Amazon Case Study: Part One

By Natasha Terry-Armstrong,
Shore School

When Amazon.com was first launched it was an online bookstore Interesting Facts
which others though doomed to fail. Many critics thought Jeff • Amazon is the No. 1 selling e-tailer in the world – Amazon’s
Bezos crazy when stocked his online bookshop with one web sales are five times Walmart, Target and Buy.com web
million book titles. The e-business has since expanded to sell sales combined.
music, electronics, videos, pharmaceuticals, pet supplies, home • Amazon serves 137 million customers a week (19.5 million daily)
improvement products and groceries. Not to mention its evolution • There are over 152 million active Amazon customer accounts
as a marketplace for third party sellers, a supply chain
• In it’s first week of trading, Amazon took orders for $12,438
management expert for business customers and Amazon Web
worth of books
Services (AWS) for networking infrastructure.
• It took eight years for Amazon to turn a profit
This case study will explore a range of successes and challenges
faced by Amazon.com since its inception. Part One focuses on the ‘Amazon gives the customers what they want:
range of strategies used by Amazon to succeed in a highly low prices, vast selection and extreme convenience’
competitive market: including finance, HR, operations and culture. - Jeff Bezos (at a shareholders’ meeting in 2009)
Figure 1: Jeff Bezos, founder of Amazon.
Source: Wikipedia Commons
STUDENT ACTIVITIES
1. Give reasons why people may have thought an online bookstore was
‘doomed to fail’.
2. What is happening when a business expands the variety of products
it sells as Amazon has done?
3. Amazon’s vision statement is very general. To what extent do you
think this is achievable?
4. Why do you think it took Amazon eight years to make a profit?
5. Time Magazine’s ‘Brief History of Online Shopping’
http://www.time.com/time/business/article/0,8599,2004089,00.html
provides an overview of the development of Amazon. Account for
the rise of Amazon as part of the online shopping revolution.

Vocabulary/concepts
Define each of the following terms in their correct business
context:
third party seller, supply chain management, infrastructure,
venture capital

Finance And Stock Market History

As indicated in the vital statistics above, Amazon was started using
$10,000 savings (personal equity), a $44,000 bank loan and $245,000
borrowed from family. After 1996, an additional one million dollars
was raised from 20 or so angel investors (venture capital).
Amazon went public on NASDAQ under the ticker symbol AMZN
in May 1997. The Initial Public Offering (IPO) price for shares
was $18.00. By going public, Amazon acknowledged that only the
Vital Stats stock market would be able to provide the kind of financing it was
looking for. Heavy investment in establishing automated ware-
Prime Function: Amazon.com is American based multinational houses and distribution centres had left the business with over
electronic commerce company. $2.1 billion in accumulated debt.
Founder: Jeff Bezos (founded in 1994 in a garage in Seattle, Today the shares are valued at approximately $260. However, this
launched online in 1995) has not been a story of steady growth. For example, in 2001 the
Vision: ‘Our vision is to be earth's most customer centric stock price plunged to just $5.97 with the dotcom crash. Amazon
company; to build a place where people can come to find and managed to survive this industry challenge period, though had to
discover anything they might want to buy online’ close two warehouses and lay off 15 per cent of staff in the process.
Start Up Costs: $10,000 savings (personal equity), $44,000 bank The company finally turned a profit in late 2001 despite the dotcom
loan, $245,000 borrowed from family. After 1996, an crisis. Even when profitable, Amazon have never declared or paid
additional $1 million was raised from 20 or so angel investors cash dividends on common stock; opting instead to retain all future
(venture capital) earnings to finance future growth.

