Wal-Mart Strategic Management free essay sample

Though out the years since their inception in the 1960’s, Wal-Mart has grown at an alarming rate. Although in the early years Wal-Mart was thought to be unsuccessful, it has since proven to be a retailer of the future. It is the largest retailer in the world. It has the highest gross profits of any company in the world as well as the highest net profits.Wal-Mart has also topped the Fortune 500 4 times. According to â€Å"Wal-Mart Out in Front†i it has the following Corporate strategies: †¢ †¢ †¢ †¢ †¢ Broadening Our Appeal to All of Our Customers Becoming an Even Better Place to Work Improving Business Operations and Efficiency Driving Growth in Our International Business Making Unique Contributions to Communities Because the public view of Wal-Mart is some what tarnished, they are making an effort both corporate and globally to address the image issues that they have. Many communities have refused or at least petitioned to have Wal-Marts banned. We will write a custom essay sample on Wal-Mart: Strategic Management or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Wal-Mart has tried to gain public interest by lining itself with politicians to achieve its overall goals. While the goals that Wal-Mart has currently for its corporate strategy may lead them to their overall achievement, Team Wal-Mart does not believe that it will lead Wal-Mart into continued success. Wal-Mart has addressed all the issues listed above. However, our team thinks their success, although driven by these goals, contains major problems that arise while putting these goals into action.Some of the recommendations that we have developed are more at the local store level, where some of the goals need to be implemented globally. The public image needs to be addressed, the treatment of their employees both with regards to their pay scale as well as the traumatic treatment that is displayed in the view of the media. Corporate hunger for additional market gain has clouded their judgment when it comes to hiring to retain vs. hiring to fill head count. Wal-Mart also needs to address its views on how to navigate, infiltrate and dominate the global discount retail industry.Wal-Mart needs to address the issues that they currently have with the public, their employees and themselves. Although many work for Wal-Mart it is not the best place to work if you are a single mother, student or minority. Wal-Mart also needs to implement changes on how it treats and work with physically disabled people. Problem Statement The best way to describe the problems that Wal-Mart is facing is the lack of being able to or just not implementing their once believed motto that â€Å"customers are always right†. Although customers are not always right, associates at Wal-Mart should treated people, customers and the public with respect and admiration. The associates at Wal-Mart once had a great company behind them that believed that without them, they would not be where they are today. Wal-Mart needs to regain that perspective in order to propel itself into the future of success. Their corporate tactics of making money and reducing costs incurred by employee benefits needs to be readdressed and realigned with the views of Sam Walton. -2- Situational Description and Strategic AnalysesThrough continual research and readings Team Wal-Mart has gained a better understanding and perspective of America’s fascination with Wal-Mart. Despite the constant barrage of negative press relating to its handling of labor issues, employee benefits, vendor practices and customer service, the retailer is able to thrive. Wal-Martfacts. com brings an enlightening perspective on Wal-Mart views and how they and the public perceive its pitfalls. First, we are going to examine the history of the company. Where did Sam Walton get the idea to come up with a retail store like Wal-Mart?Did he actually expect to be as large of the retailer as it is now? Our team wanted to better understand where Wal-Mart is with its corporate level strategy, business level strategy, strategic formulation and it own views on its implementation. W We will further explore some alternative solutions and make recommendations as to where the public views the company in regards to the topics of discussion, and where our team’s views, and its perceptions of where they are today in how well it is or is not implementing their own strategies.We will also make recommendations and explain how and why those recommendations were derived and how they should be implemented, as well as how Wal-Mart should take action to address those needs. Throughout the entire document you will gain insight into the tactics that Wal-Mart has used to achieve its goals. By reflecting on ideas and principles of where they were, where they want to be and how they perceive their path to gaining the success to achieve its goals a better understanding will emerge. Although our ideas may have some of the same fundamental principles, we view Wal-Mart’s path to achieve its goal in a much different light.Strategic Analysis Overview and History In 1962 Sam Walton opens his first Wal-Mart in Rogers, Arkansas. His low price approach to retail soon became a model that all Wal-Mart stores would follow. Sell brand merchandise at low prices. ii Interesting enough, 1962 was the same birth year for Kmart, Target and Wal-Mart. Sam Walton, founder of Wal-Mart wanted to take advantage of the opportunity and establish a discount retail company. In the beginning the stores were