Analysis of Amazon. Management & Organisations (PDF)

See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/335430145 ANALYSIS OF AMAZON. MANAGEMENT AND ORGANISATIONS. Research · December 2018 CITATIONS...

See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/335430145 ANALYSIS OF AMAZON. MANAGEMENT AND ORGANISATIONS. Research · December 2018 CITATIONS READS 2 89,394 1 author: Tonny Rutakirwa University of Greenwich 5 PUBLICATIONS 2 CITATIONS SEE PROFILE All content following this page was uploaded by Tonny Rutakirwa on 27 August 2019. The user has requested enhancement of the downloaded file. MANAGEMENT AND ORGANISATIONS MODULE CODE: MORG4038 ID NUMBER: 60072 ASSIGNMENT ORGANISATIONAL ANALYSIS OF AMAZON STUDENT NAME: TONNY RUTAKIRWA DECEMBER 15, 2018 Table of Contents 1.0 INTRODUCTION......................................................................................................................................2 2.0 AMAZON.COM, INC..................................................................................................................................2 2.1 THE INSIDE LOOK........................................................................................................................................... 2 2.2 THE SCOPE AND SCALE.................................................................................................................................... 2 2.2.1 A graph showing key acquisitions....................................................................................................... 3 2.3 INDUSTRY...................................................................................................................................................... 3 2.4 MARKET VALUE.............................................................................................................................................. 3 2.4.1 Net sales from 2004 to 2017 (in U.S. dollars)..................................................................................... 4 2.5 BACKGROUND................................................................................................................................................. 4 3.0 AMAZON ORGANIZATIONAL STRUCTURE............................................................................................5 3.1 THE STRUCTURAL EFFECTIVENESS IN THE WAKE OF BREXIT............................................................................... 5 3.1.1 Bottlenecks........................................................................................................................................... 5 3.1.2 Organizational Structure.................................................................................................................... 6 3.1.3 Narrow Span of Control...................................................................................................................... 6 4.0 MODERN MANAGEMENT APPROACH...................................................................................................6 4.1 HISTORICAL EVOLUTION OF MANAGEMENT........................................................................................................ 7 4.2 CONTINGENCY MANAGEMENT THEORY............................................................................................................. 7 4.2.1 Leadership styles................................................................................................................................. 7 4.2.2 Currency fluctuation after Brexit referendum.................................................................................... 8 4.2.3 Application of the theory..................................................................................................................... 8 5.0 MICHAEL PORTER’S FIVE FORCES FRAMEWORK................................................................................9 5.1 INDUSTRY ANALYSIS OF AMAZON..................................................................................................................... 9 5.1.1 A graphical representation of porter’s five forces.............................................................................. 9 5.1.2 Threat of substitutes.......................................................................................................................... 10 5.1.3 Bargaining power of buyers.............................................................................................................. 10 5.1.4 Threat of new entrants...................................................................................................................... 10 5.1.5 Competitive rivalry............................................................................................................................ 10 5.1.6 Bargaining power of suppliers.......................................................................................................... 11 5.2 STRATEGIC OBJECTIVE AMIDST BREXIT........................................................................................................... 