AbstractWalmart is in an industry that is continuously growing and expanding. They are the industry leader; however, they still face many issues. By offering a wide variety of products at very low prices they are able to sustain a competitive advantage. The firm faces pressure from customers and the government for ethical concerns and issues with the law. Walmart should continue to expand in the global market while strictly enforcing ethical issues. They must also take into account the changing customer preferences, such as individuals eating more organic foods. I. Current Situation
A. Current PerformanceAccording to Walmart’s financial statements, the company had an increase in income of approximately $1,399,000. They had reported revenue of $466,114,000, which is an increase of $2,260,000 since 2012. Walmart reported earnings per share of $5.04, which increased from $4.54 last year. Earnings from continuing operations have also increased from $24,398,000 to $25,737,000.
Walmart’s fourth quarter was the most profitable for them as holiday sales boosted. International sales also increased overall from 2012. Walmart’s CEO stated, “We continue to monitor economic conditions that can impact our sales, such as rising fuel prices, changes in inflation and the payroll tax increase.”
The company has showed strong profitability for 2013 as well.Return on salesGross profit margin:24.38%Net profit margin:5.96%Return on investmentReturn on equity:26.23%Return on assets:9.0%Gross profit margin assess a firm’s financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. This is the percentage of revenues available to cover operations and other costs. Net profit margin is how much after tax profit Walmart makes for every $1 it generates in sales. The return on equity of Walmart is the amount of net income returned as a percentage of shareholder’s equity. B. Strategic Posture
Mission statement: “We save people money so they can live better.” Walmart’s mission statement is announced in every commercial and can be viewed in many locations throughout the stores. It was given a rating of 1.2 out of 4.5, because it is poorly structured. It seems as more of a slogan than a mission statement. It includes only 2 of the 7 components needed to make a strong mission.
Although Walmart is dedicated to low cost items, the mission only covers customers and self-concept. It leaves out the other 5 components including products and services, markets, technology, concern for survival, philosophy, concern for public image and employees. Walmart’s mission states everything Sam Walton envisioned when he opened the first store.
Sam Walton stated, “Customers are able to easily understand that Walmart focuses on low prices while giving them the best values to match their lifestyle. Walmart’s objectives include growth, leverage, and return. Growth opportunities continue. We are more committed than ever to helping customers save money so they can live better in every category throughout the store. Price leadership continues to be the cornerstone of how we go to market.
The remodeling program, a key component of the Project Impact strategic framework, is now in its third year and continues to improve the customer shopping experience. Growth in the United States will come from additional penetration into more metropolitan markets, as well as from new formats and stronger integration with the online business. Walmart.com traffic exceeded one billion visits this past year, growing more than 15 percent over the previous year through Site-to-Store™ and home delivery. Leverage scale and reduce costs. Innovation, process improvements, and strong management teams drove significant improvements in our business.
Walmart U.S. repositioned the business to leverage operating expenses on a slower rate of sales growth this past year. Improved productivity through enhanced scheduling systems better matched associate staffing levels in our stores to customer traffic. Stronger supply chain processes also improved inventory flow. Merchandising and planning systems contributed to lower inventory levels, which were also benefited by increased sell-through. Global sourcing initiatives now under way will strengthen efforts to drive down the cost of goods and pass those savings on to our customers.
The restructuring of the Walmart U.S. operations organization, announced early this year, provides a much more integrated approach to running the business and creates opportunities for career development and growth for our talented associates. Improved returns. Walmart U.S. significantly increased its cash flow and return on invested capital in fiscal 2013. Gross margin improvements, tight expense control, strong inventory management, and efficient capital allocation contributed to this improved performance.
Walmart achieved its growth objective in 2013 by having a net operating income grow faster than net sales. This shows how they are managing costs effectively. Walmart is continuously increasing productivity, which creates lower costs.
Lower costs, in turn. Improve inventory turnover rates. Walmart’s organizational objectives follow their mission and vision by innovating, reducing costs, and growing profits. Walmart has five key strategies in their 2013 annual reports. The first strategy is developing our people, which include having the best talent in the leadership position and in stores. Walmart has several programs, such as, their Business Leadership Series, the Walton Institute, and Merchant Development.
Walmart leaders are also listening to their front line associates for advice about their customers sand members. They are taking steps further advance women in their company, as well. Driving the productivity loop is the second strategy of Walmart. Walmart is committed to providing an everyday low cost. They have leveraged operating expenses for two consecutive years. Operating expenses have been adjusted to be reduced by a percentage of sales by at least 100 basis points over five years. The third strategy is winning in global ecommerce. Walmart has over 10,000 stores worldwide.
