Amazon is the 5th most admired company in the world. How did it become so successful so quickly? Strategy! Investing in the right plans at the right time and staying the course.
The purpose of this article is to review Amazon's strategy development model and the external assessment tools it used in helping it to formulate and select top strategies. (Please note that external assessment tools are but a small but vital part of Amazon's strategic planning process.)
Amazon embraced what known as a "design school model" of strategy development. Despite the title, the model is simple to understand and can be highly effective. It is the one used most by professors and consulting organizations.The diagram located at is Henry Mintzberg's illustration of the model.
Organizations often struggle in finding a compelling competitive position. Successful organization can begin to drift away and total fail at what it takes to be successful. This tool can begin to help an organization get into the game.
EXTERNAL APPRAISALS
The design school model calls for both external and internal appraisals. An external appraisal helps an organization to understand threats and opportunities that are out there in the market. The internal assessment helps the organization to understand its strengths and weaknesses. The "Strengths, Weaknesses, Opportunities and Threats" (SWOT) tool is one that most people are familiar with and stems from the design school model.
To do this, Amazon conducted the external analysis using the following analysis frameworks:
- PESTEL Analysis
- Industry and Competitor Analysis
- Competitor Analysis
- Global Internet Trends
- GE Matrix
PESTEL ANALYSIS
The "PRESTEL" framework helped Amazon to identify trends that could impact them in six key areas:
- (P) Political factors: areas to focus on include political direction, taxes, trade restrictions
- (E) Economic factors: includes GDP, inflation, interest rates, exchange rates and other macro and micro economic factors
- (S) Social factors: includes social trends, population growth rate, age distribution, career expectations, etc.
- (T) Technology factors: includes equipment, information technology, R&D
- (L) Legal factors: include health, safety, employment, discrimination, consumer and antitrust laws
- (E) Environmental factors: includes weather and climate
COMPETITIVE POSITION
The external appraisal includes Amazon looking at its competitive position to determine opportunities and risks and where it should focus. To do this, they use Porter's 5 force tool that helps them to understand the strengths and weakness of its competitive position, and where they might consider moving forward. In simplest terms, the model looks assumes there are five important forces that determine competitive power. These are:
- Supplier Power: How powerful are your suppliers? Is it easy for them to drive up their prices and are you stuck? If there are a number of suppliers providing the same product at the quality and price you want, then the suppliers don't have much power. However, if the supplier provides a unique product that others can't compete with, then they have more power.
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