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Page 1 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017PRINTED BY: mzvscott@hotmail.com. Printing is forpersonal, private use only. No part of this book may be reproduced ortransmitted without publisher’s prior permission. Violators will beprosecuted.Case Study Who’s The World’s Top Retailer? Walmart andAmazon Duke It OutWalmart is the world’s largest and most successful retailer, with $476 billion in fiscal 2014sales and nearly 11,000 stores world-wide, including over 4,000 in the United States.Walmart has 2 million employees, and ranks Number 1 on the Fortune 500 list ofcompanies. Walmart had such a large and powerful selling machine that it really didn’thave any serious competitors. No other retailer came close—until now. Today Walmart’sgreatest threat is no other than Amazon.com, often called the “Walmart of the Web.”Amazon sells not only books but just about everything else people want to buy—DVDs,video and music streaming downloads, software, video games, electronics, apparel,furniture, food, toys, and jewelry. The company also produces consumerelectronics—notably the Amazon Kindle e-book reader. No other online retailer canmatch Amazon’s breadth of selection, low prices, and fast, reliable shipping.For many years, Amazon has been the leader in online retail and is now the world’slargest e-commerce retailer. It, too, has a very large and powerful selling machine,although it has primarily focused on selling through the Internet. But if Amazon has itsway, that’s about to change, because it dearly wants to move in on Walmart’s turf.Walmart was founded as a traditional, off-line, physical store in 1962, and that’s still whatit does best. But it is being forced to compete in e-commerce, whether it likes it or not.Six or seven years ago, only one-fourth of all Walmart customers shopped atAmazon.com, according to data from researcher Kantar Retail. Today, however, half ofWalmart customers say they’ve shopped at both retailers. Online competition fromAmazon has become too tough to ignore.Why is this happening to Walmart? There are two trends that threaten its dominance.First, Walmart’s traditional customers—who are primarily bargain hunters making lessthan $50,000 per year—are becoming more comfortable using technology. More affluentcustomers who started shopping at Walmart during the recession are returning toAmazon as their finances improve. Amazon has started stocking merchandise categoriesPage 2 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017that Walmart traditionally sold, such as vacuum bags, diapers,and apparel, and itsrevenue is growing much faster than Walmart’s. In 2013, Amazon had sales of nearly$67 billion, compared to online sales of about $9 billion for Walmart.If more people want to do even some of their shopping online, Amazon has some clearcut advantages. Amazon has created a recognizable and highly successful brand inonline retailing. The company has developed extensive warehousing facilities and anextremely efficient distribution network specifically designed for Web shopping. Itspremium shipping service, Amazon Prime, provides fast “free” two-day shipping at anaffordable fixed annual subscription price ($99 per year), often considered to be a weakpoint for online retailers. According to the Wall Street Journal, Amazon’s shipping costsare lower than Walmart’s, ranging from $3 to $4 per package, while Walmart’s onlineshipping can run $5–$7 per parcel. Walmart’s massive supply chain needs to supportmore than 4,000 physical stores worldwide, which Amazon doesn’t have to worry about.Shipping costs can make a big difference for a store like Walmart where popularpurchases tend to be low-cost items like $10 packs of underwear. It makes no sense forWalmart to create a duplicate supply chain for e-commerce.However, Walmart is no pushover. It is an even larger and more recognizable brand thanAmazon. Consumers associate Walmart with the lowest price, which Walmart has theflexibility to offer on any given item because of its size. The company can lose moneyselling a hot product at extremely low margins and expect to make money on the strengthof the large quantities of other items it sells. Walmart also has a significant physicalpresence, with stores all across the United States, and its stores provide the instantgratification of shopping, buying an item, and taking it home immediately, as opposed towaiting when ordering from Amazon. Two-thirds of the U.S. population is within five milesof a Walmart store, according to company management.Walmart has steadily increased its investment in its online business, spending more than$300 million to acquire five tech firms, including Small Society, One Riot, Kosmix, andGrabble, while hiring more than 300 engineers and code writers. Other recentacquisitions include Torbit, OneOps, Tasty Labs, and Inkiru, that will help give Walmartmore expertise in things like improving the product recommendations for Web visitors toWalmart.com, using smartphonesPage 3 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017PRINTEDBY: mzvscott@hotmail.com. Printing is for personal, private use only. No part ofthis book may be reproduced or transmitted without publisher’s prior permission.Violators will be prosecuted.as a marketing channel, and personalizing the shopping experience. Walmart has beensteadily adding new applications to its mobile and online shopping channels, and isexpanding its integration with social networks such as PinterestThe company’s technology team is working on an application called Endless Aisle, whichwould allow shoppers to immediately order from Walmart.com using their smartphones ifan item is out of stock. A Pay With Cash program enables the 25 percent of Walmartcustomers who don’t have credit cards or bank accounts to order their products onlineand then pay for them in cash at their nearest Walmart store. Walmart’s online and digitaldevelopment division @WalmartLabs acquired the recipe technology startup Yumprint inorder to expand its online grocery delivery services. Management hopes that Yumprintwill help Walmart customers more easily make shopping lists from recipes they find inYumprint before they shop. The company also hired former eBay executive JamieIannone to manage the integration of Sam’s Club’s Website with Walmart’s globale-commerce unit.Walmart’s Sam’s Club has been testing a new subscription service called MySubscriptions that allows its 47 million members to order over 700 items, including baby,beauty, and office supplies in order to compete with Amazon’s Subscribe & Saveprogram. Online customers will not need to pay shipping fees for these subscriptionitems. Sam’s Club used to be unaffected by competitors like Amazon among shoppers offresh food, groceries, and basic products that were either not sold on Amazon, or weremore expensive online. Now 35-40 million households enrolled in Amazon Prime, andmany Sam’s Club members tend to belong to Amazon Prime as well. Sam’s Club isstarting to feel the pressure. Amazon is looking into starting a new business called“Pantry,” which would allow customers to purchase goods like toilet paper and cleaningsupplies in bigger bundles for cheaper shipping costs.Walmart is also trying to improve links between its store inventory, Web site, and mobilephone apps so that more customers can order online and pick up their purchases atstores. Shoppers can order items online and pick them up from lockers in local storeswithout waiting in line. (Walmart already offers in-store pick up of online orders.)Page 4 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017Walmart’s lockers are similar to Amazon’s recent deal with Staples and 7-Eleven to dothe same.The idea is to be able to offer Walmart products anywhere a consumer prefersto shop, whether that’s online, in stores, or on the phone.The company is re-thinking its in-store experience to draw more people into its stores.More than half of Walmart customers own smartphones. Walmart has designed itsmobile app to maximize Walmart’s advantage over Amazon: its physical locations. About140 million people visit a Walmart store each week. The company started testing theapp’s in-store mode, which detects when a customer is in a physical store. When themode is activated, customers can check their wish lists, locate items of interest in thestore, and see local promotions. The app’s “Scan & Go” feature lets customers scanitems as they shop so they can move quickly through self-checkout. Shoppers can additems to their lists using voice or by scanning bar codes.The Walmart Web site uses software to monitor prices at competing retailers in real timeand lower its online prices if necessary. The company is also doubling inventory soldfrom third-party retailers in its online marketplace and tracking patterns in search andsocial media data to help it select more trendy products. This strikes directly at Amazon’sthird party marketplace which accounts for a significant revenue stream for Amazon.Additionally, Walmart is expanding its online offerings to include upscale items like $146Nike sunglasses and wine refrigerators costing more than $2,500 to attract customerswho never set foot in a Walmart store.Amazon is working on expanding its selection of goods to be as exhaustive as Walmart’s.Amazon has allowed third-party sellers to sell goods through its Web site for a number ofyears, and it has dramatically expanded product selection via acquisitions such as its2009 purchase of online shoe shopping site Zappos.com to give Amazon an edge infootwear.On June 18, 2014, Amazon announced its own Fire Phone to provide a better mobileplatform for selling its products and services online. Amazon’s smartphone has fourcameras that can track faces to show images that appear to have depth similar to ahologram. Users are able to scroll through Web or book pages just by tilting the device orto quickly navigate menus, access shortcuts, and view notifications. Mayday is a 24-hourcustomer support service for users of Amazon’s devices, offering one-tap access toPage 5 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017Amazon customer service agents who can talk to phone users via