Contents

Introduction .............................................................................................................................. 2
Resources and Competences .................................................................................................... 2
VRIN Strategic Capability and Competitive Advantages ................................................. 3
Activity Systems ........................................................................................................................ 4
Summary ................................................................................................................................... 6
REFERENCES ......................................................................................................................... 7
APPENDICES........................................................................................................................... 8

Introduction
E-Commerce giant Amazon is one of the major players in the online business sphere and
since being founded in the 1990s has reshaped the way consumers and retailers interact with
each other.
As Amazon has grown as a company it has moved away from its original mission statement
which was to become the worlds biggest and best online bookstore and in the process has
aggressively morphed into a market leader in E-Commerce providing a diverse set of products
and services. Their products and services portfolio ranges from selling electronic devices and
media content to facilitating an online marketplace for small businesses.
This report takes the position that; Amazons growth strategy allows the company to leverage
its core capabilities across different businesses and therefore assures business success in the
long-term despite short-term decreases in profitability due to growth related investments.
The analysis will be informed by using the VRIN and Activity Systems frameworks. The
argument for the position will be made in support of Amazons current strategy by taking into
account the companys resources and key competencies which enable it to strategically
generate the core capabilities that set it up for achieving effective long-term success.
This report aims to spell out that in choosing to continue with its current strategy Amazon will
be able to sustain its competitive advantage in the long-term.

Resources and Competences

Strategic capabilities have a significant impact on an organizations long-term survival or
competitive advantages in the market (Johnson et al., 2014), therefore this report focuses on
the strategic capabilities of Amazon based on the perspective of a strategic resource-based
view (RBV).
According to Gerry J. et al. (2014), strategic capabilities can be composed of resources and
competences, and Resources are the assets that organizations have or can call upon and
competences are the ways those assets are used or deployed effectively. Amazons main
resources and competences are summarized and listed in Appendix 1, and these strategic
capabilities can be evaluated by looking at the Physical, Financial and Human resources of a
company (Johnson et al., 2014).
According to Appendix 1, Amazons Physical capabilities include their products (e.g. digital
merchandise), warehouses, patents (e.g. One Click Payment System), customer databases, and
technology infrastructures (computing system and online storage). All of these physical
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capabilities contribute to the organizations operational foundations in order to ensure

continued long-term success.
According to Amazon.com Inc., (2014), Amazon is made up of around 132,600 current
employees, and has 260 million customer with active accounts (accounts that have at least one
purchase in the past 12 months) (Donna, T., 2014). Between 2011 and 2012, the number of
Amazons audited suppliers grew from 159 to 325.
In addition, several Employee Empowerment programmes were conducted to channel and
focus Amazons staffs motivation, expertise, knowledge, innovation and experience, which
are the key competences in term of human resources. These include Career Choices (pay for
employees to take course for in demand fields), Pay to Quit (pay for their associates to quit
their jobs, encourage people to think about their careers and eliminate the unhealthy parts of
the company) and Virtual Contact Center (answer customers while working from home)
(Amazon.com Inc., 2013).
Amazons facilities and human resources give it a very strong and flexible supply chain. Its
utilization gives customers the most effective of delivery services. Customers also benefit
from Amazons heavy discounting as a result of Amazons ability to negotiate with third
parties.
The combination of human resources and competencies associated with Amazon play integral
roles in the longstanding prosperity of the company, as well as the long-term strategic
direction.
Although Amazon had a net loss of $39 million in 2012, the fact that even after sacrificing
short-term profits they were able to draw upon a free cash flow of $395 million proves the
companys solvency, since free cash flow is an important factor as it allows companies to
pursue opportunities that enhance shareholder value (Hope, J. and Player, S., 2012). Through
access to every active customer accounts email addresses, purchasing histories, Kindles
searching keywords, etc. Amazon is holding the key to the insight of its target customers
behaviour which allows them to implement its marketing in the most economical way.

