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Contents

Introduction .............................................................................................................................. 2

Resources and Competences .................................................................................................... 2

VRIN – Strategic Capability and Competitive Advantages ................................................. 3

Activity Systems ........................................................................................................................ 4

Summary ................................................................................................................................... 6

REFERENCES ......................................................................................................................... 7

APPENDICES ........................................................................................................................... 8

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Introduction E-Commerce giant Amazon is one of the major players in the online business sphere and

since being founded in the 1990s has reshaped the way consumers and retailers interact with

each other.

As Amazon has grown as a company it has moved away from its original mission statement

which was “to become the world’s biggest and best online bookstore” and in the process has

aggressively morphed into a market leader in E-Commerce providing a diverse set of products

and services. Their products and services portfolio ranges from selling electronic devices and

media content to facilitating an online marketplace for small businesses.

This report takes the position that; “Amazon’s growth strategy allows the company to leverage

its core capabilities across different businesses and therefore assures business success in the

long-term despite short-term decreases in profitability due to growth related investments.”

The analysis will be informed by using the VRIN and Activity Systems frameworks. The

argument for the position will be made in support of Amazon’s current strategy by taking into

account the company’s resources and key competencies which enable it to strategically

generate the core capabilities that set it up for achieving effective long-term success.

This report aims to spell out that in choosing to continue with its current strategy Amazon will

be able to sustain its competitive advantage in the long-term.

Resources and Competences

Strategic capabilities have a significant impact on an organization’s long-term survival or

competitive advantages in the market (Johnson et al., 2014), therefore this report focuses on

the strategic capabilities of Amazon based on the perspective of a strategic resource-based

view (RBV).

According to Gerry J. et al. (2014), strategic capabilities can be composed of resources and

competences, and “Resources are the assets that organizations have or can call upon and

competences are the ways those assets are used or deployed effectively”. Amazon’s main

resources and competences are summarized and listed in Appendix 1, and these strategic

capabilities can be evaluated by looking at the Physical, Financial and Human resources of a

company (Johnson et al., 2014).

According to Appendix 1, Amazon’s Physical capabilities include their products (e.g. digital

merchandise), warehouses, patents (e.g. One Click Payment System), customer databases, and

technology infrastructures (computing system and online storage). All of these physical

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capabilities contribute to the organization’s operational foundations in order to ensure

continued long-term success.

According to Amazon.com Inc., (2014), Amazon is made up of around 132,600 current

employees, and has 260 million customer with active accounts (accounts that have at least one

purchase in the past 12 months) (Donna, T., 2014). Between 2011 and 2012, the number of

Amazon’s audited suppliers grew from 159 to 325.

In addition, several Employee Empowerment programmes were conducted to channel and

focus Amazon’s staff’s motivation, expertise, knowledge, innovation and experience, which

are the key competences in term of human resources. These include Career Choices (pay for

employees to take course for in demand fields), Pay to Quit (pay for their associates to quit

their jobs, encourage people to think about their careers and eliminate the unhealthy parts of

the company) and Virtual Contact Center (answer customers while working from home)

(Amazon.com Inc., 2013).

Amazon’s facilities and human resources give it a very strong and flexible supply chain. Its

utilization gives customers the most effective of delivery services. Customers also benefit

from Amazon’s heavy discounting as a result of Amazon’s ability to negotiate with third

parties.

The combination of human resources and competencies associated with Amazon play integral

roles in the longstanding prosperity of the company, as well as the long-term strategic

direction.

Although Amazon had a net loss of $39 million in 2012, the fact that even after sacrificing

short-term profits they were able to draw upon a free cash flow of $395 million proves the

company’s solvency, since “free cash flow is an important factor as it allows companies to

pursue opportunities that enhance shareholder value” (Hope, J. and Player, S., 2012). Through

access to every active customer accounts’ email addresses, purchasing histories, Kindle’s

searching keywords, etc. Amazon is holding the key to the insight of its target customers’

behaviour which allows them to implement its marketing in the most economical way.

VRIN – Strategic Capability and Competitive Advantages

One of the key goals of any business is to create and maintain a sustainable competitive

advantage over competitors within the marketplace.

According to Jay Barney (1991) a sustained competitive advantage is “when it is

implementing a value creating strategy not simultaneously being implemented by any current

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or potential competitors and when these other firms are unable to duplicate the benefits of this

strategy.”

