How did the companys strategy change over time. Inside the first six many years of its inception, Amazon transformed itself from a web bookstore into an online superstore selling a multitude of products both nationally and internationally. By 2000, Amazon was ranked as the 48th most effective brand worldwide. Amazon's journey is a vintage example that demonstratesritu what sort of company's business model can be aligned with its environment to take benefit of the opportunities and to have the ability to create greater value for all its stakeholders. Amazon lay out with the strategy to become "Earth's Biggest Bookstore" and to support its rapid growth it aligned its business design to "get big fast. " Initially Amazon took ownership of the inventory it sold, so that as its product line expanded, so did the complexity of its warehousing, inventory, management, distribution, and fulfillment. In order to support its rapid growth Amazon invested heavily, both, to quickly build a state-of-the-art digital business infrastructure and businesses (that provided it end-to-end visibility) in addition to a network of worldwide distribution centers. Realizing the near future growth potential, Amazon built its distribution infrastructure with ample overcapacity. In 2000, to be able to leverage its assets, also to create for itself a strategic advantage, Amazon added the "infrastructure services" business design, thus transforming itself from a web based retailer to a commerce platform.
Capabilities enable a business to execute its current strategy and provide a platform for future growth. Amazon used its IT capability as a robust tool to permit operational cost benefits, income growth opportunities, drive asset efficiencies and to create for itself a sustainable advantage.
Stage I: DEPLOYING IT to drive cost benefits: Amazon used IT to regulate and bring down its raising fulfillment costs by computerizing and interconnecting even the notoriously labor-intensive pursuits like picking and packaging.
Stage II: DEPLOYING IT to drive revenue growth: Amazon used IT to create business intelligence to access know its customers, markets and competition better and leveraged this capacity to increase its revenues by attracting more customers and also by increasing the per customer purchase value.
Stage III: Amazon designed for itself a unique asset base comprising of its brand, customer relationships, the technical and fulfillment infrastructure, and leveraged it to build for itself a capability that could not be easily imitated by its competition (online and traditional) or new entrants.
Stage IV: DEPLOYING IT to produce sustainable advantage: Amazon's digital business infrastructure, which linked its customer facing processes to its backend processes, helped it develop a sustainable advantage for itself which served as an entry barriers for competition. The IT enabled commerce platform that Amazon built for itself is the key to its success.
At the heart of Amazon's value proposition is the fact that it leveraged its existing IT system and transformed it into a commerce platform, which allowed Amazon to pursue new IT enabled strategic growth initiatives. In this process Amazon created value for all those its stakeholders.
Customers: Amazon's advanced browsing experience with improved search capabilities, wish list, recommendations, shopping carts, one click shopping, customized consumers shopping experience.
Industry: Amazon's business concept not only helped Amazon grow, rather it developed a value network for all the industry participants. Amazon's adoption of digital business capacities compelled the retail industry to look at and grow, or at least consider the new business model.
Shareholders: In the first years, since Amazon had fewer physical assets, its asset turnover was extremely high. As Amazon. com commenced investing in its IT infrastructure and distribution network it increased its asset base and therefore had to look for new avenues to increase its revenues and fuel its evolving business design.
Do you buy into the decision to pursue the Toys R Us deal? Why did the business do the deal? As long as they do more deals like this?
By 2000 Amazon had transformed itself into a commercial platform which allowed it to leverage its assets utilization while increasing its income and growth potential. Amazon's decision to pursue the Toys "R" Us deal was a right step for various reasons. Firstly, the deal with a normal "brick-and-mortar" retailing partner like Toys "R" Us would help Amazon hedge its business risks instead of the volatility of partnering with other dot-come retailers; Amazon had learned this form its connection with partnering with other dot-com retailers a lot of which succumbed to the internet bubble. Secondly, it could allow Amazon to increase its revenues by building on its core competency (distribution and fulfillment capabilities) and by increasing customer loyalty by giving an improved shopping experience to its consumers. Further, it could allow Amazon to increase its operational efficiencies as Toys "R" Us would "own" the inventory and keep maintaining control of product sourcing and marketing; this might release Amazon's capital investments which it could placed into other growth projects. Amazon should definitely entered into more of such deals as this would help address the scaling inefficiency that it was experiencing in its supply chain, inventory management, and order fulfillment processes.
In August 2000, Amazon's partnership with Toys "R" Us enabled the business to exploit its new commerce platform and also to operate as a logistics service provider. Amazon added the "infrastructure services" business model to its existing retail, marketplace, and auctions business models. The Toys "R" Us deal served as a great learning chance of Amazon and impacted its business model in a number of ways. It allowed Amazon to expand into traditional retailers market. This deal provided Amazon the chance to leverage its core assets (its customer base, scalable commerce platform, logistic functions - customer service and distribution centers) while bettering its operating efficiencies. Devoid of to purchase the inventories helped Amazon to free up its inventory investment costs, it also helped Amazon scale its operating capabilities and costs, proactively used its capacity and additional reduce its customer acquisition cost. Amazon earned a margin on the customer service, inventory management, fulfillment, and logistics services that this provided while the inventories were owned by Toys "R" Us. This positively impacted Amazon's cash flows as it got paid directly by the clients, earned margins on the assistance that this provided before it reimbursed Toys "R" Us for the inventory sold.
As a member of the Amazon. com board of directors in early 2001, what challenges did the company face and what actions would you take?
Two of the biggest challenges that Amazon faced in early 2001 were be it new "infrastructure services" model could develop into a competitive advantage that would be difficult to imitate by the competition and how to protect itself from increasing competition from traditional retailers.
One way to deal with competitive threats from traditional retailers is to build an alliance with them. Amazon should continue to expand in the traditional retail market by attracting more retailers to sell with their products using its commerce platform. Teaming up with traditional retailers would require a delicate balance as it is important that this alliance between Amazon and its retail customers represents a win-win scenario. This can help Amazon use its fixed cost distribution network to capacity thereby increasing its benefits of scalability. Further it could allow Amazon to leverage its capabilities, increase revenues and develop its commerce platform into a strategic advantage that would be hard to imitate by new entrants or by traditional retailers.