Mba 685 Strategic Audit Paper
Strategic Audit of a Corporation;
An Analysis of Wal-Mart
MBA 685
Written by:
Michelle Ujene
1. Current Situation
1.1 Current Performance: Wal-Mart Stores Incorporated, or Wal-Mart as popularly known, is a publicly traded company. The company has continued to increase its sales income over the period of existence since 1962. Recent financial records revealed that net sales increased from $418.9Billion recorded in 2011 fiscal year to $443. 9 Billion in 2012 fiscal year, representing a percentage growth of 5.63%. A cursory look at the 2012 audited financial statement of Wal-Mart revealed that there was a continue deep in net sales between 2008 and 2010 fiscal year. This continued decline can be attributed to the state …show more content…
of the economy during these periods. However, since 2010 fiscal year, the company has continued to record a steady rise in with a total increase of 8.72% between 2010 and 2012 fiscal year.
Between 2011 and 2012 fiscal year, Return on Investment (ROI) which measures the extent to which a company puts it assets to effective use, dropped to 18.6% from 19.2% in 2012 and 2011 fiscal year respectively. The reduction in Wal-Mart’s ROI was largely ascribed to factors such as additional investment in property, plants and equipment, global e-Commerce and higher inventories. While there was a positive impact on the company’s ROI as a result currency translation fluctuations, this impact was eroded by several acquisitions embarked on by the company.
In terms of profitability, the company has continued to increase returns through improved profitability. The operating income of the company grew by 4.00% from $25.5 Billion to 26.6 Billion in 2011 and 2012 fiscal year respectively. One major factor that positively impacted the company’s operating income in 2012 fiscal year was the volatility in exchange rate.
In the first quarter of 2013, the stocks of the Wal-Mart traded at a high of $62.63 and at a low of $58.21. This is a significant improvement when compared with the stock price of the company in the first quarter of 2012 (high: 56.73, low: 50.97) Below are some of the highlights of Wal-Mart’s financial performance between 2011 and 2012 fiscal year.
Items
2011
2012
% change
Net Sales($’b)
$418,952
$443,854
5.9
Net Income($’b)
$25.54
$27.801
8.8
Return on Investment (ROI) (%)
19.2
18.6
-3.1
Diluted EPS ($)
4.18
4.54
-8.6
Source: Non-GAAP Measures, 2011, 2012 Wal-Mart Annual Report
Listing: ` New York Stock Exchange
Stock symbol: WMT
Industry: Retail
2012 Market Share: 63.60%
Auditors: Ernst & Young LLP
1.2 Strategic Posture:
Wal-Mart has a clearly stated mission statement and has developed several strategies through which they have consistently strived to attain their stated objectives. The objectives of Wal-Mart bothers on the central theme of creating a better customer experience for their market and are consistent with each other along with Wal-Mart’s overall mission statement.
Mission Statement: “To help people save money so they can live better”
Wal-Mart operates in the retail industry, it is in fact the biggest retail store in the world with stores established in 15 different counties and employing approximately 2 million employees. Wal-Mart is in the retailing with the aim of saving people money so they can live better.
Objectives: “Driving aggressive growth, while improving return on investment.” According to the 2011 annual report of the company, Wal-Mart’s objectives includes to: Expand Multi-Channel Initiatives
Develop and execute a global e-Commerce strategy
Accelerate global online channel growth
Have accessible stores available for all of the customers’ needs
Grow in the United States
Keep improving Sam’s Club
Maintain excellent customer service- Give the customers what they want
Implement a four-point plan to improve comparable store sales
Improve Returns
Balance their commitment to aggressive growth with their long-term plan
Achieve positive comparable store sales
Enhance shareholder value
(2011 Wal-Mart Annual Report)
Strategies:
In order to achieve the overall objectives of the company as well as keep ahead of competitors within the same industry, the management of Wal-Mart has explored various strategies over the period of its existence. Some of these strategies include “Developing our people”, “Driving the productivity loop”, “Winning in Global e-Commerce”, “Reinvigorating our customer-focused culture” and “Leading on social and environmental issues”
Although these strategies are somewhat consistent with each other since they are all aimed at improving the company, their workers, the customers and the environment, they are not necessarily correlated. However, each of these strategies relates to the mission statement of Wal-Mart with respect to providing a better living for their customers.
Policies:
Over the years, Wal-Mart has developed several corporate policies that are related and consistent with the mission, objectives and strategies of the company. It is believed that these policies were formulated in an attempt to maintain efficiency, consistency and clear communication not only within the organization (employees), but also with their customers and stakeholder. This is evidenced in the titles of each of these policies.
Some of the operational policies of Wal-Mart include Ad Match Guarantee, Government Relations Policy, Photo and Video Use Policy, Private Policy, Return Policy, Social Media Guidelines, Wal-Mart Coupon Policy, Wal-Mart Statement of Ethics. (Policies, 2012).
Overall, the corporate policies of the company are well aligned to address important factors- price, customers, stakeholders, government regulations, and the environment- that will impact the organization from time to time.
2. Corporate Governance
Below is the list of the external members on the board of directors for Wal-Mart.
Rob Walton, James Breyer, James Cash Jr., Aida Alverex, M. Michele Burns, Roger Corbett, Douglas Daft, Mike Duke, Timothy Flynn, Marissa Mayer, Gregory Penner, Steven Reinemund, H. Lee Scott Jr., Arne Sorenson, Jim Walton, Christopher Williams, and Linda Wolf. (Board of Directors, 2012) Wal-Mart is a publicly traded company with many different classes of stock with different voting rights. Here are the popular options: Term of Options, Option Exercise and Price Consideration, Exercise of Options, Termination of Employment, Disability of Recipient, and Non-Transferability of Options. All of the board members of Wal-Mart bring different experiences from different areas of business. For example, some of the board members are current and previous leaders of Wal-Mart (Mike Duke [current President and CEO] and H. Lee Scott Jr. [retired President and CEO]) along with leaders of different organizations (Marissa Mayer [President and CEO of Yahoo!], Christopher Williams [Chairman and CEO of William’s Capital Group], and Jim Walton [Chairman and CEO of Arvest Bank Group]). (Board of Directors, 2012)
3. External Environment:
3.1 Opportunities and Treats According to the Fortune Global 500 list in 2012, Wal-Mart is the biggest private employer in the world with over two million employees, and is the largest retailer in the world; consisting of the three retail formats (Discount Stores, Supercenters, and Wal-Mart Markets) that have become very popular in the United States.