VRIN Strategic Capability and Competitive Advantages

One of the key goals of any business is to create and maintain a sustainable competitive
advantage over competitors within the marketplace.
According to Jay Barney (1991) a sustained competitive advantage is when it is
implementing a value creating strategy not simultaneously being implemented by any current
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or potential competitors and when these other firms are unable to duplicate the benefits of this
strategy.
When a company holds such an advantage over its competitors a possible outcome of this
scenario can be an overall increase in market share.
The foundations of a sustainable competitive advantage can be divided into four specific key
criteria that make up the VRIN framework:
1. A specific capability should offer value, and be Valuable to customers. For example
customers are willing to pay for Amazons one day delivery service.
2. The Rarity of a companys capability is also crucial. The capability should not be
possessed, or easily possessed by competitors in the marketplace.
3. A sustainable competitive advantage should be Inimitable for example a product or
service that competitors are unable to copy.
4. The risk of non-substitutability should be low enough for the capabilities so that
competitors would not be able to replace it.
Appendix 2 lists the six core strategic capabilities that are key to the success of Amazon.
The VRIN framework is applied to determine if these six capabilities can strengthen the
foundations of a sustainable competitive advantage and their overall impact on long-term
success.
Looking at Amazon within the structure of VRIN shows that they definitely have sustainable
competitive advantages in Diversified Product Categories, Technology Infrastructure and
Logistics in which Amazon met all the four criteria laid out by VRIN, and therefore imply
long-term success for the company.
Although the Negotiation Ability of the Senior Management Team and the Online Marketing
Channels and Promotions do not fulfill all four criteria of VRIN (they are Temporary
Competitive Advantages), there is still a possibility that they can contribute towards the longterm success of the company.

Activity Systems
Mapping out Amazons high order themes activities through an Activity System map allows
further exploration of Amazons value creating operations, as well as highlighting their value
to customers.

An advantage of mapping out Amazons activities within framework is that it enables an

overview of the connections within the web of the companys operations. These
interdependent linkages are crucial as they are the points in which value creation takes place
(Johnson et al., 2014).
Through reviewing the Activity System, as mapped out in Appendix 3, it is possible to draw
upon a number of specific examples demonstrating how the linkage of activities aides the
creation of value the ultimately affect Amazons long-term success.
The strong and positive brand image of Amazons is leading to an important level of customer
satisfaction, which is aided in part through a combination of Amazons Management of
Logistics and their Application of Technology Infrastructure.
The global network of warehouses that Amazon has at its disposal enables it to run a
logistically sound operation, utilizing local or national warehouses to supply and deliver
products to customers in the relative vicinity.
Supporting its capabilities in logistics is Amazons investment in technological infrastructure,
making the purchasing process more efficient for customers. Examples of this are Amazons
patented One Click Payment system (making the online shopping experience less complex),
as well as Amazons internal databases (enabling customers to source products that may not
be currently available in their own region).
A second example can be highlighted through considering Amazons Marketing Channels
and Promotions coupled with their range of Diversified Product Categories (from Kindle ereaders to clothing). The emphasis that Amazon has chosen to place on promoting, marketing
and building their brand has established them as one of the internets retailers of choice.
As Amazon becomes even more ubiquitous with the E-Commerce, due in part to a strong
brand image, they are continuing to attract new customers to their products and services.
Through marketing and promoting their products and services to a growing customer base
Amazon needs to continue to expand its product and service portfolio to cater to the
expectations of their customers.
Amazons expansion is not limited to its product range (Vasudha, M. and Rakakumari, D.J.,
2013). Amazons acquisitions of other businesses has grown significantly since 2005, the
money being spent on individual businesses in this time period has also risen with
acquisitioned businesses in the $500M+ category become more prevalent as time goes on.
Although Amazon has funds for acquisitions, it is the experience and Negotiation Ability of
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Senior Management, as illustrated in the Activity Systems map that allows Amazon to be
flexible in the expansion of their businesses.
The linkages between the activities laid out in the Activity Systems map demonstrate that a
long-term sustainable competitive advantage is possible when Amazons model of business
interdependently benefits the varying sides.

