Business Strategy 1

Business Strategy

Don Pruitt

Capella University

Abstract
This document provides an overview of Strategy, both Corporate (Generic Business) and

Business (Marketplace). Furthermore, the paper utilizes Amazon as an example from which

real-world strategy can be analyzed. Amazon’s strategic focus, across its industry and specific

markets, provide a classic case study on the development and execution of strategy.

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Management Report
Introduction
Business Guru Michael Porter, in his book Competitive Advantage, defines strategy as

“an internally consistent configuration of activities that distinguishes a firm from its rivals”

(Porter, 1998). A firm’s strategy dictates how it will succeed in business and generate returns for

its shareholders and is therefore the cornerstone of its operations. Strategy is typically divided

into segments that include both generalized strategies (the corporate, or generic business

strategy) and targeted strategies (the business, or marketplace strategy) that, together, provide an

overall operational concept of the firm. Generic, or corporate strategy, deals with the objective

of meeting or exceeding the expectations of stakeholders, including customers, shareholders,

employees, and partners. Strategic decisions at the corporate level center on identifying

investments that will provide the firm with a diversified approach, vertical integration of multiple

operations, acquisition and/or development of new ventures; ho to allocate of resources between

the different areas of the company; and potential divestments when exiting a market or business.

On a more granular level, marketplace strategy is concerned with decisions that are focused on

product, competitive advantage, customer satisfaction, etc. and help define how the company

will compete within a particular industry or market (Grant/Jordan, 2015).

The importance of developing a sound strategy cannot be overstated as it drives the

activities that a firm uses to deliver value to its customers and generate a competitive advantage

that leads to corporate profits (Porter, 1998).

Amazon Overview

Perhaps nothing has changed the face of the retail landscape as much as the

development of online commerce, or E-Commerce. With more than 100 million Americans

purchasing goods from online stores, and E-Commerce has become one of the fastest-growing

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sales channels in the United States. Additionally, E-Commerce outperforming the brick and

mortar stores as online revenue continues to grow at an exceptional rate. (IBISWorld). Much of

this success can be attributed to Amazon.com, with over 43% of online sales in the U.S.

generated through one of Amazon's websites, accounting for more than 53% of online sales

growth (Business Insider). This rapid expansion of the online retail sector is more than a

proportional increase of growing retail sales. Rather, E-Commerce has been expanding at the

expense of brick-and-mortar retailers. As an example, E-Commerce sales grew from $7.3

billion, or 1% of total retail sales in the third quarter of 2000, to over $115.3 billion, or 9.1% of

retail sales in the third quarter of 2017 (Razin, 2017).

Jeff Bezos launched Amazon.com in 1994 as a website focused on selling books and

competing with brick-and-mortar book stores like Borders and Barnes and Noble. By 2016,

Amazon has grown into a global company with over $136 Billion in sales and diversified into

Hardware, Entertainment, Groceries, and Web Services as well as books. The company has

disrupted every market they have entered and have significantly impacted, if not bankrupted,

traditional businesses such as Borders, Barnes and Noble (Book Sales), and Circuit City

(Electronics) or acquired businesses such as Whole Foods (Grocery Store) (Easter/Dave, 2017).

The ever-increasing competitive landscape in the global marketplace has compelled

Amazon to adopt a wide range of strategies such as the use of technology to increase the quality

and efficiency of its production and the improvement of its production capacity among others.

To fully identify Amazon’s strategies, one must draw upon multiple sources of information that

will provide an overall picture of both what Amazon publicly states with regard to its strategy,

and what is actually doing (Grant/Jordan, 2015). The following sections detail both Amazon’s

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generic business strategy as well as its marketplace strategy, as identified from both external

analysis and the company’s publicly available corporate statements.

Amazon Generic Business Strategy

Michael Porter identified a handful of “generic strategies" that can be applied across all

industries and organizations (regardless of size), and across a wide range of products and

services. Porter referred to these generic strategies as “Cost Leadership", "Differentiation" and

"Focus” which he subdivided into "Cost Focus" and "Differentiation Focus” (Porter, 1980).

Applying Porter’s perspective to Amazon, it is clear that Amazon’s strategy has morphed over

the years. In its infancy, Amazon’s strategy was defined by Jeff Bezos, Amazon’s CEO, as

“GBF: Get Big Fast”. This meant that Amazon took a Cost Focus strategy by offering its

customers the “cheapest deal possible, irrespective of its impact on profitability” (Grant/Jordan,

2015). As Amazon grew into the leading online retailer world-wide, its strategy changed as it

began to diversify into new markets and began offering more and more products. Indeed, as

noted by Grant and Jordan, "Amazon’s second decade (2005–2014) saw further diversification

that proclaimed its credentials as one of the world’s leading technology companies”

(Grant/Jordan, 2015). This diversification included developing its own mobile devices, such as

the kindles eBook reader, offering streaming video, and providing the technology industry with

online services through its Amazon Web Services offering.