started in the small towns in the south. During that time period it was considered as the least successful retailer, however it has outgrown most of its competition.Sam’s mission was to have an everyday low price discount retail store. Five years into founding Wal-Mart, Sam felt that he needed to expand before his competitors out ran him. â€Å"During the 1970s, the retail industry became highly competitive, but at the same time the economy became weak due to inflation Sears was the leading retailer in the nation, during the 1970s, however, the recession of 1974-1975 and inflation affected Sears adversely. Sears targeted middle class families and expanded its overhead. WalMarts strategy was to compete with its rivals and lower overhead expenses.Compared with -3- Sears, who consisted of more than 6,000 distribution centers, Wal-Mart had only 2,500 comparable units. †iii Although Wal-Mart was under financed, it managed to have 30 stores in the 8 years. In order to sell the merchandise at a low rate, Wal-Mart’s purchasing cost must also be at a low rate. However, suppliers and vendors were not willing to supply merchandise at the rate Wal-Mart was asking. As result of this he built warehouses so that merchandise can be bought in bulk at a cheaper price because of the large volumes.At the same time Wal-Mart needed to expand, but did not have enough capital. Sam decided to go public to raise capital. Over all, while his competitors were under the impression that Wal-Mart’s business model will not be successful, Sam has taken the advantage of the time and strategically placed his business to grow. Sam was also able to convince his establish an internal culture in order have everybody on the same boat. This resulted in everyday low prices. He did not have any sophisticated systems, which resulted in less overhead cost.Currently, Sam’s vision has become a global company employing more than 1. 8 million associates worldwide and nearly 6500 stores and clubs spanning across 14 countries. The secret of successful retailing is to give your customers what they want, Sam wrote in his autobiography. And really, if you think about it from the point of view of the customer, you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience (www. almartfacts. com). † In the 1980s, Wal-mart’s growth, among retailers, placed them in the top sellers in America. Company sales in 1980 were an all time high; those figures were dwarfed in 1989 by a record 26 billion in sales (www. walmartfacts. com). At the end of the 80’s, the company had almost 1400 stores in existence. â€Å"Wal-Mart Stores, Inc. branched out into warehouse clubs with the first SAM? S Club in 1983. The first Supercenter, featuring a complete grocery department along with the 36 departments of general merchandise, opened in 1988.Social Environment: Wal-Mart had launched several programs to highlight popular social causes-â€Å"Buy American†, 1985. The theme was â€Å"bring it home to USA† and its purpose was to communicate Wal-Mart’s support for American manufacturing. In the program, the firm’s exerted substantial influence to encourage to manufacturers to produce goods in the United States rather than import them from other countries. Vendors were encouraged to initiate the process by contacting the company directly with proposals to sell goods that were made in the United States. Also, WalMart was one of the first retailers to embrace the concept of â€Å"green marketing†. The program offered shoppers the option of purchasing products that were better for the environment in three respects: manufacturing, use, and disposal. Management The greatest strength for Wal-Mart from its start in 1969 to this day has been the vision and dedication of the top level management CEO’s David Glass and current CEO H. Lee Scott and no one can deny Sam Walton the founder for his great vision that he made become crystal clear.From the founding to this day Wal-Mart’s top level management has been striving to come up with greater ways to bring Wal-Mart at level it is today and keep it at tops of all retailers and companies world wide. Wal-Mart’s greatest strength after its management is its size which management has helped it to grow with increasing sales and net income since 1993. The way they have implemented their strategic strengths in the industry is first by coming up with multiple store fronts to reach all markets and segments of people. They have created a careful strategic planning on where and when to open new stores.This geographic expansion strategy has focused on opening outward into new geographical areas. Wal-Mart expands into adjoining geographic areas, saturating each area with stores before moving into new territories. This type of strategy created synergy by doing this by clustering new stores in a relatively small area, Wal-Mart could spread advertising expenses for breaking into new markets across all area stores, and a tactic the company used it used to keeps its advertising cost at 1% of sales compared to 2-3% for competitors.Wal-Mart although not the first but the best at everyday low prices having 8-27% below those of such leading supermarkets this in turn has been Wal-Mart’s winning strategy against competitors in find all ways to cut cost and create synergy through the cost cutting there for keeping prices way lower than that of its competitors therefore being the most popular amongst cons umers when it comes to low price retailing. Wal-Mart cut cost on many different levels but its most effective strategy it has found it