When a company holds such an advantage over its competitors a possible outcome of this

scenario can be an overall increase in market share.

The foundations of a sustainable competitive advantage can be divided into four specific key

criteria that make up the VRIN framework:

1. A specific capability should offer value, and be Valuable to customers. For example

customers are willing to pay for Amazon’s one day delivery service.

2. The Rarity of a company’s capability is also crucial. The capability should not be

possessed, or easily possessed by competitors in the marketplace.

3. A sustainable competitive advantage should be Inimitable – for example a product or

service that competitors are unable to copy.

4. The risk of non-substitutability should be low enough for the capabilities so that

competitors would not be able to replace it.

Appendix 2 lists the six core strategic capabilities that are key to the success of Amazon.

The VRIN framework is applied to determine if these six capabilities can strengthen the

foundations of a sustainable competitive advantage and their overall impact on long-term

success.

Looking at Amazon within the structure of VRIN shows that they definitely have sustainable

competitive advantages in Diversified Product Categories, Technology Infrastructure and

Logistics in which Amazon met all the four criteria laid out by VRIN, and therefore imply

long-term success for the company.

Although the Negotiation Ability of the Senior Management Team and the Online Marketing

Channels and Promotions do not fulfill all four criteria of VRIN (they are Temporary

Competitive Advantages), there is still a possibility that they can contribute towards the long-

term success of the company.

Activity Systems

Mapping out Amazon’s high order themes activities through an Activity System map allows

further exploration of Amazon’s value creating operations, as well as highlighting their value

to customers.

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An advantage of mapping out Amazon’s activities within framework is that it enables an

overview of the connections within the web of the company’s operations. These

interdependent linkages are crucial as they are the points in which value creation takes place

(Johnson et al., 2014).

Through reviewing the Activity System, as mapped out in Appendix 3, it is possible to draw

upon a number of specific examples demonstrating how the linkage of activities aides the

creation of value the ultimately affect Amazon’s long-term success.

The strong and positive brand image of Amazon’s is leading to an important level of customer

satisfaction, which is aided in part through a combination of Amazon’s Management of

Logistics and their Application of Technology Infrastructure.

The global network of warehouses that Amazon has at its disposal enables it to run a

logistically sound operation, utilizing local or national warehouses to supply and deliver

products to customers in the relative vicinity.

Supporting its capabilities in logistics is Amazon’s investment in technological infrastructure,

making the purchasing process more efficient for customers. Examples of this are Amazon’s

patented One Click Payment system (making the online shopping experience less complex),

as well as Amazon’s internal databases (enabling customers to source products that may not

be currently available in their own region).

A second example can be highlighted through considering Amazon’s Marketing Channels

and Promotions coupled with their range of Diversified Product Categories (from Kindle e-

readers to clothing). The emphasis that Amazon has chosen to place on promoting, marketing

and building their brand has established them as one of the internet’s retailers of choice.

As Amazon becomes even more ubiquitous with the E-Commerce, due in part to a strong

brand image, they are continuing to attract new customers to their products and services.

Through marketing and promoting their products and services to a growing customer base

Amazon needs to continue to expand its product and service portfolio to cater to the

expectations of their customers.

Amazon’s expansion is not limited to its product range (Vasudha, M. and Rakakumari, D.J.,

2013). Amazon’s acquisitions of other businesses has grown significantly since 2005, the

money being spent on individual businesses in this time period has also risen with

acquisitioned businesses in the $500M+ category become more prevalent as time goes on.

Although Amazon has funds for acquisitions, it is the experience and Negotiation Ability of

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Senior Management, as illustrated in the Activity Systems map that allows Amazon to be

flexible in the expansion of their businesses.

The linkages between the activities laid out in the Activity Systems map demonstrate that a

long-term sustainable competitive advantage is possible when Amazon’s model of business

interdependently benefits the varying sides.

Summary

In summary this report has illustrated the strategic capabilities that Amazon possess, and that

support the company’s long-term strategy of growth and expansion.

Through looking at the Amazon in 2013: Online Success case study, and analyzing the

company’s Resources and Capabilities as well as observing Amazon through the VRIN and

Activity Systems frameworks the follows points were made:

Resources and Capabilities

Through utilizing their resources and capabilities Amazon has successfully pioneered and

developed products and services within the E-Commerce market over a long period of time.

