Wal-Mart, although one to the largest and most productive organizations in the world, faces many threats and challenges. Critics and groups everywhere are lining up to take shots at this global giant and destroy its image. Some of Wal-Mart’s current challenges can be seen in daily operations, its internal and external environment, product sourcing, healthcare, wages, communities, diversity, employee benefits, and social challenges.
Though these challenges or weaknesses pose a very large threat to the organization, they also pose great opportunities to turn them into strengths. If these challenges are met correctly, Wal-Mart stands to gain a great amount of profit and respect among its critics. Priorities for the 21st Century
In Lee Scott’s “Wal-Mart: Twenty-First Century Leadership” address he discussed several priorities he felt Wal-Mart must improve upon. These priorities established through the use of strategic management included the environment, product sourcing, healthcare, wages, communities, and diversity. In Scott’s address he insisted upon staying true to founder Sam Walton’s vision statement; to help people all over by doing what was right for the country while recognizing the opportunity for better business. With the vision statement always in mind, Wal-Mart has still received continuous criticism.
The criticism mostly comes from customers, associates, citizen groups, government leaders, non-profit and non-government organizations, and other concerned individuals. In order to better understand the source of the criticism and the impact Wal-Mart has on the world and society, Scott, along with several other executives spent a year meeting and listening to their critics.
By consistently LISTENING Scott and his team discovered their critics don’t want Wal-Mart to stop conducting business, but they believed business practices needed to be changed. This meeting to understand the critics’ opinions became very informal and important because Wal-Mart is a leader in business and has experienced tremendous success like no other of its kind. This success has put Wal-Mart in a great position to make a big impact in societies all across the globe. Another crucial factor that made an impact on Scott was hurricane Katrina.
Scott saw his company utilize their resources to make a major difference in the lives affected by Katrina. He saw Wal-Mart at its best during this trying time and responded immediately when asked for help by communities, government, and relief agencies. This made him begin to think, what if we could be at our best all the time? He began to think that the things Wal-Mart had been criticized for could potentially aid and help everyone around the world. Turning a once thought of and criticized weakness into a strength. Strategic Management
As a result from Katrina and the year round meetings with critics, the priorities for Wal-Mart to improve on were discussed thoroughly during the process of strategic management. In the past Wal-Mart looked at these priorities with a defensive attitude or just overlooked them. Now, with the use of strategic management and SWOT analysis, Scott and his team realized that in order to build a better company for the future the priorities must be seen as a means to becoming the best and innovative company in the world.
Strategic management provided them the opportunity to identify and describe strategies they can perform in order to achieve better performance and a competitive advantage for their organization.
By conducting SWOT analysis they were able to identify and capitalize on strengths, minimize and approve upon weaknesses, make use of opportunities, and not ignore threats but face them as they come along. Strategy By taking all the information and insight from their critics, the formulation of strategies for Scott and his team to choose the best course of action to achieve Wal-Mart goals and objectives while staying within the vision were developed. The formulation of strategy basically involves seven main steps.
The first step is in setting the organizations objectives. The key component to strategy is to set the organizations objectives. Once objectives and the factors influencing their selection have been made, it is easy to determine the strategic decisions. The second step is evaluating the Internal and External Environment of the organization. In this step the organization can identify its own strengths and weaknesses as well as their competitions.
The third step involves establishing goals. This is done to evaluate the contribution that might be made by different departments or products. The fourth step is strategic planning. This is where contributions are made by everyone in the organization and planning is done. The fifth step is performance analysis. This includes discovering and analyzing the range between the planned and desired performance of the organization. The sixth step is the choice of strategy to be pursued. The best course of action is chosen after the consideration of organizational goals, strengths, potential and limitations along with external opportunities. The seventh step is implementing the strategy and evaluating its effectiveness. Environment
The list of priorities developed through strategic management began with improving the environment. Initially, Scott thought Wal-Mart was being very responsible to the environment. However, after talking with their critics continued and through the use of strategic management, he began to think of ways to improve on their current actions. He concluded that environmental hazard does not only threaten our lives but the natural systems we rely on. He believes that “as one of the largest companies in the world, with an expanding global presence, environmental problems are OUR problems. The supply of natural products can only be sustained if the ecosystems that provide them are sustained and protected” (Wal-Mart: Twenty First Century Leadership, p.