with its suppliers.Its relationships with its suppliers are its main competitive advantage by having procurement management spend a lot of time with vendors and understanding there cost structure. Thus they made the negotiation process transparent, doing all it could to cut down cost and quote Wal-Mart an attractively low price. Some 200 vendors have established offices in Bentonville to -7- work closely with Wal-Mart on a continuing basis where they are encouraged to voice any problems in their relationship with Wal-Mart and to become involved in Wal-Mart’s future plans.Most vendors view Wal-Mart’s single bottom line price and its expectation of close coordination as a win-win proposition not only because of benefits of cutting out â€Å"funny-money† costs but because they learn collaborative efforts and mutual data-sharing which often had tremendous benefits in the rest of there operations. In executing Sam Walton’s strategic vision of become the largest low price discount retailer in the world they also increased shareholder’s wealth every year almost five times more now in earnings per share than in 1993.Wal-Mart has been the leader in i ts industry and growth rate of more than 32 countries because it has had many strengths but with all strengths there are weaknesses and although I did not see much I did see that Sam’s club was not at the top of its game as all there rest of the other store fronts. Costco the main competition to Sam’s clubs is over performing Sam’s club with fewer stores and is the nation’s biggest retailer of the fine wines (600million). As for opportunities and threats there are many opportunities and threats for Wal-Mart. One is to clean up its recent public image and try to fight or settle the 6000 lawsuits it is facing right now. â€Å"The law suites range from anti-trust and consumer issues to tort claims. A couple of lawsuits have potentially serious consequences like the alleging the company discriminates against women, which has potential to turn into the largest sex-bias class action ever. †viii WalMart also has the threats of having management put out brushfires instead of trying to grow and operate the business.All the threats Wal-Mart can use as opportunities to show the public that it is not a sex-bias company and exuberate what Sam Walton had which was care for the community and all of his employees. Porter’s Five Forces framework †¢ †¢ Potential entrants Wal-Mart does not have to worry about threat to new entrants because of high barriers of entry for companies aspiring to come into the retail industry. Bargaining power of buyers Buyers do not have to bargain wit h Wal-Mart for low prices and higher quality or more services because Wal-Mart has already established the low prices, higher quality, and more services philosophy. Wal-Mart has many pricing philosophies including â€Å"Every Day Low Price†, â€Å"Rollback†, and â€Å"Special Buy† to ensure that their customers get the lowest price possible. Also Wal-Mart does allow customers to match prices from its rivals by showing coupons from its rivals and will honor that price if it’s lower than theirs Bargaining power of suppliers Wal-Mart hand picks its suppliers and has a good and long standing relationship in order to maintain their pricing philosophies, every day low prices, roll back, special buy, Wal-Mart’s suppliers also know that they supply have to be good quality products.Wal-Mart will not sell something that is not to their satisfaction. Also suppliers are put into a tight spot where they have to play by the rules set up by Wal-Mart or loose their contracts they are forced to redesign everything from packaging to even sometimes telling them what it will pay for their goods. Threat of substitute products and services The ability of Wal-Mart to offer the cheapest products that meet both quality and its price standards ensures that it will not incur the †¢ †¢ -8- hreat off substitute products from its rivals cause they are able to meet the customers product satisfaction. Wal-Mart has an excellent customer service. Everything possible is done to ensure that shopping at Wal-Mart will be a friendly experience. Wal-mart was founded on 4 basic beliefs that all Wal-mart employees must adhere to which are, â€Å"respect for the individual, excellence in the workplace, customer service and always having the lowest prices†. Wal-Mart takes these 4 Basic Beliefs very seriously. Intellectual Assets Wal-Mart has not developed any real intellectual assets on its own. It has however incorporated other company’s assets to gain strategic success in the retailing industry. What this means is that Wal-Mart has taken and implemented RFID technology to a level that no other retailer at the time has done. They took internal IT departments and implemented it in every store location around the world, linked the information to their warehouses and made the network a real-time network. This is discussed later. Their real Intellectual Assets are those of other organizations all collaborated to one to propel Wal-Mart into history as the largest, fastest growing and dominating retailer that it is today. Strategic Formulation Business Level Strategies Wal-Mart’s competitive advantage in the world of retailing is greatly attributed to their strategic focus on value chain activities. Efficient and innovative use of inbound and outbound logistics and mastery of complex management operations with large economies of scale have made it difficult for many retailers to imitate the value Wal-Mart has supplied to