video chat, and takeover the screen on their devices to show them exactly how to do something. Firefly is atool that automatically recognizes through the camera over 100 million items, includingmerchandise, music, or television shows, then offers a way to buy them throughAmazon’s online store. For example, a user couldPage 6 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017PRINTEDBY: mzvscott@hotmail.com. Printing is for personal, private use only. No part ofthis book may be reproduced or transmitted without publisher’s prior permission.Violators will be prosecuted.point the phone at a pair of running shoes and then order them immediately fromAmazon.com.Amazon continues to build more fulfillment centers closer to urban centers and expandits same-day delivery services, and it has a supply chain optimized for online commercethat Walmart just can’t match. But Walmart has thousands of stores, in almost everyneighborhood that Amazon won’t ever be able to match. The winner of this epic strugglewill be which company leverages its advantage better. Walmart’s technology initiativelooks promising, but it still hasn’t succeeded in getting its local stores to be anything morethan local stores. Still up in the air is the question of the relationship of online selling toWalmart’s overall business model. Should Walmart try to best Amazon as the world’sdominant e-commerce site? Or would it be better off using online selling to boost revenuefor all of Walmart. Would more companywide profits be generated by having a modestonline site and using technology to boost store profits?Sources: Shelly Banjo, “Wal-Mart Looks to Grow by Embracing Smaller Stores, “Wall Street Journal,July 8, 2014; Greg Bensinger, “Amazon Unveils ‘Fire Phone’ Smartphone,” Wall Street Journal,June 18, 2014 and “Amazon Raises Prime Subscription Price To $99 A Year,” Wall Street Journal,March 13, 2014; Anna Rose Welch, “Walmart, Sam’s Club Amp Up Online Shopping Experiences,“Integrated Solutions for Retailers, February 28, 2014; Donna Tam, “Walmart: Amazon imagerecognition a ‘shiny object’,” CNET, February 6, 2014; Brian O’Keefe, “Walmart Plans to Be anOnline Juggernaut,” Fortune, July 23, 2013; Claire Cain Miller and Stephanie Clifford, “To Catch Up,Walmart Moves to Amazon Turf,” New York Times, October 19, 2013; Claire Cain Miller, “Wall-MartIntroduces Lockers as It Battles Amazon in E-Commerce,” New York Times, March 27, 2013; EvanSchuman, “Amazon’s Supply Chain Kicking the SKUs Out of Walmart’s,” StorefrontBacktalk, June19, 2013; and David Welch, “Walmart Is Worried About Amazon,” Business Week, March 29, 2012.Page 7 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017Case Study Questions3-13 Analyze Walmart and Amazon.com using the competitive forces and valuechain models.3-14 Compare Walmart and Amazon’s business models and business strategies.3-15 What role does information technology play in each of these businesses?How is it helping them refine their business strategies?3-16 Will Walmart be successful against Amazon.com? Explain your answer.MyMISLabGo to mymislab.com for Auto-graded writing questions as well as thefollowing Assisted-graded writing questions.3-17 Describe the impact of the Internet on each of the fivecompetitive forces.3-18 What are the main factors that mediate the relationshipbetween information technology and organizations, and thatmanagers need to take into account when developing newinformation systems? Give a business example of how each factorwould influence the development of new information systems.Chapter 3 ReferencesPage 8 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017PRINTED BY: mzvscott@hotmail.com. Printing isfor personal, private use only. No part of this book may be reproduced ortransmitted without publisher’s prior permission. Violators will beprosecuted.Attewell, Paul, and James Rule. “Computing and Organizations: What WeKnow and What We Don’t Know.” Communications of the ACM 27, No. 12(December 1984).Bresnahan, Timohy F., Erik Brynjolfsson, and Lorin M. Hitt, “InformationTechnology, Workplace Organization, and the Demand for Skilled Labor.”Quarterly Journal of Economics 117 (February 2002).Cash, J. I., and Benn R. Konsynski. “IS Redraws Competitive Boundaries.”Harvard Business Review (March–April 1985).Ceccagnoli, Marco, Chris Forman, Peng Huang, and D. J. Wu. “CocreationofValue in a Platform Ecosystem: The Case of Enterprise Software. MISQuarterly 36, No. 1 (March 2012).Chen, Daniel Q., Martin Mocker, David S. Preston, and Alexander Teubner.“Information Systems Strategy: Reconceptualization, Measurement, andImplications.” MIS Quarterly 34, No. 2 (June 2010).Christensen, Clayton M. The Innovator’s Dilemma: The Revolutionary BookThat Will Change the Way You Do Business, New York: HarperCollins(2003)Christensen, Clayton. “The Past and Future of Competitive Advantage.” SloanManagement Review 42, No. 2 (Winter 2001).Clemons, Eric K. “Evaluation of Strategic Investments in InformationTechnology.” Communications of the ACM (January 1991).Page 9 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017Clemons, Eric. “The Power of Patterns and Pattern Recognition WhenDeveloping Information-Based Strategy. Journal of Management InformationSystems 27, No. 1 (Summer 2010).Coase, Ronald H. “The Nature of the Firm.”