4). Scott believes that being a good citizen to the environment and communities, along with being an efficient and profitable business are one in the same. During the strategic management process Scott and his team developed goals in which they can help the environment. Those goals are to be supplied one hundred percent by renewable energy, to create zero waste, and to sell products that sustain their resources and environment. In meeting these goals, Wal-Mart will not only be contributing to a healthier world, but will also receive a healthy bottom line.
One plan to achieve these goals is to improve their fleet fuel mileage by just one mile per gallon. This will save Wal-Mart over Fifty Two million dollars a year and will help to clean the air for our children, establish new jobs, and help our country’s energy security. Another plan is to increase energy efficiency in order to reduce oil dependency, which will save money and avoid greenhouse gas emissions. Reducing the amount of waste is another plan to obtain the goals that have been established to help the environment.
The main strategy to reduce waste is through packaging. Scott wants their packaging of goods to be the right size and the materials in the packaging to be made from renewable or recyclable materials that can be reused. With the slightest reduction in packaging this can generate a freight savings of more than two million dollars per year. Another plan is to change the fabric of its clothing. An example would be switching from cotton to organic cotton which will eliminate several toxins from being dumped into the environment.
Environment Results These process of these strategies seem to be working as planned. Wal-Mart released its 2012 Global Responsibility Report that covers the sustainability issues covered in 2011. Two of their top ten achievements, one being there number one achievement from 2011, stand out the most. “An 80 percent reduction in waste. United States based Wal-Mart stores reduced their landfill waste by 80 percent.
Wal-Mart is also working on reducing its landfill waste in other countries with both China and Brazil reporting a 52 percent waste diversion rate. Another highlight from the past year was Wal-Mart’s use of 1.1. Billion kWh of renewable energy. Wal-Mart currently has 180 renewable energy projects in operation or in development” (http://www.forbes.com/sites/eco-nomics/2012/04/19/wal-mart-expands-sustainability-initiatives-in-new-report/).
The ultimate plan is to meet one hundred percent of its energy needs through the use of renewable energy. Product Sourcing, Healthcare, Wages, Community, and Diversity The second priority established was product sourcing. Through product sourcing Wal-Mart is determined to increasing their involvement with supplier factory conditions and becoming more visible in this area. The third priority determined was healthcare. Wal-Mart will make healthcare more available to its associates and establish health care clinics in stores to make more convenient for its customers.
The fourth priority is wages. Wal-Mart will bring better and more consistent standards to the pay rate review process at the local level. The fifth priority is in the community. To better understand the needs of the community, Wal-Mart will open local Corporate Affairs offices in metro markets. The sixth and final priority is diversity. One way to help with diversity is to increase the amount of business it does with minority companies. Wal-Mart is going to continue investing in the future. Again, Wal-Mart believes there is no distinction between being a responsible citizen and a successful business and they are one in the same. Health Cost and Benefits Strategy
In order to improve the quality of healthcare that Wal-Mart provides, the board met at a retreat in 2005, to strategically plan and develop strategies to improve its healthcare structure. The current benefits provided by Wal-Mart were evaluated by cost trends, associate satisfaction, and public reputation. Strategies were then developed into nine limited risk initiatives and five bold steps. The first of the nine limited risk initiatives is to realign eligibility requirements for health insurance so that associates, both part and full time, along with their children can qualify after a determined number of hours.
The second is to decrease cross-subsidization of spouses with the use of higher premiums and other charges. This would allow more money to be used towards associates and their children. The third is to give associates more information about the proper way to use healthcare and health insurance. Associates need more knowledge on the cost and quality of specific health services along with how to better utilize healthcare. The fourth is to lower the levels of company paid life insurance.
Since associates are highly satisfied with this but have little importance for it, this presents an opportunity to lower the offering without affecting associate satisfaction. The fifth is to generate savings from current initiatives to improve labor productivity. This includes reducing the number of labor hours per store, increasing the percentage of part time associates in stores, and increasing the number of hours per associate while reflecting a major chance for cost savings. The sixth is to add a combination of best practice care management programs.
