Amazon Portfolio Management Plan
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Amazon Portfolio Management Plan
Started in 1994 by Jeff Bezos, Amazon.com, Inc. is the biggest online retailer in the world. Based on market capitalization, Amazon is now ranked as the 56th largest firm in the United States. It provides a platform through which sellers can find a market for anything from books to jewelry to industrial and auto accessories. Amazon started as an online retailer of books and other media but diverged into sales of a wide assortment of goods and services including auto parts, industrial parts, and electronics among others. Sales of electronics and other items now outstrip media sales.Amazon is also a strong player in the global e-book industry as it created the original Kindle reader. The company holds 10% share of the e-commerce market in North America (Amazon.com, 2014; Fox, 2011). Even though the company has a presence in 11 countries, it serves the global market and ships worldwide. Headquartered in Seattle, Washington, U.S., Amazon went public in 1997 and didn’t make a profit until 2001. The company has ever since been profitable.Revenues for Amazon have grown consistently from 4 billion USD in 2002 to 61.09 billion in 2012 (Johnson, 2010). In terms of revenue, Amazonis the 15th largest retailer in the United States.
The future outlook of Amazon remains bright.Expert forecast predicts that Amazon will continue with this upward trend, based on the finding that e-commerce sales as a function of overall retail sales will double to 20% in the next decade. Additionally, estimates indicate that Amazon is expanding three times faster than the overall rate of internet retailing sales. Its stock is now 180 times higher than the company’s earnings (Amazon.com, 2013; Matthews, 2012).
However, for Amazon to stay on top of the league, it has to overcome its inherent weaknesses, stave off the rabid competition, and capitalize on the emerging trends in the e-commerce market. One of the inherent weaknesses plaguing Amazon is that it only has an online presence. Unlike other larger retailers such as Target and Wal-Mart, Amazon doesn’t have a physical presence and the firm loses out as the aspect of tangibility which influences the purchases decision of many people is lost. Secondly, bad press has dented the image of Amazon and cost it some sales. Amazon has had a lot of bad press in the recent past. The bad press has been occasioned by unethical trading practices such as tax avoidance, poor working conditions for its workers in warehouses, price discrimination, and anti-competitive behavior. The third weakness is that of zero-margin sales. Amazon sells many of its products at no profit. This strategy seeks to help the firm gain a larger market share and get its competitors out of the market. This ultimately ends up hurting the company’s profitability and may work against Amazon as its competitors can adapt and use a differentiation strategy to get a share of the market. The future success of Amazon depends on how well it can overcome these weaknesses. Besides these weaknesses, Amazon has to stave off its competition if it is to retain and expand its market share. Its main competitors are eBay Inc., Barnes & Noble, Inc., Wal-Mart.com., and Apple Inc. Thirdly, Amazon has to take advantage of the merging trends in the e-commerce market.
The global e-commerce market is forecast to grow at a compounded annual growth rate (CAGR) of 13.54% between 2013 and 2018. The growth is mainly attributed to increasing internet penetration and high demand for digital goods. Rising cases of online fraud could however dampen this growth (PR Newswire, 2014; Rabkina, 2014). Trends in the e-commerce market include an increasing use of M-commerce, increase in firms offering free shipping, increased use of content marketing, emergence of pre-order fulfillment, more payment options, targeted suggestions, social media marketing, and multichannel selling. This report looks at these emerging opportunities and selects a project that Amazon can use to strengthen its market position. A portfolio management plan and the strategic and capacity plans of Amazonare detailed. Also discussed are the organization’s portfolio management process, the criteria used to choose the project, and the program management plan. The report provides an in-depth look at the strategies that the organization can use to detect and solve inconsistencies related to quality, schedule and cost. The change management and resource utilization plans of the chosen project are also evaluated.
Strategic plans are important as they help companies to maintain focused and long term vision of the company’s purpose and mission and assists in making decisions about the distribution of financial and human resources. The following paragraphs outline the strategic plan of Amazon.com.
2.1. Overall Mission of Amazon
The overall mission statement of Amazon.com is “to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online” (Amazon, 2014).
2.2. Long-term Goals of Amazon
The long term goal of Amazon.com is to be the number one retailer worldwide
2.3. Principal Methods for Attaining the Goals
Amazon seeks to attain the goal above through a cost-leadership strategy, strategic acquisitions, innovation, consistently superior products and services, superior technology, economies of scope, and good retail relationship.
1. Cost Leadership
Amazon seeks to be the lowest cost provider of services and products. The goal is to provide services and products that are of high quality and which cost lower than those of its competitors. The cost leadership strategy can only succeed if the company is able to attain economies of scale. To attain economies of scale, Amazon.com provides a very wide selection of products, from books to electronics to industrial and auto parts.