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Organisational Culture: Amazon Amazon’s distribution and fulfillment centres are large, each with
hundreds of employees. Employees are responsible for: unpacking
Leadership Principles and inspecting incoming goods; placing goods in storage and
Organisational culture is the collective behaviour of humans who recording their location; picking goods from their computer
are part of an organisation and the meanings that the people attach recorded locations to make up an individual shipment; and shipping.
to their actions. Culture includes the organisation values, visions, Each distribution centre is equipped with latest materials handing
norms, working language, systems, symbols, beliefs and habits. technologies such as ‘pick to light’ system which used a terminal
Companies with positive adaptive corporate cultures, when display to guide workers through picking and packing process.
combined with effective leadership efforts, consistently financially Frequency technology is used to direct workers to warehouse
outperform other firms. In developing culture, Amazon has locations via radio signals. They also use voice technology –
identified 14 key leadership principles which they state apply to computers communicate instructions to workers. Employees
every ‘Amazonian’: carry hand-held computers which communicate with the central
• Customer Obsession • Ownership computer and monitor their rate of progress. A picker with their
• Invent and Simplify • Are Right, A Lot cart may walk 15 or more kilometres a day.
• Hire and Develop the Best • Think Big Amazon has one of the most-sophisticated supply-chain systems
• Insist on the Highest Standards • Bias for Action in the world, and it was all built from scratch. Homemade
• Frugality • Vocally Self Critical applications handle nearly every aspect of its supply chain:
• Earn Trust of Others • Dive Deep Leaders warehouse management, transportation management, inbound and
outbound shipping, demand forecasts, inventory planning, and
• Have Backbone; Disagree and Commit • Deliver Results
more. Amazon takes a Six Sigma approach to its distribution
operations, and applies lean manufacturing and Total Quality
STUDENT ACTIVITIES Management methodologies to its processes.
6. In 1997, Amazon shares opened at $18 each and the business had Development of a high level of automation is anticipated in the
$2.1 billion debt. Would you have purchased these shares back future following Amazon's 2012 acquisition of Kiva Systems, a
then? Would you now wish that you had? warehouse automation company.
7. Why did Amazon choose to take its business public – what kind of
finance was it looking for? STUDENT ACTIVITIES
8. What are some of the reasons why Amazon retains its profits rather 11. What sort of skills would employees at an Amazon distribution and
than distributing them to shareholders? fulfillment centre need to have?
9. Describe the organisational culture of your school or a workplace 12. How would these skills differ for managers?
you have been in.
13. Go to http://www.six-sigma.com.au How would this approach
10. From the list of 14 Amazonian leadership principles, rank these apply to distribution?
from most to least important for a business of this size and type.
14. Amazon outsources some of its deliveries to FedEx.
Watch here to learn how FedEx organises its distribution centre.
Vocabulary/concepts http://www.youtube.com/watch?v=Cdm2t952jYg
Define each of the following terms in their correct business 15. Identify the type of integration Amazon has undertaken with its
context: purchase of Kiva Systems http://www.kivasystems.com
organisational culture, adaptive corporate culture

Vocabulary/concepts
Operation Management: Distribution Define each of the following terms in their correct business
context:
Centres (DCS) fulfillment centres, lean manufacturing, automation,
In 2008, Amazon had eight warehouses in the United States of total quality management
America and another fifteen in the rest of the world. Amazon
operates sites in Canada, China, France, Germany, Italy, Japan,
Spain and United Kingdom; and maintains dozens of fulfillment Human Resource Management At
centres around the world which encompass more than eight million
square metres. Amazon
Figure 2: Amazon warehouse Glenrothes – Scotland, UK Amazon currently employs more than 51,300 people around the
Source: Wikipedia Commons world. Employees work in corporate offices, fulfillment centres,
customer service centres and software development centres across
North America, Europe and Asia. Employees contribute in a
variety of functions and jobs, including:
 Software Development
 Information Technology
 Operations and Customer Service
 Finance and Administration
 Human Resources
 Legal (intellectual property and patent efforts,
public policy initiatives, litigation)

