A value chain is what many organizations today have turned to in order to steer their businesses to success. When effectively planned and executed, a value chain has the power to revolutionize not only the operations of an organization but also it enhances the output of the employees thus stimulating the overall profits of the organization (Bustinza, et al. 2015). Amazon is a perfect example to consider based on its history of changing from one line of business to another. The diversification at the company is directly attributed to its value chain.
The driving force was to ensure customer satisfaction by having as many products as possible on their platform so that their customers can have a chance to purchase all their necessities from one platform. Other than expanding the range of its products, the company has also been keen to increase the number of its branches. This has been so that they can have several stores for ease of collection of orders and return of products. For the company, this serves an important role in cutting on the shipping costs, which has been their top priority for the longest time.
Even though the value chain has many attributes for the company, it has been found to have caused a number of shortcomings as well. The goal of this paper is to analyze the value chain of the company in order to realize any shortcomings and also suggest a number of possible solutions. The paper is arranged in three major sections; the first section examines the current value chain of Amazon, the second section suggests changes to the value chain and the last section provides the finding of facts and offers recommendations for the company. this last section shall analyze four other sectors, namely; first, management, second, marketing, third, finance, and then lastly management information system. While analyzing these vital areas, this paper shall be expressly focused on the various risks that Amazon has taken over the years. The risks were obviously aimed towards ensuring business continuity through the satisfaction of the company’s customers.
Amazon’s Current Value Chain
Having been established as an online bookstore, Amazon has diversified into many other business fields over the years. The company has tapped into stand-alone businesses like video streaming, internet vendor, offering cloud services, groceries selling and even manufacture of electronics (Majed, et al. 2018). Venturing into these other fields by the company has brought both blessings and had challenges as well. Part of the blessings has been a growth in its revenues and increased exposure as a retailer. However, it has also exposed the Company to intense competition from various business giants like Alibaba, Google, Apple, and Microsoft. The company has had to redraw its steps and strengthen its value chain for it to fight off competition effectively.
The company has directed its focus towards ensuring the satisfaction of its customers by ensuring that they provide everything that the customers look for on their online platforms so that the users can shop from the comforts of their houses (Kha, 2000). The company has repeatedly expressed its obsession for customer satisfaction, and this has informed their creation of diverse home products like the Fire TV, the tablets and gaming equipment which when synchronized provide a better experience for the users. Further, the company has invested in developing the drone delivery system, which is expected to enhance deliveries of products from a few hours to the almost immediate delivery of products. This is intended to have zero or very minimum human intervention, and it is estimated to be safer and able to prevent theft or lose of products.
The company is also focused on opening additional stores in strategic places in its attempt to embrace the brick-and-mortar stores. This is supposed to enhance the collection of orders and return of products. The company has estimated that this will greatly cut on the shipping costs which the company has been working to reduce through the years (Donici, et al. 2012). It is also estimated to increase satisfaction amongst the customers due to the convenience in returning of products to the stores rather than packaging them and shipping them. Finally, the company recently acquired Kiva Systems through which it has launched the robotic sorting program. This program fastens the rate at which sorting and packing of packages are done, thereby ensuring the same day or overnight delivery of packages. This has been a new competitive dimension that the company has used to save up to USD 900 Million. In the year 2014, the company made a total of USD 2.6 Billion in fulfilment costs, which was a 30% increase from the previous year.
Appropriate Changes to the Value Chain
It is beneficial that the company encourages an obsession of customer satisfaction amongst its employees; however, the number of competitors has also been on a steady rise (Taylor, 2017). The company needs to consider reducing the number of focal business areas it concentrates on. Evidence from some of the company’s competitors like Alibaba has shown that the company thrives from its core business of providing an online platform for businesses to sell their products and consumers to purchase. During the transactions, Alibaba benefits only through advertisements and subscription fees. The company has mastered the art of expanding its revenues through its core business. Amazon should put more attention on its core business as an online book store. It should direct its revenues to enhance customer preferences in line with its core business. Building on audiobooks experience, and enhancing the satisfaction of authors are among ways that the company could boost the prominence of its core business.
Secondly, the company, through its drone delivery project and the robotic project, aims to reduce the human intervention in service delivery fundamentally. This is an expected move given the technological advancements. However, this could cause total disruption in the manner in which services are rendered at the company. It should be part of the company’s social corporate responsibility to employ as many people as it can sustain. Its closest competitor Alibaba, through its founder Jack Ma, undertook, to provide one million job opportunities in the US alone through a meeting with Donald Trump. This increases the popularity of the company over many others in the same field. While it is important to embrace technology, the company should not do so while sacrificing the hundreds of thousands of people that the company has employed. It should be able to find a way through which it can place the staff in other alternative places of work as the machines take up their current roles at the company.
Finally, Amazon’s key driving force is cost-effectiveness. It can achieve this in the online bookselling because the labour put into a softcopy book does not match that put in a hardcopy book. However, in regards to other products it sells through its online market Amazon.com, the company needs to cut on the inventories it owns and increase on the independent businesses that sell through the platform. Alibaba has managed to be very cost-effective in all its products because the company does not own inventory on its platforms but only benefits through the listing fees, transactional fees and the advertisement fees. In this manner, it can have control of the products sold through its platforms and thus ensuring effectiveness.
