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Since its inception, the American multinational technology company Amazon.com, Inc. has come a long way. Initially established by Jeff Bezos in July 1994, Amazon initially specialised in the sale of books but rapidly expanded its product and service offerings (Amazon, 2023). The public company, headquartered in Seattle, Washington, is listed on the NASDAQ market using the AMZN ticker symbol.
The business's overarching objective is to establish itself as the preeminent employer, the safest workplace, and the most customer-centric organisation globally, with a strong emphasis on customer satisfaction (Amazon, 2023). A focus on the customer rather than the competition, a fervour for innovation, a commitment to operational excellence, and a forward-looking perspective are the four governing principles that underpin Amazon's strategy (Amazon, 2023).
Amazon has pioneered numerous innovations and services in accordance with this philosophy, including personalised recommendations, customer reviews, 1-Click shopping, Amazon Prime, Fulfilment by Amazon, AWS (Amazon Web Services), Kindle Direct Publishing, Kindle, Career Choice, Fire tablets, Fire TV, Amazon Echo, Alexa, Just Walk Out technology, Amazon Studios, and The Climate Pledge (Amazon, 2023).
In 2022, Amazon ranked as the third-largest global corporation by revenue, having generated $513 billion (Statista, 2023). Despite the substantial expansion of its AWS, subscription, and advertising revenue streams over the last few years, e-commerce continues to be Amazon's primary revenue generator (Charles and Uford, 2023).
Amazon, a renowned technology company, has solidified its position by virtue of its extensive business activities and pioneering concepts (Watanabe et al., 2022). Constantly adapting and expanding its service offerings to meet the changing demands of businesses and consumers.
Figure 1: Amazon's Revenue over the years (2004-2022)
(Source: Statista, 2023)
This report will examine the manner in which Amazon, a leading global technology and e-commerce corporation, manages risk. There will be an analysis of the manner in which Amazon identifies, assesses, and mitigates technological, strategic, and operational threats. Gaining a deeper understanding of how Amazon manages risk in its ever-changing business environment and how the company intends to ensure its long-term viability and resilience is the objective of this report.
Given the scope and magnitude of Amazon's activities, in addition to the diverse risks intrinsic to its business framework, a comprehensive and multifaceted strategy for risk management is imperative.
Assisting organisations in the identification, assessment, and management of risks, Amazon implements a Risk Management Framework (RMF) (Morris, 2022). Due to its comprehensive nature, the RMF enhances the compliance and security stance of the organisation, as well as improve transparency and efficiency in the realm of risk management.
The implementation of "zero-touch" automation, which prioritises process automation, constitutes a critical component of Amazon's risk management strategy (Talari, 2022). This methodology diminishes the necessity for human intervention in procedures, thereby enhancing precision and productivity while reducing the probability of human fallibility. Amazon proactively employs AI and machine learning to identify and mitigate risks, with a specific focus on consumer behaviour patterns (Rane, 2023).
With the implementation of this proactive strategy, Amazon effectively mitigates the escalation of potential hazards. The implementation of automated security threat monitoring enables the timely identification and remediation of potential issues. As per Biswas and Dutta (2020), a potential drawback of automation in Amazon's risk management strategy could be the risk of over-reliance on technology, possibly leading to reduced human oversight and adaptability in unforeseen situations.
Figure 2: Zero-Touch Automation Framework
(Source: BetterCloud, 2023)
In order to reduce strategic risks, Amazon places a premium on agility and a prudent degree of venture capital in the face of favourable circumstances (Capobianco, 2023). A dynamic business environment necessitates agility, which is defined as the capacity to move quickly and effortlessly (Rafi et al., 2022).
This agility is increased through the utilisation of the cloud, which enables rapid infrastructure modifications and transfers the responsibility of non-value-adding tasks to the service provider. Subsequent to the classification of strategic risks, Amazon formulates appropriate countermeasures. An effective strategy for mitigating risks associated with foundational technology is to investigate alternative business models or technologies (Battisti et al., 2022). Through the strategic integration of both approaches, Amazon effectively mitigates the consequences of risks that would be unfeasible to directly manage or insure.
In regards to risk management across the complete lifecycle of a service, Amazon Web Services (AWS) provides comprehensive protection through its integrated compliance and risk programme (Corcione, 2023). Continuous improvement and evaluation of organisational risk-related activities will be the focus of this operation.
Through close collaboration with the business divisions of AWS, the Business Risk Management (BRM) programme offers a comprehensive outlook on critical risks that affect the entire organisation (Gupta et al., 2021). It promotes risk remediation, performs risk assessments and monitoring, and generates reports of results to assist organisations in decision-making. A procedure for the escalation of high-priority risks is established, and as part of AWS's business and operational management, risks are communicated via frequent meetings and reports.
