Example of Strategic Plan Model - Amazon
Example of Strategic Plan Model - Amazon
Amazon is the 5th most admired company in the world. How did it become so successful so quickly? 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.
We share a link to Amazon’s strategic plan, however, this article provides helpful context. 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 below 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.
To do this, Amazon conducted the external analysis using the following analysis frameworks:
- PESTEL Analysis
- Industry Analysis
- Competitor Analysis
- Global Internet Trends
- GE Matrix
The “PESTEL" 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
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.
- Buyer Power: How easy it is for buyers of your product to drive your prices down? If what you provide is unique and in demand then you are in a good position. Otherwise, you may need to compete from a price perspective.
- Competitive Rivalry: How many competitors do you have? How capable are they compared to you? If you provide a unique product or service that others can’t match, then you have competitive power.
- Threat of Substitution: Can your customer find a substitute product to yours to get the job done? The ideal is a product that can’t be substituted.
- Threat of New Entry:How hard is it for people to enter your market and compete with you? Your advantages may be patented products, economies of scale or complexity.
Amazon has hundreds of competitors. The challenge is which ones to focus on. They focused on large-scale internet retailers that offer a broad range of products. This exercise helped Amazon to better understand who their competition is. Ebay and Wal-Mart are examples.
Global Internet Trends
The internet is Amazon’s key channel. The 20 top countries in internet usage, and grow patterns were identified.
This is a matrix used to screen portfolios of business units. Both the attractiveness of the industry and the strength of each business unit within the industry is plotted. Here is what the matrix looks like:
Industry attractiveness is determined by the following factors:
- Growth rate
- Global opportunities
Business unit strength is determined by:
- Market share
- Market share growth
- Distribution channels
- Production capacity
- Profit margin comparisons