Optimization Plan for Amazon

Optimization Plan
Presentation for Amazon
Ivan F Rodriguez
BUS721 Issues in Optimizing Operations
November 28, 2016

About this Presentation
• Objective: Describe operations optimization strategies to maximize profits
and social value of global companies in today’s business arena.
• Methodology: This presentation was developed using the Leadership
Operational Plan tailor-made for Amazon, and it includes the following:
I. Company Overview
II. Company’ Major Issues Faced
III. Recommendations of the necessary changes to achieve optimization:
a) Strategy
b) Organizational Structure Behavior Practices
c) Operations Management
d) Project Management
e) Leadership Behaviors
f) Control Systems & Key Performance Indicators to measure the progress
2Ivan F Rodriguez | BUS721 University of Phoenix

I. Company Overview
Amazon, the Global E-Commerce
Giant

Amazon Overview
• Who is Amazon?
It is the world’s largest online company, complex, global, ambitious and revolutionary
company. With headquarters in Seattle, Washington, Amazon trades in NASDAQ
(AMZN), NASDAQ-100 and S&P 5000 and employs approximately 230,800 full-time
and part-time employees. Amazon is both, a manufacturing organization producing
electronic goods; and a service organization distributing millions of products from
thousands of sellers (Amazon Annual Report, 2015).
• Vision
To be earth’s most customer-centric company; to build a place where people can
come to find and discover anything they might want to buy online.
• Mission
To leverage technology and the expertise of our valuable employees to provide our
customers with the best shopping experience on the Internet.
• Business Strategy
To get big fast by investing aggressively in new product categories and new business,
by spending money on brand awareness and getting new customers.

Amazon Overview (cont.)
• Leadership Team
Amazon Executive Officers and Directors team includes eight people which
average age is 51 years, seven out of eight, are American nationals and they
have been employed by Amazon for at least nine years (see Table 1).
Table 1
Amazon’s Executive Officers and Directors
Name Age Hiring
Year
Current Position
Jeffrey Bezos 52 1996a
President, Chief Executive Officer, and
Chairman of the Board
Jeffrey Blackburn 46 2006 Senior Vice President Business
Development
Andrew Jassy 48 2006 Senior Vice President Amazon Web
Services
Brian Olsavsky 52 2002 Senior Vice President and Chief Financial
Officer
Diego Piacentini 55 2007 Senior Vice President International
Consumer Business
Shelley Reynolds 51 2007 Vice President, Worldwide Controller,
and Principal Accounting Officer
Jeffrey Wilke 49 2007 Senior Vice President Consumer Business
David Zapolsky 52 2002 Senior Vice President, General Counsel,
and Secretary
Note: Adapted from Amazon Annual Report (2015).

• Amazon Sources of Competitive
Advantages
1. Technology
• Expertise in technology
• “One-Click” System
2. Economies of Scale
3. Talented workforce
• Company Culture
4. Marketing
• Brand name and reputation
5. Extensive product offerings
6. Extremely low prices
• Shipping/delivery advantages
• Manufacturing of Kindle as
lowest-price e-reader
Figure 1
Amazon Web Services
Note: Grey squares refer to the specific Amazon’ masters servers
location (9 regions) and the white circles to the zones within each
server (25 zones). Source Amazon Annual Plan (2015).

Figure 2
Understanding Amazon Competitive
Advantages Dependencies
Proposed Counter-
Measurements (see
details in Section III)

Figure 3
Amazon’s Porter’s Five Forces Model
Note: Amazon’ business model success relies extensively on achieving the lowest
possible prices. Source Operational Plan for Amazon (2016).