AWS incorporates security-related standards, procedures, and frameworks into its control environment. The minimization of risks and inconsistencies is contingent upon the implementation of control automation, which drastically reduces human involvement in repetitive tasks. In order to verify the proper operation of control activities,
AWS regularly conducts independent third-party attestation audits and participates in over 50 audit programmes (Wilson et al., 2021). Compliance with security frameworks at both the global and regional levels is ensured by this.
Amazon's risk management practices demonstrate a connection to SDGs such as "Industry, Innovation, and Infrastructure" through the implementation of the subsequent measures:
Enhancing Industry and Infrastructure: Amazon contributes to enhancing infrastructure resilience and industry standards by continuously improving its risk management frameworks and implementing state-of-the-art technologies such as artificial intelligence and cloud computing (Ivanov et al., 2022). This is consistent with the Sustainable Development Goals' objectives of fostering innovation, promoting sustainable industrialization, and developing resilient infrastructure.
Promoting Sustainable and Innovative Practices: Amazon fosters innovative approaches to risk management through its emphasis on risk-opportunity equilibrium and agility, thereby supporting the implementation of sustainable and innovative practices (Rane, 2023). Furthermore, apart from safeguarding the enduring sustainability of Amazon, these policies serve as a model for other companies operating in the industry to emulate by adopting state-of-the-art, ecologically conscious risk management protocols.
In essence, Amazon's framework and processes serve as compelling illustrations of a technology-centric approach in the realm of risk management. Amazon has demonstrated its commitment to maintaining a business model that is secure, productive, and ecologically sustainable through the integration of these strategies into its functioning.
Amazon's business model is predicated upon its sophisticated and indispensable risk management procedures, which comprise both enterprise risk management and operational risk management. The evaluation of these methodologies is as follows:
Zero-touch automation serves as the pillar of Amazon’s operational risk management strategy (Schwarzenau et al., 2023). This approach helps to make the process very precise while minimizing the need for human participation. AI and machine learning can be applied to identify and mitigate risks more effectively. Amazon has the opportunity to reduce the impact of the potential threats using the AI technologies that identify the consumer behavior trends.
Automated technologies are also employed to monitor for potential security threats. Amazon effectively averts potential threats through the detection of suspicious activities and subsequent notification of security teams (Rehan, 2023). This serves to preserve consumer confidence and data security.
Automation surpasses this by implementing standardised procedures, thereby reducing expenses and increasing efficiency. As a result, Amazon is able to maintain its commitment to delivering an exceptional customer experience.
Amazon, among the numerous instruments presently accessible to enterprises, provides a comprehensive risk management framework called the Risk Management Framework (RMF). Through the standardisation and enhancement of risk management procedures and the verification of regulatory compliance, the RMF contributes to the protection of environments. Additionally, it provides a comprehensive view of the risk profile, allowing you to identify potential issues and address them promptly.
Amazon has integrated risk management into its operations at a fundamental level through the establishment of a risk management culture (South, 2018). Consistency with the organization's risk management standards is ensured among all staff members via a specialised training programme, periodic evaluations and discussions pertaining to potential dangers.
Risk management methods and tools include risk registries and dashboards, which offer a comprehensive overview of the risk profile associated with Amazon. The implementation of a risk management system enables Amazon to effectively identify, assess, and manage potential issues (Ivanov et al., 2022). The risk management system is highly dependent on Amazon Web Services (AWS), a provider of a secure cloud-based infrastructure equipped with access control and encryption tools. They can safeguard sensitive data and contribute to the struggle against fraud by doing so.
Amazon's operations management is predicated on ten critical domains of strategic decision-making that govern productivity and efficiency in the workplace (De‐Arteaga et al., 2022). This domain encompasses a range of activities, including the design of products and services, quality management, process and capacity design, location strategy determination, layout and strategy design, human resource management, supply chain management, scheduling, and maintenance performance.
A significant portion of Amazon's success can be ascribed to the company's dedication to ongoing enhancements in operations management (Umar, 2022). To maintain a competitive edge and cultivate an atmosphere that promotes innovation, the organisation continuously refines its operations management strategy.
Figure 3: Amazon's Operation Management
(Source: Capobianco, 2023)
Amazon evaluates effort efficiency using metrics such as the number of orders fulfilled per hour, the number of inventory items managed per hour, and the number of queries addressed per day. The evaluation of the effectiveness of Amazon's operational risk management strategies is contingent upon these metrics.
