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Amazon.com SWOT Analysis / Matrix
Essays, Term Papers & Research Papers
SWOT analysis is a strategic planning tool that can be used by Amazon.com managers to do a situational analysis of the company . It is a handy technique to analyze the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) Amazon.com is facing in its current business environment.
The Amazon.com is one of the leading companies in its industry. Amazon.com maintains its prominent position in market by carefully analyzing and reviewing the SWOT analysis. SWOT analysis a highly interactive process and requires effective coordination among various departments within the company such as – marketing, finance, operations, management information systems and strategic planning.
The SWOT Analysis framework helps an organization to identify the internal strategic factors such as -strengths and weaknesses, & external strategic factors such as - opportunities and threats. It leads to a 2X2 matrix – also known as SWOT Matrix.
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix helps the managers of the Amazon.com to develop four types of strategies:
- SO (strengths-opportunities) Strategies
- WO (weaknesses-opportunities) Strategies
- ST (strengths-threats) Strategies
- WT (weaknesses-threats) Strategies
SWOT Matrix Strategies Objective
The primary purpose of SWOT matrix is to identify the strategies that a company can use to exploit external opportunities, counter threats, and build on & protect Amazon.com strengths, and eradicate its weaknesses.
Step by Step Guide to Amazon.com SWOT Analysis
Strengths of Amazon.com – Internal Strategic Factors
As one of the leading firms in its industry, Amazon.com has numerous strengths that help it to thrive in the market place. These strengths not only help it to protect the market share in existing markets but also help in penetrating new markets. Based on Fern Fort University extensive research – some of the strengths of Amazon.com are –
- Good Returns on Capital Expenditure – Amazon.com is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.
- Highly skilled workforce through successful training and learning programs. Amazon.com is investing huge resources in training and development of its employees resulting in a workforce that is not only highly skilled but also motivated to achieve more.
- Automation of activities brought consistency of quality to Amazon.com products and has enabled the company to scale up and scale down based on the demand conditions in the market.
- Successful track record of developing new products – product innovation.
- Strong Brand Portfolio – Over the years Amazon.com has invested in building a strong brand portfolio. The SWOT analysis of Amazon.com just underlines this fact. This brand portfolio can be extremely useful if the organization wants to expand into new product categories.
- High level of customer satisfaction – the company with its dedicated customer relationship management department has able to achieve a high level of customer satisfaction among present customers and good brand equity among the potential customers.
- Strong Free Cash Flow – Amazon.com has strong free cash flows that provide resources in the hand of the company to expand into new projects.
- Superb Performance in New Markets – Amazon.com has built expertise at entering new markets and making success of them. The expansion has helped the organization to build new revenue stream and diversify the economic cycle risk in the markets it operates in.
Weakness of Amazon.com – Internal Strategic Factors
Weakness are the areas where Amazon.com can improve upon. Strategy is about making choices and weakness are the areas where a company can improve using SWOT analysis and build on its competitive advantage and strategic positioning.
- Investment in Research and Development is below the fastest growing players in the industry. Even though Amazon.com is spending above the industry average on Research and Development, it has not been able to compete with the leading players in the industry in terms of innovation. It has come across as a mature firm looking forward to bring out products based on tested features in the market.
- High attrition rate in work force – compare to other organizations in the industry Amazon.com has a higher attrition rate and have to spend a lot more compare to its competitors on training and development of its employees.
- Need more investment in new technologies. Given the scale of expansion and different geographies the company is planning to expand into, Amazon.com needs to put more money in technology to integrate the processes across the board. Right now the investment in technologies is not at par with the vision of the company.
- There are gaps in the product range sold by the company. This lack of choice can give a new competitor a foothold in the market.
- The marketing of the products left a lot to be desired. Even though the product is a success in terms of sale but its positioning and unique selling proposition is not clearly defined which can lead to the attacks in this segment from the competitors.
- The company has not being able to tackle the challenges present by the new entrants in the segment and has lost small market share in the niche categories. Amazon.com has to build internal feedback mechanism directly from sales team on ground to counter these challenges.
- Limited success outside core business – Even though Amazon.com is one of the leading organizations in its industry it has faced challenges in moving to other product segments with its present culture.
Opportunities for Amazon.com – External Strategic Factors
- Stable free cash flow provides opportunities to invest in adjacent product segments. With more cash in bank the company can invest in new technologies as well as in new products segments. This should open a window of opportunity for Amazon.com in other product categories.
