amazon management style case study

The Disruptive Visionary: Jeff Bezos’ Leadership Style and Amazon’s Success

• August 12, 2023
• Business model , Competitive advantage , Customer , Innovation , Leadership , Online shopping , Retail , Technology

With a market capitalization of $111 billion, Amazon, under the leadership of Jeff Bezos, has become a dominant force in the online retail industry. Bezos, known for his disruptive visionary approach, has revolutionized the way people shop and set new standards for competition. Through his emphasis on long-term strategies and investment in innovation and technology, Bezos has propelled Amazon to impressive growth and success. This article examines Bezos’ leadership style and its impact on Amazon’s success, shedding light on the factors that have contributed to the company’s rise in the market landscape.

Table of Contents

Key Takeaways

• Jeff Bezos emphasizes long-term strategies and a commitment to building a sustainable future.
• Amazon’s constant innovation and investment in technology have allowed them to gain a competitive advantage and reshape the market landscape.
• Amazon’s customer-centric approach, prioritizing exceptional customer experiences and understanding their demands, has helped them become an online retailing giant and significantly influence the industry.
• Amazon’s growth and disruptive strategies have cemented Bezos’ status as a visionary leader, resulting in market disruption and forcing businesses to reevaluate their strategies.

Emphasizing Long-Term Strategies

Emphasizing long-term strategies has been a key aspect of Jeff Bezos’ leadership style, contributing to Amazon’s impressive growth and disruptive impact on competitors. Bezos recognizes the importance of building a sustainable future and investing in innovation. By focusing on long-term goals, Bezos ensures that Amazon remains relevant in a constantly evolving market. He understands that short-term gains are not sustainable and aims to create a business model that can withstand the test of time. Amazon’s success can be attributed to Bezos’ emphasis on investing in innovation, which allows the company to stay ahead of its competitors. By constantly seeking new ways to improve and innovate, Amazon has been able to maintain its position as a leader in the industry and reshape the way people shop.

Disrupting Competitors

By implementing long-term strategies and constantly innovating, Amazon has significantly impacted its competitors and set new standards for competition in the industry. Through its disruptive innovation and relentless focus on staying ahead of the curve, Amazon has gained a competitive advantage that has reshaped the market landscape. The company’s ability to disrupt traditional retail models and redefine the way people shop has forced its rivals to adapt or risk being left behind. Amazon’s relentless pursuit of growth and its dedication to investing in innovation and technology have allowed the company to continuously disrupt and dominate the market. As a result, Amazon has become a global leader in online retailing, influencing the way consumers shop and challenging other industry players to keep up with its pace of innovation.

Playing the Long Game

Implementing a long-term approach and consistently focusing on strategic initiatives has allowed the company to maintain its competitive edge and drive sustained growth in the market. This approach is exemplified by Jeff Bezos’ leadership style and the success of Amazon. By playing the long game, Amazon has been able to sustain innovation and gain a competitive advantage. The following bullet points further illustrate the emotional impact of this approach:

• Inspires admiration for their forward-thinking mindset
• Evokes excitement for the possibilities of sustained growth
• Generates a sense of anticipation for future innovations
• Fosters trust and loyalty in the company’s long-term vision
• Sparks curiosity about the strategies employed to maintain competitive advantage

Through their focus on playing the long game, Amazon has not only disrupted competitors but also influenced the market landscape, setting new standards for competition and changing the way people shop. This commitment to long-term strategies has propelled Amazon to become an online retailing giant, with impressive growth over the years.

Outlining the Mission

An essential aspect of Amazon’s strategy is the explicit articulation of its mission, which was outlined by the company in a letter to shareholders. The mission statement serves as a guiding principle for the organization and sets the direction for its strategic goals. Amazon’s mission is to be the Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online. This mission statement emphasizes the company’s commitment to providing exceptional customer experiences and offering a wide range of products. It also highlights Amazon’s focus on continuous improvement and innovation in order to meet the evolving needs and preferences of its customers. By clearly stating its mission, Amazon aligns its strategic goals with its overarching purpose, driving its growth and success in the highly competitive online retail industry.

Becoming an Online Retailing Giant

The growth of Amazon as an online retailing giant has had a significant impact on the industry by setting new standards for competition and changing the way people shop. Amazon’s success can be attributed to its customer centric approach and its ability to build strong relationships with its customers. By prioritizing the needs and preferences of its customers, Amazon has been able to provide a seamless shopping experience and gain their loyalty. This customer centric approach has allowed Amazon to understand and anticipate customer demands, leading to increased sales and market dominance. Additionally, Amazon’s emphasis on building relationships with its customers has resulted in a strong brand reputation and trust, which further contributes to its success. Incorporating these strategies has enabled Amazon to become an online retailing giant and transform the industry.

Continuing Growth and Disruption

Continuing to expand and challenge its competitors, Amazon’s sustained growth and disruptive strategies have had a profound impact on the industry. This online retailing giant has set new standards for competition and changed the way people shop, influencing the market landscape. With a focus on continuous innovation, Amazon has been able to maintain its impressive growth over the years. Jeff Bezos, the visionary leader behind Amazon, emphasizes the importance of a long-term vision and building a sustainable business model. By investing in innovation and technology, Amazon aims for continuous growth. This approach has not only allowed Amazon to maintain its position as a dominant player in the industry but has also positioned the company as a leader in the field of e-commerce.

Impressive Growth Over the Years

The continuous growth and disruption of Amazon under Jeff Bezos’ leadership have resulted in impressive growth over the years. Amazon’s success can be attributed to its ability to continuously innovate and develop a sustainable business model. By investing in innovation and technology, Bezos has positioned Amazon as an online retailing giant that constantly disrupts its competitors. This impressive growth has allowed Amazon to change the way people shop and influence the market landscape. Bezos’ long-term vision and emphasis on the importance of long-term strategies have been instrumental in achieving this growth. By playing a long game and focusing on the future, Bezos has built a sustainable business model that aims for continuous growth. This approach has propelled Amazon to become one of the world’s top companies and cemented Bezos’ status as a disruptive visionary.

Impact on the Industry

Amazon’s strategies have significantly influenced the market landscape and set new standards for competition. The company’s disruptive nature has had a profound impact on the industry, affecting rivals and changing the way people shop. By introducing innovative practices and technologies, Amazon has been able to reshape the competitive landscape. Its emphasis on long-term strategies, investment in innovation, and continuous growth has allowed Amazon to stay ahead of its competitors. The company’s ability to disrupt traditional retail models and its relentless focus on customer satisfaction have made it a dominant force in the industry. Amazon’s impact on the competitive landscape is evident in the way other companies have had to adapt and evolve to keep up with its innovative approach. Overall, Amazon’s strategies have had a significant and lasting impact on the industry’s competitive landscape, driving innovation and shaping the future of retail.

Setting New Standards for Competition

Setting new standards for competition, Amazon’s emphasis on long-term strategies and investment in innovation have reshaped the industry’s competitive landscape. Through its disruptive innovation and market disruption, Amazon has revolutionized the way people shop and influenced the market landscape. By prioritizing long-term strategies, Amazon has challenged traditional business models and forced competitors to adapt or face obsolescence. Its relentless focus on innovation and technology has allowed Amazon to continuously grow and disrupt rivals. The company’s commitment to building a sustainable business model has set a new benchmark for competition in the industry. Amazon’s disruptive nature has not only affected its rivals but has also changed consumer behavior and expectations. As a result, the industry has been compelled to redefine its strategies and approaches to remain competitive in the face of Amazon’s dominance.

Changing the Way People Shop

Changing the way people shop, the emphasis on long-term strategies and investment in innovation by a certain online retail giant has had a significant impact on the industry’s competitive landscape. Amazon’s customer-centric approach and continuous innovations in e-commerce have revolutionized the shopping experience.

Customer Centric Approach:

Amazon’s focus on meeting customer needs and expectations has set new standards in the industry.

The company’s commitment to providing a seamless shopping experience has gained customer loyalty and trust.

Innovations in E-commerce:

Amazon’s introduction of features such as one-click ordering, personalized recommendations, and fast delivery options have transformed the online shopping landscape.

The company’s investment in technologies like AI and machine learning has further enhanced the shopping experience and streamlined operations.

These customer-centric approaches and innovations have not only changed the way people shop but have also influenced competitors to adapt and evolve in order to stay relevant in an increasingly competitive market.

Influencing the Market Landscape

The online retail giant’s impact on the industry can be seen in the way it has influenced the market landscape and shaped the strategies of its competitors. Amazon’s disruptive nature has had a significant influence on competition, resulting in market disruption. Rivals have been affected by Amazon’s strategies, as the company sets new standards for competition and changes the way people shop. The market landscape has been influenced by Amazon’s continuous growth and impressive expansion over the years. The company’s success has led to increased competition and a reevaluation of business strategies in the retail industry. As a result, competitors have had to adapt and innovate to keep up with Amazon’s market disruption and maintain their market share.

Frequently Asked Questions

What specific long-term strategies has jeff bezos emphasized in leading amazon to success.

Jeff Bezos has emphasized long-term growth and innovative strategies in leading Amazon to success. His focus on building a sustainable business model, investing in innovation and technology, and aiming for continuous growth have contributed to Amazon’s impressive success.

How Has Amazon’s Disruptive Nature Affected Its Rivals in the Industry?

Amazon’s disruptive nature has had profound effects on its industry rivals. It has disrupted traditional business models, forcing competitors to adapt or face obsolescence. This has resulted in a shift in market dynamics and a redefinition of competition within the industry.

Can You Provide Examples of How Jeff Bezos Has Played the Long Game in Growing Amazon?

Examples of Jeff Bezos’ long-term strategies include emphasizing the importance of continuous growth, investing in innovation and technology, and building a sustainable business model. These strategies have had an impact on rivals, as Amazon’s disruptive nature has set new standards for competition in the industry.

What Were the Key Elements Outlined in Jeff Bezos’ Letter to Shareholders Regarding Amazon’s Mission?

The key elements outlined in Jeff Bezos’ letter to shareholders regarding Amazon’s mission include a focus on long-term strategies, building a sustainable business model, investing in innovation and technology, and aiming for continuous growth.

How Has Amazon Become a Dominant Player in the Online Retailing Industry and What Factors Have Contributed to Its Success?

Amazon’s dominance in the online retailing industry can be attributed to its customer-centric approach and continuous innovation through technological advancements in its operations. These factors have contributed to its success and position as a dominant player in the industry.