Amazon, a prominent e-commerce platform, is significantly exposed to the perils of online deception. An organization’s strategic approach to risk management is demonstrated in the case of Buyer Fraud Service (BFS). The BFS system is a rather sophisticated one that uses machine learning technology to analyze all Amazon transactions. These algorithms scrutinize over 2,000 data points comprising both historical and current information in order to satisfy each individual request (Dang, 2021).
These comprehensive analyses by BFS enable the system to block suspicious transactions, which are typically almost certainly fraudulent.This proactive fraud detection technology has proven to be efficient with annual volume of millions of dollars in fraudulent transactions avoided (Talari et al., 2022). Success of BFS highlights the need for use of latest technology and data analytics in the risk management strategy especially within e commerce where online fraud is common.
Amazon had to migrate over 100 oracle databases from the on-premises to the Amazon Web Services (AWS) to improve its efficacy and reliability (Di Lena, 2021). This migration utilised Amazon Aurora, a PostgreSQL-compatible cloud-based solution, demonstrating Amazon's predilection for scalable and dependable solutions. The massive amount of data involved in the relocation was forty terabytes. Astonishingly, the entire relocation was concluded within an hour, resulting in minimal disruption to Amazon's activities and clientele.
Extensive benefits have ensued as a consequence of this migration. Amazon initially achieved substantial cost savings by implementing AWS and Amazon Aurora. This aspect becomes critical given the extensive scale of Amazon's operations and the volume of transactions it handles (Dang, 2021). In addition, the efficacy of the BFS improved following the migration; therefore, it ought to be capable of managing the escalating volumes of transactions associated with Amazon's continuous expansion.
Lastly, Amazon Web Services (AWS) has enabled the e-commerce behemoth to scale more easily in response to new technological developments and fluctuating consumer demand, thereby assisting it in remaining at the forefront of its industry.
This case study provides a compelling demonstration of how Amazon integrates technological advancements into their risk management strategies. By implementing machine learning and cloud computing, Amazon has enhanced its operational efficiency and scalability, both of which are vital for maintaining its competitive advantage in the global e-commerce industry.
Walmart, a prominent retail conglomerate, implements robust risk management protocols, with particular emphasis on its supply chain. They base their strategy on preparations for how and when to respond to disasters. Walmart has established two facilities to enhance its preparedness and response capabilities in emergencies, including but not limited to natural disasters: An Emergency Dispatch Centre and an Emergency Operations Centre (EOC) (Schirnhofer, 2022).
By implementing this system, Walmart is capable of promptly and efficiently addressing crises, thereby ensuring the continuity of its operations and providing assistance to the affected communities. As an example, the prompt reopening of a significant number of Walmart locations in the wake of Hurricane Katrina demonstrates the effectiveness of the company's crisis management approach.
Technology behemoth Apple demonstrates a high level of proficiency in safeguarding its intellectual property and conducting comprehensive risk assessments (Gupta, 2021). Their strategy effectively manages the risks associated with global supply chains, product development, and extensive IT operations. Apple incorporates rigorous intellectual property measures and conducts comprehensive risk assessments across its supply chain and product lifecycle as an integral component of its strategic approach. In order to protect Apple's intellectual property and maintain its technological edge, this strategy is vital.
Each of the three corporations—Amazon, Walmart, and Apple—exemplifies a distinct and effective risk management strategy that is tailored to the particular challenges of its industry and business model. In the realms of operational efficiency and online fraud prevention, Amazon is a frontrunner with its technology-centric strategy. Walmart emphasises the importance of supply chain resilience and emergency preparedness in order to support its extensive network of physical stores and logistical procedures. In order to maintain its tech-centric, innovation-driven business model, Apple must place a high priority on safeguarding its intellectual property and performing comprehensive risk assessments.
Amazon's approach to risk management aligns closely with SDG 3, which pertains to "Good Health and Well-Being." The organization's commitment to sustainability and its impact on various stakeholders—including employees, customers, and the environment—exemplifies a comprehensive methodology.
Amazon has made significant progress in its utilisation of renewable energy through its various initiatives; as of 2022, the company obtained 90% of its power from environmentally friendly sources (Yu, 2022). While indirectly contributing to the improvement of environmental health, this transition to sustainable energy sources also benefits human health and well-being.
The organization's commitment to safeguarding natural resources is exemplified through its water stewardship initiatives, which annually restore 3.9 billion litres of water to local communities (Amazon, 2023). Ensuring that individuals have access to potable water is critical for the welfare of the community.
In pursuit of environmental health objectives, Amazon is increasing the sustainability of its packaging and decreasing packaging waste. The organisation has refrained from utilising over 2 million tonnes of packaging material since 2015, thereby contributing to the mitigation of pollution and promoting public health (Amazon, 2023).
