Strategic Audit of Wal-Mart - Case Study Example

Strategic Audit Introduction: Wal-Mart has been a revelation to the retail industry maintaining sustained growth from 1990 onwards to become the leader in its business enterprise activity. A strategic audit is being undertaken to ascertain the strengths of Wal-Mart that have led to this success story and its ability to continue to do so in the future. I. Current Situation A. Past Corporate Performance: Founded in 1962, Wal-Mart is now the world’s largest company and employer. It alone accounts for over 25% of total U.S. food, consumer staples, and drug store product sales, and over 15% of all sales of books, magazines and apparel. The retail industry has been dumbfounded by Wal-Mart’s staggering growth from 1,400 stores in 1990 to more than 5,000 stores worldwide today. The company’s 2003 revenue, which was in excess of $250 billion, is no small feat, either. B. Strategic Posture Current Mission: Wal-Mart wields its power for just one purpose: to bring the lowest possible prices to its customers. At Wal-Mart, that goal is never reached. The retailer has a clear policy for suppliers: On basic products that don't change, the price Wal-Mart will pay, and will charge shoppers, must drop year after year. But what almost no one outside the world of Wal-Mart and its 21,000 suppliers knows is the high cost of those low prices. Wal-Mart has the power to squeeze profit-killing concessions from vendors. To survive in the face of its pricing demands, makers of everything from bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas.Of course, U.S. companies have been moving jobs offshore for decades, long before Wal-Mart was a retailing power. But there is no question that the chain is helping accelerate the loss of American jobs to low-wage countries such as China. Wal-Mart, which in the late 1980s and early 1990s trumpeted its claim to "Buy American," has doubled its imports from China in the past five years alone, buying some $12 billion in merchandise in 2002. That's nearly 10% of all Chinese exports to the United States. One way to think of Wal-Mart is as a vast pipeline that gives non-U.S. companies direct access to the American market. "One of the things that limits or slows the growth of imports is the cost of establishing connections and networks," says Paul Krugman, the Princeton University economist. "Wal-Mart is so big and so centralized that it can all at once hook Chinese and other suppliers into its digital system. So--wham!--you have a large switch to overseas sourcing in a period quicker than under the old rules of retailing." Steve Dobbins has been bearing the brunt of that switch. He's president and CEO of Carolina Mills, a 75-year-old North Carolina company that supplies thread, yarn, and textile finishing to apparel makers--half of which supply Wal-Mart. Carolina Mills grew steadily until 2000. But in the past three years, as its customers have gone either overseas or out of business, it has shrunk from 17 factories to 7, and from 2,600 employees to 1,200. Dobbins's customers have begun to face imported clothing sold so cheaply to Wal-Mart that they could not compete even if they paid their workers nothing. By now, it is accepted wisdom that Wal-Mart makes the companies it does business with more efficient and focused, leaner and faster. Wal-Mart itself is known for continuous improvement in its ability to handle, move, and track merchandise. It expects the same of its suppliers. But the ability to operate at peak efficiency only gets you in the door at Wal-Mart. Then the real demands start. The public image Wal-Mart projects may be as cheery as its yellow smiley-face mascot, but there is nothing genial about the process by which Wal-Mart gets its suppliers to provide tires and contact lenses, guns and underarm deodorant at every day low prices. Wal-Mart is legendary for forcing its suppliers to redesign everything from their packaging to their computer systems. It is also legendary for quite straightforwardly telling them what it will pay for their goods. Current Objectives: Improving store productivity: The combination of revenue growth and cost reduction is a magic bullet. When costs decrease as a percentage of sales, profitability increases and provides fuel for further investment. Effective productivity initiatives remain crucial to any strategy that attempts to level or change the competitive playing field. Focus on the customer experience: It has been said that it is cheaper to keep the customers you have than it is to acquire new ones. Satisfied customers shop more frequently and purchase more. The quickest path to better productivity is to increase the average transaction amount — the more a customer buys, the less the fixed costs take out of gross profit. Now more than ever, customers need a reason not take their business elsewhere. Aligning store operations to achieve bottom-line results: Assessing all resources to determine requirements for better aligning of both store operations and physical resources, such as equipment and technology. Most important, optimizing alignment of workforce with the work to enable associates to deliver on the most critical objectives: store productivity and customer service. Current strategies: The combination of Wal-Mart’s superior supply chain and dominance of multiple retail