What will be the literature review of the following case:

The Lorean Group, an international holding company, recently acquired a controlling interest in Tiger Advertising. This advertising agency, which employees 6,644 people worldwide, has been successful since its inception in 1964. Revenues over the last four years have been flat, however, and costs of running the business have been climbing steadily. Tiger was acquired in spite of this recent decline in profits because of its reputation in the industry and its extended list of loyal clients. Lorean has a history of turning around troubled acquisitions, and the belief is that Tiger can be saved as well.

The Lorean Group intends to let Tiger operate independently, though it seeks to understand the causes of the recent poor performance of the company. The Lorean Group recognizes that, although poor firm performance could be attributed to isolated incidents, most often there are systematic problems that require changes in practices and policies. You’re a management analyst from Lorean, and your boss has given you the responsibility of analyzing the situation at Tiger and offering recommendations that will improve the firm’s financial performance and its long-term prospects. You travel to Tiger’s corporate headquarters, and plan to spend four days meeting with people to gather information that will inform your recommendations.

Your first meeting with the Tiger top management team went fairly well. The first thing that struck you was, although the team members are quite different from each other in obvious ways, beneath the surface there is remarkable similarity. Of the seven members who compose this team, three have been with the company since its inception. The four newer members are much younger and came to the company more recently in response to the firm’s rapid growth, due mostly to international expansion that occurred between 2002 and 2007. Despite the differences in age, company tenure, and their functional and industry backgrounds, the members of this team seem to be cut from the same cloth in that each is very businesslike, analytical, hard driving, and results-focused.

In your discussion regarding the company’s expansion, William Collins, one of the founders, remarked, “The expansion was tough for us because of all the pressure and uncertainty, and to be honest, we really didn’t jell together initially—I thought it was a big mistake to grow so fast and bring new people on board to manage this ship—but now we’re past all that, we’re very cohesive, and we share the same vision of how we do business. This is a good thing because when I retire in a couple of years, I’ll know the company’s in good hands.” Everyone in the room seemed to nod in agreement. Another founder, Russell “Rusty” Gee, then looked squarely into your eyes and added, “I’m not exactly sure what you’re looking to do here, but we’ve weathered lots of storms together. Yes, we’ve had a couple of rough years, but we’re more than capable of handling things ourselves—this was part of the deal, wasn’t it? We know this place better than anyone, so I can’t imagine we’ll seriously consider any recommendations that’ll upset the apple cart.” Rusty made the statement in a friendly way with a smile on his face, yet you could tell he was very serious.

Although you learned many things during that first meeting, two things stood out that suggested a real problem. First, turnover among creative team associates at Tiger is high: 35 percent each year for the last two years, and 30 percent the year before that. The industry average is less than 20 percent, and even lower in the top firms. Creative team associates are vital to Tiger’s success, so this retention issue is big problem. Because the company’s business model centers on advertising design rather than production or media services, creative team associates constitute the company’s technical core. Although the Tiger top management team seems aware of the problem, they seem to rationalize it. As Jamie Waggner, VP of human resources, noted, “We hire the best and the brightest, so it’s only natural that they occasionally get poached by other firms. We try our best to keep them, but during the last few years we haven’t had the ability to compete with the salaries they’re being offered elsewhere. Once things turn around for us, we’ll be able to solve the turnover issue.”

You also learned the company has been sued three times recently. The cases involved associates who were passed over for promotion and who claimed that the work environment was so filled with stress that it made them ill and unable to work. Although you were aware of the first case because it was highly publicized, apparently Tiger went to great lengths to settle the two subsequent cases quickly before anything was disclosed. The first case was settled out of court as well, but not before it became an embarrassment to the company and its principals. You could tell from the tone of the conversation that the management team members are proud that they prevented word of the other two lawsuits from getting out. Before you have a chance to ask the question of whether anyone believes the turnover and lawsuits are related, Jamie volunteers the following. “We were really unlucky during that period. We hired three associates who didn’t possess sufficient capabilities, and each had trouble coping in a way that would have led to better outcomes. Most everyone is drawn here because of the challenge inherent in the work that we do—we just have to do a better job in ruling out applicants who don’t fit.”

