Leveraging Firm's Capacities
Corporate Strategy aims at finding out how a company better Exploit and Enhance its capabilities.
For the purpose of corporate strategy formulation, resources can be thought as being of two kinds:
Front-end resources are visible from end-customers and are made tangible in the value proposition (e.g. stores, layout, etc). By extension front-end capabilities also include capabilities that directly deals with customers (e.g. market forecast, market development, marketing, etc.)
Back-end resources are outside customers’ view and are more associated to production technologies (value architecture : e.g. plants, machinery, patents). Back-end capabilities also encompass lean management, information systems, etc.
Let’s illustrate the exploit/enhance and back/front-end on Amazon’s case.
Exploiting Existing Front-end resources
In 1998 Amazon bought the English bookseller BookPages and the German book-seller ABC. The two companies became amazon.uk and amazon.de respectively. These two acquisitions allowed Amazon to exploit its existing resources while generating additional value through market coverage extension.
In 2000 Amazon created virtual market place (and offered to its customers to buy additional products supplied by third parties). This move also mainly corresponded to exploiting existing front-end resources (the web interface to customers and associated relationship management).
Exploiting Existing Back-end resources
As Amazon developed its main business (on-line shopping) they acquired significant skills and competence in IT systems (web technologies, web servers, infrastructure). Initially all these capabilities were needed to support the main line of business.
In 2006 they decided to exploit their existing back-end capabilities and make their IT a business. With?Amazon Web Services? they offer a comprehensive collection of online services (cloud computing, networking, storage and content delivery, database, online-payment, analytics, …) for other web sites or client- side applications and are now one of the major players in cloud computing
It seems that they are replicating the model and are now eager to offer sup- ply logistics services (warehousing, order fulfillment) as well as probably parcel delivery (although their attempt to acquire 100% of the French shipping Colis Privé up from 25% was cancelled for antitrust issues). Amazon owns and ope- rates warehouses and distribution centers all over the world as well as its own fleet of trucks and aircraft (on lease). Analysts stress that „Amazon has an advantage in the market by managing the logistics of its own core revenue-generating business, then extending that capacity as a service to other companies”. The advantage is actually twofold as it both generates extra revenues and contributes to improve the cost structure of their core business
Enhance Back-End Services
Amazon also grew its back-end capacity, for instance when they acquired PlanetAll and Jungle to provide better customer experience (personal information manager, reminder capabilities, advanced browsing features). These capabilities supported the shift from book only toward more diversified product portfolio.
In 2012 Amazon also acquired Kiva Systems – and its breakthrough robotic technology for inventory management – for $ 775 million. Kiva was renamed to Amazon Robotics in 2015 and their products are no longer on offer on the market. By contrast, Amazon is now encouraging prospective users of Kiva technology to outsource their fulfillment process to Amazon robotics and Amazon Services within Amazon warehouses.
Enhance Front-End Services
When Amazon brought Kindle to the market, it enhanced it Front-End capabilities. As they realize that electronic books would represent a significant portion of their sales in the future, they also acquired Mobipocket (2005) a book producer and Brillance (2007) and audio-book producer.
Amazon is creating value across several industries. Founder Jeff Bezos has publicly referred to the Amazon.com mission statement 1 as the guiding force behind his leadership decisions many times in the company’s history.