2. Strategic Acquisitions
The growth of Amazon has also been aided by its acquisition of new companies. This has helped the firm to introduce new services and products as well as to acquire new competencies, skills and assets. As a result, Amazon.com now offers cloud services and has advanced customer relationship management (CRM) skills and information management (IM) skills.
3. Innovation
Amazon managed to outlive the dot.com bubble and grab a sizeable market share due to its penchant of innovating new services and products. It originally started by providing commission-based brokerage services to sellers and buyers of second-hand books and later third-party sellers (Johnson, 2010). Amazon then begun offering services to third party sellers and this enabled the firm to aggregate many sellers under one roof and get commissions from the sales of other firms. Another innovative service is the web services company started by Amazon and which grew to become the fifth largest globally by 2007. This has enabled Amazon to provide hosting and cloud services by leasing out server space in its data centers which are spread throughout the world. This helps small businesses as they do not need to set aside huge investments to set up their own servers. The hosting and cloud services have also helped to boost Amazon’s market position by allowing merchants in different parts of the world to build their own virtual stores on Amazon.com and offer their products for sale beside Amazon’s products. Statistics show that more than a third of all sales made by Amazon each year are due to the third-party retailers who have taken space in Amazon’s servers. This is a clever strategy since it allows Amazon to sell third-party products without having to invest time and money in inventory or development of the said products (Matthews, 2012).
Amazon also blazed the trail in the e-books market by setting up a new firm in 2007 known as Lab126 and which gave the world the Kindle e-book. This move was not only innovative but it was also disruptive to the whole publishing industry and it transformed Amazon into an original equipment manufacturer (OEM). The kindle allows customers to get content using either a subscription-based model or a transaction-based model. It also allows consumers to get the latest content through its partnership with content producers (Johnson, 2010). By 2011, the kindle’s market share was more than 70%. Amazon’s innovativeness has now seen the firm launch a third-generation kindle. The Kindle Fire which was launched in September 2011 is a tablet with a multi-color touch screen and e-ink display and this provides immense competition for Apple’s iPad. Matthews (2012) writes that up to 90% of all future online sales will be digital. For Amazon to stay on top of the game, it needs to get into tablets so that it can redirect sales to its website. Development of the Kindle and Kindle Fire is testament of Amazon’s resolve to shore its market leadership position.
4. Consistently superior products and services
Amazon offers services and products that are of the highest quality. Shopping for the products is easy and convenient and Shipping of the products is very fast and affordable. Its customer care service is reputed to be very good and customers have a wide selection to choose from. All these features contribute to the greatness of the products and services provided by Amazon.
5. Technology
Superior information technology has helped Amazon.com to create a selling platform that has propelled the company to the top globally in online retailing. Additionally, superior technology has also helped Amazon.com to come up with improved versions of the Kindle which have given stiff competition to Apple’s iPad.
6. Economies of scope
Economies of scope refer to the savings attained through the use of technology and resources to generate two or more goods where using the same resources and technology to produce the goods separately would yield goods that are more highly priced. The economies of scope are leveraged by Amazon through use of its advanced IT skills to provide a very large range of products. Additionally, Amazon.com has excess server capacity to offer cloud computing services.
7. Efficiency in logistics and distribution
Amazon owns several fulfillment warehouses in all the markets where it has a presence. The warehouses are located in different parts of the countries where the firm operates and this helps in dispatching the goods faster and at a lower cost.
8. Retail relationship
One-on-one relationship was the main selling point of the brick-and-mortar stores of yore. The stores that succeeded were those whose owners knew their customers well, recognized their tastes and styles, and knew their shopping habits. The dominance of chain stores has all but killed this relationship. However, Amazon has re-established this one-on-one relationship as their website is able to gather tons and tons of useful data about its customers and use the data to target customers. Amazon.com successfully uses data mining to recreate a one-on-one relationship with its customers and this has helped the firm to attain a market leadership position (Matthews, 2012).
To match resource requirements with available resources, Amazon first determines service level requirements. Service levels are agreements between Amazon and the consumer defining acceptable services to be rendered to the consumer. They are often written from the perspective of the user and state the throughput or response times the user should expect. The next step is the analysis of current capacity. This is done to determine how well it meets the user requirements. It involves comparison of the objectives of the firm with the measurements of items contained in the service level agreements to determine whether there is adequate capacity in the system. Then the usage of various resources within the firm is assessed. For instance, the capacity level of the overall labor force, facilities and equipment is assessed. The third stage involves planning for the future. Planning for the future entails ascertaining the future system requirements using forecasts of future business activities will help to actualize the needed changes in system configuration so as to ensure that there will be enough capacity to maintain service levels regardless of changing circumstances.