STORE
2011
Discount Stores,
*Discount department stores with size varying from 51,000 square feet to 224,000 square feet
*Carry general merchandise and a selection of groceries.
*As of March 2012, there were 629 Wal-Mart discount stores in the United States
Supercenters
*Hypermarkets with size varying from 98,000 to 261,000 square fee
*Include a full-service supermarket, including meat and poultry, baked goods, delicatessen etc.
*As of March 2012, there were 3,029 Wal-Mart Supercenters in the United States
* The "Supercenter" portion of the name on these stores has been phased out, simply referring to these stores as "Wal-Mart," since the company introduced the new Wal-Mart logo in 2008.
Wal-Mart Markets
* A chain of grocery stores that average about 42,000 square fee
* Offers a variety of products, which include full lines of groceries, pharmaceuticals, health and beauty aids
* Previously branded as "Wal-Mart Neighborhood Market"
* As of May 2012, there are 199 Wal-Mart Markets
Source: http://en.wikipedia.org
As a retail store and a global one at that, opportunities are abound, making it reasonably easy for the company to operate under relatively flexible circumstances while ensuring that consumers needs are met and at lower cost too. However this does not mean that they do not have their own share of threats.
While some key environmental factors like floods and tornadoes especially in a country like the United States with its fair share of natural disaster can impede the operation of a company as big and widely spread as Wal-Mart, some specific threats with respect to external competition, industry practice, economic, political/ legal, technological and socio cultural influence can affect the company.
Other non-related natural disaster according to a Deloitte report on “understanding customer retention in the retail industry” three common mistakes- misguided loyalty programs, ignoring free agents and lack of enterprise-wide usage- which we believe can also be a threat to a company like Wal-Mart, can affect the operations of companies in the retail sector.
3.2 Opportunities and threats:
It is no hidden fact that Wal-Mart is a multinational cooperation and the world’s largest retail cooperation. Although a family owned business, the company has continued to expand not only within the regions of the United States where it was originally founded but is also acquiring smaller retail stores in countries like the United Kingdom, Argentina, Brazil, and Canada.
Such expansions and acquisitions, has been made possible by the company’s ability to identify and tap into some of the unique opportunities that can be associated with it and these include
Rising acceptance of own label products
Retail market growth in emerging markets
Trend toward healthy eating
Online shopping growth
Wide branch network Although Wal-Mart can use the above identified opportunities as a competitive advantage over its competitors within the same industry, there are some factors that will naturally pose as threats to the company. Some of these identified factors include
Increased competition from other growing companies within the retail industry
Local resistance
Rising commodity prices
3.3 Task Environment
Though one of the most valuable companies in the world, Wal-Mart does not rely on internal sales by its US stores only, as most of its competitors do. This gives the company a significant edge over competitors within the same industry. Its large scale of operation through widely spread branch has enabled the company to exercise strong buyer power on suppliers and implement a price differentiation strategy which in return has led to higher economies of scale for its size. As a result, the corporate giant need not be afraid of rivalry among competitive firm or threat of new entrants.
American newspaper columnist George Will named Wal-Mart "the most prodigious job-creator in the history of the private sector in this galaxy" and that "by lowering consumer prices, Wal-Mart costs about 50 retail jobs among competitors for every 100 jobs Wal-Mart creates". In terms of economic effects, Will states that "Wal-Mart and its effects save shoppers more than $200 billion a year, dwarfing such government programs as food stamps ($28.6 billion) and the earned income tax credit ($34.6 billion)".
All of these and many more like the creation of its own brand (Great Value and Equate in the US and Canada, and Smart Price in Britain) seem to give Wal-Mart the unique edge it will require to remain number one. However, in recent years, the company has been faced with torrent of lawsuits and issues with regards to its workforce. These issues involve low wages, poor working conditions, inadequate health care, as well as issues involving the company 's strong anti-union policies. Studies have shown that approximately 70% of the company’s employees leave within the first year of employment and many critics point to Wal-Mart’s high turnover rate as evidence of an unhappy workforce. In addition, the company has been accused of lobbying and in November 2012, admitted to spending $25 million lobbying Congress. Thus, the company needs to be aware of other dominant factors such as the relative power of union, government and special interest group such as the stakeholders in the near future.
Below are immediate and/or future threats that the company might face within its task environment
Threats
Rating
New entrants
Low
Bargaining power of supplier
Low
Substitute product or service
Medium
Bargaining power of buyer
Medium
Relative power of union, government and special interest group such as the stakeholder
High
4. Internal Environment:
4.1 Corporate Structure and culture
Wal-Mart has taken step to decentralize its decision making in order to complement the size and operation of the company. However, due to the size of the Company, it is no surprise that it is faced from time to time, with issues that might impact negatively on its reputation. To avoid such negative publicity and address it should it arise, the company has taken some steps among which include
Making public its statement of ethics and ensuring that all employees comply with it
Operates its retail stores in various formats around the world. The operations are conducted in three reportable segments: the Wal-Mart U.S. segment; the Wal-Mart International segment; and the Sam’s Club segment. The Company defines its segments as “those business units whose operating results its chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources”.
Measuring the results of its segments using, each segment’s operating income and certain corporate overhead allocations from time to time, and as dictated by the information regularly reviewed by the chief operating decision maker.
