Threats and Challenges of Walmart - Essay Example

Threats and Challenges of Wal-Mart Wal-Mart is the largest retail company in the United States, employing about two million Associates, with $408 billion in sales for the fiscal year ended January 31 (Burritt, Wolf and Boyle, 2010), and serving more than 100 million customers every week (Scott, 2005). Wal-Mart is a large organization facing many threats and challenges. Threat to the environment should be addressed primarily and squarely. Another one is healthcare. These are pressing issues facing Wal-Mart (Chambers, 2006, p. 7). Threats come from environmentalists and labor unions who have painted Wal-Mart as evil empire in the retail industry. When Mike Duke took over as Chief Executive Officer in 2009, he faced more challenges from the inside and the outside. In 2009, Lee Scott announced his retirement from the company he had reined for years. During Lee’s stint, he overcame internal and external foes by transforming the company, and dragged it “into the 21st century from its clannish roots” (Kapner, 2009). Under Mike Duke, Wal-Mart has a new strategy of doing business with the public and with its suppliers: it wants to sell and deliver environmentally friendly products and serve the public with the least environmental impact that it could have and do. Moreover, Wal-Mart wants to transport the products from suppliers so that it could cut costs and save more for its stores (Burritt, et al., 2010). Vice-president for corporate transportation, Kelly Abney, says that with lower costs they would have increased sales. The strategy is to take over transportation service from companies that produce the goods – Wal-Mart believes it could do it more efficiently while allowing the companies just to produce the goods for them. In this sense, manufacturers would pay Wal-Mart for the transportation through lower wholesale prices. More savings means more sales for Wal-Mart and low prices for the customers. Wal-Mart had done this before, and saved $200 million by packing and scheduling efficiently its fleet of trucks (Burritt, et al., 2010). With the new strategy, Wal-Mart can use contractors and its own vehicles in picking up products directly from manufacturers’ facilities. Wal-Mart can save more time in delivery with this new strategy. How much will the price cut in Wal-Mart’s delivering the supplies from manufacturers? Wal-Mart is asking as much as 6% reduction for the cost of transporting goods. The problem in this new strategy is the economies of scale that it will create. According to Randy Huffman, a former Wal-Mart executive, the move will have an adverse reaction on other manufacturers, but this will be beneficial on the part of the customers. Suppliers have no option but to follow the whims of the giant Wal-Mart. Priorities set by CEO Lee Scott in his speech, “Wal-Mart: Twenty-First Century Leadership” Scott simplified Wal-Mart’s environmental goals: 1. To supply 100% percent renewable energy. 2. To minimize waste. 3. To sell environmentally friendly products (Scott, 2005, p. 5). The simple rule about the environment is that if Wal-Mart trucks are inefficient from a fuel standpoint, the company pays for it. The company will pay for the proper disposal of wastes or trash dumped by their trucks. Scott made major changes to Wal-Mart’s projects and activities. To summarize, Scott aimed to address climate change by reducing the company’s gas emissions. These were Scott’s priorities: 1. Fuel mileage of trucks Scott wanted to improve Wal-Mart’s fuel mileage by one mile per gallon, thereby saving $52 million a year because Wal-Mart has the largest private fleets in the United States today. Wal-Mart wants to increase fleet efficiency by 25%, and double it in the succeeding years. If plans pushed through, by the year 2015 savings would have reached 310 million dollars a year. This priority would help in environmental protection, create new jobs, improve United States productivity and energy security (Scott, 2005, p. 6). 2. Save energy for Wal-Mart stores Scott’s priority was to introduce energy-saving technologies by means of solar panels and other energy efficient but environmentally friendly technology. This strategy had been used by Wal-Mart stores and customers liked it. Increasing efficiency in energy helps in saving the environment from greenhouse gas emissions. The harsh realities of climate change introduced to us Katrinas, hurricanes, heavy rainfall, and heavy flooding. In line with this, Scott also proposed to invest $500 million annually in technologies and innovation to reduce greenhouse gases at Wal-Mart stores and facilities around the world by 20% for the next seven years. Another move is to increase the efficiency, and share learnings or knowledge in technology to the rest of the world. Other bold moves include regulatory and policy changes, which should be pursued with much vigor. Wal-Mart will also focus on China, an introduce design and support of an environmental programme to that country. Wal-Mart also aimed to reduce waste through selling recycled products. It has recycled plastic instead of throwing them away. With this, the company had saved $28 million. The aim is proper packaging, meaning the exact size package for the products, to ensure that this is in line with the environmental programme of the company. The technique is to reduce excessive packaging, even on toy products. Recycling is a main objective for Wal-Mart because this can save more money, at the same time help in the preservation of the environment. Next on Scott’s priorities are products that should be safe for the customers and their families. Some products produce toxic substances. Sam’s Club made an outstanding programme by introducing a yoga outfit of cotton. Wal-Mart earned profits for 190,000 units. Wal-Mart was also into research and development of products made of organic material, which could be applied to paper, food, fisheries, and electronics. Wal-Mart will also certify shrimp farms to become environmentally friendly. 