The Importance of Strategic Management
Strategic management is a process that explains the strategies of an organization by continuously estimating them. The strategic management is conducted by the managers to know the value of their implemented and strategies and to find new proposals which will help in accelerating the performance of an organization. Amazon.com is one of the many companies who have utilized the advantage of the growing online world of shopping. The company built a global strategy and transformed into a more successful brand by appropriately utilizing the technology, products and services. The company made a revenue of whooping $177.86 billion dollars in the year 2017.
Strategies is a scope and the direction in which an organization works for a long term, which also encounters a number of changes due to the changing environment. The changes have to be adopted with a positive approach that fulfills all the requirements of the stakeholders. At times the change is the environment also commands change in the resources of an organization and also in the competencies. Amazon.com has experienced a lot of changes since the company started which happened due to Y2K bug issue in the world of computers, the change happened due to the 9/11 attack and also due to the economic crisis which were experienced during 2008. But still the company survived in the competitive world and is still sustaining and prevailing.
Amazon.com draws equal focus on its business strategy and corporate strategies. But all these strategies are built around the customers and such strategies are known as ‘customer centric’ strategies. Amazon.com serves three types of customers, which include-
- Consumer customers- the company facilitates its customers with a vast range of products which are available to them at low prices and there is an added convenience which the company provide to its customers.
- Seller customers- the customers who are involved with amazon for selling their products on the agreed terms of the organization.
- Developer customers- the technology which is utilized by the amazon has established an infrastructure which facilitates the user to build different types of businesses.
Amazon.com has an approach of gaining competitive advantage through the action which are actions and commitments which are specially coordinated and integrated to achieve benefits out of them. According to Porter, the competitive advantage can only be achieved through certain generic strategies. There are three main strategies-
- Cost leadership
- Differentiation
- Focus
Amazon.com functions by implementing a Hybrid Business Strategies, which involves the combination of any two generic strategies. The combination of strategies also depends on the business sector in which the company is operating. Also, the combination of all three strategies is impossible. The amazon’s approach towards kindle is the best example of Hybrid Business Strategy. The two generic strategies which are used in the kindle approach was cost leadership and focus strategies.
The amazon.com has found a way which helps them to reduce their prices. This is conducted not by hurting the differentiation of the company, whereas the company has able to successfully increase it. The company has utilized various practices effectively by singing many different technologies. For instance, the headphones of Beats Company are very popular, the company enables its customers to buy them a lesser price than the marked MRP. The cost-down strategy is also used by the company for establishing warehouses. The company establishes warehouses in rural areas where the cost of land is less. Also the one situated in urban land have been strategic established with inflation in land rates. The business of amazon works under a four pillar strategy, which they follow in their each work, they are-
- The products which are selected are part of a wide retail product.
- Prices which are consistent and offers products to the customers which are value for money.
- Convenience is the third pillar of this strategy, which is provided to the customers in the forms of feedback and review about different products.
- The fourth pillar is technological capabilities which are provided through effective delivery of products and other technological services like Amazon Mp3 Music and cloud computing.
Strategies and Policies Implemented by Amazon
On the corporate level, the approach which is practiced by Amazon is Related Diversification. In this approach, the development of strategies are conducted beyond the current markets and products, but the strategies are built around the abilities of the organization and the value network. It is because of the diversified approach of the organization which has helped it to create ‘long-term relationships’ with its many partners which are a crucial aspect of the organization. These strategic partners include Yahoo!, AltaVista, Netscape, Excite Prodigy and @home. Another reason through which diversification strategy has been successfully implemented by amazon is due to the effective implementation of economies of scope in their resources. The company has an advantage to venture into new markets, which is possible due to its vast online base and strong structure of their online software.
The application of diversification is also applied by the company in selecting markets. The company’s expanding plans focus on different geographies. Market development is made possible by venturing into different geographies and by providing opportunities to the existing products in the current and new market. Amazon focuses on countries where there is a steady rise in the e-commerce of the country. Amazon has spread its wings in countries like Canada, India, China, Australia, Japan, Germany, United Kingdom and France. The approach of market development in different countries is also helpful to deal with the recession which hits western countries. This approach of diversification is crucial for the company as it is beneficial for the long run. Also, the decision of the company to invest in India will be very beneficial as the growing rate of e-commerce in India is very high and the company’s policy of having a customer centric approach will be best implemented here, due to the culture of India which gives a lot of emphasis on relationships.
