CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
12–19
a. Objectives:
Website: Ease of use, speedy, accurate search results, timely
customer service, and fast, reliable fulfillment
i. Key to success was continuous website improvement. Consistent
with the firm’s objective to provide superior customer
Web Services: Provide access to technology infrastructure that could
help small business’ online presence and help firms optimize costs.
i. Heavy investment in technology infrastructure
Delivery: The objectives of providing speedy delivery to customers
and providing options to enhance customization are consistent with
external environment
b. Operation Capabilities
i. Global brand with website presence in Canada, United Kingdom,
Germany, France, China, and Japan.
ii. Partnerships with many retailers for online hosting and
management of websites.
c. Manufacturing services and warehouses are not vulnerable to
nationalization by governments. The fulfillment program reduces
the risk of product nonavailability and also the supplier risk.
d. The presence of people working continuously on website and
customer service provides an illustration on the heavy emphasis
on consumer satisfaction by Amazon Inc.
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
capabilities. In the 3rd quarter of 2011, the shipping fees
generated $360 million in revenues but the firm incurred $918
million in shipping expenses.
i. The trend from the programs, like web services and website
maintenance, support the inference of being a firm the
suppliers find easy to do business with
f. The strategic location of distribution centers and success of
programs like Amazon prime support the notion of the firm using
appropriate techniques in delivery and operations to satisfy the
customers. However, some problems persist:
i. Frustration free packaging program to help reduce the carbon
footprint and reduce waste. The direct arrangement with
g. To be consistent with the macroeconomic changes, the firm decided
to charge sales tax in about 50 states. The firm plans to open
warehouses near population centers to provide same day delivery.
5. Human Resources Management (HRM)
Not much information provided on Human Resource Strategies in the
case. However, some detail could be inferred based on the
information given
a. Objectives:
• To hire a highly competent technical staff to help optimize
the web site and work on web services
• To have a staff that provides a very effective and efficient
customer care and experience
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
12–21
• Streamline the policies of the employees of the acquired firms
• To have managers experienced in working with lean based
processes
Strategies:
• Good Monetary and other incentives (increase in payroll
expenses was also one of the reasons for net income decline
between the years 2009 and 2010).
i. Based on the information provided, Amazon HRM must be clearly
stated as the company’s success directly depends on the
employee expertise, experience, and employment longevity to
support long–term goals.
b. Not much information is given on the quality of life of
employees.
i. The performance of the projects and firms gives an impression
that employees are indeed producing quality products.
ii. The trends support the inference of the staff being talented
and the scope of more innovations from this firm.
iii. No direction mention of HRM with a strategic direction given
in the case. However, the performance of the firm supports the
notion.
c. Not much information can be gleaned about HRM performance
comparison with other firms. However, HRM does provide Good
Monetary and other incentives (increase in payroll expenses was
also one of the reasons for net income decline between the years
2009 and 2010).
d. Performance evaluation information is not mentioned in this case.
The HRM does work on improvements of employee capabilities
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
i. Keep the employees motivated and challenged so as to be
innovative.
ii. Target development of staff in areas such as
a. Research and development. Sales and customer support.
e. International offices and presence in Asia, Europe, North
America, and Latin America would require local management within
the respective sites.
f. The work teams comprised of people from different cultures and
backgrounds.
i. Divisions info gleaned from appendix:
6. Information System (IS)
a. Strategy: Friendly and easy to use web features for the customers
to manage orders, effective web services for the small business
to increase web presence, and the web storage services to help
firms in optimizing costs.
Objectives:
• Continuous website improvement.
i. Objectives implied by the firm’s operations and mission
ii. Consistent with corporation’s mission and objectives. The
information systems provide a unique advantage and help the
firm cope with competition
b. The information system provides the scope of data analysis via
huge database of customers and their purchase information
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
12–23
c. The information systems are the key competitive advantage of the
firm
i. Businesses and Retailers could use the Amazon MarketPlace
feature to place links on their websites. Affiliate marketing,
provided by IS at Amazon, helps in sales of small businesses.
d. The absence of any major security threats provides an inference
that the information system managers have been adept at placing
proper security controls. However, it is not mentioned or can be
inferred about the advanced security measures to be taken to deal
with growing data and complexities.