3. Product Sourcing Lee Scott said that they have ceased doing business with supplier factories that did not meet their ethical standards. Now Wal-Mart was asking for more transparency in business from them. Scott’s conditions for them were: 1. A reorganization of some functions in the workplace, including the factory setting and the buying organization. 2. A more relational approach to collaborations with industry and governments of other countries. 3. Closer relationship with other organizations. 4. Wal-Mart would take transparency moves in monitoring of the certification program. 4. Healthcare Wal-Mart aims to provide quality health care affordable and accessible for Wal-Mart employees and associates. Programmes for employees include insurance within reach of all associates. Wal-Mart introduced a new affordable plan for their associates and their children. Increase of plans of benefits for employees. Educational move to help associates take positive steps for their own lives with responsibility. Scott also announced programmes for communities where Wal-Mart has stores, for example, providing health care clinics. Other positive moves included a commitment for progress in health care in America. 5. Wages Regarding wages, Lee Scott explained that the criticism that Wal-Mart should pay more to its associates is not more. They should remember that Wal-Mart is a large company and thus it has to compete to big companies and many competitors in the retail industry. Compared to others, Wal-Mart pays better but critics overlook this. Scott assured their employees and the public that Wal-Mart is taking care of everyone – the associates and their families. Wal-Mart is also looking forward for improvement on this respect. The company is increasing the minimum wage from $5.15 an hour. Wal-Mart also sees a change in the manner of spending for the public, and the challenges and pressures on the customers and their families. Scott proposed an increase of the minimum wage. 6. Communities Lee Scott also emphasized Wal-Mart’s commitment to the communities in which it has its presence. Wal-Mart realizes that their presence in a community is a privilege, and they have this obligation to help for the progress and improvement of that community. These are Scott’s commitment to communities: 1. Open communication with the leaders of the community on different issues involving Wal-Mart operations. 2. Wal-Mart will have to improve community partnership. 3. Opening up of offices in their stores to address local needs and complaints. 4. Use local designs in Wal-Mart stores. 5. The environment and the community’s social and historical background should be of paramount importance in Wal-Mart constructions. 7. Diversity As for diversity, Wal-Mart will continue hiring employees who will represent diverse ethnic communities, including those who have been under-represented. Wal-Mart will promote outreach programmes in colleges and universities. Wal-Mart should improve the health and well-being of the people in the community because this will prove that it has been successful in its dealings and partnership with the people. In building an industry, they have to build a community with responsible citizens. They have to continue the aggressive vision of Wal-Mart founder Sam Walton (Scott, 2005, p. 16). Wal-Mart’s Board discussed proposals to meet (some of) these challenges at a board retreat in 2005 Susan Chambers discussed this initiative in a Memorandum to the Board. Wal-Mart’s current benefits can be seen in three different perspectives, namely: cost trends, associate satisfaction, and public reputation. Growth in benefits costs is consuming a big portion of the total profits, 12% by 2011, which amounts to $30 billion to $35 billion. From 2002 to 2005, benefits costs grew significantly faster than sales, with a spend growing from $2.8 billion to $4.2 at a rate of 15 percent. This is critical to Wal-Mart’s economic success. Medical services are often used because of an aging workforce, more workers acquire illnesses due to obesity, and employees over-use their hospital services benefits (Chamber, 2006, pp. 4-5). Wal-Mart believes management has satisfied their associates with their benefits package but opposed traditional benefits, and they want to choose providers. Associates have given a poor score for Wal-Mart. Susan Chambers says that benefits are the not the main reasons why their benefits stay with Wal-Mart (Chambers, 2006, p. 6). Healthcare is an issue of concern for Wal-Mart. Wages and benefits paint Wal-Mart’s public reputation. A line of attack from Wal-Mart foes focused on healthcare offering, which are being reported by groups, including labor unions and Wal-Mart Watch. Because of these critics, federal and state governments see Wal-Mart as part of the problem concerning health care costs. Medicaid costs are a priority of many states that are now asking companies to focus on healthcare. This will add costs to Wal-Mart and also put a decline to their reputation. Wal-Mart’s health care offering has been attacked by many sectors. A small portion of Americans, 22 percent, believe that Wal-Mart helps people by providing insurance. Wal-Mart critics exploit the weak points to attack. One line of criticism is that Wal-Mart’s health coverage is very expensive for the poor members. Chambers’ report states that Wal-Mart offering can out-perform other retailers, but Wal-Mart’s critics look at it as a large company that should offer more benefits than the others, and not on a retailer standard. The team proposed to implement the nine limited-risk initiatives and five bold steps. Limited-Risk Initiatives 1. Change some programmes on health insurance by realigning it to make children qualify after a certain number of hours. Wal-Mart becomes more competitive in the part-time labor market because they base the benefit on hours worked. 