Amazon Marketplace Strategies

Amazon began as an online book retailer, significantly undercutting the prices of books

offered through traditional “brick and mortar” book stores like Borders and Barnes and Noble.

However, Amazon’s vision included much more than selling books. Amazon’s goal was not to

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simply to become an online book retailer. Even as a startup, Bezos recognized the potential to

use the Internet to connect manufacturers and customers in order to offer an unprecedented range

of products and to use information to tailor those products to each of its customer’s needs

(Grant/Jordan, 2015). Indeed, Amazon focused less on its products, services, and competitors

and more on its customers in order to identify new business opportunities and ways to drive

value. According to Bezos, Amazon has had three big ideas that are the reason the company has

been successful: “Put the customer first. Invent. And be patient." (Daly, 2014). This has led to

Amazon’s strategic focus on concepts that they believe will remain constant over time. As

Bezos’s articulated in an interview with Thomas A. Stewart, Harvard Business Review’s editor

in chief, and Julia Kirby, a senior editor for Harvard Business Review: “if you base your strategy

first and foremost on more transitory things—who your competitors are, what kind of

technologies are available, and so on—those things are going to change so rapidly that you’re

going to have to change your strategy very rapidly, too” (Kirby/Stewart, 2007). This has

manifested itself in Amazon’s relentless drive to provide its customers with low prices, fast

delivery, and unparalleled customer service.

Amazon’s Business Model

While Amazon is fundamentally an online retailer, its true business model is focused on

the concept of innovation and finding ways to disrupt markets. As an example, when Amazon

began selling books online, the then-standard business model required companies to place a

minimum order of ten books at a time from distributors, which required the company to purchase

inventory it did not need, and could not afford at the time. Facing this challenge, Amazon

developed a business model that had them place an order for a book they needed and nine copies

of an obscure book that was always out of stock (Hartmans, 2017) enabling the company to

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utilize a Just-In-Time fulfillment approach that produced significant cost savings and gave them

a significant competitive advantage over the industry.

Beyond that operational example, Amazon’s true business model can be described as

extreme customer focus. In fact, a key component to Amazon’s success has been its tenacious

focus on its customers. As an example, when Jeff Bezos is made aware of a customer problem,

he triggers a process known as “escalation”, which forces the company to review the customer’s

issue, discover why the problem occurred, and determine how to ensure it does not occur in the

future. This is Bezos’s method for “ensuring that the customer’s voice is constantly heard inside

the company” (Hartmans, 2017). Beyond customer service, this approach has also led Amazon

into new markets, based on the feedback they receive directly from customers as well as from the

immense amount of data they collect on customer behavior.

Conclusion
Amazon has shown an ability to transition its corporate, or generic strategy, from a purely

low-cost provider to one of differentiation. Additionally, from a market perspective, Amazon

has developed a growth-oriented strategy based on price leadership, the continual enhancement

of the consumer experience and a relentless quest for new opportunities." (Grant/Jordan, 2015)

As a case study in the development and execution of a strategic vision, Amazon is clearly a

company from which others can learn a great deal.

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References

Grant, R. M., & Jordan, J. (2015). Foundations of strategy (2nd ed.). West Sussex, UK: Wiley
and Sons.

Porter, M. E. (1980) Competitive Strategy: Techniques for Analyzing Industries and

Competitors. New York: Free Press.

Porter, M. E. (1998). Competitive advantage: Creating and sustaining superior performance: with
a new introduction. New York: Free Press.

IBISWorld. "Online Retail in the US: Market Research Reports." Accessed on January 5, 2018.
Retrieved From https://www.ibisworld.com/industry/online-retail/

Business Insider. "Amazon accounts for 43% of US online retail sales." February 3, 2017.
Accessed on January 5, 2018. Retrieved from http://www.businessinsider.com/amazon-
accounts-for-43-of-us-online-retail-sales-2017-2

Razin, Ely. "E-Commerce Is Boosting This Hidden Part Of The Retail Market." November 22,
2017. Forbes. Accessed on January 5, 2018. Retrieved from
https://www.forbes.com/sites/elyrazin/2017/11/22/e-commerce-is-boosting-this-hidden-
part-of-the-retail-market/#3c8c5c282de1

Easter, Makeda and Dave, Paresh. "Remember when Amazon only sold books?" Los Angeles
Times, June 18, 2017. Accessed on January 5, 2018. Retrieved from
http://www.latimes.com/business/la-fi-amazon-history-20170618-htmlstory.html.

Daly, Jimmy. “The Amazon Experience”. December 2, 2014. Accessed on 5 May 2018.
Retrieved from https://www.getvero.com/resources/guides/the-amazon-experience/

Kirby, J. & Stewart, T.A. “The Institutional Yes”. Harvard Business Review. October 2007.

Hartmans, Avery. “15 fascinating facts you probably didn’t know about Amazon.”, Business
Insider. April 9, 2017. Accessed on January 5, 2018. Retrieved from
http://www.businessinsider.com/jeff-bezos-amazon-history-facts-2017-4/