AMAZON.COM – Innovation Audit
Innovation audit is the inspection of an organization’s innovation capabilities with the aim of discovering exact strengths and weaknesses of innovation processes and practices, as well as determining the best way of improving performance. This document presents innovation audit for Amazon.com. It begins by describing organizational background and history. The subsequent sections focus on key drivers of innovation at the company, sources of innovation, innovation capability mapping, and hindrances to innovation.
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Organizational Background
Amazon is the world’s largest online retailer. Officially launched in 1994, the company started as a book seller before transforming into a provider of a broad range of products and services through its multiple websites. Today the company operates via three segments based on product offerings and strategic regions of its market: (1) Amazon Web Services (AWS), (2) North America, and (3) International services (Amazon Inc., 2014). Primary products and services include merchandise and content that the firm purchases from vendors for resale and stocks offered by third-party sellers. Recently, Amazon has ventured in the manufacture and sale of electronic devices such as the popular Amazon Alexa smart speaker. Through its many subsidiaries like the Whole Foods Market, the company is also involved in the sale of organic foods and staples. The North America segment focuses on consumer products, including those from sellers, and subscriptions through websites like amazon.com. The international segment comprises retail sales and subscriptions via international-focused websites while the AWS segment deals with the sale of computing, storage, database, and web-based products.
Current State
Amazon retains the title of the largest retail business in the world. It is one of the highest grossing online companies with an approximated annual sales of $180 billion. Over the past decade the firm has increased its sales by almost $150 billion (Wearetop10, 2018). In 2008, sales totaled $19 billion while in 2017, they amounted to $177 billion. The total market share value for the company’s stock is estimated to be 669.8 billion (Wearetop10, 2018). Comparing this value to the Gross domestic Product of countries, Amazon emerges wealthier than 16 nations. With an estimated 12 million products, excluding books, wine, media, and services, and 341 million more from third-party sellers, the firm’s customer base is exceptionally diverse and the target market includes all consumers around the globe.
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Over 1000 million customers use the company’s Prime service. 72% of all amazon customers usually end up spending between $100 and $500 on the Amazon’s websites annually and half of web shoppers visit the sites to search for products (Wearetop10, 2018). Amazon webs services and products, including Prime Video service, Amazon Alexa, and renewable energy solutions have also attracted a large audience worldwide. The company’s workforce currently stands at 117,000 workers worldwide. Evidently, Amazon has demonstrated to be an innovative company and a prime contender in the online market place. The firm continues to grow through development, acquisitions, and new products and services.
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Drivers of Innovation
Innovation refers to the process of transforming an idea into a valuable service or product. One of the principal factors behind Amazon’s success is its innovation. Drivers of innovation at the firm range from technological advancement, new social norms, to organizational culture.
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Technology (Information and Communication Technology)
Technology was not only a key driver in the formation Amazon, but also in the exponential growth of the company. In fact, Amazon is considered as one of the Big Four Horsemen of technology along with Alphabet, Apple, and Facebook. Before the company’s launch, Jeff Bezos, the founder, visualized the internet as an opportunity to open an online store. He initially launched the firm as a website for selling books. Nevertheless, he had a vision for growth and even aspired to expand the business into an all-inclusive store with a range of products. Later, Amazon included new product lines with music CDs, DVDs, videotapes, and software in its stock. The list grew quickly to incorporate baby products, apparel, electronics, beauty products, and even groceries. In essence, Amazon was an early adopter of the internet as a commerce platform (Chaffey, 2018). The firm launched in 1994, only three years after the internet was opened for commercial use. With E-commerce, users could traverse geographical barriers to get what they wanted and use electronic payments that did not require physical presence. Through time, Amazon has capitalized on every new technology in the internet, including security protocols and Artificial Intelligence (AI) to raise value for its customers which is one of the critical reasons for its grate success (Cloud, 2008).
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Competition
Competition is a major driver of innovation at Amazon just as it is a central factor in novelty in other businesses and industries. After the launch of Amazon, many entrepreneurs decided to espouse e-commerce in order to traverse geographical boundaries and reach a wider customer base. This competition meant that every business was aiming to provide the latest and most valuable products and services to customers (vickery, 2018). Amazon innovated various strategies to outsmart its competitors such as incorporation of user friendly websites, broader product assortments, highly competitive pricing, and greater convenience in delivery and sale. Product and service differentiation has been a chief element of Amazon’s competitive edge and marketing strategies. By retaining creativity in its products, customer-orientation, and a focus on quality, Amazon has carved out its own image in a crowded marketplace.
