Republic

University of Rizal System

Province of Rizal

GRADUATE SCHOOL

Master in Business Administration

EXECUTIVE TRAINING AND DEVELOPMENT

(BA 401)

Detailed Report in

INTERNAL ANALYSIS

Submitted by:

CHRIS OBIAS
MBA Student

Submitted to:

JERICHO M. INARDA, DBA

Professorial Lecturer
Table of Contents
EXECUTIVE SUMMARY................................................................................1
I.INTRODUCTION...........................................................................................2
II.SUBJECT DISCUSSION...............................................................................3
ANALYSIS................................................................................................................................................................3
INTERNAL ANALYSIS.......................................................................................................................................3
IMPORTANCE OF INTERNAL ANALYSIS....................................................................................................4
COMPONENTS OF INTERNAL ANALYSIS....................................................................................................5
DISTINCTIVE COMPETENCIES.........................................................................................................................6
RESOURCES..................................................................................................................................................................... 7
CAPABILITIES.................................................................................................................................................................. 8
CORE COMPETENCIES......................................................................................................................................9
VALUE CHAIN ANALYSIS..............................................................................................................................10
PRIMARY ACTIVITES.........................................................................................................................................12
SUPPORTED ACTIVITES..................................................................................................................................14
LINKAGES WITHIN THE VALUE CHAIN...................................................................................................16
ADVANTAGES OF VALUE CHAIN ANALYSIS.................................................................................................17
DISADVANTAGES OF VALUE CHAIN ANALYSIS...........................................................................................17
STRATEGY.........................................................................................................................................................17
PROCESS OF STRATEGY..................................................................................................................................18
COMPETITIVE ADVANTAGE........................................................................................................................18
SUSTAINABLE COMPETITIVE ADVANTAGE...........................................................................................20
PORTER’S GENERIC COMPETITIVE STRATEGIES................................................................................21
COST LEADERSHIP...........................................................................................................................................21
DIFFERENTIATION...........................................................................................................................................22
COST FOCUS......................................................................................................................................................23
DIFFERENTIATION FOCUS.............................................................................................................................24

III.CASE STUDY ON AMAZON....................................................................25

COMPANY OVERVIEW...................................................................................................................................25
SWOT ANALYSIS OF AMAZON.....................................................................................................................26
AMAZON’S VALUE CHAIN ANALYSIS........................................................................................................32
AMAZON’S COMPETITIVE ADVANTAGE & BUSINESS STRATEGY...................................................39
AMAZON’S FINANCIAL ANALYSIS.............................................................................................................43

IV.CONCLUSION...........................................................................................52
V.REFERENCES.............................................................................................54
 EXECUTIVE SUMMARY

In business world, strategy is required for a successful business. External analysis can be done

easily. Comparatively internal analysis on the other hand takes some effort. Creating a business

strategy requires research into and the assessment of internal and external factors that impact the

company. Specifically, an internal analysis can help businesses establish areas for growth and

competitive advantage. Conducting an internal analysis requires extensive knowledge of the

inter-workings of the company. 

Value chain analysis is done and it is a part of the internal analysis to analyse the activities they

perform to create a product. Once the activities are analysed, a business can use the results to

evaluate ways to improve its competitive advantage. While one of the goals of value chain

analysis is to improve operational efficiency, its final and most important goal is to establish an

advantage over competitors.

Companies could outperform from their competitors, this is succeeded by implementing

strategies. It provides a panoramic view of the changing corporate environment and seeks to

explain how organizations can be more effective and efficient not only in today's but also in

tomorrow's business environment.

To generate long-term revenue and value growth, it is paramount to create sustainable

competitive advantage. Growth companies and markets attract competition, and if a growth

company doesn’t have any advantages that competition can’t easily replicate, then chances are a

price war to the bottom will occur or the company will be gobbled up and surpassed by the

competition.

Seemingly very successful companies often shrivel up and die because they never figure out their

sustainable competitive advantage. While there is always so much to do in the short-term,

strategic leaders have an eye on what short-term actions could potentially create long-term

sustainable competitive advantages.

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A case study on Amazon is done. From the internal analysis , the strengths and weakness are

identified and suggestions are given. Also financial analysis states that the company’s net profit

margin strives for long term success. Amazon’s strategies helped to target a niche in the market

and gained competitive advantage over their rivals.

I. INTRODUCTION

Over the years, research has shown that the overall strengths and weaknesses of a firm’s

resources and capabilities are more important for a strategy than environmental factors. Even

where the industry was unattractive and generally unprofitable, firms that came out with superior

products enjoyed good profits. Managers perform internal analysis to identify the strengths and

weaknesses of a firm’s resources and capabilities. The basic purpose is to build on the strengths

and overcome the weaknesses in order to avail of the opportunities and minimize the effects of

threats. The ultimate aim is to gain and sustain competitive advantage in the marketplace.

Internal organisation can affect the cost and even the feasibility of some strategies. There must

be a ‘fit’ between a strategy and the elements of an organisation. If the strategy does not fit well,

it might be expensive, or even impossible, to make it work. This related to the resource based

view of the firm (Grant, 1998).

Business strategies are the courses of action adopted by an organization for each of its businesses

separately, to serve identified customer groups and provide value to the customer by satisfaction

of their needs. In the process, the organization uses its competencies to gain, sustain and enhance

its strategic or competitive advantage.

(Porter M.E,1980) is credited with extensive pioneering work in the area of business strategies,

what he calls competitive strategies. His writings are focused on industry analysis, competitive

dynamics and competitive strategies. The dynamic factors that determine the choice of a

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competitive strategy, according to Porter, are two, namely, the industry structure and the

positioning of the firm in the industry.

II. SUBJECT DISCUSSION

ANALYSIS

A detailed examination of anything complex in order to understand its nature or to determine its

essential features. 

INTERNAL ANALYSIS

The process of identifying and evaluating the organizational factors that underlie

sustainable performance and long-term growth of an organization or those that hinder its growth

is referred as internal analysis.

An internal analysis is a complete examination of a company's internal components, both

tangible and intangible, such as resources, assets and processes. An internal analysis helps the

company decision-makers accurately point out the areas for growth or revision to form a

practical business strategy or business plan. Often, those creating the company's business

strategy pair an internal analysis with an external analysis to create a full picture of how the

company functions both as an individual entity and as a part of the larger competitive industry.

Companies can choose from a variety of frameworks for conducting an internal analysis. Each

uses slightly different tools, strategies and objectives to identify key information about the

internal processes, resources and structures of the business. A few of the most common examples

of internal analysis frameworks include:

 Gap analysis: A gap analysis identifies the gap between a business goal and the current

state of operations. Companies use gap analyses when they need to identify weaknesses

in the business.

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  Strategy evaluation: A strategy evaluation is an ongoing internal assessment tool used at

regular intervals to establish if a company is meeting its objectives as outlined in a

business strategy or plan.

 SWOT analysis: A SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis

helps to give companies a broad overview of all internal functions. SWOT analyses are

ideal for evaluating the full range of a company's abilities.

 VRIO analysis: A VRIO (Valuable, Rare, Inimitable and Organized) analysis helps

organize business resources. It is ideal for assessing and categorizing a company's

resources.

