INFO TECHNOLOGY MGT
INFO TECHNOLOGY MGT MBA 8125
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This 39 page Class Notes was uploaded by Bernardo Schaden on Monday September 21, 2015. The Class Notes belongs to MBA 8125 at Georgia State University taught by Duane Truex in Fall. Since its upload, it has received 21 views. For similar materials see /class/209832/mba-8125-georgia-state-university in Business Administration at Georgia State University.
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Date Created: 09/21/15
Defining Strategy Added value and building an EC strategy 37 GeorgiaState Umversuv MBA 812s Professor Duane TruexlII Learning Objectives Examine the Taxonomy of an eBusiness Model oAsk What is a model in terms of an estrategy oExamine concepts of value determination mAms Professor Truex Internet Performance Environment 1 Eii h if i r 39 FIGURE 41 Determinants of Firm Performance Business Model 0 Customer value 39 Scope Price Revenue sources Connected activities Implementation 39 Capabilities 39 Sustainability Internet Environment Performance Customer Value 0 Where does value come fromhow is it made evident to your customer Differentiation How do your products or services differ what to they offer that others do not Scope Properly identifying where and to whom to offer the product at the proper pr1ce Pricing Charging what the product is worth to the customer Charging exactly the right price Professor Truex MBA 8125 Customer Value Differentiation Product features Product Mix 7 Speed specialized Choice content personalized product Mass customizatlon and Timin personalizatlon g Linkages 7 Flrst to market Who endorses you Location 7 Ease of access d 7 In info goods PDA cell Bran Name Cobranding phone telephone it s the real thing 39 Service Low Cost 7 Help desk repairs Perception of the best value Professor Truex NmA ms Before Pricing comes Scope And Scope is Market segmentation By Customer demographic Customer lifestyle Geography Customer ethnicity or cultural identity Professor Truex MBA 8115 What are the key questions about Scope 0 Whom do we wish to serve At what price can we should we serve them Professor Truex NmA ms The Pricing Decision An important relationship Proliix II 1P Qil where P is lhc price per unit ol the products if il1 1CI39UHil variable cost Q is the Old number ol39 llliih Oitl and Iquot is he Liprlii onl or I i39c d coslx we ind lhul in 1900 Professor Truex MBA 8125 Price market share and ebusiness growth 0 How are these ideas related In information goods there are high fixed Ie sunk costs and VERY low marginal costs In fact the marginal cost is near zero At the margin everyone can produce as near the same price once in the business Hence volume market share and sustainability are EVERYTHING CAVEAT Given the right price of course Professor Truex mAaizs Pricing Example given market share in a growing market TABLE 43 Market Share and Prolllul lil for KnoulcdgoBascd Products ult NW 3000 mm mm Mullet if MinkI Shale llulxcl Shale Ill39l l Slmrc Shnrc H000 PIUlIh Share 1000 Pl39ol39ilx Share 1000 Plllllh Um mum Mullllolw quotI Illlilxl lllilllll rl unilx nnllionx l H39m N0 300 144 80 8000 l00 80 80000 500 l ll39lll B 0 00 lhl 0 3000 Ill 20 30000 3400 Professor Truex MBA 8125 Infonnatioon Technology management Share is important because Volume spreads the xed cost across more units Pricing creative or aggressive pricing Critical to acquiring and holding market share Hence critical to sustainability and profitibility Pricing choices until lockin or share is acquired Free deeply discounted Professor Truex MBA 8125 Infmmatioon Technology management Pricing types and choices Menu or fixed price 7 Take it or leave it 7 Strategic value or problems Onetoone pricing 7 Variable and negotiated prices some more some less Auction Reverse auction Barter Professor Truex MBA 8125 Cost structures of egoods or info goods Information is costly to produce and cheap to reproduce The variable cost of additional units does not increase even with large numbers of copies 7 Once the rst is produced copies are almost cost free a great marketing opportunity and challenge Information goods can become commoditized 7 A danger 7 Yellow pages eg CD Phone book music 7 Competition pushes prices to near zero Professor Truex NmA ms Market structures and strategy for information goods Differentiate the product Must add value to the