Impact of Technology on Amazon's Business Strategy

Applied Management

Strategy is about how businesses adapt the active and developing world. Thompson, M. Scott and Frank Martin (2014) suggested that this world is changing constantly regarding competition, fashion and scientific/technical knowledge. Therefore, the businesses have to be aware in order to manage their important resources, stakeholders and fulfilling customer’s needs or expectations. First section of the essay will be focused on literature review where we’ll be contrasting views on research conducted by different authors. Amazon’s business history will be discussed including market value, market position, competitors as well as their strengths and weaknesses and strategy. Furthermore, a case study based on Amazon will be used to analyse and justify the strategic management by using PEST analysis framework which has four aspects of strategic behaviour: Political, Economic, Social and Technological (Baines, P., Fill, C. and Rosengren, S., 2017). This essay will explain how modern technology is having an impact on Amazon and its business strategies. Finally, essay will be summarised with the key arguments mentioned in literature review and case study and also, some recommendations will be provided at the end regarding how Amazon can perform better by adapting business changes.

Literature review

Thompson, M. Scott and Frank Martin (2014) mentioned that strategies are there to help the managers and organisations with making decisions and taking actions to achieve either short-term or long-term set targets and purposes. The organisations sometimes outline their purposes under the mission statement and strategies can help clarifying specific actions related to the mission as well as measuring progress. Whereas, Rumelt (1979) notes that, strategy really depends on the situation; depends where you are and an individual’s strategies could be another’s tactics which means that the tactics we’re discussing today, might be used as strategy tomorrow (Mintzberg and Quinn, 1992). Moreover, they considered all issues in the businesses to be treated equally important as you never know which issue can result in massive trouble in the future. Hence, review each issue and make suggestions or strategies upon them.

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The business market changes constantly and they can cope with these changes and compete with their rivals by performing different strategy and long-term planning. Competitive advantage can be found how business differentiate themselves from their competitors, in the eyes of the customers and providing lower cost products and services and still make great profits (Martin, 2016). The companies can improve their performance either by focusing on cost or differentiation. This simply means that they can either provide low-cost products or services to their customers or introduce something new which makes them stand out from their competitors. Focusing on one of these methods can be really beneficial for the business performance (Business strategy and the impact of performance, 2015). It is believed that the competitive advantage has become concern for the managers as they know how hard it is to compete in today’s market and they can’t just sit back and think that the famous products will sell themselves. They understand that they have to work hard in order to maintain their business performance by using competitive strategies (Martin, 2016). Similarly, “Johnson et al. (2007) suggests that strategy is something people do (strategy process) and that organisations have (strategy content)”. David (2017) states that the strategy is how people manage or organise resources to enhance performance of an organisation.

Fred and Forest (2016) described strategic management as “the art and science of formulating, implementing and evaluating cross-cultural decisions that enable a company to achieve its objectives. The aim of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today”. It is noted that the organisations must monitor their internal and external events and activities so that they can make changes as required. Strategic management helps businesses to adapt the changes as if they do not change the way they operate, according to today’s trends, then it is most likely that they will find it hard to survive in the market. Strategic management process is aiming to allow businesses to adapt effectively to change over the long run (Fred and Forest, 2016).

Kotler (1998) claims that PEST analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. The use of PEST analysis can be seen effective for business and strategic planning, marketing planning, business and product development and research reports. PEST also ensures that company’s performance is aligned positively with the powerful forces of change that are affecting business environment (Porter, 1985). In analysing the macro-environment of an organisation, it is important to identify the factors that might in turn affect a number of vital variables that are likely to influence the organisation’s supply and demand levels and its costs (Johnson and Scholes, 1993). The analysis examines the impact of the factors on the business. The results can be used to take advantage of opportunities and to make contingency plans for threats when preparing business and strategic plans (Byars, 1991).

PEST has been conventionally used in two different ways: first, to analyse the position of a particular organisation or industry sector within a particular business environment; second, to analyse the viability of general management solutions in a business environment (Guo and Miguel, 2007).

“SWOT Analysis is a simple but powerful tool for sizing up an organisation’s resource capabilities and deficiencies, its market opportunities and the external threats to its future” (Thompson et al., 2007). The acronym SWOT stands for strength, weakness, opportunities and threats.  SWOT is used to evaluate an organisation, plan or project where the management can identify the organisational and environmental factors. It has internal and external dimensions where organisational factors as well as strengths and weaknesses are included in internal dimension and environmental factors, also opportunities and threats are included in external dimension (Uluslararasi Sosyal, 2017).