Summary
In summary this report has illustrated the strategic capabilities that Amazon possess, and that
support the companys long-term strategy of growth and expansion.
Through looking at the Amazon in 2013: Online Success case study, and analyzing the
companys Resources and Capabilities as well as observing Amazon through the VRIN and
Activity Systems frameworks the follows points were made:
Resources and Capabilities
Through utilizing their resources and capabilities Amazon has successfully pioneered and
developed products and services within the E-Commerce market over a long period of time.
Based on the analysis of the strategic capabilities of Amazon it is clear that they have the key
competencies to survive and continue to be successful in the long-term.
VRIN
Using the VRIN framework facilitated an analysis of whether Amazon as a company
correlated with the 6 core competencies and resources as laid out in Appendix 2. Analysis
showed that Amazon had a sustainable competitive advantage in 3 areas (Diversified Product
Categories, Technology Infrastructure and Logistics). These sustainable advantages point to a
successful commercial future in the long-term. Although Temporary and not sustainable it is
notable that Amazon has a competitive advantage in regards to Negotiation of the Senior
Management Team as well as in Online Marketing Channels and Promotion which both point
to long-term success
Activity Systems
Through mapping Amazons high order themes and activities via the Activity System
framework, the analysis has shown that Amazon benefits from interdependent nature of their
different themes and activities (which they continue to invest in) that offers continuous value
to their customers in the present and in the long term.

REFERENCES
1. AMAZON.COM

(2014)

Inside

Amazon.

[ONLINE]

Available

at:

http://www.amazon.com/Inside-Careers-Homepage/b?node=239367011
[Accessed 28th October 2014].
2. BARNEY, J. (1991) Firm resources and sustained competitive advantage. Journal of
Management, vol 17.
3. DONNIE, T. (2014) Amazon losses widen as it braces for rocky holiday quarter.
[ONLINE] Available at:
http://www.cnet.com/news/amazon-q3-loss-widens-as-it-braces-for-rocky-holidayquarter/%23ftag=/
[Accessed 27th October 2014].
4. Euromonitor InternationaL: Amazon.com Inc. in retailing (world). 2014. [ONLINE]
Available at :
https://attachment.fbsbx.com/file_download.php?id=473424456130302&eid=ASv76p
gycCtNMQ9SgZao1Lw7JkA_BTIzrLWFC5OMqXN7iMapi8FDbwQ5PQuKM0Nzgn
E&inline=1&ext=1414548067&hash=ASugdE0U6uGK-8e0
[Accessed 27th October 2014].
5. HOPE, J. and PLAYER, S. (2012) Beyond Performance Management. Cambridge:
Harvard Business Review Press
6. JOHNSON, G., WHITTINGTON, R. and SCHOLES, K. (2011) Exploring Strategy.
9th ed. Prentice Hall
7. JOHNSON, G. et al. (2013) Exploring Strategy Text & Case. 10th ed. Edinburgh:
Pearson.
8. VASUDHA, M. and RAKAKUMARI, D.J. (2013) Amazon in 2013: Online success case study. Reference no 313-285-1

APPENDICES
Apendix 1: Resources and Competences
Easy for competitors to Difficult for competitors to imitate
imitate

Products (books, digital Diversified product categories

goods

and

services, One click payment

electronics, TV shows, Competitive price (heavy discounter)

Resources
(what we have)

etc.)

Strong revenue growth

Warehouses

Product development

Employee training and

development systems

Customer database
Marketing Technology infrastructure (Amazon
Web Services - EC2 and S3)
channels and promotions

Online

Brand popularity

Logistics- quick delivery

Kindle services

Negotiation

ability

of

Senior

Management team (vast acquisitions

and low prices with third party)
Competences
(what we do
well)

Positive partnership with third party

merchants
Strong brand loyalty, brand equity and
brand reputation
Huge market share of e-book market
Strong market share of global internet
retailing market
Flexibility of business expansion

Appendix 2: VRIN Analysis

Resource
capability

Impact
on
or
NonCompetitive
Value Rarity Inimitability
longsubstitutability implication
term
success
Sustained
Low
competitive

advantage

Diversified
product
categories
Technology
infrastructure
(Amazon Web
services
EC2
and S3)
Logistics

Negotiation
ability
of
Senior
Management
team
(Vast
acquisitions
and low prices
with
third
party)
Flexibility
of
business

expansion
Online
Marketing

channels and
promotions

Low

Sustained
competitive
advantage

Low

Sustained
competitive
advantage

Medium

Temporary
competitive
advantage

High

Competitive
parity

High

Temporary
competitive
advantage

or

Appendix 3: Activity System

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