Comparing Two Similar Businesses: Amazon and Borders Bookshop - Term Paper Example

?Comparing Two Similar Businesses: Amazon and Borders Bookshop History and core business Amazon.com was started by Jeff Bezos in 1995 as an online books retailer and two years later it went public. By 1999, the company had experienced phenomenal growth that included having numerous services such as Auctions and zShops, a wide selection of products from toys to electronics to home improvement and international sites in Germany and UK (Amazon.com, 2012). This rapid growth earned the founder-CEO, Jeff, the award of 1999 TIME Magazine “Person of the Year”. Amazon.com grew very quickly breaking several industry records along the way such as making annual revenues of over US $5 billion in 8 years in comparison to Wal-Mart’s 20 years (Chaffey, 2012). Borders Bookshop was opened in 1971 by two brothers Tom and Louis Borders in Ann Arbor, Michigan. As its name suggests Borders core business was the sale of books. According to Bomey (2011) Borders flourished in its early years because of the unique software system developed by Louis Border. The software system enabled the company to accurately project sales such that it was able to manage its inventory better than its rivals. Borders performance went to its all-time highs in the 90s with an IPO in 1995 and share value high of $44.88 recorded on February 4, 1997. Both Amazon and Borders bookshop began their business as book retailers, the former as a pure-play e-commerce company and the latter as a brick and mortar business. Nevertheless, the two companies pursued different growth strategies. In less than three years since its founding Amazon was broadening its product line and pursuing an international growth strategy. On the converse, Borders took about two decades before expanding its product line beyond books. As an online business, Amazon pursued low-cost, high-volume sales strategy whereas Borders Bookshop pursued a focus differentiation strategy that sought to create a unique market positioning among customers of its bookshops as the third alternative between home and work. Managements approach to Internet marketing and sales It is not quite fair to contrast the approaches taken by Amazon and Borders with regards to Internet marketing and sales for two reasons. Firstly, the Internet is the principal infrastructure for Amazon’s business as a pure-play e-commerce retailer while it is not for Borders. This means that Amazon would naturally have to develop marketing and sales strategy based on the Internet while Borders would have to think about it as an alternative channel. Secondly, Amazon was founded in the era of the disruptive change caused by the Internet whereas Borders had to contend with this disruptive infrastructure after close to two decades in business. According to the cultural web theory management respond to change in ways which are familiar to the cultural, social and political norms of their organizational life (Johnson, 1992). This implies that when the Internet’s disruptive change to the book selling industry occurred, Borders which had been around for 20 years had the cultural paradigm barrier to contend with unlike Amazon. From the reasons mentioned above, Borders’ management reacted too slow and too late in adopting Internet marketing and sales. To make matters worse, when Borders did eventually make the decision to adopt the Internet as a marketing and sales channel, the company outsourced the function. By outsourcing this function, Borders was unable to develop core competencies in Internet marketing and sales which later happened to be the industry game changer. This ultimately placed Borders in a weaker position in comparison to other book sellers such as Amazon and Barnes & Noble that had developed competencies in this new channel. Reasons for Amazon’s success despite not turning a profit for the first 5 - 6 years In the first few years, Amazon was focused on identifying and building core competencies rather than on turning in profits. To remain competitive over the long term organizations have to continuously be a step ahead of their rivals. Researchers have found that one way for doing this is to continuously develop new competencies as rivals manage to copy the older competencies. In the long run, competitiveness comes from a company’s ability to build, at lower cost and more speedily than competitors, the core competencies that spawn unanticipated products (Prahalad & Hamel, 1990). Amazon built, bought and partnered to develop its competencies within the first few years and the results are now manifested through the numerous products and services that it has and continues to pioneer such as Kindle Service and device, Amazon Web Services, 1-Click ordering, Amazon Prime and so on. Secondly, in the first few years Amazon created a culture of metrics and optimization (Chaffey, 2012). This culture