Case Study- Management Theory and Practice

Case Studies Case Study 1: Innovative Business Idea: Amazon.com

"Ultimately, we're an information broker. On the left side we have lots of products, on the right side we have lots of customers. We're in the middle making the connections. The consequence is that we have two sets of customers: consumers looking for books and publishers looking for consumers. Readers find books or books find readers." - Jeff Bezos, founder of Amazon.com

Amazon.com, Inc., the world’s largest online retailer, is a multinational e-commerce enterprise.

Headquartered in Seattle, Washington, it was started by Jeff Bezos in 1994. The name Amazon was adopted from the biggest river on earth. Amazon.com was initially started as an online book store. However, the enterprise eventually diversified into different other products, such as DVDs, CDs, MP3, computer software, video games, electronics, apparels, furniture, food, and toys. Within a span of 16 years, the enterprise has achieved overwhelming success. In 2010, Amazon earned USD 34.204 billion as revenue. In the beginning, Amazon did not have its own delivery network.

Therefore, the products were delivered to customers, after receiving orders, to the post office by Jeff Bezos by his family car. In the year 1995, Amazon opened its first virtual store with more than 1.1 million titles. In 1997, Amazon went public on NASDAQ by raising more than USD 50 million.

By December 1998, the enterprise reached a market value of USD 5.5 billion.

Amazon.com is formed after a combination of most innovative entrepreneurial ideas of the last century. Jeff Bezos, the founder of the enterprise, did not have any prior experience in the book business. However, he realized the huge business potentiality of selling books online. Jeff Bezos had a notion that an online book store can accommodate a large number of titles as compared to any other physical store. Apart from this, an online bookstore enables customers to order any book of his preference.

Management Theory and Practice Notes

The entrepreneur wanted to leverage the Internet for informing buyers and inspire them to purchase. Since its inception, Amazon strived to be user-friendly, easy to navigate, and offer highest possible discounts to customers. Therefore, Amazon.com does not only sell books, but also offers other relevant information about books. Extraordinary customer service has helped the enterprise in acquiring and retaining millions of customers over a very short period.

In addition to online bookselling, Amazon has adopted numerous innovative business ideas. The enterprise also started syndicate selling, under which customers can browse to other websites through web links available of the Amazon’s website. Amazon receives commission each time a sale is made from other websites. Through syndicate selling, Amazon.com is the premier bookseller on various popular websites, such as AOL.com, Excite.com, Yahoo!, AltaVista Search Network, Prodigy Shopping Network, @Home Network, GeoCities, iVillage, Quicken.com, ABCNew.com. This model is also applicable for all different kinds of products offered by Amazon.

In addition, Amazon enabled independent and relatively smaller publishers and authors to go global without making a large amount of investment. The main success factors of Amazon are as follows: Building a strong and reliable brand Focusing on providing value to customers  Generating customer satisfaction  Achieving economies of scale  Targeting the mass-market for achieving high sales revenue For achieving all the factors, Amazon has taken the following measures:  

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Diversifying into a wide range of products Delivering more information about products to potential customers Enhancing visibility of products on the Internet Using advanced technology for providing better customer support Expanding operations by developing partnership with other online retailers and content providers

Amazon has also adopted the strategy of mergers and acquisitions for rapid expansion. Following are some of the enterprises which were acquired by Amazon in last few years:

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Bookpages.co.uk in 1998  Internet Movie Database(IMDb) in 1999  CD now in 2003  Joyo.com in 2004  BookSurge, Mobilepocket.com, Createspace.com in 2005  Shopbop in 2006  Dpreview.com in 2007  Audible.com in 2008  Zappos in 2009  Touchco, Woot, Quidsi in 2010  Lovefilm in 2010  The Book Depository in 2011 Amazon launched a web auction service website by the name amazon.com Auctions. However, the site was not able to compete with eBay, the largest auction site in the world. After the failure of the auction site, Amazon launched zShops in 1999. In 2000, Amazon launched a service named Amazon Marketplace. The enterprise launched several other businesses, such as Pinzon, Amazon MP3, and Amazon Fresh over the next few years. Amazon forayed into film production with 20th Century Fox by producing The Stolen Child. Presently, Amazon has separate websites in various countries, such as Canada, United Kingdom, Germany, France, Italy, Austria, Japan and China offering different products. 

Case Studies Notes

Questions:

With respect to the Amazon.com case study, discuss how technological change can create new business opportunities for entrepreneurs.

Ans. Technological change comes with lots of business opportunities for entrepreneurs. In the case of Amazon.com, we can see that the enterprise leveraged the Internet to sell books and other products to customers. The business model of Amazon.com is not feasible without the Internet; therefore, the concept of online bookstore did not exist before the advent of the Internet.

Q2.

There are so many publishers publishing millions of books every year throughout the world.

Therefore, it is not possible to accommodate all the different titles in a physical bookstore.

However, an online bookstore can store and provide information related to a very large number of books. Customers can also purchase books online. Therefore, we can say that internet has come up with numerous business opportunities.

What lessons can new enterprises can learn from the success story of Amazon.com?

Ans. Amazon.com was a very small enterprise started by Jeff Bezos in 1994. In the beginning, Jeff Bezos used to receive customer’s orders and deliver products to the post office by his family car. Amazon.com was initially started as an online book store. However, the enterprise eventually diversified into different other products, such as DVDs, CDs, MP3, computer software, video games, electronics, apparels, furniture, food, and toys. Within a span of 16 years, the enterprise has achieved overwhelming success. In 2010, Amazon earned revenue of USD 34.204 billion. The main lessons that a new enterprise can learn from Amazon are as follows: 

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Developing an innovative business idea: Helps an enterprise in achieving market leadership in significantly less time. Innovative business ideas also help in creating a new uncontested market place. Amazon.com pioneered the idea of online book selling.

