Administration Audit of Wal-Mart - Case Study Example

1. Introduction Wal-Mart the brain-child of Sam Walton started in 1962 as a family-owned discount store with an innovative business strategy. Incredibly efficient and focused on the principle of low-prices, Wal-Mart transformed the retail industry. Wal-Mart has 3,400 stores in the US and is largest employer in US second only to the Federal Government. It is sheer size, growth and profitability of Wal-Mart that it is in a position to define corporate trends and dictate and perfect the nature of discount stores. Wal-Mart has been accused of eroding social capital, healthy communities and quality jobs. A management audit would help to determine whether Wal-Mart is a destructive force or is good for the local economy. 2. Audit of the various functions 2.1 Management processes While it is generally believed that a population of 100,000 was necessary for a discount store to be viable Wal-Mart argued that if prices were right, the stores could attract people from a wider area (Grant, 2002). Wal-Mart chose isolated rural towns and national brands at low prices. Each store of Wal-Mart has the discretion to place orders with the vendors directly and receive supplies also directly. This strategy of decentralization leads to efficiency in terms of time and administrative costs apart from making the employees feel ‘associates’ and not wage earners. 2.2 Culture Wal-Mart has the image of a friendly, all-American company employing happy workers and smiling greeters who are eager to help and grateful to work at Wal-Mart (Bianchi & Swinney, 2004). Wal-Mart started off as an entrepreneurial venture but Wal-Mart’s Sam Walton, while constantly upgrading and expanding did not ignore the need to identify and groom a successor. A corporate culture encourages the employees and managers to consider the customer the focus of business. The customer is the king was the policy at Wal-Mart. 2.3 Planning & competitive advantage Wal-Mart has helped to hold down inflation in US. Wal-Mart is responsible for about 12% of the economy’s productivity gains in the second half of the 1990s (Fishman, 2003). Wal-Mart believes in constantly learning and improving, conscious of the fact that competitors would stay. They are always alert at finding and implementing new retail concepts. They concentrate on each store depending on its location. The merchandise is available according to the need of that community. The associate in charge of that store is given incentives to plan out promotional campaigns for a given period for the product suitable to local adaptation. 2.4 Labor model and compensation Human resource management is a stronghold of Wal-Mart as right from the inception they did not believe in allowing or forming a union (Levy & Losch, 2002). Wal-Mart considers it detrimental to the interest of the company as the union only feed itself from both the management and the labors. Wal-Mart exhorts its own people, motivating them through incentives and awards such as company stocks by which they could also make up for the low wages. Wal-Mart employs immigrant workers so labor is cheap. They also take in independent contractors who cannot organize unions under labor law. It is able to control labor costs, hires temps, part-time workers. Wal-Mart is vertically integrated and it employs its own workers for all major operational functional including warehousing. 2.5 Labor exploitation Employee wages at Wal-Mart are as much as 31% lower than competitors (Nester, 2006). It pays practically no benefits and very often employees have to work overtime without any additional compensation. It discriminates employees based on gender and disabilities. It pays a wage on which people cannot survive. 2.6 Planning & Strategy Wal-Mart right from the beginning conducted a situation analysis and based on this assessment the objectives are set. The geographical locations of Wal-Mart stores helped in keeping its capital investment low in terms of real estate, taxes and utilities. Low capital investment with high turnovers gave it a smooth success. Even with success all through Wal-Mart does not venture into high end stores in suburbs or the urban areas which clearly shows its effective cost management policies. 2.7 Marketing strategy Wal-Mart’s public relations campaigns make focus on low prices, substantial job creation and the practical value to the customer (Heyer, 2005). They flatter their consumers in their advertisements and are thus able to project an image that it is altruistic, honest, friend and supporter of the common people. Consumers feel they possess desirable attributes like intelligence, individuality, and moral virtue. 