2. Decrease cross-subsidization of spouses – spouses become more expensive plan members. In the new plan, more dollars are spent toward associates and their children. 3. Wal-Mart will provide more information about how to use healthcare and health insurance. 4. The maximum insurance coverage will amount to $12,000. Life insurance is a high-satisfaction but low-importance benefit. 5. There should be more programmes to motivate employees. Wal-Mart will reduce the number of labor hours per store but increase the percentage of part-time associates in stores, and increase the number of hours for every Associate. 6. There must be a combination of “best practice care-management programs to include utilization management, case management, disease management, and errors and omissions programs.” 7. Wal-Mart will aim for the development of health providers and hospitals. 8. Offer associates other benefits to choose, for example, paid time off, education, discount card, and so forth. 9. Put clinics in stores. These initiatives should reduce Wal-Mart’s projected health care costs to two percent of sales. The Board Benefits Strategy is a concern of Wal-Mart that is also a concern of the employees and the public. In this sense, it is just right for management and the Board to make it public so that people may know what is going on inside the company. Critics have always said that Wal-Mart is quite secretive in its dealings with the Associates and the world. The Board wants to straighten this by making every move transparent. Mike Duke wants to do it. The Strategy is to place everything in proper perspectives and to correct all the misconceptions of critics and wrong impressions of the public. The strategy of focusing on the environment and the welfare of the Associates and their families is in the right track. This should have been applied a long time ago. But because Wal-Mart is big company, some functions were not in place. Now, critics will put their words into their mouth because they have never regarded Wal-Mart as a large retail company. They only regard it as a retail organization. With the new strategy, Wal-Mart’s reputation will be corrected. Management wants to correct its tainted public reputation. Wal-Mart’s Social Challenges From the standpoint of Bonini et al., Wal-Mart is meeting the social challenges head-on because of its concern for the environment. A major thrust of Wal-Mart in 2010 and onwards is delivering environmentally friendly products and services. Wal-Mart focuses on environmental preservation. Lee Scott noted that there is an increasing greenhouse gas effect that has contributed to climate change and global warming leading to natural disasters such as Katrina. Air pollution has caused more illnesses to the people. Water pollution has caused the depletion of safe fresh water, whereas water borne diseases have killed many of our children. Destruction of natural resources has threatened the natural world and its diversity. Scott says that these are not only problems of the world but also problems of Wal-Mart. Wal-Mart management and employees could do much to help improve the environment. Wal-Mart is a part of the world with a deteriorating environment, thus the company and the people working in it should be a part of the solution or find a solution to the problem. Wal-Mart should cooperate in solving environmental problems. With calamities like Katrina, Wal-Mart can show to the world its concern for the environment. Associates and managers have shown their ability and capacity to help in Katrina. Wal-Mart’s strategy, as outlined by Susan Chambers, is also geared to socio-political concerns. Former CEO Scott said that Congress should pass a law to increase the minimum wage for ordinary laborers. The issues discussed in the 2003 case study have placed Wal-Mart in the right track for many challenges and threats ahead. References Bonini, S., Lenny, M. J., Mendonca, T., and Oppenheim, J. M. (2009). When social issues Become Strategic. McKinsey Quarterly. Web. 24 August 2009, Business Source Premier database. Burritt, C., Wolf, C., and Boyle, M. (2010). Why Wal-Mart Wants to Take the Driver’s Seat. Bloomberg Businessweek. Available from: http://www.businessweek.com/magazine/content/10_23/b4181017589330.htm [Retrieved 9 June 2010]. Chambers, S. (2006). Reviewing and Revising Wal-Mart’s Benefits Strategy: Memorandum to the Board of Directors. Supplemental Benefits Documentation, Board of Directors Retreat FY06, Wal-Mart Stores, Inc. Available from: http://www.nytimes.com/packages/pdf/business/26walmart.pdf [Retrieved 8 June 2010] Kapner, S. (2009). Changing of the Guard at Wal-Mart (Meet the New Boss). Fortune. New York: 2 Mar. 2009. Vol. 159, Iss 4; pg 68f. Scott, L. (2005). Wal-Mart: Twenty First Century Leadership. Presented by Lee Scott. Available from: http://walmartwatch.com/img/documents/21st_Century_Leadership.pdf [Retrieved 9 June 2010] Payton, P. (2005). Wal-Mart Experimental Stores: Environments of Scale. European Retail Digest, Winter 2005 Issue 48, p7-12, 6p. Read More