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Amazon Leadership Principles

• Customer Obsession Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.
• Ownership Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say “that’s not my job.”
• Invent and Simplify Leaders expect and require innovation and invention from their teams and always find ways to simplify. They are externally aware, look for new ideas from everywhere, and are not limited by “not invented here.” As we do new things, we accept that we may be misunderstood for long periods of time.
• Are Right, A Lot Leaders are right a lot. They have strong judgment and good instincts. They seek diverse perspectives and work to disconfirm their beliefs.
• Learn and Be Curious Leaders are never done learning and always seek to improve themselves. They are curious about new possibilities and act to explore them.
• Hire and Develop the Best Leaders raise the performance bar with every hire and promotion. They recognize exceptional talent, and willingly move them throughout the organization. Leaders develop leaders and take seriously their role in coaching others. We work on behalf of our people to invent mechanisms for development like Career Choice.
• Insist on the Highest Standards Leaders have relentlessly high standards—many people may think these standards are unreasonably high. Leaders are continually raising the bar and drive their teams to deliver high-quality products, services, and processes. Leaders ensure that defects do not get sent down the line and that problems are fixed so they stay fixed.
• Think Big Thinking small is a self-fulfilling prophecy. Leaders create and communicate a bold direction that inspires results. They think differently and look around corners for ways to serve customers.
• Bias for Action Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking.
• Frugality Accomplish more with less. Constraints breed resourcefulness, self-sufficiency and invention. There are no extra points for growing headcount, budget size, or fixed expense.
• Earn Trust Leaders listen attentively, speak candidly, and treat others respectfully. They are vocally self-critical, even when doing so is awkward or embarrassing. Leaders do not believe their or their team’s body odor smells of perfume. They benchmark themselves and their teams against the best.
• Dive Deep Leaders operate at all levels, stay connected to the details, audit frequently, and are skeptical when metrics and anecdote differ. No task is beneath them.
• Have Backbone; Disagree and Commit Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.
• Deliver Results Leaders focus on the key inputs for their business and deliver them with the right quality and in a timely fashion. Despite setbacks, they rise to the occasion and never settle.
• Strive to be Earth’s Best Employer Leaders work every day to create a safer, more productive, higher performing, more diverse, and more just work environment. They lead with empathy, have fun at work, and make it easy for others to have fun. Leaders ask themselves: Are my fellow employees growing? Are they empowered? Are they ready for what’s next? Leaders have a vision for and commitment to their employees’ personal success, whether that be at Amazon or elsewhere.
• Success and Scale Bring Broad Responsibility We started in a garage, but we’re not there anymore. We are big, we impact the world, and we are far from perfect. We must be humble and thoughtful about even the secondary effects of our actions. Our local communities, planet, and future generations need us to be better every day. We must begin each day with a determination to make better, do better, and be better for our customers, our employees, our partners, and the world at large. And we must end every day knowing we can do even more tomorrow. Leaders create more than they consume and always leave things better than how they found them. Download a reference copy of Amazon's Leadership Principles.

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Inside Amazon’s Growth Strategy

If the key to success is focus, why does Amazon work?

• Apple Podcasts

Since Amazon started as an online retailer in 1994, it has expanded into streaming, cloud computing, content creation, and even groceries. But traditional business strategy tells us that the key to success is focus. So, why does Amazon work?

“I think in Amazon’s case, everything is very tightly connected. If you remove one part, the whole becomes less,” says Harvard Business School professor Sunil Gupta . “That’s the key question: are the pieces fitting together nicely, or they just happen to be another business because it’s profitable?”

Gupta has studied Amazon’s growth strategy and he tells Cold Call host Brian Kenny how Amazon looks beyond traditional industry boundaries to define their competitors and why connecting products and services with their customers is at the core of their strategy.

Key episode topics include: business models, growth strategy, operations and supply chain management, innovation, technology and analytics, online retail, customer-centricity, customer experience, competitive strategy.  

HBR On Strategy curates the best case studies and conversations with the world’s top business and management experts, to help you unlock new ways of doing business. New episodes every week.

• Listen to the original HBR Cold Call episode: If the Key to Business Success Is Focus, Why Does Amazon Work? (May 2019)
• Find more episodes of Cold Call .
• Discover 100 years of Harvard Business Review articles, case studies, podcasts, and more at HBR.org .

HANNAH BATES: Welcome to HBR On Strategy , case studies and conversations with the world’s top business and management experts, hand-selected to help you unlock new ways of doing business. Amazon started as an online retailer back in 1994. Since then, it has expanded into streaming, cloud computing, content creation, and even groceries. But if traditional business strategy tells us that the key to success is focus – why does Amazon work ? Today, we bring you a conversation with Harvard Business School professor Sunil Gupta – who has studied Amazon’s growth strategy. You’ll learn how Amazon builds its business around its customers — rather than its products and services. You’ll also learn how they look beyond traditional industry boundaries to define their competitors – and why connecting products and services with their customers is at the core of their strategy. This episode originally aired on Cold Call in May 2019. Here it is.

BRIAN KENNY: In the world of computer science, Jon Wainwright is kind of a big deal. A pioneer of computer languages, he was the principle architect of both Script 5 and Manuscript. What makes Jon a legend has nothing to do with programming. Let me explain. On April 3, 1995, Jon was in need of some work-related reading material. So, he fired up his T1 modem and navigated the fledgling internet to the beta version of a new online bookstore. With the click of a mouse, he became the very first customer to make a purchase on Amazon.com. Fluid Concepts and Creative Analogies, the book he purchased, never became a best seller. But Amazon took off like a rocket ship and hasn’t slowed down since. With a market cap larger than all other retailers combined, including Walmart, Amazon owns 49% of all online sales. In the time it takes me to read this introduction, the company will earn over 300,000 dollars. Will we ever see the likes of it again? Today, we’ll hear from professor Sunil Gupta, about his case entitled, “Amazon in 2017.” I’m your host Brian Kenny. You’re listening to Cold Call, part of the HBR Presents network. Sunil Gupta is an expert in the area of digital technology and its impact on consumer behavior and firm strategy. He is the author of the recently published, Driving Digital Strategy, a guide to re-imagining your business. This case is the perfect stepping off point to cover some of the ideas in that book, Sunil. Thank you for joining me today.

SUNIL GUPTA: Thank you for having me.

BRIAN KENNY: This is your second spin I think on Cold Call. We appreciate you coming back.

SUNIL GUPTA: I enjoy doing this.

BRIAN KENNY: Good, as long as it’s not too painful for you. I like having you here. I’ve had an opportunity to read the book. The case I think is really kind of a great foundational piece to launch into some of the ideas. I’m going to assume anybody listening to this podcast has purchased something on Amazon or watched something on Amazon Prime. I had forgotten about their modest beginnings and just how much they’ve grown and expanded and changed. The case was a great reminder of that. We’ll get into some of that. Let me start by asking you, just to set it up for us. What led you to write the case?

SUNIL GUPTA: As you said, everybody knows Amazon. At the same time, Amazon has become quite complex. I mean, they have gone into businesses that defy imagination. That raises the question, is Amazon spreading itself too thin? Are they an online retailer? Are they video producers? Are they now making movies? In strategy, we learn, everybody should focus. Obviously Jeff Bezos missed that class.

BRIAN KENNY: He didn’t come to HBS by the way.

SUNIL GUPTA: You sort of start wondering as to, what is the magic behind this? What is the secret sauce that makes Amazon such a huge success? The market gap almost touched a trillion dollars a few months ago.

BRIAN KENNY: Insane.

SUNIL GUPTA: That was the reason why I thought A, everybody knows about it, and B, it’s hugely successful and C, his business model seems to defy logic.

BRIAN KENNY: The case we know by the title takes place in 2017. Maybe you can just start us off by setting it up. How does the case open up?

SUNIL GUPTA: At that point in time, Amazon had just bought Whole Foods, which was very counterintuitive because Amazon has been an online player. So why is it getting into offline business? That was against his grain as an online player. The second thing is food is a very low margin category. You sort of say, Amazon is a technology company, its stock is going to stratosphere. Why buy a low margin business that Amazon actually had been trying Amazon Fresh for 10 years and hasn’t succeeded? Why don’t they give up? That was a starting point. But of course, the case describes all the other 20 different things that they have done in the last 20 years and asked the question, what is Amazon up to?

BRIAN KENNY: Amazon and Jeff Bezos are sort of synonymous. He’s a cult of personality there, kind of like Steve Jobs was with Apple. Jeff’s been in the news a lot lately for other reasons, you know, personal reasons. He is still obviously, probably one of the best known CEOs in the world. What’s he like as a leader?

SUNIL GUPTA: I don’t know him personally. Based on the research that I’ve done, he certainly is very customer obsessed. He’s focused on customer. He always says, “You start with the customer and work backwards.” He still takes evidently calls on the call center. The culture is very entrepreneurial, but also very heart driven. I mean, the idea for example of Amazon Prime evidently didn’t come from Jeff Bezos, it came from a low person in the organization. He’s quick to adapt the ideas if he sees some merit in it. It’s almost a 25-year-old company that still works like a startup.

BRIAN KENNY: Was the original concept for Amazon … I mean, I know he sold books originally. Was it ever really a book company?

SUNIL GUPTA: I think it started more as an online retailer. Book was an easy thing because everybody knows exactly what you’re buying. It’s no concern about the quality. His premise in the online store was a very clear value proposition of three things. One was convenience that you can shop in your pajamas, so we don’t have to fight the traffic of Boston or Los Angeles. The second was infinite variety. I don’t have the constraint of a physical store. Even if I have Walmart, which is a huge store, I can only stock so many things. As a result, you only have the top sellers. In Amazon, I can have the long tail of any product if you will. The third was price. It was cheaper, simply because I don’t have fixed costs of the brick and mortar store. I can reduce the cost structure and therefore I can be cheaper. Those were the three key value propositions. That’s how it started. The idea was, I’ll start with books and then move on to electronics and other things. But then of course, it moved far beyond being an online retailer.

BRIAN KENNY: This gets into some of the ideas in your book. I was really intrigued in the book about the notion of what kind of business are we in? Just that question alone. At face value, it looked like Amazon was a retailer. They went in directions that nobody could have imagined. The case really goes into some of a litany of all the things they tried.

