Amazon - Inside and Out An Analysis of Amazon’s Internal and External Environment Written by Nour Yamanita Introduction In 1994, Jeff Bezos left Wall Street to begin funneling his efforts into the company that will later be called Amazon (Pederson, 2017). What started as a small book company run out of Bezos’ garage later blossomed into the internet giant we know today (DePillis & Sherman, 2019). Although Amazon may seem larger than life to many, the company faces the same kinds of decisions as small businesses. Amazon has its own strengths, weaknesses, opportunities and threats. Management faces decisions on business and corporate strategies that are to be utilized in the company. The company’s decisions are reflected upon the segmentation, differentiation, cost strategies, integration, and acquisitions they end up pursuing. Also relevant to their internal environment are the controls and structure Amazon utilizes. Productivity, third party retailers, organizational culture, and organizational structure are all things that help make Amazon the company it is. Their external environment can be analyzed through the use of Porter’s Five Forces and the environment they are competing in based on their life cycle stage. Amazon’s environment can show what is helping the retailer giant reach success. Section I: History Although Amazon is taking the online world by storm, the company came from small beginnings in the garage of Jeff Bezos. With desks made of doors, Bezos started Amazon as an online bookstore with just $10,000 and a few employees (DePillis & Sherman, 2019). In July 1995, Amazon launched and quickly took off. The online bookstore had fulfilled orders from every state and in forty-five countries world wide. By the end of 1995, Amazon had been recognized by Yahoo!, Point Communications, & Netscape, and featured over one million titles. At this time, Amazon only carried 2,000 titles in their warehouse and went through wholesalers and publishers to help deliver their items. (Pederson, 2017). In May 1997, Amazon went public and began trading stock. At the end of their first day, the closing price was $1.96 per share for the company. Although they were valued at 300 million dollars, Amazon warned investors of loss due to intense competition with Barnes & Noble (DePillis & Sherman, 2019). The same year, Amazon opened a distribution center in Delaware and expanded its Seattle center by 70%. Amazon would go on to become the first internet retailer with one million customers, located in every state in the U.S. and in 160 countries (Pederson, 2017). It is no surprise that Amazon’s rapidly growing success ended up leading the company to expand into other areas of merchandise. In 1998, Amazon began to offer music and DVDs to their store. Users were able to preview tracks before purchasing and were even offered recommendations for the 125,000 titles in their inventory (DePillis & Sherman, 2019). Their customers doubled up to two million that year. Starting in 1999, Amazon began furthering expansion of merchandise outside of books and music. The company began to offer toys, electronics, lawn & patio furniture, and kitchenwares. They also launched Amazon Auctions (Pederson, 2017). What is now known as their Marketplace, was introduced under the name zShops. It allowed third party sellers to sell products on the site which ended up boosting transactions (DePillis & Sherman, 2019). Although Amazon seemed to be booming, they continued reporting net losses. Once the “dot com” boom came to an end, Amazon ended up laying off 1,300 employees in 2001. However, Amazon struck deals with corporations like Target, and offered products from Toys “R” Us and more. This, along with a price reduction business strategy, led Amazon to see their first ever profit in the last quarter of that year of $5 million (Pederson, 2017). After their previous high of $106.69 per share on the stock market, Amazon’s share price dropped down to $19.12 by the time they began to offer clothing in 2002 (DePillis & Sherman, 2019). However, Amazon saw its second profit of $3 million at the end of that year, in its fourth quarter (Pederson, 2017). This began to mark the start of what Amazon is today. 2003 proved to be a big year for Amazon. Despite not earning a profit for most of the company’s existence prior, 2003 saw the company make its first annual profit of over $35 million. Their revenues had even jumped up 34% that year as well, leading to their monetary success (Pederson, 2017). Amazon also introduced Amazon Web Services, or AWS the same year. This allowed Amazon to cloud host other websites, such as Borders and Target. A year later, Amazon decided to expand into foreign territory by purchasing the Chinese book seller, Joyo (DePillis & Sherman, 2019). In 2005, Amazon introduced their famous prime program. For a $79 annual membership fee, customers were able to receive two-day shipping for all of their in stock products. Going back to their roots, Amazon debuted an ebook read in November 2007, called the Kindle. Retailing for $399, the Kindle sold out in six hours after its release. It’s no surprise that the company later went on to release a Kindle 2, and the Kindle Fire. The Fire, debuting at half the price of the original at $199, went on to claim 22% of the tablet market share less than a year after its launch in 2011 (Pederson, 2017). Amazon itself was also growing alongside the Kindle’s popularity. Amazon acquired Audible, Zappos, and Kiva Systems between 2008 and 2012. They also began Sunday package delivery in 2013 (DePillis & Sherman, 2019). 