The amazon.com has a set of practices which are important for the continuous estimation of the company. The different strategies and policy of the company can be understood through different analysis approaches. Some of such analysis approaches-
The PESTEL analysis is a tool which is also taken as a very significant framework, which is utilized by the marketers to broadly analyze the macro-environmental attributes which had a massive impact on the organization. The results which are obtained through this framework are further used to recognize the weakness and threats of an organization that are also used for the SWOT analysis, which are conducted after the PESTEL analysis. The macro-environmental forces strongly impact an organization, along with the other factors of the macro-environment. For instance, if any macro-environmental factor will have an impact on Amazon then it will also have an impact on the Catalog & Mail Order Houses.
Customer Centric Strategies
The political environment is so powerful that it can affect a multi-billion dollar organization with their one decision. The political aspect can affect the profitability of Amazon in a certain market and a country. Catalog & Mail Order Houses is a crucial part of amazon and it is dealing with them in more than ten countries. The company has exposed itself to a numerous political environments and political risks. The company follows the strategy of diversification and it is due to this that it has exposed itself to numerous political risks from different countries. For example, if an organization is very successful in a particular country, might not be useful for amazon due to the unstable and difficult political environment of that country. The company needs to analyze certain factors before investing in different markets-
- The political stability in the country and how much importance is given to Catalog & Mail Order House’s department in that country’s economy.
- The level of military invasion risk.
- The corruption in the country, especially in service sector.
- The level of interference by the government in Catalog & Mail Order Houses.
- The level of importance which is given to legality in that country, special for the enforcement of contracts.
- The services associated with traffic and trade regulations.
- The different tax rates
- Wage legislation.
- Compulsory benefits for employees.
- The rules for industrial safety in the service sector.
- Economic
There are various economic factors which determine the aggregate investment and demand in an economy. Some of these factors are rates of inflation, interest rates, saving rates, economic cycle and foreign exchange rate. The micro-environmental factors can affect the competitive advantage of an organization through competition norms. Amazon utilizes the country’s economic factors like inflation, growth rate and various economic indicators of the industry, to forecast the growth of an organization. There are many different factors which the company has to take into consideration. They are-
- To understand the different types of economic system in various countries. It is crucial to understand their type and to know about their stability level.
- The intervention of the government in the free market.
- An understanding about the various exchange rates and also the stability of the currency.
- The level of efficiency possessed by their financial market.
- The standard of the infrastructure of Catalog & Mail Order Houses.
- The level of skills which the workforce possesses.
- The education standard in the economy.
- The cost of labor and the rate of productivity in the economy.
- The different stages involved in the business.
- The rate of Economic growth.
- The rate of Unemployment.
- The rate of Inflation.
- The rate of Interest.
- Discretionary income.
- Social
The different cultures which are practiced in a country also have a huge impact on the culture of an organization. Shared and common beliefs of the population, are very crucial for the marketers at amazon to understand the market of that country and to create a message for the consumers of Catalog & Mail Order Houses. The various social factors which require focus-
- The abilities of the population and other demographic factors.
- The different power structure in the society.
- Understanding the culture by examining the gender equality in the country.
- Entrepreneurial abilities and the society’s approach towards entrepreneurship.
- The various leisure interests.
- Technological
Technology is responsible for the disruption of many industries. For example, the taxi industry has been disrupted because of Uber and Lyft. The one important thing which should be considered by very crucial, that an organization should not only conduct a technological analysis of that industry, but it should also do an analysis which will inform about the rate of disruption. A slow rate of disruption is better than a fast one because fast disrupting industry would not have time to recover profits or reduce loss. The following aspects have to be taken into consideration-
- The technological development which has been done by the competitors of Amazon.
- The impact of technology on products.
- The effect on the structure of cost in Catalog & Mail order Houses industry.
- The impact on the service sector and its value chain.
- The various rates of diffusion of technology.
- Environmental
Every market has their own rules and regulation which can be different for each market. These factors or rules can have an immense effect on the profitability of an organization. At times in a country, there are cities which have different rules for their market. Amazon has to examine and evaluate the factors which a market follows before investing in it. The various aspects which the company has to focus on.
