We think the reason for Amazon's success is that it disrupted the retailing industry by using service delivery instead of the typical industry use of marketing/sales as the dominant strategy.
If you just look at Amazon’s marketing strategy, you are not able to understand what makes the company tick.
There are 8 strategies and 3 types of strategy common to all organizations. In other words, strategy is a choice of action and 8 basic choices are the foundation of all strategy in all companies.
This strategy system is common to all companies from for-profits to non-profits although the names of some of the strategies will vary slightly.
Amazon’s 8 Strategies
We developed a thumbnail summary of each of Amazon's 8 strategies using its December 31, 2012 10-K filing and selected articles on the company.
Even this brief summary of strategy paints a very different picture of the company than what you would think. That’s the power of seeing strategy as a system.
Business Definition To be a global participant in the online retail and digital commerce industry for consumers, sellers, content producers, and enterprises.
Risk To focus on risks associated with fulfillment (e.g. reliance on 3rd parties for products and ultimate delivery), seasonality, IT infrastructure disruption, inventory shortfalls, government regulation, liability for taxes, new markets/products entry, product liability, seller fraud, and property rights violations
Growth To grow through a combination of internal growth and acquisitions.
Financial Management To source capital through debt and through access to capital markets through NASDAQ.
R&D/Technology To use modular infrastructure in its data centers in the US and selected foreign jurisdictions to power the cloud computing platform.
Organization Management To manage 92,000 employees worldwide as at April 2013 (up 30% from 2012) with a structure in which the CFO, Chief Technology Officer, and the heads of 8 divisions report to the CEO.
Marketing / Sales To serve markets worldwide and to offer retail, eCommerce, Web Services, and Digital Media services.
Service Delivery To fulfill orders through more than 80 fulfillment centres worldwide with use of third party delivery services to complete the actual delivery of physical goods. Note: The biggest data center is in Phoenix and is the size of 28 football fields.
Configuration of Amazon’s Strategy System
One of the eight strategies is dominant and leads the other seven. We call the lead strategy, the Alpha. Influencers are the three strategies that most guide and constrain the implementation of the Alpha and the third category of strategies, the Enablers, being the remaining four strategies.
When we look at the Amazon vision statement, we see a service delivery organization heavily influenced by technology, risk, and growth. We see marketing/sales, organization management, financial management, and business definition as being Enablers.
Amazon's Vision Statement
“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.”
We define “vision” as being the outcome of successful long-term pursuit of dominant strategy as aided by the rest of the strategy system.
We modeled Amazon's strategy system using our online, interactive Drag'n'Drop Strategy modeling site.
We used Amazon’s vision as one means to identify Alpha. The vision is based on “building a place where people can come”. Because we know that “place” means a website enabled by an extraordinary technology effort, we concluded that dominant strategy is not marketing. It is service delivery. Amazon excels at delivering products to customers - not marketing those products!
If anything exists physically, it is the amazing portfolio of Amazon data and logistics centers to enable the service delivery – all of which customers will never visit. This is why we see technology as an Influencer.
We also see Risk as an influencer. Risks have to be carefully managed. For example, so much is dependent on the technology strategy that the service delivery strategy would fail without vigilant management of technology.
With an overall growth rate at more than twice the retail industry average, the pressure on each of the other seven strategies from the growth strategy is what makes growth the third Influencer, in our opinion.
This leaves marketing, organization management, business definition, and financial management as Enablers.
The eight-strategy system operates like a V-8 engine. If any one of the strategies is not firing correctly, overall performance is impacted.
Amazon has clearly learned how to manage its strategy system productively. The priorities set by Alpha and the Influencers determine how the Enablers are to be managed.
The Lessons Learned
1. Know Your Dominant Strategy: The Alpha or dominant strategy is the dominant culture and priority for the company. Amazon is all about service. That is its culture.
Alpha can be any one of the eight. (That's why we called them The Alpha Strategies.) If management and the board don’t know which of the eight strategies is Alpha or manage the company to the needs of the true Alpha, the company is at risk.
Consider all those banks that were managed for growth in the years leading to the 2008 financial crisis. They should have been managed to the needs of financial management, the appropriate Alpha strategy for a bank.
2. Know Your Influencers: These are the three strategies that will most guide and constrain implementation of Alpha and the four Enablers. For Amazon, we see technology, risk, and growth as being those Influencers and providing the most guidance to implementation of Alpha (service delivery) and the Enablers.
3. Don’t Assume Strategy is about Marketing or Visions: When you see strategy as a system, you realize very quickly that marketing/sales is just one of eight strategies and not always dominant strategy. As for vision, it is just a description of a hoped-for outcome from pursuit of dominant strategy as supported by the rest of the strategy system.
For more on our strategy thinking, see: The Alpha Strategies, Understanding Strategy, Risk, and Values in Any Organization free in ebook form or online everywhere.
And be sure to try our interactive, online Drag'n'Drop Strategy site and model your strategy system.