11 6.0 CONCLUSION.........................................................................................................................................11 REFERENCES................................................................................................................................................11 Page 1 of 13 1.0 Introduction The pages herein dissect Amazon, the biggest internet retailer in the world (The Economist, 2014). Analyzed is the organisation scope and scale, what it does, background, market value, the structure it uses and the relevance of this structure in the wake of Brexit, the modern management approach adopted and an industry analysis using Michael Porters five forces framework. The objective of doing this is to analyze its strengths and weaknesses and recommend theories that can boast its operations in the UK and EU in the wake of Brexit. 2.0 Amazon.com, Inc. This section details what Amazon does, its scope and scale, the industry it operates in, market value and the origin of the company. 2.1 The Inside Look Amazon is the largest internet retailer in the world based on market capitalization and revenue and the second largest based on sales revenue. Amazon carries over 230million items for sale in the United States alone, which is 30times the quantity sold by Walmart. The company also provides cloud computing services, and recently ventured in to the oil industry (The Economist, 2014; Ladd, 2018). 2.2 The Scope and Scale Amazon operates in 12 marketplaces globally servicing customers from over 180 countries, operating over 120 fulfilment centers with over 30 product categories. Amazon has built solid collaborations, purchases and investments as shown in figure 2.2.1 (Amazon, 2018; French, 2018). Page 2 of 13 2.2.1 A graph showing key acquisitions. Figure 2.2.1: Key Acquisitions in Billions (French, 2018). 2.3 Industry Amazon started out in the publishing industry selling only books. The company has since diversified into, but not limited to, the space, computer and software, energy, financial services, electronics, transport and film industries (French, 2018). 2.4 Market Value Amazon is currently worth over $245 billion (£195 billion), with net sales of $178 billion (£142 billion), total assets worth over $131billion (£104 billion) and total equity worth over $27 billion (£21 billion). Figure 2.4.1 shows their net sales from 2004 to 2017 (Quinn, 2018; Duncan, 2018; Baron, 2018). Page 3 of 13 2.4.1 Net sales from 2004 to 2017 (in U.S. dollars) Figure 1.4.1: Net sales revenue of Amazon from 2004 to 2017 (in billion U.S. dollars) (Baron, 2018). 2.5 Background Formerly named Cadabra, Inc., Amazon was founded by Jeff Bezos in Washington, United States on 5th July 1994 using $250,000 investment, opening branch in the United Kingdom in October 1998. At the start, Amazon was strictly an online bookstore initially intended to use domain name, www.relentless.com. The name, Amazon, was chosen based on its meaning (exotic and different), which depicted the organisation vision. Also, Amazon is the longest river in the world which was aligned with its vision of growing to the largest retailer in the world. With over 76 private label brands as of July 2018 and with estimates to have over 2000 within 3 to 5 years (The Economist, 2014; Ladd, 2018; Byers, 2006). Page 4 of 13 3.0 Amazon Organizational Structure As shown in figure 3.1.2 below, Amazon uses the Hierarchical organizational structure. This consists of senior management team like, but not limited to, senior vice presidents and a worldwide controller that report directly to CEO Jeff Bezos. The management is divided into seven segments that include, but not limited to, human resources and legal operations where the heads of segments also report directly to the CEO. Under the different segments, over 560,000 employees are placed, serving over 300million customers worldwide. The organization’s structure and culture lean delicately on its motto, ‘Earth’s Most Customer – Centric Company’ which is visible in all its operations. They also adopted a ‘two pizza rule’, which states that meetings should be held in teams small enough that they could all be fed on two pizzas. This makes the organization highly adaptable to any necessary market adjustments like Brexit (Dudovskiy, 2018). 3.1 The Structural Effectiveness in the wake of Brexit The organizational structure at Amazon allows for other divisions to be setup to separate processing of UK customers and those from other countries in the EU. This can be overseen by the worldwide controller who reports directly to the CEO (Dudovskiy, 2018). 3.1.1 Bottlenecks According to (Collier, 2016), some of the biggest challenges e-commerce businesses will face are shipping costs, taxation and volatile currency fluctuations. Amazon has independent sites in Spain, France, Germany, Italy and the UK. Opening independent sites in all EU countries in which Amazon operates, managed directly by the headquarters in Washington can help the organization solve the potential bottlenecks listed above. Furthermore, because sellers provide their own products, and taxes are carried forward to the consumer, this makes adjusting to post Brexit taxation legislation easily adaptable for the organisation (Amazon Services, 2018). Page 5 of 13 3.1.2 Organizational Structure Figure 2.1.2: Amazon Organizational Structure (Dudovskiy, 2018). 