Wal-Mart Business Strategy Analysis - Essay Example

Case Analysis Report Introduction In the age on increased business competition, it has become very vital to ensure organizational efficiency. One such example can be found in the business strategies of Wal-Mart. Wal-Mart is the global retailer in the retail industry and has a niche for itself in the market. The history of this company can be traced to the year 1962 when the first store of the company was established in California USA by the legendary leader Sam Walton. Since then the company has grown in leaps and bounds to establish itself as a leader in the industry with a formidable presence in 28 nations with about 9884 retail stores in various formats. The company registered sales of 405 billion US dollars in the year 2010 with approximately 2.1 million employees around the globe. The company’s formidable brand image can be traced from the fact that it has been constantly rated as among the top brands by leading agencies like Forbes and fortune. The company is also listed on the bourses of the New York Stock Exchange where its stocks are actively being traded. The present study would try to critically analyze the business strategies of Wal-Mart so as to suggest plausible recommendations in order to ensure sustainable competitive edge in the market (Wal-Mart, 2011). Analysis Wal-Mart draws its competitive edge in the market owning to its efficient supply chain management. The company has effectively used innovations and technology to generate efficiency in supply chain management that has helped it to fuel its highly acclaimed EDLP (Every Day Low Price) strategy. Behind this successful strategy lies technological innovations like cross docking and use of Enterprise Resource Planning to integrate various business units and generate cost effectiveness. The use of real time information system to forecast demand has helped Wal-Mart to ensure that demand forecasting is done on the basis of real time data. Wal-Mart has also integrated its suppliers with the system and also used the famous cross docking system to ensure reduced inventory carrying costs. The supply chain management of the company has helped ensure that there are no overstocking or stock outs. This has reduced the inventory carrying costs by a huge margin. The cost benefits gathered from the inventory management of the company has been used to fuel the company’s Every Day Low Price strategy (Bergdahl, 2008, p.20). However in recent times there have been numerous issues with regards to the company’s cost reduction strategy with reports that Wal-Mart sources low quality goods from third world countries so as to have goods with low price. In order to counter the latest bashings regarding the company, Wal-Mart initiated a slew of measures that ranged from measures to improve the social image of the organization as well as promoting employee friendly policies that would have helped it to position its image as a socially responsible and employee friendly organization. In response to the bashings in various quarters, Wal-Mart increased the employee insurance cover for the employees and included both permanent as well as contractual staff. It also revamped its reward and incentive policies in order to project the company as an employee friendly organization caring towards the needs of the employees. Wal-Mart also initiated some community development programs such as eliminating wastage and use of recyclable products in order to showcase its environmental sustainability; it also planned means to reduce energy consumption. For the customers, the company initiated a new design for its stores and also came up with attractive offers and new discounts in order to project a customer friendly image of the company. Strict quality control standards were implemented for suppliers including use of eco friendly ways in their business processes. In addition to this Wal-Mart also took up measures in which it would work closely with their suppliers in order to ensure greater efficiency in their businesses. However, all these measures were largely ineffective or rather not so prominent towards addressing the broader issues faced by the company. In response to the bashings, the company initially chose to overlook these aspects and put a deaf year to the allegations posted against the company. Some of the steps taken were very late and were essentially taken only when matters had taken a serious turn and were affecting sales volumes of the company. The strategy of the company was essentially very late and displayed weak public relations skills. Many burning issues like stocking cheap and low quality goods were covered up by the company. However come of the company’s strategies like having a ‘glocalised’ approach of thinking globally and acting locally in international markets was very effective in improving the brand image of the company in the international markets (Kocks, 2000, p.157). This also assumes significance as the traditional markets like USA are highly saturated with high levels of competition in the markets and the new markets like China hold immense potential for the organization in the wake of dwindling margins of the company in the present business environment. Wal-Mart’s strategy of providing huge reliefs during natural calamities such as the hurricane Katrina disaster as well as providing assistance worth one million US dollars to the affected victims and towards rebuilding the damages caused due to wildfires and floods in Texas province of USA (Wal-Mart-a, 2011). These steps can help generate considerable goodwill for the company in the market and among its internal as well as external stakeholders so as to ensure a favorable positioning and brand image of the organization among the target market audience. However more effective public relations strategy and effective monitoring should be ensured so as to make sure that quality