This table depicts Amazon’ Strengths
(S), Weaknesses (W), Opportunities
(O), and Threats (T), and relates it to
its Competitive Advantages:.
This analysis is supported by
organization-specific, and peer-
reviewed references.
Table 3
Amazon Strengths, Weakness, Opportunities and Threats (S.W.O.T)
Strengths Weaknesses
[S1] Operational Network
[S2] Customer-centric business
[S3] Differentiation of Business Model
[W1] Decline financial performance
[W2] Operational issues (deliveries and quality)
[W3] Bad reputation on social responsibility and
social value creation
[W4] High dependency on currency fluctuations
Opportunities Threats
[O1] Expansion capabilities to new markets (e.g.,
Africa, and the Middle East)
[O2] Strong scale economy to grow horizontally
(i.e., acquisitions, joint-ventures, merging)
[O3] Expansion capabilities on existing markets
(e.g., United States, Italy, United Kingdom,
Germany)
[O4] Profits and Net Income improvement by
products diversification (e.g., bank
services, payment services, etc.)
[T1] Foreign Exchange Risk
[T2] Competition (new and existing)
[T3] Dependency on one distribution channel, the
Internet
[T4] Government regulations and compliance
Note: S represents Strengths, W Weaknesses, O opportunities, and T means Threats. This analysis
is supported by organization-specific (Amazon Annual Report, 2015), and peer-reviewed
Table 2
Amazon’ Strengths, Weaknesses, Opportunities, and Threats Analysis
(S.W.O.T.)

Amazon
S.W.O.T.Analysis
Leadership Scale CashFlow Innovation Knowledge Total
S1 Operational Network 3 3 2 3 3 14
S2 Customer-centric business 3 1 1 3 2 10
S3 Differentiation ofBusiness model 3 1 3 1 2 10
S4 Senior Leadership business acumen and experience 3 1 3 3 3 13
W1 Declinefinancial performance 3 2 1 1 2 9
W2 Operational issues (deliveries and quality) 3 3 1 2 3 12
W3 Bad reputation on social responsibility and social valuecreation 3 2 1 1 2 9
W4 High dependency on currency fluctuations 1 3 1 2 1 8
O1 Expansion capabilities to newmarkets (e.g.,Africa and MiddleEast) 3 3 2 2 1 11
O2 Strongscaleeconomy to growhorizontally (i.e.,acquisitions,joint-ventures,merging) 3 3 1 2 3 12
O3 Expansion capabilities on existingmarkets (e.g.,United states,Italy,United Kingdom,Germany) 3 3 3 3 3 15
O4 Profits and NetIncomeimprovementby products diversification (e.g.,bank services,paymentservices,etc.) 3 2 2 3 2 12
T1 Foreign ExchangeRisk 2 3 1 2 2 10
T2 Competition (newand existing) 3 3 2 3 2 13
T3 Dependency on onedistribution channel,Internet 3 1 1 3 2 10
T4 Governmentregulations and compliance 0
Total . 42 34 25 34 33 168
Friday,October21,2016
CriticalSuccessFactor(CSF)
Table 3
Amazon’s Competitive Scope vs. Competitive Advantage
Data interpretation: The highest score
the highest the correlation. Leadership
has the biggest influence to maximize
strengths, minimize weaknesses,
realize opportunities, and reduce the
risk of the threats are those depending
on leadership effectiveness.
Figure 4
S.W.O.T. vs. Industry Critical Success
Factors
Note: The higher the number, the stronger the dependency between Critical
Success Factor (CSF) and S.W.O.T. Source Operational Plan for Amazon
(2016).

II. Major Issues Faced
Amazon’ Challenges to Continue
Leading the E-Commerce Industry
Globally

• Amazon´s competitive advantage relies extensively on the intangible ability to delight customers
with uncompromised quality, timely delivery, and unparalleled purchasing experience.
Furthermore, Amazon’s success relies deeply on its ability to keep their customers satisfied.
• Customer satisfaction is measured by four key performance indicators (KPI), (1) on time delivery,
(2) quality/reliability, (3) total landed cost (price of the good or service delivered in desired
location), and (4) purchasing experience (easiness to satisfy customers need –variety of products
and services, description of features and functionality, pre and post-sale interaction, speed to
resolve any problem).
• These are the most severe issues Amazon needs to resolve:
1) Competition: Amazon competes in six industries (i.e., retail, e-commerce services,
digital content, electronic devices, and web and infrastructure computing services) each
of them fighting vigorously to increase their market share and value.
2) Operational Execution: because of the fast execution pace (growing total sales
between 20% and 25% year over year) and aggressive timing of Amazon´s expansion
plans –geographic regions, products, services, and technologies, (Amazon Annual
Report, 2015), operational system becomes vital to Amazon.
3) Complexity: Complexity to manage resources efficiently in an uncertain and dynamic
global business is rising significantly.
Major Issues Faced by Amazon

