Brief History and Background of Walmart
Brief History and Background
Sam Walton founded Wal-Mart and quickly grew the company by offering goods at the lowest prices. The stores were originally smaller than the stores of today, and focused in rural areas of the South that were otherwise underserved by retail stores. The current Wal-Mart model emerged by the 1980s as a large format store selling a wide range of consumer goods. The company would later extend its product lines with groceries, pharmaceuticals and online retailing. Wal-Mart has also successfully expanded internationally, into Mexico, China, Canada and other large markets around the world. Today, Wal-Mart is the worlds largest retailer, and one of the worlds largest companies. Its fiscal year revenues for 2016 were $485.9 billion, with operating cash flows of $31.5 billion, and 2.3 million employees ().
Wal-Marts ethics system revolves around its core competencies, which lie in the area of efficiency. The companys basic strategy is to compete as a price leader, and in order to do this it is focused heavily on eliminating waste in its organization, and extracting as much value as possible from its supply chain. As a result of these efforts, Wal-Mart is considered to be a global innovation leader in its supply chain (Robinson, 2015). This business model is also embedded in the companys system of ethics.
Each year, Wal-Mart publishes a Global Sustainability Report, highlighting how it applies its philosophy to sustainability efforts, a key component of the companys ethical leadership. In that report, there is a statement of intent: We want to make a difference, and we want to be a trusted retailer that customers, associates, communities and shareholders are proud of.
In the Global Sustainability Report, the company also outlines its culture of ethics and integrity, and the governance structures by which it implements these ethical values. The company publishes WalMartEthics.com to outline its ethical guidelines. This is aligned with best practice, which calls for companies to make their ethical guidelines public for both internal and external stakeholders, so that outsiders and insiders alike can help to hold the company accountable. Transparency and accountability are two of the basic tenets of ethical leadership.
The companys ethical program spans a range of activities and areas of concern, including anti-corruption, anti-trust, consumer protection, anti-money laundering, labor and employment compliance, environmental compliance, trade, product safety and privacy. The comprehensive nature of the companys policies aligns with best practices in a couple of ways. First, since Wal-Mart is one of the largest companies in the world, it can and should have such a broad and deep scope for its ethical initiatives. Thus, it meets what expectations for it should be in that respect, and not every company does.
The other way that this aligns is that it provides specific guidance for the companys managers. They know what the expectations that the company has for them are, because those expectations are public, and there will be accountability.
However, there are a couple of issues with the ethical values of Wal-Mart. First is that they are focused mainly on compliance. The company has perhaps adopted the view that compliance is the same thing as ethics. There are programs that exist beyond compliance, but some would argue those programs are not enough. Wal-Marts initiatives on things like sustainability tend to emphasize efficiency, which is basically what Wal-Mart wants to achieve for profitability sustainability is a nice side effect. The other issue is that Wal-Mart defines its own ethics; outside groups do not always agree. It is important of course, to have defined ethics, but there is an argument to be made that outsiders should have some say in defining what ethical practices are. After all, on its own Wal-Mart can set standards that it will easily meet, and can ignore ethical outcomes entirely if it wants, simply by not including them. Some of the criticisms of Wal-Mart like outsourcing US manufacturing jobs or out of business, are not addressed at all in the companys ethical guidelines.
Wal-Mart has the ability to attract good quality leaders, and does so. While there are areas where it might struggle it has a web development office in California because it couldnt attract enough such talent to Arkansas merchandisers, logistics experts and technologists of many types rightfully recognize Wal-Mart as a prestigious employer, and are attracted to the company in order to work with the best and learn from them.
The companys current leadership comes from within, and that has generally been the case for Wal-Mart over its history. The current CEO is Doug McMillon who served from 2009 to 2014 as the President and CEO of Wal-Mart International. Before that he was President and CEO of Sams Club. McMillon started working for Wal-Mart in 1984 as an hourly summer associate, and worked his way up the ladder to his current role. His experience running the companys two major subsidiaries makes him a particular strong candidate, as does his commitment to the companys culture.