issues do not happen at the company. The sales and the net profit of Apple Inc have increased over the period 2000 to 2008. It is clear from the trend analysis of the balance sheet that the current asset and current liabilities of the company also increased. It is clear that the firm has tried to acquire more percentage of current assets in the period of 2002 to 2006. From the balance sheet and the income statement it is clear that the firm has expanded their business in the period of 2000 to 2008. Profitability ratios of a company indicates that how effective a company management is to manage the assets, the equity available to them and meeting their objectives of profit (Nikolai, Bazley and Jones, p.280). The gross profit margin of a company indicates the company’s efficiency to take the decision on product pricing and sales promotion decision financially and for Apple the financial figures indicate that the company is generating same rate of profit from the sales. The operating profit margin of the company indicates the operating efficiency of the management which was decreasing over the year. The net profit margin of the company has fluctuated over the time period which indicates that the company has faced difficulty for controlling costs over the year which is not a good sign for the company management’s efficiency. The return on total assets implies the efficiency of the company management to make efficient utilization of the assets and from the financial figures it can be said the asset utilization efficiency of the company has decreased. The return on shareholders’ equity of the company also has decreased which means the company has failed to utilize the equity available to them efficiently. The liquidity ratio of a company indicates the firm’s capability to meet the short term obligations like repay the loans (Boone and Kurtz, 2010, pp. 1). The current ratio of the company was stable throughout the period but it has decreased in the year 2008, it means the company was not in a good liquidity position in the year 2008. The working capital of the company also decreased constantly, which is not a positive point of the company. The leverage ratio of the company measures the method of financing and the position of the company financially (Bragg, 2010, pp. 2). The debt to equity ratio of the company has fluctuated over the year as well as the debt to capital ratio, though the ratio indicates an effective financing decision of the management. Recommendations The analysis of the business strategies of Wal-Mart reveals considerable edge for the company in terms of efficiency in handing business operations The supply chain management of the company has been quite commendable and has set standards in the industry. It has also created entry barriers due to its large scale of operations spanning 28 nations across the world. However, recently the company has been on the receiving end from various circles with regards to certain unethical practices in its business. The company’s response in this regard has been termed as quite slow and passive with the company paying little heed initially towards the issue. However in order to have a better response it is very necessary for Wal-Mart to have an effective public relations strategy that would help in countering the media bashings in a better manner. Moreover, there should be greater accountability and responsiveness from the top management with regards to the importance of these matters so as to take proper remedial actions in the correct time. Wal-Mart must also make a HR policy that has equal opportunities for all the employees. It should ensure that there is no discrimination based on gender, race or other such aspects. Fair appraisal policies free from discrimination should be introduced so that employees have a good perception about the organization. The quality standards and regulatory issues must also be addressed in a proper manner so as to have efficient and high quality standards in the organization. The top management must ensure that all the regulatory guidelines are properly addressed so that there are no violations. Analyzing the financial reports of the company and the calculated ratios it can be said the company management should take some measures for controlling the cost of sales and operations. They should increase the current asset proportion to meet the short term obligations though the overall financing pattern of the company is good. Finally in order to ensure that the customers are informed of these aspects an integrated marketing communications plan must be launched that would be aimed at communicating the message so as to ensure goodwill and reflect the new changes in the organization. This would help in largely restoring consumer as well as employee confidence so as to help in generating a formidable positioning of the organization. The communication plan must cover all the channels including online social networking sites that have huge reach and popularity so as to help generate sustainable competitive edge in the market. References Bergdahl, M. (2008). What I Learned From Sam Walton: How To Compete And Thrive In A Wal-Mart World. Wiley-India. Boone, L. and Kurtz, D. (2010).Contemporary Business. John Wiley and Sons. Bragg, S. (2010). Business Ratios and Formulas: A Comprehensive Guide. John Wiley and Sons. Kocks, D.E. (2000). Dream a little: land and social justice in modern America. University of California Press. Nikolai, L. Bazley, J. and Jones, J. (2009). Intermediate Accounting. South Western Cengage Learning. Wal-Mart. (2011). About us. Retrieved December 17, 2011 from http://walmartstores.com/AboutUs/. Wal-Mart-a. (2011). Walmartstores.com: Walmart Commits $1 Million to Support Relief Efforts Following Recent Southern Storms, Midwest Floods and Texas Wildfires. Retrieved December 17, 2011 from http://walmartstores.com/pressroom/news/10592.aspx. Read More