 OCAT: An OCAT (Organizational Capacity Assessment Tool) assesses internal

performance in a variety of specific dimensions. Companies can use the OCAT to

establish specific areas of strength or growth.

 McKinsey 7S framework: The seven S's are strategy, structure, systems, shared values,

skills, style and staff. The McKinsey 7S framework ensures that businesses align these

seven elements for maximum success.

 Core competencies analysis: The core competencies analysis identifies the unique

combination of qualities that separates the business from competitors. It's best used when

determining ways to improve business operations over a direct competitor.

IMPORTANCE OF INTERNAL ANALYSIS

Strategic management is ultimately a “matching game” between environmental opportunities and

organisational strengths. But, before a firm actually starts tapping the opportunities, it is

important to know its own strengths and weaknesses. Without this knowledge, it cannot decide

which opportunities to choose and which ones to reject. One of the ingredients critical to the

success of a strategy is that the strategy must place “realistic” requirements on the firm’s

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resources. The firm therefore cannot afford to go by some untested assumptions or gut feelings.

Only systematic analysis of its strengths and weaknesses can be of help. This is accomplished in

internal analysis by using analytical techniques like RBV, SWOT analysis, Value chain analysis,

Benchmarking, IFE Matrix etc.

Thus, systematic internal analysis helps the firm:

 To find where it stands in terms of its strengths and weaknesses

 To exploit the opportunities that are in line with its capabilities

 To correct important weaknesses

 To defend against threats

 To asses capability gaps and take steps to enhance its capabilities.

COMPONENTS OF INTERNAL ANALYSIS

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 Figure 1 : Components of Internal Analysis

DISTINCTIVE COMPETENCIES

Competitive advantage is based on distinctive competencies. DISTINCTIVE COMPETENCIES

are firm specific strengths that allow a company to differentiate its products from those offered

by rivals, and/or achieve substantially lower costs than its rivals. Distinctive competencies arise

from three complementary sources:

 Resources

 Capabilities

 Core Competencies

For example : Southwest Air has distinctive competencies in managing its workforce, which

leads to higher employee productivity and lower costs. Similarly, Toyota, the standard

outperformer in the automobile industry, has distinctive competencies in the development and

operation of manufacturing processes.

RESOURCES

Resources refer to the productive assets of a company – tangible or intangible and capabilities

are what the company can do. Individual resources do not confer competitive advantage; they

must work together to create organizational capability. It is the capability that is the essence of

superior performance.

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 Figure 2 : Types of resources

Tangible resources are physical entities, such as land, buildings, plant, equipment, inventory, and

money.

Intangible resources are non-physical entities that are created by managers and other employees

and assets including brand names, reputation of the company, knowledge that employees have

gained through experience, intellectual property of the company including those protected by

patents, copyrights, and trademarks.

CAPABILITIES

(John Kay, 1993) defines distinctive capabilities as ones derived from characteristics that others

lack and which are also sustainable and appropriable. "A distinctive capability becomes a

competitive advantage when it is applied in an industry or brought to a market."

Capabilities refer to a company`s skills at co-ordinating its resources and putting them to

productive use. These skills reside in a company`s rules, routines, and procedures i.e. the style or

manner through which it makes decisions and manages its internal processes to achieve

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organizational objectives. More generally, a company`s capabilities are the product of its

organizational structure, processes, control systems and hiring systems. The company`s cultural

norms, the kind of behaviour the company rewards and its values.

To perform a task a team of resources must work together. An organizational capability is a

firm`s capacity to deploy resources for a desired result.

Like resources, capabilities are particularly valuable if they enable a company to create strong

demand for its products and /or lower costs. E.g. the competitive advantage of Southwest Air is

based in large part on its capability to select, motivate, and manage its workforce in such a way

that leads to high productivity and lower costs.

Valuable capabilities are also more likely to lead to a sustainable competitive advantage if they

are both rare and protected from copying by barriers to imitation.

FUNCTIONAL AREA CAPABILITIES EXAMPLES

Financial control Pepsi Cola
Strategic Innovation Google
Acquisition management Cisco
CORPORATE FNS
Management Development General Electric
Multidivisional coordination Unilever
International management Shell

MANAGEMENT INFORMATION Comprehensive, integrated MIS Wal-Mart

Research IBM, MERCK

RESEARCH & DEVELOPMENT
Innovative new product development Apple

OPERATIONS Continuous Improvements Toyota

PRODUCT DESIGN Design Capability Nokia, Apple

Brand Management Procter and Gamble

MARKETING
Building reputation for quality Johnson & Johnson
Effective sales promotion PepsiCo & Pfizer
SALES & DISTRIBUTION Speed of distribution Amazon.com
Customer Service Singapore Airlines

Figure 3 : Types of capabilities with examples

CORE COMPETENCIES

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(Ljungquist, 2007) proposed that, core competency comprises of three attributes. They

are competencies, capabilities and resources. Also, he stated that a company that satisfies three

criteria is presumed to hold core competencies. These criteria says that a core competency must

be able to provide some value to the customers in terms of a product or service; core competency

should hold the characteristic of uniqueness and core competencies should provide access to

different market segments.

Figure 4 : Core competency

Core competency is a unique skill or technology that creates distinct customer value. For

instance, core competency of Federal express (Fed Ex) is logistics management. The

organizational unique capabilities are mainly personified in the collective knowledge of people

as well as the organizational system that influences the way the employees interact. As an

organization grows, develops and adjusts to the new environment, so do its core competencies

also adjust and change. Thus, core competencies are flexible and developing with time. They do

not remain rigid and fixed. The organization can make maximum utilization of the given

resources and relate them to new opportunities thrown by the environment.

VALUE CHAIN ANALYSIS

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Value is the total amount (i.e. total revenue) that buyers are willing to pay for a firm's product.

The difference between the total value and the total cost performing all of the firm's activities

provides the margin.

Organization is in essence a collection of activities that are performed to design, produce,

market, deliver and support its product (or service). Its goal is to produce the products in such a

way that they have a greater value (to customers) than the original cost of creating these

products. The added value can be considered the profits and is often indicated as ‘margin’. A

systematic way of examining all of these internal activities and how they interact is necessary

when analyzing the sources of competitive advantage. A company gains competitive advantage

by performing strategically important activities more cheaply or better than its competitors.

Michael Porter’s value chain helps disaggregating a company into its strategically relevant

activities, thereby creating a clear overview of the internal organization. Based on this overview

managers are better able to assess where true value is created and where improvements can be

made.

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 Figure 5 : Value chain analysis

Most organisations engage in hundreds, even thousands, of activities in the process of converting

inputs to outputs. These activities can be classified generally as either primary or support

activities that all businesses must undertake in some form.

According to (Porter, 1985), the primary activities are:

PRIMARY ACTIVITES

Here the five main activities are included in primary activities which are directly involved in the

production and selling of the actual product. They cover the physical creation of the product, its

sales, transfer to the buyer as well as after sale assistance. The five primary activities are inbound

logistics, operations, outbound logistics, marketing & sales and service. Even though the

importance of each category may vary from industry to industry, all of these activities will be

present to some degree in each organization and play at least some role in competitive advantage.

