Organizational Behavior: Wal-Mart - Case Study Example

Business Research Paper Organizational Behavior: Wal-Mart Martin Sharkey Western International Introduction Wal-Mart was founded in 1962 by Sam Walton to develop into the largest multinational retailer, with global revenues exceeding $285 billion, net income surpassing $10 billion, serving more than 138 million customers worldwide every week and international sales of over $56 billion (Annual Report 2005, pp. 3-4, 11). Wal-Mart is ranked as the largest retail company on the Fortune 500 list (Ball et al, 2005, p. 407), with more than 2,700 stores, and 18% annual growth (Wal-Mart Stores, 2006). Today, Wal-Mart's strong international position in the retail industry is based on effective organizational processes to perform critical activities that have remained unmatched by competition. The company structure and corporate culture are based on a low-cost ideology that permeates all aspects of Wal-Mart's operations. The flat organizational structure enhances cost containment, short reporting lines and efficiency of operations. The customer is central to Wal-Mart's business, with additional focus on superior customer service and price cuts to attract low income target groups. Being the largest international retailer and the biggest employer worldwide, the company faces a number of challenges in its international operations. On one hand the increasingly demanding local markets require an investigation into Wal-Mart's structure. The company needs to balance between efficient centralized operations and empowered local structures to maintain its successful operations. At the same time, Wal-Mart has been accused of illegal practices with regard to its employees by ex-workers, labor unions and legislative authorities. Issues like remuneration packages or equal promotion opportunities are indicative of inadequate management practices in certain areas of organizational behavior. The purpose of this paper is to explore several organizational behavior models applied by Wal-Mart, and to identify successful or unsuccessful practices within the company. The paper focuses on models that are closely related to Wal-Mart's overall business strategy - organizational structure, internal communications, corporate culture; and motivation. 2. Organizational behavior elements a. Organizational structure Organizational structure and design refer to the ways that companies formally arrange their various units and activities and the relationship among these organizational components (Ball et al, 2005, p. 511). In an international context, organizational design ensures that worldwide business activities are integrated in an efficient and effective manner. Structures and systems should not merely be consistent with each other, but also consistent with the environmental context in which the company operates and the corporate strategy in the international environment. Wal-Mart stores are committed to EDLP ("every day low prices") strategy, thus becoming a cost-, and efficiency leader among international retailers (Hitt et al, 2003, pp. 348-351). Wal-Mart's structure represents a mixture of organizational forms (Ball et al, 2005, p. 516). The company's international hybrid organization is a combination between a structure, organized by functions (e.g. centralized supply and distribution) that are US-centrally controlled, and based on geographical regions in its external operations. Centralized logistics and consolidated distribution strategy, linked directly with supplier-manufacturers (Ramaswamy, 2004) are a key strength behind Wal-Mart's low cost strategy and negotiation power. Additionally, segments based on company operations in US and in total for its international units are identified (Annual Report, 2005, p. 24), whereby corporate headquarters are located in Arkansas, US; and the international division is considered as complementary to the core US business. The cost-leadership strategy involves the establishment of a cost-obsessed organization that supports the company's low cost operations. A functional structure encompassing key activities as supply or distribution also involves simple reporting lines, few layers in authority and decision-making, and centralized corporate staff. In that aspect the functional divisions at Wal-Mart represent a successful organizational model that supports Wal-Mart's superior position as a low cost leader. The company has employed "a flat organizational structure with store managers playing pivotal roles in linking management personnel [] with field operations" (Ramaswamy, 2004). Additionally, Wal-Mart locates overseas stores where its business model and low cost philosophy is likely to succeed, namely countries that offer low-wage labor, low-income shoppers, and few social protections (Konzellmann et al, 2005). Still, centralization needs to be balanced against the need for local flexibility. Today International is Wal-Mart's fastest growing division, and although the company has already made some reorganization to set up a Miami-based office for the Central American markets (Ball et al, 2005, p. 409), further organizations may be necessary to improve efficiency that arises from structure. Apart from establishing regional headquarters for regions like the Far East, Europe and Central America, a further revision of international operations may be necessary. Today Wal-Mart still regards its US operations as core business, mostly because international expansion is done through joint-ventures and acquisitions (Ball et al, 2004). The company will become a truly global structure when it starts treating different countries or regions on an equal basis (Ball et al, 2004 b. Communication With a relatively flat organizational structure, communication at Wal-Mart is centralized and hierarchally organized. According to Sam Walton (cited