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Benefits, Employee Stock and Relocation Figure 3: Kindle 3 - an e-book reader displaying part
of an e-book on its screen.
Assistance Source: Wikipedia Commons
The basic benefits for full-time, U.S. employees (vary for other
employees in other locations) include:
With regard to e-Books, Amazon’s
Health Care: A choice of three medical plans (employee and vision is ‘for all books ever printed
partner), dental plan, vision plan, life and accident coverage to be available in any language in
Employee assistance program including dependent-care referral less than 60 seconds (downloading).
services and financial/legal services Customers now purchase more
Time Off: Salaried employees earn two weeks of vacation time Kindle books than print books’.
in the first year, three weeks of vacation in the second; six Amazon’s Kindle selection has
personal days every year in addition to six holidays grown from 90,000 (Nov 2007)
Savings Plans: 401(k) savings plan (similar to superannuation to 950,000 (May 2011).
in Australia) with a company match, several employee
discount programs
Employee Stock: Most Amazon employees receive Amazon
‘We’re now seeing the transition we’ve been expecting.
Restricted Stock Units (shares) After five years, e-Books is a multi-billion dollar category
Relocation Assistance: Amazon may provide relocation for us and growing fast – up approximately 70 per cent
assistance for certain positions to attract and retain quality last year. In contrast, our physical book sales experienced
employees the lowest December growth rate in our 17 years as a
book seller, up just five per cent. We're excited and very
grateful to our customers for their response to Kindle
Key Success Strategies and our ever expanding ecosystem and selection.’
1. Knowing their market and industry: Amazon was the first - Jeff Bezos, December 2012
to market in selling books on the internet which gave it a
competitive advantage, particularly as no bricks and mortar In Part 2 of the Amazon Case study, we will examine Amazon’s
bookstore can offer three million books in one place! approach to Corporate Social Responsibility, Marketing and current
growth strategies as well as the backlash they experienced with
2. Focus on value-adding for customers:
‘Occupy Amazon’!
‘If you make customers unhappy on the Internet,
they can each tell 6,000 friends’ STUDENT ACTIVITIES
- Jeff Bezos, 1996 16. Ask an employee you know about the benefits they receive for
Amazon has developed a range of additional services for health care, superannuation, vacations and stock. How does this
customers which enhance their e-commerce experience and compare to the benefits Amazon offers?
build return custom. These include: user-contributed reviews, 17. Evaluate Jeff Bezos’ 1996 statement that an unhappy customer tells
control of customer experience, similar books, interviews, 6,000 friends. This sounds like an exaggeration – how might it be true?
recommendations. When you choose a book, Amazon will 18. What advantages would in house distribution channels have over
automatically indicate that ‘customers who bought this book outsourcing? What would be the disadvantages?
also bought…’ and list the related titles based on purchase
19. Using http://www.youtube.com/watch?v=GAf4vxGEOAo
patterns of customers. This is used to intelligently cross-sell
identify the areas of competitive advantage Kindle may have over
products. Evolving features include ‘Search Inside the
other e-readers.
Book’, 1-Click Shopping’, ‘Listmania’, ‘Wish List’
20. Account for the growth of e-readers over the past five to seven years.
3. Logistics: Amazon has mastered distribution channels
in-house to provide safe and quick delivery. This has been 21. If you were advising Jeff Bezos on the next step for growing
a deliberate choice as opposed to outsourcing to third party Amazon would it be adding products or adding distribution? Why?
logistics companies. Actual deliveries are still through third
party businesses including UPS and FedEx. Vocabulary/concepts
4. Use of acquisitions, alliances and strategic partnerships to Define each of the following terms in their correct business
grow and bring in new customers. Each new partnership context:
brings more customers to Amazon’s site. intellectual property, patent, competitive advantage,
cross-sell, differentiated features
A Competitive Market – e-Readers
And Books References
Amazon is locked in a high-profile battle with Apple in the fast- Amazon Website: www.amazon.com
growing market for tablet devices and the digital content – music, Bacheldor, B. (2004) From Scratch: Amazon Keeps Supply Chain Close To Home, Information Week,
http://www.informationweek.com/from-scratch-amazon-keeps-supply-chain-c/18300054
movies, apps and books – consumed on them. The companies’ Chaffey, D. Amazon.com case study, found at http://www.smartinsights.com/digital-marketing-strategy/
rival products, the Kindle Fire and iPad, are expected to be among online-business-revenue-models/amazon-case-study/
Garling, C. (2013) Amazon has extra clout - in the cloud, San Francisco Chronicle.
the hottest purchases this Christmas. Hane, P. J. (2012) Amazon’s Ever-Expanding Empire, Vol. 10, Information Today.
Marcus, J. (2004) Amazonia. Five years at the epicentre of the dot-com juggernaut, The New Press,
Instead of trying to replace the printed book or the iPad, Amazon’s New York, NY.
Kindle device has been developed with a few very differentiated O’Marah, K. (2012) Amazon beats Apple in battle for supply chain leadership, Supply Chain
Management Review, found at http://www.scmr.com/article/amazon_beats_apple_in_battle_for_
features, dedicated to the reading experience to gain a competitive supply_chain_leadership/
advantage. Ross, E. & Holland, A. (2007) 50 Great E-Businesses and the Minds Behind Them. Random House Australia.

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