3.1.3 Narrow Span of Control The authority at Amazon is well structured, with proper job specialization, a narrow span of control that allows for clear lines of communication as subordinates know whom to report to, and whom to get orders from, and the centralized system allows for easy adaptation in the wake of Brexit (Amazon Services, 2018). 4.0 Modern Management Approach As illustrated in figure 4.1, modern management approaches are those that took effect in the second phase of the industrial revolution, at the turn of the 19th century. The types of approaches include, but not limited to, re-engineering approach, contingency approach, and knowledge management approach (Noskievičová, 2015). Contingency management theory is best positioned to help Amazon adapt to Brexit. Page 6 of 13 4.1 Historical evolution of management Figure 4.1: The Evolution of Management (Noskievičová, 2015). 4.2 Contingency Management Theory According to (Grimsley, 2018), a contingency management approach is “based on the theory that management effectiveness is contingent, or dependent, upon the interplay between the application of management behaviors and specific situations”. The theory states that the management style should adapt to the circumstances of the time. This would be a close fit for Amazon pre and post Brexit because the outcome and timelines are not yet known. Also, speculation can bring about unpredictable set of circumstances that could affect variables like currency fluctuations as seen with the British pound losing value against the U.S. dollar (Mizerak, 2016). 4.2.1 Leadership styles According to (Leonard, 2018), the six basic leadership styles are directive, visionary, affiliate, participative, pacesetting and coaching. Although Amazon CEO Jezz Bezoz mainly alternates between the visionary and the coaching leadership styles, all the six need to be adopted basing on the situation at hand. According to the International Monetary Fund, Page 7 of 13 major challenges for the UK and EU were to be expected for as many as 15 years. Figure 4.2.2 illustrates the effect the referendum has had on the British pound already. For Amazon to survive any fluctuations and the speculated man power crisis that could affect fulfilment and warehouse staffing, there is need to alternate between the leadership styles and adapt to the circumstances that may arise. An alternative could be more robotics independence to pro-act the man-power shortage (Kulach, 2018). 4.2.2 Currency fluctuation after Brexit referendum Figure 4.2.2: Sterling vs dollar and euro (23 June 2016 = 100) (Kulach, 2018). 4.2.3 Application of the theory UK is the biggest ecommerce success story and largest ecommerce market in the EU. The UK is also referred to as a gateway to Europe with strong international links. Therefore, despite the risks involved, Amazon adoption of the contingency management theory and fusion of the leadership styles will help minimize disruptions (Kulach, 2018; Body, 2012). Page 8 of 13 5.0 Michael Porter’s Five Forces Framework This framework is a method used to assess the level of competition of an organisation within an industry. Porter, the formulator, first published this theory in the Harvard Business Review while at Harvard University (Coyne, 1996; Porter, 1979). 5.1 Industry Analysis of Amazon The five forces are threat of substitutes, bargaining power of buyers, threat of new entrants, competitive rivalry and bargaining power of suppliers. These forces will be used to analyze Amazon industry analysis (Boddy, 2012). 5.1.1 A graphical representation of porter’s five forces Figure 5.1.1: A graphical representation of porter’s five forces (Coyne and Balakrishnan, 1996). Page 9 of 13 5.1.2 Threat of substitutes This is a strong force that Amazon faces due to low switching costs as seen with alternatives like eBay. Second is the high availability of substitutes for example Tesco which has additional support for physical stores in urgent purchase scenarios. Third is the low cost of substitutes for example gumtree where customers have option to meet their sellers despite the higher risks. (Porter, 1979; Greenspan, 2017) 5.1.3 Bargaining power of buyers This is a strong force that Amazon faces due to the high availability of quality information all over the internet gives consumers a bargaining chip hence exposure and ability to find alternatives. Second is the high availability of substitutes for example Argos where they can get same day delivery service or pickup in store instantly after online reservation. Price comparisons can also be made within the two retailers online (Coyne and Balakrishnan, 1996; Greenspan, 2017; Porter, 1979) 5.1.4 Threat of new entrants This is a weak force due to the high cost of brand development for competitors to grow to a level where they can pose a threat to Amazon. Second is the high economies of scale that Amazon benefits from giving it leverage over the competition. This is a minor issue for the organisation (Greenspan, 2017; Porter, 1979). 