4. Portfolio Management Process
4.1. Overview of the Portfolio Management Process (PMP)
Portfolio management entails the administration of multiple projects judiciously so that maximum benefit is attained from all the projects for the general success of the company. It is constant process that aligns the investments, programs, and personnel of the company with the overall strategic objectives of the firm. Portfolio management process ensures that business strategy is integrated with operational performance so that schedules, strategies, and resources are coordinated (PWC, 2011).
Portfolio management process consists of seven steps. The first step is the identification of projects while the second step is the review and prioritization of projects. The third step is accepting, rejecting, and categorization and the fourth planning and assigning resources. The fifth step involves the execution and support of projects, the sixth monitoring and communication of progress, and the final step review and adjustment of portfolio. Project Selection Criteria
Project selection is an important part of project management planning. It helps to determine the viability of a project and whether or not to approve a project. The choice of a particular project is largely determined by profit maximization. As such, the best alternative that is viable and which gives maximum returns is usually selected. There are different methods for selecting projects and these can be classified either as qualitative or quantitative.
a. Qualitative selection criteria
Unlike quantitative selection criteria which use numerical data to determine the suitability of a project, qualitative criteria do not use numbers but use narratives. One of the most useful qualitative tools is literature review where market trends are identified by studying company reports, press releases, and scholarly articles on the industry the company is in. this can provide valuable insights on the emerging and future trends and assist in project selection. This is especially useful in grey markets where there is no quantified data that can assist in quantitative selection of projects.
There are five identifiable portfolios in Amazon’s business and these are web services, commission-based brokerage services, and e-readership products and services. Using the qualitative selection criteria, this report selects a project that will help boost one portfolio so as to strengthen Amazon’s market leadership position.
From the literature review, the first emergent trend is the increasing growth of M-commerce and this calls for development of content optimized for mobile phones (Rabkina, 2014). Websites also need to be optimized for the newer versions for Google Glass and Smartwatch. The second trend is the increase in firms offering free shipping. This is bound to affect firms like Amazon.com that have used free global shipping as a competitive advantage (Rabkina, 2014). Other trends are the increased use of content marketing (Rabkina, 2014) and the emphasis on better customer experience. Better customer experience will help firms retain their customers as well as get new customers. Newer services targeted at customers will include pre-order options and unique and individualized service (Rabkina, 2014). Yet another trend is the emergence of newer payment options. It is estimated that e-payments will experience an 18.1% growth in 2014 to record34.8 billion transactions. It is also estimated that half of all Smartphone users will make payments using their mobile wallets (Rabkina, 2014). Some of the disruptive payment systems include Bitcoin, Beacon which is a payment technology based on Bluetooth, and Amazon’s Log in and Pay service. In Amazon’s Log in and Pay Service, online retailers need to incorporate more payment options in their websites to take advantage of the new emerging trends. Targeted suggestions are also gaining prominence. Targeted suggestions are based on contextual intelligence which is estimated to reach 14.5 billion USD by 2014. It is also forecast that half of all customers will revisit promotions that are highly personalized and this makes it necessary for online retailers to incorporate targeted suggestions in their websites (Rabkina, 2014). Other trends are social media marketing and multichannel selling. It is considered that advance selling or pre-orders provide the best opportunity for Amazon and we will use the pre-order option as our project.
b. Quantitative selection criteria
A number of quantitative selection criteria that are used to select the project to be implemented are described below.
1. Customer lifetime value (CLV)–this quantitative method is the sum of the expected cash flows based on potential future transactions (Kumar et al., 2006).
2. Cost-benefit analysis – all the negative aspects of the project are quantified and then subtracted from all the positive aspects
3. Net present value (NPV) -
4. Internal rate of return (IRR) – rate of return obtained from the investment. The higher the rate of return, the more prudent it is to select the project
5. Discounted cash flow – considers the future value of a project by taking into account the interest earned from the investment and the present value
6. Scoring models
7. Economic model
8. Mathematical approach – usually reserved for very large projects
The following sections talk about the program management plan.
The following represents the conflict resolution plan for the project.
9. Stakeholders shall direct their concerns to their immediate team leader not more than four working days of any incident
10. The immediate team leader is required to write to the stakeholder who raised the concerns not more than five days after the issue was raised
11. The stakeholder who raised the issue will be required to send a written complaint to the project leader if the issue shall remain unresolved five days after raising the issue.
12. The project team leader will then convene a meeting with the stakeholder who raised the issue for a discussion about the issue that was raised.
13. The project team leader will give a decision on the issue either through writing or verbally
14. Should the stakeholder who raised the issue remain unsatisfied, he or she shall have recourse to write to the human resources manager for appropriate action.
15. The individual sealing with the final level of the complaint will be required to set a meeting and discuss with the stakeholder who raised the issue in the first place.