Human Capital
Amazon’s innovative organizational culture enables the company to seek talented employees who are bold enough to take risks and create new ideas (vickery, 2018). This is facilitated by availability of a skilled workforce with key prerequisites for innovation in the technology and originality frontiers. In the modern business environment, workers are not only required to create but also learn new production techniques. Moreover, the percentage of people with university degrees has risen in the recent decade. This reflects a high availability of skills in the market which in turn, shape human capital at Amazon.
Economic Climate and Market Conditions
A culture of innovation is easiest to maintain where market conditions reinforce the confidence to take risks (Gewirtz, 2016). Although the economy was plagued by the 2008 financial crisis, Amazon succeeded in exploiting economic and market enablers of its enterprise, particularly those related to e-commerce. Furthermore, the U.S. economy promotes investment and entrepreneurship by according the private sector with economic freedom and the autonomy to choose the direction and scale of production. With regard to the market, the recent period has seen a significant shift from conventional to online shopping where a majority of millennials prefer to order products online at their convenience. This change has not only allowed amazon to innovate it offerings but also personalize shopping experiences.
Sources of Innovation
Sources of innovations in the case of amazon vary greatly depending on the context. The main sources include incongruity in the market, process need, market structure, and demographics.
Incongruity in the Market
The need for diverse products and services has shaped innovation in many ways. For instance, the frustrating experience of typing and waiting for online search results to load prompted Amazon to develop a device that could listen and answer questions immediately. The Amazon Echo device, which is powered by an AI assistant, is personable and connects to Amazon’s cloud service in order to work (Bausch, 2017). It delivers what Google could not deliver in its conventional search engine. It is a common trait for human beings to fill incongruities that they notice around them.
Process Need
Amazon regularly identified weak spots in its processes and redesigns or corrects them. This is a task-oriented solution that creates an innovative culture from existing capabilities. A case in point is the use of robots to carry stock around Amazon’s expansive stores. The company owns over 100,000 robots that help in sorting, packing, and relocating stock.
Market Structure and Demographics
The expansive retail industry in which amazon operates is in continual flux. Some products lines expand while other shrink. This is especially true with technology products which quickly evolve. Additionally, regulations change abruptly, often requiring Amazon to be innovative in order to guarantee survival (vickery, 2018). By the same token, demographic factors command businesses like Amazon to adopt new ways of service. A fitting example is the use of web-based service platforms to serve the modern generation of shoppers.
Innovation Capability Mapping
Amazon relies on knowledge sharing and collaboration among its employees to fuel innovation (Gewirtz, 2016). The company provides various types of access to its employees including graphics user interfaces. These user-friendly interfaces allow the workforce to participate in mass collaborative knowledge processing. The user interface is adequate for most workers, although requesters occasionally need versatile services. In such cases, the user resorts to program interfaces to consult, submit, and design new bits of knowledge. Generally, the company relies on a custom system that connects departments and teams in accordance with functions and hierarchy. New bits of knowledge submitted by employees is used to design new processes, solve problems, and perform continuous improvements.
Hindrances to Innovation
Barriers to Amazon’s innovation are not related to the organization per se but rather to the external environment. For instance, the current business environment evolves so fast that it becomes a challenge for organizations to keep up. As a large, process-driven firm, Amazon struggles to keep up with changes, especially in technology because of ‘liabilities’ such as a large base of existing customers, highly scaled leveraged processes, and brand equity. Fortunately, the company does not rely on legacy tech. Another challenge concerns high levels of regulation in the market. A majority of amazon services depend on data sharing which is increasingly being regulated aby authorities, thus impending innovation.
Recommendations
In order to secure its position in the marketplace, Amazon needs to continue utilizing innovation in its operations. The following recommendations will serve as strategies for improvement:
- Amazon should continue to focus on quality rather than branding.
- Amazon should entice new shoppers as consumers are less interested in value ranges.
- The company should create a flexible organizational culture to allow for innovation.
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