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 Inbound Logistics

Inbound logistics is where purchased inputs such as raw materials are often taken care

of. Because of this function, it is also in contact with external companies such as

suppliers. The activities associated with inbound logistics are receiving, storing and

disseminating inputs to the product.

Examples: material handling, warehousing, inventory control, vehicle scheduling and

returns to suppliers.

 Operations

Once the required materials have been collected internally, operations can convert the

inputs in the desired product. This phase is typically where the factory conveyor belts are

being used. The activities associated with operations are therefore transforming inputs

into the final product form.

Examples: machining, packaging, assembly, equipment maintenance, testing, printing

and facility operations.

 Outbound Logistics

After the final product is finished it still needs to find its way to the customer.

Depending on how lean the company is, the product can be shipped right away or has to

be stored for a while. The activities associated with outbound logistics are collecting,

storing and physically distributing the product to buyers.

Examples: finished goods warehousing, material handling, delivery vehicle operations,

order processing and scheduling.

 Marketing & Sales

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 The fact that products are produced doesn’t automatically mean that there are people

willing to purchase them. This is where marketing and sales come into place. It is the job

of marketeers and sales agents to make sure that potential customers are aware of the

product and are seriously considering purchasing them. Activities associated with

marketing and sales are therefore to provide a means by which buyers can purchase the

product and induce them to do so.

Examples: advertising, promotion, sales force, quoting, channel selection, channel

relations and pricing. A good tool to structure the entire marketing process is

the Marketing Funnel.

 Service

In today’s economy, after-sales service is just as important as promotional activities.

Complaints from unsatisfied customers are easily spread and shared due to the internet

and the consequences on your company’s reputation might be vast. It is therefore

important to have the right customer service practices in place. The activities associated

with this part of the value chain are providing service to enhance or maintain the value

of the product after it has been sold and delivered.

Examples: installation, repair, training, parts supply and product adjustment.

SUPPORTED ACTIVITES

The second category is support activities. They go across the primary activities and aim to

coordinate and support their functions as best as possible with each other by providing purchased

inputs, technology, human resources and various firm wide managing functions. The support

activities can therefore be divided into procurement, technology development (R&D), human

resource management and firm infrastructure. The dotted lines reflect the fact that procurement,

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technology development and human resource management can be associated with specific

primary activities as well as support the entire value chain.

 Procurement

Procurement refers to the function of purchasing inputs used in the firm’s value chain,

not the purchased inputs themselves. Purchased inputs are needed for every value

activity, including support activities. Purchased inputs include raw materials, supplies

and other consumable items as well as assets such as machinery, laboratory equipment,

office equipment and buildings. Procurement is therefore needed to assist multiple value

chain activities, not just inbound logistics.

 Technology Development (R&D)

Every value activity embodies technology, be it know how, procedures or technology

embodied in process equipment. The array of technology used in most companies is very

broad. Technology development activities can be grouped into efforts to improve the

product and the process.

Examples are telecommunication technology, accounting automation software, product

design research and customer servicing procedures. Typically, Research & Development

departments can also be classified here.

 Human Resource Management

HRM consists of activities involved in the recruiting, hiring (and firing), training,

development and compensation of all types of personnel. HRM affects the competitive

advantage in any firm through its role in determining the skills and motivation of

employees and the cost of hiring and training them. Some companies (especially in the

technological and advisory service industry) rely so much on talented employees, that

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 they have devoted an entire Talent Management department within HRM to recruit and

train the best of the best university graduates.

 Firm Infrastructure

Firm infrastructure consists of a number of activities including general (strategic)

management, planning, accounting, finance, legal, government affairs and quality

management. Infrastructure usually supports the entire value chain, and not individual

activities. In accounting, many firm infrastructure activities are often collectively

indicated as ‘overhead’ costs. However, these activities shouldn’t be underestimated

since they could be one of the most powerful sources of competitive advantage. After

all, strategic management is often the starting point from which all smaller decisions in

the firm are being based on. The wrong strategy will make it extra hard for people on the

work floor to perform well.

LINKAGES WITHIN THE VALUE CHAIN

Although value activities are the building blocks of competitive advantage, the value chain is not

a collection of independent activities. Rather, it is a system of interdependent activities that are

related by linkages within the value chain. Decisions made in one value activity (e.g.

procurement) may affect another value activity (e.g. operations). Since procurement has the

responsibility over the quality of the purchased inputs, it will probably affect the production

costs (operations), inspections costs (operations) and eventually even the product quality. In

addition, a good working automated phone menu for customers (technology development) will

allow customers to reach the right support assistant faster (service).

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 Figure 6 : Linkages in value chain analysis

Clear communication between and coordination across value chain activities are therefore just as

important as the activities itself. Consequently, a company also needs to optimize these linkages

in order to achieve competitive advantage. Unfortunately these linkages are often very subtle and

go unrecognized by the management thereby missing out on great improvement opportunities.

ADVANTAGES OF VALUE CHAIN ANALYSIS

 The value chain can be used to diagnose and create competitive advantages on both cost

and differentiation.

 It helps you to understand the organisation issues involved with the promise of

making customer value commitments and promises because it focuses attention on the

activities needed to deliver the value proposition.

 It can be adapted for any type of business – manufacturing, retail or service, big or small.

DISADVANTAGES OF VALUE CHAIN ANALYSIS

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  The scale and scope of a value chain analysis can be intimidating. It can take a lot of

work to finish a full value chain analysis for your company and for your main

competitors so that you can identify and understand the key differences and strategy

drivers.

 Business information systems are often not structured in a way to make it easy to get

information for value chain analysis.

 Many people are familiar with the value chain but few are experts in its use.

STRATEGY

In the words of (Chandler, 1962), “Strategy is the determination of the basic long-term goals and

objectives of an enterprise and the adoption of the course of action and the allocation of

resources necessary for carrying out these goals”.

Strategy is the pattern of decisions that guide the organization in its relationship with the

environment, affect the processes and internal structures, as well as influencing the performance

of organizations (Hambrick, 1980).

PROCESS OF STRATEGY

Strategic management is the organised development of the resources of the functional areas:

financial, marketing, manufacturing, technological, manpower etc in the pursuit of its objectives.

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 Figure 7 : Strategy Process

It is a set of policies adopted by senior management, which guides the scope and direction of

entity. It takes into account the environment in which the company operates.

COMPETITIVE ADVANTAGE

A company has a competitive advantage over its rivals when its profitability is greater than the

average profitability of all companies in its industry. It has a sustained competitive advantage

when it is able to maintain above average profitability over a number of years.

This becomes possible when the company emphasizes the four generic building blocks of

competitive advantage, such as:

 Efficiency

 Quality

 Innovation and

 Customer responsiveness.

Figure 8 : Four building blocks of competitive advantage

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Value proposition is important when understanding competitive advantage. If the value

proposition is effective, that is, if the value proposition offers clients better and greater value, it

can produce a competitive advantage in either the product or service. The value proposition can

increase customer expectations and choices.

Competitive Advantage leads to superior profitability. At the basic level, how profitable

company becomes depends on three factors:

 The value customers place on the company`s products,

 The price that a company charges for its products,

 The costs of creating those products.