They are eager to build and deliver a multichannel experience. They plan to increase investments in the fast growing e-commerce website in China. The fourth strategy is reinvigorating our customer focus. Walmart is dedicated to understanding their customers and serving them in new ways. With the help from their Global Customer Insight group, are developing analytics to identify customer trends to assist in making marketing decisions. Walmart is also doing in-home visits with their customers to gain better insightinto how customers shop. Leading on social and environmental issues is the fifth and final strategy. Walmart is dedicated to doing what is right and to make decisions with integrity. This coincides with Sam Walton’s ideas on reputation and competitive advantage. They have started a new Global Women’s Economic Empowerment initiative, which empowers women through job training, increases sourcing, and education around the world.
They have made significant donations to food banks and support farmers. Walmart’s mission, along with objectives and strategies, are not completely consistent with each other. This is mostly blamed on the mission statement missing many components. The strategies and objectives are quite consistent with each other. These are what make Walmart a better place to shop. II. Corporate Governace
A. Board of DirectorsThe board of directors is made up of fourteen individuals. Chairman of the Board is Sam Walton’s eldest son, Robson Walton. Walmart’s Chief Executive Officer, Michael T. Duke is also on the board. Former Chief Executive Officer, Lee Scott, serves as the Executive Committee of the Board. Other members of the board include Aida Alvarez, James I. Cash, Jr,, Roger c. Corbett, Douglass N. Daft, Gregory B. Penner, Steven S. Reinemund, h. Lee Scott, Jr., Jim C. Walton, Christopher J. Williams, Timothy P. Flynn, Marissa A. Mayer, and Linda S. Wolf, who are all external members. Walmart’s stock is publically traded. The amount of stock the Walton family owns is controversial.
Recent news articles have announced that the Walton’s now own more than 50% of Walmart’s stock, which gives those voting rights and essentially all of the power. Walmart’s board of directors has much to offer the company. Roger Corbett graduated from the Australian Graduate School of Management for the University of New South Wales. He also managed many Australian companies. Douglas Daft also has international ties, as he is a member of the European Advisory Council. He oversees many international markets.
Marissa Mayer is the CEO of Yahoo, which in turn helps promote Walmart. Aida Alvarez was a former member of President Clinton’s Cabinet from 1997 to 2001. Many of the members have ties with other companies and countries that help promote Walmart’s name. Board members are required to serve a minimum of five years. Rob Walton has served on the board since 1978. Lee Scott has been a member of the board since 1999, before he was CEO from 2000 to 2009. The majority of board members joined in 2005 and 2006. B. Top Management
The Board of Directors evaluates the Chief Executive Officer’s performance, annual self-performance evaluation, and control decisions made by Walmart, such as selling bonds and shares of stock and appoint members to the audit committee, compensation, nominating, and governance executive committee, global compensation committee, and strategic planning and finance committee. Walmart has a President and CEO for every division. Mike Duke is CEO of Walmart stores, Inc. Bills Simon is the President and CEO of Walmart US.
Doug McMillon is CEO of Walmart International and Rosalind Brewer is the CEO of Sam’s Club. They have presidents and vice presidents for each division they have. For example, Cindy David is executive vice president for global customer insights. Their organizational structure proves they are dedicated to their objectives and strategies by having certain individuals in charge of important divisions. By having various individuals in charge of different divisions they are able to make the best decisions for the company. III. External Environment: Opportunities and Threats
A. Natural Physical Environment: Sustainability IssuesWalmart has set environmental goals including, to be supplied 100 percent by renewable energy, to create zero waste, and to sell products that sustain people and the environment. While working on their goal to have all of their energy come from renewable resources, Walmart has set benchmarks to reach their long term goal.
Currently they are trying to make existing stores 20 percent more efficient in seven years, eliminate 20 million metric tons of greenhouse gas emission from their global supply chain by 2015, make new stores up to 25-30 percent more efficient in four years, and make their truck fleet 25 percent more efficient in three years. Shrink wrap and plastic are bundled between layers of cardboard and sent to certified recyclers.
They are also using less packaging and ensuring packaging they do use is recyclable. Although Walmart claims they are taking every action necessary to better the environment, many critics have stated that Walmart has increased the amount of greenhouse gas emissions and continue to pile up waste in landfills.
