Amazon e-Strategy: A Strategic Assessment of Amazon.com

Benefits of an e-Strategy at Amazon

Amazon's remarkable ascent as one of the top online global retailers can be attributed to the foresight its founders showed in creating a comprehensive distributed order management, Enterprise Resource Planning (ERP), Supply Chain Management (SCM), and e-commerce series of systems. The many other e-commerce sites that rose quickly with massive infusions of venture capital just as quickly exited the market, flaming out due to a lack of system and process scalability, poor understanding of customer dynamics, and a complete loss of focus on scalable business models. All of these factors caused Amazon's competitors to exit the e-commerce market through acquisition, merger, or complete withdrawal.

When starting Amazon, Jeff Bezos invested heavily in distributed order management, ERP, SCM, and e-commerce integration points with book distributors initially, then expanded into a broader product mix. This allowed the enterprise to scale quickly as volumes increased during the company's first five years. Having built this reliable, scalable, and secure platform, Bezos and the Amazon founders concentrated on creating an analytics layer throughout their architecture that could quantify customer, distributor, dealer, and even competitor activity on the site (Amazon Investor Relations, 2012). This reliance on analytics gave Amazon executives and technical staff the insight they needed to launch quickly into entirely new product categories, get the complex task of localization right, and create the highly popular and profitable Amazon Web Services (AWS) cloud computing and Software-as-a-Service (SaaS) hosting platform (Mitchell, 2012).

From a technology standpoint, Amazon's performance today can be directly attributed to the insightful decisions made in 1994 and 1995, when the company's founders prioritized the development of enterprise-wide platforms and a strong focus on analytics over spending time on the front-end website's facade (Lindic, Bavdaz, & Kovacic, 2012). As Bezos later remarked in interviews, by investing to create a truly world-class enterprise back-end system first, the company was freed to fast-track the actual user interface of its e-commerce sites globally at a pace that left competitors far behind in terms of functionality and product breadth (Amazon Investor Relations, 2012). Bezos chose in 2007 to institute a culture of metrics that capitalized on nearly two decades of investment in their infrastructure (Amazon Investor Relations, 2012). Combining the global e-commerce enterprise-tested infrastructure with the most robust set of analytics any e-commerce provider had assembled, Amazon was ready to expand its product strategies, offer greater options through Amazon Web Services — then projected to reach $1 billion by 2015 even by conservative forecasts — and invest heavily in its state-of-the-art recommendation engine technology, which presents products and services to customers in real time during shopping sessions (Sun, 2012).

It is important to appreciate the vast scale of Amazon's e-commerce infrastructure when completing this analysis of their e-strategy. They possess greater agility, flexibility, and capability to execute than any other online retailer globally. How they choose to use these technologies to attract new customers and retain existing ones is predicated on the ability to extract maximum value from this infrastructure while staying focused on delivering a world-class customer experience in each transaction. Based on the analysis undertaken here, it is abundantly clear that Bezos and the executive management team are passionate about keeping the company as customer-focused as possible, including the continual, selective use of technology to strengthen the user experience both online and offline (Murphy & Narkiewicz, 2010).

The overarching objective of this analysis is to understand the value of e-strategies in organizations, with Amazon as the organization of interest. Specifically, the paper concentrates on the benefits of having an e-strategy at Amazon, defines how e-strategies contribute to Amazon's broader accomplishments, and analyzes how Amazon aligns its e-strategy to the overarching organizational strategy. The analysis continues with an examination of the key business factors that catalyze the e-strategy at Amazon, followed by a suggested strategic plan for ensuring e-strategy initiatives continue to lead to profitable growth. The final section provides an assessment of the technical infrastructure needed to accomplish the proposed strategic plan.

As Amazon has continually evolved its position as a global force in online retailing, its command of supply chains globally has also evolved rapidly. In Gartner's latest rankings of the highest-performing supply chains, Amazon placed within the top twenty-five for five consecutive years (Amazon Investor Relations, 2012). This signals that Amazon has progressed beyond relying solely on enterprise-wide infrastructure to compete and is now on a growth trajectory that makes supply chain processes themselves a core competitive advantage.

Amazon's founders arrived where they are today because they correctly interpreted and acted quickly on the market signals occurring in the emerging e-commerce markets of the early 1990s. It must have been tempting to jump directly into designing a flashy website in static HTML rather than concentrating on creating an enterprise-wide infrastructure. Yet that is exactly what Amazon did, creating what would eventually morph into the world's first distributed order management and ERP system that ran as a Web Service, orchestrating suppliers as diverse as Ingram Book Company alongside thousands of resellers and individual booksellers (Lindic, Bavdaz, & Kovacic, 2012). The strategic benefits of this heavy infrastructure investment began to show strong Return on Investment (ROI) during the latter 1990s, when Amazon was introducing new products and services at a pace that defied offline retailers (Amazon Investor Relations, 2012).

This pace of new product introduction and ancillary service launches was achievable because of the deep expertise and core competencies Amazon had built — including a rapidly emerging dynamic of being able to quickly translate intelligence and information into shared knowledge, both tacit and explicit. Amazon was learning how to use its back-end infrastructure, e-strategy, and broader strategic supply chain and distributed order management strategies to become a learning organization capable of transforming analytics and business intelligence (BI) into organizational memory and expertise (Cross & Baird, 2000). Amazon was busy changing the entire playing field of e-commerce in the early and mid-2000s while its main competitors were still focusing only on the veneer of their sites. Amazon realized that the depth of customer experience it could offer would depend more on how deep and rich the functionality of its infrastructure was (Amazon Investor Relations, 2012). All of these factors together allowed Amazon to create a knowledge-sharing ecosystem that gave the company the ability to quickly gain technology advances in personalization, pricing, and recommendation optimization — all areas of formidable competitive leadership for the company today (Birkinshaw & Sheehan, 2002; Amazon Investor Relations, 2012).