D. Summary of external factors (See exhibit II—IFAS table)
V. Analysis of Strategic Factors (SWOT)
A. Strategic Factors Analysis Summary (see exhibit III—SFAS table)
B.
1. Amazon current mission and objectives are consistent with the key
2. A current mission statement clearly addresses Amazon’s nature of
business and e-commerce, but if sources of revenue come from an
3. If Amazon changes its mission statement, it must also revise its
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
Amazon’s diversified industry portfolio and significant capital
resources, Amazon should maintain flexibility in adjusting to
changing strategic direction, but simultaneously Amazon should have
a clear vision and understanding of what their primary mission is.
VI. Strategic Alternatives and Recommended Strategy
A. Strategic Alternatives
1. Current objectives fit for the company’s strategic direction in the
short–term; however, alternative strategies are recommended for
long–term growth and continued success
i. Amazon should continue to work on websites improvements.
2. Alternative strategies
a. Cost leadership—part of the current strategy
Pros:
• Increase sales.
• Helps to attract customers by passing cost savings to
customers (low–cost shipping and purchase processing fee,
if any).
Cons:
• Competing on basis of free or low–cost shipping will
decrease Amazon’s revenues as expenses increase.
b. Differentiation—part of the current strategy
Pros:
• Wide range of products and services offered at one site,
which makes for a simple and easy shopping experience (one–
stop–shop).
• Large and unique information technology structure.
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
12–25
• The huge warehouse and distribution facilities help with
early customer product delivery (benefits of Prime
Membership leads to differentiation).
Cons:
• Costs may exceed the revenues (e.g. Kindle costs).
• Web based products may be replicated by competitors.
• Some unique Amazon products and services may not be
profitable (e.g., one–day shipping).
c. Stability—not primary strategy as Amazon thrives for growth,
however, in the slow growth period it is essential.
Pros:
• Stable business implies that no market share is lost.
Cons:
• Competition may hamper the business (eBay and metro AG).
d. Growth—part of current strategy
Pros:
• Increase in profits and revenues.
• Increase market share in existing businesses and tap into
Cons:
• Increase expenses to support growth/expansion.
• Increased risk in managing complexities.
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
• Potentially unsuccessful ventures.
B. Recommended Strategy
1. Amazon should build upon its core competencies to grow organically
and increase the market share. In addition, Amazon should take into
consideration types of expansion that will allow keeping Amazon
competitive and unique from its competitors.
i. Growth/stability
a. Existing cloud computing technology infrastructure could be
leveraged better by its application across different
devices. Amazon has stayed competitive in the cloud
business and continued focus can be beneficial to Amazon.
b. Existing data mining on customer’s needs and shopping
ii. Differentiation
a. With an increased focus on cloud and web improvements on
the continuum, Amazon should not rush into one–day
shipping. This will increase Amazon’s expenses and may
waste Amazon’s inventory space. However, Amazon should
2. Two chosen strategies (growth and differentiation) will allow Amazon
to reach its objectives for growth in terms of market share and
financially. Through continued improvement and innovation Amazon has
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
12–27
3. Policies regarding cost management and technology infrastructure
need to be revised. There need to be guidelines on how to focus on
4. The strategy focuses on strengthening Amazon’s core competencies and
will optimize their usage for the firm’s growth. Other than the
VII. Implementation
A. Restructuring is not necessary as all areas are implemented to promote
e-commerce. However, special focus should be spent on cloud, Kindle,
mobile developments, and web services, as they can contribute to
Amazon’s growth.
R&D:
• Continue to invest heavily in Amazon’s Information
Infrastructure (web improvements, cloud developments, and
Marketing:
• No necessary changes.
Operations:
• Same Day Shipping—Amazon should not aggressively seek to
achieve this, due to high costs that would need to be
incurred to support this strategy. Also, competitors in
e-commerce market have not yet started this trend. However,
B. Feasibility and Timetables
• Feasibility (Financial)
▪ Given Amazon’s current financial position, addition
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
Information technology is already a heavy investment and gives
Amazon a competitive advantage.
• Pro–form Budgets
▪ A pro–form budget cannot be assessed at this time with given
• Priorities and Timetables
▪ Currently, Amazon should continue to seek geographical areas
of growth to expand naturally with current operations and
procedures.