Finding of Fact/Recommendations/Justifications
Management: Finding of Fact
Engaging in excessive business ideas which are independent of each other and separate from the company’s core business has drifted the company’s attention. This has increased pressure from the investors while the management is unaware of what step to take next in terms of investment that would reinvent the company’s performance. Expanding the business to many other products is obviously a welcome step as it has numerous benefits. However, even as the company does that, it should not totally deviate from its core line of business. Deviation makes the customers think that the company is no longer the best in the business that it was founded for. For this reason, the customers are likely to find alternatives by preferring the competitors of the organization. Diversification is indeed a blessing, but it can easily flip into a curse for the organization and lead to reduced profits.
Recommendation/Justification
The company’s management has diversified the business of the company and invested in other businesses like streaming multimedia, offering cloud computing services and manufacturing electronics, among others. This decision has exposed the company to intense competition with some of its products like the Fire phone performing extremely poorly. The company’s core competitors like Alibaba have concentrated on finding ways to improve its main core business which is providing an online platform where businesses and customers interact. It has taken steps like coming up with Alipay, a secure method of payment that customers use on their platform. Even though this is a separate business idea touching on the finance sector, it is so closely related to Alibaba’s core business, and it has been said to have boosted the trust of customers using the platform.
Walmart, on the other hand, has been developing its core business by transforming the business to pay online and pick an in-store arrangement. This has greatly boosted the company’s competitiveness in the era of technological advancements enabling it to battle the likes of Amazon. Just like Alibaba, Walmart did not diversify into an entirely independent business idea; rather, it found a way to enhance its original business. As of the year 2016, Walmart.com had steered the company into excessive growth, enabling it to rival Amazon in a space that Amazon had initially taken the lead.
The management team at Amazon should think through their strategic decisions and focus them on enhancing their original business. With the current multiple business ideas that the company has invested in, its core business of online bookselling has remained the major source of its revenue. Ever since its inception in 1994, the company has made one major transformation in the business, which was the launch of audiobooks after the acquisition of Brilliance audio in 2007. Instead of appearing to undertake every venture that other businesses take part in, the management should for instance focus on enhancing their relationship with authors of books who have complained of being paid negligible royalties so that the company accesses more books to grow its revenue.
Marketing: Finding of Fact
The company has a transformational voice software called Echo, which it launched in November 2014. The device is controlled solely by voice commands and can undertake multiple transactions when commanded. The customers are, however, unable to enjoy the maximum benefits of the device because they do not have other compatible home devices which could connect to the new device. It is not enough to have multiple innovations when the targeted customers are unable to have the maximum use of the products. The company should have first assessed the purchasing power of its customers regarding the other products which are supposed to work together with the new Echo.
Recommendation/Justification
Apple is well known for its high-quality electronic products like the iPhones, iPads and the MacBook. These items are made to perfection because they are the company’s core business. The company is able to link all the devices so that the user has the convenience of operating one device through another. For instance, when operating the MacBook, a user can have access to applications on their phones and tablets. This is possible for Apple because its customers are happy with the quality of the products and services offered.
In 2014, Amazon launched Echo, a device that was fully controlled by voice transmission. The device has a speaker that is linked to the user’s Amazon account. This enables the user to use voice commands when purchasing goods on Amazon or when they want to play music and even allows users to control the lights and switches in their houses. This, however, requires the users to have devices manufactured by Amazon for them to work effectively. Amazon has not invested in manufacturing quality products that fit customer desires to be able to complement the Echo and bring out its full benefits. For instance, the Fire phone performed poorly in the market, yet it is one of the devices that should be linked with Echo for better performance.
Finance: Finding of Fact
In 2012, many states in the US passed legislation requiring that the sales taxes must be collected for all the online purchases within State borders. This caused Amazon to lose considerable amounts of money in terms of its pricing advantage.
Recommendation/Justification
As of 2017, more than 30 US states had enacted legislation which regulated online businesses. This was a response to the immense growth of online businesses which the government felt like were taking undue advantage of the traditional forms of business because their proceeds were not taxed. This directive greatly hit Amazon. Its businesses were largely online and therefore had to lose part of its pricing advantage and were forced to start collecting sales taxes.
For the company to continue generating its revenues, it has to come up with mechanisms in which to counter the losses. The company, for instance, can seek to benefit from the costs it spends on the shipping of products. This can be done, for instance, by the company establishing numerous brick-and-mortar stores. The stores will reduce the costs of shipping products and thereby enable them to cut on the costs. This is a long-term intervention which will not only help the company save on shipping costs but, it will enhance its relationship with the customers.
Management Information System: Finding of Fact
The company lacks an effective link to its customers. Many decisions are arrived at based on the company’s competitors rather than the customer preference and satisfaction. While it is vital to keep at pace with the competitors, it is more important to keep the interests of the customers in mind. When the customers purchase products, they do so because of the uniqueness of the company and its ability to understand them and provide products that satisfy their interests.
Recommendation/Justification
Amazon’s closest competitor Alibaba has an elaborate mechanism on all its online platforms through which it gets immediate customer feedback. This is the key driver of the decisions that the company makes to advance its services. Even though Amazon repeatedly insists on customer satisfaction, the company has done little to listen to customer preferences. When the company acquired jungle.com in the early 2000s, it used the software to monitor how the customer’s purchased products on their platforms. This information, the company used to modify the product suggestions to the customers in terms of providing complementary or supplementary products for a more personalized shopping experience.
Most of the strategic decisions that the company has made to enhance its products and services have been solely based on the fear of competition. Amazon has placed competition in its way to consider the preferences of its customers. The company needs to use their online platform to inculcate mechanisms through which it can get direct feedback from the customers concerning their products and services. This will improve customer satisfaction and grow the revenue of the company. The motivating factor of the company business, which drives the operations of other competing companies is meeting the desires of the customers. While doing that, it considers how other competing businesses are meeting the same interests for their customers.