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Will Amazon Meet Its Waterloo In India

Sooner or later every empire builder starts a campaign which is too ambitious, too audacious and too resource sapping.

That is the first thought which came to my mind as I read in this morning’s paper that Amazon was making two moves – one into Grocery Shopping, and other into the Indian Online retail market.

For very different reasons, either – or both – of these could easily prove to be Amazon’s Waterloo.

Let me explain: When I wrote my recently released book, The 5-STAR Business Network, I was highly impressed with Amazon’s ability to use its supply chain expertise to create, sustain and harness a business network of related parties – suppliers, market-place participants, outsourced service providers, customers and developers. Amazon does this in a highly systematic manner to innovate, milk the cash cycle, optimize profitability of each transaction, develop a pipeline of new ideas, and leverage service providers.

While, Amazon was not the top ranking company in our 5-year study of more than 1000 companies (it ranked a tied 63, and the top honour belonged to a little known firm from Denmark called Novo Nordisk), I used Amazon case study extensively in my book because it was a shining beacon of good corporate decision making among mediocrity.

This is what I wrote about Amazon:

#5starbusinessnetworkOverall, the business philosophy is rather simple – make online shopping simple and suitable so that the customer won’t think twice about buying now with one click (Anders, George. “Jeff Bezos’s Top 10 Leadership Lessons.” Forbes. 4 Apr. 2012) [2]. The complexity lies in how this simple business philosophy is translated into consistent action, resulting in nearly a billion customer visits a year. There is nothing simple in the complex execution of this simple business philosophy. Therein lies the dilemma of the modern business

world – the quest for simplicity at the highest level, underpinned by the highest level of sophistication reminiscent of nanotechnology under the hood. Almost all successful businesses do this dance of 5-STAR business network well – but Amazon does it exceptionally well on almost all 5 fronts. There are many other businesses – some even well-known ones – who could be a poster child for the emerging trend of global Business Networks we show case in this book. However, no one is more successful, more visible, has higher potential and is more assured of its role in this revolution. That is why- Amazon.com is a prime example of the 5 STAR Business Networks, which showcase Fire-Ready-Aim Innovation, Seed-to-Store Ef iciency, Transaction Prof itability Optimization, Advanced Product Phasing, and lastly, Results-focused Modular Outsourcing.

To temper my optimism about Amazon’s role as the poster child of 21st century commerce using 5-STAR Business Networks, I also wrote elsewhere in the book:

The first business book I read was “In Search of Excellence” by Tom Peters and Robert Waterman. It was a gushing account by two ex-McKinsey consultants truly in search of excellence among American businesses, and contained a plethora of advice that to my then untrained mind (after all, I was then just an untutored merchant navy off icer) appeared rather obvious – for example, walk around your operations to see what is going on. What struck me most about the book was that in the intervening 13 years or so between the time the book was written and the time I read it, most of the companies singled out as excellent by the authors were already in trouble. That impression – that companies once lauded as excellent can quite rapidly lose that mantle – has never left my mind as I have read more than 5000 business books, countless book summaries, business commentaries and news reports. Invariably, each of these tries to generalize the key determinants of success from examples of certain companies. In more cases than not, those companies singled out as models of success falter in a few years time, sometimes victims of changing circumstances and other times victims of their own success.

This morning, on reading about Amazon’s move into the Grocery trade, I have a vague feeling – is Amazon turning into a victim of its own success?

Grocery business is notoriously low margin trade, with very high logistics costs, high level of perishability, and different customer buying behaviour than anything else that Amazon sells. Amazon’s reasons for this move are being documented well enough by the mainstream press. For example see this article in the Wall Street Journal. Here is a quote from the article:

The service harkens back to a time when Americans found fresh milk, bread and eggs delivered each morning to their doorsteps. Indeed, in Seattle, where the service has expanded over time to more suburbs, Amazon customers can combine their apple and butter orders with 100,000 disparate Amazon items including videogames, toilet paper and motor oil. “Amazon really could use this as a means to drive sales of general merchandise, which may have better margins than groceries,” said Matt Nemer, a Wells FargoWFC -1.53% analyst. “That’s what could really set them apart from the pure grocery delivery guys—they might not need to make a lot of money on the groceries themselves.”

It will be interesting to watch what happens.

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