Strategic management and Walmart

Founded by Sam Walton in 1962, Walmart has grown tremendously, enabling it to become one of the largest companies in the world. With more than 8,416 stores in 15 countries, close to $401 billion in sales and over 2.1 million employees; it is clear that has been extremely successful at expanding its operations and expansion plans for over 300 new stores in the U.S and approximately 150 international stores in pre-existing markets (Walmart, 2010). Despite this success, Walmart must take into consideration increasing competition.

As the domestic market reaches saturation, the main issue facing Walmart is how to sustain its extraordinary growth. To ensure that it maintain its growth at a rate equal to or better that its sales, it will have to implement a strategic plan that address internal and external opportunities and threats. Lastly, I will perform a SWOT analysis of the company’s strengths and weaknesses opportunities and threats. History:

Walmart is a general merchandise discount retailer, which was incorporated in 1962. Walmart’s history is based on Sam Walton, who changed the way retail business is conducted. Sam Walton first entered retailing when he was a management trainee at J.C. Penny Co. in 1940 in Des Moines, Iowa (Walmart, 2010). After serving in the Army in World War II, Walton acquired a Ben Franklin variety store franchise with his brother James Walton in Newport Arkansas, until they lost the lease to the store in 1950.

By 1962, the first Walmart Discount City was opened in Rogers Arkansas. Limited pricing, low gross margins, and high inventory turnover characterized these stores (Walmart, 2010). Walton’s focus in 1976 changed on to the emerging Walmart stores and he came to the realization that successful discount retailing did not just involve getting the best price from suppliers, but also meant passing those savings onto customers. In 1978, the first distribution center was built, followed by the first Wal-Mart Supercenter in 1983 and a Sam’s Club in 1988 (Walmart, 2010).

Strategic Planning: A vision statement presents the firm’s strategic intent that focuses their energy and resources of the company on achieving a desirable future. However, in practice, the mission and vision statements are frequently combined into a single statement. When they are separated, the vision statement is often a single sentence, designed to be memorable (Pearce, & Robinson, 2009). Walmart does not have an official mission statement on their web page, but they do have a section that is titled about us.

Saving people money to help them live better was the goal that Sam Walton envisioned when he opened the doors to the first Walmart more than 40 years ago. Today, this mission is more important than ever to our customers and members around the world. We work hard every day in all our markets to deliver on this promise. We operate with the same level of integrity and respect that Mr. Sam put in place. It is because of these values and culture that Walmart continues to make a difference in the lives of our customers, members and associates.

Saving people money to help them live better was the goal that Sam Walton envisioned when he opened the doors to the first Walmart more than 40 years ago. Today, this mission is more important than ever to our customers and members around the world. We work hard every day in all our markets to deliver on this promise. We operate with the same level of integrity and respect that Mr. Sam put in place. It is because of these values and culture that Walmart continues to make a difference in the lives of our customers, members and associates (Walmart, 2010).

Walmart has always been about low prices and saving the customer money every since Sam Walton started Walmart. Most companies have mission statements and like Pearce and Robinson (2009) state: “The company’s mission describes the company’s product, market, and technological areas of emphasis in a way that reflects the values and priorities of strategic decision makers”. Everything you read on their web page is all about low prices and customer satisfaction. A key element in Walmart’s long term objectives instilled by Sam Walton back when he started Walmart and still true to this date with Michael Duke CEO and President of Walmart Inc. Internal Analysis:

A scan of the internal and external environment is an important part of the strategic planning process. Environment factors internal to Walmart are classified as strengths (S) or weaknesses (W), and the factors external are classified as opportunities (O) or threats (T), otherwise known as a SWOT analysis (Pearce, & Robinson, 2009). The SWOT analysis provides information that is helpful in matching the company’s resources and capabilities to the competitive environment in which it operates. Walmart’s SWOT analysis is below. Strengths:

1.Buying power 2.Reputation for keeping prices low. 3.Wide geographic distribution coverage and effectively use of logistic management techniques. 4.Walmart production skills result in reliable yet affordable Walmart brand products. 5.Combining retail shopping with groceries and a pharmacy and a optometry all in the same store. 6.Wal-Mart has grown substantially over recent years, and has experienced global expansion.