segments has enabled it to achieve an unprecedented, sustainable, competitive advantage on the basis of operating costs. Wal-Mart has redefined traditional retail cost structures — from building new stores to sourcing the products that fill them to hiring, training, and paying the employees who serve their customers. This “Wal-Mart effect” is so profound that a 2002 McKinsey & Company study concluded that Wal-Mart itself is responsible for as much as 25% of the recent productivity gains in the U.S. economy. Current Policies: Even as Wal-Mart dramatically changes the retail landscape, the industry is grappling with various other challenges. The costs and risks of workforce deployment continue to increase at an alarming rate. Turnover rates of hourly employees continue to exceed 70% in most segments. The U.S. Employment Cost Index in the retail industry (a measure of employee wage and benefit costs) is up more than 17.8% over the last five years, while over the same period of time the consumer price index has increased only 12.1%. At the same time, an increased emphasis on labor law compliance has also been complicating store operations for many retailers — a trend that even Wal-Mart has recently struggled with. Increased competition, high turnover, stable prices, spiraling labor costs, heightened exposure to labor law liability: welcome to retail in the twenty-first century. II. Corporate Governance A. Board of Directors: The Board of Directors consists of sixteen members and the feature here is that many of the directors come from other segments of industry and there by provide an avenue for ascertaining successful strategies employed in other segments of industry. B. Top Management: The Top Management consists of a set of Officers with experience and vision that have stood in good stead in the success of Wal-Mart and take it into the future. 1. S. Robson Walton, Chairman. 2. H. Lee Scott, President and CEO. 3. David D. Glass, Chairman, Executive Committee of the Board. 4. Thomas S. Coughlin, Executive Vice-President and President & CEO of Wal-Mart Store Division. 5. Michael Duke, Executive Vice-President Administration. 6. Thomas Grimm, Executive Vice-President. President and CEO, SAM’S Club Division. 7. Thomas Hyde, Executive Vice-President Legal and Corporate Affairs. 8. John B. Menzer, Executive Vice-President. President and CEO International Division. 9. Coleman Peterson, Executive Vice-President People Division. 10. Thomas M. Schoewe, Executive ice-President and CFO. III. External Environment: Opportunities and Threats A. Societal Environment: Wal-Mart is seeking an innovative, out-of-the-box thinker to lead the company's global stakeholder engagement strategy. The Senior Director will help pioneer a new model of how Wal-Mart works with outside stakeholders resulting in fundamental changes in how the company does business. Wal-Mart is now the largest retailer in the world with $256.3 billion in sales in the fiscal year ending January 31, 2004. The company employs 1.6 million Associates worldwide through more than 3,600 facilities in the U.S. and 2,200 internationally (in Argentina, Brazil, Canada, China, Germany, Japan, South Korea, Mexico, Puerto Rico and the United Kingdom). If Wal-Mart were a country it would be the 20th largest in the world; if it were a city, it would be the fifth largest in the U.S. Wal-Mart's size and scope have created a unique opportunity for the company to leverage its resources in new and different ways that create value for shareholders and have a positive impact on stakeholders worldwide. The company has recently embarked on an ambitious and innovative effort to incorporate stakeholder engagement into its core business model. B. Task Management: The Senior Director will be responsible for leading and developing the company's proactive engagement with external stakeholders globally including non profits, non-governmental organizations, academics and government agencies. This job is about creating change and there is an expectation of bold and significant results. Understand Wal-Mart's competitive advantages in order that innovative and strategic ways for the company to create positive change for its Associates, communities, and the environment and future generations. Identify global "best" practices in corporate responsibility by tracking and analyzing those that are most relevant and linked to Wal-Mart's goal of being as competitive and innovative as possible. Initial focus will be on issues related to the company's approach to the environment, product sourcing, healthcare, wages, community involvement and diversity, and other issues as identified. Map complex set of stakeholders across global markets and functions like in the areas of sourcing, environment, ethics, and healthcare. Lead stakeholder engagement for the company by developing approaches to engagement, collaboration, and innovation that create new value for the company and society. Lead stakeholder outreach initiatives, dialogue, and other forms of engagement to understand key concerns and interests are vital. Proactively build strategic alliances and coalitions with key constituency groups whose work and missions are aligned with that of Wal-Mart's priorities. Develop engagement capabilities within the organization to improve business practices and help drive business unit strategy