(1937) in Putterman, Louis andRandall Kroszner. The Economic Nature of the Firm: A Reader, CambridgeUniversity Press, 1995.Drucker, Peter. “The Coming of the New Organization.” Harvard BusinessReview (January–February 1988).Freeman, John, Glenn R. Carroll, and Michael T. Hannan. “The Liability ofNewness: Age Dependence in Organizational Death Rates.” AmericanSociological Review 48 (1983).Goh, Kim Huat and Kauffman, Robert J.” Firm Strategy and the Internet in U.S.Commercial Banking.” Journal of Management Information Systems 30, No.2 (Fall 2013).Gurbaxani, V., and S. Whang, “The Impact of Information Systems onOrganizations and Markets.” Communications of the ACM 34, No. 1 (Jan.1991).Heinz, Theo-Wagner, Daniel Beimborn, and Tim Weitzel.” How Social CapitalAmong Information Technology and Business Units Drives OperationalAlignment and IT Business.” Journal of Management Information Systems31 No. 1 (Summer 2014).Hitt, Lorin M. “Information Technology and Firm Boundaries: Evidence fromPanel Data.” Information Systems Research 10, No. 2 (June 1999).Hitt, Lorin M., and Erik Brynjolfsson. “Information Technology and Internal FirmOrganization: An Exploratory Analysis.” Journal of Management InformationSystems 14, No. 2 (Fall 1997).Page 10 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017Iansiti, Marco, and Roy Levien. “Strategy as Ecology.” Harvard BusinessReview (March 2004).Iyer, Bala and Thomas H. Davenport. “Reverse Engineering Google’sInnovation Machine.” Harvard Business Review (April 2008).Jensen, M. C., and W. H. Meckling. “Specific and General Knowledge andOrganizational Science.” In Contract Economics, edited by L. Wetin and J.Wijkander. Oxford: Basil Blackwell (1992).Jensen, Michael C., and William H. Meckling. “Theory of the Firm: ManagerialBehavior, Agency Costs, and Ownership Structure.” Journal of FinancialEconomics 3 (1976).Kauffman, Robert J. and Yu-Ming Wang. “The Network Externalities Hypothesisand Competitive Network Growth.” Journal of Organizational Computing andElectronic Commerce 12, No. 1 (2002).Kettinger, William J., Varun Grover, Subashish Guhan, and Albert H. Segors.“Strategic Information Systems Revisited: A Study in Sustainability andPerformance.” MIS Quarterly 18, No. 1 (March 1994).King, J. L., V. Gurbaxani, K. L. Kraemer, F. W. McFarlan, K. S. Raman, and C.S. Yap. “Institutional Factors in Information Technology Innovation.”Information Systems Research 5, No. 2 (June 1994).Kling, Rob. “Social Analyses of Computing: Theoretical Perspectives in RecentEmpirical Research.” Computing Survey 12, No. 1 (March 1980).Kolb, D. A., and A. L. Frohman. “An Organization Development Approach toConsulting.” Sloan Management Review 12, No. 1 (Fall 1970).Kraemer, Kenneth, John King, Debora Dunkle, and Joe Lane. ManagingInformation Systems. Los Angeles: Jossey-Bass (1989).Page 11 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017Lamb, Roberta and Rob Kling. “Reconceptualizing Users as Social Actors inInformation Systems Research.” MIS Quarterly 27, No. 2 (June 2003).Laudon, Kenneth C. “A General Model of the Relationship Between InformationTechnology and Organizations.” Center for Research on InformationSystems, New York University. Working paper, National Science Foundation(1989).———. “Environmental and Institutional Models of Systems Development.”Communications of the ACM 28, No. 7 (July 1985).———. Dossier Society: Value Choices in the Design of National InformationSystems. New York: Columbia University Press (1986).Laudon, Kenneth C. and Kenneth L. Marr, “Information Technology andOccupational Structure.” (April 1995).Leavitt, Harold J. “Applying Organizational Change in Industry: Structural,Technological, and Humanistic Approaches.” In Handbook of Organizations,edited by James G. March. Chicago: Rand McNally (1965).Leavitt, Harold J., and Thomas L. Whisler. “Management in the 1980s.” HarvardBusiness Review (November–December 1958).Ling Xue, Gautam Ray, and VallabhSambamurthy. “Efficiency or Innovation:How Do Industry Environments Moderate the Effects of Firms’ IT AssetPortfolios .” MIS Quarterly 36, No. 2 (June 2012).Luftman, Jerry. Competing in the Information Age: Align in the Sand. OxfordUniversity Press USA 2 edition (August 6, 2003).Malone, Thomas W., JoAnne Yates, and Robert I. Benjamin. “ElectronicMarkets and Electronic Hierarchies.” Communications of the ACM (June1987).Page 12 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017March, James G., and Herbert A. Simon. Organizations. New York: Wiley(1958).Page 13 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017PRINTED BY: mzvscott@hotmail.com. Printing isfor personal, private use only. No part of this book may be reproduced ortransmitted without publisher’s prior permission. Violators will beprosecuted.Page 14 of 14https://jigsaw.vitalsource.com/api/v0/books/9781323309568/print?from=116&to=119 7/10/2017
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