7.A focused strategy is in place for human resource management and development. “People are key to Wal-Mart's business and it invests time and money in training people, and retaining a developing them”. (Stewart & Brown, 2009) 8.Customer service. Under the "ten-foot rule", any member of staff within ten feet of a customer must offer them assistance (Walmart, 2010). 9.Its labor relations are exceptional. Workers are not plain employees but "associates", eligible for a share of the profits and stock options in the company (Walmart, 2010).

Weakness: 1.No formal mission statement 2.Anti-union 3.Weak reputation due to various unethical problems such as unfair benefit retirement, health care, insurance policy, underage labor, illegal immigrants, discrimination, glass ceiling, etc. (Kummer, 2005) 4.Unsatisfied employees due to lower salary (Kummer, 2005). 5.Decline in sales growth, higher turnover rate. (Pearce & Robinson, 2010) 6.Reputation for being a “bully”. For example: putting smaller business out of business and treating supplier with dropping their product if they don’t get what they want. 7.The company is also in frequent legal trouble with regulators and union groups in the courts (Quinn 89-115).

Opportunities:

1.Globalization and open market share 2.Falling trade barriers in foreign countries ease market penetration. 3.International expansion to various countries, new geographic areas. 4. Exploiting new technologies to increase efficiency in supply chain. 5. Joint venture with local distributors and suppliers.

6.Similar shopping pattern worldwide 7. Internet shopping growing such as e-commerce and the online sales 8.Building a better relationship with its customers and employees.

Threats:

1.Slow market growth. 2.Restrictive trade policies. E.g. most under development countries and small towns boycott Wal-Mart expansion. (Kummer, 2005) 3.Assortment of competition nationally, regionally, and locally. 4.Supplier gaining bargaining power.

5.Customers gaining bargaining power. 6.Entrance of new competitors in the online sales. 7.New regulatory requirement by the government. 8.Economic crisis.

The Downfall with the SWOT analysis is that it can tend to overstate weaknesses and downplay threats. It can ignore changing situations and the identified strengths could not be strength for a competitive advantage. Another form of analysis used is the “value chain analysis.” This type of analysis attempts to understand how the business creates customer value by evaluating the contributions of different activities within the business (Pierce & Robinson 2009). This process divides the business into activities that transform inputs into outputs that customer’s value (Pearce & Robinson, 2009).

The resource-based view is another method of analyzing a firm’s strategic advantage. In this method strategic advantages are based on examining its distinct combination of assets, skills, capabilities and intangibles as an organization (Pearce & Robinson, 2009). A company’s resource-based view (RVB) is very important to the strategic formulation of a company. Walmart capitalizes on opportunities by using their strengths such as size, financial power and immense resources to dominate. External Analysis:

Walmart’s tangible assets are their buying power and size that provide value to their customers. Their intangible assets are their reputation for beating out the competition and being one of the wealthiest companies in the world. Organizational capabilities are skills that a company uses to transform inputs into outputs (Pearce & Robinson, 2009). Walmart organizational capabilities are their purchasing and inbound process. Walmart has four valuable resources, store locations, brand recognition, employee loyalty and sophisticated inbound logistics that allowed Walmart to fulfill customers needs much better and more cost effective than other retailers.

With everything that Walmart has to offer with all of their valuable resources is their ability to turn such a profit. One might argue that by selling such low price products it’s impossible to turn high profits. In 2002, four out of the top twenty richest people in the world were all from Walmart (Sampson, 2002). So what does this tell us? To me it says that their strategy of turning low item per sale profit and concentrating on volume of sales at a lower profit margin is a formula that has worked.

One of the major goals that Walmart wants to try and achieve is the key strategy of Walmart wanting to dominate retail markets everywhere (Nachiappan & Ramanathan, 2010). By using its size and volume buying power, the company effectively implements this strategy. According to ex CEO H. Lee Scott; “The Company plans to sustain growth at the same pace of 7.2% for at least for the next five years” (Pearce & Robinson, 2009).

This strategy impacts functional areas of the company, primarily the marketing and financing department. Management will also have a large role in this strategy because of the increase in customers and stores to manage. Production and operations will be involved because of the increased amount of goods that will be needed as the volume of customer's increases. On the other side of the pillow, Walmart has hit a “wall” or like our textbook says “a mid life crisis.”