The change management plan will consist of six steps and these are identification of the change, specification of the change details, the approach of the change, change implementation strategies, and review of the change strategy.
5.2.1. Identification of the change
1. Type of Change
The type of change will be a policy, system, and process change. The scale of the change will be large and the speed will be slow. It will involve the sourcing and possible manufacture of Amazon’s own brands based on pre-orders. Pre-order option is a type of advance selling where consumers commit themselves to buying a product and the provider creates the capacity later and delivers the pre-ordered goods and or services (Boyaci & Ozer, 2010).
2. Reason for the change
The change will provide business benefit to Amazon. It will allow Amazon to capture some market demand in advance. This will not only help to boost revenues from online retail but will also regulate overall demand uncertainty since the products are offered for sale prior to the customary sales period (Boyaci & Ozer, 2010). It will also provide Amazon with data on market demand for particular products and services thereby enabling the firm to do capacity planning based on reliable demand information (Boyaci & Ozer, 2010). Furthermore, the change will enhance Amazon’s understanding of the market potential for certain products as well as reduce demand uncertainty (Boyaci & Ozer, 2010). Finally, the change will be beneficial to Amazon’s customers as their commitment to purchase will allow them to stockpile their products and hence remain shielded from potential capacity shortages (Neslin et al., 1995).
The change will affect people, systems, departments, and business units within Amazon. The change will have far-reaching effects on the entire organization. Change is not the same for each of the business units. For instance, entire systems may need to be built to accommodate the new house brands and new cadres of professionals and skilled and semi-skilled workers hired to drive the change forward. On the other hand, there may be little or no change for some business units such as the finance department.
The current situation at Amazon is thatno pre-orders are accepted hence there is no advance selling. All the products and services are sold during the regular sales period. The problem is that Amazon is unable to accept pre-orders and the cause islack of capacity.
5.2.4. Context and Challenges Surrounding the Initiative
The e-commerce market has become very competitive. For long, Amazon’s competitive edge was its superior technology and efficiency in distribution but as the competition becomes cut-throat, the firm will lose its competitive advantage as others play catch-up. The firm needs to come up with innovative new strategies to maintain and shore up its market share. The main challenge surrounding the quest to engage in advance selling is lack of capacity.
5.2.5. Where Amazon ought to be
Amazon needs to actively get into the advance selling market in order to maintain its market leadership status.
5.2.6. Organization Change Readiness
A readiness checklist will be completed to make sure that the plan has looked into all the aspects of change. It will include all the required preliminary work, training needs analysis, and workforce capacity analysis.
5.2.7. Particulars of the Change
The organization will be restructured to incorporate the changes. New systems and production processes will be required. Amazon is a disruptive organization and the organizational culture will allow the changes.
There is the risk that change information will be misinterpreted by staff in ways that are not intended. As such, sharing of information will be important to manage expectations and prevent rumors from exerting an undue effect on the firm. Methods for sharing current and updated information include intranet, departmental meetings, and company bulletin boards.
Estimates of the total cost of the activities needed to implement the change initiative will be ascertained once the pre-orders start coming in. The source of funds for implementing the change will be internal revenues.
The CLV technique will be used to ascertain the risks that may occur upfront, during implementation, and after implementation and appropriate tactics put in place to minimize the risks.
Analysis of the stakeholders will be done and target groups and audiences to be impacted by the change identified. Those who might help the most, those who might present the most resistance, and change levers will be identified and plans made accordingly.
5.2.12. Role of Change Management Team
A change management team will be set up to assist in driving the change implementation. The team will comprise of representatives from all the different departments in the company. Only those individuals with good communication skills, understand the business of Amazon well, are team players, are committed to the change, can find time to participate in the project, and possess some business influence will be selected to join the change management team.
5.2.13. Implementation strategies
An action plan will be drawn and will consist of a list of all activities, duties, and timeframes for the project to be actualized together with a schedule for all the needful activitie.
A communication plan that has explicit reporting protocols for the project, communication team leader, and all the relevant stakeholders is rolled out. Other plans will include a business systems plan and a resistance management plan
5.2.15. Review of Change Strategy
The change strategy will be reviewed continuously to ensure that the change takes place as desired. The success of the change implementation will be assessed as listed below
a. By obtaining feedback from the users. The feedback will be obtained using surveys and anecdotal evidence from the users
b. Performing compliance audits on the new systems, processes, and job roles
c. Pinpointing success areas which will be emphasized so as to highlight the positive areas for fortification of the change
d. Assessmentof resistance areas. This will help to come up with strategies to counter any such resistance
5.2.16. Resource Utilization Plan
The resource utilization plan will analyze and plan resource utilization to achieve maximum/optimal capacity utilization.