Major Issues Faced by Amazon
Quantitative Analysis
Table 2
Amazon´s Issues to continue growing and delivering positive results
Number Issue Severity
(S)
Occurrence
(O)
Awareness
(A)
Issue Relevance
(S x O x A)
1 Competition 3 3 3 27
2 Operational
Execution
3 3 3 27
3 Complexity 3 3 3 27
4 Financial Projection
Accuracy
2 3 3 18
5 Compliance 3 2 3 18
6 Employees Motivation 3 2 3 18
7 Commoditization 2 2 2 8
8 Leadership Turnover 3 2 3 18
9 Retain and expand
network of sellers
3 2 3 18
10 Adoption rates of
Internet usage
3 1 3 9
11 Mix of Products and
Services
1 2 3 6
12 Lack of innovation 3 1 3 9
This table depicts the list of issues faced by Amazon using a comprehensive analytical approach
and adds three quantitative factors to measure them, using problem severity (S) to Amazon´s
financial results, the probability of occurrence (O), and Amazon´s awareness (A) to prevent
issues’ effect.
Table 4
Note: Source Operational Plan for Amazon (2016).

Major Issues Faced by Amazon (cont.)
Quantitative Analysis
Table 2 (cont.)
Amazon´s Issues to continue growing and delivering positive results
Number Issue Severity
(S)
Occurrence
(O)
Awareness
(A)
Issue Relevance
(S x O x A)
11 Mix of Products and
Services
1 2 3 6
12 Lack of innovation 3 1 3 9
13 Fuel and gasoline
price increase
affecting total landed
cost for the customers
2 3 3 18
14 Spyware, viruses,
phishing, and other
spam e-mails
3 3 2 18
15 Terrorist Attacks and
armed hostilities
3 2 2 12
Note: Each factor is measured in the three levels, 1=Low, 2=Medium, and 3=High. Evaluation is
supported on organization specific, industry, and peer-reviewed references paired with author’s
assessment. The importance of the issue comes from multiplying severity times occurrence times
awareness, and it is used to identify what the biggest issues are to propose strategies and actions to
resolve them.
Table 4 (cont.)

III. Recommendations
Optimizing Amazon´ operating system is
vital for its present and future as the
realization of industry growth relies on
resolving these issues efficiently

Pillars of Amazon´s Operations’
Improvement Plan
Amazon’s generic corporate strategy, concentric diversification, has allowed the
company (1) creating value to their customers by using their technology expertise;
this is Amazon’s main lever to create scale-economy and distribute the substantial
investment in IT solutions (fixed cost) competitively, and (2) achieving the highest
value to their customer base. However, for this results to continue, Amazon needs to
update their strategy to resolve the identified critical issues efficiently (competition,
complexity, and execution).
Considering the deepness and relevancy of the proposals, they involve the
participation of the company as a whole and touch five areas where further
improvement is required (see Tables 5, 6 and 7) :
a) Strategy
b) Organizational Structure Behavior Practices
c) Project Management
d) Leadership Behaviors
e) Control Systems & Key Performance Indicators to measure the progress

