Case 19 - Amazon.com, Inc. (AMZN) - 2018 - Teachers’ Note by Forest R.

David

Case Abstract

Headquartered in Seattle, Washington, the year 2017 was phenomenal for Amazon that
has grown from being an online bookstore to becoming a worldwide powerhouse selling
virtually all products used by consumers. Amazon is the largest online retailer in the world as
measured by both revenue and market capitalization. The second largest online retailer is
Alibaba Group located in China. Led by their CEO Jeff Bezos, Amazon has expanded heavily
into smart homes and through its Alexa platform and even into machine learning. In 2017, the
firm shipped over 5 billion items with Prime worldwide with more paid members joining Prime
in 2017 than any previous year both in North America and worldwide.
Amazon reported record revenues in 2017 up 31 percent, helped in part by Fire TV Stick
and Echo Dot that were the bestselling products across all of Amazon’s products sold. Tens of
millions of Echo devices alone were purchased, but a portion of the revenue increase can be
explained through the acquisition of Whole Foods. Amazon hired 130,000 new employees in
2017 globally and employs over 17,500 veterans and their spouses in the US. In 2017, Amazon
Prime Video reported over 18 million views from customers in 11 NFL games across over 200
countries on their smart TVs and other devices. Amazon also now holds the global TV rights to
The Lord of The Rings. The company even launched two furniture brands in 2017.
Amazon reports in three segments: North America, International, and Amazon Web
Services (AWS). Amazon in early 2018 launched a new service called “Shipping with Amazon,”
aimed at competing with FedEx Corporation and United Parcel Service (UPS). But Amazon’s 40
planes and 300 warehouses pale in comparison, for example, to FedEx’s 650 planes, 150,000
trucks, 400,000 employees, and 4,800 operating facilities globally to handle about 12 million
shipments a day. UPS is even larger than FedEx and handles 20 million packages a day with
service to more than 220 countries through a fleet of 500+ planes and 100,000 vehicles. At least
for now, neither FedEx nor UPS is concerned that Amazon wants into the shipping business, but
that could change.

Vision Statement Analysis

Effective vision statements exhibit five characteristics that can be used as guidelines for
writing or evaluating vision statements. Any vision statement that scores a 5 out of 5 on these
characteristics is exemplary. In Chapter 2, this vision statement assessment technique is referred
to as “The 5 out of 5 Test.”

1. Clear: reveals type of industry and what firm strives to become

2. Futuristic: reveals what the firm strives to become or accomplish within 5 years
3. Concise: one sentence in length
4. Unique: reveals the firm’s competitive advantage
5. Inspiring: motivates readers to support the firm

As indicated in the case, Amazon’s vision statement (paraphrased) is “to be the most
customer-oriented company in the world, where customers can find virtually anything they wish

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to purchase online.” This statement meets the five characteristics but there is room for
improvement, so an improved vision statement for Amazon could read as follows:

“To offer customers the lowest possible price and the best selection on virtually anything they
want to purchase online, anytime, anywhere in the world.”

Mission Statement Analysis

The 10 desired characteristics of an effective mission statement are as follows:

1. Broad in scope; does not include monetary amounts, numbers, percentages, ratios, or
objectives
2. Concise; fewer than one hundred words in length
3. Inspiring
4. Identifies the utility of a firm’s products
5. Reveals that the firm is socially responsible
6. Reveals that the firm is environmentally responsible
7. Includes nine components: customers, products or services, markets, technology, concern for
survival/growth/profits, philosophy, distinctive competence, concern for public image,
concern for employees
8. Reconciliatory; resolves divergent views among stakeholders
9. Enduring but never cast in stone
10. Attracts customers; is written from a customer perspective

The 9 desired components of an effective mission statement are as follows:

1. Customers—Who are the firm’s present and potential customers?

2. Products or services—What are the firm’s major products or services?
3. Markets—Geographically, where does the firm compete?
4. Technology—Is the firm technologically current?
5. Concern for survival, growth, and profitability—Is the firm committed to growth and financial
soundness?
6. Philosophy—What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
7. Distinctive competence—What is the firm’s major competitive advantage?
8. Concern for public image—Is the firm responsive to social, community, and environmental
concerns?
9. Concern for employees—Are employees a valuable asset of the firm?

