This case study proposes the strategic management decisions for the world’s largest retailer Walmart. Being ranked as one of the top Fortune 500 companies, Walmart still has drawbacks in its operational activities and has great opportunities for further growth. This essay will discuss the company in the light of management analysis.
Synopsis of the Situation
Walmart Stores, Inc. is an American-based multinational retailer that includes chains of large discount department stores and warehouse stores around the world. Today Walmart holds the operations in 15 countries under different name, but uses the same management strategy of “law price” and same corporate culture. Here, the analysis includes the complex view on the company’s missi0n and vision, internal and external analysis, SWOT analysis and the evaluation of the controls
The key issue for Walmart in choosing an appropriate strategy is to find the way for entering new markets globally with the existing approach.
Define the Problem
Fortune Global 500 listed Walmart as the world’s third largest public corporation and the world’s largets retailer. In addition, it employs over two million workers being the biggest private employer among the multinational companies. The 48% of the shares belong to Walton family, thus Walmart is truly family-owned entrepreneurship. Besides, Walmart is in the top of the list for companies showing the highest market capitalization rate, thus is among the most valuable companies.
The history of creation the company goes to 1962, when Sam Walton founded his shop. The company was incorporated with the headquarter in Bentonville, Arkansas in 1969, and began its trading at NYSE in 1972. Today Walmart includes 8500 stores in 15 different countries. The company operates under 55 names. For example, it runs under the Walmart name in 50 states of the US and Puerto Rico, whereas in Mexico it trades under Walmex, in the United Kingdom as Asda, in Japan as Seiyu ad under the name BestPrice in India. Business units are also present in Canada, Brazil and Argentina. Thus, it is important that the company enhance the development and start the new stage of international market acquisition. Even though Walmart is the world’s largest retailer, the history of the business includes a negative experience as well. For instance, Walmart’s ventures in South Korea and Germany were unsuccessful. The low price strategy did not work in Germany, whereas the Walmart’s corporate culture was viewed with negative respect by the local community. As a result, the company experienced net losses and had to withdraw its operations from Germany.
The mission statement of Walmart is a well-known phrase “Save money. Live better”. Thus, the company is focused on making a difference in the lives of its customers by enhancing the leadership of affordable goods of a good quality. The company emphasizes on its rich heritage. The vision of the company is to give the people around the world an opportunity to live better. Generally, Walmart’s mission reflects their business strategy, based on low cost priority. The advertisement of the mission helps to promote the whole business as the thing that is important for every customer.
The SWOT analysis suggests that being the market leader means being exposed to constant competition globally and locally. Therefore, it is important that Walmart continue its growth in emerging markets. As it was mentioned, Walmart faced the strategic failure in South Korea and Germany, thus it is important that the company find the appropriate strategic options in new markets to follow the American success. In addition, the tough competition for customers in existing locations is also the priority, where the company should use all legal methods to stay number one. The long term objectives of the strategic plan include the win of competitive advantage on the markets of CIS countries.
Basically, the strategic decision for the business consists of two main ideas: where the stockholders want their business to go, and how to get there. Thus, according to Porter, the firm may win a competitive advantage by choosing the appropriate generic strategy between cost leadership and differentiation. Treacy and Wiersema (1995) propose another popular classification for generic strategies in gaining competitive advantage. In their framework, a firm typically will choose among one of three alternatives: product leadership, operational excellence, and customer intimacy.
The grand strategy of the firm is the basic direction for specific actions and functional tasks. With respect to the nature of business and market situation the company may choose one grand strategy or use few of them simultaneously. The most common grand strategies are product development, market development, concentrated growth, innovation etc.
Selected Solution to the Problem
Using Treasy and Wiersema, Walmart should follow the two generic strategies, as both the customer intimacy and operational excellence are the equivalent priorities for sustaining and developing a large corporation. Using the Porter’s classification, it is important to understand that Walmart uses cost leadership strategy. On the way of its realization, the company meets many obstacles, for instance the problems with taxation. Lately, there has been news about the Walmarts court appeals regarding the sales taxes for the internet commerce. The company appeals that nontaxable sales through internet give the unfair competitive advantage to e-retailers, whereas Walmart and other Brick and morture shops are loosing their profit due to higher prices for their goods. In other words, the sales tax free trade through internet ruines the Walmart’s position as the cheapest place for shopping.
In case of Walmart, the market development strategy would be appropriate. Market development means the strategy of selling the same products in new markets. Our suggestion for the company is CIS countries market, where the big stores and supermarkets are on the beginning stage of its development, and Walmart could win the great number of customers, who are still dissatisfied with the quality and quantity of goods in existing supermarkets.