SUNIL GUPTA: Right. Again, the purpose of the case was to illustrate as to how these are all connected. From a distance they look completely disconnected and completely lack of focus. Let’s start with how the concept evolved. The first thing was, as I said was online retailer. Very soon it became a marketplace. Now, what is a marketplace? They basically allow third party sellers also to sell on the Amazon platform, which is distinct from a traditional retailer. Walmart doesn’t allow me to set up shop within Walmart, but Amazon allows me to do that. Now, why would they do that? Simply because it increases the variety that they can sell on the platform. Therefore, consumers are quite happy with the variety of the product they can get on Amazon. Amazon gets commission without having the inventory and the capital cost. Perhaps the most important thing of becoming a platform is it creates what we call the network effects. If there are lots of products, everything I can buy is available on Amazon. More consumers are likely to go there. Because there are more consumers, more sellers are likely to go there. It just feeds in itself. More consumers mean more sellers, more sellers mean more consumers, and it becomes a virtual cycle. That’s why there is only one Amazon. Even if I start an online retail, which is in many ways better than Amazon, nobody’s coming to gupta.com, because buyers and sellers are not there. That became the next phase, change from online retailer to marketplace. Then it went into AWS, and you sort of say, “Well, how can it go into a technology company and compete with IBM and Microsoft?” It was competing with Walmart before.

BRIAN KENNY: That’s the web services division.

SUNIL GUPTA: That’s the web services. In fact, at that point in time, Wall Street was very down on that. They said, “What is Bezos thinking?” The idea again, if you think about it, it was very simple. Amazon was building this technology for its own purpose. And then, they started giving this technology, using this technology for the third party sellers, who were selling on its platform.

BRIAN KENNY: Let me just interrupt for a second. That’s a marked, a marked change in direction. They had always been a consumer platform. Now they’re in a business-to-business play. I bet a lot of consumers don’t even know about Amazon Web Services.

SUNIL GUPTA: Correct. Again, not in a traditional sense saying, “This is my market.” That’s simply saying, “I have this capability. There’s a demand for this capability. Can I do it?” Part of that was opportunistic also. If you remember in 2001, the dot.com bubble crashed. If you’re a B2C company, you hedge your bets and get into B2B business. Part of that may have been luck. That was, again, a change of direction. And then, Amazon started producing hardware, Kindle, and now competing with Apple. You sort of say, why is an online retailer getting into hardware production? If you think a little bit about it, the answer is very easy. Kindle was designed to sell eBooks as people move from buying the hard copy books to downloading the eBooks. The Kindle is the classic razor and blade strategy. I sell razors cheap in order to make money on the blades. I’m not making that much money Kindle, but I’m making money on eBooks, which is very different from Apple’s strategy. Apple actually makes money on devices, but Amazon is not making money on devices, or at least not making huge money on devices. Similarly, it moved into online streaming of the video content and suddenly became a competition on Netflix. You sort of say, “Why is a retailer becoming a competition on Netflix?” Again, if you think a little about it, the answer becomes clear. As you and I moved on to not buying DVDs, but actually streaming the stuff, that’s what Netflix did. They used to send the DVDs to us.

BRIAN KENNY: I remember that. I still have a couple.

SUNIL GUPTA: Amazon is very good in sort of moving with the customer. If the customer moved from buying books to eBooks, I move in that direction. If customers move from buying DVDs to streaming, I move in that direction. Now, can Amazon do it? Of course, they can. They have AWS. Netflix is one of the largest customers.

BRIAN KENNY: Are they leading or following? Are they creating a market? In the beginning it seemed like they created something entirely new. Now, are they anticipating, or are they just sort of reacting to what’s happening?

SUNIL GUPTA: No, it’s a combination of both. In some ways they are actually following the consumer behavior and say consumers are moving to a streaming and move with that. They were not the first ones. Netflix actually started the streaming thing. Then, they sort of come up with it. If you think about it, Amazon became not only distributing third party content on videos, but now they have Amazon Studio. I mean, they are making movies, and the competition now becomes Hollywood instead of Walmart. You sort of say, “What has gone wrong with Jeff Bezos? Why is he making movies?” Movies are pretty expensive business and highly risky. The key to that is to understand the purpose of the movies. The purpose of the movies is to hook the consumers from Amazon Prime. If you remember, Amazon Prime started with 79 dollars per year. The benefit at that time was two-day free shipping. Now, you and I are smart enough to sort of do the math in our heads saying, how many shipments do we expect next year, and is 79 dollars worth it or not? Bezos does not want you to do that math. He basically says, “Oh, by the way, I’ll throw in some free content, some free music, some free unique movies.” Now you can’t do the calculation. Why does he care about Prime? Right now, Amazon has about one hundred million Prime customers globally. Let’s say I get an average 100 dollars per year, that’s 10 billion dollars in my pocket before I open the store.

BRIAN KENNY: Right.

SUNIL GUPTA: The research also shows that Amazon Prime customers buy three to four times more than non-Prime customers. I mean, if you’re a Prime customer, you don’t even price shop.

BRIAN KENNY: Once you’re Prime, you’ve got to justify being a member. You buy everything on Amazon.

SUNIL GUPTA: Exactly. Your purchase increases. You become price sensitive, which is fantastic. In fact Jeff Bezos has gone public and say that every time we win a Golden Globe award for our content, we sell more shoes. The purpose of creating their own content is not to make money on the content. This is another different razor to sell you more shoes. Once you understand that, what looks like disparate business is actually extremely tied together.

BRIAN KENNY: It all comes right back to the core. They haven’t always had good ideas. Have they had some misses along the way too?

SUNIL GUPTA: I think the biggest failure was Fire phone.

BRIAN KENNY: Remind us what that was?

SUNIL GUPTA: Amazon launched their own phone. They were obviously very late in the market. iPhone was already there. Samsung had done very good. You have two major players, if not many others, who are very well established. Consumers love their iPhones. The question of course was, why is Amazon launching the phone? What are the odds of success? Clearly the odds of success were low. The reason to launch it was they didn’t want to be beholden to the iPhone or the Googles of the world. They know that the world is moving towards mobile, in terms of shopping, certainly in emerging markets, everybody’s moving to mobile shopping. If tomorrow Apple or Google sort of restrict the Amazon use, or availability of Amazon, because they’re all competing with each other now. It becomes a challenge. To Amazon’s credit, I mean, it’s true for all innovations. Not all innovations succeed. You’ve got to take a shot. If you think about it, all the technology and thought process that got into Fire phone, was not completely a waste. That went into Echo. Now Alexa is a big hit.

BRIAN KENNY: They’re a market leader in that in that. Let’s talk a little bit about the ideas that underlie his Amazon case. I think it starts with knowing what business you’re in. Your book addresses this. I think I know we’re in the education space here at Harvard Business School. Should we be thinking about other businesses?

SUNIL GUPTA: You’re right. The bigger question that Amazon case raises is: how do you define what business you are in? Most of us tend to define business by the traditional industry boundaries. If I’m a bank, I’m in banking and other banks are my competition. I think industry boundaries are getting blurred today. Amazon can get into banking. I have lots of customers, I can start giving loans to small and medium enterprises.

BRIAN KENNY: They know a lot about those customers.

SUNIL GUPTA: They know a lot about customers. The key asset is now customers and data, and not the product and services that you offer. Once you know about customers, you can do lots of different things. One thing is, I would say is the industry boundaries are getting blurred. You need to think about not competition, but what do customers want. Do I have capabilities to serve that? The second thing is the traditional definition of where competitive advantage comes from is changing. What I learned, in doing my MBA class many years ago, we used to read Michael Porter’s competitive strategy stuff. If I were to simplify and summarize what I learned in competitive strategy was competitive advantage comes from making your product better or cheaper. Differentiation or cost leadership, which makes sense. If you think about it, it’s very much product-focused. I think in today’s world, competitive advantage comes from connecting products and connecting customers. The Kindle and eBooks is an example of connecting products, multiple products right? Making movies of Amazon and selling more shoes is connecting products. Razor and blade have been around forever. I think what is different today is razor and blade could be in completely different industries. Movies and shoes. The other side is connecting customers. We are in a network economy. That’s why there is only one Facebook, or one WhatsApp. If you are the only person on Facebook, what’s the value of Facebook? Not much, unless you love yourself. As more and more people get onto Facebook, the value of Facebook increases. It’s not about improving product. Without changing product, Facebook value increases. I think in this connected world that we live in, it’s about connecting products and connecting consumers.

BRIAN KENNY: We’ve got a lot of listeners out there. Many of whom are probably leading firms of one kind or another. How do they even go about exploring redefining their business?

SUNIL GUPTA: I think again, you need to think about what is your key asset? Everything starts with the consumer. In the Amazon case, you move with the consumer to some extent. I asked the same of a company for a medical device manufacturer. I said, “Who’s your competition?” The typical answer is: the other medical devices. Medical business is now becoming a lot about data. Google is getting into that. Apple. iPhone is becoming a medical device. Suddenly you have a very different kind of player getting into this thing. When I say, “What business are you in?” You need to think about who might actually get into that business and that changes the whole picture.

BRIAN KENNY: Why is Amazon so good at engaging customers?

SUNIL GUPTA: I think it comes from the culture of being customer obsessed, that no matter what the customer is right. They deliver on that promise. I mean, the level of convenience that customers expect from companies has changed. It used to be, if a company delivers a product within a week, that was considered good. Now, if you don’t deliver on the same day it just seems awful. They’ve raised the bar in everything. Of course, they’re using technology very effectively, whether it’s in their warehousing, whether now they’re investing in drones. I think they’re still a 25-year-old startup.

BRIAN KENNY: That’s another point that I wanted to touch upon. They’re able to adapt their supply chain it seems almost effortlessly to whatever business direction they move in. Is it possible for another entry to come into this space and scale in the same way that Amazon has? Is this a once-in-a-lifetime type thing?

SUNIL GUPTA: That’s a tough question. I think Amazon, it’s not that they’re adapting supply chain for everything, right? For example, I don’t think Amazon supply chain is ready for delivering frozen food yet. If I have a supply chain to ship you electronics, I can use the same supply chain to ship you prescription medication. That opens up another billion dollar, several billion dollar market. If I call myself an online retailer, I will never think of prescription drug delivery. If I think of my capabilities, I have the warehouse to deliver electronics and books. Why can’t I deliver your prescription medication? That opens up completely different businesses.

BRIAN KENNY: What are the kind of pitfalls that you need to be careful of, as you start to move into adjacent markets?