remains another task. Educate and link different groups and functions in company. Build stakeholder engagement capacity internally. Ensure the implementation of policies, strategies and programs globally. Frame the societal and business risks and opportunities the stakeholder landscape represents for Wal-Mart so that it informs corporate strategy. Assess, prioritize, proactively monitor and address potential challenges and risks. Elevate emerging issues where necessary. Provide Wal-Mart leadership with advice and counsel regarding "best" practices and strategies for stakeholder engagement. Represent the company in diverse, complex, and high profile situations globally. Provide direct supervision to subordinate staff. Manage contracts with consultants and contractors that support the stakeholder engagement work. IV. Internal Environment: Strengths and Weakness A. Corporate Structure No company of Wal-Mart's size and influence can long remain a truly private enterprise. By its very existence and competitive success, it rezones our cities, determines the real minimum wage, channels capital throughout the world — and conducts a kind of international diplomacy with a score of nations. In short, the company's management "legislates" for the rest of us key components of U.S. social and industrial policy. The last time a U.S. corporation had such power was 50 years ago, when General Motors was the largest and most profitable U.S. Corporation. GM's sales at the time amounted to about 2% of U.S. GDP — which is just about where Wal-Mart stands today. B. Corporate Culture With 3,200 stores in the US and more than $200 billion in annual sales, Wal-Mart sits firmly atop the Fortune 500, because it is a relentlessly profit-driven company, Jan Mauldin, formerly director of marketing and community programs for Wal-Mart, told the 111th annual convention of the International Association of Refrigerated Warehouses. The meeting was held in San Antonio, Texas, April 13 to 18, 2002. Mauldin currently is a consultant in private practice. According to Mauldin, while profit is the goal, service is the process, and the folksy appearance of Wal-Mart is not makeup on a hard, hidden corporate face; it is the company at its core. That corporate culture drives profit by making Wal-Mart stores the retailer of choice for a large percentage of consumers. Mauldin views the Wal-Mart Empire as built around four retail concepts. The basis of the company remains its discount stores, which have followed the same pattern since the company's founding in Rogers, Arkansas. The second concept is the Wal-Mart Super-center that combines a discount store with groceries and perishables in a total inventory of almost 100,000 items. The newest of the four concepts is the Wal-Mart neighborhood market that provides the services of a traditional grocery store in a building format that is small by Wal-Mart standards. The fourth retail concept is the Sam's Wholesale Club, which is basically a membership warehouse store that carries a constantly changing inventory of about 4,000 items. C. Corporate Resources 1. Marketing: Wal-Mart will extend the discipline of lowest total cost directly to the consumer. Wal-Mart will endeavor to change the paradigm of consumer behavior from emotional brand buying to purchasing total economic value. Gradually, Wal-Mart is replacing national brands with its own store brands and educating the consumer to calculate the lowest total cost of their purchases at Wal-Mart and Sam's Club. It is providing lower household total costs to consumers. Sometimes its prices are higher, but this is offset by savings in convenience, shopping assistance, time spent in the store, information prior to purchase, and other elements of total household cost. The final vision of Wal-Mart is to reach its next milestone of total retail sales by turning the consumer into a family-purchasing agent and bring the discipline of business marketing not only to the supplier, but to the consumer as well. 2. Finance Wal-Mart's relentless push for ever-lower prices has revolutionized retailing and is sometimes even credited for helping to keep U.S. inflation low. It's not hard to make the leap into imagining the retailer bringing similar price discipline to an industry grown fat on escalating rates and fees. Many banking experts predict that Wal-Mart will eventually break into the business -- despite determined opposition from the U.S. banking industry. Wal-Mart may have just taken a step toward that end by applying to create what's known as an "industrial loan corporation" in Utah. The ILC would handle Wal-Mart's credit card, debit card and electronic transactions, saving the processing fees the company now pays to a third party. ILCs typically can't offer checking accounts, but they can take deposits and make loans. Wal-Mart's previous attempts to create a bank have been cut off at the pass, including once in 1999 when it tried to buy an Oklahoma bank and more recently in its attempts to buy a California industrial loan corporation. Conclusion: The strategies that Wal-Mart uses are such that it has not just assured Wal-Mart of the astounding success that it has enjoyed, but is likely to ensure sustained growth into the future. Literary Reference Camerius, W. James. Wal-Mart Stores, Inc.: On Becoming the World’s Largest Company (2002). Read More