2.8 Benefits the local economy As a globalizing force, Wal-Mart exerts influence on the regional, local and national economy. It has restructured the American workforce and consumer behavior (Lavallee & Boyer, 2006). Its basic strategies revolutionized the global retail industry and led Wal-Mart to unprecedented heights. Wal-Mart revealed through a study of the economic impact that average savings per family per ear would be $500 if Wal-Mart opened a store in Los Angeles (Bianchi & Swinney). Apart from this, new jobs are created which further boosts the local economy as spending power goes up. 2.9 Technology Wal-Mart is known for its efficiency and fore-sightedness in keeping itself well informed through the adoption of information technology. Wal-Mart has adopted the RFID technology and it is estimated that they could save $8.35 billion annually (AME, 2005). This technology helped them to reduce thefts of their products, apart from obtaining proof-of-delivery, inventory reduction, and promotional performance. It helps the company to track what shipments are arriving at the store and what sales are leaving the door. 2.10 Corporate Social Responsibility Papasolomou-Doukakis, Krambia-Kapardis and Katsioloudes (2006) contend that competitive advantage depends upon reputation. The way in which organizations act, the way they are perceived by their target public and the general public, determines their reputation. Organizations are judged not merely on their achievements but on their behavior too. Wal-Mart is ranked as number one regarding America’s leading socially responsible company. Eighty percent of the consumers say that they have a more positive impression of companies that support a cause. Another study conducted by Harris Interactive Inc. and the Reputation Institute on “The best corporate reputations in America” also ranked Wal-Mart amongst the top 30 companies in America. Wal-Mart responded to the need of the society and the nation in the wake of Hurricane Katrina. Wal-Mart provided the rescue workers with the items that victims needed in the right quantity at their everyday low prices and sometimes even for free (Sobel & Leeson, 2006). Wal-Mart’s own fleet of truck and its hundred distribution centers across the country helped it to deliver the necessary supplies to the affected areas. 2.11 Financial Control & Vendor relations Wal-Mart monopolizes labor and retail markets but through this it is able to keep worker compensation and retail prices low (Heyer, 2005). They are able to attract low-income people for profits. As far as vendor relations are concerned, Wal-Mart squeezes profits at each point in its supply chain and uses these to negotiate deals with the vendors. Its managers too know that they were working on low margins. Because of bulk purchases they are in a position to dictate terms to the suppliers. Pressurizing for low prices has caused many vendors to outsource supplies from cheaper markets. This way Wal-Mart serves as a vast pipe-line that gives non-US companies direct access to the American market. Vendors have now come to accept that Wal-Mart transforms the companies it does business with. They become more efficient, leaner, focused and faster. It establishes collaborative and mutually beneficial relationships with its suppliers. Vendors admit that the entire approach to business undergoes a change in dealing with Wal-Mart. 3 Results of the audit These innovative strategies and constant upgradation keep any organization ahead of competition. Wal-Mart has been able to meet customer satisfaction and expectations. Wal-Mart formulated strategic policies and kept customers’ needs at the helm. Wal-Mart’s foresightedness and decentralization of responsibilities enables them to manage all their stores with great efficiency. Responsibilities have to be shared but monitoring has to be done which they are efficiently doing through the use of technology. They maintain excellent customer relationship. Despite low labor compensation Wal-Mart manages to get people for its stores. Its sheer size makes its impossible for people to ignore it. They have involved in mass marketing which would imply that only those who support Wal-Mart have the attributes they claim in their publicity. Nevertheless, they have understood the wants and desires of the people and have capitalized on this, which is the basis of their success. 4. Recommendations & summary The only area where they have come up against controversies is their low-wage labor and the squeezing of profits at the vendor level. This is against ethics and corporate social responsibility. While they maintain a high image in front of the customers, it is at the cost of the labor and the vendor margins. They need to relax such stringent conditions as people are becoming quality conscious and are wiling to pay a price for it. The sweatshops in Bangladesh for the Ireland garments industry have already raised concern in the society and soon Wal-Mart could be boycotted by the people for the same reasons. References: AME (2005), How RFID can help optimise supply chain management, 18 Nov 2007 Bianchi, D., & Swinney, D., (2004), Wal-Mart: A Destructive Force for Chicago Communities and Companies, Center for Labor and Community Research, Special Report to The New Chicago School of Community Economic Development, 18 Nov 2007 Fishman, C. (2003), The Wal-Mart You Dont Know, 18 Nov 2007 Grant, R. G., (2002), Wal-Mart Stores Inc., March 2004, 18 Nov 2007 Heyer, S. F. (2005), Objectivity and Action: Wal-Mart and the Legacy of Marx and Nietzsche, UW-L Journal of Undergraduate Research VIII Lavallee, T. M. & Boyer, M. A. (2006), Globalization and Local Governance: Implications from Wal- Mart’s Expansion, International Studies Perspectives (2006) 7, 254–266 Levy, M. & Losch, P. A. (2002), Top Discount Merchandisers Analyzed via the Value Framework, 18 Nov 2007 Nester, M. (2006), Strengths, Weaknesses, Opportunities, and Threats of Wal-Mart in the United States, 18 Nov 2007 Papasolomou-Doukakis, I., Krambia-Kapardis, M., & Katsioloudes, M. (2006), Corporate social responsibility: the way forward? Maybe not! European Business Review Vol. 17 No. 3, 2005 pp. 263-279 Sobel, R. S. & Leeson, P. T. (2006), Flirting with Disaster The Inherent Problems with FEMA, Policy Analysis, No. 573, July 2006 Read More