SUNIL GUPTA: I think definitely the big challenge is: how far do you go? On one hand it’s good to expand the business scope because the industry boundaries are getting blurred. The danger is do you lose focus? The classic challenge of losing focus. There’s a balance. I think in Amazon’s case, if you notice, everything is very tightly connected. If you remove one part, the whole becomes less. That’s the key question: are the pieces fitting together nicely, or they just happen to be another business because it’s profitable?

BRIAN KENNY: We’ve done a couple of cases on Cold Call that touch on the organizational impact of firms that move into new businesses. Some of them are examples of where it’s benefitted the employees. In other cases, it seems to have disrupted the culture in negative ways. How do you see this playing out at Amazon? Does it impact them in any way?

SUNIL GUPTA: If you look at Amazon, it has grown the top line 20, 25% every quarter without fail, except for one quarter in 2001. Right now, it’s in 2019, their sales are 232 billion. I don’t know that many companies, which grow at that rate, even when they’re over 200 billion. I think, if you’re on a winning team, that as an employee, it has to energize you. If you are in a culture which encourages experimentation and innovation, it has to excite you. At the same time, I’m sure it’s a very demanding culture, and there have been reports about how demanding the culture of Amazon is. It probably is not for everybody. For the people who are innovative, who are entrepreneurial, who want to be on a winning team, I’m sure it’s an exciting place.

BRIAN KENNY: There are sort of shades of Apple there. I mean, I think Apple had the same reputation. You’ve discussed this case in class with students.

SUNIL GUPTA: Oh, many students.

BRIAN KENNY: What are sort of the top line things that surprise you as you discuss it?

SUNIL GUPTA: The nice thing about this case is, everybody knows Amazon as a consumer. Everybody has shopped at Amazon. It’s very easy case. In fact, it’s a very short case that I give, at the opening of most sessions. People see it as very surface level. They sort of don’t realize the deep insights that comes out. As a three page case, you sort of say, I will be done in ten minutes, but then you peel the layers of the onion. That was a shocking thing to them, as to how you peel the layers of the onion and how you see the connection across different things. Why did Amazon buy Whole Foods? It makes no sense. Why did they get into AWS? It makes no sense. When you start un-peeling that layer, you see the connection as to why Amazon is doing all these different things. I think that’s the “A-ha” moment that comes across.

BRIAN KENNY: Much more on that in your book. How’s the book doing?

SUNIL GUPTA: Book is doing great.

BRIAN KENNY: Great.

SUNIL GUPTA: Fabulous. It was released in August. I’ve been going around on tour for many, different parts of the world.

BRIAN KENNY: I bet you can buy it on Amazon.

SUNIL GUPTA: You can certainly buy it on Amazon.

BRIAN KENNY: That’s great. Sunil, thanks for joining us today.

SUNIL GUPTA: Thank you very much Brian.

HANNAH BATES: That was Harvard Business School professor Sunil Gupta – in conversation with Brian Kenny on Cold Call . If you liked this episode and want to hear more of Harvard Business School’s legendary case studies in podcast form – search for Cold Call wherever you get your podcasts. We’ll be back next Wednesday with another hand-picked conversation about business strategy from the Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review. We’re a production of the Harvard Business Review – if you want more articles, case studies, books, and videos like this, be sure to subscribe to HBR at HBR.org. This episode was produced by Anne Saini, Ian Fox, and me, Hannah Bates. Special thanks to Maureen Hoch, Adi Ignatius, Karen Player, Ramsey Khabbaz, Nicole Smith, Anne Bartholomew, and you – our listener. See you next week.

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How Amazon Does It: Decision Making Inside The World’s Most Daring Digital Company

• Amazon , Jeff Bezos

Amazon’s Jeff Bezos focused on the oldest of old business principles—extraordinary customer obsession to the level that each customer is treated individually —and turned it into the ultimate business purpose of his company. As everyone knows, digitization was the engine that enabled the company to treat each one of its more than 100 million customers as if they were shopping at a corner store in a small town. But the true magic in how Amazon built this system isn’t just technological—it’s organizational. It’s all about making better decisions and making them fast . Here’s how they do it—and how you can, too.

High-Quality, High-Velocity Decision-Making

Five rules can guide you toward high-velocity decision-making:

1. Recognize there are two types of decisions.

To achieve high velocity, Bezos empowers his organization and categorizes all decisions into two types. Type 1 decisions “are consequential and irreversible or nearly irreversible—one-way doors… If you walk through and don’t like what you see on the other side, you can’t get back to where you were before,” Bezos wrote in a 2016 shareholder letter. Such decisions should go through a “heavyweight” process—being made slowly and methodically with great deliberations and consultation—to ensure a high-quality decision. Taking type 1 decisions too lightly is a potentially fatal mistake.

Type 2 decisions refer to those that “are changeable, reversible—they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through,” wrote Bezos. These decisions “can and should be made quickly by high-judgment individuals or small groups.” As CEO, you should identify the Type 2 decisions and delegate.

The distinction between two different types of decisions and, thus, two different types of decision-making mechanisms must be crystal clear. It beats bureaucracy, analysis paralysis and improves, over time, people’s judgement in decision-making.

2. Don’t make all decisions by yourself.

No matter how hard-working you and your top team are, there are only 24 hours in a day. As your business continues to grow, if decision-making remains concentrated at the top, sooner or later, you and your top executives will become the biggest impediment to rapid growth.

3. Don’t wait for all the information.

As Bezos wrote in his 2016 shareholder letter, “most decisions should probably be made with somewhere around 70 percent of the information you wish you had. If you wait for 90 percent, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course-correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”

4. Don’t require approvals that are lengthy and must go through large numbers of hierarchical layers.

When multiple functions actually need to be involved in approving a Type 2 decision, you can transform the traditional sequential process into a simultaneous dialogue for high-velocity, high-quality decision-making. For example, Amazon project teams are free to choose between internal services and external vendors. In the traditional sequential selection and approval process described earlier, this could take two to three months and often result in poor quality because distortion and information flow takes place.

Amazon is a continuous invention machine. It has developed the fastest invention process. It involves a clear, written definition of the product to be developed in excruciating detail both in terms of outputs and inputs. The senior people select a leader, and the leader selects an integrated cross-functional team—they call it a separable, single-threaded team—whose full-time job is to deliver the project. They do nothing else. They think and act on the project continuously until it is delivered and operational. I have personally observed putting this methodology in one, large company. They developed a new idea in eight weeks, and they changed the intensity of competition in their industry. This methodology has done wonders for velocity and shortening the cycle time of decision-making.

5. Don’t wait for everyone to agree.

Everyone has experienced postponed decision-making due to one or a few people’s objection or absence. In some cases, in a drive to have consensus, one person can exercise veto power. Sometimes a decision is made and then reopened in the third meeting, which is very frustrating, energy-draining and time-consuming—and the quality of decision, by definition, is poor.

To solve this deadlock, “disagree and commit.” Bezos did that when his team wanted to greenlight an Amazon Original show that he felt should be dropped, responding, “I disagree and commit and hope it becomes the most watched thing we’ve ever made.” Just imagine how long that call would have taken if the team had to educate, persuade and finally earn commitment from him.

After all the facts are considered and all thoughts are expressed, as Bezos wrote in a shareholder letter, “if you have a conviction on a particular direction even though there’s no consensus, it’s helpful to say, ‘Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?’ By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes.”

This is a two-way, rather than a one-way, approach. Leaders can use it for high-velocity decision-making, and leaders should also be prepared to practice this principle themselves, as Bezos did in greenlighting that Amazon Studios original program.

Controlling for Quality

Now that you’re making high-velocity decisions, how do you make sure they’re high-quality? 

1. Find the best truth.

In traditional companies, due to the inevitable delay, distortion and manipulation as information is relayed through layers from bottom to the top and the fact that data resides in silos, many decisions are made far from the truth, the whole truth and nothing but the truth. 

Rick Dalzell, former Amazon CIO and Bezos’ right-hand man, has written that Bezos “tries to find the best truth all the time.” This may sound self-evident, but it is a big challenge for traditional organizations usually characterized by strict hierarchy, managing by fear and a command-and-control modus operandi . As a devotee of customer service, he seems to have learned from Toyota’s culture of seeking the root cause of any defect. He actually recruited a high-level guy who was an expert at Toyota in making sure that everyone can detect any defect and take action.

At Amazon, each metric is owned by a human being. If the owner finds a significant anomaly, even if it comes from only one customer, the owner is required to search through to the root cause of that anomaly. That means looking all the way back to the beginning of the process through to the actual customer experience.

Bezos does this himself, personally looking at data, seeking out any defects, then asking people to diagnose the root cause, which could be a root cause across a system in the company. For example, when the topic of lengthy hold times for customer calls came up during an executive meeting, he picked up the phone and called customer service himself to demonstrate the discrepancy between what he was being told—that one-minute hold times were typical—and the reality—his hold time on that call was over four minutes.

2. Imagine the possible change.

In addition to the best truth in a static sense, Bezos takes it one step further, i.e., always using future-back perspective, thinking about how things will change going forward. For example, back in 2005, most Amazon executives were against Bezos regarding launching Prime, i.e., $79 membership per year to enjoy two-day shipping for free. The objection was well-founded. Given an $8 logistics cost per order, assuming 20 orders a year on average by each Prime member, shipping would cost $160 a year more than the $79 membership fee. Diego Piacentini, an ex-Apple executive, reported that “…every single financial analysis said we were completely crazy to give two-day shipping for free.”

What gave Bezos the unwavering conviction despite the siege from all?

The key factor was his undying devotion to customer obsession and having the conviction that it would be made fiscally prudent. Bezos took a future-back perspective, asking the obvious but commonly neglected question: How will the shipping cost change?

He believed it would drop. Why? Because when customers spend more, Amazon’s volume will increase, and that increased scale would help Amazon negotiate lower prices from shipping vendors and decrease the amount of fixed-cost allocation of each shipment. In addition, with continuous system upgrades, Amazon’s logistics system would continue to “drive down Amazon’s transportation costs by double-digit percentages each year.” In addition, the frequency of customer interaction will provide more data, and data is equity.

3. Combat group thinking.

Bezos places huge emphasis on fighting conformity, avoiding group thinking and resisting the conventional thinking that achieving harmony is desirable. He expects people to challenge him. He demands a quality discussion with people bringing in new ideas, different perspectives and, even better, disruptive thinking. He “believes that truth springs forth when ideas and perspectives are banged against each other, sometimes violently,” writes Stone.