Amazon: Case study

Jeff Bezos and his wife MacKenzie opened an online bookstore in Seattle in 1994. People started investing in their business and due to high demand, they opened up a second distribution facility in 1997 and they also added music into their business. They started selling clothing in 2002 and also introduced Amazon web services where they started earning high revenue. In 2012, Amazon buys Kiva Systems, a warehouse of robot makers which helped them to fulfil orders faster, without the need of much human staff. Amazon has described itself as “customer-obsessed” as they put customers as their priority and wants to fulfil their needs in order to be more successful in this technological revolution (CNN Business, 2019).

According to Fortune (2018), Amazon shares crossed the $2,000 threshold for the first time, placing its market value around $1 trillion. Businesses like eBay and Netflix are counted as their main competitors. People visit Amazon for basic clothing, but when it comes to fashion, they have to find some other website or business and they are also being unable to provide different sizes, which are their weaknesses. Whereas, IT has contributed a lot towards Amazon’s success rates where they keep track of customer’s buying behaviour and then offer them specific items or relevant products which they might like. It is also one of the leading online retailers in the market and also using robots to get work done quicker in order to fulfil their customer’s orders on time and gain customer satisfaction.

PEST Analysis

PEST analysis is a framework consisting 4 different factors of political, economic, social and technological which can be used to identify the external environment of the business. It is used by the businesses to support their strategic analysis activity (Joseph, 2014). This section will be based on analysing Amazon’s external environment by using PEST Analysis.

Political factors are related to governmental policies that can have an effect on businesses such as tax policies, corruption level, trade control, health & safety and laws & regulations.

According to Brian, Itzhak and Hoonsuk (2014), not all of the online businesses pay sales tax which results in pressurising the local retailer stores in the area or state. It also puts employment rates at risk and affecting income tax revenues. Laws has been introduced in order to ensure that the states are responding to tax policies such as “Amazon Tax” where Amazon has been affected because it is one of the famous online retailers. It was always a question in e-commerce businesses that who should be responsible to collect the taxes. Therefore, the rule of “nexus” applies. If the seller has a store in the state where the buyer lives, the seller must collect sales tax. But if the seller has no store in the buyer’s state, the buyer is responsible for paying sales tax (which is called a “use tax”) to the state and local government (James and Wing, 2001).

Amazon believe that they are one of the safest places to work as they have created more than 25,000 jobs in Britain which includes good wages and benefits. But it has been claimed that more than 440 serious incidents occurred at its warehouse in 2015-16. The union has found that employees had fractures, contusions and head injuries at the workplace. It has been claimed by the employees that unsafe driving leads to several accidents at their warehouses which puts employees lives at the risk as well as people living in the surroundings. However, Amazon said that their company has 43% fewer injuries on average than other UK transport and warehousing companies (Motor Transport, 2018).

Economic factors are connected to the financial state of economy on a greater level- whether that be local or global. The economic factors affecting businesses include currency exchange rates, labour markets, economic growth, unemployment rates, demand of products and wage policies (Abhishek, 2013).

According to Trading Economics (2019), The UK unemployment rate fell to 3.8% at the starting of 2019. It has been noticed that the employment increased by 99,000 whereas the unemployment dropped by 65,000. The unemployment rates in the UK rose from 5.2% to 7.9% during recession period of 2018 and it was still 7.8% in 2013. There were also people who were underemployed which means that they were employed but getting limited hours to work. They wanted to work more hours but because there wasn’t enough demand for products in the economy which was affecting their working hours (David and David, 2013).

Amazon has been ranked as the 16^th largest Indiana employer, with 8,500 full-time employees and as they are growing their business, they are hoping to hire more and more people. They are providing more job opportunities to local people and also, they have announced an increase in national minimum wage of their employees which is $15 per hour which will be paid to full-time, part-time, temporary and seasonal employees. Amazon said that this change will affect more than 250,000 employees as well as over 100,000 seasonal workers. This change also had an impact on local businesses such as there will be shortage of workers in other local warehouses as people would want to go with the company providing them better wages. Other local businesses might have to either increase their employee’s wages or use more technology where it will reduce the demand for people needed at the workplace (Susan, 2018).

According to Sridhar, Sachithanandam, Mageswaran, Purvaja, Ramesh, Senthil Vel and Thirunavukkarasu (2016), social factors are the circumstances that influence and affect the way you live and behave. These factors are any variable which arises from culture, environment, society, religion, language and communication. For instance, how the population or ethical standards of a country affect the way a business operates.

