Amazon Case

Amazon.com

1994 – started out as online Bookstore

online retail bookstore to online superstore (books, music, videos, toys, videogames, electronics, software, kitchen/home)

took ownership of inventory it sold

invested to make the best retailing, fulfillment, and customer service capabilities

used technology – sophisticated browsing and search capabilities (recommendations, shopping carts, 1-Click shopping, wish lists)

1998 – expanded into international markets

1999 – explored new business models – auctions and marketplaces (did not assume control of inventory), acted as an agent – not a retailer

        added auctions and an online marketplace where individuals and small businesses could leverage the company’s proprietary online retail infrastructure to gain access to millions of loyal customers

2000 – expanded into partnerships with other online retailers (many declared bankruptcy), also partnered with a traditional retailer Toys “R” Us

2000 – US consumers recognized the Amazon.com brand

Toys “R” Us

- difficult to manage a diverse range of products

- Amazon would provide the retailing technology, customer service, inventory management, fulfillment, and logistics

- Toys “R” Us would control product sourcing, marketing, and would own the inventory in the Amazon distribution centers

- added “Infrastructure Services” business model

retail, marketplace, auction, and infrastructure services business models

3 components of a business model – strategy, capabilities, and value

Strategy

• Market positioning – choice of customers to serve, needs and expectations, channels to reach customers
• Product positioning – choice of products and services to offer, prices charged
• Business network positioning – role organization will play, activities it performs within a network of suppliers, producers, distributors, partners
• Boundary positioning – markets, products, and businesses that will NOT be pursued

• Strategy audit

• Assess business context – identify influences that could impact the industry, what opportunities can and can’t be pursued
• Analyze customers – talk to and observe customers, problems customers face
• Analyze competitors and substitutes – analyze alternatives customers have
• Assess the business network – analyze network of suppliers, distributors, partners

Capability

• Analyze processes and infrastructure – end-to-end support processes should be examined, enable efficiency and effective strategy execution
• Evaluate people and partners – has expertise to carry out activities and processes, good environment to attract the top people
• Assess organization and culture – organization design makes it easier or harder for people to make decisions and get work done, communication systems
• Evaluate leadership and governance – strategic controls, operating controls, effective risk management

Value

• Begin by looking at company financials – financial ratios are used
• Profit margin, asset efficiency, and leverage are used to determine return on equity (ROE)
• Value Audit

• Identify internal and external stakeholders -
• Identify business model drivers and alignment – review insights gained from other audits, identify how IT enables key drivers of economic value
• Develop the financial model and determine financing needs -