors in the industry, and examine its main competitor’s forces. Components of Porter’s Five Forces model include competitive rivalry, bargaining power of suppliers, bargaining power of customers or buyers, threats of substitutes, and threats of new entrants.
Competitive Rivalry
Amazon’s main competitors include Microsoft, Google, Walmart, Apple, and Home Depot. The competitors subject Amazon through a strong competitive rivalry, compelling the company to make quick business decisions, and adopt more efficient marketing strategies, to maintain its market position. In the online retail sector, strong competition stems from the extreme availability of substitutes, escalated aggressiveness of enterprises, and low switching costs. Brick-and-mortar stores established by Walmart substitutes the retail services provided by Amazon online. Besides, Walmart has a well-established and highly growing website for e-commerce, signifying the aggressiveness of the competitors. Also, few barriers exist for customers to switch from one service provider to another.
Bargaining Power of Buyers
Primarily, Amazon applies a customer-centric strategy in its operations, as outlined in its vision and mission statement. The company’s clients have strong bargaining power, facilitated by high availability of substitutes, excellent information provided, and low switching costs. The abundance of substitutes within the market gives consumers the power to substitute one retailer for another easily. Also, the information provided by different service providers regarding the services offered and products sold increases the chances of customers to look for alternatives. With the low switching costs, consumers transfer easily to other online retailers.
Bargaining Power of Suppliers
Suppliers have significant control over the materials or supplies needed by Amazon to facilitate their online business. The company faces the moderate force of its suppliers’ bargaining power, due to the moderate magnitude of suppliers, their small population, and moderate forward integration. Most manufacturers for the equipment used by Amazon are moderate in size, hence moderating their control over the company. However, few suppliers pose a threat to Amazon since price changes from its essential suppliers would directly affect the operational costs of the company.
Threats of Substitutes
The threat of substitution is high in the online retail dominated market, caused by the high availability of substitutes, low switching costs, and inexpensiveness of the substitutes. The high substitution risks threaten Amazon’s performance at the e-commerce business front, compelling the company to engage in continuous assessments to address the risks.
The Threat of New Entrants
The entry of new enterprises into the online retail industry may reduce Amazon’s share in the market. The company faces an insubstantial threat of new entrants into the market due to the high costs involved in developing a brand, low switching costs, and high economies of scale. New entities seeking to compete favourably with Amazon needs to part with billions of dollars and years of consistent operations, a situation that scares new entrants. Also, the economies of scale enjoyed by Amazon and other established brands, makes their business strong, requiring that new entrants also achieve similar economies of scale. Even though the low switching costs act as a strong force towards the market entry, its effect is insignificant, given the high establishment costs and economies of scale enjoyed by Amazon.
Amazon’s PESTLE Analysis
PESTLE is a strategic management instrument that analyses external factors within a business environment that have an impact on the functionality and productivity of the entity. The components assessed include political, economic, social, technological, legal, and environmental factors. A careful examination of the analysis results provides decision-making teams with an opportunity to identify opportunities and threats to the business, hence act accordingly
Amazon’s Political Environment
Political stability experienced in Europe and the United States of America promotes the expansion and diversification of Amazon operations. Also, the e-commerce sector gets considerable support from the governments, augmenting their desire to expand and infiltrate relevant markets. The USA government also channels significant attention to combating cybercrime, thereby improving the business conditions. However, steadfast support from the government provides a platform for thriving competition. Particularly, infiltration online retail firms operated by the Chinese into the USA intensify competition, and threatens Amazon’s market share.
Amazon’s Economic Environment
The economic conditions within regions that Amazon operates have a significant influence on the company’s performance. Economic stability in the USA and Europe provides a viable market for the company’s products, driving its success. Besides, the consumers with the developed countries have high disposable incomes, which enhance their purchase power, hence higher revenues for the business. China offers a considerably larger market for Amazon’s products, providing a feasible option for continued penetration into its market. However, recent reports suggest that China’s economy would undergo recession, hence subverting the expansion goals and threatening the operations of already established subsidiaries.
Amazon’s Sociocultural Environment
Three distinct sociocultural factors that influence Amazon’s performance include an increase in the consumption culture within developing and developed nations, intensified online purchasing habits, and continued increase in income and wealth disparities. Recently, there has been a rising trend among millennials to buy compulsively, propelled by the evolved metrics of measuring success in life. People tend to consider a successful life as one characterized by many assets; hence they end up buying unnecessary commodities. Consumerism culture benefits Amazon tremendously due to increased sales. Amazon also amasses substantial revenues from ultra-high income earners across its markets. However, escalating income disparities within its markets threaten the company’s growth.
