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Case Study 1

Technology and Operations Management


Winter Term 2018/2019

Submitted by
Altriza Rusydina
Danny Surdigo
Lukas Reese
Maesya Shafira
Matthias Scherer
Raden Rifqi Dwisanto
Table of Contents

1. Company Background and Fundamentals


2. Analysis and Discussion
a. Efficiency Drivers and IT-Implementation
b. Competitive Analysis
3. Downsides and Recommendations
4. Conclusion

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1. Company Background and Fundamentals

Amazon is surely a well-known brand. With its nearly 600.000 employees1 and annual revenues
beyond the $170 billion2 mark make the organization one of the biggest players within the
online retail industry and surely an important contributor to the global economy. In Hemel
Hempstead, UK, a massive area of 40.000 square meter builds the core of Amazons operations.
Millions of products are stored in the “pallet land” and are processed for delivery in “the tower”
by all the pickers that silently push around carts to collect all the items that have been purchased
online.
One of the organization’s biggest competitive advantage in contrast to offline retail businesses
lies in the vast catalog of products and services that Amazon offers. Additionally, the highly
streamlined operational procedures and continuous technological advancement Amazon an
efficient organization. Even though the business is hardly profitable it is currently valued at
$814 billion3. Why do all stakeholders have such a high trust in Amazon’s future development?
Many believe that its efficient working routine makes the company so powerful.

2. Analysis and Discussion


a. Efficiency Drivers and IT-Implementation

Surely, the vertical integration that includes the soft- and hardware development as well as a
privately-owned truck fleet play a huge role when it comes to designing the organization’s
operations as efficient as possible, however, within this case study we focus on Amazon’s
internal characteristics. In this regard we find three key points.
First, the organization is driven by data and measurability. Room for interpretation is reduced
and the reliance on hard facts is strong. That is manifested in its employee performance
evaluation system which observes the number of items handled in a certain amount of time.
Thus, quantitative productivity is strictly monitored and further fostered by an according reward
system that incentives quick task execution. The permanent countdown that tells the workers
how many seconds they have left to pick up a certain item to meet their performance targets
shows evidence.
Second, Amazon’s operations are maximized in its simplicity. Employees execute basic tasks
as lifting items, attaching vouchers and putting packing paper around them. Workers are not

1
Statista (2017)
2
Statista (2017)
3
Finanzen.net (2018)

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supposed to memorize and learn about the company during their employment. Rather, a focus
on straight forward execution is part of a regular working routine. Thus, its employees are easily
replaceable which becomes reality, shown in the high employee turnover rate with a median
tenure of just 1,1 years4. Also, products are stored in shelves in a seeming random way with a
good reason. By placing a HDMI cable next to Harry Potter books, the contrast of products is
very high and hence, employees can quickly spot the desired item within the shelve.

Lastly, the company further supports lean operation processes through a strong technological
drive. Latest algorithms that tells workers in which shelve the required products are located as
well as a series of scanning points increases the retrace-ability of any item within the warehouse
show that Amazon strongly rely on modern software. Next to software also high-tech hardware
is included in its daily operations. For instance, Amazon is developing shelves that
autonomously move around to decrease the movement of humans. Also, the visual sensors on
cranes that lift items and place them on the already waiting pallet play a huge role.
All these characteristics allow the retail giant to design its operations as easy and efficient as
possible.

b. Competitive Analysis

But what about Amazon’s competitors? What are they doing and what drives Amazon’s
competitive edge?
First, many other online retail organizations have a quite different corporate culture which
directly shapes the style of operational management. Many competitors believe that the
development of human resources only reveals its true relevance in the long run. Amazon instead
seems to concentrate on short-term productivity on the costs of employee satisfaction and as
mentioned high turnover rates.
Next, Amazon holds a large collection of patents. The U.S. patent and trademark office
publishes a number of 7096 patents in 20175. The number would be even higher if all
subsidiaries were included. Interestingly, even though Amazon is seen as a retail business, most
of its patents are about technological innovations. Some of the most stunning ones are the
airborne fulfillment center, which is a warehouse that floats 45.000 feet above the ground,
waiting for automated drones that come and go to execute deliveries. Also, a virtual reality