#1 Beat Competition
Table 5
Amazon´s Operations Management Optimization Plan
Issue Proposed Solution Level of Strategic Change
and Function Responsible
for Execution 3
Estimated
Implementation Times
(Months)
Competition
1. Increase capital allocation
to R&D activities, raising
the 35% up to 40%.
2. Implement more advanced
technology solutions to
track its customers’
consumer patterns more
accurately.
3. Introduce a robust training
to their critical leadership
team to develop global
mindset,
4. Hire the services of
professional consultants in
global trading to penetrate
new markets with less
taxation and better fiscal
incentives.
1. Level 1, Amazon’ CEO and
Board decision and
execution.
2. Level 1, Amazon’ CEO and
Board decision and
execution.
3. Level 2, Amazon’ Chief
Operations Officer decision,
Divisional Operations
Directors and HHRR
Leaders execution.
Directors and HHRR
Leaders execution.
1. Next Budget 2017-2018: 12
months.
2. Technology solution
identification: three
months; evaluation: three
months, implementation
six months (12 months
total)
3. Training material
selection: three months;
trainers certification; two
months; training and
assessment effectiveness:
seven months (12 months
total).
4. Consultants’ choice: one
month; financial strategy
definition: three months;
strategy execution: eight
months (12 months total).

#2 Minimize Complexity
Table 6
for Execution 3
Estimated
(Months)
Operational
Execution
1. Implement Lean Enterprise
Principles across all the
organization to eliminate
waste (e.g., motion,
transportation, inventory,
defects, reworks,
overproduction, and
space).
2. Implement an operational’
balanced scorecard focused
on monitoring actively
cycle time of core
processes (e.g., receiving,
shipment preparation,
labeling and packaging,
shipping, invoicing, etc.).
The focus is to minimize
cycle times of every step in
the process, and even
eliminate as many steps as
possible to make the
process flow continuous
and the inventory the
lowest.
1. Level 1, Amazon’ CEO
decision, execution relies on
the entire leadership team
(all functions included).
execution depends on
Directors and Managers.
1. Next Budget 2017-2018:12
months.
2. Balanced Scorecard
definition and agreement
with all operational team:
six months; depletion of the
dashboard and monitoring
tool solution
implementation for real-
time tracking of KPI (Key
Performance Indicators): six
months, (12 months total).

#3 Optimize Operational Execution
Table 7
for Execution 3
Estimated
(Months)
Complexity
1. Apply Gartner’s survey to
Amazon’ customers to
identify the areas where
Amazon value proposition
is perceived complex.
2. Rethink Amazon’ global
footprint allowing simpler
segmentation by products
type. Consider reducing
the 35 departments to 20
(e.g., grouping clothing
with sports and outdoors).
3. Further enhance IT
(Information Technology)
solutions implementing
more advanced to make
sellers’ and customers’
transactions more efficient
(consider expanding Big
Data existing
infrastructure).
1. Level 2, Amazon’ Sales,
Business Development and
Marketing Director(s)’
decision, execution relies on
the entire customer service
department.
execution depends on
Directors and Managers
(mostly those in the
fulfillment centers).
Information Technology
Officer decision, execution
depends on Divisional IT
Directors and Managers.
1. Survey design and
customization: three
months; implementation
three months; results
analysis and action plans
definition: three months
(nine months total).
2. Global footprint analysis
accompanied with
quantitative and qualitative
assessment matrix: three
months; changes definition
and execution: 12 months,
(15 months total).
3. IT accompaniments
definition and assessment:
three months;
implementation in a pilot
operation: nine months;
and global deployment: 12
months (24 months).

