Strategic Management at Walmart - Case Study Example

Strategic Management - Wal-Mart Company Background The Wal-Mart Stores Inc is US based retailer that has been operating since the 1960s. The company was founded by the famous Sam Walton to become the giant in the retail industry of the twenty first century. The company has the established position of being the largest employer of people in the private sector in the world for its retail stores in the local US and the international markets. "Wal-Mart Stores (Wal-Mart) is the world's largest retailer. The company operates retail stores in various formats. It operates more than 6,000 stores in the US and 13 international markets including the UK, Canada, Japan, Mexico, Brazil and China. The company retails a broad range of merchandise and services at low prices" ('Industry Profile: Global Hypermarkets & Super Centres Industry Profile', 2008). The company has its operations in multiple countries including Mexico, UK, Japan, Argentina, Germany, South Korea, China, Canada and Puerto Rico. However in order to operate in international markets the company has changed its name for some of the international markets. As a result company operates as ASDA in UK, Seiyu in Japan and Walmex in Mexico. The case of the Wal-Mart Stores Inc is cited often for the CRM technology that they have in place for managing customer relations, the innovative JIT based zero inventory management system they have for their stock management and the business model of the company which allows it to benefit from economies of scale while keeping its costs to a minimum resulting in the provision of a large variety of products under one roof to its customers at the lowest prices in the market. External Environment Pest Analysis: Pertaining to the US based operations for the Wal-Mart Stores Inc, the following section provides a PEST analysis for the company. The political environment for the Wal-Mart Stores Inc in the United States is relatively stable as compared to its other regions of operations. However the company has significantly contributed to the political environment as well by providing a practice of standardization in the retail industry with fair packaging and labelling as early as 1970. Aside from this the regularised retail industry through bills from the political front enable the company to operate in a relatively easy market. The economic environment for the company has been very volatile. The company itself has contributed in a large way to the GDP of the United States through successful and profitable business and growth in the part years. However the recent financial crisis has effected the Wal-Mart Stores Inc forcing it to reduce its expenses, shut down its below average profit bearing operations and to lay of workers in the United States as well as in the International market to sustain itself through the current economic crisis. However this effect has not been focused on Wal-Mart alone all business and companies operating in the retail sector have been effected similarly by the volatile economic environment. The social environment for the company takes the form of a diverse customer base as well as human right groups and consumer action groups that directly effects the operations of the company. The company has often been criticized for its practices of leveraging male employees over the female employees in the company. Human right activities and feminist consumer action groups have filed lawsuits as well as launched protests against the company in this regard forcing the company to change its management practices to avoid any preferential treatment for the male employees or the practice of an established glass ceiling for female employees. Aside from this the company itself has been providing support to the communities' specific to its regions of operations by providing technological, service based as well as infrastructural development support and by providing a large number of jobs to decrease the unemployment rate in the region of its operations. The technological environment that surrounds the operations for Wal-Mart Stores Inc is also a very crucial environment. The reason for this is because of the high level of dependence of the company on information technology and systems to conduct business and carry out business activities/ processes in the US as well as in other regions of its operations. The company was amongst the first to use JIT based inventory management on a large scale in the retail sector. Data-mining and customer relationship management through CRM are some of the systems based management approaches that the company has adopted to attain a comparative advantage in the retail industry. However due to its high level of dependence on information, systems and communications technology, any changes in the technological environment effects the company invoking a change in its business processes and practices as well. Industry Analysis: The scale and type of operations for Wal-Mart make it an integral part of the local US and the global retail industry. More specifically the industry for the company is termed as the hypermarket/ supermarket industry. "The global hypermarkets and super centres sector generated total revenues of $1.3 trillion in 2007, this representing a compound annual growth rate (CAGR) of 8.3% for the period spanning 2003-2007. In comparison, the European and Americas sectors grew with CAGRs of 6.9% and 9.5%, respectively, over the same period to reach respective values of $644 billion and $580.9 billion in 2007. Superstore sales proved the most lucrative for the global hypermarkets and super centres sector in 2007, generating total revenues of $739.9 billion, equivalent to 55% of the sector's overall value. In comparison, super centre sales generated revenues of $605.4 billion in 2007, equating to the remaining 45% of the sector's aggregate