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Industry Background

            Amazon.com is a multinational company based in Seattle, Washington that markets its goods and services online. The company started as an online bookstore but later expanded into digital electronic data storage such as CDs, DVDs, mp3, video games and specific computer software. This can be downloaded on the company’s site, Amazon.com.

Amazon.com was founded by Jeff Bezos in 1994. A year later, it was able to host its own website. The conventional bookstore could only hold a maximum of 200,000 books. On identifying this opportunity, Bezos decided to come up with an online bookstore that could store an unlimited number of books. In choosing a name for his company, he decided to choose a name that began with ‘A’ so that it could appear among the first names in a list such as telephone directories. Currently, the company offers its services in over ten countries such as the United States, Italy, Germany, United Kingdom, Japan and China. Recently, it has expanded into the furniture, food, toys and clothing industries (Amazon.com, Inc., 2004).

Company Mission and Strategy

Amazon’s mission statement is ‘To build a place where people can come to find and discover anything they might want to buy online.’ This is further echoed in the company’s vision statement that ‘Our vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.’

Therefore, Amazon.com views itself as a completely customer-centric company. Its mission and vision statements illustrate that:

i)                    Innovation and bias for action: If a company is to succeed, it needs to listen to its customers and react quickly to their needs. In recent times, changes have arisen at a fast pace. If any company is to remain relevant, it has to address these issues especially revolutionary technological changes.

ii)                  Customer Obsession: Customer views and feedback is the key to prosperity. A firm that improves its products and features based on customer feedback is bound to succeed.

iii)                Ownership: So as to be successful, a firm must have passionate shareholders who have a desire to see the firm succeed not only in the short-term but also in the long-term. However, these owners should be accommodating and should let the management practice what it deems fit for the company’s future.

Company Organization Structure

When Amazon.com was first established, it faced stiff competition from other companies such as Wal-Mart. However, the management was in no hurry to build up profits so as to quickly and effectively compete with other firms. Instead, it chose a business plan that did not expect successful generation of profits for a period of four to five years.  This caused a lot of discontent among the shareholders but eventually proved its worth when the dot com bubble burst forcing most e-commerce companies out of business. In 2001’s fourth quarter, the company eventually made profits of $5 million which translated to 1¢ per share.

Amazon.com practices a virtual organization structure. This system does not exist physically.  Rather, the company thrives through a network of alliances which are bound by software and the internet. The business core base does not have to be necessarily large. Nonetheless, the company can still reach a global audience.  By availing niche products at a lower price on its site, the company is able to make a significant profit, thus becoming one of the most successful companies.

 Currently, the company boasts of over 14,000 employees world-wide. This number, though not large, suits the management structure in place. By successfully partnering with other firms such as Marks & Spencer and Sears Canada, the firm is able to market its goods worldwide without having to be personally involved in the running of such firms. Obviously, Amazon’s IT department is charged with a massive responsibility. The latest technology has to be applied since the company is an e-commerce business and is vulnerable to multiple threats that could otherwise result in huge losses or a loss of customers. Amazon.com describes its IT department as ‘system, database, and networking experts (that) build and operate highly reliable, scalable distributed systems with terabyte-sized databases and infrastructure that can handle a massive number of transactions.’

 

Mission & Strategy for SBU

Business unit description: Third Party Seller Marketplace

In the last few years, Amazon.com has generally accepted partnerships with credible third-party sellers so as to expand its market at an effective cost. These merchants are allowed to sell a variety of both new and used products. Although the gross profits realized on such sales are generally lower, the company is able to rake in more profits by partnering with multiple retail outlets. This move has been successfully implemented. In the last three years, 30% Amazon’s sales were made through the retailers.

SBU Mission

We have realized that partnering with credible retail outlets is cost-effective. This also ensures that a wider target market is reached. In addition, this significantly boosts profits while keeping risks at bay. Therefore, the SBU mission is to provide quality service closer to the customer and at a friendly price. The SBU shall remain committed to this goal and shall dedicate its resources and expertise into the expansion of business through third-party sellers.

