The Integration of Business and IS Systems
Amazon.com – a case study
27th October 2007
“Our vision is 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.”
Amazon.com’s quest to become earth’s most customer centric company is largely driven by its use of technology. In fact, its continuous innovations are all driven by huge investments in information systems (Laudon and Laudon 2005).
Information systems not only support their mission, but in fact drive their business strategy. In this paper , Amazon’s use of information at each stage of Porter’s value chain will be considered. Their innovative and forward looking use of information systems to generate competitive advantage will be analysed in the context of Porter’s five forces and we will also have a look at how they have formed Amazon have formed strategic alliances to overcome certain competitive forces.
Future plans to sustain competitive edge will be examined; Amazon not only continue to use technology to improve their customer centric operations, but are now in fact opening up this technology and providing technical and logistics solutions to other firms.
The Value Chain
The concept of ‘Value Chain Anaylsis’ is described at length by Michael Porter (1985). He notes that every firm is a collection of activities that are performed to design, produce, market, deliver and support its products or services. He identifies specific, critical-leverage points where a firm can use information technology most effectively to enhance it’s competitive position (Laudon and Laudon , 2005). In his value chain model, ‘Primary Activities’ such as inbound logistics, operations, outbound logistics, sales and marketing and service, are seen as basic activities that add a margin of value to a firm’s products and service. Since Amazon’s inception in 1995, they have used information technology to manage each stage of the value chain. Inbound logistics – including receiving, storing, inventory control – are managed by sophisticated technology such Transportation Optimization and Management Systems (TOMS). They, use a set of applications for accepting and validating customer orders, placing and tracking orders with suppliers and managing and assigning inventory to customer orders. In fact in 2007, Amazon’s systems have become so efficient in managing inventory that they generally collect from customers before their payments to suppliers come due (SEC1 2007).
Amazon’s marketing strategy is designed to increase customer traffic to their websites, drive awareness of products and services, promote repeat purchases, develop incremental product and service revenue opportunities, and strengthen and broaden the Amazon.com brand name. (Amazon Annual Report 2007). Technology, again, is the conduit for their marketing strategy.
Amazon were the first to deliver personalized Web pages and services. For instance, their technology keeps track of user preferences for books and CD purchases etc, and can recommend titles purchased by other customers.
Their advertising consists primarily of online advertising, including through their Associates program –Amazon.com's affiliate marketing program, where web developers, by linking to Amazon products and services to their sites, can receive up to 10% in referral fees, – sponsored search, portal advertising, e-mail campaigns, and other initiatives.
Customer service is another key area where technology adds value to Amazon’s offer. From the outset, in line with their customer-centred mission, Amazon tried to provide superior customer service through email and telephone customer support, online tracking and shipping information, and the ability to pay for purchases with a single click of the mouse using credit card and personal information provided during a...