The organization's commitment to employee welfare is exemplified through its strong focus on human rights, specifically within its supplier network. Ensuring the maintenance of secure working environments and the application of equitable labour standards are intrinsically linked to the health and safety of employees.
Amazon's innovative offerings and services, specifically in the domains of device manufacturing and cloud technology, serve as tangible manifestations of the company's dedication to mitigating environmental harm. By 2023, the organisation intends for all device packaging to be recyclable (Amazon, 2023). By means of a variety of initiatives, Amazon provides back to the communities in which it operates and participates actively in them. This effort includes initiatives such as the Climate Pledge
Friendly, consumer alternatives for product recycling and repurposing, and more sustainable product offerings (Amazon, 2023).
Amazon's all-encompassing approach to risk management and sustainability considers not only the immediate requirements of its business operations, but also the enduring impacts on the well-being and satisfaction of its stakeholders. SDG 3's overarching objectives—the promotion of stakeholder and environmental health and well-being—can be attained due to Amazon's integration of ESG factors into its business strategy.
Three recommendations are provided to assist Amazon in enhancing its risk management:
Integration of Collaborative Risk Management (CRM): To fully capitalise on the advantages that CRM provides, Amazon would do well to integrate it into its corporate culture on a continuous basis (Nuseir and Refae, 2022). An alternative to a centralised approach to risk management, this strategy emphasises interdepartmental collaboration and communication.
Involvement of multiple organisational departments in risk management procedures is essential for the successful implementation of CRM. For example, risk management should integrate diverse organisational perspectives to leverage opportunities and mitigate adverse consequences. Customer relationship management (CRM) software enables Amazon to respond more effectively to new hazards, a critical capability given the scale and complexity of its operations.
The incorporation of diverse organisational perspectives into this approach ensures a more comprehensive evaluation and mitigation of risks. As a company that implements CRM techniques, JPMorgan Chase & Co. is unparalleled. Collaboration throughout the organization's departments and levels is an integral element of their firmly established risk management framework.
Clear Foundation and Transparent Negotiation in Strategic Partnerships: These are two of the most critical components of any successful strategic collaboration. Amazon possesses the capability to ensure that all partners are initially aligned with respect to objectives, extent, and framework of governance. Individuals entrusted with the daily management of the relationship must be actively engaged in strategic alliances from the prime (Vijayakumar and Nethravathi, 2021). This method effectively maintains partners' alignment and mitigates the risk of misinterpretations. Trust and collaboration among partners are critical for the long-term success of a strategic relationship.
These values can be developed through proactive involvement and transparent communication from the outset. In addition, it facilitates the mitigation and management of risks associated with money flows, market fluctuations, and decision rights. This strategy was exemplified in India through the partnership between BP and Reliance Industries. BPRL and BP jointly ventured to explore the deepwater gas reserves of India for their joint benefit (Vijayakumar and Nethravathi, 2021). This highlights the need for transparent and open negotiations, and specific rules for the ground, particularly when working with operational and culturally different partners.
Continuous Monitoring and Assessment of Emerging Risks: Amazon must continually monitor and evaluate new information to enable it to remain competitive. It needs to be constantly observing market trends and systemic risks, and in some cases with other institutions counteracting them (Torkura et al., 2021). Companies that have managed systemic risks in the past use proactive monitoring, which combines qualitative and quantitative indicators to identify and preclude crises.
A proactive approach such may involve creation of new products or formulation of strategic alliances can potentially transform prospective threats into opportunities for business growth. Amazon can enhance its capacity to predict and address unanticipated occurrences, thereby positioning itself more favourably to capitalise on scarce market opportunities, through the expansion of its risk management framework to encompass additional categories of risks. Prominent global professional services network PricewaterhouseCoopers (PwC) emphasises the criticality of continuously monitoring and assessing emerging threats.
The risk management framework employed by Amazon serves as a noteworthy illustration of how to efficiently manage an extensive array of technological, strategic, and operational risks. It is distinguished by its sophisticated technological integration and comprehensive plans. Consistent with Amazon's commitment to prioritising customers, achieving operational excellence, and ensuring long-term sustainability, the study emphasises the criticality of agility, innovation, and strategic foresight in the company's risk management procedures.
Amazon has the potential to further enhance its risk management practices through the implementation of collaborative risk management strategies, the establishment of transparent and unambiguous protocols for negotiating strategic partnerships, and the vigilant monitoring of emerging hazards. With the objective of bolstering Amazon's resiliency and adaptability in the dynamic global business environment, these concepts aim to ensure the company's sustained prosperity.
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Figure: Amazon's Risk Management Framework
(Source: South, 2018)
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