The value customers place on the product reflects the utility they get from a product, the

happiness or satisfaction gained from consuming or owning the product. Utility is a function of

the attributes of the product, such as performance, design, quality, point of sale and after-sale

service.

SUSTAINABLE COMPETITIVE ADVANTAGE

There are four criteria in building and achieving Sustainable Competitive Advantage.

Capabilities that are

 valuable (capable of creating value for customers)

 rare/scarce,

 costly to imitate

 non-substitutable

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 Figure 9 : Types of capabilities

Core competencies are sources of competitive advantage for the firm over its rivals. Capabilities

failing to satisfy the four criteria of competitive advantage are not core competencies, meaning

that though every core competence is a capability, not every capability is a core competence. In a

slightly different words, for a capability to be a core competence, it must be valuable and unique,

from a customer`s point of view. For the` competitive advantage to be sustainable, the core

competence must be inimitable and non-substitutable from a competitor`s point of view.

PORTER’S GENERIC COMPETITIVE STRATEGIES

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 Figure 10 : Porter’s Generic Competitive Strategies

Each of these is an example of a Generic Strategy, as coined by Porter. They are referred to as

generic as they can be applied to products, services across all industries, and in organisations of a

variety of sizes. 

These initial strategies as described by Porter were: Cost Leadership (cheap, no

expenses), Differentiation (unique or premium products) and Focus (a specialised service or

market).

He later sub-divided Focus into two different strategies: Differentiation Focus (unique strategy

differentiation in a focused market) and Cost Focus (lower costs in a focused market). 

COST LEADERSHIP

This strategy generally consists of an organisation attempting to gain a market share by

appealing to cost-conscious or cost-restricted customers or consumers. Therefore, it is the aim of

the organisation to become the lowest-cost producer in their chosen industry. Although any

organisation will aim to remove any unnecessary costs, those employing this strategy prioritise

lowering all overheads.

Often, this can be achieved through mass-production of products, allowing the organisation to

exploit the economies of scale; however, costs can be cut during many stages of the production

process. This will allow the organisation to sell products or services for around or below the

average price for the industry, and as a result of cost-limitation will achieve the greatest profits.

These mass-produced products will often be very standard, and will exhibit little-to-no

differentiation.

Some organisations with cost leadership may also sell products for below the market average,

allowing them to gain a greater share of consumers than their competitors - particularly if their

profit margins can still remain high due to low production costs.

These organisations cannot afford to be merely among the lowest-cost producers - this leaves

them open to undercutting from rivals - instead, they need to be the lowest-cost producer.

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Organisations exhibiting cost-leadership often exhibit a number of traits and attributes which

make them suited for this approach:

 Access to capital or technology required to drive costs down

 High levels of productivity

 Access to effective distribution channels 

 Use of bargaining power to negotiate low production costs

 High efficiency and capacity utilisation

 A low-cost base (e.g. labour, materials, facilities) and a method of maintaining this.

DIFFERENTIATION

The general focus of differentiation-led organisations is to make their products different or more

attractive than any other within the industry to achieve a competitive advantage. These

organisations generally target larger markets and focus on differentiation on a much wider scale

within the industry than would a cost-led company.

The methods of achieving differentiation can vary broadly across industries, products and

services; however, it can involve various features, functionality, durability, and also how the

brand and the product are marketed to achieve an image which customers value. When designing

products, the organisation will focus on various criteria considered by consumers within the

industry, and will then orient themselves uniquely to meet those criteria.

Though not universally, this strategy is often associated with charging premium prices for the

products or services in question. This reflects the potentially higher production costs associated

with developing unique items, and also the extra features and uniqueness exhibited by said

product. As higher prices are often a forced measure to cover production costs, it is crucial that

the differentiation of the product is appealing enough to justify these prices to consumers.

Here are the most important traits associated with differentiation-led organisations:

 Strong research, development and innovation

 Superior product quality

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  Recognisable branding, effective branding and marketing

 Industry-wide distribution within all major channels (stocked by most retailers) 

COST FOCUS

Cost-focus refers to organisations who seek to develop a lower-cost advantage, but only within a

small market segment. These products will generally be basic, vaguely similar to the average

market-leading products (though more popular products can be charged at a higher price) and

will be acceptable to a sufficient number of customers in order to make a profit.

An example would be budget food items or other household tools stocked only by small, local

supermarkets. Another would be a low-cost regional airline which focuses only on specific

routes.

DIFFERENTIATION FOCUS

In a differentiation-focus strategy, the organisation will look to develop product differentiation,

but only within one or a smaller number of market segments. As these organisations have

identified a smaller consumer group to focus on, they can more specifically appeal to the needs

and wants of this group than could an organisation which is attempting to differentiate for a

wider population.

For this strategy to succeed, the organisation will have to first identify that a consumer group has

a different set of needs than does the wider market population. If there is no variation in need,

then there is no valid basis for differentiation. Alongside this, the organisation also must ensure

that another competitor is not already appealing to the specific and unique needs that they have

identified.

This approach is the most common niche marketing strategy. Small businesses can use this

method to force themselves into a niche, developing unique products which can be sold for

higher prices than similar undifferentiated products, often due to specialist knowledge or

innovation compared with other businesses.

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A good example would be craft beer companies, who can charge a higher price compared with

large breweries due to the uniqueness of their products.

III. CASE STUDY ON AMAZON

COMPANY OVERVIEW

Amazon.com is a multinational E commerce company, which was founded by Jeff Bezos who is

considered to be one of the world’s top innovative executives. Amazon.com started as an online

bookstore and expanded with time to sell almost everything. The role of information system in

this company is a leading role, because the company is an online retailer. The company started as

an online store for books to rapidly expand to sell everything such us beauty items, auto parts,

apparel, electronics and groceries. Amazon’s logo shows an arrow that stretches from A to Z,

which also forms a smile to indicate Amazon’s care for customers’ satisfaction.

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SWOT ANALYSIS OF AMAZON

AMAZON’S STRENGTHS – INTERNAL STRATEGIC FACTORS

 Strong brand name – As a global e-commerce giant, Amazon has a strong position and

successful brand image in the market. 

 Brand valuation – According to Interbrand’s Global Brand Ranking 2020, Amazon is

ranked at #2 position (Apple at #1 and Google at #3), with a brand value of $200 Billion.

 Customer oriented – Amazon caters to a large number of customers for everyday needs

at inexpensive prices. This has made it a customer-oriented brand.

 Differentiation and Innovation – Amazon frequently brings creative ideas and innovative

additions to its product line and service offerings like ambitious drone delivery service

and Withings Aura Smart Sleep System.  This creates a differentiation from other

companies.

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 Cost Leadership – Amazon doesn’t incur costs in maintaining physical retail stores by

selling everything online. With economies of scale, Amazon efficiently controls its costs

and lowers its inventory replenishment time. The company has formed

numerous strategic alliances with many companies like Evi Technologies, Thalmic Labs,

Shoefitr, The Orange Chef etc. It has a strong value chain system which also helps in

maintaining a low-cost structure.

 Largest Merchandise Selection – Amazon owns extensive product mix which attracts

online customers to make their majority of purchases from it rather than other online

retailers. As of 2018, Amazon has sold 562.3 million products in its Amazon.com

Marketplace. 