Amazon’s Leadership Principles state that leaders are “obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting; they do not compromise for the sake of social cohesion.” Amazon employees well understand their obligation, not only to the company but also to the customer and to the shareholder. Also, as John Rossman, former director of enterprise services at Amazon, writes in The Amazon Way , employees have learned that disagreeing with senior executives is actually beneficial to their careers at Amazon.

I personally observed Ray Dalio, founder and co-chairman of the world’s largest hedge firm, Bridgewater Associates, in his meetings for one full year and saw him very effectively seek opposing viewpoints. Also, he made it easier for people to disagree with him when he often said, “Here is my view, and I could be wrong.” He developed a mobile app that he would use several times in a meeting to get honest input from participants anonymously. Each person in the meeting votes yes or no on a decision and explains why. Every word of the “why” is recorded. Later, all that information is analyzed.    

This process was implemented at the investment firm Matrix Capital. After Matrix founder and CEO David Goel implemented the dialogue process, I observed several sessions where the company’s executive team members logged their candid opinion about whether or not to approve a deal and the underlying detailed logic behind their decisions in the mobile app. The data collected during those sessions was analyzed on a longitudinal basis, which yielded biases analysis, conviction analysis, assumptions analysis and logic analysis, and the process improved the judgment quotient of the whole team.

4. Test through the experiment.

When people have genuine disagreements or when the future is murky, rather than endless debates, fuming arguments and efforts to persuade one another, Bezos opts for an experiment. Brad Stone, author of The Everything Store , vividly captured such a scenario back in 2001. “As usual, Bezos battled his marketing executives. They argued that Amazon had to be on the airwaves to reach new customers. As Amazon’s losses mounted, Bezos’s opposition hardened.”

How to make a decision when two viewpoints are so opposite? Bezos asked the marketing department to run TV commercials in two cities, Minneapolis and Portland, and then measure the additional local purchases they helped generate.

The test went on, the result came back, and the conclusion was clear, “not enough to justify the investment.” Based on this powerful test, Bezos decided not only to cancel all TV advertising, but also to make drastic changes to the marketing department. Today, by any measure, Amazon is the number-one brand in the world—and this was achieved through very little mass advertisement or traditional marketing effort. That is because having a customer experience on an individualized basis that is second to none earns customer admiration for the company.

Experimenting is a natural habit in Amazon. When they do their operating plan, they provide a narrative of learning from the previous year.

5. What if a decision goes wrong?

“We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages,” Bezos stated in a 1997 shareholder letter. “Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case.”

What’s unique about Amazon’s way of learning? The secret weapon is mid-course adjustment. They ask questions such as what factors should have been considered but did not, what assumptions had been made and why some of them were not reasonable, what critical technology breakthrough was bet on and why it did not happen as expected, and the list could go on. Among all the inputs, the most important one is probably people. Even when you make the right decision in the business sense, if you put the wrong person in charge, the endeavor will probably fail.

Amazon management emphasizes and measures input metrics all the way through. The reason is that if the inputs are right in terms of timing, quality and quantity, the goals will be achieved. This is deep in the culture.

Scaling High-Velocity Decision-Making

In essence, decision-making is about making choices. Tough decisions force us to choose between two goods or weigh two evils. There is no perfect solution, and everything has two sides—the upside and the downside.

In a commencement speech at Princeton University, Bezos asked, “Will you choose a life of ease, or a life of service and adventure?”, “Will you wilt under criticism, or will you follow your convictions?” and “Will you be clear at the expense of others, or will you be kind?”

Of course, Bezos didn’t expect every audience member that day and every future reader of the speech to choose paths like service over ease and clarity over diplomacy, but for people in Amazon, he demands that everyone follow the same principles and methodologies that deliver good decision-making.

Now for the $1 billion question: How to scale high-velocity and high-quality decision-making as your company grows?

1. Crystalize the consistent principles.

In his first shareholder letter back in 1997, Bezos explicitly set forth the decision-making principles of Amazon (see sidebar, right):   Why go through what was surely an onerous and taxing effort? The obvious answer is so shareholders can make informed investment decisions regarding Amazon. It’s also so customers can be more willing to build a trust-based, long-term relationship with Amazon. But, much more importantly, it is for all current and future people working in Amazon, so that every single one of them can clearly understand the decision-making logic and is able to make the right choice when duty calls.

2. Specify the consistent methodology, standard operating procedure (SOP).

On June 9, 2004, we witnessed a brilliant innovation in human management practices. From that day on, Amazon embarked a crusade against PowerPoint presentations and bullet points, and a journey toward what evolved into “Six-Page Narratives.”

If you doubt this methodology’s significance, you are not alone. PowerPoint has become the second language of business. Some companies have a stand-alone functional department devoted entirely to producing PowerPoint presentations.

But Bezos’s was not a capricious whim, but a well-thought-through decision to embrace the value of narrative memos that were often time-intensive endeavors involv ing multiple iterations. Many Amazonians recalled this practice vividly even after they left the company. In The Amazon Way , Rossman wrote, “I can’t tell you how many of my weekends were consumed by this writing and editing process.”

In my teaching at Northwestern University, I required my students to write in two pages, clearly, concisely and to the point, their case analysis. The purpose was to train their brains to sort out what matters from what does not matter and to write that in a way that a teenager could understand it. And I read each paper and made comments.

Why the huge investment of people’s time and efforts? And why do Amazonians present and past revere it so highly?

As Bezos noted in a 2012 interview with Charlie Rose, “When you have to write your ideas out in complete sentences and complete paragraphs, it forces a deeper clarity of thinking.” Authors are forced to run complete analyses, distinguish between subtle nuances, articulate their logic, prioritize various ideas and take full accountability for specific proposals. There is no wiggle room, no hiding place or no safe haven. Everyone has skin in the game and is held accountable.

Another cultural shock for newcomers to Amazon is that nearly every meeting starts with attendees sitting in silence and reading the narratives for 15-30 minutes. This is because business meeting attendees typically begin interrupting presentations on the very first slide, without an understanding of the full picture the presenter has in mind, and the discussion begins to deteriote.

As Bezos noted in the same interview with Rose, “Executives are very good at interrupting….” So reading memos together is a very effective way to ensure that everyone is well-equipped for a high-quality discussion afterwards. As a result, Amazon’s meetings rarely end without clear decisions or specific actions. As ex-Amazonian Samir Lakhani put it, “Bezos has given all employees a standard SOP for ensuring the basics get done well.” 

3. Reinforce the consistent approach in every decision.

One of Bezos’s most conspicuous traits is consistency. He actually attached the 1997 shareholder letter to every single letter afterwards, probably both as a constant reminder to himself, and as a powerful proof to the customers, shareholders and all employees at Amazon.

In 2010, Bezos noted that “customers who browsed—but didn’t buy—in the lubricant section of Amazon’s sexual-wellness category were receiving personalized emails promoting a variety of gels and other intimacy facilitators.” He “believed the marketing department’s emails caused customers embarrassment and should not have been sent” and called for a meeting, reported Stone.

In the meeting, executives “argued that lubricants were available in grocery stores and drugstores and were not, technically, that embarrassing. They also pointed out that Amazon generated a significant volume of sales with such emails. Bezos didn’t care; no amount of revenue was worth jeopardizing customer trust. It was a revealing—and confirming—moment. He was willing to sacrifice a profitable aspect of his business rather than test Amazon’s bond with its customers.

It is such defining moments that convince others of what is important to you and how you will make decisions in tough situations. As Rossman wrote in The Amazon Way , Amazon’s “principles aren’t slogans printed on wall posters and coffee mugs. They are lived and breathed every day by Amazonians from the CEO on down.” We have cross-checked this with the employees and ex-employees who admire this practice.

I urge readers to reflect on each of the Amazon decision-making mechanisms described here as potential ways to improve your organizations for high-velocity, high-quality decision-making.

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Understanding the dynamics of leadership: A case study on Jeff Bezos and Jack Ma

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Amazon Leadership: Visionary Leadership Focusing on Customer Service

Moreover, Jeff Bezos leadership style is unique in several ways. For example, it has been noted that “while you might find other internet firms focusing on a fun, relaxed atmosphere for their employees, no-frills Bezos is proving the potency of another model: coddling his 164 million customers, not his 56,000 employees.” [2]

Jeff Bezos’ leadership style can be analysed through the prism of contingency leadership theory. According to contingency leadership theory, “leader’s effectiveness is contingent upon with how his or her leadership style matches to the situation.” [3] Jeff Bezos leadership style has been characterized as harsh, cutthroat and demanding. [4] It can be argued that such a leadership style fitted the situation on the onset of the business, when the company had to strengthen its position on rapidly expanding industry.

In July 2021 Jeff Bezos stepped down as CEO and assumed the role of company’s executive chairman. Andy Jassy CEO of Amazon Web Services became the new CEO of the online retail behemoth. At has been noted that although Andy Jassy values Bezos leadership style the new CEO is “more mild-mannered, soft-spoken and less prone to angry outbursts compared to Bezos” [5]

Nevertheless, Mr. Bezos will continue to yield an immense influence on the business and Amazon leadership style for the foreseeable future. This is because his new role executive chairman grants his involvement in strategic decision making and Mr. Bezos remains as the largest shareholder of the e-commerce giant.

Amazon leadership principles found in official company job site consists of the following 16 points:

• Customer Obsession
• Invent and Simplify
• Leaders Are Right, A Lot
• Learn and Be Curious
• Hire and Develop the Best
• Insist on the Highest Standards
• Bias for Action
• Have Backbone; Disagree and Commit
• Deliver Results
• Strive to be Earth’s Best Employer
• Success and Scale Bring Broad Responsibility

Amazon Board of Directors comprises 9 members, who are experienced business leaders in a wide range of industries. The company ‘s senior leadership is aided by three committees – Audit Committee, Nominating and Corporate Governance Committee and Leadership Development and Compensation Committee. Amazon senior management team has been criticized for the lack of diversity.

Amazon leadership challenges include sustaining the profitability of the business despite the current thin profit margin. Up to date, the company has been able to deal this challenge through process innovations, deriving maximum benefits from human resources and constantly entering new business segments.

There is also a great challenge for the current pattern of Amazon leadership style related to the treatment of employees. Specifically, the e-commerce and cloud computing company is notorious for getting the most of its employees at the expense of employee work-life balance and the company is often criticised for its harsh treatment of the workforce. This particular challenge may prove to be difficult to address because getting the most of it employees has been one of the main factors fuelling the company growth to its current status.