4
Forbes (2018)
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U.S. Patent and Trademark Office (2018)

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mirror that allows customers to try out fashion articles at home and the home-made voice
control system with Alexa seem to be highly potential fields in the near future. Surely, these
innovations are not a result of simple warehouse operations as described above. One of
Amazon’s advantage in contrast to its competitors are the large investments into research and
development which amounted $27,8 billion in 20176. Tt seems that it is not easy to compete
with Amazon. That could be a reason why many other companies are discouraged to try to
compete in the first place which leaves Amazon in a fairly small competitive environment.

3. Downsides and Recommendations

After all, many arguments are in favor of a very positive outlook for Amazon. However, we
also recognize some downsides that should be discussed when Amazon is discussed.
First and foremost, we suggest that the largest drawback of the highly efficient business is the
lack of intellectual stimulation for its employees. Workers daily tasks are comparable to
machines’ tasks, executing repetitive processes day after day. Researchers just as Jensen (2007)
try to show that professionals are designed to learn and develop their set of skills7 which is not
supported by Amazon’s workers job routine. Simultaneously, the creative potential of
individual workers is completely erased through such a streamlined operational design.
Additionally, the countdown to pick up the products seems to cause a high stress level and
renders particularly one part of Amazon’s slogan questionable. “Work hard, have fun, make
history”. We suggest that a job rotation system could help to decrease the high turnover rate
and increase employee satisfaction.
Moreover, people are becoming increasingly aware that standardized tasks are continuously
replaced by machines. Amazon’s employees surely face this danger in their working
environment where more automated robots are installed every day. Even though Amazon shows
a clear policy regarding the training of human resources we believe that investments into the
development of employee’s skillset will pay off in the long run and help the company to be an
attractive employer and create an environment that fosters bottom-up innovative potential.
Lastly, Amazon’s uses the “Anytime Feedback” program which allows anyone to give positive
or negative comments about their colleagues. We find that under such harsh working conditions
this feedback tool leads to a strong competition among the workforce since individuals are

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Nasdaq (2017)
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Jensen K. (2007)

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strictly monitored and easily replaceable. Workers are afraid to face a dismissal in case of
negative attention. Since Amazon already works with strict operational procedures we suggest
that a less transparent, hierarchical feedback system is more appropriate.

4. Conclusion

Summarized, Amazon surely enjoys many aspects such as technological innovations, highly
efficient working routines and strategical vertical integration that justify the company’s global
success. However, it is crucial to show that these positive aspects come along with some
negatives as mainly the lack of humanity within one of the largest retail businesses that exist.

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Bibliography

1
Amazon (2017). Annual Report. Retrieved from

https://www.statista.com/topics/846/amazon last accessed (11.09.2018)

2
Amazon (2017). Annual Report. Retrieved from

https://www.statista.com/topics/846/amazon last accessed (11.09.2018)

3
Finanzen.net (2018). Retrieved from https://www.finanzen.net/aktien/Amazon-Aktie last

accessed (11.09.2018)

4
Forbes (2018). Retrieved from

https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2018/06/29/the-real-

problem-with-tech-professionals-high-turnover/ last accessed (11.09.2018)

5
U.S. Patent and Trademark Office (2018). Retrieved from

https://www.fungglobalretailtech.com/research/amazons-patents-measuring-tech-giants-

intellectual-property/ last accessed (11.09.2018)

6
Nasdaq (2017). Retrieved from

https://www.nasdaq.com/symbol/amzn/financials?query=cash-flow last accessed (11.09.2018)

7
Jensen, K. (2007). The desire to learn: An analysis of knowledge‐seeking practices among

professionals. Oxford Review of Education, 33(4), 489-502. doi:10.1080/03054980701476055