The structure of Wal-Mart seem to be clearly understood by employees and the company tries to inspire its employees to promote a corporate culture that encourages respect for the individual, service to customer and striving for excellence. However, the company has been accused in recent years of gender discrimination alleging that female employees were discriminated against in matters regarding pay and promotions. The basis for this accusation was based on the comparison of the company to its competitors within the same industry with respect to the ratio of men to women occupying its top management position.
In addition, the company needs to take necessary steps to address the issues relating to the ethical behavior of some of its top employee as well as communicate more effectively, its performance evaluation measures.
4.2 Strengths and Weaknesses
The following strengths can be associated with the company
Scale of operations
Competence in information technology systems
Wide range of products
Cost leadership strategy
International operations
On the downside Wal-Mart has the following weaknesses
Labor related lawsuits
High employee turnover
Little differentiation
Negative publicity Despite the above identified weaknesses, effective management of supply chain and logistics is one of the most important factors for Wal-Mart’s success. Wal-Mart has been able to achieve significant cost savings as a result of its extensive information systems that tracks orders, inventory levels, sales and other related information in real time making this information available, easily accessible and instantly analyzed and processed . This enables a faster decisions making process at each store. However, the company is faced with a very high rate of employee turnover and has no differentiation compared to its competitors. This might hurt the company in the long run if commodity prices or average consumer income increases. 4.3 Corporate Resources
4.3.1 Marketing Although the company cannot particularly boast of a flawless customer service or a 100% breadth of product lines, what it lacks in aesthetics, it makes up for with an absolutely unparalleled convenience and price competitiveness. Wal-Mart has been able to define the art of online marketing, using remarkable techniques on an impressive scale, thereby becoming one of the top company’s in the wide history of corporate America. Wal-Mart’s online marketing campaign covers all facets of strategy and are apparently very aggressiveness.
This has highlighted and broadened their need to succeed and remain at the top in the retail industry. Though closely marked by online marketers like Amazon and eBay, Wal-Mart’s marketing strategy consists of flooding the market with their presence and this is frightening for companies who find Wal-Mart’s physical presence and business practices disturbing. With such a substantial spread of many outlets, extremely reasonable pricing, and a huge market share, their marketing strategy has necessitated a global takeover of all the appropriate …show more content…
markets.
4.3.2 Research and Development
Wal-Mart is extremely involved in research and development and this singularly distinguishes it from others within the same industry and enables it to easily penetrate and expand amidst the struggles of its competitors. Notable achievement by the company through research and development include the unveiling of the Wal-Mart Smart Network (shopper-intelligent network at retail) that provides shoppers relevant and useful information via in-store TV in 2008. Shopper-intelligent network” is the result of a two years research and development $10 million project used to identify the optimal locations, applications and programming for reaching the millions of consumers who visit the retailer’s stores each week.
4.3.3 Operation and Logistics
The company has invested a lot in logistic in order to get their product to each of their outlets located all over the world. The distribution of Wal-Mart’s product is largely dependent on the ability of the management to plan its logistics.
Every year, the company moves millions of products from different manufacturers to Wal-Mart distribution centers and from distribution centers to the shelves in their stores.
Wal-Mart has about 158 distribution centers which are hubs of activity for their business. Wal-Mart logistics has a fleet of 6,500 tractors, 55,000 trailers and more than 7,000 drivers. The distribution operation of the company is one of the largest in the world. Some of the highpoints of the company’s logistics include
A regional distribution center that can have up to 12 miles of conveyor belts, which can move hundreds of thousands of cases through the facility each day.
Nine disaster distribution centers, strategically located across the country and stocked to provide rapid response to struggling communities in the event of a natural disaster.
Each distribution center is more than 1 million square feet in size, and uses more than 5 miles of conveyor belts to keep products moving to each store 24 hours a day.
Every distribution center supports 90 to 100 stores in a 200-mile radius.
(Wal-Mart U.S Logistics)
4.3.4 Information Technology
By all accounts, technology and scale are at the core of Wal-Mart’s advantages over its rivals. As put by Foster,Haltiwanger, and Krizan, 2006; Doms, Jarmin, and Klimek, 2004, “across the retail sector, stores that belong to retail chains tend to be more efficient than single-store retailers, and chains tend to invest more in information technology” Wal-Mart’s has created a technological edge is in its logistics, distribution, and inventory control; having installed a computer in its first distribution center in 1969 and by the late 1970s, connected all Wal-Mart stores and distribution centers, along with company headquarters, to a computer network.. In addition, the company was quick to adopt bar-code technology; installing bar-code readers in all distribution centers by the late 1980s and by extension reducing by half the labor cost of processing shipments (Vance and Scott, 1994).
In 1990, Wal-Mart introduced Retail Link, a software connecting its stores, distribution centers, and suppliers, providing detailed inventory data “to bring our suppliers closer to our individual stores.
(Wal-Mart Stores, Inc., 1991).
5. Analysis of Strategic Factors
5.1 Situational Analysis
5.1.1 Internal Strategic Factor
Strengths
Weight
Rating
Weighted Score
Comments
*Competence in information systems
.15
5
.75
Very competent but need to continue improving
*Scale of operations
.15
4.3
.65
Very large.
