Internal Analysis
It is crucial for a company to analyze itself internally, relative to the environment. Doing so
allows a deeper understanding of why the corporation has found success, why it hasn’t compared
to competitors, and what is has potential to accomplish. Amazon has become one of the most
widely used companies for ordering products online; its successful internal strategies are a major
contributor as to how they became such a dominant force in the market. Among many factors
attributing to Amazon’s success, its core competencies, resources and capabilities, and activities
lead to sustainable competitive advantage in its industry.
Core competencies are unique strengths embedded deep within a firm that cannot be
easily copied by competitors, allowing the firm to differentiate itself from rivals and thus
becoming higher valued by consumers; fast delivery is one of Amazon's best qualities and core
competencies. When consumers are in search for a product, they want them as soon as possible.
Historically when shopping online, it was a hassle waiting for the postal service and delivery
services like UPS or FedEx to arrive with your packages. What amazon created was an expedited
delivery system, where if you pay a little more, instead of waiting 5-7 business days or however
long it would have taken for your package to arrive, they will get it to you the next day or 1-2
days. Many people more often than not will take this offer because consumers want things now,
and Amazon leadership recognized that and made this its strongest core competency (LBL
Strategies, 1). The figure below depicts the shipping speed of Amazon compared to other
merchants in the industry, showing the disability of other firms copying this competency,
allowing Amazon to differentiate and adhere to the consumers demands.
Another core competency that Amazon utilizes is low prices relative to the industry with a wide
range of products (LBL Strategies, 1). To offer their convenient services and also have their
prices affordable for the average consumer is rare and very difficult to imitate. They have
virtually every product industry ranging from clothing, groceries, consumer electronics, kitchen
supplies, health and personal care, and the list goes on. While offering this large range which is
already hard to replicate for a competitor entering the industry, they maintain stable and low
prices to add the customer benefit. Other than selling products made from other retailers, they
also sell their own products or services such as amazon prime that offers video streams like
Netflix and gives competition in other industries. They also created an AI digital assistant called
Alexa, which replies to simple commands or questions and even provides entertainment as a
small speaker and plays music upon request (Gadgets Now, 1). They continue to sell in new
markets and innovate technology based on consumer trends and dominate in each one.
Amazon’s resources are abundant with human capital and machinery. Their warehouse
facilities are technologically advanced and becoming more grained with robotic processes that
work on their own in moving boxes where they need to be. This is a dynamic capability that
Amazon utilizes and is perhaps one of their most important. They developed automated
machinery using “laser triangulation” to autonomously and safely navigate through the
warehouse without bumping into people or other moving objects such as pallets or other robots
(Amazon Effect, 1). Obviously, not your average warehouse uses this kind of technology, and
Amazon’s large facilities can afford this and use it to advance their shipping efficiency.
Furthermore, “Amazon warehouse robots can travel around the warehouse, locate items and
carry shelves of products back to a human packer. This eliminates the need for people to walk
around vast warehouse floors, hunting for the items needed to fulfill an order. The addition of
robotics has reportedly cut Amazon's costs by up to 20% and makes it possible for Amazon to
offer its speedy two-day and one-day delivery” (Amazon Effect, 1). This means that their
resource in technology has also increased their resources in cash as they decreased spending,
while also allowing their extensive resource of human capital to accomplish other tasks in the
meantime while those robots retrieve the items needed, increasing human efficiency. It is a large
investment that has successfully developed resource capabilities. If they continue to innovate
their technology as market trends will try to replicate them, they will sustain their competitive
advantage.
Amazon has numerous capabilities in terms of efficiently providing their goods and
services. One of their strategies is using strategic human resources management to absorb talent
and selection of employees is diverse and strict. They promote diversity and outside the box
candidates to contribute ideas for the organization and don't look into prior work experience
(SHRM, 1). Also, they follow strict performance and reward management; annual meetings to
discuss employee performance take place for improvements on performance. Aside from their
strict requirements made clear to each individual employee, they offer adult education funding,
offering to pre-pay a large percentage of tuition to support their retention efforts (SHRM, 1).
Given their extensive demand for products, their treatment of employees has been criticized for
poor conditions and overworking them to meet consumer demands. However, with the
innovation of technology in recent years, they have been able to reduce this issue by having their
robots do the heavy lifting and take some of the burden off warehouse workers' shoulders.
One metric of analyzing internal strengths a firm might have is the VRIO analysis. In
this, it breaks down whether an organization is: valuable, rare, costly to imitate, and organized to
capture the value of the resource. Certainly, the firm is extremely valuable. It was valuable when
it began as a method of purchasing products online for low cost and receiving them relatively
quickly, and now, it has expanded over many markets offering its own products and services
used by millions of people. Consumers rely on Amazon as it is the leader in multiple industries
and is worth over a trillion dollars. The next test is if it is rare, and there is no debate amazon has
achieved rarity. It has an extensive delivery network that stretches across the country and also
internationally, high quality warehouse and distribution techniques with artificial intelligence at
its fingertips and successfully transitioned into a significant number of industries with over 170
different services (for most companies transitioning into one other industry is hard) (Rancord
Society, 1). The third test is costly to imitate for competition, which is a clear yes. Only a few
firms hold somewhat of a competitive strength against them due to their intense capital and
industrial strength, but the amount of money spent in research and development that another firm
would have to spend would probably put that firm in business. A quote from Notematic website
on Amazon's VRIO framework shares that “During 2019, the research and development
expenses of Amazon grew to around $36 billion which was higher than any other firm including
Google that spent around $26 billion on research and development. Continuous focus on research
and development has helped Amazon acquire strong capabilities through superior algorithms that
provide product suggestions and make it more convenient for both buyers and sellers to deal on
its online marketplace”. The last test for measuring sustainable competitive advantage is if it is
organized to capture the value of resources; that is a yes as well. Considering that Amazon has
been able to expand so grossly over consumer markets and acquire companies like Whole Foods
and others, it has successfully exploited their competitive advantage over other firms and used
their resources to make the most they can out of the business world.
