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(amendments request) Successes and Failures of Amazon’s Growth Strategies: Causes and Consequences

STRATEGY, ENTERPRISE, AND INNOVATION

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Strategy, Enterprise, and Innovation

Over the years, Amazon, a pioneer online retailer has undertaken series of expansive initiatives in line with its strategic objectives and innovation. The company is among today’s successful firms, offering utmost convenience to customers through innovation and new product. The company’s success is characterised by series of key drivers and adequate application of strategic frameworks. Besides, the company upholds entrepreneurship and innovative initiatives that aid operational efficiencies, customer satisfaction, and positive organisational culture. In revenue terms, Amazon is the biggest Internet-based organisation in the world. While in 1994, the primary focus was selling books online, thereafter, the company initiated expansive growth strategies that have seen it engaging in different product lines. The products include computer games, music, consumer electronics, toys, games, video games, software, and home-improvement items among others (McFadden, 2019).

Amazon continues expanding its operations into many other different services, including shipping fresh produce, drone delivery, etc. Noteworthy, while looking at Amazon’s growth and innovative strategies, there are series of successes and failures the company has gone through. Some of the successful strategic moves that the company has witnessed include Prime, Kindle, Marketplace, and Amazon Web Services. On the other hand, failed strategic moves are A9 Search Engine, Auctions, Fire Phone, and Endless. Accordingly, this report identifies and evaluates key drivers of innovation, contributing to Amazon’s success, different approaches undertaken by the company to help shape its entrepreneurial vision and business model, and Amazon’s successful application of Blue Ocean tools.

The Key Drivers of Innovation, Contributing to the Success of Amazon

 Mapping key drivers of innovation that have contributed to the growth and success of Amazon raises the need to explore a relevant theoretical framework that aids innovation, entrepreneurship, and strategic thinking. Hardly there is an area of innovation and entrepreneurship that the company has not tapped in or re-invented in line with its mission of customer focus which guides its decision-making and shapes its innovative goals. The pull factors, such as innovative competitive strategies and technological dynamics alongside push mechanisms relating to the internal processes and structures have driven Amazon’s innovation (Di Stefano, Gambardella, and Verona, 2012). Consequently, the entity has become a one-stop-shop with many ambitions for the future.

During the early years of inception and throughout its history, the fundamental Amazon’s appeal has been the ability to offer pure convenience to the customers. Potential customers do not have to visit Brick and Mortar Stores to get the book or items they need as long as it is in the company’s list of product lines (McFadden, 2019). Ideally, the ability to search, select, and purchase a book and other products from the comfort of one’s home and be certain of timely delivery has been an amazing innovation that among other factors has fostered the company’s growth. In this case, the goal has been to offer convenience to customers and reap available opportunities in the e-commerce market. The company’s key drivers of innovation have been shaped by the application of the entrepreneurship and innovation model demonstrated in the figure below which characterises transformation of ideas through new products (Bessant and Tid, 2011).

The company’s innovative strategies and technological application also contributed to the launch of Amazon Web Services (AWS), a portfolio that later went through expansion to incorporate Elastic Compute Cloud (EC2) and Simple Storage Service (S3). The decision to expand into digital services, such as the EC2 and S3 significantly improved the company’s revenues and remained currently the bulk of Amazon’s income notwithstanding massive success of its retail divisions (McFadden, 2019). Besides, company’s decision to go into different product lines broadened its appeal to many customers. In this regard, the success of Amazon is owed to the services it offers to the consumers, which have created significant customer loyalty, hence big profits in the long run. Another innovative strategy to the customers has been its recommended product function. The company offers other products to upsell based on customer’s previous purchases, hence being able to record additional sales and increase its revenues.

Besides, the company has a structure that revolves around what customers want and need. The revolving structure coupled with the workforce maintains exploring mentalities for innovation purpose. The mentally characterises a mind-set of employees that uphold great entrepreneurial interest in venturing into new products or creating new ideas that are beneficial to customers. Amazon’s employees are, thus, in a position to harness experimentation mentalities and develop ideas into disruptive and innovative products (Rivet, 2017). The structure has been a key driver of innovation in Amazon, enabling it not to resemble the competitors.