Amazon’s mission statement (paraphrased) is “to offer customers the lowest possible
prices, coupled with the best selection and the utmost convenience. Amazon is guided by four
principles: 1) customer obsession rather than competitor focus, 2) passion for invention, 3)
commitment to operational excellence, and 4) long-term thinking/planning.” This statement
includes only the “distinctive competence” component and also lacks nearly all the desired
characteristics of a mission statement. Thus, a proposed mission statement for Amazon that
includes the nine components and meets the ten characteristics is given below:

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As the world’s most well-known e-commerce company, we focus on lightning fast shipping and
selling virtually anything online (2, 7). We connect people (1) all over the world (3) with the best
products at the lowest possible prices (7). We use business analytics (4) to enhance our
understanding of customers’ buying habits in order to profitably grow (5). We actively promote
employees within (9), give back to the communities we serve (8), and always act with integrity
(6). (67 words)

External Factor Evaluation (EFE) Matrix

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Competitive Profile Matrix

Financial Ratio Analysis

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Internal Factor Evaluation (IFE) Matrix

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Strength-Weakness-Opportunity-Threat (SWOT) Matrix

SO Strategies

1. Acquire Express Scripts for $60 billion (S1, S2, O2, O3).
2. Invest $5 billion into AWS (S3, S4, O5).
3. Build 5 new distribution centers across Europe (S1, S2, O4).
4. Invest $200 million in delivery trucks (S1, S2, S8, O2).

ST Strategies

1. Purchase UPS for $100 billion (S1, S8, S2, T8).

2. Invest $200 million promoting Amazon Prime with particular focus on the benefits other
than 2-day shipping (S1, S7, T3, T4, T5, T6).
3. Invest $5 billion further into the food delivery market (S1, S7, S10, T4, T5).

WO Strategies

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 1. Market heavily to potential Prime customers the benefits of streaming service (W4, W5,
O6, O9).
2. Ensure all packages are delivered within 5 days of order (W5, O2, O3).
3. Build an additional 50 Whole Foods stores in the US (W8, O7, O10).

WT Strategies

1. Offer free 2-day shipping on any orders over $100 (W4, W5, T8).
2. Increase vetting and security by $1 billion to ensure products sold are not counterfeit
(W3, T3, T4, T5).
3. Increase employee pay by 10% (W2, T2).

Strategic Position and Action Evaluation (SPACE) Analysis

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Boston Consulting Group (BCG) Matrix Analysis (in billions)

1. North America
2. International

Note: Walmart is the top rival in both divisions.

Internal-External (IE) Matrix Analysis

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(in billions)

1. North America
2. International
3. AWS

Grand Strategy Matrix Analysis

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Quantitative Strategic Planning Matrix (QSPM) Analysis

1. Invest $5 billion into AWS.

2. Build 5 new distribution centers across Europe for $25 million.

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Recommendations with Associated Costs

1. Acquire Express Scripts for $60 billion.

2. Invest $5 billion into AWS.
3. Build 5 new distribution centers across Europe for $25 million.
4. Invest $200 million in delivery trucks.

Note: Total Costs Rounded to $67 billion.

Organizational Chart Analysis

Chapter 7 presents 15 guidelines for developing an effective organizational chart, as

follows:

1. Instead of chairman of the board, make it chairperson of the board.

2. Make sure the board of directors reveals diversity in race, ethnicity, gender, and age.
3. Make sure the chair of the board is not also the CEO or president of the company.
4. Make sure the CEO of the firm does not also carry the title president.
5. Reserve the title president for the division heads of the firm.
6. Include a COO if divisions are large or geographically dispersed.

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 7. Make sure only presidents of divisions report to the COO.
8. Make sure functional executives such as CFO, CIO, CMO, CSO, R&D, CLO, CTO, and
HRM report to the CEO, not the COO.
9. Make sure every executive has one boss, so lines in the chart should be drawn accordingly,
assuring unity of command.
10. Make sure span of control is reasonable, probably no more than 10 persons reporting to any
other person.
11. Make sure diversity in race, ethnicity, gender, and age is well represented among corporate
executives.
12. Avoid a functional type structure for all but the smallest firms.
13. Decentralize, using some form of divisional structure, whenever possible.
14. Use an SBU type structure for large firms with more than 10 divisions.
15. Make sure executive titles match product names as best possible in division-by-product and
SBU-designated firms.

Jeff Bezos is President, CEO, and Chairman of the Board of Amazon. The company
apparently has two divisions: Amazon Web Services and Worldwide Consumer, but it is not
clear what these divisions entail. The company’s top executives are listed in Exhibit 1 along with
a possible organizational chart. Amazon does not make its organizational chart public so no one,
except insiders, knows who reports to whom.