Corporate Strategy
Strategic alliances are important when aspiring to dominate in your industry and gain
entry into others. They create value growth and brand recognition through working with other
companies, and Amazon has been profiting from this concept exponentially. Amazon has a long
list of companies they do business with and a very long list of companies they have acquired.
Over the past three years, there are numerous key partnerships that Amazon has made; in
particular, two are with Goldman Sachs Inc. and Kohls.
Goldman Sachs Group, Inc. is a leading global financial institution that delivers a broad range of
financial services across investment banking, securities, investment management and consumer
banking to a large and diversified client base. Prior to Amazon doing business with Goldman
Sachs, they issued long term loans using a corporate credit facility from Bank of America, which
has continued after the partnership with Goldman Sachs. Amazon does this so the merchants on
their platform can continue selling to keep making Amazon money. The main reason Amazon
entered this alliance is because the partnership between these two successful companies allowed
for Amazon merchants (not ones with an abundant amount of money and resources) to obtain a
credit line from Goldman Sachs. This gives them the needed capital to continue selling on the
platform and also adds another source of revenue for Amazon with the fees from the credit line
(Forbes, 1). Merchants get credit lines from the bank, have more money to keep selling on
Amazon, and Amazon keeps profiting from the sales. This partnership was formed in 2020 and
has been a success for both Amazon and Goldman Sachs since the original intent was achieved.
Credit lines are offered up to $1 million to these merchants, and both Amazon and Goldman
Sachs have held up their end of the bargain since and profited as expected with this alliance. The
Kohls partnership really helped Kohl’s obtain more customers and sales. In 2019, they began
accepting Amazon returns in all of its stores across the U.S. Kohl’s has used this partnership with
Amazon in an attempt to bring more people to its nearly 1,200 stores countrywide, which they
have and have seen an increase in new shoppers by 2 million (Insider, 1). Amazon, however, gets
an increase in customer satisfaction with this convenient source of returning unwanted or
unsatisfied goods. Also, a big reason Amazon did it was because customers are now doing the
driving to drop off returns; Amazon saves the trip to pick up returns from customers which saves
them shipping costs and the customers do the driving instead (MarketWatch, 1). This alliance
certainty has worked out for both companies since then because it has been seen since then the
dramatic increase in customers for Kohls which have increased their profits, and Amazon has
decreased spending through mitigating transportation costs and making consumers lives easier.
Amazon has made an abundant number of acquisitions throughout its life; in the past few years,
it’s made some of their biggest yet. In 2020, Amazon acquired Zoox, an autonomous vehicle
company, for $1.2 billion. Amazon is interested in getting rid of human labor and replacing it
with autonomous last mile delivery. They hope to save costs of labor, which they will drastically
if this is successful, since they have done this with robotics already in their warehouses and are
also developing drone delivery service through Amazon Prime (Forbes Zoox, 1). Another
company Amazon has acquired recently and is their second highest purchase in their company’s
history is buying MGM studios for $8.45 billion in May of 2021. MGM wasn’t seeing the
success it once was, and Amazon has been entering in just about every industry. MGM took the
deal, and Amazon offered because it gives them the opportunity to produce successful movies,
which leads to increased Amazon prime subscribers (specifically for prime video but consumers
can’t have that without all the other perks because they sell it collectively) to compete with
Netflix and Disney and Hulu, and an overall increase in clout in all its industries it partakes in to
lead to an increase in overall profitability. With these power moves made by this powerhouse
company, it is hard to say if there is a resource gap for Amazon given their use of vertical
integration. They keep buying companies to make and produce their own goods or services, and
it seems they don’t lack the resources for anything they may need.
Global Strategy
Amazon is working internationally to access larger markets. They operate in 14 marketplaces
worldwide and reach over 180 countries (Feedvisor, 1). Operating internationally allows their
brand to gain more consumer awareness and profit more with lower costs of labor in some
countries. Amazon’s current core competencies are proven to be successful, however, they are
trying to develop new ones overseas; they may be trying to gain new competencies through
having superior knowledge of cultural needs in differing locations. This has been a long time
coming for them and they have not seen the same success overseas as they have in the U.S. but
hope to grow like they have here over time. They have saturated the U.S. market and dominated
the North American with Amazon Prime subscriptions and hope to increase this more in other
countries because it is their most profitable cash cow currently (BuyBox, 1). The graph below
depicts the segment revenue of North America compared to international revenue through three
years (2014-2017) (BuyBox, 1):
The global strategy Amazon has been using is the international strategy; they implement
themselves in growing marketplaces around the world to grow their customer population. They
have a strong brand name and reputation and certainly have a large domestic market. They are
strongest in their home country of America but do sell the same products or services
internationally. This is the best strategy for them to use because it fits their brand the best out of
the four strategies to use. This strategy allows them to sell the same products and services in all
areas as many of the basic products that consumers need are universal in most countries.
Although there are differing cultures, Amazon is investing to understand the important products
to push for in different countries.