 Large number of third-party sellers – Due to the high traffic volume on Amazon’s sites,

a large number of third-party sellers have joined the platform of Amazon to sell their

own merchandises. The data from Fulfillment By Amazon (FBA) reveals that there are

more than 2 billion items available from third-party sellers.

 Go Global and Act Local strategy – This strategy has benefitted Amazon the most.

Amazon develops partnerships with local supply chain companies that help it in

competing against domestic e-commerce rivals. It understands the local needs and

launches its services as per the country’s culture. In India, for example, it has launched a

market campaign “Aur Dikhao” to encourage users to search more of its products.

 Large number of acquisitions – The successful acquisitions of Whole Foods,

Zappos.com, woot.com, Junglee.com, IMBD.com, and many others have produced

significant revenues and profits for Amazon.

 Involved into 3 key business – Amazon Marketplace, Amazon Web Services (AWS),

and Amazon Prime are 3 key businesses of Amazon which work and support each other.

As a whole, they generate massive profits and advantages for the company.

 Market Leader – With over $1 Trillion market capitalization and above $386

billion annual revenues, Amazon is truly a market leader in online retail industry.

26
  Superior logistics and distribution systems – Amazon uses highly efficient logistics and

distribution systems. It even has fixed rates for different delivery time periods. Thus, it

executes reliable, secure, and fast delivery of goods and products to the customers.

 Minimum pay raise to $15 per hour – Amazon is among the first companies in retail to

raise its minimum hourly pay to $15. In comparison, Target pays $12 per

hour, Walmart pays $11 per hour, and Costco pays $14 per hour. 

AMAZON’S WEAKNESSES – INTERNAL STRATEGIC FACTORS

 Easily imitable business model – Online retail businesses have become quite common in

this digital world. So imitating Amazon’s business model for rival firms is not so

difficult. A few businesses are even giving Amazon a tough time. These include Barnes

& Noble, eBay, Netflix, Hulu, and Oyster etc.

 Losing Margins in Few Areas – In few areas such as India, Amazon has faced losses. It’s

free shipping to customers can be one of the reasons that expose the risks of losing

margins in some markets.

 Product Flops and Failures – Its Fire Phone’s launch in the US was a big failure while its

Kindle fire device didn’t even grow well.

 Tax Avoidance Controversy – Tax avoidance in Japan, UK and US has sparked negative

publicity for Amazon. President Trump criticized Amazon over taxes on social media.

 Limited brick-and-mortar presence – Amazon owns very limited physical stores. This

sometimes hinders to attract customers buy things which are not sellable on online stores.

 Vox published negative reports related to employees’ treatment and workplace

conditions against Amazon in July 2018. Poor air conditioning, timed bathroom breaks,

and constant video surveillance are few of the negative remarks made by the employees.

Such things affect the market reputation of Amazon.

 Declining consumer safety – As its offerings increase, it is becoming a challenge for

Amazon to vet each product and guarantee the highest level of safety. The U.S.

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 Environmental Protection Agency (EPA) recently had to order Amazon to remove a wide

range of pesticides and unsafe products on its platform.  

 Unfair use of third party data – Engaging in unfair trade practices undermines trust and

increases legal risks. Amazon is facing antitrust charges in the European Union

for collecting and using data from third-party to compete against them. If found in

violation, Amazon can be fined up to 10% ($28 Billion) of its 2019 annual revenue ($280

Billion). 

 Overdependence on distributors – Relying on distributors exposes Amazon to a wide

range of issues. One of its main distributors (German Logistic Group – Deutsche Post

DHL) can leverage its position to renegotiate terms.

 Employees Strike – Strikes can grind Amazon’s operations to a halt. In Germany,

Amazon employees went on strike due to unsafe working conditions and paralyzed

operations in six distribution centers.  

AMAZON’S OPPORTUNITIES – EXTERNAL STRATEGIC FACTORS

 Amazon can gain the opportunity to penetrate or expand its operations in developing

markets.

 By expanding physical stores, Amazon can improve competitiveness against big box

retailers and engage customers with the brand.

 Amazon has the opportunity to improve technological measures and organizational

policies to reduce counterfeit sales. One case of counterfeit sales came into light when

Amazon sold a fake My Critter Catcher. The product was sold for $1 less than the

original product.   

 Can do backward Integration by expanding its production of in-house brands such

as Amazon basics to differentiate its offerings and improve profit margins. 

 More acquisitions of e-commerce companies can increase the company’s market share

and reduce the competition level.

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  Self Driving Technology – Amazon recently acquired California-based self-driving

startup Zoox Inc for whooping $1 Billion. It can now leverage autonomous technology to

exploit the increase in demand for ride-hailing services or use it to improve its delivery

network.

 Launch of electric rickshaws in India– Amazon pledges to make a positive impact on

the environment. With this vision in mind, Amazon plans to deploy 10,000 electric

rickshaws for delivery in India by 2025. 

AMAZON’S THREATS – EXTERNAL STRATEGIC FACTORS

 Few controversies have caused a dent in Amazon’s brand image. People critically reacted

and boycotted Amazon sites in 2010 when they found that it’s selling the book “The

Pedophile’s Guide to Love & Pleasure: a Child-lover’s Code of Conduct.”

 Government regulations can also threaten the business proceedings of Amazon in some

critical countries. Amazon does not ship to Cuba, Iran, North Korea, Sudan, and Syria.

 Links to exploitative labor – Amazon is one of three retail giants facing scrutiny from the

US State Department for maintaining supply chains and labor sources associated

with human rights abuses. This exposes the ecommerce giant to reputational, economic,

and legal risks.

 Increasing cybercrime can affect the network security system of the company.

 Aggressive competition with big retail firms like Walmart and eBay can give Amazon a

tough time in the future. In addition, now Amazon competes with the following

companies:

a) In Video Streaming Service: Apple TV+, Netflix, Disney+

b) In Logistics: FexEx

c) In Self Driving Technology: Tesla, Uber, Ford

 Imitation is simple as many new entrants are coming up in the market usually with the

same business model of Amazon.

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  Fake Products – The increase in counterfeiting and fake products threatens Amazon’s

profits. The company recently filed a lawsuit against New York-based online retailer for

allegedly counterfeiting Valentino shoes, a luxury Italian shoe brand offered by Amazon.

 Economic Recession – Amazon is not immune to an economic recession. If economic

uncertainty worsens, it can impact Amazon’s sales. 

 Fake reviews – Amazon has an overwhelming amount of fake reviews, and the problem

has worsened in recent times due to the pandemic. Product reviews are a critical indicator

of quality and authenticity, and customers rely heavily on reviews to make purchases.

Figure 11 : SWOT Analysis of Amazon

RECOMMONDATIONS

SWOT analysis clarifies the current standing of Amazon. Few necessary improvements are

needed to be done to administer the lacking and reinforce its market position.

30
In short, Amazon needs to strengthen its key areas, minimize its weaknesses, avail opportunities,

and counteract threats for future progress.

Few recommendations are given below:

 Consolidate the market dominance by boosting its marketing efforts, promotional

activities, and competitive advantages.