the world of discount retailing.From establishing their own logistics operations, complete with their own fleet of trucks and a private satellite system to successful management of complex cross-docking strategies at over 19 wholly owned distribution centers, their efficient utilization of value chain activities has made its mark in the world of ‘low cost’ global retailing. Wal-Mart realized very early on that the typical models of value chains in discount retailing involving cost control, efficiency in distribution and purchasing and low overhead-facilities was not going to be enough to compete for a valuable market share.They needed a strategy that would move products from location to location quickly, efficiently and often without ever taking it into inventory first. The logistics technique of cross docking offered such an advantage and has since been a central feature in Wal-Mart’s value chain activities. Instead of wasting time in warehouse inventory, cross docking is the practice of reducing handling costs by receiving new merchandise, selecting, repacking and distributing it across one loading ock to another as quickly as possible. Although efficient in use, cross-docking is extremely difficult to manage and operate effectively. For this reason Wal-Mart’s ability to implement and manage cross-docking -9- strategies provides a central advantage to their logistics operations reducing the cost of sales by 2 to 3 percent compared to its competitors. Since merchandise comes and goes from their warehouses so quickly they needed an effective inventory control system.Radio Frequency Identification (RFID) offered the ability for Wal-Mart to digitally monitor its shipments to-andfrom its warehouses and efficiently manages its supply chain without hindering the effective use of its cross-docking strategies. Wal-Mart’s Information Systems (IS) strategy is a central force in brin ging all operations and logistics of its value chain together. Their IS strategy consists of three basic principles: Centralized IS for operations all over the world, common systems and platforms across the entire organization, and â€Å"be merchants first and technologists second. Wal-Mart was the earliest adopters of supply chain software in the retail industry. Today their application infrastructure allows a scan to automatically signal replenishment of stock, trigger a payment and adjusts inventory level. Therefore, suppliers know what is selling with up to the minute statistics. Through application and maintenance of this technology, a connection was made beyond that at the store level, by analyzing that data as a mission critical requirement they are able to corner the supply-in-demand equation and set them apart from their competition.One of Wal-Mart’s pitfalls in its value chain is in its customer service. They have taken a step in the right direction by implementing interactive online tools, clearly defined their return policies, notification of product recalls, and encouraged of feedback from its customers. Leveraging buyer knowledge through advanced customer relationship management (CRM) automation allows WalMart to build stronger customer p rofiles. This allows Wal-Mart to meet customer’s demands by keeping shelves stocked while maintaining its low price credo. A full outline of Wal-Mart’s Value Chain) 10 Competitive Advantages Sustainability Through its efficient use of cost reducing value chain activities and large economies of scale Wal-Mart’s competitive advantage offers them a significant position in overall low cost leadership by providing a strong industry-wide low cost position. With aggressive construction of sole-owned efficient warehouse facilities, knowledge gained through experience of cost reduction and overhead control in its value chain, Wal-Mart is the model of low-cost leadership industry wide.Their inability to combine advantages by implementing a unique diversification strategy on top of their already successful low cost model has inhibited them from broadening their product offerings and increasing their market share. By offering one-stop shopping of groceries, electronics, lawn and garden, clothing, optical/vision care, pharmaceuticals and now health and medical facilities, Wal-Mart can assure its customers a convenient shopping experience at low prices guaranteed. By combining the differentiation of its diverse products and services Wal-Mart challenges all of its competitors.Grocery chains, optical shops and pharmacies must now all fell the impact of market share when a new Wal-Mart comes to town. The Role of IS in Wal-Mart’s Business Level Strategy Information Systems have played a key role in Wal-Marts management of its business level strategies. By developing new systems that increase performance and reporting they utilize the benefits of leveraging their human capital. By utilizing buyer knowledge information systems allow Wal-Mart to build customer profiles from which they can determine how best to stock their stores.This type of well-defined CRM business process has helped propelled Wal-Mart to its leadership position. By positioning their IT professionals in central roles in Wal-Mart’s organization it is able to develop internal systems that are more inline with the company’s vision. 11 â€Å"In any development effort, our [IS] people are expected to get out and do the function before they do the system specification, design or change analysis. The key there is to do the function, not just observe it. So we actually insert them into the business roles.