raw product 0 Achieve cost leadership If it is hard to differentiae at least sell a LOT of it Make your average cost the lowest If you are dominant achieve cost leadership through economies of scale and of scope Reduce average cost through volume sales Professor Truex MBA 8125 Ebiz Pricing Lessons lSt know your cost of production and sales 7 Your variable cost 2nd If forced to compete in a commodity market be aggressive but not greedy 7 Grab market share price aggressively and exploit economies of scale 3rd Differentiate by personalization and price 4th Invest in collecting data about your market 7 Coupons focus groups promotions cookies and registration 5th Use customer information to sell personalized products 6th Analyze the profitability of selling to certain groups 7 Determine price sensitivity attractiveness of groups Professor Truex WA ms Perfect Price Discrimination This is charging each customer just what he is willing to pay Personalized pricing Eg Quicken TurboTaX rst releases of books and software Versioning Group Pricing Education Sr Citizen Professor Truex MBA 8115 Sources of Revenue in Ebiz Pure information goods 7 Value is in the content Intangible service goods 7 Value is provided by people with expertise and advice Agents brokers etc Tangible Hard goods 7 Value is mostly in the product 7 small amount in complementary information Q So how do you make money and charge And price Professor Truex mAms ecquotu momnag Professor Truex TABLE 43 Evolution of Advertising Metrics for Portals lV lell39lL Definition Comment Number or huh 39ounl nl euuh time data is Numbel of hits fl c x not my requested lrom u server while much aboul the typo of UV 1 ch surlcr ix 1x1 1 website tomers and whul they were There may be more Ihun one doing lnl each time u Ufo clicks u Intth Page Viewx The number of individual Number 0f QUIfmS who H Pug 1 1 quot1 respond Io un ml still not pulls oul while 11 LI website gin Clicklhmugh Percent of prospculixc cux ND mfmmmiml on he Em lumen who respond lo an Hum 161150le mllnc le erlisemenl Unique visitors Count ol ll ldl ldll l using their inlcrncl protocol lPl address Rt ilL ll Percenl Ali39suiirplctl uer who visit ii page on u spccilic web site in a given mnnlh Length of slay How long the user has been on the website Regislered users Measure of wehxilc users likely In come back Repeal isilorx The number of isilors Ill 394 website tor two or more times uunt v Hn quotM39h warm Ln urcquotb mrmu IUlIan mum wr41vl7 MBA 8125 Infonnatioon Technology management Professor Truex Finally E Strategy development MB Infmmatioon Technology management Witt iv 7 F ii Etta 0 F33 Internet actions EMERGING or FLUID Locate pro t xite L 3 FIGURE 54 Internet Technology Life Cycle GROWTH 0r TRANSITIONAL Determine strengths and weaknesses of buxiness model Build business model MATURE or STABLE Defend competitive advantage Decide where in the Internet value network you want to be Build capabilities Build network Invest in infrastructure Win customers Build brand name TeamupRun Value in Innovation FIGURE 52 Who Pro ts from lnnm ation Professor Truex Imitubilil U I ll Dif cult to Holder 0 make mane complcnwnlzu y usxclx mukcx money V II Imcnlur Inukcm mums Party will both technology and assets or with bargaining power mnkm mnncy Fred Anuluhlc nr l quotmnmul39lnnl Tighll Hcld And Impm39lunl 39omplemonlur Assets MBA 8125 Infmmatioon Technology management Day 3 Information Technology and Changing Business Processes aka Business Process Reengineeri or BPR Ki Geo aState UnlverSItV IB 8680 C15 Depznmem meessur Duane Truex Ill BUSINESS PROCESS PERSPECTIVE n ufgssu Tmex EVE UmmemePnnmples Transforming business processes Two popular concepts for transforming business are 7 Reengineering or radical process improvement 7 And incremental or continuous process improvement often discussed in the context of WW Both view business as a set of processes rather than a functional hierarchy meessuy Tmex Etnmmmspmmpies Hierarchical Business Structure Hierarchies are typically organized around a set of functions Each group has a core competency which it concentrates on Functional groups within a firm tend to complete their portion of a process and throw it over the wall to the next group in the value chain This can lower effectiveness because of the inward looking focus of each inctional group Ffufessur Tmex ErCummercePnnmples Hierarchical