Amazon’s Technological Environment
Amazon is primarily a technologically oriented business. Therefore, technological advancements impact its operations directly. The company faces several issues related to technology, such as intensifying efficiencies of information technology systems, rapid technological outmodedness, and a rise in cybercrime activities. Advanced information technology resources enhance Amazon’s operational efficiencies. For example, the newly innovated computing technologies lessen operational costs, while maximizing the company’s retail productivity. The fast-changing technology realm boosts the company’s competitive advantage through the procurement of more sophisticated technologies and safeguards it from threats imposed by new entrants. However, the company has to continuously upgrade its systems to catch up with the fast-changing technology world, therefore straining the innovation teams. Also, escalated cybercrime rates threaten the security of the company’s transactions, and offer great challenges in service provision.
Amazon’s Legal Environment
Legal factors that influence Amazon’s operations include varying regulations on imports and exports, product regulations, and regulations meant to protect the environment. Favorable export regulations allow the company to expand into different spheres and boost its sales. Also, environmental regulation policies provide an opportunity for Amazon to strengthen its brand image among consumers who acknowledge their contribution to environmental protection. Regulations designed to safeguard the safety and security of consumers facilitate the continued production and sale of authentic merchandise, which appeals to many consumers.
Environmental Factors
Currently, the world faces several environmental challenges ranging from energy consumption to management of waste. Amazon needs to improve its strategy on Corporate Social Responsibility, to promote a meaningful impact on the environment. Besides ecological challenges, much attention has also been directed towards creating sustainable businesses. Also, people have become more environmentally conscious, as seen in the growing attractiveness of low-carbon lifestyles.
Amazon’s Balanced Scorecard Analysis
The Balanced Scorecard is an invaluable strategic management tool, used in assessing the performance of an organization. Different entities worldwide use the tool to place activities of the business at a similar trajectory with its strategy and vision, monitor business’ performance against its strategic goals, and improve the organization’s communication channels. In essence, the Balanced Scorecard tool gives the top management a balanced view of the firm’s performance. The tool measures four main perspectives including customer perspective, learning ad growth perspective, the financial perspective, and the internal business process perspective
Amazon’s Customer Perspective
Fundamentally, Amazon seeks to become the most customer-centric company as outlined in its vision and mission statement. The company set on a mission to continually improve customer experience by providing them what they need efficiently. Essential metrics used to measure customer satisfaction include the number of complaints received from customers, the number of new prime service subscribers, results from the Customer Satisfaction Survey, and the average amount of revenue generated per customer.
Financial Perspective
Amazon looks forward to growing financially by providing quality and efficient services for customers. The main indicators for financial growth at Amazon are revenue growth for every customer segment, cash flow, profits in terms of assets invested, and the gross margin for every customer segment.
Internal Business Process Perspective
Amazon invests in highly skilled employees to enhance efficiency in its internal processes, the goal being to satisfy its customers. The volume of timely delivered orders measures efficiencies within the internal processes, return rate caused by the company’s errors, order-to-shipment cycle time, and the quantity of customer-centered process innovations.
Learning and Growth Perspective
The company seeks to establish a pool of highly innovative staff. After recruiting the most talented individuals, Amazon conducts regular training for the staff to build their competencies. The learning and growth perspective is measured by assessing the performance of staff, and their innovativeness
Amazon may use the Balanced Score Card analysis to align every operation to its successful strategy. For example, by devoting to employees’ learning and growth initiatives, its internal processes within the establishment can gain efficiency, and therefore lead to higher levels of customer satisfaction. In the long run, an expanded pool of loyal customers will drive the company’s financial growth.
Amazon’s SWOT Analysis
Strengths:
The company has been among the globe’s strongest enterprises, ranking 18th on a Fortune 500 table (Bustinza et al., 2015). The business utilizes capabilities like diversified item range, technology, exceptional customer service, as well as fantastic affiliation advantages, which enable Amazon to monopolize the sector (Onyusheva and Seenalasataporn, 2018). Amazon’s priority has been on selling publications when the firm first came into being, and thus, the growth did not stop after extending to DVDs. Amazon is now the go-to internet for informal consumers, providing incredibly low rates on goods, often considerably less than large box retailers (Onyusheva, and Seenalasataporn, 2018). Amazon’s client base may have risen with low rates and brand diversifying, and Amazon has lately developed a varied collection of facilities to give clients.