Amazon.com Inc. Report contains the above analysis of Amazon leadership. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Amazon . Moreover, the report contains analyses of Amazon business strategy, organizational structure and organizational culture. The report also comprises discussions of Amazon marketing strategy, ecosystem and addresses issues of corporate social responsibility.

[1] Murphy, M. (2015) “Would Your Leadership Style Fit At Amazon?” Forbes, Available at: https://www.forbes.com/sites/markmurphy/2015/08/18/would-your-leadership-style-fit-at-amazon/#5d1674c3ebef

[2] Blazek, K. (2016) “JEFF BEZOS: HOW HIS UNIQUE LEADERSHIP STYLE SET AMAZON APART” The Booth Company, Available at: http://www.boothco.com/360-feedback-resources/jeff-bezos-leadership-style/

[3] McKenzie, L. & Love, K. (2016) “CONTINGENCY THEORY OF LEADERSHIP” in Organization and Administration in Recreation, Sport and Leisure Management, Editor Oakleaf, L.

[4] Cain, A. (2017) “9 Shocking Anecdotes That Reveal Jeff Bezos’s Cutthroat Management Style” Business Insider, Available at: https://www.inc.com/business-insider/amazon-ceo-jeff-bezos-leadership-management-style-work-culture.html

[5] Allyn, B. (2021) “Jeff Bezos Built Amazon 27 Years Ago. He Now Steps Down As CEO At Critical Time” NPR, Available at: https://www.npr.org/2021/07/05/1013166252/jeff-bezos-built-amazon-27-years-ago-he-now-steps-down-as-ceo-at-critical-time

Amazon's new management principles are a sign of the times for corporates

• Amazon has added two new leadership principles to its longstanding management code.
• Following public criticism, Amazon pledged to be a better employer and to ensure responsibility.
• The changes are a sign of corporates publicly adopting progressive values.

Amazon appears to be reappraising its purpose. In an update on its website , Amazon explained two new statements would be added to its 14-point list of longstanding management principles — to Strive To Be The Earth's Best Employer; and Success And Scale Bring Broad Responsibility.

The exact reason and choice of timing — just a few days before founder and CEO Jeff Bezos hands over the reins to Amazon Web Services boss Andy Jassy — behind the change is unclear, but echoes commitments made by Bezos in his final shareholder letter to make the company a more inclusive and better employer.

The changes follow widespread criticism over Amazon's treatment of in-house staff, and its impact on the environment. Amazon staff have also been calling for the addition of a management principle that directly addresses inclusion for some months.  

While Amazon's critics will no doubt continue to feel the company should do more, the update to its core principles reflects a wider trend.

No company, even one as dominant as Amazon, can continue to ignore the interests of both its consumers and employees, many of whom value purpose and ethics when thinking about how they make and where they spend their money. 

Amazon knows employees are influenced by ethics

"Increasingly, employees want to invest their time, energy and skills in an organization that is actively engaged on topics that directly impact their lives and align with their beliefs," said Joe Wiggins, director of communications, at employer reference firm Glassdoor. 

"Today's candidates, especially younger job seekers, want to work at companies that take a stand and take action," Wiggins added. 

Related stories

Consumers also increasingly care about purpose and values.

According to research by McKinsey, 40% of US consumers said seeking brands that matched their values mattered to them, while 34% claim they have switched brands for purpose-driven reasons during the coronavirus pandemic. Some 9% of these more directly because of perceptions over how a company treated its staff. 

A separate poll by Edelman in 2020 , of 22,000 global respondents showed that whether they trusted a brand was the second-highest priority. 52% of US consumers believed that companies actively owe it to their employees to speak out against systemic racism. 

"In this day and age, anything that leaves a slightly sour taste in your mouth, and that can come from lots of different responsibility issues, is just a reason for people not to use you," said Giles Gibbons, CEO and cofounder of Good Business, a consultancy. 

The extent to which consumers say they'll do versus their actions is hard to say — value and convenience are still ranked as the most likely reason behind why a consumer said they're likely to switch products in both studies.

Nevertheless, companies have a desire to project a clean image.

Well-loved companies are expected to influence for the good

Amazon's decision is more likely a reaction to what it will believe is a perceived poor reputation in terms of employee welfare rather than simply just a convenient time of transition, says Gibbons. "The role of a principle is to set the direction of travel and then over time review against it. An organization like Amazon wouldn't be saying it if it didn't genuinely mean it."

It is in every organization's long-term self interest to care for its stakeholders, said Alex Edmans, professor of finance at London Business School and author of "Grow the Pie: How Great Companies Deliver Both Purpose And Profit."

"We often think that social issues should be addressed by governments through minimum wages, health and safety legislation, taxes etc — but global corporations can be more powerful than some countries, and this is the case for Amazon," Edmans told Insider. 

Amazon declined to comment further.

Watch: Customers expect CEOs to take action against climate change now more than ever, Unilever executive says

• Main content

Amazon Business Case Study [2024]: In-depth Analysis

How does an online book retailer become a behemoth dominating the global e-commerce industry? The 28-year-old history of Amazon’s growth is a masterclass in building a successful business strategy that has revolutionised the retail experience forever! The company has achieved eponymous status with a global presence and diversified business. No wonder its sales are expected to reach an astounding USD 746.22 billion with a valuation of USD 2 trillion in 2024! From being an online bookseller headquartered in a garage to becoming the second most valuable brand in the world , the saga of this global brand is a case study in all the leading business schools.  

So what is the secret behind the explosive success of Amazon? This article provides a comprehensive case study of Amazon and its winning business strategy. 

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Glimpsing Back: A Brief History of Amazon

With a small team, the budding company made headway in the book-selling market by offering a wide virtual selection of books compared to brick-and-mortar stores with doorstep delivery. With a user-friendly interface, easy-to-search engine, and focus on creating a ‘virtual community,’ the business grew by leaps and bounds. The emphasis on customer choice, experience, and convenience serves the company well even today. 

The name was aspirational with a nod to the largest river in the world- Bezos’ Amazon sought to be the largest e-commerce bookseller in the world. By July 1995, Amazon was marketing itself as the “Earth’s Biggest Bookstore,” selling over one million titles to all 50 states in the US and across 45 countries . It provided stiff competition to brick-and-mortar giants like Barnes and Noble and Borders. 

The company went public with its IPO in 1997 ; since then, there has been no looking back. Since its listing, the company has significantly diversified its offering by including music, electronics, toys, kitchen utensils, clothes, and more on its e-commerce site. From the Earth’s Biggest Bookstore, Amazon shifted its tagline to “Books, Music and More.” The company expanded to Germany and the United Kingdom by purchasing online bookstores, thus increasing its revenue. At its core, the company established a dynamic, efficient, and successful distribution and logistical model that helped capture a global market.

The year 1999 marked two critical moments for Amazon. First, the company patents the “1-Click” technology allowing users to purchase a product with one click. Second, it launches the 3rd party seller marketplace to allow third-party sellers to sell their produce through Amazon. These measures exponentially increased the sales on the platform. The company’s success put Bezos on the map as he received the prestigious accolade of the “Time’s Person of the Year” in 1999 at 35 years of age. 

The company survived the dot-com bubble burst and got only stronger. In 2003, the company took a momentous step by launching Amazon Web Services , a web-hosting business, that marked its arrival into the tech business. It provides cloud computing services to individual developers, companies, and governments through the platform’s IT infrastructure. The strategic shift from an e-commerce platform to a tech company was instrumental in Amazon’s diversification strategy and revenue generation. 

The company took further measures to develop brand loyalty through its Amazon Prime program in 2005. Prime membership has since expanded its services significantly and is one of the most valuable assets for the company today. It reshaped consumer expectations and experiences of shopping across the world. 

Amazon has been on a path of extensive acquisition and alliance . From the online shoe retailer Zappos to the robotics company Kiva Systems and the grocery delivery service Whole Foods- each acquisition captured pre-existing markets and distribution networks of the acquired assets. With every move, the company strategically entered new markets, removed competitive businesses by acquiring them, made distribution and logistics more efficient, and improved consumer experience. These moves catapulted the company to a 1 trillion dollar valuation in 2018. The company’s profits surged during the pandemic as Bezos’ hourly wealth increased by USD 11.7 million . The following year, Bezos stepped down as the CEO and found his replacement in Andy Jassy, the CEO of Amazon Web Services.

Now that we know the history of Amazon, its business strategy becomes easier to decipher. Before we unravel its key business strategies, let’s look at its many businesses. 

Amazon and its Diversified Business Model

A case study of Amazon is incomplete without an understanding of the many businesses that it has a foot in. Here are the diverse businesses that help Amazon generate revenues from multiple streams and have made it a leader in the global market. 

Online retail store

Amazon began as an online seller of books, and it continues its operations as an e-commerce site. Today the site offers a variety of products for the best prices to the consumer’s doorsteps. With an easy-to-use interface, easy return policy, “1-Click” buying, customer reviews, and suggestions, the e-commerce site knits an unrivalled retail experience. 

Amazon Marketplace

Amazon opened its platform to third-party sellers who could leverage its large customer base to sell products. It brings a diversity of products to the retailer without holding inventory. Amazon would, in turn, charge the sellers a percentage of their revenue as a commission fee. It is estimated that third-party sellers generate a gross merchandise value (GMV) of USD 300 billion for the platform.

Amazon Web Services (AWS)

Amazon’s cloud platform offers individual developers, start-ups, established businesses, and governments a range of cloud computing services through its IT infrastructure. It is the fastest-growing business segment for the brand clocking a global net revenue of USD 80.1 billion in 2022. 

Amazon Prime

Amazon’s member subscription service offers numerous membership benefits ranging from access to digital video and music streaming, audiobook and ebook platforms, free delivery, exclusive deals, Prime Day access, and much more. The company’s global net revenue from its subscription services stood at USD 35.22 billion in 2022. 

Amazon revealed in 2022 that the advertising wing of the company had generated a revenue of USD 31.2 billion the preceding year. The company offers custom advertising solutions to customers and campaign placements across multiple channels like Fire TV placements, Amazon physical stores, the brand’s homepage, and customised destination pages.

Physical stores

Amazon made an entry into the brick-and-mortar business with the establishment of a physical bookstore in Seattle in 2015. The company has since expanded its physical presence with Amazon Go, Amazon Fresh, Amazon Go Grocery, Whole Foods Market, and Amazon Style. It has sought to transform the real-world shopping experience with its “Just Walk Out Shopping’ experience. 