functionallyoriented Structure i i i i Functionally organized firms tend to perform suboptimally for three reasons Individual departments duplicate information maintained elsewhere Communications gaps often exist between functional groups Functional structure tends to become in rained inhibiting reorganization meessuy Tmex Er nmmerchnnciples Managing from a business process perspective managers may take a business process perspective on value creation Each business processes includes the following A begimiing and an end Inputs and outputs Subprocesses that turn inputs into outputs A set of metrics for measuring effectiveness Ffufessur Tmex ErCummercePnnciples Simple business process meessuy Tmex Ert nmmercsPnnmples Processes cross functional lines For example requirements for goods might originate in the operations department but be based on guidelines from the finance department Ffufessuy Tmex ErCummercePnnmples The power of information technology To reiterate the real power of technologyis not that it can make the 01d processed better but that it enables organizations to break old rules and create new ways ofworking that is to reengineer M Hammer and J Champy Reengineering the Corporation p 91 meessm Tmex Ere UmmercePnnciples What is BPR quotBusiness process engineering is the fundamental rethinking and radical redesign of business yrocesses to achieve dramatic improvements in critical contemporary measures of performance such as cost quality service 59 speed Hmmer Chmpy 1994 quotProcess innovation Davenport 1997 my mm 5 We is megssm Tmex E CommercePnnciples Brief History of Business organizations 7 1777 Adam Smith division of labor concept 7 Eli Whitney and interchangeable parts 7 1900 s Ford implements assembly line based on division of labor and interchangeable parts achieves economies of scale you can have any color you want as long as its black 7 1920 s Alfred Sloan applies Ford s idea to management of the organization divide business tasks into functional groups marketing sales research development mechanical engineering industrial engineering manufacturing vertical hierarchy with many layers of management r paw Wdueimdevl pmfem Tmex E LommercsPnnciples BPR history The vertically integrated organization worked 7 US corporations dominated their markets 7 19705 World begins to change Since Japan and Europe were decimated during W W I all their factories are new US factories are preWW I Advances in transportation and information technology make the world smaller 7 Now companies are truly beginning to operate on a global level The hierarchical organization is not exible or agile enough to react to market changes 7 US companies lose market share amp profits r Dav l mm 5 We 12 murmur max E ommercePnnciples BPR History Go to atter organization structures that can respond more quickly to market changes Less middle management 0 Trend away from companies trying to do everything Ford s River Rouge plant had steel and other raw materials coming in and cars exiting the other side They did everything Today outsourcing of non business core jobs 39 39 Dovl Module Silide l3 Professor Tmex E Cornmercelemples BPR is Not Automation Downsizing Outsourcing So what then is it l Module 5 Shde l4 DOV Professor Tmex E CommercePrmmples Organizational Reengineering BPR Changesimproves three areas 7 Plans 7 Process quotBasmess process engineering is the Infoma on ndamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical con temporary measures of performance such as cost quality semice 5 speed H mmeraCmmyy1994 Four key words in the definition Fundamental Radical Processes Dramatic Prufessnr Truex ECUmmercePnnciples new Meade 5 Side l5 Key Words 1n Reengmeermg 1 39 Fundamental 7 Asks Why we do what we do Why do we do it that way 7 Forces a reexamination Of rules and assumptions goveining conduct of business 7 Try to avoid assumptions underlying processes E g How can we perform credit checks more efficiently7 7 Assumes you need to check credit 7 When maybe the cost of bad debt is less than the cost of credit checking 7 Ignores what is and concentrates on what should be Dav l mm 5 Me U megssm Tmex E CnmmercePnnciples Re engineering key word 2 Radical 7 Does not deal with super cial treatment of the old 7 Not incremental improvement 7 Disregards existing structures in favor of reinvented and new way of domg work 7 It is Reinvention Q Does this notion strike