Amazon contributes to its diversified features by establishing its own, such as Prime Restaurant, Amazon Echo Line, Prime Video, Amazon Web Services, etc. Amazon is doing an excellent work of generating premium goods, whereas opening fresh windows for the coming days. Presently they are setting up the company’s supermarket in which clients don’t have to cash at a cashier desk, but instead, the shop recognizes which goods are drawn off the shelf and costs the Amazon card of the consumer. Amazon has also been testing with the aerial shipment, 1-hour delivery, as well as a ride-thru shop, which could sell alcohol (Onyusheva, and Seenalasataporn, 2018). Amazon remains atop of their competitor with their technologies, accelerating business income as well as a share of the market.
Amazon’s four main limitations are transport and processing, corporate culture, low revenue margins, as well as a bad product investment. Resolving such problems is essential for Amazon to proceed to be successful in the industry. Amazon’s first significant limitation is the expense of delivery as well as managing its goods. With the affiliation of Amazon Prime, clients contribute $99 on a year-long utility, which involves unlimited two-day delivery. Whereas that proves good for consumer fulfillment, it may be affecting the company’s revenues. Aggregate transport expenses rose 37 percent from 2015 as well as “the annual charges are not completely covered as a result of large transport expenses” (Onyusheva, and Seenalasataporn, 2018). Besides, Amazon’s expense of reducing its delivery expenses will become a costly undertaking. Amazon has developed its delivery van chain as well; it is testing using Boeing airplane for cargo to decrease delivery expenses. Generally, this could assist in reducing transport costs. However, the effort to create a transportation system to contend along with the main transportation firms may result in harming the company’s earnings in the coming days.
The company does have a bad business practice, which may have affected the firm’s overall public opinion. Throughout the past, the company had also been criticized for bad work-related circumstances or society, but it has not significantly influenced their company yet.
Opportunities:
Whereas Amazon has indeed conquered several purchasing individuals with their continual development and developed e-commerce, there have been options around for them to take the opportunity of more. These possibilities tend to involve expanding the number of outlets, marketing various businesses as a purchasing instrument, or how to become a digital supplier.
The company has become an excellently existing electronic-commerce business. However, it is, and it can be far greater than an ordinary web-based store. The company had indeed recognized that such a shop could perform a significant part in their company. Amazon needs to become a more competitive player throughout the fast-food business through an article posted by Business Insider, as well as considers it could not depend on e-commerce alone to attain that objective (Onyusheva, and Seenalasataporn, 2018).
Even though it’s great that Amazon may have acknowledged the ability in brick and mortar store destinations, the potential doesn’t halt there. Amazon could use physical places such as Walmart to cater to clients that might not have access to web-based shops.
Amazon offers countless facilities and goods that extend throughout all kinds of classifications. As Amazon continues to expand, fresh challenges are constantly arising. Most of the greatest risks to Amazon’s goods include Google Company, Alibaba Company, as well as the company’s pace of acquisition of current businesses.
Some of the company’s greatest-sold goods are its Echo range system that is amplifiers that integrate an AI called Alexa. A client could speak to an Alexa phone to enable particular activities. The Amazon Echo range became one of the first house amplifiers to include synthetic technology, but other businesses have also begun to enter into the sector. Google launched a brand range to contend with Alexa named Google-Home, offering at a lower cost as compared to Alexa’s designs (Onyusheva and Seenalasataporn, 2018). More firms can be anticipated to begin producing comparable goods and offer Amazon a ride for their cash
Human Resource Management at Amazon
Amazon uses a shared services model in its routine human resource administration. The model places all human resource administrative responsibilities at a central point, ranging from payroll to recruitment and training (Jacobs, 2014). Other duties and responsibilities performed in human resource shared services centres include data entry, system support, back-office administration, and policy questions (Collier, 2017). A shared human resource service centre provides the required corporate services throughout the organization from a central unit. Human resource directors prefer the model due to its cost-effectiveness. Besides, the shared services approach enhances the quality of service delivery and saves time for more important activities (Jacobs, 2014). The magnitude and diversity of Amazon necessitated the establishment of shared services centres, to enhance efficiency and achieve consistency in human resource management. Each centre has a site leader who supervises all operations and sustains the service levels.