 Strategically deal with global controversies. Amazon needs to resolve tax issues and

manage its app’s features efficiently to diminish negative publicity in the market.

 Increase its limited presence through opening physical stores outside the U.S. This will

augment brand popularity and market reach.

 Enhance its strategic entry in developing countries where many growth opportunities

are available.

 Increase competitive edges and enlarge the gap between Amazon and its biggest

competitors.

 Address the issues of counterfeit sales and cybercrimes by upgrading technology

measures.

 Enhance network security systems for the protection of consumers’ rights.

AMAZON’S VALUE CHAIN ANALYSIS

Amazon has developed a brand name for itself through the value it provides to its

customers. Porter’s value chain analysis tool gives better insights into Amazon’s value chain. It

is a strategic analysis tool that helps analyse a company’s activities. Through this analysis, the

model helps determine how a company creates value for its customers.

31
 Figure 12 : Value Chain Analysis of Amazon

Amazon’s value chain analysis consists of a company’s activities into primary and support

activities. Therefore, it is crucial to look at both of them separately. In the primary activities, we

cover the inbound logistics, operation, outbound logistics, marketing and sales, and services

while the support activities consist of the firm’s infrastructure, human resources, technology

development, and procurement.

AMAZON PRIMARY ACTIVITIES

In Amazon’s value chain analysis, primary activities are those involved in obtaining raw

materials, converting them, and delivering them to customers. It may also include marketing and

sales activities and services. Lastly, it also consists of any services provided to customers. There

are five primary activities that any company may have. For Amazon, these are as follows.

 Inbound logistics

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 Inbound logistics defines a company’s activities involved in obtaining raw materials.

Amazon doesn’t usually have its own products. It provides a platform for other

businesses to sell their products and services. Usually, Amazon doesn’t have any long-

term contracts with these businesses or suppliers. The company provides the Fulfillment

by Amazon (FBA) service to its suppliers in inbound logistics.

Sellers can utilize FBA to store their inventory in Amazon’s warehouses or fulfillment

centers. Usually, Amazon requires them to provide its products in advance to update its

systems and allow sales. Once the products reach Amazon’s locations, the company takes

care of logistics, customer services, and returns.

However, sellers also get the option of not using their FBA services. In that case, sellers

can take care of their deliveries and other services themselves. However, using Amazon’s

services is usually the best option for most suppliers.

Amazon uses logistics to serve its Amazon marketplaces. The company offers logistic

services to others as well. The company also provides shipping services to sellers through

its several subsidiaries. Its efficient logistics infrastructure gives Amazon a competitive

advantage over many other companies in the business.

 Operations

Operations include all activities that go into converting raw material into finished goods.

Amazon organizes its operations into three segments. Firstly, it has the North America

segment, which accounts for a majority of its revenues. It contains its prominent brands,

such as Amazon.com, Amazon.ca, Amazon.com.mx. It is the company’s most profitable

segment compared to the others.

Amazon also has an international segment. These include its operations outside the North

America segment. Through this segment, the company focuses on international

customers. The International segment is the company’s second-largest revenue-

generating segment. It includes several countries, such as Australia, Germany, Sweden,

Japan, India, and many more.

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 Lastly, the company also has its Amazon Web Services (AWS) segment. It includes

services such as computing, storage, cloud infrastructure, database, and other services.

Through this segment, the company offers other businesses various online solutions. The

AWS segment allows the company to operate in markets outside its core activities.

Overall, the company has a creative and innovative approach to problem-solving.

Through this, the company creates value for its customers associated with its operations.

The company’s operations have been one of its primary sources of competitive

advantage.

 Outbound logistics

Outbound logistics consists of activities involved in storing, moving, and distributing

finished products. Amazon has various operations included in its outbound logistics.

Amazon has its fulfillment centers that use robotic technology for inventories. It includes

managing, storing, picking, and shipping products. The company operates over 175

fulfillment centers around the globe.

The company also uses other outbound logistic activities besides its fulfillment centers.

Firstly, it includes co-sourced and outsourced arrangements. Similarly, the company uses

digital delivery services for online products, such as books, media, etc. Furthermore, the

company operates several physical stores worldwide, which generates a sizeable revenue

for the company.

The company uses various delivery services worldwide, such as DHL, FedEx, UPS, etc.

However, the company also has its own logistic system. It includes increasing numbers of

planes, trains, ships, trucks, and vans to deliver products to customers. The company has

also invested in drone technology to make its deliveries more efficient.

 Marketing and Sales

Marketing and sales include operations involved in promoting products and selling them.

Amazon incurs significant marketing expenses worldwide. Similarly, the company has

been increasing its investment in the area steadily over the past. The company incurred

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 over $13 billion in advertising expenses in 2018. However, the company increased its

advertising expenditures by $5 billion in 2019, investing over $18 billion during the year.

It was an increase of almost 37%.

The company has always believed in marketing its products. These marketing campaigns

include promotional advertisements for specific products or the brand as a whole. Since

the company offers several products and services in various markets, it must stay ahead

of the competition. Nonetheless, the marketing and sales of the company have been one

of its primary sources of value.

Amazon promotes its large selection of products and services, attractive prices, fast

delivery, and superior customer services. Likewise, the company also brands its Amazon

Prime services as a better version of these services. The company uses several marketing

mix techniques to communicate its messages to its target customers.

 Services

Amazon’s exceptional customer services have also been one of its sources of competitive

advantage. The company offers its customers various services through all its products.

Amazon Marketplace and Prime customers include buyers and sellers from the platform.

For sellers, the platform provides several tutorials, tools, and programs to help them

achieve better sales.

The company also offers customers other after-sale services such as returns. The whole

process is efficient to provide customers with the best possible experience. Similarly,

Amazon’s customer services have been among some of the most highly ranked services

worldwide. The customer services offered by Amazon are irreplicable.

AMAZON’S SUPPORTED ACTIVITIES

In Amazon’s value chain analysis, support activities are those that don’t come as a result of core

activities. These are activities that all companies have. According to the value chain analysis,

35
there are four support activities that every business has. These are the firm’s infrastructure,

human resources, technology development, and procurement.

 Firm’s infrastructure

The firm’s infrastructure consists of organizational and management activities. Amazon

has always put the maximum effort into building an infrastructure that supports its online

business. Amazon has learned from its past mistakes and adopted its business to rectify

those mistakes. Amazon has also successfully converted some of its firm infrastructures

into business, for example, cloud computing.

A company the caliber of Amazon can’t run without a robust firm infrastructure. While

Amazon has been successful in the past, its firm infrastructure has always supported its

primary activities. Managing and organizing a business of Amazon’s size is challenging.

However, its firm infrastructure does an outstanding job of managing it.

 Human resources

Human resources involve activities a business participates in to manage its human

capital. Amazon has a great working environment for employees. It provides employees

with the best training. Similarly, it gives its human resources the recognition it deserves

through its promotions and reports. Amazon’s recruitment and employee management

process has been one of the primary elements of its success.

Amazon also utilizes independent contractors and temporary personnel to rotate its

workforce seasonally. The company also has policies for promoting and recognizing

employees’ work through rewards. Overall, the company typically considers its employee

relations to be crucial.

