Implementing Corporate Diversification

Amazon considers its unrelated corporate strategy a competitive advantage because it's valuable, rare, and costly to imitate. In order to not squander its potential (and its profits), Amazon has to ensure it is appropriately and efficiently organized.

To achieve this, Amazon uses an M-form, or multidivisional structure. This structure is made up of multiple divisions (profit and loss centers), each with a vice president that reports directly to the CEO. Amazon defines its divisions by the different products and services it offers, so that the vice presidents can focus on their respective products and services. Since Amazon is such a large organization, this is the most beneficial, flexible set-up. (Other options would be to divide by brand name or geographic area.) Also, because Amazon is so large, dividing the company in this manner can help give outside equity holders a birds-eye view of each vice presidents' decision-making activities (monitoring), reassuring them that the decisions are consistent with their interests (bonding).

Below is how it would appear in the annual report (the board of directors, the senior executive, corporate staff, division general managers, and shared activity managers --- discussed below). To put it in scope, Amazon has over 51,300 employees globally, spanning corporate offices, fulfillment centers, customer service centers and software development centers across North America, Europe, and Asia.

The board of directors
One of the major monitoring devices is the board of directors, to whom all senior managers report. Their primary responsibility is to monitor the decision-making int he firm to ensure that it is consistent with the interests of outside equity holders. Amazon's board of directors is organized into several subcommittees: The audit committee is responsible for ensuring the accuracy of accounting and financial statements; the personnel and compensation committee evaluates and compensates the performance of senior executives and other senior managers; and the nominating committee nominates new board members. (In fact, Amazon has been recognized for the two women they have serving on their board.)

The senior executive
CEO Jeff Bezos has two main responsibilities: strategy formulation (focuses on which businesses Amazon should compete in and how... Essentially defining the economies of scope) and strategy implementation (focuses on encouraging appropriate cooperation among divisions in order to exploit valuable economies of scope). These two implementations come together to assure investors that Amazon's strategy is profitable, cannot be duplicated, and has strong operations and activities.

Corporate staff
The primary responsibility of the corporate staff is to provide information to the CEO about external and internal environments. This role is especially important because it assists the CEO in making good decisions about the strategy formulation and implementation; they are essentially the compass.

Division general managers
Primarily responsible for the day-to-day activities, and have full profit-and-loss responsibilities. They choose strategy formulation for their direct reports, aligning it with the CEO's. Their strategy implementation responsibilities parallel the CEO's. Since they must align the with CEO as well as the multiple functional managers that report to them, there is a lot of coordination that goes on before implementing anything. Additionally, they fight for corporate capital (by generating a high rate of return) and cooperate with other division general managers to exploit corporate economies of scope. Although the division general managers are competing for capital, they do understand that, if each division sees high levels of economic performance, then Amazon, as diversified as they are, is more likely to do well as a whole, too.

Shared activity managers
Common sales forces, common distribution centers, common manufacturing facilities, and common research and development efforts can help multiple stages of Amazon's value chain, even though they are inherently diversified. This is often obscured in a traditional annual report, so the below is redrawn to emphasize roles and responsibilities. The corporate staff groups are separated from shared activity managers, and each is shown reporting to its primary internal "customer," or the CEO/two or more division general managers.



See that the following analysis is apparent:

CEO and founder Jeffery Bezos and an eight-member board of directors sit at the top and monitor all activities below them. The CEO oversees the Chief Financial Officer (CFO), the Chief Technology Officer and the following 8 departments: Business Development, eCommerce Platform, International Retail, North America Retail, Web Services, Digital Media, Legal & Secretary, and Kindle. The CFO oversees the Real Estate and Control department. International Retail oversees three separate departments: China, Europe and India. North America Retail oversees the following five departments: Seller Services, Operations, Toys, Sports & Home Improvement, Amazon Publishing and Music & Video. The Web Services department oversees Amazon S3 and Database Services. Other departments include Product Development & Studios, Europe Operations, Global Advertising Sales, Computing Services, and Global Customer Fulfillment.

Sources:

• Gaining and Sustaining Competitive Advantage by Jay B. Barney [textbook]
• Amazon 05 - Diversification Strategy by Pere Joan [http://www.slideshare.net/PereJoan1/amazon-05-diversification-strategy]
• EST 325: Amazon.com by Fabrice Guillaume [https://stonybrook.digication.com/fguillaume/Organizational_Structure1]
• Amazon.com Board of Directors Committee Membership by Amazon.com [http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-govmanage]