Operation managers subordinate site leaders. An operation manager creates and leads a panel of managers and associates, establishing a high-performing crew anchored on a customer-centric culture of leadership (Bruce, 2014). Operation Managers ensure that activities within their teams align with the organization’s goals. Managers who fall under the Operation Manager govern an associates’ team, with the assistance of Team Leaders responsible for daily operations of Customer Service Teams. The company highly values customer Service Associates due to their direct interactions with the customers and the company (Bruce, 2014).
Organizational Chart of Amazon’s Shared Services Centre
Human Resource Management Strategy at Amazon
Amazon has always sought to pursue a lasting competitive advantage over short term benefits. Also, the CEO made a primary commitment to create more value and enhance social efficiency. The management conceived a unique strategy, dubbed “two pizza rule,” to attain the company’s objectives. In its entirety, the strategy aims at creating very small teams, such that two pizzas would satisfy a whole team. The small nature of the teams formed ensures high involvement and high sensitivity. Besides, the company’s corporate culture drives the staff towards high innovativeness and heightened problem-solving capabilities. Amazon sees potential in all of its employees and therefore trains them appropriately to develop their capabilities and personalities. The training program integrates the employees deeply into the company’s culture and spirit. By understanding the company’s philosophy, the staffs get on a better trajectory to perform to the best of their ability and personality hence promoting high productivity.
The human resource practices employed at Amazon align perfectly with the seven best practices identified by Preffer. Particularly, the organization supports self-management among its employees, invests handsomely in their training and development, minimizes status differences through small teams, and triggers creativity through sharing among team members and departments. Candidate selection and recruitment at Amazon is based on qualification and performance. Besides, the candidates undergo a careful and systematic evaluation concerning the company’s organizational culture and leadership principles. Amazon only selects candidates with a strong belief in its future, and who understand comprehensively, the company’s 14 principles of leadership.
Before making the final recruitment decision, the Bar Raisers hold a discussion with other interviewers at the final stage of selection to ensure that selected candidates will enhance the company’s innovation standards. The recruitment plan aligns with the people-organization (P-O) framework that improves a company’s competitiveness and the ability to fuel long term development by attracting and retaining talent. The CEO encourages talent diversity throughout the selection process to promote continuous innovation and long-lasting competitiveness. Amazon uses an online application and screening system to minimize recruitment costs. The organization views talent as a fountain of sustainable competitiveness, and therefore, the P-O selection plan supports its objective. However, the selection process integrates interviews, hence neutralizing the effectiveness of the P-O plan. During interviews, candidates may hide their authenticity intentionally, to fascinate the potential employer.
The performance and reward management system used at Amazon is slightly controversial. The company offers few incentives to recently employed staff, compared to employees who have served for a long duration, to minimize the costs involved, and also encourage talent retention. Amazon lacks an inclusive performance assessment criterion, bestowing team leaders with the mandate to determine performance. Every September, the company conducts mid-year assessments, followed by a comprehensive year-end evaluation from December to April. Salary adjustment decisions, and promotions, occur ordinarily, at the end of every year. Assessments on performance necessitate that the staff provides a peer review, and a self-evaluation, based on the 14 guiding principles of leadership, giving a heavy workload to the employees. There exist two classes of performance management, namely, harder performance improvement strategy and a softer developmental and motivational technique. Amazon utilizes the former by stressing its employees to give honest peer reviews.
The company’s strategy to get immediate feedback, by encouraging the staff to inform against one another, destroys interpersonal relationships and trust within the workforce. Amazon utilizes a performance-based reward mechanism, either through the traditional labour reward strategy, or capital reward in terms of Restricted Shared Units (RSU). Several schools of thought illuminate flaws in the performance-based reward, indicating that the strategy strains the working environment, creates internal competition, and prejudice. Recently, the enterprise has been in the limelight for pursuing high performance crazily at the expense of the employees’ welfare.
Recommendations
References
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Jacobs, K. (2014, June 23). Can shared services provide a quality HR service? HR magazine. https://www.hrmagazine.co.uk/article-details/can-shared-services-provide-a-quality-hr-service
Meyer, P. (2019, February 16). Amazon.com Inc.’s organizational structure characteristics (An analysis). Panmore Institute. https://panmore.com/amazon-com-inc-organizational-structure-characteristics-analysis
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