Critical success factor (CSF) refers to an element that is essential for an organization or project to achieve its mission. As it was mentioned earlier, the mission of Walmart is to save customer’s money and to add to the higher standard of living. Therefore, the critical factors for this mission could be the minimization of price for goods, the high quality service in the stores and the implementation of discount programs for customers. The key success secret of Walmart is people. The company strives to build an environment of integrity, respect, open communication and innovation. Besides, the realization of the market development grand strategy requires additional attention to the new markets. Before the opening Walmart stores in CIS countries, it essential to make the complex evaluation of their market, customers’ behavior, competitors and economical and political features. The effect of strategic management on organization should be evaluated on a timely basis in order to determine the strength, weaknesses and adapt the management to external and internal changes. The company should the different methods of control and evaluation. One of the assessment methods that propose complex view on the organization’s position in economic system is SWOT-analysis. The critical assessment of strengths and weaknesses could help to define the control measures, as these factors could be regulated with efficient control systems. Opportunities and threats are the features out of management’s control, like the economy trends in general, the market competition, and the overall size of the market. Nonetheless, the careful evaluation of all the factors in SWOT analysis helps in making the right decisions for building up the business strategy. The performed SWOT analysis for Walmart (see the Appendix) suggests that in spite of the current leading position as a world’s largest retailer, Walmart has some weaknesses that could prevent from the realization of its long term strategy and opportunities. The most important drawback in Walmart’s operations is the difficulties in control of enormous scale. In addition, the small tightly-specialized shops and analogical to Walmart big retailers occupy the great market niche and attract potential customers.
Moreover, it is important to implement the lifetime control and evaluation system, that would adequately react to hazards and changes. The balanced scorecard approach was designed by Drs. Kaplan and Norton in order to meet the innovative needs of today’s business. The concept suggests that management should view the organization by developing metrics, collecting data and analysing it relative to each of the four perspectives. These perspectives include the learning & growth perspective, business, customer and financial perspectives. Walmart is the company with solid corporate culture and standards. Although the company was blamed for unfair labor practices (overtime work, lower than minimum wages, gender discrimination), it strives to enhance the high cultural corporate structure with an emphasis on diversity. Walmart spends substantial budget for personnel training and learning, and for innovative IT support of the business. The business process evaluation is an essential part of Walmart’s success, as the internal insight gives answers to many questions. For instance, the company developed the effective logistics model, which is transformed over time due to the changes in customer’s needs and preferences and suppliers’ negotiations. The perspective of customers’ attitude towards the operations is the key success factor of the business. Each quarter Walmart’s analysts perform the economy and customer insights report which presents the consumer trends in finance decisions, health and education. According to the Walmart’s economic customer insights for the Quarter 2, 2012, the US customers are still under the pressure of high unemployment rate and rely on Walmart with its pricing strategy. The study suggests that more unemployed than the national average shop in Walmart. The increase in prices for gas and food are the biggest concerns of Walmart’s customers, which results in clipping coupons and switching brands to less expensive and private/store brands. In addition, the back-to-school concerns of the customers find an immediate reaction from Walmart in launching the special tool for school supply preparation “Classroom by Walmart”. Thus, it is important that Walmart continues the customers’ research in order to stay at their leading position. In the tough competition, Walmart places the emphasis on donations, charity and patriotism. These activities are important for many customers and create the whole positive image of the company. The last perspective, financial, is also under constant assessment of Walmart accountants. For the fiscal year 2012, Walmart increased net sales by 5,9% and returned 11,3 billion of USD to shareholders through dividends and share repurchases. The financial results tell about the success of the overall activity, including the learning and growth, business operations and customer studies.
The strategic plan for Walmart’s next 3-5 years should include the following:
Following the low-price generic strategy ;
Implement the market development grand strategy in emerging markets, especially CIS countries using the low-price approach, but adopting the corporate culture to local cultural views and virtues;
Retain the competitive leadership position in US market by lobbying the tax proposals for internet trade sales taxation, concentrating on accompanying services in the malls, like small dry-cleanings and laundries, cafes with free WI-FI, small organic shops and entertainment areas for children;
Enhance the control and evaluation measures;
Walmart is the huge international retailers of grocery and home-needs goods. The company runs very successful and attractive for shareholders business in South and North America, some Asian and African countries and even European sites. Nonetheless, it faced tremendous problems in South Korea and Germany, where the overall low-price strategy failed. In order to sustain the current growth rate and stay a leader in the US, Walmart should find the competitive niche in new emerging markets and follow the constant improvement and innovative decisions in existing locations as the tough competition and customers’ innovative need could be met only through continuous improvement, consumer research and innovative learning.