*International operations
.10
4.0
.40
Significant presence in other countries
Cost leadership strategy
.10
3.6
.36
Strong in this aspect. Well positioned
Wide range of products
.05
2.8
.14
Well positioned but need to improve
Weaknesses
*Negative publicity
.20
5.0
1.00
Questionable
*Labor related lawsuits
.15
4.4
.66
Questionable
Little differentiation
.05
3.7
.19
Slow in this aspect
High employee turnover
.05
2.3
.12
Weak in this aspect
Total Score
1.00
4.27
5.2.2 External Strategic Factor
Opportunities
Weight
Rating
Weighted Score
Comments
*Retail market growth in emerging markets
.25
5
1.25
Will take time
*Wide branch network products
.20
4.0
.80
Well positioned
Online shopping growth
.15
4.0
.60
Well positioned, but has to keep improving
Trend toward healthy eating
.05
3.0
.15
Well positioned but should improve
Rising acceptance of own label
.05
2.3
.12
Will take time
Threats
*Increased competition from other growing companies within the retail industry
.15
5.0
.75
Well positioned
*Local resistance
.10
4.0
.40
Questionable
Rising commodity prices
.05
3.2
.16
Will take time
Total Score
1.00
4.23
The most internal and external factors are identified in the EFAS AND IFAS tables above with an asterisk
Strategic Factors
Weight
Rating
Weighted Score
SHORT
INTERMEDIATE
LONG
Comments
Competence in information systems
.15
5
.75
X
Very key to success
Scale of operations
.15
4.3
.65
X
Key to success Leads to increase in operating expenses
Reduction in profit
International operations
.10
4.0
.40
X
Has significant presence overseas. Might affect profit
Negative publicity
.20
5.0
1.00
X
Key to success. Might affect profit
Labor related lawsuits
.15
4.4
.66
X
Weak; Reduction in profit
Retail market growth in emerging markets
.25
5
1.25
X
Key to success. Increase market share where positive
Local resistance
.10
4.0
.40
X
Key to success. Might stagnate expansion
Increased competition from other growing companies within the retail industry
.15
5.0
.75
X
Key to success. Might reduce market share
Wide branch network products
.20
4.0
.80
X
Key to success
Total Score
1.00
4.27
6. Recommended Strategy The growth of Wal-Mart has attracted a lot of controversies both internally and externally. While the company is continually faced with improving customer satisfaction amidst dissatisfaction among employees leading to high labor turnover, increased labor cost and by extension, increased cost of training, competitors that feel threatened about the company’s rate of expansion are continually developing strategies that will give them an advantage over Wal-Mart. It is ironic to hear people complain about the giant Wal-Mart yet keep patronizing the company. This is evident by the continuous increase in the annual sales recorded by the company. However, it is plausible to assume that the company will record higher sales and profit should they take steps to address these problems. To address some of its problem, Wal-Mart should adopt a central strategy to:
Increase customer services/satisfaction
Improve ethical practices
Create a friendlier operating environment
Motivate employees
7. Implementation
Some of these strategies can be implemented by Wal-Mart by
Recruiting and selection of highly qualified personnel to occupy the customer service department
Continuous staff training and motivation
Provision of medical plan for employees and their families
Strengthening of current compliance programs with respect to processes, procedures and people as well as ensure that this is effectively implemented globally
Align corporate culture to identify with the different culture of the people in the countries the company operates
Toughen company’s global ethics rule especially with respect to corrupt practices.
Although this might not be particularly inexpensive, it is not impossible for the company to achieve particularly if they are spread over a number of years and incorporated into the company’s budget. In addition, the company can employ individuals and consulting firms to develop the needed programs.
Wal-Mart has had its share of a fair amount of negative publicity specifically involving their marketing strategies. Their bullying nature has led many to deem them irrational and partial, yet the company continues to retain a top position in the retail industry. Should these identified strategies be implemented, the company will improve its chances of operating in a friendlier environment.
8. Evaluation and Control
In order for the company to maintain its current position in the retail industry as well as maintain its market share, it will need to carry out some changes. This will no doubt, involve the extensive use of a well suited information system which will enable them track the feedback on its performance and activities.
We suggest that each location of Wal-Mart have a standardized form of operations with the focus on the central strategies noted above.
Also, it is vital to have a clear and easy method for evaluating the performance of each store while creating a reward system for top performing stores. Continuous improvement is usually the central theme with many businesses in the world; this is a great way to track Wal-Mart’s.
References
2011 Annual Report. (2011). Wal-Mart. Retrieved May 28th 2013 from http://www.walmartstores.com/sites/annualreport/2011/ 2012 Annual Report. (2012). Wal-Mart. Retrieved May 27th 2013 from http://www.walmartstores.com/sites/annual-report/2012/CEOletter.aspx 50 Years. (2012). Wal-Mart. PDF. Retrieved May 27th 2013 from http://www.walmartstores.com/sites/annual-report/2012/WalMart_AR.pdf Board of Directors. (2012) Wal-Mart. Retrieved May 28th 2013 from http://corporate.walmart.com/our-story/leadership/board-of-directors Non-GAAP Measures.
(2012). Wal-Mart. Retrieved May 27th 2013 from http://stock.walmart.com/financial-reporting/non-gaap-measures Policies. (2012). Wal-Mart. Retrieved May 28th 2013 from http://corporate.walmart.com/policies
Strategic Management and Business Policy, 13th Edition by Thomas L. Wheelen and J. David Hunger.
Strategic minds; Business development & creative Marketing. Retrieved June 2nd 2013 from http://www.strategicminds.eu/blog/the-wal-mart-marketing-strategy
The Causes and Consequences of Wal-Mart’s Growth, written by Emek Basker, April 2007. Retrieved June 3rd 2013 from http://econ.missouri.edu/working-papers/2006/wp0611_basker.pdf
Understanding customer retention in the retail industry. Retrieved June 3rd 2013 from http://www.deloitte.com/assets/Dcom- UnitedStates/Local%20Assets/Documents/us_consulting_Customer_Retention_031711.pdf
Wal-Mart SWOT analysis. 2013. Retrieved June 1st 2013 from http://www.strategicmanagementinsight.com/swot-analyses/walmart-swot-analysis.pdf
Wal-Mart News. Retrieved June 3rd 2013 from
http://news.walmart.com/news-archive/2008/09/03/walmart-to-bring-new-walmart-smart-network-to-2700-stores
Wikipedia, the free encyclopedia. Retrieved June 1st 2013 from http://en.wikipedia.org/wiki/Walmart
An Analysis of Wal-Mart
MBA 685
Written by:
Michelle Ujene
1. Current Situation
1.1 Current Performance: Wal-Mart Stores Incorporated, or Wal-Mart as popularly known, is a publicly traded company. The company has continued to increase its sales income over the period of existence since 1962. Recent financial records revealed that net sales increased from $418.9Billion recorded in 2011 fiscal year to $443. 9 Billion in 2012 fiscal year, representing a percentage growth of 5.63%. A cursory look at the 2012 audited financial statement of Wal-Mart revealed that there was a continue deep in net sales between 2008 and 2010 fiscal year. This continued decline can be attributed to the state …show more content…
of the economy during these periods. However, since 2010 fiscal year, the company has continued to record a steady rise in with a total increase of 8.72% between 2010 and 2012 fiscal year.
