Amazon.com, Inc. is under pressure to improve its profitability (in 2014 it earn

Question

Amazon.com, Inc. is under pressure to improve its profitability (in 2014 it earned a net loss of $241m on revenues of $89bn). Amazon is a highly diversified company engaged in online retailing in 14 different countries, audio and video streaming, the production and sale of mobile electronic devices, web hosting and other cloud computing services, and numerous other activities. Of the four main corporate management roles discussed in this chapter—managing the corporate portfolio, managing linkages among businesses, managing individual businesses, and managing change and development—which offers the greatest opportunities for Amazon’s corporate headquarters to create value?

Explanation / Answer

Amazon is a highly diversified company which is engaged in online retailing, production and sale of mobile electronic devices, audio and video streaming, web hosting and other cloud computing services, and many more.

In my view, to improve its profitability, Amazon’s corporate headquarters should focus on managing the linkages across their diverse businesses. Since the company’s businesses are closely related, Amazon has a greater potential of getting gains out of managing linkages amongst its businesses.

By exploiting the linkages between their businesses, the company can create more value, by sharing or transferring their resources and capabilities from one business to another they can also go for centralization of common services at the corporate level or focus simply on managing the direct linkages among their businesses.

Maintaining common corporate services will be the simplest form of resource sharing in a multidivisional company like Amazon. These services can include things like strategic planning, treasury, financial control, risk management, taxation, internal audits, shareholders relations, government relations, etc. services related to engineering, research, Human resource management, purchasing, administration and management development can also be centralized. Centralizing corporate services will save duplication costs for the company.

Amazon can also opt for managing direct linkages between its highly related, where the sharing of organizational capabilities between linked businesses like online retailing and production and sale of mobile electronic devices, will help the company in better knowledge management. It will also provide Amazon the opportunity to share or transfer innovation between businesses.

Exploiting linkages between businesses comes with its cost; hence, Amazon should ensure that these costs do not outweigh their benefits generated from linkages.

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