- Economic uptick and increase in customer spending, after years of recession and slow growth rate in the industry, is an opportunity for Amazon.com to capture new customers and increase its market share.
- Opening up of new markets because of government agreement – the adoption of new technology standard and government free trade agreement has provided Amazon.com an opportunity to enter a new emerging market.
- The new taxation policy can significantly impact the way of doing business and can open new opportunity for established players such as Amazon.com to increase its profitability.
- New customers from online channel – Over the past few years the company has invested vast sum of money into the online platform. This investment has opened new sales channel for Amazon.com. In the next few years the company can leverage this opportunity by knowing its customer better and serving their needs using big data analytics.
- New environmental policies – The new opportunities will create a level playing field for all the players in the industry. It represent a great opportunity for Amazon.com to drive home its advantage in new technology and gain market share in the new product category.
- Lower inflation rate – The low inflation rate bring more stability in the market, enable credit at lower interest rate to the customers of Amazon.com.
- The new technology provides an opportunity to Amazon.com to practices differentiated pricing strategy in the new market. It will enable the firm to maintain its loyal customers with great service and lure new customers through other value oriented propositions.
Threats Amazon.com Facing - External Strategic Factors
- Rising raw material can pose a threat to the Amazon.com profitability.
- New environment regulations under Paris agreement (2016) could be a threat to certain existing product categories .
- Growing strengths of local distributors also presents a threat in some markets as the competition is paying higher margins to the local distributors.
- As the company is operating in numerous countries it is exposed to currency fluctuations especially given the volatile political climate in number of markets across the world.
- Imitation of the counterfeit and low quality product is also a threat to Amazon.com’s product especially in the emerging markets and low income markets.
- The company can face lawsuits in various markets given - different laws and continuous fluctuations regarding product standards in those markets.
- Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for Amazon.com in those markets.
- The demand of the highly profitable products is seasonal in nature and any unlikely event during the peak season may impact the profitability of the company in short to medium term.
Limitations of SWOT Analysis for Amazon.com
Although the SWOT analysis is widely used as a strategic planning tool, the analysis does have its share of limitations.
- Certain capabilities or factors of an organization can be both a strength and weakness at the same time. This is one of the major limitations of SWOT analysis . For example changing environmental regulations can be both a threat to company it can also be an opportunity in a sense that it will enable the company to be on a level playing field or at advantage to competitors if it able to develop the products faster than the competitors.
- SWOT does not show how to achieve a competitive advantage, so it must not be an end in itself.
- The matrix is only a starting point for a discussion on how proposed strategies could be implemented. It provided an evaluation window but not an implementation plan based on strategic competitiveness of Amazon.com
- SWOT is a static assessment - analysis of status quo with few prospective changes. As circumstances, capabilities, threats, and strategies change, the dynamics of a competitive environment may not be revealed in a single matrix.
- SWOT analysis may lead the firm to overemphasize a single internal or external factor in formulating strategies. There are interrelationships among the key internal and external factors that SWOT does not reveal that may be important in devising strategies.
Weighted SWOT Analysis of Amazon.com
In light of the above mentioned limitations of the SWOT analysis / matrix, corporate managers decided to provide weightage to each internal strength and weakness of the firm. Organizations also assess the likelihood of events taking place in the coming future and how strong their impact could be on company's performance.
This method is called Weighted SWOT analysis. It is better than doing simplistic SWOT analysis because with Weighted SWOT Analysis Amazon.com managers can focus on the most critical factors and discount the non-important one. It also solves the long list problem where organizations ends up making a long list but none of the factors deemed too critical.
Limitation of Weighted SWOT analysis of Amazon.com
This approach also suffers from one major drawback - it focus on individual importance of factor rather than how they are collectively important and impact the business holistically.
Example of Weighted SWOT Analysis
You can email us to get an example document of Weighted SWOT analysis.
SWOT Worksheet & Template
If you like to do your own SWOT analysis or want to make your own Weighted SWOT SWOT matrix then feel free to download Fern Fort University SWOT Analysis Template.
References / Citations & Bibliography
- M. E. Porter, Competitive Strategy(New York: Free Press, 1980)
- A. D. Chandler, Strategy and Structure (Cambridge, Mass.: MIT Press, 1962)
- O. E. Williamson, Markets and Hierarchies(New York: Free Press, 1975);
- L. Wrigley, Divisional Autonomy and Diversification (PhD, Harvard Business School, 1970)
- R. E. White, Generic Business Strategies, Organizational Context and Performance: An Empirical Investigation, Strategic Management Journal7 (1986)
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