Walmart has a four year goal to buy 70 percent of the goods its sells in US stores from suppliers who use the sustainability index. In terms of natural disasters, such as storms, floods, and droughts, Walmart faces all of these. With locations worldwide, they have little control over what is going to happen. Walmart will also face all of the issues related to the environment, because they operate in many different climates. They must do their research and build for the climate and environment in which they are located. B. Societal Environment
Walmart must follow the laws of Arkansas where they are incorporated. They also impose federal laws, such as, to oppose tariffs and quotas and promote free trade pacts with third world countries. Walmart has a complete set of policies for whatever country they are working in. They have a Statement of Ethics that is an example of global policies. The increase in the number of laws and regulations around the world become more complex each year. Since laws change so often, Walmart must continuously change their policies. T
his frequently happens internationally where laws can be different from country to country. Internet sales are included in the strategies of Walmart. Walmart does not disclose their internet earnings; however, it is estimated that they earned $1.74 billion in sales in 2008. Their website allows orders to be shipped to any store to be picked up (called site to store) or shipped to the location of choice.
Their website is accessible through cell phones, making it more convenient for customers to browse for products while they are on the go. They are expanding their international e-commerce, which would expose them to potential customers. Walmart also has a Facebook, twitter, and blog to keep customers updated on advertisements and news. In stores Walmart has a quick and easy barcode system at the checkout, as well as, a self-checkout. Their barcode system easily monitors their sales and amount items inventories. This allows distribution centers knowledge of when a shipment is needed.
Walmart has been able to increase profits. They provide low priced necessities, which attract and retain customers. This is especially important when unemployment is high and wallets are growing thin. During the recession they have also attracted people that normally shop at clothing stores, such as Abercrombie and American Eagle, with their low priced apparel. Being affordable and providing items that customers need rather than want has been Walmart’s key to striving during the recession.
Walmart is faced with various issues throughout the world. Not one country or even region of a country is the same. Each store is has its own culture, as well as, following the culture of the corporation. Economic conditions vary greatly throughout the world; therefore, Walmart must plan and do their research even before a store is built. While working out of the home country, Walmart must not only follow the laws of the United States, but also that of the country in which they are operating. C. Task Environment
Walmart has a medium rivalry against competing firms, because they have high barriers to entry and a competitive advantage. Walmart makes it very difficult for other firms to compete against them with their economies of scale and low prices. Also, there are not many markets that offer the convenience and low prices that Walmart does which gives pressure of substitution products low to medium. Walmart has a lot of power over suppliers since they offer them so much business; therefore, bargaining power of suppliers is low.
Buyers have little to medium power against Walmart. With their low prices and convenience, consumers prefer Walmart to competitors, however, they must keep these factors otherwise they will lose customers.
Walmart faces competition from a large amount of stores. They have been faced with anti-Walmart consumers, as well. Walmart must continue using their resources, while positively affecting the communities in which they operate. Much of the Walmart hate stems from the big business taking over the smaller mom and pop stores. They must also continuously work on their competitive advantage in the industry, while building on customer needs and wants. D. Summary of External Factors
IV. Internal Environment: Strengths and WeaknessesA. Corporate StructureWalmart’s corporate office is located in Bentonville, Arkansas. The campus currently has 15 buildings with senior management, board of directors, global ethics office, and privacy office occupy them. Walmart is divided by their global operations. They have different departments and different people in charge of each country. These individuals know what they are in charge of. They follow the lead of all other large global organizations. Walmart has a unique corporate culture. They are based upon Sam Walton’s values and morals.
They have an open door policy, which allows management to communicate openly with associates’ and customers’ needs. The sundown rule means Walmart does their best to answer requests by the close of the business day on which they receive them. The grass roots process captures associates’ ideas, suggestions, and concerns. Customer service is based upon the 10-foot rule, which encourages employees to take Sam Walton’s pledge: “I promise that whenever I come within 10 feet of a customer, I will look him in the eye, greet him, and ask if I can help him.” Servant Leadership states that to be effective leaders should not sit behind a desk, but should listen to their associates.
Teamwork is also very important to Walmart, as well as, the Walmart cheer. Although they are based upon their morals and values, Walmart pays their employees below competitors, such as Costco’s. They also have a lack of women in top management, although in recent years they have been trying to correct this problem due to the large amount of discrimination lawsuits. Walmart tries to follow their strategies and objectives with their corporate culture. Walmart has many ethical standards to protect the environment.
Based on their strategies they are focused on going green. Based on their global responsibilities Walmart states, “We believe we have an opportunity and a responsibility to make a difference on the big issues that matter to us all. Issues like preserving the environment, fighting hunger, empowering women and providing access to healthy, affordable food.” They have three environmental sustainability goals, which consists of the following: to be supplied 100% by renewable energy, to create zero waste, and to sell products that sustain people and the environment.