Customer-centrism is another key driver of innovation that contributes to the success of Amazon. It involves asking customers their needs, sorting them out, ensuring their delivery, and as such, increasing the demand from the consumers. The company has focused on this conventional view with evident success over the years. Customer- centrism also involves innovating on behalf of customers (Majed, Nuraddin, and Hama, 2018). In this case, Amazon searches for what customers want and delivers it to them, hence, increased consumer demand recorded. Besides, through customer-centric innovation, Amazon has redesigned its stores to suit customer needs by launching ‘your store service’ that aided its convenient, selected services delivery at the broadest price (Shaji, 2020). Notably, the innovation that Amazon undertakes is based on market opportunities recognised through investment in Research and Development (R&D) and Human resource (HR). Consequently, the company has grown into top e-commerce firms in the world by creating value for customers through outlined innovations.

Fig.1 Strategic vision and direction (Bessant and Tidd, 2011).

The application of the Entrepreneurship and Innovation Model has enabled Amazon’s employees to set goals and content that impact the company while recognising market opportunities that foster production of new products (Bessant and Tid, 2011). Amazon has developed its venture through entrepreneurship and innovation, funding operations that impact its effectiveness, hence creating value and brand that other firms find difficult to compete with.

Different Approaches That Help in Shaping Amazon’s Entrepreneurial Vision and Business Model

Amazon Porter’s Generic Strategies Framework

Porter’s generic strategies framework depicts how firms can pursue competitive advantage by implementing effective strategies. The framework focuses on cost leadership, differentiation and focus as well as strategic objectives that companies undertake in their quest to gain a competitive edge in the market (Firoz Suleman, Rashidirad, and Firoz Suleman, 2019).

While Amazon remains among the top players in the e-commerce industry, the quest to keep the market position in the long-run forces it to regularly evaluate its strategies to gain an understanding of the variables, shaping market operations. Whereas the company enjoys such a position, inadequate strategies and external variables may present a possible reduction of business performance and market share given existing strong competition that involves large multinational retail and technology companies such as Walmart alongside small online retail stores. Besides, the global scope of the e-commerce industry exposes the company to series of diverse competitive forces. Therefore, the company strives to uphold resilience amid changing conditions in online retail industry.

Accordingly, based on Porter’s Model, Amazon employs cost leadership as its generic strategy for competitive advantage. The company focuses on minimising its operational costs as the primary objective of the generic competitive strategy. For instance, Amazon emphasises the use of advanced computing and networking technologies that aid its operational efficiencies, thus translating into reduced or minimised costs. Looking into the nature of e-commerce, the company has continued to reap adequate benefits from process automation that characterises purchase processing, scheduling, and other operational processes (Onyusheva and Seenalasataporn, 2018). Automation processes enable the company to minimise the costs of its online retail and other services, hence a competitive advantage in the online marketplace.  Building on its cost leadership generic strategy while fostering e-commerce competitive advantage, the company heavily invests in R&D to ensure optimisation of performance of its IT resources. The cost leadership generic competitive strategy also enables the company to reduce the price levels of its products, thus impacting its marketing mix.

Amazon uses differentiation in combination with cost leadership as a generic strategy to build a competitive advantage (Diehl and Bishop, 2017). As a secondary generic strategy, differentiation helps the company provide unique product features that improve its sales and expand its customer base. The differentiation strategy is embedded in innovation to meet customers’ changing interests, thus reducing pressure from other brands. Besides, Amazon adopts the focus strategy by being a low-cost provider and offering the best value, hence the company’s ability to serve the needs of specific niche market segments and emphasise taste, design, and size. In this regard, for competitive advantage, the generic strategy for Amazon in line with Michael Porter’s model depicts an approach that the company employs in its quest to develop business through tough competition. Being the largest online retailer globally, Amazon has proved to be highly competitive against many firms, operating in the same industry. Through adequate implementation of its generic competitive strategy, Amazon continues to be successful in the global e-commerce market.

