Strategic Management in Wal-Mart Stores Inc - Case Study Example

STRATEGIC MANAGEMENT By Name Course Instructor Institution City/State Date Strategic Management Introduction These days, firm's profitability according to Biase (2015, p.40) is determined by the industry attractiveness wherein it operates. Although the industry can have a profitability that is below-average, a company that is positioned optimally may get superior returns. In view of this, companies’ utilizing cost leadership strategy as well as those using the differentiation strategy has one thing in common: both groups seek to attract the customers. Such efforts to become attractive to broad markets may be compared to strategies, which entail targeting potential customers from a fairly narrow niche. In cost leadership, Wanjuki and Ombui (2013, p.12) posit that the goal is to become the industry’s lowest-cost producer, and this was traditionally achieved through large scale production that facilitated companies to exploit economies of scale. Differentiation strategy, on the other hand, is considered as a broad scope strategy for the reason that the company anticipates that their business differentiation strategy will attract a wider market portion. Novel concepts allowing for differentiation may be protected by means of intellectual property rights such as patents; still, patents are temporary making the organisation’s idea that provides them with the sought-after competitive advantage to be in danger of being copied by the competitors. Using Wal-Mart as an example the essay explores the possibility of a firm to pursue both cost leadership and differentiation strategies and be successful. Furthermore, the essay will discuss the implications of Porter's (1980) stuck-in-the-middle hypothesis. Discussion For years, Wal-Mart Stores Inc. has been successful thanks to its everyday strategy of lowering the prices so as to attract customers. Basically, this strategy was espoused with the intention of offering products consistently at a lower price as compared to the competitors, instead of depending on sales. The success of both cost leadership and differentiation strategies is attributed mainly to Wal-Mart’s efficient as well as a large scale supply chain. In essence, Wal-Mart sources its products from low-priced local suppliers as well as from cheap foreign markets. This has enabled the company to sell its items cheaply and to make a profit from its high volume sales. Wal-Mart’s supply chain is incredibly managed, and the company utilised the most consistent supply chain management system that is exceedingly effective since nearly all product data are tracked to and from the producer, warehouse, as well as the store shelves. Wal-Mart’s supply chain system efficiency has helped the company to save a lot of money, and importantly, it prevents losses brought about by unreliable product management.  Through the strategies, Wal-Mart has successfully generated surplus, which is always reinvested in constructing facilities, procuring contemporary business-related equipment as well as integrating the existing systems with the state-of-the-art technology (Awade, 2014, p.700). Such reinvestments have enabled Wal-Mart to maintain its position of cost leadership. According to Baroto et al. (2012, p.122), the strategy of cost leadership is a set of action taken with the intention of producing products or services with characteristics, which satisfy the needs of the customers at a cheap price, as compared to competitors’ products. In this case, Wal-Mart through cost leadership tried to achieve competitive advantage through realising the industry’s lowest cost. The focus during the implementation of the cost leadership strategy according to Porter (1980) is on the stringent efficiency as well as cost control in every field of operation. As mentioned by Baroto et al. (2012, p.122), a firm seeking to pursue the cost leadership strategy intends to achieve its offer at a cost that is possibly lowest. In view of this, the cost leadership competitive advantage is realised through carrying out crucial value chain activities at a cheaper prices as compared to the competitors. Basically, the strategy of cost-leadership, as stated by Baroto et al. (2012, p.122), tries to supply a high-volume, standard product at a price that is more competitive to the customers. That is the reason why cost leadership strategies are desired in developing economies like China, Malaysia, Indonesia, and India where labour cost is low and, therefore, the cost of production is lower. On the other hand, differentiation strategy as described by Bordean et al. (2010, p.174) involves generating a position in the market, which appears to be unique and sustainable across the industry. This differentiation may be rooted in the brand image or design, distribution, and so on. Particularly, differentiator companies generate customer value through the provision of high-quality products sustained by effective service at a reasonable price. As indicated by Baroto et al. (2012, p.122), the differentiation strategy success relies on how well the company is able to balance product costs as well as product benefits for the customer, as compared to the competitive offerings. In this case, companies that pursue differentiation strategy intend to produce as well as market unique products for diverse groups of customers. Furthermore, they intend to generate a superior satisfaction of customer needs through their product features so as to generate customer loyalty and satisfaction, which consequently may be utilised to reduce the price of the products. Wal-Mart utilises a combination of cost leadership and differentiation strategies, is referred by Baroto et al. (2012) as a hybrid strategy that intends to attain low price and differentiation simultaneously relative to competitors. This strategy has been successful at Wal-Mart because the company is able to offer its customers enhanced benefits through low price while attaining the appropriate reinvestment margins so as to develop as well as maintain bases of