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Amazon.com: Innovation Strategy

Executive Summary

Amazon.com is a US-based multinational company specializing in technological fields, including online retailing, digital streaming, and artificial intelligence. The vast majority of Amazon.com’s projects involve inventions, research, and development, which rely on the innovation strategy inherent in the firm’s business model. The history of the company demonstrates the evolution of its innovation management. In this report, the organization’s innovative history is reviewed based on its business performance from its beginning until 2019. The data about the past trends in innovation management is then compared to the present innovation strategies of Amazon.com, as well as the place of the company within its industry, is evaluated. Overall, the innovation management strategy used at Amazon is assessed based on credible evidence. The open innovation strategy and continuous major investments into science are identified as Amazon’s most effective decisions that contribute to its competitive advantage in the market.

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Introduction

The business models and key industries in the modern technologically driven world are approached by big companies from the perspective of innovative decisions and new product inventions. Research and development are commonly considered to be central to organizational growth within a given industry. Indeed, with more technological advancement, more opportunities arise for enterprises that strive to compete over consumers’ demand by means of continuous improvement and innovative decision-making. Therefore, the quality of innovation management of a firm pre determines the success of its business goals’ accomplishment, corporate culture building, and competitive advantage in the market. Amazon.com, as one of the leaders in the sphere of e-commerce and artificial intelligence, prioritizes scientific research as the basis for innovation that drives the continuously improving quality of the company’s products and services. The current innovation audit report aims at identifying the direction of innovation management in the history of Amazon.com to assess its past, current, and future innovative capacity and efforts. Structurally, the report consists of three main sections, concentrating on the organization overview and history, the company’s current innovation strategy, and the internet business industry overview, respectively. Concluding remarks are presented in the closing section of the report.

The Organization and Industry Overview

Amazon.com and Its Innovation History

Amazon is one of the largest American online retail companies that has occupied a solid leading position in the global industry of e-commerce and internet technologies. The company, whose headquarters are situated in Seattle, was founded in 1994 and initially operated as a book retailer (Arnett, Goldfinch, and Chinta, 2018). Now, the company has expanded its range of products to all sorts of digital and material products, which are delivered to customers across the world. Within the scope of internet companies, Amazon is in a highly competitive position due to its continuous growth in another sphere apart from retailing, which is artificial intelligence and digital technologies. Indeed, the company’s mission, vision, and values are based on customer-driven development that allows meeting clients’ needs, thus preserving a leading competitive position. As Arnett, Goldfinch, and Chinta (2018) state, “Amazon focuses on customers in its innovation process by addressing a host of new concerns, concepts, and managerial decisions, including anticipation of customers’ latent needs” (p. 3). Therefore, the unique vision of business opportunities of the company’s executive, Jeffrey Bezos, has been leading the company through its innovation journey.

The history of the company’s innovation strategies started with the firm’s executives’ decision to launch an internet-based business. Since the goals of excellent customer experience and competitive advantage in the market were prioritized, the strategy chosen by the management was directed at innovations. Once shifted from book retailing and having entered the internet business industry in the early 1990-s, Amazon’s business strategy became driven by innovative solutions (Arnett, Goldfinch and Chinta, 2018; Tou et al., 2019). The company’s innovation management performance was significantly influenced by the mission to lead the market and serve customers with the best quality of products and services (Dolata, 2017). Since Amazon’s significant business part is e-commerce with a wide range of suppliers, warehouses, and delivery systems, the innovative decision-making in the area of performance excellence within logistics was prioritized. Amazon Prime, robotic technology application to storage and distribution, and ultimate digitalization of logistical efforts were developed within the first decades of the firm’s existence (Arnett, Goldfinch and Chinta, 2018). Also, personal shopping services, continuous upgrades in online payment opportunities, and other improvements in customer experience with the company have been advanced by means of innovation.