Amazon’s Ansoff Matrix

The Ansoff Matrix or Product/Market Expansion Grid entails a strategic planning tool that provides companies with a framework to help them devise strategies for future growth. Firms use the framework to analyse and plan their strategies to aid future growth potentials while looking into associated risks that characterise each strategy. The four strategies of the Ansoff Matrix model include market penetration, product development, market development, and diversification (Loredana, 2017). Amazon Ansoff Matrix as a marketing planning model has helped the company in determining its product and market strategy. Amazon utilises all four growth strategies though an integrated platform

.

Fig.2. Products/Markets (Dudovskiy, 2020).

Market penetration involves a strategy where a company sells existing products to existing markets. In this regard, Amazon upholds an aggressive application of market penetration strategy. The company’s sophisticated user experiences features and recommendations on its website, which play a fundamental role in fostering application of market penetration strategy (Dudovskiy, 2020). In particular, Amazon focuses on user experience personalisation through adequate and efficient application of machine learning technology and data science. Such applications have increased market penetration and improved volume of sales of existing products to existing markets. Product development characterises development of new products for sale in existing markets. One of the core strategies that Amazon employs in its strategic goals is product development. While the company has started with selling only books through online platforms, it has since ventured into diverse product offerings as mentioned in this report’s previous sections (Dudovskiy, 2020). The development of new products has led to stable revenues for the company.

Market development as a part of the Ansoff Matrix model requires a company to find new markets for existing products. In this regard, Amazon engages in market development through a systematic approach. The company started its activities only in the US and has since incorporated country-specific sites in 13 countries world-wide, including Canada, UK, China, and India (Dudovskiy, 2020). Besides, the company’s Prime Free One Day and Prime Free Same Day services are available in over 8000 cities and towns (Dudovskiy, 2020). On the other hand, diversification characterises developing new products and selling to new markets (Russell-Walling, 2011). While the strategy is a risky adventure, Amazon uses diversification to some degree, for instance, in operating media, advertising, and hardware businesses.

Amazon’s Success and Application of Blue Ocean Strategy

Blue ocean strategy characterises a simultaneous pursuit of differentiation and low-cost tactics in the quest to open up a new market space and create new demands (Mi, 2015; Strategy, 2015). The strategy focuses on creation and capture of uncontested market space, thus making the competition irrelevant. The strategy is based on the notion that actions of industry players shape industry structures and market boundaries. Besides, the strategy focuses much on searching for markets with few rivals and limited pricing pressure. Companies can apply the Blue Ocean Strategy across the sectors. Most firms in the current business environment operate under strict competition. When products experience pricing pressure, corresponding threats to the companies’ growth and success arise due to the saturation of the market (Red Ocean). However, blue oceans exist when there is a potential for growth and uncontested market share.

Amazon is the leader in the E-commerce space. Its growth continues at an exceptional pace with uninterrupted expansion of products, services, and capabilities. The company continues to enhance its advantage, hence making it difficult for other entities to compete. Besides, Amazon’s activities have gone beyond the existing demand. The company focuses on its customer service while offering all the items that customers need. As abovementioned, the company started as an online book store and has since recorded massive and successful growth initiatives. For instance, the year 2007 saw the company unveiling its first Kindle e-readers, relatively low-cost handheld tablets, hence a reinvigoration of the book market. By 2012, the Kindle constituted about 50% of all Android-operated tablet sales (Majed et al., 2018). The success of the Kindle anchored Amazon’s entry into the book publishing market in 2011 through Amazon Publishing service (Majed et al., 2018). The successes have made the company become the largest online marketplace, largest internet bookstore, a global media company, and the most successful IT service provider. The organisation was ranked as the most innovative company in May 2017 (Majed et al., 2018).

