Insights From Amazon's Strategic and Organizational Disruptions

Written in collaboration with Professor Arthur Yeung ([email protected]).

Amazon’s acquisition of Whole Foods strategically disrupts the grocery industry. Strategically, this now #5 overall grocery retailer in the US that can compete in multiple channels (in store, same day delivery, or on line shopping). And, Whole Foods’ 400 stores may become hubs for further Amazon expansion in high end markets. 

But, strategic opportunities without the right organization to realize them remain unrealized wishes. Less visible, Amazon has also disrupted the way to overcoming liabilities of traditional forms of organization to achieve their strategic innovations. Traditionally, organizations had one of three forms: hierarchies with clear roles and responsibilities which move too slowly into new markets; holding companies with a small hub and independent spokes which make the whole less than the parts; and multi divisional organizations with a matrix of function, business unit, and geography where decision making can be cumbersome and slow.

In the last few years, we have seen disruptive organizational innovations (sometimes called lattice, networks, holacracy, or ambidextrous) that enable firms like Amazon to realize their disruptive business strategies. We call this emerging organization a Market Oriented Eco-organization (MOE). Morphologically, the organization center is a platform of resources, or core competencies, the organization does well. Amazon has incredible resources in information and analytics through big data (Amazon Web Services Cloud); customer understanding, acquisition, and intimacy (Amazon Prime); and supply chain and distribution (Fulfillment by Amazon).

 These platform competencies are then allocated to emerging market opportunities through the formation of business teams or cells. These market-oriented cells seek to quickly identity and penetrate new market opportunities by drawing on the platform competencies. Amazon has created (or acquired) a number of these autonomous cells or market-oriented opportunities: Kindle, Fire TV, Amazon Web Services, Zappos, Echo and Alexa Devices, CreateSpace, Entertainment (Amazon Studios), and so forth (see Figure 1). These cells purse market opportunities and if they fail, they may quickly be disbanded and framed as experiments for learning instead of being long term commitments in some multidivisional firms. At Amazon, these experiments include Amazon Destinations (hotel booking site), Amazon Auctions, FirePhone, Amazon Wallet, and many others.

Figure 1: Amazon Platform and Cells

The platform provides the resources and the cells anticipate and penetrate market opportunities to win. But the cells do not operate independently (like a holding company), they are part of an eco organization, connected to each other through shared capabilities (represented by lines in Figure 1). An organization’s capabilities are things the organization is known for and good at doing. Amazon’s platform provides core technical competencies for each cell to win, and but the capabilities turn these independent cells into an eco organization. Amazon, and other MOEs (like Google, Tencent, Facebook, Huawei) connect cells through customer obsession to determine market opportunities, innovation to focus on the future, and agility to move quickly. These capabilities enable Amazon’s independent businesses, teams, or cells to become a dynamic eco organization. 

(For info on instilling these organizational capabilities in your unique space, click here.)

Acquiring Whole Foods will now become part of the overall Amazon eco-organization. Not only will Whole Foods give Amazon a significant presence in a large $800B grocery industry—a brick and mortar footprint for channel, but Whole Foods might also become a distribution center for other Amazon products purchased online and a source of additional information about customer buying patterns for Amazon Prime. 

The morphology of Amazon’s Market Oriented Eco-organization (MOE) includes platforms of resources, cells or teams for market opportunities, and capabilities to leverage the whole. In our exploratory research on MOEs, we have found that physiology, or governance, has 8 dimensions which represent choices that make the organization work.

• Growth strategy: Amazon’s growth strategy focuses on customer share by gaining an ever increasing share of all customer purchases
• Growth path: Amazon’s growth path is to create market oriented business teams or cells through organic growth (Amazon Web Services) and targeted acquisition (Whole Foods)
• Cross unit collaboration: Amazon shares information across their businesses to better understand customer preferences, encourage innovation, and move with agility to new opportunities.
• Innovation mechanism: Amazon encourages new ideas by inviting employees to prepare proposals for innovation that receive quick management attention and resolution.
• Talent movement: Amazon recognizes the importance of top talent and buys exceptional people, but also moves them quickly across businesses where their skills are most needed, and moves them out when they are not performing.
• Performance evaluation and reward: Amazon has rigorous standards of performance that ties to and enables them to meet customer expectations. Their rewards encourage shared personal investment in Amazon’s success.
• Transparent information sharing: Amazon has a culture of transparency where external information is quickly accessed, analyzed, and acted on. Hoarding information is a clear violation Amazon’s values.
• Leadership: Amazon’s top leader (Jeff Bezos) represents the Amazon capabilities of customer, innovation, and agility into his thinking and actions. But, he works to transfer these organizational capabilities into the Amazon leadership brand shared by leaders throughout the organization.

An MOE is based on innovations in organization morphology or shape of the organization (platforms, cells, and capabilities forming an eco organization), physiology or governance mechanisms that guide thinking and action, and teleology or culture that captures the identity of the organization. 

 Amazon’s success comes from both strategic and organizational disruptions. Together they have enabled Amazon to have one of the world’s highest market cap’s of over $450B and their acquisition of Whole Foods threatened competitors (Kroger, Ahold Delhaize, Costco, Target, Walmart, whose market values dropped 3 to 7% on the news). 

As other companies attempt disruptive strategies to win in an ever-changing era, they will also be well served to learn how to operate the Market Oriented Eco-organization that Amazon personifies.

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