Walmart also believes that diversity is important in their environment. They believe in understanding and respecting the differences of all individuals. They have not only hired a more diverse workforce, they have begun to increase the amount of women in the workforce. Walmart believes that each store should reflect the values of its customers and the vision they hold for the community. They have also teamed with many diverse organizations around the world. B. Corporate Resources
Walmart’s marketing objectives are to develop Walmart’s own brand name of chic apparel line, to improve advertising and merchandising support of apparel, and to spruce up the design concept in order to attract more customers. All three of these have been seen in current Walmart stores. Walmart’s marketing is about keeping prices low while giving quality products worldwide. Walmart advertises through radio and television advertising, monthly circulars, and weekly newspaper ads.
Everyday low prices and quality merchandise is promoted through television advertisement. Radio advertises products that are in demand. Discounts used to lure customers into the stores are advertised through monthly circulars and weekly newspaper ads. Walmart censors some of their products, such as video games and movies, to make them family oriented. They advertise a “Buy American” policy to keep production at home. Walmart also has different marketing strategies for each country in which they are working.
This coincides with their cultural values. They strive for diversity and believe they must target customers and promote products that are needed in certain countries. Walmart also believes they must act within their strategy of global responsibility on sustainability. Walmart’s financial priorities include growth, leverage, and returns. They are stated in the company’s financials. Their strategies are guided by their financial priorities. Walmart returned almost $100 billion to their shareholders. Walmart plans to increase capital expenditures to $13 billion to continue growth of new stores, logistics, and supply chain expansion. They have increased revenues by 5% since 2012.
Each of Walmart’s three segments increased their net sales from 2012 to 2013. Walmart must deal with global issues while calculating financials. They must take into account the regions in which they are operating. The research and development department of Walmart is ranked 4 of 4185 overall and 1 of 12 in discount, variety stores. Walmart is constantly trying to better the company. Walmart’s global ecommerce division is dedicated to provide customers with great products at low prices, anytime, anywhere. It is located in California’s sSilicon Valley.
They also have operations in Bangalore, India, and Dao Palo, Brazil. Thisgives them a more diverse background to better their products. They are the world’s fastest growing ecommerce organization. They have the best and brightest technologists and they lead all online and mobile innovations. Walmart also has the best data scientists and the largest collection of ecommerce data in the world, which allows them to provide the best products at the lowest prices. They have also transformed their mobile website to put power directly in customers’ hands.
They have provided Walmart.com in ten of the countries in which they are located. Walmart is using their global technology platform to serve customers quickly and more effectively than any other corporation is. The research and development at Walmart is one of the best. Logistics is in charge of getting products from manufacturers to the store shelves. Walmart has one of the largest private distributions operations in the world, including 40 Regional Distribution Centers operating 24 hours a day, 7 days a week. Each distribution center has more than five miles of conveyor belts that move over 9,000 different lines of merchandise.
The distribution centers focus on 75-100 stores within a 250 mile radius. They also have distribution centers for specific product categories, such as jewelry, pharmacy, and apparel/shoes. After trucks drop orders off they pick up merchandise from manufacturers on the way back to the distribution center. Walmart has the lowest expense structure in the industry. Employees whose sales are better than average are rewarded with raises, bonuses, and personal recognition.
The Walton family and insiders own over 50% of Walmart stock. Walmart’s objective for human resources is to help every associate feel fulfilled, motivated, and empowered in their careers. Sam Walton referred to the human resources department as “The People Division.” Human resources lead and motivate others, as well as, understand the importance of careers in improving lives. Human resources strategy is to focus employees to do everything they can to keep costs low.
They also focus on employees’ continuous learning, continuous improvement, superior execution, employee empowerment, and employee ownership. Managers attend a week of training at the Walton Institute at the University of Arkansas to solve problems that eliminate business risk. Walmart looks for diversity among employees. Walmart has 15,000-50,000 job openings at stores almost every year, with 2.2 million associates being employed around the world. More than 850,000 of associates are female. 35% of Walmart’s workforce is minorities.
Diversity helps Walmart serve their customers better, especially internationally. It ensures that they can continuously be global leaders. Walmart strives to have the best employees that follow their objectives and strategies. They continue education and are dedicated to diversity. Although they do not have a human resources manager for each country in which they are located, store managers are in charge of who gets hired. This allows each store to hire the best associates. They are still facing high employee turnover.