Between 2011 and 2012 fiscal year, Return on Investment (ROI) which measures the extent to which a company puts it assets to effective use, dropped to 18.6% from 19.2% in 2012 and 2011 fiscal year respectively. The reduction in Wal-Mart’s ROI was largely ascribed to factors such as additional investment in property, plants and equipment, global e-Commerce and higher inventories. While there was a positive impact on the company’s ROI as a result currency translation fluctuations, this impact was eroded by several acquisitions embarked on by the company.
In terms of profitability, the company has continued to increase returns through improved profitability. The operating income of the company grew by 4.00% from $25.5 Billion to 26.6 Billion in 2011 and 2012 fiscal year respectively. One major factor that positively impacted the company’s operating income in 2012 fiscal year was the volatility in exchange rate.
In the first quarter of 2013, the stocks of the Wal-Mart traded at a high of $62.63 and at a low of $58.21. This is a significant improvement when compared with the stock price of the company in the first quarter of 2012 (high: 56.73, low: 50.97) Below are some of the highlights of Wal-Mart’s financial performance between 2011 and 2012 fiscal year.
Items
2011
2012
% change
Net Sales($’b)
$418,952
$443,854
5.9
Net Income($’b)
$25.54
$27.801
8.8
Return on Investment (ROI) (%)
19.2
18.6
-3.1
Diluted EPS ($)
4.18
4.54
-8.6
Source: Non-GAAP Measures, 2011, 2012 Wal-Mart Annual Report
Listing: ` New York Stock Exchange
Stock symbol: WMT
Industry: Retail
2012 Market Share: 63.60%
Auditors: Ernst & Young LLP
1.2 Strategic Posture:
Wal-Mart has a clearly stated mission statement and has developed several strategies through which they have consistently strived to attain their stated objectives. The objectives of Wal-Mart bothers on the central theme of creating a better customer experience for their market and are consistent with each other along with Wal-Mart’s overall mission statement.
Mission Statement: “To help people save money so they can live better”
Wal-Mart operates in the retail industry, it is in fact the biggest retail store in the world with stores established in 15 different counties and employing approximately 2 million employees. Wal-Mart is in the retailing with the aim of saving people money so they can live better.
Objectives: “Driving aggressive growth, while improving return on investment.” According to the 2011 annual report of the company, Wal-Mart’s objectives includes to: Expand Multi-Channel Initiatives
Develop and execute a global e-Commerce strategy
Accelerate global online channel growth
Have accessible stores available for all of the customers’ needs
Grow in the United States
Keep improving Sam’s Club
Maintain excellent customer service- Give the customers what they want
Implement a four-point plan to improve comparable store sales
Improve Returns
Balance their commitment to aggressive growth with their long-term plan
Achieve positive comparable store sales
Enhance shareholder value
(2011 Wal-Mart Annual Report)
Strategies:
In order to achieve the overall objectives of the company as well as keep ahead of competitors within the same industry, the management of Wal-Mart has explored various strategies over the period of its existence. Some of these strategies include “Developing our people”, “Driving the productivity loop”, “Winning in Global e-Commerce”, “Reinvigorating our customer-focused culture” and “Leading on social and environmental issues”
Although these strategies are somewhat consistent with each other since they are all aimed at improving the company, their workers, the customers and the environment, they are not necessarily correlated. However, each of these strategies relates to the mission statement of Wal-Mart with respect to providing a better living for their customers.
Policies:
Over the years, Wal-Mart has developed several corporate policies that are related and consistent with the mission, objectives and strategies of the company. It is believed that these policies were formulated in an attempt to maintain efficiency, consistency and clear communication not only within the organization (employees), but also with their customers and stakeholder. This is evidenced in the titles of each of these policies.
Some of the operational policies of Wal-Mart include Ad Match Guarantee, Government Relations Policy, Photo and Video Use Policy, Private Policy, Return Policy, Social Media Guidelines, Wal-Mart Coupon Policy, Wal-Mart Statement of Ethics. (Policies, 2012).
Overall, the corporate policies of the company are well aligned to address important factors- price, customers, stakeholders, government regulations, and the environment- that will impact the organization from time to time.
2. Corporate Governance
Below is the list of the external members on the board of directors for Wal-Mart.
Rob Walton, James Breyer, James Cash Jr., Aida Alverex, M. Michele Burns, Roger Corbett, Douglas Daft, Mike Duke, Timothy Flynn, Marissa Mayer, Gregory Penner, Steven Reinemund, H. Lee Scott Jr., Arne Sorenson, Jim Walton, Christopher Williams, and Linda Wolf. (Board of Directors, 2012) Wal-Mart is a publicly traded company with many different classes of stock with different voting rights. Here are the popular options: Term of Options, Option Exercise and Price Consideration, Exercise of Options, Termination of Employment, Disability of Recipient, and Non-Transferability of Options. All of the board members of Wal-Mart bring different experiences from different areas of business. For example, some of the board members are current and previous leaders of Wal-Mart (Mike Duke [current President and CEO] and H. Lee Scott Jr. [retired President and CEO]) along with leaders of different organizations (Marissa Mayer [President and CEO of Yahoo!], Christopher Williams [Chairman and CEO of William’s Capital Group], and Jim Walton [Chairman and CEO of Arvest Bank Group]). (Board of Directors, 2012)
3. External Environment:
3.1 Opportunities and Treats According to the Fortune Global 500 list in 2012, Wal-Mart is the biggest private employer in the world with over two million employees, and is the largest retailer in the world; consisting of the three retail formats (Discount Stores, Supercenters, and Wal-Mart Markets) that have become very popular in the United States.
