Reasons for Borders Failure and Amazons Success - Research Paper Example

?Amazon versus Borders The first Borders Bookshop was opened in Ann Arbor, Michigan by two brothers Tom and Louis Borders in 1971 with the core business being sale of books. Within the same decade Louis Borders developed the software system that gave the company its competitive advantage for two decades as it enabled the company to accurately project sales and effectively manage its inventory (Bomey, 2011). The company’s fortunes shone in the 90s beginning with the integration of music and movie sales in 1991, acquisition by Kmart Corporation in 1992 and spin off and IPO in 1995. Borders’ shares traded at an all-time high of $44.88 on February 4, 1997. By the end on that decade, Borders had expanded into 256 superstores that had mean sales per square foot of US $256. However, the winds of change, increased competition, effect of poor investment decisions and other factors hit hard in 2007 when the company begun selling off its international subsidiaries and company stocks fell to a six-year-low of $12.28 per share (Bomey, 2011). Borders never recovered and spiraled to its liquidation in July 2011. Amazon was started in 1995 by Jeff Bezos in a two-car garage in Bellevue, Washington. In May 15, 1997 Amazon.com went public (Amazon.com, 2012a). By end of 1998, the company had opened music and DVD stores and launched international sites in Germany and the UK. in 1999, due the company’s phenomenal growth that saw it include numerous services such as zShops, auctions and an array of products from electronics to toys to home improvement, the founder and CEO, Jeff Bezos was named TIME Magazine “Person Of The Year”. Amazon launched Web Services in 2002, the kindle in 2007 and by 2008 it had over 76 million active customers’ accounts and order fulfillment to more than 200 countries. An interesting fact is that whereas it took Wal-Mart 20 years to realize annual revenues of over US $5 billion, Amazon achieved this feat in 8 years (Amazon.com, 2012b; Chaffey, 2012). Amazon has moved from selling only online books to selling a wide array of products and services. Even though both Borders and Amazon were founded with their core activity being the sale of books, the former chose to focus in its earlier products whereas the latter kept adding two new product categories for almost every year of its existence. However, it is neither the product focus of Borders nor Amazon’s diversified product base that explains there very different fortunes. Of course, one of the more obvious factors that led to the demise of Borders and the rise of Amazon was their management’s approach towards the Internet as a sales outlet as well as a tool for marketing, branding and growth. According to Evans (2011), Borders greatest failed to adequately address the internet sales channel and worse still they opted to outsource what in retrospect turned out to be a game changer in the book selling industry. We however, think it not fair to judge Borders managers so quickly without a deeper understanding of how organizations make strategic change. To begin with, much of the disruptive change to the book retail and publishing industry took place between the mid-1990s to the early 2000s. This implies that whereas Amazon was getting born within this disruptive environment, Borders had already been in operation for two decades. Borders therefore had already within it an engrained culture which dictated how it operated. According to Johnson (1992) managers respond to situation in ways which are in line with the paradigm and the cultural, social and political norms of their organizational life. This way one could argue that while the industry was undergoing a major change, Borders managers did that which is natural for managers in any organization to do, which is to deal with the situation in terms of their existing paradigm. On the other hand, having been founded in such a disruptive environment, Amazon adopted the culture of a learning organization right from the outset. Thus we believe the first reason why Borders, although initially successful and profitable, ended up in Chapter 11 because its organizational culture was not that of a learning organization. This is depicted in some ways by its failure to broaden its product base, which shows lack of innovation. Secondly, its failure to recognize the Internet as an industry game-changer and as such outsourcing what would have been a key competitive factor for the organization. Outsourcing itself was not the problem. The error that Borders did was ineffectively using its partnership with Amazon. Hamel, Doz, and Prahalad (1989) argued that organizations need to enter such arrangements with clear strategic objectives, and also with an understanding of how the partners’ objectives would affect their success. We believe that Borders could have used their partnering with Amazon to increase their own learning. Thirdly, as admitted by a former director, was Borders’ failure to build upon its legendary supply chain system. Whereas the company’s supply chain was its source of competitive advantage in its founding years, the company refused to invest and keep abreast with the rapidly changing technology and retail operations (Evans, 2011). Borders legacy systems that were the benchmark in the 70s and 80s became its Achilles’ heel in the 2000s. In stark contrast to Borders, Amazon adopted an organizational culture of a learning organization. Amazon instituted within its culture two practices that Borders failed in: it continuously listened to customer feedback and continuously studied new technology opportunities. In a way, one could argue that in the mid to late 1990s, whereas Borders focused on market share, Amazon focused on building core competencies. Amazon’s focus on core competence was manifested through building, buyouts and partnering and was reflected by its staggering US$ 3 billion losses between 1995 and 2003. According to Prahalad and Hamel (1990) 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. Amazon has continued to launch several new services and products as a result of its core competencies such as Amazon Web Services, the Kindle Service, Amazon Prime and so on. Secondly, Amazon’s success could be attributed to its customer-centric approach. This approach has largely been supported by the company’s obsession with improving metrics and optimization. Unlike, many other companies, Amazon measures all aspects of its business beyond finance. This way the company can quickly identify what its consumers want even without asking them by simply measuring their behavior online. Some of the company’s pioneering technologies with regards to understanding consumer behavior, improving customer service are the A/B testing, Customer reviews, “click to look inside”, 1-Click ordering, Free Super Saver Shipping and so on. Finally, out of its core competencies and intimate customer interaction, Amazon has been able to create blue oceans for its products and services. The blue ocean strategy postulates that companies must break out of the accepted boundaries that define how they compete. These systematic boundaries are identified by the six paths framework as: industry, strategic groups, buyer groups, scope of product or service offerings, functional-emotional orientation of an industry, and time (Kim & Mauborgne, 2005). Amazon has been able to render its competition irrelevant through creation of new markets for example in cloud computing and e-book service. From the analysis of reasons for Borders failure and Amazon’s continued success we discover that organizational culture does have an impact on management’s decision making and that it is important to build organizations from the outset to be learning organizations. In order to effectively face today’s rapidly changing environment we recommend that companies do the following. First of all, management should conduct cultural audits half yearly or annually so that they can uncover the sets of beliefs and assumptions that are preventing them from implementing strategic change. Secondly, management need to put in place mechanisms for continuously analyzing customer feedback, more so that which is not spoken/hidden but that is manifested through their behavior. Often, consumers do not know what they want. Finally, today’s markets are technology-driven and technology keeps changing rapidly. This means that companies need to continuously monitor and see which technologies could be applied to revolutionize their customer value propositions. References Amazon.com. (2012a, January 28). Amazon.com Investor Relations: FAQs. Amazon.com. Retrieved January 28, 2012, a from http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-faq#6987 Amazon.com. (2012b, January 28). Amazon Media Room: History & Timeline. Amazon.com. Retrieved January 28, 2012, b 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, January 16). Amazon.com case study. Smart Insights. Retrieved January 28, 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 January 28, 2012, from http://www.quora.com/Borders-Books/Why-is-Barnes-Noble-performing-well-as-a-business-while-Borders-has-filed-for-bankruptcy Hamel, G., Doz, Y. L., & Prahalad, C. K. (1989). Collaborate with Your Competitors - and Win. Harvard Business Review, 67(1), 133-139. Johnson, G. (1992). Managing Strategic Change - Strategy, Culture and Action. Long Range Planning, 25(1), 28-36. Kim, W. C., & Mauborgne, R. (2005). Blue Ocean Strategy. Boston, MA: Harvard Business School Press. Prahalad, C. K., & Hamel, G. (1990). The Core competence of the corporation. Harvard Business Review, (May-June), 79 - 91.  Read More