revenues." ('Industry Profile: Global Hypermarkets & Super Centres Industry Profile', 2008) The main competitors of the Wal-Mart company in the hyper/super market industry include companies like Carrefour S.A., & Tesco Plc. Carrefour is a French hypermarket that has its established operations in various regions of the international market as well. The company provides food as well non food products to its customers along with fashion, lifestyle electronics and home dcor. Tesco Plc is a UK based chain of supermarket that is termed as one of the largest food retailers in the world. The company also operates business through multiple store formats providing a range of similar products as mentioned above. Currently Wal-Mart is the industry leader with Carrefour S.A., and Tesco Plc following close behind in terms of their market share. The following depicts the Porters five forces analysis for the operations of Wal-Mart and its industry. There power of the consumers and buyers in the supermarket/ hypermarket industry is relatively low. This is because of the fact that there exist multiple types of supermarket chains spoiling the customers for choice, they target different segment and niches of the buyers as well catering to their specific needs. The companies operating in the industry have also established strong brands with an establish brand following further weakening the power of the buyers. This all contributes to reducing the buyer power in the supermarket/ hypermarket industry as a whole. The power of the suppliers is also limited in the supermarket/ hypermarket industry as the companies operating in the industry tend to launch their own range of products and retail brands. Thee brands significantly reduce the market for the suppliers therefore reducing their power in the industry as well. Aside form this companies like Wal-Mart have gone into agreements with their suppliers for mutually beneficial operations that restricts the operations and sale of the suppliers to the competing companies. The rivalry in the industry is very high. This is attributed to the large number of competitors operating in the supermarket/ hypermarket industry. Wal-Mart, Carrefour S.A., and Tesco plc are the top super market, departmental stores and hypermarkets in the industry. Aside form this many localized and multinational large and small scale super market chains also exist in the market making rivalry for the supermarket/ hypermarket industry significantly high. The threat of new entrants into the supermarket/ hypermarket industry is relative high as well. This is because while the capital and investment required for establishing a store based super market chain is very high limiting the number of competitors that can enter the market to pose as threatening new entrants the changes in the communications technology and the orientation of the US consumers to make their purchases online increases the threat of new entrants into the industry. The establishment of online operations for a retailer is very cost effective as the costs associated with it are limited while the target market available to such online retailers is wide in scope and range. The threat of substitute products in the supermarket/ hypermarket industry is very high due to the increased competition and rivalry between the players and the similar business operation retail brands and the product and service offering provided by the companies to the target market. The differential by the players in the supermarket/ hypermarket industry for their products and service offering is made through branding, image based product promotion and the experience of shopping that they provide to the customers. Internal Analysis Core Competencies: The competencies of the Wal-Mart company pertain to its unique logistics management system that has oven it the competitive advantage over its competitors in the industry. The company uses just in time methodology and computerised inventory and stock management system to minimize the costs associated with inventory management while working with its strategic partner suppliers. The customer relationship management system at the company is also one of a kind allowing the company to gather data about their customers and their purchase patterns through the counters in the stores that is stored in a data warehouse. The company then makes use of trend based analysis and data mining to identify market opportunities and forecast change in the market trends for business. The store format of the company offering its customers with a wide range and type of products and services under one roof is also a unique core competency of the Wal-Mart Company. Recently new competencies have also emerged for Wal-Mart pertaining to the segments of jewellery, appliances and gasoline. "In jewellery, the story is one of consolidation, and the department has grown bigger than one might suspect. In 2000, jewellery represented about 2% of sales for Wal-Mart Stores division, or about $2.44 billion. In comparison, the world's largest specialty jeweller, Signet, which owns Kay Jewellery in the United States, produced about $1.84 billion in sales in 2000. Zale, the top U.S. specialty jeweller, did sales of about $1.79 billion." (Duff, 2001) Key Success Factors: The key success factors for the Wal-Mart pertain to the company being able to understand the needs and the requirements of the customer and provide products and services accordingly. The logistics management system and the computerised CRM system are the business process based key success factors for the company. Aside from this the strategic use of the floor space, the POP displays, in-store ratailment initiatives taken by the company, merchandising activities undertaken by Wal-Mart as well as constantly updating the format of the store to the changing requirements of the customers are amongst the key success factors for the company