Breaking Down Amazon’s Business Strategy

Amazon’s business strategy has been innovative and forward-thinking from the get-go. Its path-breaking business model has inspired many but retains its uniqueness in execution. At its core, the company has maintained its customer-centric ethos, where its customers comprise three sets: retail customers, seller customers, and developer customers.   

For a comprehensive case study of Amazon , let’s take a closer look at the secret recipe behind its success.

Customer Obsession

The company proudly proclaims that it aims to be the “Earth’s most customer-centric company.” Since its inception, Amazon has won over the trust and loyalty of its customers by perfecting its marketing mix by offering “a comprehensive selection of products, low prices, fast and free delivery, easy-to-use functionality, and timely customer service.”   As Amazon’s customer base and usage expands exponentially, the company has worked towards optimising user experience through continuous assessment and feedback mechanisms.

Diversification

Amazon has kept up with the emerging demands of the market with growth potential in the long term. Its future-oriented vision has helped the company grow by leaps and bounds by venturing into new businesses that have added to its revenue streams. From cloud computing services to OTT services and subscription-based benefits, Amazon has reinvented what a diversified business looks like. 

Expansion through partnerships and acquisitions

Amazon has continually acquired and partnered with businesses to expand its customer base, enter new markets, diversify its product offerings, eliminate competition, and gain distribution and logistical networks. From IMDB and The Washington Post to Twitch and Pillpack, Amazon has bought companies across multiple categories to gain a foothold in their markets and operations. It has helped the company scale up its functions rapidly across the globe.

Technologically-driven innovations

Initially, Amazon was written off as it was started by “computer guys” who knew nothing about selling books. However, it was a focus on innovative technology that the company grew into a tech giant dominating the e-commerce space. Whether it is the 1-Click technology, SEO, user interface, cloud computing services, Just Walk Out technology, or its e-devices, the company has optimised customer experience by leveraging technology.

Data-based metrics

Amazon has consistently relied on metrics to assess, strategise, and grow its business. Data is an invaluable currency left behind with every click by the customer. The company has effectively and efficiently amassed these data into actionable insights to improve user experience, build and improve products and services, and develop successful marketing strategies. 

Marketing strategy

A comprehensive marketing strategy has been central to Amazon’s brand-building exercise. With the right marketing mix, the brand has become a household name. Its name and logo are recognisable anywhere in the world. A continual push to diversify its portfolio, competitive pricing policy, expanding its operations, and consistent promotions through multiple channels have been integral to achieving this global status. 

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Amazon, the second-most valuable company in the world, has been almost three decades in the making. Every step and misstep has been strategic and guided by the principles of: “customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking.” This case study of Amazon has sought to highlight its history, business model, and business strategies that have gone into the making of the behemoth. Ultimately, the company is a product of the management of Jeff Bezos and Amazon’s leadership. 

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Frequently Asked Questions (FAQs)

Jeff Bezos has held the position of Founder and CEO of the company. However, he inherited the position of the Executive Chairman of Amazon after resigning as the CEO of the company in 2021.

Amazon launched in India in June 2013. Initially starting its operations to serve Indians with books, films, TV shows and subscription-based services, the company further expanded its wings to become one of the leading shopping destinations for Indians.

The most important focal point of Amazon’s business strategy is its customers (retail customers, sellers, and developers) and building a customer-centric company.

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The flaw in Amazon’s management fad

I magine working for a company where your annual performance review seems to happen every week. To assess performance, the company collects data on employees constantly, with hundreds of data points. Workers are encouraged to comment on each other’s performance constantly, using an anonymous online forum. Constant self-monitoring and self-measurement are also vital. If you spot any weakness in your own performance, you should be “vocally self-critical”, explaining your failings to others.

When employees’ performance metrics dip, they are warned they could find themselves without a job. Each month or so, staff are called into a meeting where they have to explain their performance on a bewildering range of measures. Every year there are sessions where employees throughout the firm are rated on their performance, and a percentage of people are fired. In this firm, office employees work about 80 hours a week, and the average employee tenure is one year.

This is how working life at Amazon has been described in a New York Times investigation – though Jeff Bezos, the Amazon founder and chief executive, has repudiated its claims. “The article doesn’t describe the Amazon I know or the caring Amazonians I work with every day,” he said in an email to staff . “But if you know of any stories like those reported, I want you to escalate to HR … our tolerance for any such lack of empathy needs to be zero.”

It has been known for some time that Amazon is often a tough taskmaster. Sub-contracted delivery staff can struggle to make a living . People working in their warehouses can face harsh conditions . But the life of the relatively privileged employees working at Amazon’s corporate offices remained a mystery – until the New York Times suggested an equally extreme approach to managing its office employees .

The Amazon approach has created extreme results: the company dominates online retailing; it has a stranglehold over the book market; and it has a higher valuation than the world’s biggest retailer, Walmart . Some think that Amazon’s data-driven approach is the future of management . There are signs this might be the case. New-economy companies such as Uber use real-time data to manage the performance of their drivers. Many more established companies have adopted such an approach. The public sector is also following suit.

There is only one problem. Amazon’s approach to managing people has been tried before, many times in fact, and mostly it has failed. A core feature of Amazon’s approach has been called “ purposeful Darwinism ”. This is the idea that if you create a struggle for survival among staff, they will increase their performance. It works by measuring employees on a wide range of metrics, ranking them on the basis of their performance, then splitting them into three groups: a small number of high performers who are lavishly rewarded; a large group of average performers who hold on to their jobs; and a third group of under-performers who are “managed out” of the organisation. This has created a system where, in the words of one ex-employee, “you learn how to diplomatically throw people under the bus”.

This is commonly known as the “rank and yank” system – rank people on performance metrics, then yank out the poor performers. The system was brilliantly dramatised in David Mamet’s Glengarry Glen Ross , when a senior executive from headquarters visits a sleepy sales office to “motivate” the staff. He offers them rewards for results. First prize is a Cadillac Eldorado. Second prize is a set of steak knives. Third prize is “you’re fired”.

Rank and yank may be widely used, but most of the available evidence suggests it does not work. In their work on evidence-based management, Jeffrey Pfeffer and Robert Sutton point out that the systems can drive destructive internal competition. More recent research has found that when you introduce a forced ranking system into a team, people are more likely to start sabotaging each other in the hope of pushing themselves up by pushing others down.

This kind of tooth-and-claw competition drains the life blood of most organisations. When your colleagues are likely to stab you in the back to improve their own performance ratings, it is hard to trust them. As a result, people focus on protecting themselves. Sharing knowledge with them or doing things that are beyond the call of duty become very risky. This can create a toxic work environment that undermines the basis for cooperation, sharing and even innovation.

But the most worrying problem with rank and yank is it can become a self-fulfilling prophecy. The hope is that by giving people a poor performance evaluation, they will work hard to lift their game. The reality is quite different. When people are labelled poor performers they usually conform to expectations and end up performing poorly. This is exacerbated when “high potentials” are lavished with rewards, and members of the “B team” are overlooked. Huge inequalities are created between “top talent” and those who are deemed to be merely average. Such inequality breeds resentment.

Given these problems, many companies have abandoned the system. Among these are Ford, Microsoft and Accenture. Amazon insiders seem to have an excessive faith that it is a crucial part of the company’s success. Rank and yank may continue to work for Amazon, as long as there are queues of people willing to subject themselves to a punishing work schedule and data-driven self-criticism sessions that would have made Chairman Mao envious . But it will also probably continue to fuel infighting, undermine employees’ self-esteem and destroy cooperation in the company.

But there is a greater tragedy brewing if leaders around the world think Amazon really does represent the future of management. The techniques that Amazon uses to manage its own people can destroy the lives of individuals and undermine organisational performance. The decision to rank and yank is based more on a commitment to an outdated ideology than any real business benefits it might bring.

It is vital that managers are not seduced by the success of a company like Amazon without seeing the hundreds of companies that have tried and failed to adopt similar systems. This is not to mention the hundreds of thousands of people who have had their lives tarnished by this misguided management fad.

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Management Case Study Amazon. Analysis and Decision Making

Case study, 2018, 23 pages, grade: 1,7, ricardo escoda (author).

List offigures

1. Introduction

2. Part I: Advanced Strategic Management 2.1 Industry analysis ofAmazon.com 2.2 Amazon.com’s strategy 2.2.1 Roadmap of company’s strategic intent 2.2.2 Pros and Cons of strategic choices 2.2.3 Rational with concluding remarks 2.3 Full retail stores compared to pure online stores

3. Part II: Business Development 3.1 Amazon.com’s strategy during 2007 to early 2010 3.2 Amazon.com’s strategic capabilities 3.3 Evaluation ofAmazon.com’s diversification strategy 3.4 Future strategy ofAmazon.com

4. Part III: International Business Game 4.1 Network effects 4.2 Transfer prices 4.3 Individual interest rate for long-term debt

5. Bibliography

List of figures

Abbildung in dieser Leseprobe nicht enthalten

As the number of publications referring to Amazon increased formidable during the last years, it is a highly discussed retail brand, which is becoming more and more important. In July 2016, the UK trade marketing association DMA 1 published a study showing Amazon as favorite retail brand amongst competitors like John Lewis, Marks & Spencer, eBay and ASOS. Everyfourth ofthe 1000 participants voted forAmazon, even though theywere not given a shortlist with answers, but an empty text-box to fill in their favorable retail brand (of. Forbes 2016).

This paper deals with aspects referring to the research fields Advanced Strategic Man­agement, Business Development and International Business Game. At the end of each part a summary with the most fundamental information helps to build a broad overview.

2. Part I: Advanced Strategic Management

Hereafter, the focus is on developing a solid and systematic industry analysis of Amazon by considering broader forces of competition in the form of Porter’s Five Forces analysis. Followed by pointing out Amazon’s strategy, elaborating a roadmap of the firm’s strategic intent, generating three pros and cons of their strategic choices and lastly establishing a rational with concluding remarks in terms of scenarios.

2.1 Industry analysis of Amazon.com

Porter’s Five Forces analysis is used to identify competitive rivalry amongst similar com­panies. Therefore, the focus lies on the Threat of New Entrants, Bargaining Power of Buyers, Threat of Substitute Products or Services, Bargaining Power of Suppliers and the Rivalry Among Existing Competitors in the micro-environment of a firm (cf. Porter 2008: 26 to 33).