you as a tad arrogant meessu Tmex ECUmmermannciples Day Modue 5 Ewe v7 BPR Versus Continuous Improvement Cnntinunus Imprnvement Incremental Change F Work Unit Driven Prufessur Truex EVCnmmercePnnciples Dav Mndue 5 we m Key Reengineering word 3 Processes 7 A problem word Because most business focused on tasks jobs peoplestructures but not processes 7 Business process is A collection of activities that takes one or more kinds of input and creates an output of value to a customer Eg the delivery of ordered goods in the customer hands is the output of a fulfillment process was Tmex EVCUmmercePnnciples Day Modue 5 we 10 Key Reengineering word 4 Dramatic 7 Not about marginal or incremental improvements 7 About quantum leaps in performance 7 Digging out ofa 10 hole does not require reengineering Eg in sales projections or cost overruns Here ne tuning is needed 7 Reengineering blows up the old and replaces it with something new It is deployed only when heavy blasting is needed 7 Eg GM Xer x Ffufessur Tmex ErCnmmercePnnciples Dav Modue 5 Side 20 Process reorientation examples IBM Credit Old to make a deal required 7 steps taking 6 days on average 7 performed by specialists 7 deal logger credit check modifying standard loan agreement pricing loan quote generation 7 But the actual work only took 90 minutes New replaced specialists by generalists each performing several of the stepsdelivery in 4 hours 7 How old assumed worst case scenario the tough cases new allows or exception procedures 7 Improvement of 100 times or a 90 reduction in cycle time and a hundred fold improvement in productivity 7 new Moduesmdezl meessuy Tmex E LommercEPnnciples Process reorientation examples Ford Motor 39 Old accounts payable department r 50 vs Mazda 5 5 39 Rethought and designed Procurement as aprocess 7 Included purchase orders payables purchasing and receiving 7 Took into account the 8020 mle the law of maldistribution I 39 39 39 39 m 39 New Eliminated he invoice entirely 7 buyer orders and enters order into database gtgt J 39 J 39 39 L J L check is sent to the vendor Ifthe goods do not correspond to an order in the database they are simply refused and returned to the vendor 39 The change Payment authorization r dock uow Amdue 5 Side 22 megssnr Tmex E CummerEePnnciples Diagram of Ford Accounts Payable Process Purchase order vendor Receiving Document Copy of Purchase orde receiving Invoice Accounts payable Spends most of their time investigating mismatches ASIS System 7 Devi Mndue 5 Side 2 meessuy Tmex E anmercsPnnciples Ford Invoiceless payables system Purchase order vendor Matches items with purchase order Purchase order receiving Accounts payable Issues Payment when items received database TOBE System Dav i Modue 5 Side 24 Frufcssur Truex Erummemepnnmpies The process principle here is that 7 We can only reengineer processes not organizations evolved to accomplish them Accounts payable a department was an organizational artifact of a particular administrative design process A big change for Ford and its supplies 7 For now the principle was we pay for the parts when we USE them un l then they are your arts 7 In exchange supplier got all of Fords business 7 You get paid when we get the parts not weeks later Forced a process rethinking downstream with suppliers 7 They became privy to Ford s production schedule 7 Integrated informa on systems required 7 paw Amdue 5 Side 25 meessuy Tmex E cummemspmmples BPR vs Streamlining Many reengineering efforts are in the middle between reinvention and incremental improvement 7 A combination of solving old problems and redesigning processes 7 Especially when the larger effort is combined with ERP implementation projec s I I Streamlining emventmg my mm 5 We 25 megssm Tmex E CnmmercePnnmples BPR Framework Customer 7 7 whether intemal or external rece1ve productservice or value of the bus1ness process Products services 7 generated by the business process mm 7 in the business process The participants in the business process The information 7 used or created by the business process The technology 7 used by the business process 7 paw Wdue s Eide27 pmfesm 1 EX E LUmmercEPnnciples Value in terms of customer The customer defines What is of value 7 7 not the analyst Need to define the goals of the business process Performance Measures 7 Time 7 Flexibility Dav l Amdue 5 We 25 murmur max E c ummercePnnciples Consolidated Methodology