STORE
2011
Discount Stores,
*Discount department stores with size varying from 51,000 square feet to 224,000 square feet
*Carry general merchandise and a selection of groceries.
*As of March 2012, there were 629 Wal-Mart discount stores in the United States
Supercenters
*Hypermarkets with size varying from 98,000 to 261,000 square fee
*Include a full-service supermarket, including meat and poultry, baked goods, delicatessen etc.
*As of March 2012, there were 3,029 Wal-Mart Supercenters in the United States
* The "Supercenter" portion of the name on these stores has been phased out, simply referring to these stores as "Wal-Mart," since the company introduced the new Wal-Mart logo in 2008.
Wal-Mart Markets
* A chain of grocery stores that average about 42,000 square fee
* Offers a variety of products, which include full lines of groceries, pharmaceuticals, health and beauty aids
* Previously branded as "Wal-Mart Neighborhood Market"
* As of May 2012, there are 199 Wal-Mart Markets
Source: http://en.wikipedia.org
As a retail store and a global one at that, opportunities are abound, making it reasonably easy for the company to operate under relatively flexible circumstances while ensuring that consumers needs are met and at lower cost too. However this does not mean that they do not have their own share of threats.
While some key environmental factors like floods and tornadoes especially in a country like the United States with its fair share of natural disaster can impede the operation of a company as big and widely spread as Wal-Mart, some specific threats with respect to external competition, industry practice, economic, political/ legal, technological and socio cultural influence can affect the company.
Other non-related natural disaster according to a Deloitte report on “understanding customer retention in the retail industry” three common mistakes- misguided loyalty programs, ignoring free agents and lack of enterprise-wide usage- which we believe can also be a threat to a company like Wal-Mart, can affect the operations of companies in the retail sector.
3.2 Opportunities and threats:
It is no hidden fact that Wal-Mart is a multinational cooperation and the world’s largest retail cooperation. Although a family owned business, the company has continued to expand not only within the regions of the United States where it was originally founded but is also acquiring smaller retail stores in countries like the United Kingdom, Argentina, Brazil, and Canada.
Such expansions and acquisitions, has been made possible by the company’s ability to identify and tap into some of the unique opportunities that can be associated with it and these include
Rising acceptance of own label products
Retail market growth in emerging markets
Trend toward healthy eating
Online shopping growth
Wide branch network Although Wal-Mart can use the above identified opportunities as a competitive advantage over its competitors within the same industry, there are some factors that will naturally pose as threats to the company. Some of these identified factors include
Increased competition from other growing companies within the retail industry
Local resistance
Rising commodity prices
3.3 Task Environment
Though one of the most valuable companies in the world, Wal-Mart does not rely on internal sales by its US stores only, as most of its competitors do. This gives the company a significant edge over competitors within the same industry. Its large scale of operation through widely spread branch has enabled the company to exercise strong buyer power on suppliers and implement a price differentiation strategy which in return has led to higher economies of scale for its size. As a result, the corporate giant need not be afraid of rivalry among competitive firm or threat of new entrants.
American newspaper columnist George Will named Wal-Mart "the most prodigious job-creator in the history of the private sector in this galaxy" and that "by lowering consumer prices, Wal-Mart costs about 50 retail jobs among competitors for every 100 jobs Wal-Mart creates". In terms of economic effects, Will states that "Wal-Mart and its effects save shoppers more than $200 billion a year, dwarfing such government programs as food stamps ($28.6 billion) and the earned income tax credit ($34.6 billion)".
All of these and many more like the creation of its own brand (Great Value and Equate in the US and Canada, and Smart Price in Britain) seem to give Wal-Mart the unique edge it will require to remain number one. However, in recent years, the company has been faced with torrent of lawsuits and issues with regards to its workforce. These issues involve low wages, poor working conditions, inadequate health care, as well as issues involving the company 's strong anti-union policies. Studies have shown that approximately 70% of the company’s employees leave within the first year of employment and many critics point to Wal-Mart’s high turnover rate as evidence of an unhappy workforce. In addition, the company has been accused of lobbying and in November 2012, admitted to spending $25 million lobbying Congress. Thus, the company needs to be aware of other dominant factors such as the relative power of union, government and special interest group such as the stakeholders in the near future.
Below are immediate and/or future threats that the company might face within its task environment
Threats
Rating
New entrants
Low
Bargaining power of supplier
Low
Substitute product or service
Medium
Bargaining power of buyer
Medium
Relative power of union, government and special interest group such as the stakeholder
High
4. Internal Environment:
4.1 Corporate Structure and culture
Wal-Mart has taken step to decentralize its decision making in order to complement the size and operation of the company. However, due to the size of the Company, it is no surprise that it is faced from time to time, with issues that might impact negatively on its reputation. To avoid such negative publicity and address it should it arise, the company has taken some steps among which include
Making public its statement of ethics and ensuring that all employees comply with it
Operates its retail stores in various formats around the world. The operations are conducted in three reportable segments: the Wal-Mart U.S. segment; the Wal-Mart International segment; and the Sam’s Club segment. The Company defines its segments as “those business units whose operating results its chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources”.
Measuring the results of its segments using, each segment’s operating income and certain corporate overhead allocations from time to time, and as dictated by the information regularly reviewed by the chief operating decision maker.