Your subsequent observations and discussions with the members of the creative teams did not reveal anything too far out of the norm as compared to other advertising agencies in terms of the immediate work context. Workload and time pressure are very high, but not atypical for a large advertising agency. The creative teams typically include three to five associates, and are led by a senior client manager, who makes final design decisions after receiving input from the members. Although in your initial meeting Jamie referred to the teams as being self-managed, the senior client managers function more like traditional supervisors in that they assign specific tasks to each member during the projects. Because the support staff is kept to a minimum at the firm to keep costs down, associates also have to take care of a lot the administrative duties. In return, however, the members of the creative teams get to work on some highly visible projects for some very well-known clients.

You also note that the creative teams have autonomy to work wherever and whenever they need to. This arrangement gives employees a lot of flexibility, and working odd hours in strange locations has resulted in some stories of which everyone in the company is familiar. As an example, you heard a story of a creative team dinner meeting in a private room at a local restaurant. When the restaurant closed, the senior client manager handed the owner $1,000 to let them stay and work, and the team stayed until the restaurant opened for lunch the next day. Although not everyone at the meeting was on-board with the idea initially, and in fact, one member had to leave because of a personal obligation, the team members came together and produced a very successful deliverable for one of the firm’s largest clients. The senior manager who revealed this story did so with pride and remarked how it was a “fantastic team-building experience for those who chose to tough it out” and that it perfectly reflects the “company’s ‘work-hard, play-hard’ mentality.”

When you inquire about how the job performance of the creative associates is managed, you learn that toward the end of each calendar year, the senior client managers get together and spend an entire day on the evaluation process. The evaluations focus on the extent to which each associate contributed to the designs of the teams they worked on during the previous year. A list of all associates, ordered by their job performance scores, is generated. This list is then used to determine three categories, each of which is associated with some significant reward consequences. The top 10 percent get sizable bonuses that typically amount to 50 percent of base pay, and are fast tracked to senior client manager. The next 30 percent get a 25 percent bonus and are considered “on-track” for promotion. The others get a small share of profit, but typically this amounts to 2–3 percent of their salary.

Bonus checks, and a letter explaining how the bonuses are distributed, are mailed to the associates’ residential addresses at the beginning of the winter holiday. When you inquire about why the company distributes performance feedback this way, Jamie told you the following: “The associates work in teams and so they’re understandably sensitive to differences in their bonuses. Although they’re intended to send strong signals to the associates, we avoid bad feelings and conflict. By the time they get back from the holiday, it’s not on their minds as much.”

You had lunch with several senior client managers to gain their perspective on the company. Although this meeting started off well, they became a little defensive when the subject of the turnover and lawsuits came up. One remarked, “Around here, you’re rewarded for paying your dues, for doing whatever it takes to deal with anything that gets thrown at you. Yes, it’s demanding, and it requires sacrifice, but how else can we find out whether people have what it takes? Those of us sitting at this table with you are a product of this and it works—look at how successful we’ve been. We just can’t tolerate hires who claim they can’t take it or that it’s abusive.”

You also met with a group of creative team associates, and for the first time, you’re exposed to a different perspective regarding what life is like at Tiger. As an example, one associate said, “I learned a lot from dealing with the pressure at the beginning, but the work is nonstop. They say it’s “work-hard, play-hard,” but even the play feels like work. Another associate chimed in, “The projects are great, but I never feel like I’m fully involved, I’m always on the periphery chipping in where I can.” As a final example, a third associate stated, “It’s definitely sink-or-swim around here, that’s for sure. It’s easier for some people who get plugged-in with a manager right away, but I’ve never seemed to gain favor with any of them regardless of how many hours I put in. To top it off, the crazy hours are creating a lot of work–family conflict, and the strains are really adding u

AMAZON.COM’S NETWORK STRUCTURE

Amazon.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 fromproducts 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’smost 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 twomillion third-party sellers by 2013. It leveraged its state-of-the-art transaction-processing systems and networking capabilities to provide sellerswith 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’swebsite 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 ups 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.

Question:

1. Discuss three (3) lessons learned based on the case study. (15m)
2. Discuss three (3) advantages of network structure in the success of Amazon.com (15m)
3. Discuss three (3) challenges that might face by Amazon.com in implementing network structure (15m)