differentiation. Through the combination strategy, Wal-Mart has managed to offer their customers’ value for the money through cheaply improving their product attributes than their competitors considering that Wal-Mart faces fierce completion from companies such as Target, Kmart, Costco Wholesale Corporation, among other companies. Cost leadership has enabled Wal-Mart to charge the lowest price while differentiation has facilitated it to charge premium prices than the competitors. Thus, Wal-Mart has managed to achieve a competitive advantage by offering its customers value rooted both in low price and product features. Cagan and Vogel (2002, p.44) noted that the majority of the consumers desire to buy products cheaply with rather highly differentiated features. Due to such customer expectations, Wal-Mart has always engaged in support activities, which facilitate them to concurrently pursue differentiation as well as low cost. In contrast to companies that depend on a single generic strategy, Wal-Mart through the combined strategies has easily improved their ability to acclimatise swiftly to changes in the environment and learn new technologies as well as skills. In consequence, this has successfully leveraged core competencies all through the product lines as well as business units. Besides that, the strategies has enabled Wal-Mart to sell products with differentiated attributes or features, which are valued by the customers and such differentiated products are offered cheaply than the products offered by the competitors. Mainly, this is due to the manifold, additive advantages of successfully following simultaneously the differentiation and cost leadership strategies. Being ‘stuck-in-the-middle’ is normally an expression of the company’s lack of willingness to make choices concerning how to compete. Companies that are stuck-in-the-middle according to Porter (1980) make low profit because they do not have sufficient market share, are unsuccessful in lowering their costs, their products are not differentiated, or have failed to concentrate on particular market segment. In this regard, Porter meant that a company cannot offer all things to all customers, because in so doing, they will fail in everything. Besides that, companies become stuck in the middle due to their failure in market positioning. According to Dostaler and Flouris (2006, p.38), the stuck in the middle hypothesis has created a big debate since there is empirical evidence from numerous studies proving that being stuck in the middle is not truly a bad position for companies. The incompatibility ideas between differentiation and costs competitive strategies supported by the works of Porter made him name the manifestation stuck-in-the-middle. So, according to Porter when a company unsuccessfully engages in all the generic strategies it is stuck-in-the-middle. This idea by Porter connotes a lack of clarity within either or both the strategies, resulting in a failure. This hypothesis may as well be interpreted as a choice of the company to adopt the ‘middle-market’ position where the middle position is occupied by the company both in costs as well as in differentiation in regard to its competitors. Regardless, this hypothesis has widely been utilised to connote a failure in the strategic combinations. According to Pertusa-Ortega et al. (2007, p.6) becoming ‘stuck-in-the-middle’ may as well connote non-competitive advantage with low differentiation level as well as a high costs position. A number of scholars as cited in Pertusa-Ortega et al. (2007, p.6) study used the manifestation ‘stuck-in-the-middle’ in circumstances wherein, one cluster from the performed cluster analysis gets medium or low scores in every generic competitive strategy. Other scholars hold the view that those companies that place a medium importance (neither low nor high) on every dimension of generic strategy are pursuing the alleged ‘stuck-in-the-middle’ strategy. Conclusion In conclusion, as argued in the essay majority of companies, both large and small companies have realized the significance of cost and differentiation strategies for excellence as well as improved organizational performance. As evidenced by the Wal-Mart case study, combination strategies of cost leadership as well as differentiation strategies have proven to be profitable and viable. Given that cost-based as well as differentiation-based benefits are not easy to sustain, companies pursuing a combination strategy as mentioned in the essay can realize higher performance and returns as compared to firms following a singular strategy. References Awade, P., 2014. Implementation of combination strategy based on porter’s model: success built on lost opportunity in industrial lubricants. Asian Journal of Management Research, vol. 4, no. 4, pp.699-710. Baroto, M.B., Abdullah, M.M.B. & Wan, H.L., 2012. Hybrid Strategy: A New Strategy for Competitive Advantage. International Journal of Business and Management, vol. 7, no. 20, pp.120-33. Biase, S.A.D., 2015. Applied Innovation: A Handbook. Chicago, IL: Premier Insights LLC. Bordean, O.N., Borza, A.I., Nistor, R.L. & Mitra, C.S., 2010. The Use of Michael Porter’s Generic Strategies in the Romanian Hotel Industry. International Journal of Trade, Economics and Finance, vol. 1, no. 2, pp.173-78. Cagan, J. & Vogel, C.M., 2002. Creating Breakthrough Products: Innovation from Product Planning to Program Approval. Upper Saddle River, New Jersey: FT Press. Dostaler, I. & Flouris, T., 2006. Stuck in the Middle Revisited: The Case of the Airline Industry. Journal of Aviation/Aerospace Education & Research, vol. 15, no. 2, pp.33-45. Pertusa-Ortega, E.M., Molina-Azorín, J.F. & Claver-Cortés, E., 2007. Pure, hybrid or "stuck-in-the-middle" strategies? A revision and analysis of their effects on firm performance. In The European Academy of Management. Paris, 2007. Wanjuki, P. & Ombui, K., 2013. Effects of Competition on Performance in Engineering Industry – A Case Study of Holman BrothersEast Africa Limited. European Journal of Business and Management, vol. 5, no. 24, pp.9-17. Read More