5.1.5 Competitive rivalry This is a strong force due to the high aggressiveness of the substitutes in terms of marketing and developing their ecommerce stores. An example is Tesco that has alternatives for physical stores that pose as a valid substitute to Amazon’s online store (Greenspan, 2017; Porter, 1979). Page 10 of 13 5.1.6 Bargaining power of suppliers This is a moderate force because of the moderate size of suppliers as seen with sellers using the platform competing to keep the prices low. Second is the moderate forward integration which limits suppliers’ actual impact on Amazon (Greenspan, 2017). 5.2 Strategic Objective Amidst Brexit Strategic innovation is when an organisation plans a process to redefine its corporate strategy to generate competitive advantage and enhance its value in the market place. In the wake of Brexit, Amazon can adopt the cost management approach where they put in place structure to minimize expenses that don’t directly add value during the Brexit transition (Jackson, 2018). 6.0 Conclusion Amazon is well positioned to remain the biggest internet retailer in the world. The Porter’s five forces show its advantage over the competition with moderate supplier bargaining power and low threat of new entrants. According to (Ladd, 2018) assertion that Amazon will become one of the largest consumer packaged goods and that no industry is Amazon proof show the strategic positioning of the Amazon management team. In the UK, the recommendations to adopt the contingency management theory allow the organisation absorb the shock that comes from the uncertainty of the Brexit. References 1. Amazon (2018) ‘Amazon Global Selling helps you expand worldwide’. Available at: https://services.amazon.com/global-selling/overview.html (Accessed on: 12 December 2018). 2. Amazon Services (2018) ‘Reach hundreds of millions of loyal Amazon customers worldwide’. Available at: https://services.amazon.co.uk/services/global- selling/overview.html (Accessed on: 12 December 2018). Page 11 of 13 3. Baron, C. (2018) ‘Net sales revenue of Amazon from 2004 to 2017 (in billion U.S. dollars)’. Available at: https://www.statista.com/statistics/266282/annual-net- revenue-of-amazoncom/ (Accessed on: 12 December 2018). 4. Boddy, D. (2012) Essentials of Management: A Concise Introduction. 1st ed. Harlow: Pearson. 5. Bratton, J. (2015) Introduction to Work and Organizational Behavior. 3rd ed. London: Palgrave Macmillan. 6. Byers, A. (2006) Jeff Bezos: the founder of Amazon.com, 1st ed. United States: The Rosen Publishing Group, Inc. 7. Collier, D. M. (2016). ‘How Does Brexit Impact E-Commerce Strategy?’ (Online) Available at: http://www.cobcertified.com/ebusiness-articles/impact-brexit- ecommerce.pdf (Accessed on: 13 December 2018). 8. Coyne, K. P. and Balakrishnan, S. (1996) ‘Bringing discipline to strategy’ Available at: http://cdn2.hubspot.net/hubfs/125770/Michael_E._Porters_Five_Forces_Model_ E-Book_From_Wikipedia.pdf?t=1446668543121 (Accessed on: 14 December 2018). 9. Dudovskiy, J. (2018) ‘Amazon Organizational Structure’. Research Methodology, 1 August. Available at: https://research-methodology.net/amazon- organizational-structure-2/ (Accessed on: 13 December 2018). 10. French, S. (2018) ‘All companies in Jeff Bezos’s empire, in one (large) chart’. Market Watch, 30 January. Available at: https://www.marketwatch.com/story/its-not-just-amazon-and-whole-foods- heres-jeff-bezos-enormous-empire-in-one-chart-2017-06-21 (Accessed on: 12 December, 2018). 11. Greenspan, R. (2017) ‘Amazon.com Inc. five forces analysis & recommendations (porter’s model)’. Panmore Institute. 20 February. Available at: http://panmore.com/amazon-com-inc-five-forces-analysis-recommendations- porters-model (Accessed on: 14 December 2018). 12. Jackson, T. (2018) ’56 strategic objective examples for your company to copy’. Clear Point Strategy. 14 November. Available at: https://www.clearpointstrategy.com/56-strategic-objective-examples-for-your- company-to-copy/ (Accessed on: 14 December 2018). Page 12 of 13  13. Kulach, K. (2018) ‘(FREE ebook) Impact on international ecommerce: will you sink or swim?’. Web Interpret, 9 July. Available at: https://www.webinterpret.com/uk/blog/brexit-ecommerce-guidebook/ (Accessed on: 14 December 2018). 14. Ladd, B. 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Available at: https://e- class.teilar.gr/modules/document/file.php/PBS135/BACKGROUND/How%20co mpetitive%20forces%20shape%20strategy.%20By%20Porter%20Michael%20 E.pdf (Accessed on: 14 December 2018). 20. The Economist (2014) ‘At 20, Amazon is bulking up. It is not – yet – slowing down’. Available at: https://www.economist.com/node/21604559/print (Accessed on: 12 December 2018). 21. Quinn, J. (2018) ‘Amazon’s Jeff Bezos: With Jeremy Clarkson, we’re entering a new golden age of television’. The Telegraph, 11 December. Available at: https://www.telegraph.co.uk/technology/amazon/11800890/jeff-bezos- interview-amazon-prime-jeremy-clarkson.html (Accessed on: 12 December 2018). Page 13 of 13 View publication stats