C. Current operating procedures are effective, however, should be reviewed
on an annual basis as continued growth and a competitive environment
VIII. Evaluation and Control
A. Current information systems are capable of providing sufficient
feedback on implementation activities and performance as Amazon is
proactively tracking customer traffic. Amazon’s concentration on
customer satisfaction as well as customer rating systems implemented in
Amazon’s websites allows Amazon to monitor success and failures of
current procedures.
1. Amazon can pinpoint performance by area, function, or unit as they
have implemented tracking processes from order to fulfillment. If an
B. Controls measures in place to enforce conformance with the strategic
plan.
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
1. Control measurements were not discussed in the case, however, given
Amazon’s continued effort for efficiencies and improvements, it can
be inferred that controls do exist.
Exhibit I: External Factor Analysis (EFAS)
Factors
Weight
Rate
Weighted
Scored
Comments
Opportunities
Expansion in Global
Marketplace
15%
5
0.75
online shopping in different
countries and more tech savvy
customers.
Expansion globally and to
developing countries. This will
continue in current markets as
Disposable Income of
Target Population
10%
2
0.20
Amazon’s principle to compete
with low prices will allow them
to be successful in times or
economic boom and economic
recession.
Industry-Related
Technology
Advancement
5%
5
0.25
Amazon has been proactive in
implementing and sometimes
creating technology that will
make their operations more
efficient.
Security of Web Site
5%
5
0.25
Mobile Functionality
5%
3
0.15
in the mobile market, they have
positioned themselves in a way
Increase in Cloud
Spending
5%
4
0.20
should stay competitive and
Patent, License and
Copyright Laws
5%
5
0.25
Amazon has invested heavily in
Information Technology and if
Amazon were able to create a
unique process or tool that
would differentiate itself from
its competitors they would be
able to benefit.
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
12–30
Threats
Cost of
Transportation (oil)
12%
3
0.36
Amazon heavily relies on the
delivery of goods in its
operations. As costs increase,
Amazon’s financial position can
be negatively affected.
Cost of Real Estate
10%
3
0.30
fulfillment centers. As costs
increase, Amazon’s financial
position can be negatively
affected and it may affect
Amazon’s ability to expand.
Expiration of Tax
Exemption/Increase in
Taxes
5%
5
0.25
Amazon has been proactive in
anticipation that the tax
emption would expire, however,
sales will always be threatened
by increases in taxes.
Increased Risk of
Litigation
5%
3
0.15
Threat of potential litigation
as Amazon continues to expand.
Regulation of
Industry
5%
2
0.10
Any changes in e–commerce
regulations that would affect
Amazon’s operations.
3%
3
0.09
keep it competitive, but
local” can threat its success.
Increase Demand for
Fulfillment
10%
4
0.40
fulfillment centers will allow
Amazon to compete if same day
delivery becomes a threat.
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
Exhibit II:
Internal Factor Analysis (IFAS)
Factors
Weight
Rate
Weighted
Scored
Comments
Strengths
Well Developed web Site
Features and
Capabilities
15%
5
0.75
Customer loyalty, analytical
tools.
Marketing Techniques
10%
3
0.30
Allows to attract more
customers, increases brand
awareness.
Strategic Location of
Fulfillment Centers
5%
4
0.20
Customer loyalty, due to fast
and reliable delivery.
Strategic Partnerships
and Alliances
5%
3
0.15
Diversification of products
offered to customers.
Variety of Web Based
Individual/Business
Customers
15%
4
0.60
Diversification of clientele.
Frustration Free
Packaging Program
5%
3
0.15
Promotes firms, as an
environmentally friendly
business.
Strong Financial
Position
10%
2
0.20
Provides liquidity and solvency,
available funds for investments.
Highly Skilled Labor
10%
4
0.40
Quality of work deliverables is
high.
Weaknesses
High Production Costs
10%
3
0.30
Hardware is a low margin
business. The loss could reduce
the total income (example:
Kindle).