According to Office for National Statistics (2018), “The UK population has doubled over the last 140 years, reaching a new high of 66 million people in 2017. They estimated that there’ll be almost 73 million people in the UK by 2041”. The population growth is because there is an increase in number of births than deaths and more people moving to the UK than leaving (Dick and Kim, 2012). ONS said that population is also ageing and estimated that more than a quarter of UK residents will be aged 65 or over within the next 50 years. Considering ageing population in mind, the businesses like Amazon has to be very aware about their preferences and shopping behaviours as it assumes that an individual’s shopping preferences are established during their 20s-30s, after this it’ll be very expensive for businesses to change their preferences or shopping tastes (William, 2007).

Ethics are code or behaviour that most people would agree to and business ethics are moral principles that guide the way a business behaves. It is basically distinguishing between “right” and “wrong” and then choose “right” choices to perform business (Marie-Joelle and Roger, 2015). For instance, Amazon is operating globally, and they promise people to operate ethically but the safety and well-being of employees is not a priority at Amazon. It has been reported that people who suffered from cancer, miscarriages and other crises said that they had been evaluated unfairly or edged out rather than given time to recover. This is an unethical way of treating people at the workplace which affect the business reputation as well as having an impact on health and safety’s rules and regulations (Georgina, Greg and Michael, 2012).

Technological factors have two aspects: the development of new technologies which can help to build designs and the use of technology in the design process. These are the variables that are being used for evaluating available alternatives with respect to technological capabilities. The businesses consider it an important tool for improving operations and functions (Jackie, 2014).

Technology plays an important role in business growth. Amazon started off with using 1300 robots in their fulfilment centres in 2011 and the numbers increased to 30,000 robots to be used in 13 fulfilment centres. The lifting capacity of robots is 750 pounds and it takes them 15 minutes to lift heavy weight from one place to another in the warehouse (Robert, 2016). According to an article “Professional Safety” (2019), Amazon has also managed to fit a new device in robots which helps them to recognise if someone’s coming from a distance and slowdown in order to avoid any incident; ensuring health and safety at the workplace. Robots help them to get the job done easier and quicker and they also contribute towards the success and growth of a company.

Robots can beneficial in certain ways for a business such as they help in reducing the operating costs of the business which is related to manufacturing of products or moving high weight things. It will also help reducing the direct costs which include labour cost. For instance, Amazon has replaced human workers with robots which has direct impact on company’s different aspects such as health and safety, training and employee administration. If they use robots, then they’ll have less responsibility as compared to if they have an employee working for them (Mike, 2014).

Similarly, robots can be used seven days a week. They are not required to have a break or there’s no limitation like they have to work certain hours a week. They are always ready to use which helps in increasing the production output rate of a business as robots will be useful for them to carry on with the work required throughout the whole day. In addition, the company save money by using robots where they can remove some job roles in order to reduce the labour. They can also reduce the cost related to recruiting new staff and training and save that time to focus on robots manufacturing or performance rate (John, 1989).

Amazon relies heavily on technology as e-commerce is part of technology which is making them stand out from their competitors in the market. They are using digital technology to build relationships with their customers such as if a customer had a look at any product on their website, they send the customer a reminder via email, hoping that the customer might buy it and they also mention similar products which matches customer’s search history. This is how they try to interact the customers and try to sell more products. They also have a 24-hour live chat support where the customers can ask any queries they have, whether it’s regarding faulty products, refunds or exchange (Amazon, 2019).

Conclusion & Recommendations

To conclude, we can consider Amazon as a highly technology-based company because they’re one of the famous online retailers using robots and latest technology in their warehouses. PEST analysis is the best framework to use in order to analyse Amazon’s external business environment where the competitors and other issues will be easy to find and being able to work accordingly. Robots are helping in increasing Amazon’s productivity level because they’re faster, easier and quicker to use comparing to a human being. This is why they are and should be investing more in technology because the more convenient and friendly services they will provide to their customers, the more successful they will be. They need to keep customer’s needs and expectations at their heart in whatever they do, so they can carry on making more profit as well increasing customer satisfaction.

It is strongly suggested to Amazon to try to focus on their employee’s health and safety because several incidents have been noticed where employees are not treated well; they are being used just as a machine which is counted as an unethical behaviour of a business. Amazon should try to focus more on employee well-being by asking their suggestions such as having regular group or one-to-one meetings or put a suggestion box in the canteen/office. This will be an easier way to get feedback from employees regarding how they feel about the company and what they want them to change. Their business strategy should be focused on their “People” because if the employees are not happy, then they are unlikely to serve the customers effectively. A satisfied and happy employee tends to contribute more towards business growth.

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