- Weather
- Climate change
- The different laws which are responsible for regulating environmental pollution.
- The standard for water and air pollution in Catalog & Mail order Houses industry.
- The management of waste, especially in service sector.
- The approach towards ecological products.
- The approach towards renewable energy.
- Endangered species.
- Legal
Hybrid Business Strategies
Like the different environment rules, different countries have different laws for conducting business. Few country’s laws are not strong enough to support the intellectual property right of many organizations. The factors which have to be looked at are-
- The laws for breakage of trust, like the anti-trust law.
- Discrimination law.
- The laws for Copyrights.
- The laws for Consumer protection.
- Strong e-commerce law.
- The laws for Employment.
- Health and safety law.
- Laws for data protection.
Amazon has a status of being one of the most successful online retailer. It is also compared to Walmart because the type of reach it has with people and the way it forms different strategies under different working environment. Amazon has an aggressive pricing strategy which also gives it the status which is equal to one of the world’s top stores. But in the past five years the company has not been able to acquire decent profits. There are some improvements which are the need of the hour and has to be made.
- The strengths which the Amazon receives is from its three pillars of strategies which are cost leadership, focus and differentiation. These three strategies have played the key role in getting the company their profits and also fulfilling the stakeholder’s needs and requirements.
- Another strength of the company is its simple and easy technology, which has been updated regularly with the changing times and it has helped the company to stay ahead of its competitors.
- The company has customers from all over the globe and this has helped him in entering new markets which were also out of reach. The company has the ability to reach even some countries which were hitherto banned from the e-commerce world.
- The company has a strong distribution system which has helped the company in fulfilling the customers’ requirements.
- Amazon has a key strategy which is Related Diversification. Now the company has ventured into so many different areas that it is losing its focus from their core competence. This approach of spreading itself thin has impacted on the profits of the organization.
- Amazon also offers free delivery. This strategy will eat the margin and will make the company unsuccessful in meeting the necessary cost.
- Amazon function on a zero margin business model, which is continuously reducing the profits of the company. Currently, it is not looked at as a weakness due to higher volumes and huge revenues.
- Amazon has their own online payment system. This will help the organization in gaining back their profits which have been reduced due to zero margins.
- Amazon has a huge customer base. The company should work towards building a brand by itself by selling products under its own name rather than selling the products of third partie.
- Amazon should stock more products, which will help in gaining higher revenues. The company will enjoy the place of comfort and power by stocking products in higher rates.
- Amazon should try to establish more markets and new sites in the existing markets, which will help them in expanding more and gaining profits.
- One of the biggest threats which most of the online sites suffer are identity theft and the other one is hacking. Both these threats can lead to data explosion, which can hamper the complete reputation of the brand.
- The company has an aggressive approach to pricing. This has ended up in a number of lawsuits by the rivals of the retail industry.
- Amazon is facing a huge threat from the local online retailers, as they are more agile than amazon. The company cannot lose its local customers and have to provide equal focus on the local market and the global market.
The main analysis has generated various threats which the company is facing and are in urgent need to fix those issues. The company fulfills all the requirements which have been stated under PESTEL analysis. The company is not segregated, to one market type, but there are some rising concerns which have to be handled quickly. They are-
- The company has the strategy of diversification. In following this the company has not formed a base for itself in Africa, which should be its next venture. Africa is a hugely populated country, which will be very beneficial for the organization.
- Amazon has to work on its zero margin and think of strategies which will help in increasing their margins and ultimately adding profits to the company.
- There are a number of concerns which are due to the online security. The company has to build even a stronger infrastructure of online transactions and data security, which will prevent the company from any hacking or theft.
- The company should definitely start its own brand. A lot of its competitors have done it and are gaining huge profits. The huge customer base has to utilize for increasing their profits.
Conclusions
After analyzing the company’s strategies and various different aspects which are associated with it, this can be concluded that the company amazon have executed a few of the strategies perfectly, while some needs improvement. The main strategies which have been analyzed are cost strategy, differentiation and focus. These strategies have helped the company in gaining loyal customers and also expanding their reach in a dozen countries. The use of appropriate strategies has helped the company to gain its pride and enjoy the huge success which came with it.
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