Based on the analysis of the strategic capabilities of Amazon it is clear that they have the key

competencies to survive and continue to be successful in the long-term.

VRIN

Using the VRIN framework facilitated an analysis of whether Amazon as a company

correlated with the 6 core competencies and resources as laid out in Appendix 2. Analysis

showed that Amazon had a sustainable competitive advantage in 3 areas (Diversified Product

Categories, Technology Infrastructure and Logistics). These sustainable advantages point to a

successful commercial future in the long-term. Although Temporary and not sustainable it is

notable that Amazon has a competitive advantage in regards to Negotiation of the Senior

Management Team as well as in Online Marketing Channels and Promotion which both point

to long-term success

Activity Systems

Through mapping Amazon’s high order themes and activities via the Activity System

framework, the analysis has shown that Amazon benefits from interdependent nature of their

different themes and activities (which they continue to invest in) that offers continuous value

to their customers in the present and in the long term.

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REFERENCES

1. AMAZON.COM (2014) Inside Amazon. [ONLINE] Available at:

http://www.amazon.com/Inside-Careers-Homepage/b?node=239367011

[Accessed 28th

October 2014].

2. BARNEY, J. (1991) Firm resources and sustained competitive advantage. Journal of

Management, vol 17.

3. DONNIE, T. (2014) Amazon losses widen as it braces for rocky holiday quarter.

[ONLINE] Available at:

http://www.cnet.com/news/amazon-q3-loss-widens-as-it-braces-for-rocky-holiday-

quarter/%23ftag=/

[Accessed 27th

October 2014].

4. Euromonitor InternationaL: Amazon.com Inc. in retailing (world). 2014. [ONLINE]

Available at :

https://attachment.fbsbx.com/file_download.php?id=473424456130302&eid=ASv76p

gycCtNMQ9SgZao1Lw7JkA_BTIzrLWFC5OMqXN7iMapi8FDbwQ5PQuKM0Nzgn

E&inline=1&ext=1414548067&hash=ASugdE0U6uGK-8e0

[Accessed 27th

October 2014].

5. HOPE, J. and PLAYER, S. (2012) Beyond Performance Management. Cambridge:

Harvard Business Review Press

6. JOHNSON, G., WHITTINGTON, R. and SCHOLES, K. (2011) Exploring Strategy.

9th

ed. Prentice Hall

7. JOHNSON, G. et al. (2013) Exploring Strategy Text & Case. 10th ed. Edinburgh:

Pearson.

8. VASUDHA, M. and RAKAKUMARI, D.J. (2013) Amazon in 2013: Online success -

case study. Reference no 313-285-1

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APPENDICES

Apendix 1: Resources and Competences

Easy for competitors to

imitate

Difficult for competitors to imitate

Resources

(what we have)

· Products (books, digital

goods and services,

electronics, TV shows,

etc.)

· Warehouses

· Employee training and

development systems

· Customer database

· Diversified product categories

· One click payment

· Competitive price (heavy discounter)

· Strong revenue growth

· Product development

Competences

(what we do

well)

· Online Marketing

channels and promotions

· Brand popularity

· Kindle services

· Technology infrastructure (Amazon

Web Services - EC2 and S3)

· Logistics- quick delivery

· Negotiation ability of Senior

Management team (vast acquisitions

and low prices with third party)

· Positive partnership with third party

merchants

· Strong brand loyalty, brand equity and

brand reputation

· Huge market share of e-book market

· Strong market share of global internet

retailing market

· Flexibility of business expansion

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Appendix 2: VRIN Analysis

Resource or

capability Value Rarity Inimitability

Non-

substitutability

Competitive

implication

Impact

on

long-

term

success

Diversified

product

categories

✔ ✔ ✔ Low

Sustained

competitive

advantage

✔

Technology

infrastructure

(Amazon Web

services EC2

and S3)

✔ ✔ ✔ Low

Sustained

competitive

advantage

✔

Logistics ✔ ✔ ✔ Low

Sustained

competitive

advantage

✔

Negotiation

ability of

Senior

Management

team (Vast

acquisitions

and low prices

with third

party)

✔ ✔ ✖ Medium

Temporary

competitive

advantage ✔

Flexibility of

business

expansion

✔ ✔ ✔ High Competitive

parity

✔ or

✖

Online

Marketing

channels and

promotions

✔ ✖ ✖ High

Temporary

competitive

advantage

✔

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Appendix 3: Activity System

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