Walmart was that race horse that took off out of the starting gate and did not look back on its competition. On the other hand, Walmart’s strengths might be the same reason why that once insurmountable lead on the competition is narrowing down. With so many stores in the U.S sometimes a Supercenter store have to compete with one another Walmart and end us competing against one another. Walmart senior management in need for a change decided to send out their 27 regional managers out to live in the areas that they manage instead of being living in Bentonville (Pearce & Robinson, 2009).

“by caping wages for mostly hourly based workers, and converting full time jobs to part time and adjusting staffing levels to fluctuations in customer traffic Walmart has been able to get more productivity from its employees for eight straight quarters (Pearce & Robinson, 2009). General environmental analysis covers the aspects of economic, demographic, socio-culture, global, and technological that might have impact on Walmart performance and its growth expansion and vice versa (Kummer, 2005).

Meanwhile industry analysis and senior management basically are stuck in a conundrum over its strategy to win over customers. Walmart utilizes their strengths of size and financial power to create widespread name recognition and customer satisfaction as well as offering the best prices. Aiming to create a positive impression of customer satisfaction with the Walmart brand, their goal is to have the customer associate the retailer with the reputation of offering the best prices.

By using its size and volume buying power, the company effectively implements their strategy that Sam Walton envisioned. This strategy impacts functional areas of the company, primarily the financing department. Management will also have a large role in this strategy because of the decrease of growth within the company. Walmart has to improve its products to match the competitions such as Target and continue to offer its products at a low price. Additionally, as Walmart continues to grow and expand, they should continue looking into new product markets. In addition to new product markets Walmart should carefully plan further expansion.

Walmart should expand further into international markets. Once again using caution since not many countries operate like the U.S, and Walmart has a lot to learn from the international markets. While most of the U.S. market is already flooded with regular and super Walmart, there is still room to expand. However, they need to be careful not to overstretch themselves. Partnerships with other companies are a way to go if Walmart wants to grow further, Instead of bankrupting out the competition. Conclusion:

The ever-changing market presents continuing challenges to retailers. First and foremost, retailers must recognize the strong implications of a 'buyers' market' (Thomson & Stricland 1995). Customers are being offered a wide choice of shopping experiences, but no one operation can capture them all. Not even “Super-Walmart”.

Therefore, it is now upon management to define their target market and direct their strategy and energy toward solving that specific market's problems. How to continue growth in a market that continues to change every day? “Technology, demographics, consumer attitudes, and the advent of a global economy are all conspiring to rewrite the rules for success” (Lewiston, 1995). Success in the next decade will depend upon the level of understanding Walmart and other retailers have about the new values, expectations, and needs of the customer.

It’s not about your assets and how powerful you are in the industry. It’s about the customer and what they need and want. It is going to change from day to day, and when it does you must change your strategies and your management of implementing controls also. The Ideas of Sam Walton will always be true, “If we work together, we’ll lower the cost of living for everyone…we’ll give the world an opportunity to see what it’s like to save and have a better life”(Walmart, 2010.) If Walmart continues its customer-driven culture, it should remain a retail industry leader well into the next century.

References

Baird, L., Briscoe, J., Tuden, L. & Rosansky, LMH., (1994). World class development. HR. Human Resource Planning. 17, 1-15. Kummer, C.. (2010, March). The Great Grocery Smackdown. The Atlantic Monthly, 305(2), 38,40-41. Retrieved March 1, 2010, from ABI/INFORM Global. (Document ID: 1972141071). Hank, Sampson, (2002) How Wal-Mart is Destroying America and the World. Retrieved on Feb, 27, 2010.

Avaialble from www.metroactive.com/papers/ Nath, P., Nachiappan, S., & Ramanathan, R.. (2010). The impact of marketing capability, operations capability and diversification strategy on performance: A resource-based view. Industrial Marketing Management, 39(2), 317. Retrieved February 28, 2010, from ABI/INFORM Global. (Document ID: 1961153431). Stewart, L. G. and Brown, G. K. (2009): Human Resource Management: Linking Strategy to Practice, second edition, New York: John Wiley and Sons.

Threat, H. (1999). Measurement is free. Strategy & Leadership. Berkley Ca. 72 (3), 16-19. Walmart. (2010). Walmart about us [About us]. Retrieved on Feb, 27, 2010. Available from http://walmartstores.com/AboutUs/