The structure of Wal-Mart seem to be clearly understood by employees and the company tries to inspire its employees to promote a corporate culture that encourages respect for the individual, service to customer and striving for excellence. However, the company has been accused in recent years of gender discrimination alleging that female employees were discriminated against in matters regarding pay and promotions. The basis for this accusation was based on the comparison of the company to its competitors within the same industry with respect to the ratio of men to women occupying its top management position.
In addition, the company needs to take necessary steps to address the issues relating to the ethical behavior of some of its top employee as well as communicate more effectively, its performance evaluation measures.
4.2 Strengths and Weaknesses
The following strengths can be associated with the company
Scale of operations
Competence in information technology systems
Wide range of products
Cost leadership strategy
International operations
On the downside Wal-Mart has the following weaknesses
Labor related lawsuits
High employee turnover
Little differentiation
Negative publicity Despite the above identified weaknesses, effective management of supply chain and logistics is one of the most important factors for Wal-Mart’s success. Wal-Mart has been able to achieve significant cost savings as a result of its extensive information systems that tracks orders, inventory levels, sales and other related information in real time making this information available, easily accessible and instantly analyzed and processed . This enables a faster decisions making process at each store. However, the company is faced with a very high rate of employee turnover and has no differentiation compared to its competitors. This might hurt the company in the long run if commodity prices or average consumer income increases. 4.3 Corporate Resources
4.3.1 Marketing Although the company cannot particularly boast of a flawless customer service or a 100% breadth of product lines, what it lacks in aesthetics, it makes up for with an absolutely unparalleled convenience and price competitiveness. Wal-Mart has been able to define the art of online marketing, using remarkable techniques on an impressive scale, thereby becoming one of the top company’s in the wide history of corporate America. Wal-Mart’s online marketing campaign covers all facets of strategy and are apparently very aggressiveness.
This has highlighted and broadened their need to succeed and remain at the top in the retail industry. Though closely marked by online marketers like Amazon and eBay, Wal-Mart’s marketing strategy consists of flooding the market with their presence and this is frightening for companies who find Wal-Mart’s physical presence and business practices disturbing. With such a substantial spread of many outlets, extremely reasonable pricing, and a huge market share, their marketing strategy has necessitated a global takeover of all the appropriate …show more content…
markets.
4.3.2 Research and Development
Wal-Mart is extremely involved in research and development and this singularly distinguishes it from others within the same industry and enables it to easily penetrate and expand amidst the struggles of its competitors. Notable achievement by the company through research and development include the unveiling of the Wal-Mart Smart Network (shopper-intelligent network at retail) that provides shoppers relevant and useful information via in-store TV in 2008. Shopper-intelligent network” is the result of a two years research and development $10 million project used to identify the optimal locations, applications and programming for reaching the millions of consumers who visit the retailer’s stores each week.
4.3.3 Operation and Logistics
The company has invested a lot in logistic in order to get their product to each of their outlets located all over the world. The distribution of Wal-Mart’s product is largely dependent on the ability of the management to plan its logistics.
Every year, the company moves millions of products from different manufacturers to Wal-Mart distribution centers and from distribution centers to the shelves in their stores.
Wal-Mart has about 158 distribution centers which are hubs of activity for their business. Wal-Mart logistics has a fleet of 6,500 tractors, 55,000 trailers and more than 7,000 drivers. The distribution operation of the company is one of the largest in the world. Some of the highpoints of the company’s logistics include
A regional distribution center that can have up to 12 miles of conveyor belts, which can move hundreds of thousands of cases through the facility each day.
Nine disaster distribution centers, strategically located across the country and stocked to provide rapid response to struggling communities in the event of a natural disaster.
Each distribution center is more than 1 million square feet in size, and uses more than 5 miles of conveyor belts to keep products moving to each store 24 hours a day.
Every distribution center supports 90 to 100 stores in a 200-mile radius.
(Wal-Mart U.S Logistics)
4.3.4 Information Technology
By all accounts, technology and scale are at the core of Wal-Mart’s advantages over its rivals. As put by Foster,Haltiwanger, and Krizan, 2006; Doms, Jarmin, and Klimek, 2004, “across the retail sector, stores that belong to retail chains tend to be more efficient than single-store retailers, and chains tend to invest more in information technology” Wal-Mart’s has created a technological edge is in its logistics, distribution, and inventory control; having installed a computer in its first distribution center in 1969 and by the late 1970s, connected all Wal-Mart stores and distribution centers, along with company headquarters, to a computer network.. In addition, the company was quick to adopt bar-code technology; installing bar-code readers in all distribution centers by the late 1980s and by extension reducing by half the labor cost of processing shipments (Vance and Scott, 1994).
In 1990, Wal-Mart introduced Retail Link, a software connecting its stores, distribution centers, and suppliers, providing detailed inventory data “to bring our suppliers closer to our individual stores.
(Wal-Mart Stores, Inc., 1991).
5. Analysis of Strategic Factors
5.1 Situational Analysis
5.1.1 Internal Strategic Factor
Strengths
Weight
Rating
Weighted Score
Comments
*Competence in information systems
.15
5
.75
Very competent but need to continue improving
*Scale of operations
.15
4.3
.65
Very large.