SBU strategies

  1. Bringing products closer to the customer: The products will be within reach of the customer. This will not compromise the quality. Once products are bought from the company’s website, the retailer closest to a specific customer shall issue the product.

  2. Looking for excellence: Our goal is perfection, we have to enhance or brand this new portfolio with innovative products that meet the most demanding standards of quality and safety.

  3. Availing our products to all and sundry: By partnering withvarious retailers, the firm aims at reaching more customers who need our products yet such products cannot be shipped to their mother countries.

Portfolio Management Process (including selection criteria)

Amazon’s Portfolio Management Department (PMD), through its analysis of the strategic orientations that will be submitted to the governance council, will monitor the operations in progress. During the project development stages, quarterly reports will be submitted to the council for discussion and approval. The Council will basically evaluate the financial structure of the proposed model and the consequences of partnering with the identified third party sellers.

Phase 1: Prioritization & Selection of Projects

Evaluating Candidate Projects

In determining which projects to pursue, the values and benefits of each option were critically weighed. Such include, but not limited to, the expected return on investment, projected expenses and the overall impact on the company’s image. It was found out that marketing through third-party sellers would impact positively on both the customers and retailers. However, this represents a significant risk especially if the merchants chosen are not credible. Although this option does not project the highest increase in revenue, a global implementation of this model would highly boost profits over and above what has been realized so far. Studies have shown that business carried out through third-party sellers has been on the rise and has averaged at +30% in the last 3 years. Therefore, if the firm is to keep on expanding and face off its competitors, it will have to implement this model since marketing through amazon.com has almost reached its saturation point.

Estimate of Total Costs

So as to estimate the total costs of each and every project, the net present value attributed to each project was calculated. Additionally, a revenue per cost index was calculated which clearly illustrated that marketing through third party sellers was the most viable option.  However, in our risk assessment model, these benefits were overridden by the possibility of unscrupulous retailers. Nonetheless, the adoption of a rigorous selection criterion as to who will be granted marketing rights will serve to keep this risk at bay. Additionally, in implementation of this strategy, the IT department will not be overly taxed. This fact greatly swayed our decision since the department is already operating at its optimum. 

Balanced and Weighted Ranking

Each candidate’s proposal will be evaluated according to the potential value and benefit ranking as well as their associated potential risk. Values and benefits will be evaluated by an analysis as to whether they meet the SBU mission that has been laid out. The proposal should enable the firm to reach a wider customer base through a credible retailer. Most importantly, the selection criterion for suitable retailers must be clearly detailed. In addition, the products to be marketed via retailers must be stated since not all products fit this marketing structure. The potential risks as to which retailers pose the largest threat will then be analyzed and weighed against their potential benefits. Only those retailers that have a high benefit to risk ratio will be selected.

 

Phase 2: Maintaining the Pipeline

Measuring Project Performance

The PMD will continuously evaluate the project proposals. This council will re-evaluate the selected retailers based on a set of independent data collected by their team members. The retailers will only be contacted for negotiations if and only if the PMD is in agreement. In addition, the SBU shall have its own quality control department that shall seek to eliminate any bias in the selection criteria. However, a transparent, just and well-structured selection process should be put in place so as to ensure that the project is run in a smooth, fast and efficient manner.

Updating Critical Parameters

The project shall have clearly stated and defined milestones and target goals. Each achievement will be bench-marked as to when it was achieved and its resultant benefits. This will then be reviewed and taken into consideration in the implementation of other project phases. In addition, an efficient and effective customer feedback system will be put in place so as to determine which retailers are most successful. Finally, a corrective action plan will be implemented so as to correct any possible errors in the implementation system. This action plan will also be responsible for identification and implementation of opportunities in the project phases already in place. However, this shall be carried out in conjunction with the PMD since they hold the utmost authority as to what should be implemented.

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