Amazon.com’s Existing Innovation Performance and Capabilities

As an internet company, Amazon has invested significant financial resources in innovative business spheres that allow it to maintain its leading position among other internet companies and continue to attract loyal customers. As one of the firm’s latest financial reports demonstrate, Amazon spends many finances on technology and innovation. Indeed, the share of technology and content expenses within Amazon’s operating expenses in 2018 was $28,837,000 (Amazon.com, 2018, p. 25). It has significantly increased in comparison with $22,620,000 in 2017 and $16,085,000 in 2016 (Amazon.com, 2018, p. 25). In addition, as it is seen from Appendix 1 (see Appendix 1), the share of Amazon’s research and development in sales reaches 11.7% of all sales (Dolata, 2017, p. 7). Overall, the trends in increasing the volumes of investment into innovation are easily identifiable, which indicates the company’s active implementation of a highly effective innovation management strategy.

As it has been stated before, Amazon is based on a ground-breaking innovation strategy that preserves it a leading position among its key competitors. The firm’s strategy is the open innovation strategy that involves openness for new ideas available from communities and other spheres to create excellent products and services for customers’ best experiences (Tou et al., 2019). Internet-based customer feedback and reviews are digitally assessed and incorporated into the organizations’ strategic planning and decision-making to be able to identify the needs and requirements of the target population in a timely manner.

Currently, Amazon’s innovation capabilities are sufficient, with new opportunities created annually, and new services and products entering the market regularly. At present, such innovations as Amazon Web Services, Alexa, and Amazon Go dominate the company’s performance in the sphere of innovations (Amazon Science, 2020; Tou et al., 2019). Also, Amazon absorbs “soft innovation resources from external markets” to increase the “level of assimilation capacity which can be attributed to the rapid and notable increase in its R&D investment” (Tou et al., 2019, p. 19). Thus, the currently employed innovation management methods allow for evaluating Amazon’s capacity as that of a high level and competitive advantage in its respective market.

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The Industry of Internet Business in 2019

The industry of internet business is now on the verge of its development with technological advancement, aiding the continuous and sustainable growth of online-based companies. This innovative business model “allows for sustainable competitive advantages in the internet business to consumer (B2C) market,” where Amazon is one of the leading constituents (Arnett, Goldfinch and Chinta, 2018, p. 2). Since its beginning in the early 1990-s, the industry was firmly occupied by Amazon, leading the trends in this field since. The most influential Amazon competitors in the industry are Apple, Google, Microsoft, Facebook, and other companies that drive innovative change in the market (Dolata, 2017). As for the state of the industry in 2019, the increasing volumes of investment in innovation is observed. Appendix 2 (see Appendix 2) demonstrates that Amazon occupies the second position after Microsoft among the internet companies operating globally in 2019 (Statista, 2020). The level of the market capitalization of Amazon.com reaches $888 billion, which is significantly higher than the level of Apple, Facebook, Netflix, and others (Statista, 2020). This analysis indicates that Amazon’s innovation management strategy is strong and has a high level of capacity to endure future advancement.

Conclusion

In summation, innovation is an immediate determinant of sustainable growth of business under the influence of a continuously growing technological role in the economy. Internet companies, like Amazon, build their business strategies on continuous involvement in innovative solutions that allow for creating sustainable competitive advantages. Amazon employs an innovative business model that relies on open innovation with customer experience prioritization. The frequent development of new products and services, as well as substantial investment into research, development, and scientific innovation, allow the company to remain a leader in its highly competitive industry.

References

Amazon.com (2018) Annual report. Web.

Amazon Science (2020) Customer obsessed science. Web.

Arnett, J., Goldfinch, B. and Chinta, R. (2018) ‘Multi-dimensional nature of innovation at Amazon’, International Journal of Business Innovation and Research, 15(1), pp.1-13.

Dolata, U. (2017) ‘Apple, Amazon, Google, Facebook, Microsoft: Market concentration-competition-innovation strategies’, SOI Discussion Paper, University of Stuttgart. Web.

Statista (2020) Market capitalization of the largest internet companies worldwide as of June 2019. Web. 

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Tou, Y. et al. (2019) ‘A new concept of R&D in neo open innovation: transformation of R&D triggered by Amazon’, International Journal of Managing Information Technology, 11(1), pp. 17-35.

Appendix 1

Internet companies – economic data 2015/16
Internet companies – economic data 2015/16

Appendix 2

Market capitalization of the largest internet companies worldwide as of June 2019
Market capitalization of the largest internet companies worldwide as of June 2019(in billion U.S. dollars)

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