Exhibit 1 - Amazon’s Top Executives and Organizational Structure

1. Jeffrey Bezos, President, Chairman of the Board, and CEO

2. Brian Olsavsky, Senior VP and CFO
3. Jeffrey Blackburn, Senior VP Business Development
4. Andrew Jassy, CEO Amazon Web Services
5. Shelley Reynolds, VP, Worldwide Controller and Principal Accounting Officer
6. Jeffrey Wilke, CEO Worldwide Consumer
7. David Zapolsky, Senior VP, General Counsel, and Secretary
1

2 3 4 5 6 7

Author Suggestions to Improve the Organizational Chart Presented in the Case

1. Mr. Bezos should not carry the title President, and should relinquish the Chairman
position. In fact, Amazon should change Chairman to Chair or Chairperson.
2. Amazon should align titles of its SBU (strategic business unit) persons with how the
company reports. Now as given in the case under the Segment Data section, Amazon
reports for two units: 1) Amazon Studios and 2) Amazon Web Services (AWS), and they
report in two regions (North America and International). No one but insiders has a clue,
for example, given this reporting nomenclature, where Whole Food Markets reports or
the company’s bookstores. Thus, the authors suggest that Amazon go to five (5) SBU’s

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 and have five (5) division Presidents reporting to each SBU head person. Clear
accountability and responsibility for who is doing what and is responsible for what is
important both internally and externally, and so many firms, like Amazon, are very
unclear in this regard.
3. Probably a by-region type structure will not be as effective as a by-product type design
for Amazon.
4. Ask #6 Jeff Wilke to become the new Amazon COO. No one has a clue what his current
title means, Worldwide Consumer. Such vagueness built into organizational charts is not
effective for companies.
5. The new and improved organizational chart for Amazon could look something like the
following:

2 3 4 5 6 7

8 9 10 11 12

(Note: five division Presidents to be hired if not already hired to report to each of #8 through
#12, which report to the new COO that is #6.)

Perceptual Map Analysis

1. Amazon
2. Alibaba
3. Apple
4. Google
5. Microsoft
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Corporate Valuation Analysis (in millions)

EPS/EBIT Analysis (in millions)

Projected Financial Statements (in millions)

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Retained Earnings Table (in millions)

Projected Financial Ratio Analysis

Epilogue

In late July 2018, Amazon announced that its Q2 sales increased 39 percent to $52.9
billion, compared to $38 billion the prior year period. Net income increased to $2.5 billion in Q2,
compared with net income of $197 million, in the prior year period. Amazon wants customers to
be able to use Alexa wherever they are, so currently there are now tens of thousands of
developers across more than 150 countries building new devices using the Alexa Voice Service
(AVS). Amazon partners globally are creating a wide variety of new AVS enabled devices and
experiences, including sound bars from Polk and Sonos; headphones from Jabra; smart home
devices from ecobee and First Alert; Windows 10 PCs from Acer, HP, and Lenovo; and cars
from automakers including BMW, Ford, and Toyota.

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 Other highlights from Amazon’s Q2 2018 include the following:
Amazon and Best Buy released the first of the next generation Fire TV Edition smart TVs to
customers in the U.S.

Amazon announced the Fire TV Cube, a 4K Ultra HD streaming media player with Alexa that
allows customers to control the TV with their voice.

Amazon introduced the Fire HD 10 Kids Edition, which comes bundled with a Fire HD 10 tablet
and a year of Amazon FreeTime Unlimited.

Amazon announced Show Mode and the Show Mode Charging Dock for Fire HD 8 and Fire HD
10 tablets. Show Mode offers a hands-free Alexa experience with full-screen visual responses.

Amazon launched Echo and Alexa in France, offering an all-new Alexa experience built from
the ground up for French customers. Additionally, Echo Spot launched in India and Japan,
allowing customers to experience Alexa with a screen. Amazon also announced that Echo and
Alexa are coming to Italy, Mexico, and Spain later in 2018.

Amazon and Ring announced Ring Alarm, a do-it-yourself home security system that offers
professional monitoring for just $10 per month.

Amazon Prime Video received 22 Emmy nominations for its original programming, including 14
nominations for comedy series The Marvelous Mrs. Maisel.

Prime Video and the National Football League renewed their streaming partnership for Thursday
Night Football, which will be available globally during the 2018 and 2019 seasons to over 100
million Prime members.

Amazon continues to expand Prime member benefits internationally, launching Prime free same-
day delivery in select cities in Italy and Spain; Prime Music and Prime Reading in Italy, Spain,
and France; and Prime Student in Japan.

Amazon launched Prime in Australia, offering members unlimited free delivery on millions of
local and international items, Prime Video, Prime Reading, Twitch Prime, and access to
exclusive deals.

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