When an e-commerce organization begins to base its competitive strategies on a process-centric approach to competing, it creates one of the most powerful sets of differentiators available (Murphy & Narkiewicz, 2010). Competitive differentiation moves beyond price and availability — the two factors that push online retailers back into a commodity-like selling role (DiRusso, Mudambi, & Schuff, 2011) — and toward delivering an exceptional customer experience. Amazon concentrated on the core process areas of personalization, price optimization, fine-tuning its recommendation engine, and the pervasive use of analytics throughout the company, including in marketing, to measure results against strategic business objectives (Amazon Investor Relations, 2012). The net result of all these factors was the ability to align every system and process within the company around the priority of delivering an exceptionally efficient, economical, and trusted experience for any customer, anywhere, at any time (Murphy & Narkiewicz, 2010). These factors combined to set the stage for the strategic objectives of delivering an exceptional experience and, further, gave Amazon the ability to successfully compete against IBM, Google, and Microsoft in the cloud computing services market (Amazon Investor Relations, 2012).

Contributions of e-Strategies to Amazon's Objectives and Strategic Plans

The e-strategies Amazon has used in the past and continues to use today — in addition to those planned for the future — all signal that the company is increasingly interested in making its product and service strategies more integrated into the total customer experience. The focus on customer loyalty aspects of Amazon's web design, and the acknowledgment that accuracy, speed, and precision of experience are contributing factors to profitability (Amazon Investor Relations, 2012), represent two strong contributions to Amazon achieving its revenue, profit, sales, and service strategic plans on an annual basis. Without the build-out of the e-commerce infrastructure, Amazon would not have been able to deliver such a consistently positive level of customer experience. In aggregate, the e-commerce infrastructure strategies all contributed significantly to this outcome (Lindic, Bavdaz, & Kovacic, 2012).

A second major contribution of e-strategies is the wealth of analytics, business intelligence (BI), advanced metrics, and key performance indicators (KPIs) they have enabled. This is evident in how reliant Amazon's marketing teams are on actual program performance relative to standards and benchmarks, and in the patented recommendation engines the company has put in place (Sun, 2012). This heavy reliance on analytics, BI, and metrics has also fueled the development of greater insights into how customers search for products and services on the site, contributing to more advanced taxonomies for managing these tasks (Kim, Albuquerque, & Bronnenberg, 2010). Amazon uses analytics and BI-based tools to further refine its search algorithms (Amazon Investor Relations, 2012), creating a more effective customer experience as continually improving search algorithms — integrated with personalized taxonomies based on recommendations (Sun, 2012) — guide customers to the best possible books, services, and bundles, while also encouraging them to create content. Amazon was one of the first companies to integrate contextual search and taxonomies into the core of its e-commerce systems, significantly differentiating its catalog and content management systems (Chesbrough, 2011).

In addition to infrastructure, analytics, and advanced content and catalog management, the insights gained into how best to manage complex supply chains have been a major contribution to Amazon's overall performance (Hofman, 2004). As one of the top twenty-five supply chains globally as rated by Gartner, Amazon's insights into how best to use these processes to reduce costs, improve demand management, and stay customer-focused all contribute to profitability (Amazon Investor Relations, 2012). Continual development in these core business process areas is making the company more effective at controlling escalating costs, keeping supply chains focused on unique products and customer demand, and making regional and global business development possible (Amazon Investor Relations, 2012). As noted previously, Amazon is gradually shifting toward competing on process-driven innovation, which has also aided its price optimization and price management algorithm development (DiRusso, Mudambi, & Schuff, 2011). All of these factors either emanated from or are a core part of the overall investments in e-commerce and its underlying platform.

How Amazon's e-Strategy Aligns with Organizational Strategy

The organizational strategies at Amazon are designed to align products and services to market needs, ensuring customer centricity. This approach is deliberately structured with customers' needs at the center. Given how critical customer loyalty and trust are to Amazon, it is expected that this approach to organizational strategy would be followed (Amazon Investor Relations, 2012). The e-strategy supports these organizational strategies from a supply chain, product lifecycle management, pricing, service, and product line extension standpoint (Amazon Investor Relations, 2012). An example of this is how quickly Amazon was able to bring to market its initial Kindle e-reader, followed by the Kindle Fire, combined with a Kindle store of thousands of books at the same time. The alignment of e-strategy to organizational strategies made it possible for Amazon's new product development teams to create not only a series of e-readers quickly, but also an entire ecosystem of content simultaneously. This was deliberate in design, following the Apple iTunes model as a means of defining upsell and cross-sell revenue opportunities for content on the Kindle product line (Amazon Investor Relations, 2012).

The alignment of e-strategy to organizational strategy was also predicated on creating a more efficient new product development and introduction (NPDI) process. In retailers, the new product development process is typically marked by significant confusion as departments and divisions struggle with their relative roles. In addition, the NPDI process requires planning around pricing constraints, including Value-Added Tax (VAT) considerations for selling into global markets (Ward & Sipior, 2011). Amazon uses Six Sigma process improvement approaches to ensure the alignment of pricing and product strategies to specific customer requirements (AlSagheer, 2011). The DMAIC methodology inherent in Six Sigma is being extensively applied at Amazon today to ensure that pricing, product quality, and customer service all stay entirely focused on the customer experience, galvanizing all aspects into a single, contiguous platform for delighting customers and encouraging their return (Amazon Investor Relations, 2012). The Six Sigma program ensures measurement of performance against the goals of being more customer-centric and confirms that e-strategies continue to contribute significantly to overall organizational strategies.

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