that give it a competitive edge over other super markets and retailers in the industry. "The company has over 2,200 Wal-Mart super centres in 47 US states. In addition to general merchandise, Wal-Mart super centres offer bakery goods, deli foods, frozen foods, meat and dairy products and fresh produce. Super centres also feature a number of specialty shops such as vision centres, Tire & Lube Expresses, Radio Grill, McDonald's or Subway restaurants, portrait studios and one-hour photo centres, hair salons, banks, and employment agencies." ." ('Industry Profile: Global Hypermarkets & Super Centres Industry Profile', 2008) Value Chain: The value chain for Wal-Mart is unique as it is different form the traditional manufacture to wholesaler to retailer and to customer model. The Wal-Mart value chain pertains to the model of manufacturer to Wal-Mart to Customer. The company has been successful in reaping benefits form this model and adding value by locating its distribution centres in strategic locations that are supported by the strategic locations of its stores through cross docking. As a result the company is able to create the same value for the wholesalers at lower costs. The suppliers on the other hand do not get a larger share or percentage of the market share but end up benefiting through the increase in the market and the over all volume garnered in their share percentage. Management Theories applied at Wal-Mart The strategic management at Wal-Mart composes of various management theories that have been applied to the business. One of these is the neoclassical stakeholder theory. The company manages its operations and strategic decision making based on the stakeholders of the business as they directly and indirectly contribute towards the success and the profitability of the company. The stakeholders of the company include its shareholders, employees, customers as well as the supplier in the market, the communities in which the company operates in and the environment. The ranking of these stakeholders in order of priority by the Wal-Mart is to support and rank its shareholders, its customers and the community on the first tier that are followed by the suppliers, the environment and the employees that form the last tier. The focus of the shareholder, community and customer orientation has provided the company with the strengths of powerful retail brands and an established image that has been attained by the company. This strategy used by the company has been to it product offering a value for money and convenience based proposition for the customers who are able to purchase a wide variety of products all under one roof Another management theory that is greatly applied by the Wal-Mart company is that of knowledge management. The company ranks its customer capital on the highest tier of priority as depicted earlier, and the company implements the theory of knowledge management to gather information about their customers through invest in the CRM technology to identify their purchase behaviour, demographics, loyalty drivers and other information to make informed strategic business decisions. Kaizen and change management theories of management at applied by the Wal-Mart as well to provide structure for the business processes pertaining to its value chain and IT based procurement management functions. The IT based procurement, CRM and value chain form the core competencies of the company while the companies strategic human resource management initiative is also one of the strengths for Wal-Mart Strategic Development Wal-Mart has been able to establish itself as one of the most successful retailers and supermarkets in the world dominating the fortune 500 list. The company has undertaken various strategies to attain this position. The strategies that have been employed by the company are briefly illustrated below. The main corporate strategies that have been employed by the company pertain to maintaining the dominate position that it has attained; expanding in the local US market as well as traversing in the international markets; creating a brand in the name Wal-Mart that provides it with instant recognition as well as branching of the company operations into niche based retail businesses targeting different retail business sector. Wal-Mart has made use of integrative systems technology in order to standardize operations and reduce costs across its operations. The establishment of the universal bar code was one of the most significant and successful strategies for standardization while adapting new technologies for Wal-Mart. Aside form this the use of computerized inventory management system, an innovative technology based customer relationship management system ad the RFID technology are part of the company technology strategy. Aside from this the company also invested in the low prices strategy to attract customers to its stores and retain them by continuing to offer the lowest prices for the selection of products and services offered at its retail stores and outlets. Recently the company has also divulged into the strategy of maintaining it PR with a stance if being a socially responsible corporate citizen. The company has undertaken green strategies that focus on sustaining the environment and the earth's natural resources while facilitating the operation for the giant's retail and super market operations world wise. Some of the strategies that come under the green strategy label for the company include working with free trade, using organize products like organic food and cotton, using hybrid trucks for transportation of goods and services between its distribution centres and retail store, buying fish and salmon from sustainable fisheries as well as cutting greenhouse gas emissions from its operations using business process reengineering and innovative technology. 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