Therefore, the absence of any established competitor helped Amazon in acquiring large market share.

Creating a strong brand: Helps in acquiring and retaining new customers. Since inception, the Amazon.com focused on creating a strong brand that symbolizes reliable

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C A SE ST U D IE S

Q1.

Management Theory and Practice  Notes

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online shopping. The strong brand image of the enterprise helped it in gaining millions of loyal customers.

Providing value to customers: Creates customer satisfaction and increases loyalty of customers. Amazon always strives to provide value to its customers, which, in turn, helps the enterprise in increasing its revenue.

Leveraging new technology: Helps in staying ahead of competitors. Amazon has an innovative business model that emphasizes on utilizing latest technology to meet the need of customers. Technological innovation has also helped Amazon in providing better services and support to customers.

Diversifying product portfolio: Helps an enterprise earning more revenue and reducing the concentration risk. Initially, Amazon dealt only books; however, the enterprise eventually diversified into other products, such as CDs, computer software, toys, DVDs, video games, electronics, and apparels.

Case Study 2: International Business Ethics by Nike

Established in 1972 by Phil Knight, who was a track star of University of Oregon, Nike is one of the dominant marketers of athletic shoes and apparel in the world. The organization sells its products in more than 140 countries. Nike does not manufacture anything itself but designs and markets its products. The organization has contracts with a global network of 600 factories owned by subcontractors for manufacturing products. The subcontractors are employing around 550,000 people.

Despite the huge success of Nike, it has been criticized for over a decade that its products are made in sweatshops where workers comprising a large number of children, work in unsafe conditions for wages that are below subsistence level. The critics claim that Nike’s wealth has been created by the exploitation of world’s poor. Many see Nike, as the western organization taking advantage of world’s poor population to provide costly shoes and apparel to the consumers of developed countries. Thereby, Nike stores became the targets of the activists of anti-globalization. Several Non-Government Organizations (NGOs), such as San Francisco based Global Exchange, frequently criticized and protested Nike. Many news channels have shown programs exposing the working conditions in the foreign factories manufacturing Nike’s products. Many students from major United States universities campuses protested Nike’ exercise of sweatshop labor. The news channel reported a picture of young women in Vietnam working for a Nike subcontractor in hazardous conditions for 20 cents an hour and six days a week. However, Nike and its subcontractors were not breaching any laws, but these reports questioned the ethics of Nike. The wages paid to workers by subcontractors were according to the market rate of their respective countries. The use of child labor in most of the developing countries is a common practice.

Therefore, the use of sweatshop labor may be legal but according to the western standards, it is a clear exploitation of workforce.

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Nike found itself at the center of huge controversy. The situation was aggravated in November 1997, when Global Exchange procured and leaked a confidential report by Ernst & Young.

According to this report, a Vietnam factory violated labor laws related to maximum working hours, chemical exposure, and poor treatment of workers. The factory employed 9,200 workers and produced 400,000 pairs of shoes in a month.

Case Studies Notes

The Ernst & Young report covered a gloomy picture of thousands of young women, mostly below 25 years, working 10 to 12 hours daily for six days in a week. They worked in extreme heat and noise and in polluted air for a little more than $10 a week. The report also stated that workers with skin or breathing problems were not shifted to departments free of chemicals. Workers who dealt with dangerous chemicals were not given protective masks or gloves. The report also acknowledged that in some parts of the plant, workers were exposed to carcinogens (a cancer causing substance), which cause respiratory problems in workers.

These exposures compelled Nike to re-examine its subcontractor policies. Nike has taken following steps to improve the situation:  

Establishing a code of conduct for Nike subcontractors

Constituting independent auditors for annual monitoring of all subcontractors

Nike’s code of conduct included the regulation that employees at footwear factories must not be below 18 years and the exposure to toxic materials does not exceed the limits established by United States. Nike acknowledged that behaving ethically requires going beyond the requirements of the law.

Nike’s decision to subcontract was undoubtedly driven by its aim of reducing its costs and maximizing its profitability. Nike like any other organization to counteract the allegation may have reasoned that it was subcontractors’ responsibility to follow local laws and safeguard the interests of employees. In fact, the legal structures of most of developing countries are weak as compared to developed countries. Therefore, Nike decided to develop a code of conduct before subcontracting work to organizations in developing countries. In addition, it hired independent auditors to ensure that subcontractors follow the code of conduct.

Many argued that Nike should have proactively incorporated ethical behavior in its processes for its self-interest. This case acts as a lesson for other global organizations that subcontract their work in developing countries to follow global ethical practices.

Questions: Q1.

Why the behavior of Nike was perceived unethical?

Q2.

What were the steps taken by Nike to resolve the ethical issues?

Ans. Nike has contracts with factories owned by subcontractors across the globe for the manufacturing of its products. The behavior of Nike was perceived unethical because of its subcontracting policies. At the subcontractors’ factories, especially in developing countries, Nike’s products were made in sweatshops where workers comprising a large number of children, worked in unsafe conditions for wages that were below subsistence level.

Ans. The various steps taken by Nike to resolve the ethical issues are as follows:  

Establishing a code of conduct for Nike’s subcontractors

Constituting independent auditors for annual monitoring of all subcontractors

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C A SE ST U D IE S

In fact, Nike did not break any law by subcontracting work to factories in Southeast Asia where the working conditions are generally very poor.