Jeff approach at building a team of cross functional seasoned executives from key industries resulted in the creation of a best in class distribution, fulfillment, and customer service center that helped position Amazon . Com (AMAZON) for future success. He was smart about aligning the IS infrastructure to meet the company strategic growth goals and set his business Off for future success. In terms Of his operations performance, we rate him with a 2 based on the historical analysis of key financial ratios.
AMAZON operating ratio ranged from 0. 41 in 1 997 to 0. 39 in 1998 and remained unchanged on 0. 55 between years 1999 to 2000 (the smaller the ratio, the greater the organization is ability to generate profit if raven sues decrease). Looking at additional ratio as operating margin, a measurement of what repartition of a company’s revenue is left over after paying for variable costs of operation such as wages, raw materials, etc. We see that AMAZON operating margin in 1997 was negative at -0. % and continues to drop toward year 2000 to a level of -0. 4%. The operating margin reflects the percentage of revenue that AMAZON generates that can be used to pay the company’s investors (both equity and debt). Since we do not have industry historical data in our case for both ratios, we can assume that the low variation between the figures of the pirating ratio and the negative figures of the operating margin throughout these years suggest low satisfactory of operational performance, and we would rate Bozos 2 on a scale of 1 to 5. ) Trace the evolution of the Amazon . Com business from the company’s launch in 1 995 to the dotcom collapse in 2000. How did the company’s strategy change over time? How did capabilities evolve? What value did it deliver to all stakeholders? AMAZON launched in 1995 as an online book retailer, with ability to transact orders from their website and storing inventory in the founder’s garage.
AMAZON enhanced the online experience on their website in 1996 (incremental improvement), expanded product categories and into new markets & online retail partnerships in 1998 (emerging opportunities), and further expanded into the new commerce forms of auctions and marketplaces as a service provider in 1 999 (business transformation); during these years, AMAZON continually and aggressively increased operating capabilities through adding experienced executives and staff, developing information systems and a state-of-the-art distribution network.
This changed their business model from a new retail space and fulfillment channel toward an IT service provider with an commerce portal and a world-class fulfillment system, all the while staying in the business to consumer (BBC) space. This trend in increasing operational and customer capabilities complements their expansion in strategy -? at first, AMAZON wanted to be the “Earth’s most customer-centric” Bookseller, which changed to Company (since they could grow much easier by increasing product offerings).
In order to increase market position and utter utilize their infrastructure, they partnered with online retailers, turning competitors into profit-generating collaborators; when the Internet bubble burst in 2000, they maintained their partnership strategy AND reduced risk by partnering with Toys R Us -? again, turning a competitor into a profit- generating collaborator.
This transformation over time increased value to stakeholders by allowing AMAZON to stay competitive in an environment of quickly changing technology, engage a broader customer base, and effectively use information systems to deliver a unique and customer-focused shopping experience. 3) Do you agree with the decision to pursue the Toys R Us deal? Why did the company do the deal? Should they do more deals like this? What impact does the Toys R Us deal have on Amazon-coma’s business model in early 2000?
We agree with the decision to pursue the Toys R Us partnership. AMAZON CEO Jeff Bozos and the senior management team were looking for ways to leverage the compass capabilities, fill their excess capacity, and deal with competitive threats from traditional retailers. Due to the “dot -? com” crash, many of the company’s online retail partners either went bankrupt or as on the verge of bankruptcy which further exacerbated their financial problems. We recommend AMAZON to continue to explore partnerships similar to the deal that they had in place with Toys R us.
Under the terms of this deal, AMAZON would build and host the Toys R Us store by utilizing its retailing technology, in addition to providing customer service, inventory management, logistics and fulfillment. Despite the company’s $429 million investment in a state-of-the-art digital business infrastructure, and operations that were designed to link the company’s nine distribution centers and six customer service centers, AMAZON was unable to efficiently scale their supply chain and order fulfillment processes due to their diverse range of products.
As a result, some stores were breaking even (books, music, and video), while others continued to hemorrhage cash (toy, home, garden, electronic and international). We recommend that the company continue to partner with other companies similar to Toys R Us; instead of providing inventory management services, AMAZON should open the marketplace to companies, allowing them to use the website to sell merchandise, and then charge these impasses a service fee.
This way, AMAZON would still reap the financial benefits but the merchandise would be managed by the company that owned it. The Toys R Us deal allowed the company to change their business model, as stated above. By aligning their strategy with this business model, AMAZON will be able to launch e-commerce business much faster, raise the bar on customer experience, reduce costs, and identify a clear path to profitability and future success. 4) Consider the challenge facing the company. As a member of the Amazon . Mom board of directors in early 2001, what actions loud you take? Based on the competitive advantage model, AMAZON has greatest opportunity to overcome challenges the rough improving its operations effectiveness. To achieve their profitability target, we recommend AMAZON strategically fill the existing capacity, decrease operating expenses and increase net revenue to bust investor confidence: Increasing Capacity Develop fulfillment partnerships with retailers in the books, music and video categories who lack modern commerce and logistics capabilities. Borders for books, Tower Records for music and Blockbuster for videos). This will increase revenue from fulfillment contracts, while increasing business intelligence though data mining and analyzing customer transaction data for use in direct marketing, and turn a competitors strength (brand equity) into a strength for AMAZON.
Decreasing Apex Bundling products and same customer orders to decrease delivery cost, & negotiate rates with delivery companies such as UPS to obtain volume discounts. Refinance debt to lower interest rates, analyze customer transaction historical data and utilize information to automate product commendations so consumers are targeted with marketing messages while they are shopping at Amazon. Com (increase sales and reduce marketing expense).