Amazon Company’s Strategic Audit

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Table of Contents

Strategic Planning
Key Strategic Factors
Strategic Alternatives
Works Cited

Strategic Planning

Current Performance and Mission

Amazon is the largest online retailer with the mission to be the global provider of customer-centered service online in the market. It provides customers with exceptional services for convenience and satisfaction in the business world. In line with its mission, the company has diversified its product offering to three broad categories that include internet services, online retail, and the Kindle ecosystem. Technological advancement has promoted Amazon’s product diversification to web services. These internet services include Amazon web services, Amazon Prime, Kindle library services, and on-demand video online streaming.

Online retail business refers to sell of diverse products, including movies, music household goods, books, and electronics through Amazon websites. Additionally, the company serves as a gateway channel for other retailers. The Kindle ecosystem includes the manufacturing of Kindle tablets that serve as electronic tablets, media devices, and electronic book readers. However, Amazon faces growth challenges that include competition, poor ventures, and dynamic customer requirements. These challenges have led to a massive drop in the company’s net income and urgent need to change its investment options.

EFAS Matrix Discussion

External Factor Analysis Summary (EFAS) is a matrix with weights ranging from one representing the most important to zero representing the least important. These figures signify the potential effect that a factor imposes on a company’s strategic position. Thus, the total weight of the matrix is the sum of the weights of each factor. The ratings refer to how the company has strategically positioned itself to overcome the threats and take advantage of the opportunity. The ratings used range from five representing a prominent position to one representing an inferior position.

From the analysis, based on the weights assigned, it is apparent that the most important factors affecting Amazon’s business growth and expansion include the growth of Internet usage, the expansion of the e-commerce industry, and the globalization of markets. However, Amazon has a weighted score of 3.04 in the EFAS summary analysis. According to Rauf, EFAS shows how a company performs in countering threats and utilizing the opportunities in the market (427). Therefore, the score shows that Amazon has performed averagely and can improve its business by countering the market threats and manipulating the opportunities presented by the market forces.

IFAS Matrix Discussion

Internal Factor Analysis Summary (IFAS) is a matrix with weights ranging from one that represents the most significant to zero representing the least significant. These figures signify the potential effect the factor imposes on the company strategic position. Therefore, weights in IFAS matrix add up to 1.00. The ratings refer to how the company has strategically positioned itself to overcome weaknesses and take advantage of its strengths. The ratings used range from five reflecting major strength to one reflecting major weakness.

From the analysis, the major strength of Amazon on the online market includes customer support services, strong company brand, and corporate culture. These factors are essential for the sustenance of the company business in the online market. On the contrary, the major weaknesses faced by Amazon include the risk of unproductive diversification and a gradual decrease in profit. Indris and Ina hold that analysis of internal factors determines the company’s ability to sustain its business activities (190). The company has an IFAS weight score of 3.10, which indicates a high internal position (Table 1). However, Amazon faces the risk of failing in business due to product diversification and undiversified website language that has affected its sales and net income.

Key Strategic Factors

Amazon strategic factor analysis is an essential tool that provides adequate information on the influence of external and internal environment factors on the company’s business activities. The strategic factor analysis involves SWOT analysis, Porter’s five forces, and CAPM.

SWOT Analysis

Amazon enjoys a strong brand of customer-centric services. Low product pricing, efficient delivery, global expansion, and local branding. The opportunities for growth include extending its global expansion, acquisitions, and establishing local physicals stores in the foreign market to promote brand recognition and customer loyalty. Product differentiation provides an opportunity to enhance competitive advantage. However, Amazon’s weaknesses and threats of online industry significantly limit expansion. Shrinking margins due to price wars, extensive delivery networks, product flops, and high debts from infrastructural investments have resulted in net losses.

Additionally, tax avoidance has significantly affected company brand. Threats affecting the industry include low entry barriers, intense competition from established and local brands, data breaches, and security flaws that have reduced customer trust. Wanare and Mudiraj argue that SWOT analysis is a crucial business tool for analyzing environmental factors influencing organization performance (33). In this view, Amazon must, therefore focus on profitability and not volumes by putting efforts to counter both its weaknesses and market threats, capitalize on its strengths, and tap market opportunities to sustain its business.

Porter’s Five Forces

Porter’s five forces analysis provides information on industry competitive structure. According to Safari et al., the five-force analysis provides information on the feasibility of business activities in an industry (73). The analysis shows that threats of new entrants are low due to high-cost requirement. Additionally, strong brand recognition, product diversification, and established customer loyalty to Amazon products lessen threats of new entrants. However, buyers bargaining power is high. Online customers have the advantage of accessing several e-commerce services from various companies significantly influencing the online industry.

Supplier bargaining power significantly influences profitability and conditions of the market. In the case study, the company has agreements with suppliers to guarantee product availability. In this view, disagreements over terms highly affect Amazon business activities. The presence of many competitors on the online industry makes threats of substitute products high. Additionally, rivalry within the industry is strong due to the rapid development of e-commerce. Nevertheless, the company has positioned its business activities through continued innovation, acquisition, low prices, and efficient customer-centered services to counter these market forces, gain competitive advantage, and sustain its business.