High Shipping Expenses
10%
3
0.30
Decreases margins
Prone to Unsuccessful
Acquisitions
5%
1
0.05
several unsuccessful
acquisitions, followed by
financial losses
100%
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
12–32
Exhibit III:
Strategic Factor Analysis (SFAS)
Factors
Weight
Rate
Weighted
Scored
Short
Interim
Long
Comments
Expansion in Global
Marketplace (O)
15%
5
0.75
X
X
Key
strategy
for
expansio
n
Technology Advancement (O)
5%
5
0.25
X
X
Supports
key
operatio
ns
Security of Web Site and
Transactions (O)
5%
5
0.25
X
X
Customer
satisfac
tion and
loyalty
Mobile Tunctionality (O)
5%
3
0.15
X
X
Diversif
ication,
new
market
share
Cost of Transportation
(oil) (T)
12%
3
0.36
Increase
costs
Cost of Real Estate (T)
10%
3
0.30
X
X
costs
Expiration of Tax
Exemption/Increase in
Taxes (T)
5%
5
0.25
X
Increase
costs
Well Developed Web Site
(S)
15%
5
0.75
factor
in e–
commerce
Marketing Techniques (S)
10%
3
0.30
Brand
name
Increase
Variety of Web Based
Products to
Individual/Business
Customers (S)
10%
4
0.40
Key to
attracti
ng
customer
s and
diversif
ication
High Production Costs (W)
8%
3
0.24
on cost
manageme
nt
100%
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
Exhibit IV: Financial Analysis
31–Dec–
2008
31–Dec–
2009
31–Dec–
2010
31–Dec–
2011
COMMENTS
RECOMMENDATIONS
Liquidity Ratios
Current Ratio:
1.30
1.33
1.33
1.17
Inventory to Net
0.99
0.89
0.95
1.92
Cash Ratio:
0.58
0.47
0.36
0.35
Liquidity
slightly
decreased,
Tighten
inventory
management.
Monitor healthy
cash and cash
Quick (Acid Test)
Ratio:
1.00
1.04
1.02
0.84
Profitability Ratios
Net Profit Margin
3.37%
3.68%
3.37%
1.31%
Return on Investment
(ROI)
7.76%
6.53%
6.13%
2.50%
Return on Equity
(ROE)
24.14%
17.16%
16.78%
8.13%
(EPS)
Although
Gross Profit
Margin
remained at
the same
It is
acceptable if
R&D does not
benefit company
sales
Gross Profit Margin
22.28%
22.57%
22.35%
22.44%
Activity Ratios
Inventory Turnover
(times/year)
13.70
11.29
10.68
9.63
Asset Turnover
Fixed Asset Turnover
22.30
15.68
11.82
It is evident
that
inventory
management
deteriorated
(decrease
inventory
turnover,
Tighten
inventory
management,
review credit
condition of
Days of Inventory
34.28
41.75
44.00
48.87
Net Working Capital
Turnover
13.58
10.07
10.13
18.53
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
12–34
31–Dec–
2008
31–Dec–
2009
31–Dec–
2010
31–Dec–
2011
COMMENTS
RECOMMENDATIONS
Average Collection
Period
15.75
14.71
16.94
19.52
inventory
into cash.
Average
collection
Accounts Receivable
Turnover
Accounts Payable
Period
which means
that it takes
period also
increased,
which may be
caused by the
recession.
Days of Cash
52.73
51.29
40.31
40.00
Leverage Ratios
Debt to Asset Ratio
67.86%
61.94%
63.48%
69.31%
assets, which
potentially
repurchasing
stock to lower
Debt to Equity Ratio
211.15%
162.75%
173.85%
225.87%
Long–term Debt to
Capital Structure
Times Interest
Earned
It is evident
that Amazon
generates
enough income
to service
increase the
cost of
capital
(generally
assumed that
debt is
cheaper than
equity if
maintained at
healthy
levels).
cost of capital
and increase
EPS.
Current Liabilities
to Equity
177.62%
140.08%
151.11%
192.03%
Other
Price/Earnings Ratio
N/A
N/A
N/A
N/A
Dividend Payout
Ratio
N/A
N/A
N/A
N/A
No Dividends
paid
Dividend Yield on
Common Stock
N/A
N/A
N/A
N/A
No Dividends
CASE 12
Amazon.com, Inc: Retailing Giant to High Tech Player?
Exhibit V:
Common Size Income Statement (%)
31–Dec
2008
31–Dec
2009
31–Dec
2010
31–Dec
2011
Revenues
100.00%
100.00%
100.00%
100.00%
Cost and Expenses
Cost of Goods Sold
77.72%
77.43%
77.65%
77.56%
Operating Expenses
Selling General and Admin
Expenses, Total
12.62%
12.49%
12.86%
14.28%
Other Operating Expenses
Other
Net Interest
Unusual Items
Net Income