application 12 2
CHAPTER 12 RESTRUCTURING ORGANIZATIONS
AMAZON.COM’S NETWORK STRUCTURE
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
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
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
المملكة العربية السعودية
الجامعة السعودية اإللكترونية
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Organization Design and Development (MGT 404)
Due Date: 10/05/2022 @ 23:59
Course Name: Organization Design and
Course Code: MGT404
Student’s ID Number:
Academic Year:2021-22-2nd term
For Instructor’s Use only
Marks Obtained/Out of 10
Level of Marks: High/Middle/Low
General Instructions – PLEASE READ THEM CAREFULLY
The Assignment must be submitted on Blackboard (WORD format only) via allocated
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced
for poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Department of Business Administration
Organization Design and Development- MGT 404
Assignment 3, Total Marks: 10
Course Learning Outcomes:
Analyze the human, structural and strategic dimensions of the organizational
Analyze the ethical issues of the organizational development processes
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. (2.5 marks)
2. Discuss the potential challenges that could be facing Amazon as a result of following a
network-based structure. (2.5 marks)
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 (2.5 marks)
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 (2.5 Marks)
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