 Technology development

Technology development involves a company’s use of technology in its operations. For

Amazon, there is no question about how it has used technology to its advantage. Its

technological innovations have been one of the differentiating factors between the

36
 company and its competition. The primary source of technological development is its

core business of online retail stores and the related infrastructure.

Similarly, the company has also utilized technology to expand into other markets. For

example, the company offers digital streaming services through Amazon Prime Video.

Likewise, the company has expanded its business into cloud computing through its AWS

services. Lastly, the company also works in the artificial intelligence market.

Other than these, the company also utilizes technology in its operations. For example,

Amazon updates its inventory in real-time to match the count in its warehouses. This

example is just a small instance in which the company utilizes technology. Overall,

Amazon has used technology throughout its business and has developed a competitive

advantage through it.

 Procurement

The process behind Amazon’s procurement is known as Sales and Operations (S&OP).

Through this process, the company forecasts the sales for each product in its distribution

center inventory. Similarly, the company keeps track of its inventory position in real-time

based on warehouse receipts and shipments.

Once the inventory levels for a product reach a specific amount, the company places a

purchase order with suppliers. The company uses its forecasted sales to determine when

its inventory will run out and orders new stock beforehand. Through this, the company

ensures its inventory doesn’t run out. Overall, this procurement process is another one of

the company’s competitive advantage processes.

AMAZON’S COMPETITIVE ADVANTAGE & BUSINESS STRATEGY

The internet played an important role in Amazon's growth. However, the company's technology

innovation, business operation model, and marketing strategy are ultimately responsible for its

continued success. Though Amazon started as an online bookstore, the company has

transitioned, expanding into different business areas such as logistics, groceries, media

37
entertainment, and recently cloud computing. However, the company is famous for its online

retail business, offering consumers various products ranging from common stationaries to

electronics. Since its inception, Amazon has been attracting consumers to its website by

providing a wide range of products cheaper than competitors' prices.

Product Variety

Amazon has positioned itself as an industry leader by providing shoppers with various products.

Amazon has something for everybody, which validates the influx of consumers to the site. There

is absolutely nothing you cannot find on Amazon. The company displays products from different

brands on its website, offering buyers the ability to compare and contrast before settling for the

product that best fits their needs.

Low Prices

Apart from offering buyers the ability to compare and contrast numerous products, the company

prides itself on its ability to provide the lowest price possible. Through its cost leadership

strategy, the company has positioned itself as the industry favorite, attracting buyers from all

income levels. The price positioning has also made Amazon's website the destination of millions

of consumers to conduct price checks. Today, at least nine out of ten customers in the United

States visit Amazon.com to research product prices (Dayton, 2020).

Great Customer Service

Amazon has, through its excellent customer service delivery, enjoyed the benefits of repeat

customers. Amazon's customer service is topnotch, from fast shipment and delivery to a stress-

free refund process. Amazon's business strategy revolves around customer satisfaction;

customers take priority over sellers. The company promotes a listening culture through which

buyers can review and give feedback on products purchased. Amazon offers the most flexible

return and refund process. Buyers have 30 days return window to return products to be eligible

for a full refund (Goettsche Partners, 2011). Refunds are processed once the returned product is

received. The company's excellent delivery system has also contributed to the company's

38
exceptional customer service excellence. Prime subscription has been a great revenue maker for

the company. For $14 a month, members enjoy fast unlimited free shipping of products

purchased on Amazon.com.

Customer is the basis for Amazon's business strategy. The company believes that the buyer is

crucial to their business, and as such, the customer must experience satisfaction at every

encounter. As documented by Dudovskiy (2020), the company cares more about customers'

satisfaction than they care about market competitors.

Sophisticated Email Strategy

Amazon is the king of personalized emailing, personalized email on the basis of demography and

previous purchase history. Unlike other company which engages in email blasts, Amazon

strategically sends email embedded with product recommendations to consumers. The company

sends nine transactional and marketing emails while guiding consumers through the registration

process. Amazon uses every avenue of contacting the member via email as a marketing

opportunity. From order confirmation, to delivery notification and order review requests, every

email sent out to consumers by Amazon, is intended for a purpose; that is, recommending a

product to the consumer (Miller, 2018).

Figure 13 : Amazon’s Email Strategy

Product Review and Rating Opportunity

39
 Amazon pioneered the product review revolution which dates back to 1995. While many

ecommerce companies have adopted the feedback process, Amazon does it differently by

ensuring buyers rate product individually even if they purchased all at once. Other buyers rely on

other people’s review when making a decision on whether to buy or not.

Figure 14 : Amazon’s Product Rating & Review

40
Another important point about Amazon’s reviews tactics is that they solicit reviews for each

product individually. While many companies send emails asking for reviews, most bundle their

requests altogether. Amazon, meanwhile, will send out different emails for different products,

even when you purchased everything at the same time. This way, Amazon’s email marketers

create messages with very specific subject lines.

When customers are going through their email, they’re more likely to notice a particular product

name than a subject line that just asks them to “rate their purchases.” If someone particularly

liked or disliked a certain product, they’ll then be more likely to click on the specific email

request that mentions it, rather than the general and vague solicitation email.

Relying on Member’s loyalty

Amazon place a great deal on word of mouth marketing. This type of marketing has been

regarded as the best and most productive marketing strategy in the world.

Figure 15 : Amazon’s Loyalty Program

Amazon’s aim is to transform every buyer into a loyalist. Amazon invest a great deal into

exceptional customer service by ensuring consumers enjoy maximum satisfaction whenever they

shop on the website. This in turn has been beneficial to the company who gets publicize to

another potential buyer through the recommendation of a recent buyer.

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AMAZON’S FINANCIAL ANALYSIS

From this point on, the report will focus on Amazon's financial statement. How well the

company is performing year by year. The report will analyse Amazon's ups and downs from

2016 to 2019

2019 2018 2017 2016

Item/Year
Current Assets 96,334,000 75,101,000 60,197,000 45,781,000

Current 87,812,000 68,391,000 57,883,000 43,816,000

Liabilities
Inventories 20,497,000 17,174,000 16,047,000 11,461,000
Cash 55,021,000 41,250,000 30,986,000 25,981,000
Receivables 20,816,000 16,677,000 13,164,000 8,339,000
Total Assets 225,248,000 162,648,000 131,310,000 83,402,000
Total Liabilities 163,188,000 119,099,000 103,601,000 64,117,000
Total Equity 62,060,000 43,549,000 27,709,000 19,285,000
Sales 280,522,000 232,887,000 177,866,000 135,987,000
Cost of Goods 205,768,000 173,183,000 137,183,000 105,884,000
Sold
EBIT 14,541,000 12,421,000 4,106,000 4,186,000
Interest 1,600,000 1,417,000 848,000 484,000
Net Income 11,588,000 10,073,000 3,033,000 2,371,000

Table 1 : Financial Data (Amazon)

The data here is obtained from Yahoo Finance from 2016 till 2019. All items in the above table

were available in the Income statement and the balance sheet. As you can see every factor and

42
item shows an increase from one year to another. The figure illustrates the growth Amazon

displayed from year to year. Even though the asset in every year is high, the net income is

shockingly low. Amazon has a low net income because they have a lot of debt and liability

collected. They also spent a lot of their money on acquiring companies and manufacturing big

productions. This made a lot of people debate whether or not Amazon is profitable.