A consolidated methodology has been developed from the five methodologies previously presented and a mode w s Prepare for BPR 0 Build cross functional developed to provide team a structured facilitate M 0 Identify approach and to customer understanding objective uthu Whitman 0 Develop and Cheraghi 1999 strategic purpose Professor Truex Map amp Analyze AsIs Process 0 Create o Simulate and perform ABC 0 Identify disconnects and value addin processes Improve rm 1 m m 39 Design To Be eengmeere r 0 Initiate Processes ongoing B enchmmk o Evo1Ve mea urement Processes implementation 39 REVIEW 0 Design ToBe P an Performance Processes 0 Prototype and mam St taIgEt ahdate simulate 0 Improve T0Be transition plans Process Processes Initiate training continuously 0 Perform ngmms trade0ff 0 Implement analysis ECommercePrinciples transition plan J Dav l Module 5 slate 29 Professor Truex BPR Embarking on Reengineering Persuade people to embrace or at least not to fight the prospect of major change by developing the clearest message OH 1 A case for action Here is where we are as a company and this is why we can t stay here show your balance sheet show competitors balance sheet 2 A vision statement This is what we as a company need to become ECommercePrinciples Dav l Module 5 slate 30 BPR Simple Rules 7 Start with a clean sheet ofpaper Prufessnr Tmex With my current experience What can I do today If I were to recreate this company today given What I know and current technology What would it look like How will I be focusing organizing and managing the company Transition from a vertical functional department to one that is horizontal CUSTOMER focused and process oriente ErCnmmercsPnnciples Dav i meme 5 m 3 BPR Simple Rules F ufessur Truex Listen to customer Enhance those things that bring value to the customer or eliminate those that don t Be ambitious focus your commitment to radical change on the process Ert nmmernePnnmples Day I mm 5 We 2 BPR Lu l Magnitude Increment Radical Improvement 3050 1 0X100x t Starting base Existing Process Blank sheet Top management Relatively low High commitment Role of IT Low High Risk Low High 7 Dav mane 5 mass pmfesm Tmex E LUmmercEPnnmples 0 Manage the Transfurma nn Build Value 8 at the d Redesign Integrate Commii 1 Strategic validate amp amp Processes 1 Deliver Reusnsie for How pmsesses woxk New pmesses Pnsiuve wsLamer than e today documented mdvalidaled reaction Smiuxmgnl Customeri ui and Keypenple s coneems Fesiex mm emeiive understaniing competitive assesssmeni seamed decisionm aking a m t t n mm 39 Magnitude of n st m ms Emaencs of eusmmen Chaos pmessss appsnumues 39 focused behavinr How much H Dw Vision for new process in gm 0 WE Business plans re ect lung new fan new capabilities M m changes required Crucial investments is organizahon rm success f a may f x iespnnsiveness tn M q or ob staclzs lam wed m ukzl changes Ruadmap for change invsivs his people Roadmap for action Dav l mine 5 aide 4 was Tmex E Cummercepnnmples Prufessur Truex Process Redesign Heuristics Eliminate non value added tasks Capture information once and at its source Reduce excessive informationflow Do tasks in parallel whenever possible Group tasks together in time and space Have a single point of contact for the customer or have a case manager Reduce the number ofhand ojfs in a process Empowerment Outsourcing Move controls toward customer Integrate with the customer or the supplier Consider resequence oftask based on actual dependencies EVCUmmercePnnciples Davl Modue 5 Side 35 meessur Truex BPR Heuristics Consider removing batch processing Appropriate division of labor combine small tasks into a single large task or divide a large task into smaller simpler tasks Have exibility in assignment of resources cross training general purpose machinery instead of specialized machinery Treat geographically dispersed resources as if they were centralized ErCnmmercePnnciples my Amdue 5 Side at BPR Heuristics 2 Minimize number of different departments involved in a business process reduces coordination problems Check completeness of information before sending to customers Automate tasks Use forms and other instruments to reduce data entry load Standardize interface with customer 7 paw mm 5 Eide meessuy Tmex E anmercsPnnciples Cautionary notes on the use of the term BestPractz ce Needs to be adapted in skillful ways in response to prevailing conditions