This would improve the quality of care; produce cost savings by improving care coordination and compliance for extremely sick associates. The seventh is to further develop high performance provider networks. This will allow for the direction of associates to more efficient and effective healthcare providers. The eighth will offer associates bundles of other benefits to choose from. While every associate should have healthcare and retirement, this could allow for more effective spending of the remaining benefit money by allowing associates to choose from several packages of benefits.
The ninth and final initiative is to continue to explore adding health clinics in store locations. These clinics could become an important of the overall healthcare strategy, especially as a substitute to emergency room visits. (Supplemental Benefits Documentation) These nine limited risk initiatives will not completely address the benefits-related obstacles Wal-Mart faces. To fully address these issues the board suggests Wal-Mart take five bold steps that will require tradeoffs between cost, associate satisfaction, and public reputation.
The first step included moving associates to progressively designed consumer driven health plans to control cost trends and allowing associates to develop a health savings account. The idea behind the consumer driven health plans is to control costs in a more effective way. The second step is to restructure the retirement program to reduce costs and help associates save for retirement.
This involves reducing the overall investment in profit sharing and 401k program. Since the retirement program is ranked as the best in the non-union hourly retail benchmark lowering it to be more in line with other retail offerings will allow more money for healthcare. The third step involves redesigning benefits and other aspects of the associates’ experience. With the restructuring of benefits there must be one of job design. In order to attract healthier associates for a consumer driven health plan the element of physical labor must be included in the job description. The fourth step is to select strategic investments in healthcare offering to better withstand external scrutiny.
This involves investigating several ideas to identify if there are investments or plan modifications we could make to that would return an increased reputational benefit. The fifth and final step is to improve communication of benefits to get credit for what Wal-Mart provides while working to shape state and national outcomes on healthcare.
This calls for Wal-Mart to be more proactive in the public arena. (Supplemental Benefits Documentation) The board hopes that the use of the limited risk initiatives and the five steps will bring a powerful advantage to Wal-Mart. The advantages include maintaining benefits spending at or below the level it is today, offering a more attractive benefit package for associates who are healthier and better position Wal-Mart to fight its critics.
The key task involves implementing all the initiatives and steps, creating a clear way to analyze the success, to test run the ideas to see each ones effectiveness, and then establish the more successful ones everywhere. While it is hoped the advantages to the above plan will be mostly positive, there could be risk factors in cost, associate satisfaction and public reputation. The leak of the Board Benefits Strategy Document to the public caused both positive and negative reactions. “Some health experts praised the plan for making coverage more affordable, but others criticized it, noting that full time Wal-Mart employees, who on average earn around $17,500 a year, could face out of pocket expenses of $2,500 a year or more” (the New York Times Company). Strategy and Public Relations
One of the most recent Wal-Mart initiatives is “the company promised that it would double its business with women-owned contractors and suppliers in the U.S. and internationally, and educate and train hundreds of thousands of women through it nonprofit Wal-Mart Foundation” (http://www.inthesetimes.com/working/entry/11982/walmart_and_women_skeptics_question_new_initiative/). This comes on the tail end of the largest sex-discrimination class-action lawsuits in history.
This can be seen as both strategy and public relations. This initiative has been created in order to promote and restore Wal-Marts image in the eye of the community as a whole through public relations. The strategy is a directed effort to promote a particular image to a specific audience, in this case women. This initiative to restore its public image among women is proactive which gives it the opportunity to work hand-in-hand with strategy to increase and improve business as a whole.
A second recent Wal-Mart initiative is to improve the healthy food choices consumers can purchase. “At a press conference in Washington, Wal-Mart executives pledged to cut the sodium content of processed foods by 25 percent, remove all trans fats and hydrogenated oils from packaged goods, and cut added sugars by 10 percent by the year 2015. By requiring the food makers follow these guidelines in order to sell their wares in stores” (http://www.rodale.com/walmart-healthy-food-initiative).
This initiative is also a combination of strategy and public relations. With so many recent studies and reports being published about how obese America and other parts of the world becoming this is a great way to show demonstrate to the public that Wal-Mart cares and is doing their part to help.