(Mt) – SEU Organization Development Worksheet

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Assignment Questions: Please review and read application 12.2 entitled as “Amazon. com’s Network Structure.” available in your textbook “Organization Development & Change” 10th edition by Cummings, T and Worley, C then answer the following questions: 1. Explain how following a network-based structure is advantageous to Amazon in terms of conducting its business activities. 2. Discuss the potential challenges that could be facing Amazon as a result of following a networkbased structure. 3. Based on comparing product-centric with customer-centric structures, explain how could Amazon empower its business partners that are seeking to centralize their organization on either one of those structures 4. What would you recommend as potential core processes if Amazon has decided to follow a process-based structure? Explain and justify three of those core processes application 12 2 CHAPTER 12 RESTRUCTURING ORGANIZATIONS 357 AMAZON.COM’S NETWORK STRUCTURE A mazon.com (www.amazon.com) was launched in mid-1995 as the “Earth’s Biggest Bookstore.” It offered more than one million titles to online buyers, more than three times the number offered at traditional bookstores. Since then, it has evolved into a powerful network structure involving both other Internet retailers as well as more traditional retailers, including other bookstores. Amazon also has expanded into information services, offering a variety of network services to firms under the banner Amazon Web Services. At the center of it all is Amazon’s massive website, Amazon.com. By pairing Amazon’s state-of-the-art technology, built-in traffic, and industry-leading fulfillment and customer-service processes with its partners’ products and their own strengths, a complex network of organizations is working together to make everyone more successful. The company went public in the first quarter of 1997 riding the dot.com wave. Its revenue grew from $147.8 million in 1997 to over $61 billion in fiscal year 2012 and is predicted to exceed $100 billion in 2015. Despite this impressive sales growth, there has been increasing pressure to deliver profits, which occurred for the first time in fiscal year 2002. From at least one point of view, the development of Amazon’s network structure is an important reason for this profitability. From the beginning, Amazon operated as a virtual organization and leveraged its network structure. For example, it developed and operated the Amazon.com website to draw in customers and to learn about creating an effective online customer experience. However, the company owned little or no inventory, warehouses, distribution centers, or customer-service operations. Early on, order fulfillment was left to Ingram Book Distributors, one of the largest book wholesalers, who also contracted out delivery to third-party vendors, such as UPS. In June of 1998, Amazon began selling CDs, and added DVDs and videos in November 1998. It added electronic products, toys, software, and video games in 1999, and tools, health and beauty products, kitchen products, and photo services in 2000. It also expanded internationally starting in 1999, opening up markets in Canada, Europe, and Asia over the next decade. Amazon’s first West Coast distribution center was built in 1996 and an East Coast distribution center was added in 1997. In 1999, in anticipation of the Christmas rush, Amazon built five warehouse and distribution facilities and several customer-service centers to improve its order fulfillment capabilities. Amazon’s initial forays into a broader network began in 1999 but were compartmentalized on the website. Non-Amazon products, such as used books or individuals auctioning off different products, were not allowed to infiltrate Amazon’s millions of book, CD, and DVD pages. Third-party products were put under “tabs” that roughly described the kind of commerce to be conducted, such as the “auction” tab or the “zShops” tab, which contained a variety of vendor products. Thus, traditional Amazon products were separated from products offered by others. Continued profit pressure, however, forced the organization to look at relationships differently. Jeff Bezos, company founder and CEO, stated as follows: “We realized that what was most important to the marketplace sellers was demand— access to prospective buyers. So, the idea of the “single store” was to give them a level of access equal to our own—listing their goods right alongside ours.” With the “single store” strategy, Amazon. com transformed itself from an Internet retailer to a platform for commerce. Small businesses and individuals, which used to be in the Auctions or zShops sections, were given the opportunity to place their products on Amazon’s most visited sites. In exchange for this visibility, Amazon developed a contract that included a fee schedule and described the responsibilities and activities that each organization would perform. Amazon quickly expanded its network to include partnerships with large companies as well as partially- and fully-owned affiliates, gaining over 358 PART 4 TECHNOSTRUCTURAL INTERVENTIONS two million third-party sellers by 2013. It leveraged its state-of-the-art transaction-processing systems and networking capabilities to provide sellers with access to an immense customer base and rapid, low-cost sales and order fulfillment. Driven by a “culture of metrics,” Amazon was able to provide its sellers with access to unprecedented amounts of real-time data on customer product preferences and purchasing behavior. Amazon also engaged in more traditional marketing arrangements where the Amazon.com website served as a marketing vehicle for other companies. From the Amazon website, users were transferred over to the vendor’s website and Amazon received a fee based on the number of customers exposed to the vendor’s marketing message or on the number of customers referred. Amazon made its first set of partnerships with Drugstore.com, Living.com, and Wine.com among others. As Amazon affiliates, they paid Amazon placement and referral fees for advertising on the Amazon website. This was called the Amazon Commerce Network. Given the vast scale of the information storage and computing infrastructure needed to run Amazon’s marketplace, Amazon Web Services was launched in 2002 to sell excess infrastructure capacity as well as information services to other companies. This logical extension of Amazon’s network grew rapidly into over 25 proprietary Web-based services that have attracted over 300,000 developer customers, making Amazon the market leader in cloud computing worldwide. Amazon Web Services is expected to have revenue of $3.8 billion in 2013 and could be worth up to $30 billion if it were a standalone company. By excelling at particular aspects of retailing in the Internet environment, Amazon has been able to leverage those competencies into a powerful network of alliances and partnerships. It has been able to expand its business beyond the Internet marketplace to the information services arena. The network structure is one important reason Amazon has been one of the few Internet startups to actually post a profit. In practice, downsizing generally involves layoffs where a certain number or class of organization members is no longer employed by the organization. Although traditionally associated with lower-level workers, downsizing increasingly has claimed the jobs of staff specialists, middle managers, and senior executives especially during the recent economic turndown. An important consequence of downsizing has been the rise of the contingent workforce. In companies like Cisco or Motorola, less expensive temporary or permanent parttime workers often are hired by the same organizations that just laid off thousands of employees. A study by the American Management Association found that nearly a third of the 720 firms in the sample had rehired recently terminated employees as independent contractors or consultants because the downsizings had not been matched by an appropriate reduction in or redesign of the workload.23 Overall cost reduction was achieved by replacing expensive permanent workers with a contingent workforce. Few corporations or government agencies have escaped the massive downsizing brought on by the recent global recession. In the United States, for example, layoffs reached a yearly peak of over three million workers in 2009; although declining in subsequent years, almost 8% of the workforce was unemployed in 2012.24 In addition to layoffs, organizations have downsized by redeploying workers from one function or job to another. When IBM’s business shifted from hardware to software and services in the 1990s, more than 69,000 people were laid off, yet the size of the total workforce increased by 16,000 employees.25



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