continues to endear Amazon to its customers given that it supports its customer-centricity approach. Using several pioneered of adopted metrics, Amazon has been able to measure and predict consumer behavior such that it has been able to continuously surprise its customers with new products and services that they would not have thought they needed such as customer recommendations and reviews, Free super saver shipping, “click to look inside” and so on. The third reason for Amazon’s success despite not turning a profit for the first five to six years is that the company did not simply focus on selling products and services but on developing a platform. The platform that Amazon created is like an ecosystem that encourages both buyers and sellers to use it as a common area for getting value. This way Amazon acts similar to a marketplace, an attribute that enhances the company’s value to its customers. Three reasons why Borders ended up in Chapter 11 Borders legacy systems were the benchmark in the 70s and 80s. According to Bomey (2011) Borders flourished in its early years because of its superior supply chain management software system. It is surprising therefore to see the company not take advantage of its early competitive advantages to catapult it further ahead of its rivals. The first reason for Border’s demise therefore, as stated by Evans (2011) , was the company refusal to invest and keep abreast with the rapidly changing technology in retail operations. Secondly, Border’s fell into bankruptcy because of its management’s poor choice of strategic change approach. Organisations generally follow a certain path of competence development which defines the choices they make now and that they will be likely to make in future (Teece, Pisano, & Shuen, 1997). This implies that most organizations naturally pursue evolutionary change to their strategy. However, when faced with disruptive change in the industry, organizations may need to take a revolutionary change in their strategy in order to survive the new market forces and competition that have resulted from the disruptive change. Border’s slow adoption of Internet marketing and sales as well its initial outsourcing of this function demonstrates the organization’s failure to adopt the best strategy change approach, in this case revolutionary change. Thirdly, Borders failed to understand its customers intimately. The company’s management did not go out to find out its consumers’ reactions to this new sales channel. Borders needed to interact with its customers and industry experts in order to better understand the Internet’s impact on value-proposition from the perspective of its customers or market. Recommendations From the discussions above on the success of Amazon and the demise of Borders Bookshop X ways for a company to build in flexibility to back up its decision-making process so as to adapt to changing market conditions are identified. Firstly, organizational culture has been identified as a key stumbling block to the reaction that organizations take when faced with disruptive change. This could be mitigated by taking frequent cultural audits within the company in order to highlight the major barriers to implementing strategic change. Secondly, organizations need to also continuously seek not only customer feedback but also independent customer behavior analysis especially where new technologies, processes or products are involved. This way companies will be in a better position to predict the effects of disruptive change on their business early enough. References Amazon.com. (2012, April 27). Amazon Media Room: History & Timeline. Amazon.com. Retrieved April 27, 2012, from http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-corporateTimeline Bomey, N. (2011, July 18). Borders’ rise and fall: a timeline of the bookstore chain’s 40-year history. Ann Arbor.com. Retrieved January 27, 2012, from http://annarbor.com/business-review/borders-rise-and-fall-a-timeline-of-the-bookstore-chains-40-year-history/ Chaffey, D. (2012, April 27). Amazon.com case study. Smart Insights. Retrieved April 27, 2012, from http://www.smartinsights.com/digital-marketing-strategy/online-business-revenue-models/amazon-case-study/ Evans, M. (2011, February 17). Borders Books: Why is Barnes & Noble performing well as a business while Borders has filed for bankruptcy? - Quora. Quora.com. Retrieved April 27, 2012, from http://www.quora.com/Borders-Books/Why-is-Barnes-Noble-performing-well-as-a-business-while-Borders-has-filed-for-bankruptcy Johnson, G. (1992). Managing Strategic Change - Strategy, Culture and Action. Long Range Planning, 25(1), 28–36. Prahalad, C. K., & Hamel, G. (1990). The Core competence of the corporation. Harvard Business Review, (May-June), 79 – 91. Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic Capabilities and Strategic Management. Strategic Management Journal, 18(7), 509–533.  Read More