*International operations
.10
4.0
.40
Significant presence in other countries
Cost leadership strategy
.10
3.6
.36
Strong in this aspect. Well positioned
Wide range of products
.05
2.8
.14
Well positioned but need to improve
Weaknesses
*Negative publicity
.20
5.0
1.00
Questionable
*Labor related lawsuits
.15
4.4
.66
Questionable
Little differentiation
.05
3.7
.19
Slow in this aspect
High employee turnover
.05
2.3
.12
Weak in this aspect
Total Score
1.00
4.27
5.2.2 External Strategic Factor
Opportunities
Weight
Rating
Weighted Score
Comments
*Retail market growth in emerging markets
.25
5
1.25
Will take time
*Wide branch network products
.20
4.0
.80
Well positioned
Online shopping growth
.15
4.0
.60
Well positioned, but has to keep improving
Trend toward healthy eating
.05
3.0
.15
Well positioned but should improve
Rising acceptance of own label
.05
2.3
.12
Will take time
Threats
*Increased competition from other growing companies within the retail industry
.15
5.0
.75
Well positioned
*Local resistance
.10
4.0
.40
Questionable
Rising commodity prices
.05
3.2
.16
Will take time
Total Score
1.00
4.23
The most internal and external factors are identified in the EFAS AND IFAS tables above with an asterisk
Strategic Factors
Weight
Rating
Weighted Score
SHORT
INTERMEDIATE
LONG
Comments
Competence in information systems
.15
5
.75
X
Very key to success
Scale of operations
.15
4.3
.65
X
Key to success Leads to increase in operating expenses
Reduction in profit
International operations
.10
4.0
.40
X
Has significant presence overseas. Might affect profit
Negative publicity
.20
5.0
1.00
X
Key to success. Might affect profit
Labor related lawsuits
.15
4.4
.66
X
Weak; Reduction in profit
Retail market growth in emerging markets
.25
5
1.25
X
Key to success. Increase market share where positive
Local resistance
.10
4.0
.40
X
Key to success. Might stagnate expansion
Increased competition from other growing companies within the retail industry
.15
5.0
.75
X
Key to success. Might reduce market share
Wide branch network products
.20
4.0
.80
X
Key to success
Total Score
1.00
4.27
6. Recommended Strategy The growth of Wal-Mart has attracted a lot of controversies both internally and externally. While the company is continually faced with improving customer satisfaction amidst dissatisfaction among employees leading to high labor turnover, increased labor cost and by extension, increased cost of training, competitors that feel threatened about the company’s rate of expansion are continually developing strategies that will give them an advantage over Wal-Mart. It is ironic to hear people complain about the giant Wal-Mart yet keep patronizing the company. This is evident by the continuous increase in the annual sales recorded by the company. However, it is plausible to assume that the company will record higher sales and profit should they take steps to address these problems. To address some of its problem, Wal-Mart should adopt a central strategy to:
Increase customer services/satisfaction
Improve ethical practices
Create a friendlier operating environment
Motivate employees
7. Implementation
Some of these strategies can be implemented by Wal-Mart by
Recruiting and selection of highly qualified personnel to occupy the customer service department
Continuous staff training and motivation
Provision of medical plan for employees and their families
Strengthening of current compliance programs with respect to processes, procedures and people as well as ensure that this is effectively implemented globally
Align corporate culture to identify with the different culture of the people in the countries the company operates
Toughen company’s global ethics rule especially with respect to corrupt practices.
Although this might not be particularly inexpensive, it is not impossible for the company to achieve particularly if they are spread over a number of years and incorporated into the company’s budget. In addition, the company can employ individuals and consulting firms to develop the needed programs.
Wal-Mart has had its share of a fair amount of negative publicity specifically involving their marketing strategies. Their bullying nature has led many to deem them irrational and partial, yet the company continues to retain a top position in the retail industry. Should these identified strategies be implemented, the company will improve its chances of operating in a friendlier environment.
8. Evaluation and Control
In order for the company to maintain its current position in the retail industry as well as maintain its market share, it will need to carry out some changes. This will no doubt, involve the extensive use of a well suited information system which will enable them track the feedback on its performance and activities.
We suggest that each location of Wal-Mart have a standardized form of operations with the focus on the central strategies noted above.
Also, it is vital to have a clear and easy method for evaluating the performance of each store while creating a reward system for top performing stores. Continuous improvement is usually the central theme with many businesses in the world; this is a great way to track Wal-Mart’s.
References
2011 Annual Report. (2011). Wal-Mart. Retrieved May 28th 2013 from http://www.walmartstores.com/sites/annualreport/2011/ 2012 Annual Report. (2012). Wal-Mart. Retrieved May 27th 2013 from http://www.walmartstores.com/sites/annual-report/2012/CEOletter.aspx 50 Years. (2012). Wal-Mart. PDF. Retrieved May 27th 2013 from http://www.walmartstores.com/sites/annual-report/2012/WalMart_AR.pdf Board of Directors. (2012) Wal-Mart. Retrieved May 28th 2013 from http://corporate.walmart.com/our-story/leadership/board-of-directors Non-GAAP Measures.
(2012). Wal-Mart. Retrieved May 27th 2013 from http://stock.walmart.com/financial-reporting/non-gaap-measures Policies. (2012). Wal-Mart. Retrieved May 28th 2013 from http://corporate.walmart.com/policies
Strategic Management and Business Policy, 13th Edition by Thomas L. Wheelen and J. David Hunger.
Strategic minds; Business development & creative Marketing. Retrieved June 2nd 2013 from http://www.strategicminds.eu/blog/the-wal-mart-marketing-strategy
The Causes and Consequences of Wal-Mart’s Growth, written by Emek Basker, April 2007. Retrieved June 3rd 2013 from http://econ.missouri.edu/working-papers/2006/wp0611_basker.pdf
Understanding customer retention in the retail industry. Retrieved June 3rd 2013 from http://www.deloitte.com/assets/Dcom- UnitedStates/Local%20Assets/Documents/us_consulting_Customer_Retention_031711.pdf
Wal-Mart SWOT analysis. 2013. Retrieved June 1st 2013 from http://www.strategicmanagementinsight.com/swot-analyses/walmart-swot-analysis.pdf
Wal-Mart News. Retrieved June 3rd 2013 from
http://news.walmart.com/news-archive/2008/09/03/walmart-to-bring-new-walmart-smart-network-to-2700-stores
Wikipedia, the free encyclopedia. Retrieved June 1st 2013 from http://en.wikipedia.org/wiki/Walmart