Associates at Walmart use handheld computers that are linked by radio frequency network to each store, which allows them wires merchandise requests to warehouses. Their computers are linked to over 200 vendors. This makes deliveries quicker and easier. They are able to control distribution through this system. Point of sale bar codes are also scanned at every store, which identifies each item sold, finds its price, created an accurate sales receipt, and stores this item-by-item sales information for use in analyzing sales and reordering inventory.
This is how Walmart avoids overstocking. They are also able to guarantee that they are charging the correct prices for products by using the bar codes. The information technology ties all parts of the internal environment together, which is why Walmart is so successful. Information technology is the major reason why Walmart has surpassed competitors, such as K-mart. Their information systems link to about 5,000 manufacturers.
They use telecommunications to link directly from its stores to its central computer systems and from that to its supplier’s computer. This is what helps to keep inventory moving by knowing what exactly is needed in inventory. This same concept is used internationally, which is why Walmart is successful worldwide. They have successfully gained competitive advantage by utilizing this system in all of their facilities. C. Summary of Internal Factors
V. Analysis of Strategic FactorsA. Situational Analysis
B. Review of Current Mission and ObjectivesThe current mission appears to be quite insufficient. As previously stated, Walmart’s mission was given a rating of 1.2 out of 4.5, because it is poorly structured. It seems as more of a slogan than a mission statement.
It includes only 2 of the 9 components needed to make a strong mission. Although Walmart is dedicated to low cost items, the mission only covers customers and self-concept. It leaves out the other 5 components including products and services, markets, technology, concern for survival, philosophy, concern for public image and employees. The mission does not completely follow the strategies of the company. The strategies are more elaborate.
Certain strategies, such as focus on global initiative and drive the productivity loop, and lead social and economic environment, are not stated in the mission statement. The objectives also do not seem to focus on the strategies. Also, the strategies need to implement a more diverse workforce, including more women an various ethical backgrounds in top management. The mission and objectives need to be altered so they are better in line with each other. The mission is too broad in nature. Although customers understand it, without research on Walmart one would not understand Walmart’s position.
This change will allow current and potential customers and suppliers to understand what exactly Walmart is about. A new mission will better align with the objectives and strategies. A mission statement such as the following would be sufficient: We save people money so they can live better by utilizing our research and development department to provide better products at lower prices in every market in which we operate. We are also dedicated to our employees. VI. Strategic Alternatives and Recommended Strategy
A. Strategic AlternativesThe current strategies are fitting for the markets in which Walmart is operating. Although they do have a strategy that focuses on their people, they must better implement. They are still facing criticism about women in the workplace. The strategy means nothing if it is not correctly implemented to better their position. Walmart must also focus on more diverse top management so they are able to better understand global markets.
Their strategies are quite broad, for example, they claim they are serving their customers; however, they do not elaborate on certain issues that they must correct. One issue is their position in the organic food market. Walmart must also increase their current research and development efforts to better their sustainability index. B. Recommended Strategy
One of the recommended strategies includes hiring a more diverse workforce including top management. This includes hiring individuals from different ethical background and more women in top management position. This will not only help Walmart in the global market, it will give a more diverse outlook on what is best for the company. Walmart must reemerge in the organic food market to fit customer needs. This can be done thru hiring a diverse workforce that understands the needs of certain individuals and cultures. Walmart will be able to do this with help from their research and development department.
Walmart must also make better efforts to improve sustainability. They must make every effort to completely ensure they are making every effort possible to better the environment. These efforts will improve their reputation and potentially increase profits by attracting customers. Also, teaming up with a current organic food supplier so that they better understand the market will help Walmart get a competitive advantage on other suppliers. With these three strategies fitting together, Walmart will be able to improve their position in many markets by fitting the needs of customers, while understanding their employees.
A policy must be developed to control the quality standards of organic foods in home and global operations. Walmart must also do research to understand the importance of organic foods in global markets. Also, a policy must be made based on the importance of having a diverse workforce in terms of ethnicity and sex. The current criticism of the way Walmart treats women will be diminished when they prove they are taking every effort necessary to be more equal. VII. Implementation
A. What kinds of programs should be developed to implement the recommended strategy? Efforts must be made by the board of directors and top management to better Walmart. Although there is a current effort to help women abroad find jobs, Walmart needs to make more of an effort to better the women and various ethical backgrounds in their own company. They need to begin a better women empowerment within Walmart. Walmart needs to hire a new outside source to empower women globally. Walmart must also team up with a current successful organic foods organization to ensure they are making every effort to meet the needs of the current market.
They must hire an individual with a background in org