Organizational Structure and Leadership
Behavior Practices Improvement
Final Comments
• Amazon’s senior leaders should learn how to create a learning organization and
understand this is a core responsibility as company success will rely severely on creating
this solution to allow each employee to learn new processes, methods, use of information
technology tools, etc.
• Further, Amazon´s leaders should design an adapting organization that responds
efficiently (i.e., fast and coherently) to its market’ demands. Amazon is a global brand, with a
decentralized management who soon realized that growing from inside, developing their
own talent, financing with their own capital sources, and deploying one of the most
admirable innovative capacity, has created a successful and inspiring ecommerce
conglomerate.
• Amazon should seriously consider using the concept of transformational leadership, as
this should accelerate the “connection between the organization’s philosophy and shared
values, and embeds those values in organizational rules and actions in order to
communicate meaning and inspire followers” (Bennis & Nanus, 1985, p. 58). Amazon
should update its hiring profiles for senior positions to embrace a strict (non-negotiable) set
of leadership traits including critical reflective skills. Critical thinking should be a key
requirement to Amazon’ leaders, as it will improve their recognition abilities, getting to the
point, using their analytical skills to perform better evaluations of reality, eliminating biases
or at least, consciously reducing them, improving their alternatives searching, finding viable
approaches to improve their metrics, behaviors and the entire organization. Amazon can
leverage critical reflective skills to lead their employees in the process to improve ethical

Project Management and Key
Performance Indicators
Final Comments
• Amazon’ key performance indicators (i.e., sales growth and free cash-flow per share)
depend on a mix of variables, some of them are internally controlled (e.g., quality and
delivery execution, cost of goods sold, employee satisfaction, social value creation, etc.),
some are induced (political stability, inflation and exchange rates, converging or diverging
technologies affecting Amazon’ value proposition.).
• Most of these variables are measured by Amazon in in a weekly dashboard; however, it is
highly recommended for Amazon to evolve this rather reactive performance management to
implement Hoshin-Kanri (HK), a Japanese tool to deploy strategy efficiently. This
recommendation is supported on the possibility HK opens for companies immersed in (a)
global footprints, (b) conflicting and several priorities, (c) uncertainty and insufficient
information to make decisions, (d) high risk of making superficial analysis on core metrics
and projects because the lack of resources (time, people, talent, tools, etc.); to deploy their
strategy efficiently, i.e. getting the objectives, resources, timing, execution responsible
people, performance metrics –dependent (bottom-line metrics) and independent (preventive
metrics), etc. defined and implemented efficiently.
• Last, it is recommended Amazon certifies their Divisional Directors and project executers in
the Project Management Institute methodology (PMI), and agree to document all projects
using the Guide to the Project Management Body of Knowledge (PMBOK) to prevent
failures on execution and value realization from these projects.

References
Amazon Annual Report (2015). Retrieve from http://www.amazon.com/
Bennis, W. G., & Nanus, B. (1985). Leaders: the strategies for taking charge. Los Angeles, CA:
Harper & Row
Bossidy, L., & Charan, R, (2002). Execution: The discipline of getting things done. New York, NY:
Crown Business.
Chakravarthy, B. (2007). A new strategy framework from coping with turbulence. New York, NY:
Sloan.
Coates, K. (2013). Social dumping does not work. Financial World, 4(2), 19-25.
Cooper, H. M. (2015). Organizing knowledge synthesis: A taxonomy of literature reviews. Knowledge
in Society, 1, 104-126.
Cook, J. (2016). Amazon.com dubbed a corporate scrooge by hometown newspaper. Retrieve from
http://www.geekwire.com/2016/amazoncom-dubbed-corporate-scrooge-hometown-newspaper/
Mason, R. (2007). The external environment’s effect on management and strategy. A complexity
theory approach. Management Decision, 45(1), 10-28.

References (cont.)
McKenzie, C., & James, K. (2004). Aesthetic as an aid to understanding complex systems and
decision judgment in operating complex systems. Emergence: Complexity & Organizations, 6(1-
2), 32-39.
OECD (2010). Enhancing the competitiveness of SMEs through innovation. Paper presented at the
Conference for Ministers responsible for SMEs and Industry, Bologna, Italy.
Rahman, N. M. (2012). The effective implementation of global supply chain management in small to
medium-sized companies in Malaysia: an empirical study. International Journal of Management,
29(3), 274-287.
Rosales, V., Juárez, A., Millán, J., & Matovic, V. (2016). Business Models. Journal of Management,
1(3), 1-42.
Sheriff, K. (2016). An adaptive strategy for managing knowledge in organizations. Journal of
Knowledge Management, 10(4), 72-80.

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