Generally best practices lack any quantitative support 7 they are based on one or more experiences 7 Ifyou asked Henry Ford in the 1920 s for best practices in automotive manufacturing he would have responded that is was to build only one model Then during the 19305 19405 Ford s market share dropped from over 50 to 20 due to greater competition and a variety of brands offered by GM Many ERP best practices are nothing more than the way in which the rst client perfonned the process Dav mm 5 We 5 megssm Tmex E CnmmercePnnciples BPR in Context of ERP Project First in an ERP project you are n0t conducting BPR as defined by the originators 7 Hammer and Champy argue for starting With a clean sheet of paper An ERP project starts With the business processes embedded in the ERP System 7 The goal is o en successful ERP project implementation improved processes is an expected side bene t 7 Degree of improvement depends more on how much better the embedded business processes in the ERP system are The German s have a better name for What is performed in ERP Project Business Engineering Prufessnr Truex E7CnmmercePnnciples paw Wdue 5 Side 30 Summary BPR is part philosophy BPR implies radical change 7 need buyin of part1c1pants Use a methodology Heuristics are useful but often con ict 7 it is the skillful adaptation of the heuristics to a problem situation BPR and ERP are related but not identical constructs meessur Truex 7 ERP almost certainly requires process change Within a rm ErCnmmercePnnciples my mm 5 mdew FOOD FOR THOUGHT REVOLUTIONARY DESIGN VS EVOLUTIONARY IMPLEMENTATION pmfesm Tmex EVL UmmercEPnnciples Learning from Reengineering Failures Many companies have attempted reengineering only to fail to realize the benefits they sought Radical change is not an easy task In general many companies find that too much change too quickly can do more hann than good Frufessur Tmex ErCummercePnnmpIes Reasons reengineering fails to meet objectives Lack of senior management support at the right time and at the right places Lack of a coherent communications program Introducing unnecessary complexity into the new process design Underestimating the amount of effort needed to redesign and implement the new processes Combining reengineering with downsizing meessuy Tmex ErunmmercsPnnciples Radical design with evolutionary implementation Another approach is to design a radical new process but implement it gradually Evolutionary implementation 7 Reduces the risk of failure 7 Eases adaptation of new processes and 7 Lets individual workers to participate more fully Two problems with this approach are that workers may lose sight of the goal and the target may be moving so that the process once implemented no longer meets the rm s strategic needs Ffufessur Tmex ErCnmmercePnnciples When revolutionary implementation makes sense Revolutionary implementation works for organizations under certain conditions 7 The change will occur in a small selfcontained unit 7 A real perfonnance crisis exists and 7 The organization can devote extensive resources to the implementation If these conditions are lack there is a higher risk of failure with a radical implementation plan pmfesm Tmex ErL UmmercEPnnciples meessur Truex Wrap Up A processoriented perspective is more than cross functional Technology may radically alter processes and business models in unanticipated ways ErCnmmercePnnciples A Look ahead Global economies and Ebusiness How are they related How do they depend on the concepts learned to date EVCUmmercsPnnmples Study questions What changes allow for a Global ebusiness perspective What are the essential technology elements needed for this transition The business triangle now where ErCnmmercePnnmples MnanhkaUn w ndedeV HisanlPM BusmessWeek news Aau 9 em a mum EST Amazon Takes On IBM Oracle and HP by new Bumws Now he s ookmg V01 new Ways to c h n on me company capammes one 039 me mos1 nmgumg ne mmks S to move me the 17 ounon covpovate compunng market wneve me Weds uggest booksmve am to compete wm EM um Hevweanackald m Game 124 and Mmosou MSEI Thar exac y wwat We ve downgJ says Bezos And w Wovkmg 8 Amazon n 1995 o makmg comwtevs ov semng souwae to oovpovanons New 5 onenng oom pames me admy to tap me me vm n a meme mew ow gea GoocLE A FAVORITE Amazon begaw pvogvmwmevs sgned on Now Bezos S pung n algev wstomevs sucn a 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