According to Mortson Enterprises Inc. (2020), Amazon dominates the industry, making it hard for other firms to compete in the long-run. Most of the companies find it impossible to have the size, scale, and advanced capabilities like Amazon. In this regard, the company’s application of the Blue Ocean Strategy is what makes the company successful. For instance, in the quest to create uncontested space (Blue Oceans), the company has implemented strategies, such as Kindle E-Reading solution, Amazon Prime, One Hour Delivery, Drone Delivery, and Cloud-Based Computing among others. The space is different and far from what the competitors do.

The view that Amazon’s success is attributed to the implementation of the Blue Ocean Strategy is also supported by Lindič et al. (2012). The authors argue that Amazon is operating in varied institutional environments and spanning various industries, hence offering opportunities that aid the discovery of a broad spectrum of innovations (Lindič, Bavdaž, and Kovačič, 2012). The innovations enable Amazon to capture new demands while making competition irrelevant through introduction of products with superior features. Besides, the research by Arnett et al. (2018) confirms that Amazon takes advantage of its innovation to drive the Blue Ocean Strategy, thus leading to its success. Through their analysis, it is evident that many distinct and diverse innovation patterns at Amazon under customer-driven innovation, including working towards meeting unmet customer needs through market research and technological innovation, such as radical processes and designs, business model, and open innovation underscore company’s ability to foster Blue Ocean Strategy.

Companies such as Amazon that embrace the Blue Ocean Strategy consider the four action frameworks to foster strategic objectives based on below 4 key factored questions. The four action frameworks provide a technique that aids in breaking the trade-off between differentiation and low cost while creating a new value curve (Kim and Mauborgne, 2014). Amazon has adequately employed the framework to make decisions on what to eliminate, consider factors to reduce below industry standards and the variables to rise above industry-standard, and define what to create that does not exist in the market, thus creating an ocean.

Fig.3. A new value curve (Kim and Mauborgne, 2014).

The above Eliminate-Reduce-Raise-Create grid pushes firms to act on the four action frameworks. The framework has driven Amazon to simultaneously pursue low costs and differentiation. Notably, the Blue Ocean Strategy is fundamentally relevant to companies such as Amazon that have the capabilities of using it to grow quickly through the creation of unique product offerings for new markets instead of competing with the rivals. Based on the above analysis, other companies can also learn from the Blue Ocean Strategy framework to implement strategies that contribute to positive business growth.

Conclusion

Amazon is the biggest Internet-based organisation in the world (Majed et al., 2018). While the primary focus in 1994 was selling books online, the company initiated expansive growth strategies that have seen it engaging in different product lines. Some of the successful strategic moves that the company has witnessed include Prime, Kindle, Marketplace, and Amazon Web Services. The success of the company is attributed to its adequate application of innovation, entrepreneurship, and growth strategies. The key drivers of innovation have included the ability to offer pure convenience to customers, technological application, leading to the launch of Amazon Web Services (AWS), customer-centrism, and putting in place a structure that revolves around what customers want and need.

The success of Amazon is also characterised by the application of Porter’s Generic Strategies Framework to help it shape its entrepreneurial vision and business. Based on Porter’s Model, Amazon employs the use of cost leadership as its generic strategy for competitive advantage. The company focuses on minimising its operational costs as the primary objective of the generic competitive strategy. The evaluation of the Ansoff Matrix, a strategic planning tool also provides insights on how Amazon devises different strategies for future growth while looking into associated risks that characterise each strategy. Despite such strategic focus, the company’s success is also explained by its adequate application of Blue Ocean Strategy. The company is the leader in the E-commerce space, and its growth continues at an exceptional pace with uninterrupted expansion of products, services, and capabilities. Though the Blue Ocean Strategy, Amazon has continued to engage in simultaneous pursuit of differentiation and low-cost tactics in the quest to open up a new market space and create new demands. The company continues to enhance its advantage, hence making it difficult for other entities to compete.

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