2013 also saw a growth in prime membership. Compared to 9.7 million members in 2012, 2013 saw 7 million new prime members join for a total of 16.7 million. In 2015, Amazon began to offer free same day shipping to prime members. Despite starting online, Amazon went on to open a physical brick-and-mortar store, Amazon Books (Pederson, 2017). While Amazon’s growth has expanded far beyond just the books it started with, the company would not be where it is today without strong controls and structure to help put the pieces into place. Section II: Controls and Structure Amazon’s internal environment starts with the structure of their company. Unsurprisingly, Jeff Bezos sits as the CEO of Amazon, with Andy Jassy and Jeff Wilke sitting as CEOs of Amazon Web Services and worldwide consumer, respectively. Among these three are other important executives including Jeff Blackburn, SVP of Business Development; David Limp, SVP of Amazon Devices and Digital Management; and Jay Carney; SVP of Global Corporate Affairs (Kim, 2019). These decision makers are working under a functional structure. A functional structure “focuses on business functions as bases for determining the interactions among components of the organization” (Meyer, 2019). Amazon features three main structures, such as global function based groups, global hierarchy, and geographic divisions. These major function based groups are as follows: 1. Office of the CEO, 2. Business Development, 3. Amazon Web Services, 4. Finance, 5. International Consumer Business, 6. Accounting 7. Consumer Business 8. Legal and Secretariat (Meyer, 2019). It’s important to note that several of the most important members to decision making in Amazon are heads or higher ups in these groups. While Wilke, Jassy, Blackburn, Limp, and Carney all directly report to Bezos, Jassy serves as the CEO in AWS, along with his own line of direct reports like the others. Bezos also has CFO, Brian Olsavsky, reporting directly to him (Kim, 2019). This line of direct reports helps emphasize Amazon’s global hierarchy. Amazon’s utilization of vertical command lines from senior executives allows for control of the entire company, even down to the actual retailing of the items. (Meyer, 2019). As noticed with the head executives of Amazon, they are split into geographic divisions. Amazon’s geographic divisions include North America and International (Meyer, 2019). After the structure is determined for the company, Amazon must decide what their values will be and how they will be represented, and create an organizational culture from that. In general, any company has a set idea of what they want to accomplish, Amazon is no different. Their mission is “to be Earth’s most customer-centric company… striving to delight our customers, and make their lives easier, one innovative product, service, and idea at a time” ("Come Build," n.d.). This mission is the center around Amazon’s organizational culture. Amazon follows what they call leadership principles in order to help achieve their mission. The first of these fourteen principles is “customer obsession,” followed by “insist on the highest standards,” and “deliver results” ("Leadership Principles," n.d.). These three principles are some that highlight the value that Amazon places on customer service and satisfaction. Part of their mission statement talks about bringing customers innovative products and services ("Come Build," n.d.). This is especially highlighted with Amazon referring to themselves as a company of “pioneers.” They emphasize customer centricity, boldness, and peculiarity as part of the organizational culture (Meyer, 2017). Already mentioned is Amazon’s emphasis on customer centricity by their leadership principles. Amazon’s boldness can be seen through their use of data to make decisions, such as which items to sell online. They also encourage employees to take risks. Lastly, Amazon encourages peculiarity, or challenging conventions, in order to create maximum potential (Meyer, 2017). This is shown in their leadership principles as well, specifically in the points “invent and simplify,” “think big,” and “have a backbone; disagree and commit” ("Leadership Principles," n.d.). Amazon also has several controls and additional structural choices that help the company run as smoothly as they do.