The below figure represents the financial formula to calculate liquidity, profitability, return on

investment, activity efficiency, cash flow and financial leverage.

43
 Figure 16 : Financial ratio formulas

The table below provides the ratios of current, quick, and cash. The current ratio reveals if

companies can pay their debts. Any current ratio value that is less than 1 indicates the company

might struggle to pay off its debts. Amazon from 2016 to 2019 has a current ratio above 1. While

the quick ratio shows company capabilities to pay for its current liabilities without worrying

about selling its inventory. The higher the ratio better for the company. The cash ratio shows if

the company can look out and deliver their short-term requirement like paying for the salary. 0.5

to 1 is the preferred cash ratio. Amazon has shown in the table is between those number in every

year.

Ratio/Year 2019 2018 2017 2016

Current Ratio 1.10 1.10 1.04 1.04
Quick Ratio 0.86 0.85 0.76 0.78
Cash Ratio 0.63 0.60 0.54 0.59

Table 2 : Liquidity Ratios of Amazon

Current Rati o
1.11
1.11.1 1.1
1.09
1.08
1.07
1.06
1.05
1.04 1.04 1.04
1.03
1.02
1.01
2019 2018 2017 2016

Figure 17 : Current Ratios of Amazon

44
 Quick Ratio
0.88
0.86
0.86
0.85
0.84
0.82
0.8
0.78 0.78
0.76 0.76
0.74
0.72
0.7
2019 2018 2017 2016

Figure 18 : Quick Ratio of Amazon

Cash Ratio
0.64
0.63
0.62

0.6 0.6
0.59
0.58

0.56

0.54 0.54

0.52

0.5

0.48
2019 2018 2017 2016

Figure 19 : Cash

Ratio of Amazon

As discussed above, these graphs are associated with the ratios. All current ratios above 1

indicate the company is in good condition to pay out its debts. The ideal quick ratio should be

1:1, unfortunately, Amazon in every year is less than 1. Indicating Amazon couldn’t be able to

pay out its full liabilities in the short term. Whereas they are in good condition in Cash ratio,

placed between 0.5 and. 0.6.

Ratio/Year 2019 2018 2017 2016

Inventory Turnover 10.0 10.1 8.55 9.23

45
Receivable Turnover 13.5 14.0 13.5 16.3
Total Asset Turnover 1.25 1.43 1.35 1.63

Table 3 : Activity Ratios of Amazon

Inventory Turnover
10.5

10.1
1010

9.5
9.23
9

8.5 8.55

7.5
2019 2018 2017 2016

Figure 20 : Inventory Turnover of Amazon

Recievable Turnover
18
16 16.3

14
13.5 14 13.5
12
10
8
6
4
2
0
2019 2018 2017 2016

Figure 21 :

Recievable Turnover of Amazon

46
 Total Asset Turnover
1.8
1.6 1.63

1.4 1.43
1.35
1.25
1.2
1
0.8
0.6
0.4
0.2
0
2019 2018 2017 2016

Figure 22 : Total

Inventory turnover between 4 to 6 is considered the ideal ratio of turnover. Below 4 indicate a

company might be overstocking. In Amazon cases, they have a high inventory level, meaning

that they have good management skills.[ CITATION Wil13 \l 1033 ]. Receivable turnover shows how

well the company is collecting their debts. A higher ratio means companies are collecting their

debt faster. Interestingly, Amazon has a ratio decrease; from 16.3 in 2016 to 13.5 in 2019. Total

asset turnover is the company's integration of its assets to generate sales. The ratio for total asset

turnover for Amazon in the 4 years.

Ratio/Year 2019 2018 2017 2016

Debt Ratio 0.72 0.73 0.79 0.77

47
Times Interest Earned 9.09 8.77 4.84 8.65
Ratio

Table 4 : Debt Ratios of Amazon

Debt Ratio
0.8
0.79
0.78
0.77
0.76

0.74
0.73
0.72
0.72

0.7

0.68
2019 2018 2017 2016

Figure 23 : Debt ratio of Amazon

Times Interest Earned Rati o

10
9.09
9 8.77 8.65
8
7
6
5 4.84
4
3
2
1
0
2019 2018 2017 2016

Figure 24 : Times Interest ratio of Amazon

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Ratio/Year 2019 2018 2017 2016
Return on Equity 0.19 0.23 0.11 0.12

Return on Assets 0.05 0.06 0.02 0.03

Profit Margin 0.04 0.04 0.02 0.02

Table 5 : Profitability ratio of Amazon

Return on Equity
0.25
0.23

0.2
0.19

0.15

0.12
0.11
0.1

0.05

0
2019 2018 2017 2016

Figure 25 : Return on Equity of Amazon

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 Return on Assets
0.07

0.06 0.06

0.05
0.05

0.04

0.03 0.03

0.02 0.02

0.01

0
2019 2018 2017 2016

Figure 26 : Return on Total Assets of Amazon

Profi t Margin
0.05
0.04
0.04 0.04
0.04
0.03
0.03
0.02 0.02 0.02
0.02
0.01
0.01
0
2019 2018 2017 2016

Figure 27 : Profit Margin of Amazon

The return on equity is the company's ability to generate income from their equity. A ratio from

0.15 to 0.20 is considered to be good. Amazon has managed to get that in both 2018 and 2019.

Return on Assets is related to how much success the company is having based on assets. The

year 2018 has the highest return on assets with 6%. The profit margin is when sales revenue is

greater than the cost of production. With Amazon's growth, we can see 2018 and 2019 has a

higher ratio than in 2016 and 2017.

IV. CONCLUSION

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The case study aimed to analyse the organization’s internal strengths and weaknesses. Amazon’s

top-two strengths include customer-satisfaction-oriented and its broad selection of product

categories.

Amazon’s greatest strength is its commitment to satisfying its customers. Its focus is to

provide premium customer service to create a high level of customer loyalty. Through its

expansion initiatives Amazon has broadened its selection of product categories to include media,

electronics, apparel, etc. fulfilling its vision of offering a wide variety of merchandise appealing

to many shoppers.

From the analysis , it is found that over the years Amazon gained their competitive advantage by

implementing effective strategies. The strategy to focus on global delivery expansion is the

recommended strategy of choice that will provide Amazon more control over shipping rates.

Because Amazon is a customer-centric organization, customer satisfaction is its top priority and

shipping costs are part of that customer satisfaction. While venturing into foreign markets comes

with many challenges, maintaining lower pricing, including low shipping rates, entices new

customers to shop with Amazon over its competition.

To sum up, Amazon has been the top online retailer due to how they operate their strategy

efficiently. Ever since the move to online, Amazon has seen consistent increases year by year.

However, the low net income and the increased liability is alarming to many. But believing that

is due to Amazon's commitment to investing in long-term projects and acquiring big enterprises.

More expenses come when there are more obligations and responsibilities, but in the long term,

Amazon can make up for the expected losses. There is no denying the progress Amazon has

made, with the new project plans ahead and new manufacture production they are creating,

Amazon has shown no sign of slowing down.

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