by Thompson et al, 1996, p. 308) "The best ideas come from clerks and stockboys". Wal-Mart executives have the practice of spending a couple of days every week visiting Wal-Mart's stores and talking to store managers and employees. This technique is referred to as "managing by walking around (MBWA)" (Thompson et al, 1996, p. 308). Wal-Mart's regional vice presidents who supervise district managers constantly visit their sales territories, check inventory levels and manage other operational issues; search for new managers among assistants and gather information from store level to implement possible improvements (Ramaswamy, 1999). On Thursday nights these vice presidents fly back to the headquarters to attend weekly operations and merchandising meetings on Fridays. Following these meeting, vice presidents give feedback to district managers through conference halls, to inform them about decisions that were made (Ramaswamy, 1999). These communications flows seem to be highly effective for Wal-Mart. The information, gathered by top managers, and consequently decisions are quickly dissimilated to lowest store level and this is possible at the day decisions are taken. c. Organizational culture "Organizational culture is the social glue that binds members of the organization together" (Kreitner). Wal-Mart management has promoted a culture that is centered on two basic values - low costs and customer service. According to Ramaswamy (2004), low-cost obsession encompasses all levels and activities: "Frugality was a central tenet at the company, and every associate was expected to fully adopt this value in all its manifestations. This means that [] all company travel was limited to economy class, although Wal-Mart had a fleet of 20 aircraft that ferried executives to various parts of its empire. Associates who traveled on buying trips to manufacturer locations were expected to stay in a budget motel. Even executives stayed two to a room, and eschewed taxis to the extent possible. [] The company's headquarters were also reflective of the tightfistedness. They were housed in warehouse style buildings with a minimalist decor. Visitors had to pay for a cup of coffee or a soda even at headquarters." The customer-centered policy permeates throughout the company operations, from low-pricing policy to high customer service requirements. Employees at shops are required to follow the "10-foot rule", meaning that they should greet every customer who came within 10 feet. The "aggressive hospitality" derived from the rural roots of the company has become an integral part of the way Wal-Mart conducts business (Ramaswamy, 2004). Because of the rural roots of the company, these values that underlie Wal-Mart's organizational culture have become an integral part of the way Wal-Mart do their business. Central to this culture is the figure of Sam Walton, the founder of the company, who has remained emblematic of Wal-Mart's values long after his retirement (Ramaswamy, 1999). Partly because of his personality and efforts, Wal-Mart has managed to maintain its competitive cost advantage by persuading internal and external stakeholders to pay part of the cost of doing business, like workers through low wages and benefits (Konzelmann, 2005).What is more, in the United States Sam Walton has imparted a very strong sense of identity among employees, (Ramaswamy, 2004). This has been achieved through strong motivational programs. The company has continually tried to reinforce to its employees, the so called "associates" that they are part of the business, encouraging them to purchase stock in the company and offering a profit-sharing plan (Ramaswamy, 1999). Associates enjoy a high degree of autonomy and regularly receive information about store operations, which makes them involved in the bigger picture of Wal-Mart operations. d. Motivation According to Mitchell (1982, cited by Kreitner), motivation among employers represents "those psychological processes that cause the arousal, direction, and persistence of voluntary actions that are goal directed". By 2004 Wal-Mart has become the largest employer in private industry worldwide, with 1.3 million associates (Ramaswamy, 2004). Being the largest global private employer has made Wal-Mart the target for many human rights activists, union attacks and employee prosecutions. Although the company's practices are not necessarily a role model, managing such an extensive work force cannot be done with complete disregard of motivation factors that direct employee behavior. Wal-Mart's management has employed the concepts of job enrichment and job rotation as a way of developing personnel (Ramaswamy, 2004). Almost all senior positions in the company are achieved through promotions from within; approximately 65% of Wal-Mart's management associates have started at the company on an hourly basis. Additionally, the company has empowered store managers by giving them substantial autonomy in determining merchandise displays, price levels and inventory management (Ramaswamy, 1999). In its international operations Wal-Mart hires locally, with managers passing a training program in US before taking charge of local operations. Wal-Mart offers a range of development opportunities that include scholarships to college-bound associates, business skills acquisition programs, and a systematic mentoring program that pairs successful managers with junior associates (Ramaswamy, 2004). It has launched an Accelerated International Management Program for a group of international associates, focused on cross-border learning, knowledge management, and international best practices. All these motivational tools are implemented as a result of an elaborate performance appraisal system that includes elements of the 360 degrees assessment by peers, superiors and subordinates (Ramaswamy, 2004). Although compensation