By focusing on the threat of new entrants there is clear evidence that it might be impos­sible to replace Amazon in the environment of online retailers. On the one hand, it seems easier for companies to enter such markets because of the low entry barriers with the help of the internet. But it has to be taken into consideration that other obstacles like capital requirements in the form of initial investments, access to sales channels and state re­strictions respectively regulations have to be respected. On the other hand, Amazon is one of the biggest players in the world markets with many years of experience, endless resources, tremendous know-how and a high buyer loyalty, which is strengthened by global advertising, an inimitable product differentiation and customer binding advantages through offerings like Amazonprime 2 .

When looking at the bargaining power of buyers it has to be taken into account that customers have almost endless opportunities to compare prices and services at the mar­kets through the use of the internet. As a result, Amazon is replaceable from one product to another and might lose market share. That is the reason why Amazon tried to create bonds to their customers via launching services like Amazonprime, which helps the clients to get their goods delivered faster and free of charge, and establishes a bond between the buyers and the company. Most of the other big players in the online retail segment lag behind Amazon, since their primarily focus is not driven by putting the customers in the middle of the whole business structure, bur exactly this is valued enormous by the con­sumers.

By putting emphasis on the threat of substitute products or services a differentiation between conventional, local shops and other online retail offerings matters. First, the tradi­tional stores give their clients a feeling of personal support and what is considered as to be even more important is the fact that the prospective buyers are able to touch and feel the product. By contrary, the exclusively online operating retailers might present an exten­sive product portfolio and the prices seem cheaper most of the time, since money for em­ployees in stores, rent and equipment are no longer necessary. All in all, the biggest threat in terms of substitute products or services arises, if conventional shops start to es­tablish online stores and manage to adapt their prices to the ones of online retailers like Amazon and others.

Since Amazon is always trying to centralize the focus on the customer through providing a wide range of products, to a low price, in an adequate delivery time, the strategic position towards their suppliers is often unfavorable. As a result, the bargaining position of those suppliers is definitely strong. By selling products or services, which are privileged to a certain number of manufacturers the negotiation might become complicated. But as nearly every supplier is smaller than Amazon itself, they benefit from offering their prod­ucts on such a big customer database company, because of the endless reach in terms of potential buyers. Additionally, the interests of profit go hand in hand with Amazon’s fanati­cal brand loyalty and reputation. Due to the fact that Amazon offers free return slips and delivery, evaluations of former clients who bought the product, and an A-to-Z guarantee 3 for their sales, prospective customers usually prefer not to buy from a small and unknown online store.

Since nowadays the majority of businesses run online retail stores besides their conven­tional shops, reaching customers from all around the globe is becoming more frugal. Any­way, those small enterprises are not able to compete with the customer base, product diversification, pricing models, delivery aspects and many other fundamental services offered by the big players and demanded by the clients. As a result, the biggest competi­tive rivalry amongst the world’s largest retailers, like Amazon, eBay, Wal-Mart, CVS and the Chinese e-commerce giant Alibaba is in evidence. The most essential driver for com­petition is the low switching effort required by a customer to change a retail provider, as in most of the cases it is just necessary to sign up and deposit paying information in the form of credit/debit card, bank account or even voucher.

In the following diagram Porter’s Five Forces are ordered by decreasing strength of their impact on Amazon’s environment (cf. Figure 1).

To sum up, in the competitive environment of online retailers it is fundamental to have the necessary capital requirements and to establish a high market share. Since Amazon is one of the biggest players in this sector over decades, it is not likely that new entrants might replace it. Anyway, offering a new, efficient product on the markets might lead Ama­zon to struggle whether producing it or just adding it to the product portfolio. In the end, it is all about the pricing of products and that will become even more important in the future. Last, there is to say that Porter’s Five Forces were used in this case, because they fit best to analyze broader forces of competition. As a recommendation Amazon may also elabo­rate a PESTLE analysis 4 , which considers aspects that might influence a business in its macro environment.

2.2 Amazon.com’s strategy

The first step to elaborate Amazon’s overall strategy is to choose between a number of different opinions. Lindsay Marder (2017) pointed out that Jeff Bezos’, CEO of Amazon, strategy to lead his company to the top of the world consists out of four pillars, which in­clude customer centricity, innovation, corporate agility and continuous optimization. Ac­cording to Jeff Bezos, the three pillars of his business are the retail market place, Ama- zonPrime and AmazonWebServices (cf. Figure 2), but with AmazonStudios and Ama- zonEcho the possibility to increase the number of columns to five is conceivable (cf. Novet 2016).

In contrast, the “Amazon.com 2007 - early 2009” case study of Gary J. Stockport (2010: 575) examined a strategy to guide and reach the CEO’s vision by focusing on a three- pillar strategy consisting of the fundamental aspects selection, price and convenience with its foundation on innovation. Since this paper refers to the previously mentioned case study of Gary J. Stockport the elaboration of Amazon’s strategy will be on this basis.

2.2.1 Roadmap of company’s strategic intent

The first pillar Selection describes the diversified product portfolio, which in the first years until the end of 2007 solely included a vast selection of retail products, but developed over the years towards the widest selection of products including Amazon’s software and Cloud Computing services. Firstly, they decided to join the streaming markets with the launch of AmazonVideo in September 2006 and AmazonMusic in September 2007 to create a tight­er bond to their customers. Afterwards they began to offer self-produced, innovative prod­ucts like the Kindle e-paper reader, the first tablet KindleFire, the AmazonFireTV-Stick, and AmazonEcho. The management of Amazon focalized on a customer-centric view at all times and therefore there has been no struggle regarding high investments in data pro­tection, security and innovative power, which resulted in overcoming the high market entry barriers from the beginning onwards and had a significant impact on becoming a big play­er in the global online retail market.

Second pillar named Price was dedicated to Amazon’s thinking of price leadership. They started to offer the best prices promising to avoid any forfeiture in terms of quality. With providing free deliveries for buyers and guaranteeing on-time delivery they were the first business in this market sector, resulting in an enormous rise of market share. In February 2005 Amazon launched AmazonPrime shipping, which had the goal of a fast delivery of about one million products as an everyday experience. Later, they improved these ser­vices to receive the order the next day, the same day via AmazonSameDay or some products even within two hours through purchasing via AmazonPrimeNow.

Convenience is considered as the third pillar of Amazon’s strategy and affirms the cus­tomer-centric view of Amazon. There have been huge investments in R&D to understand the client’s desires and to convince those to buy products or services from their online store. Additionally, Amazon was one of the first enterprises, which started to track cus­tomers’ behavior to actively optimize their shopping experiences and improve customer satisfaction overall. Last one by offering customer reviews and feedback forms on every product provided.

2.2.2 Pros and Cons of strategic choices

At first glance Amazon’s strategic choices seem to be successful and fully developed, but some advantages and disadvantages might be found with the help of a profound insight.

The most fundamental benefit of Amazon is the current market positioning, which has been established over decades through a lot of long-term investments. On the one hand is unlikely to be overpowered by any new entrant as the barriers are high, and on the other hand this position provides a solid basis for protection against the loss of market share to direct competitors. Another pro, which also results out of former long-term investments is the ability to diversify the strategy rapidly due to a broad product and service portfolio. This broad product range also helps the business to distribute possible threats across several shoulders. Besides that, Amazon generated a massive advantage through collect­ing, saving and analyzing data of their buyers over a period of many years. By means of this customer knowledge the business is able to predict future changes in consumer be­havior premature and thus might have more time to develop a reaction strategy. To go even further, it might be possible to influence the clients’ view of the company through advertising before an adverse change seems to occur.

Nevertheless, Amazon needs to face disadvantages regarding its strategic choices. An essential one is the financing structure of the business persisting since the early years.

For one thing, customers are given short terms of payment, resulting in utilizing the buyers as a source of fund, whereas suppliers are endowed with long terms of payment (cf. Stockport 2010: 580). Therefore, Amazon is tied to keep those payment terms, as a change might threaten its entire liquidity. Moreover, it might be dangerous for a company to offer a wide range of products and services, since the dependence on suppliers in spe­cial cases is very high, and as a result the quality might suffer. An example might be, if one of the three pillars described by Jeff Bezos breaks down due to unpredictable circum­stances. By looking again at the aspect “price" of the three core pillars, another con might arise, since it may happen that the promised price leadership accompanied with no sacri­fice to quality, is not kept due to future changes in the environment. As a result of this cir­cumstance the customer-centric view of the enterprise will be violated and thus the clients are able to look for a new retailer by virtue of low switching costs.

2.2.3 Rational with concluding remarks

To sum up, it can be said that Amazon’s three pillar strategy might be extended by the aspect of long-term investments. A steady increase of capital spending in technological innovation has been essential over decades and will also be fundamental for future suc­cess. As mentioned before in the period between February 2005 and September 2007 such long-term investments lead to innovative products and services launched by Ama­zon, which are nowadays considered as the three core pillars by Jeff Bezos. By spending more and more money for technological improvement and simultaneously fulfilling cus­tomers’ desires, the company will continue to spread its business activities all around the globe. Another essential issue is the willingness to diversify the product respectively ser­vice portfolio again and again.

2.3 Full retail stores compared to pure online stores

An article published in the Denver Post (2017) reported about a half-dozen physical retail stores opened in 2015 by Amazon, which are called “campus bookstores”. Those shops do not work like conventional ones, since the clients have to purchase books and furnish­ing in the online stores with their account and later on pick up the purchased items in a bookstore. Therefore, shipping costs are lower or in some cases even free.

Amazon is dominating the e-commerce sector, but according to eMarketer 5 still 90 percent of the global retail is spent in conventional stores. A big opportunity for Jeff Bezos’ busi­ness might be to combine retailing with automation and data mining from e-commerce, like Brian T. Olsavsky, CFO of Amazon, told the investors “another way to reach the cus­tomers and test what resonates with them” (Perry 2017).

In general, there are many ways how physical stores might help the development of Ama­zon, but five of them seem most reasonable (cf. Denver Post 2017).

1 DMA: trade organization specialized to promote direct marketing

2 Members receive benefits which include FREE fast shipping for eligible purchases, streaming of movies, TV shows and music, exclusive shopping deals and selection, unlimited reading, and more (cf. Amazon 2018).

3 Amazon guarantees purchases from third-party sellers through A-to-z guarantee. The condition of the item you buy and its timely delivery are guaranteed and expenses are refunded, when violation of conditions (cf. Amazon 2018a)

4 PESTLE is an acronym for Political, Ecological, Social, Technological, Legal and Economic factors that might influence a business in its macro environment.

5 eMarketer: provides insights and trends related to digital marketing, media and commerce (cf. eMarketer 2018)

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