CAPM Risk Analysis

The capital asset pricing model (CAPM) is a business tool that provides the relationship between returns and associated risk of an investment. Assagat holds that CAPM help management predicts the risk of an investment and expected return (195). Thus, CAPM help investors evaluate the possible returns of an investment. CAPM structure assumes a linear relationship between risk and expected return on investment. In the case study, Amazon yearly revenues continuously increased from $19,166 million in 2008 to a high of $48,077 million in 2011. The yearly increase in returns means that online retail business has a high-risk exposure that requires proper evaluation by management to avoid losses and sustain business growth.

Strategic Alternatives

Amazon has an established market position. Babafemi explains that strategy involves establishing goals and formulating steps of achieving those goals (44). Thus, the strategic alternatives involve exploiting business activities with high margins that supplement the existing business model of online retail services. The strategic alternatives include improving on cloud-based services, strengthening core competencies, and expanding global markets

Advancing Cloud-Based Service

Cloud service is extensively an untapped market service by all competitors, and thus, provides an excellent opportunity for business expansion and diversification. The increase of big data usage and the need for convenient and reliable storage space by individuals and companies promotes the need for cloud services. Amazon currently enjoys good returns on this service through Amazon web services and requirements to establish itself in this segment through the expansion and diversification to attain a market leadership position. In essence, advancing cloud services act as an extension of the company’s core competencies to match the existing business platform.

Strengthening Core Competencies

Amazon has established a large online market share, and thus, it needs to stabilize customer flow. To achieve this, the company must form core competencies through the proper articulation of strategy to support its large diversification and market expansion. Identifying and strengthening its core competencies helps to build a strong business framework. The company needs to eliminate unproductive ventures of diversification that include Kindle Fire device that failed in the market as it does not match its core competencies of online retail services. The company should then refocus its strategies on diversifying into ventures that match the core business strengths including the provision of online web services.

Global Expansion

Amazon has global accessibility through advanced technological services. However, the company must set up local portals in the foreign countries that include developing worlds with new fast growing e-commerce market due to growing use of the Internet. The strategy should also focus on the global approach of setting core delivery model with local features to attract local customers trust, build brand identity, and create customer loyalty. Additionally, the company must focus its efforts of foreign market expansion on highly connected countries with high disposable income that form a market segment with high online purchasing potential.

Table 1: EFAS/

Opportunities	Weight	Rating
Increasing the number of buyers over the Internet Positive changes in book selling business and market Growth of the Internet users; predominantly in international markets E-commerce expansion in foreign market Increasing product categories Young people’s acceptability of new technology and innovative ideas Weak Dollar will help the value of International currency	0.08 0.050.15 0.1 0.08 0.05 0.03	3 44 2 3 4 2	0.24 0.20.6 0.2 0.24 0.2 0.06
Threats
eBay, Barnes & Noble’s, Apple, and iTunes Possible rejection to on-line sales in international markets due to introduction of new taxes Increase in competition due to low market entry barriers Impact of Government regulations and instability on the Internet products in international economies Strong U.S.D will hurt the value of international currencies	0.15 0.050.18 0.05 0.03	4 32 2 3	0.6 0.150.36 0.10 0.09
Totals	1.00		3.04

Table 2: IFAS.

Internal strengths
Strong brand name Corporate Culture High quality management team Customer Support Services Effective post sales services Developed and upgraded technology: Software and Hardware High shipping Quality	0.18 0.12 0.05 0.1 0.08 0.030.03	5 4 4 5 3 34	0.90 0.48 0.2 0.5 0.16 0.060.09
Internal Weaknesses
Gradual decrease in profit from 2010-2011 Risk associated with unrelated diversification Certain products that are offered have high shipping costs Company offering free shipping might affect future financial outcome Lack of website with Custom languages	0.1 0.15 0.050.04 0.08	1 2 12 1	0.2 0.30 0.050.08 0.08
Totals	1.00		3.10

Table 3: SWOT Analysis.

Strengths Strong brand Efficient delivery network Customer centered services Cost leadership Acquisition Alliances and local branding	Weaknesses Extensive delivery network Price wars Tax avoidance Product flops High debts
Opportunities Global expansion Acquisitions Localizing physical stores in foreign market Product differentiation	Threats Low entry barriers Competition Security flaws

Works Cited

Assagat, Aminullah. “Analysis of Relevance Concept of Measurement Capm Return and Risk of Shares.” International Journal of Business and Management, vol. 10, no. 10, 2015, pp.194-204.

Babafemi, Ilori. “Corporate Strategy, Planning, and Performance Evaluation: A Survey of Literature.” Journal of Management Policies and Practices, vol. 3, no. 1, 2015, pp. 43-49.

Indris, Sofya, and Primiana Ina. “Internal and External Environment Analysis on the Performance of Small and Medium Industries (SMEs) in Indonesia.” International Journal of Scientific and Technology Research, vol. 4, no. 4, 2015, pp. 188-194.

Rauf, Abdul. “Environmental Strategic Factor Analysis of the Tourism Industry in the South Coastal Part of Sri Lanka.” Journal of Emerging Trends in Economics and Management Sciences, vol.5, no. 5, 2014, pp. 426-434.

Safari, Negin et al. “The Study of Construction Companies Based on Michael Porte’s Five Competitive Forces (Case Study: Armeno Project Development and Management Company).” European Online Journal of Natural and Social Sciences, vol. 5, no. 3, 2016, pp. 72-81.

Wanare, Ramdas, and Amar Mudiraj. “Study the Importance of SWOT Analysis on ERP Implementation.” International Journal of Management and Social Sciences Research, vo. 3, no. 6, 2014, pp. 33-36.

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