packages are not motivational factors, according to Herzberg's dual factor theory (1959, cited by Kreitner) attractive remuneration is a key hygiene factor. Part-time employees at Wal-Mart discount stores are compensated on an hourly basis; employees at supervisory positions are compensated on a salary basis; and store managers receive additional compensation based on the profitability of the store (Ramaswamy, 1999). A substantial portion of employee bonuses is linked to departmental level performance, which is designed to motivate employees to do their best within their assigned departments (Ramaswamy, 2004). The evaluation of Wal-Mart's policy towards associates is contradictory. Whereas the company has heavily invested in motivation tools, such as the customized video production of Shreck assigned to DreamWorks, there are signs of unfair remuneration policy that underrate Wal-Mart's image as an employer and retailer (Ramaswamy, 2004). The company has been accused of paying low wages (Bianco et al, 2003). Employees have filed 40 suit cases against Wal-Mart, alleging the company for overtime work without pay (Freedman, 2003). Another suit in US charged that the company routinely discriminated against women in job promotions at supervisory and managerial levels. Although 90% of Wal-Mart's associates are women, they represent only 15% of the positions in top management, this disparity being in the heart of the gender discrimination suit. 3. Conclusion To sum up, the investigation into Wal-Mart's organizational behavior has shown successful practices and areas the company needs to revise. Wal-Mart's organizational structure is effective in that it supports the company's overall strategy for highly efficient low cost operations. There are no excess structures and no surplus costs. The company relies on few organizational levels, centralized functions and strict reporting lines. Still, success needs to be revised in the light of Wal-Mart's international growth objectives. As per today, Wal-Mart's international unit as a whole is treated on equal terms with the US divisions. This means that the company has not embarked on a truly global structure with global operations. This needs to be revised, as Wal-Mart's international presence increases through acquisitions and mergers (Annual Report, 2005). Greater importance needs to be placed on international operations, and greater flexibility and responsibility needs to be given to local units. Organizational communications is an area where Wal-Mart has established successful managerial practices. Hierarchal communications with strict reporting lines and fast interchange model secure that information reaches different levels in a timely manner. Additionally, top managers receive information right from the lowest operational levels which removes the risk for bias and misinterpretation. Organizational culture at Wal-Mart has been centered for many years on Sam Walton's personality who has managed to promote and root the low cost, customer obsessed culture among employees. In that aspect Wal-Mart has succeeded in giving its members strong organizational identity and work commitment, by introducing motivation and mentoring programs to different associates. Although basic compensation levels are not attractive, Wal-Mart appears to have a strong promotional program and encourage active employees to develop through trainings, promotion and financial stimuli to top positions at the company. Because of its low-cost obsession, Wal-Mart has been accused of underpaying its associates, and not securing equal promotion opportunities. Remuneration and gender equality are delicate issues and a giant like Wal-Mart will probably continue to be accused of mal practices in the future. This, however, does not mean that the company needs not revise its policies to protect its employees. On the overall, Wal-Mart's organizational practices have successfully been applied in the company's management model. The best proof for that is Wal-Mart's leading position and growing market share. In order to continue to be the world's largest retailer for mass consumer products, Wal-Mart needs to develop its policies around an increasingly global retail structure. Organizational behavior is not a fixed model; it's a balance between people, structures, and policies. Past success is always challenging for the future, also past failures give food for thought and strategy reconsiderations. References 1. Ball, McCulloch, Frantz, Geringer, Minor (2005) International Business 10th Edition. McGraw-Hill Companies 2. Bianco A. and Zellner W. (2003) Is Wal-Mart Too Powerful Business Week. October 6 3. Freedman M. (2003) Wal-Mart's Women Trouble Forbes Retrieved July 22 2003 from www.forbes.com 4. Hitt, Ireland and Hoskisson (2003) Organizational Structure and Controls Chapter 11 Strategic Management: Competitiveness and Globalization. pp. 338-371 5. Konzellmann, S., Wilkinson, F., Craypo, Ch., Aridi, R. (2005) The Export of National Varieties of Capitalism: the Cases of Wal-Mart and IKEA Center for Business Research, University of Cambridge, Working Paper No 314 6. Kreitner, R., Kinicki, A. [n.d.] Organizational Behavior The McGraw-Hill Companies. 7. Mitchell, T. (1982) Motivation: New Direction for Theory, Research, and Practice. Academy of Management Review, January 1982, p. 81. 8. Ramaswamy, K. (1999) Wal-Mart Stores Inc. Thunderbird. The Galvin School of International Management. A07-99-0014. 9. Ramaswamy, K. (2004) Wal-Mart Stores Inc.: Dominating Global Retailing Thunderbird. The Galvin School of International Management. A09-04-0012. 10. Wal-Mart (2005) Wal-Mart: Annual Report 2005 Retrieved March 4 2006 from www.walmartstores.com 11. Wal-Mart (2006) Wal-Mart Stores January 2006. Retrieved March 4 2006 from http://walmartstores.com/GlobalWMStoresWeb/navigate.docatg=286 Read More