Other members of the executive team include Greg Foran (President & CEO of Wal-Mart US), a New Zealand native who entered retail in his home country but eventually joined Wal-Mart and once ran Wal-Mart China. David Cheesewright is the current President and CEO of Wal-Mart International. He used to run Wal-Mart EMEA and Canada and comes to the company via Asda, which Wal-Mart now owns. John Furner runs Sams Club, and was a VP there prior. He started at Wal-Mart in an hourly role. Marc Lore is the President and CEO of Wal-Mart eCommerce US. He founded jet.com, before that company was acquired by Wal-Mart.
Bose (2017) also notes that the company is willing to shuffle leaders around the company. In one move earlier this year, Walmart recognized leadership at its food division, bringing in leaders from other areas of the company in order to help alleviate a crisis cause by price wars in the grocery space. It made a similar move earlier in 2017 to move leaders from different departments into its online division in order to boost performance there, where the company has been lagging Amazon in growth (Reuters, 2017).
That said, its not just about being ruthless. The company has a training program in order to improve its quality of leadership. It has an Academy to help train future leaders, identifying strong managerial candidates, and taking them through this training program in advance of their joining or moving higher in the executive ranks (Donlon, 2013). This training helps the leaders be better, not just in their current roles with Wal-Mart, but in general. Such programs typically have a strong payoff, even if a few leaders leave because theyve increased their skills, the upgraded skills of hundreds of other leaders make a huge difference to organizational outcomes.
Efficiency and cost savings are central to the organizational culture of Wal-Mart. This appears to be the one common theme with the company, as otherwise there is sort of one culture for management and one for the majority of the workers. The management culture not only focuses on efficiency and cost savings, but on the ethics and execution of strategy. The company can be quite demanding for these managers. They live in a data-driven world. Wal-Mart is a leader in providing internal business intelligence, and its managers typically receive data in near real time, and are expected to use that data to drive decision-making. This approach makes for highly competent managers, which is one of the attractions for talent to work at the company. As an example, the company recently cut 20% of its leadership staff in order to increase efficiency (Hauss, 2017) it doesnt just cut low level workers, and in fact sees its managers as being basically profit centers managers have to prove their ROI to the company.
The culture at lower levels can be quite a bit different. Wal-Mart seeks to establish a positive atmosphere among its associates, offering flexibility and training programs, in order to make the company a retail employer of choice. They have need to constantly hire at the retail level, and creating a fun, positive, team-oriented atmosphere and organizational culture is one of the approaches that the company takes to reduce turnover.
One of the most important aspects of any company culture is executive buy-in. The current President and CEO of Wal-Mart started with the company as an hourly associate in 1984, and worked his way up. He is also known to be a strong proponent of the company culture. That story makes for compelling stickiness for the organizational culture, as anybody in the company can look to the CEO and know that at some point along the way, he was one of them. In a company where there can be sizable gaps between the hourly associates and management, this has a lot of importance.
Overall, one senses that the organizational culture is geared strongly towards teamwork, and that everybody is oriented towards a common objective. Having that one common focus for all associates, right up to the executive level, is critical in creating a unity of vision to drive strategy.
The evidence for the success of this culture lies in the companys performance, which has generally been exemplary. This is a company that dominates its industry, is one of the most respected and powerful companies in the world, one of the largest, and is consistently profitable. It is very difficult to enjoy the sort of success that Wal-Mart has had without a strong organizational culture that aligns each person within the company.
Human Resources Management
HR is one of the biggest challenges for Wal-Mart. There are three major points of challenge for the company. The first is that there are some 2 million employees who are lower-level retail associates. This means that there is a lot of turnover, and a constant need for hiring. The perpetual hiring cycle must be met with perpetual training, and managers must be focused on reducing turnover in order both reduce the need for constant hiring and the costs associated with turnover. As noted earlier, Wal-Mart tries to do some of this at the strategic level, for example by creating an organizational culture that is positive and team-based, in order to meet some of those Maslows hierarchy social needs. But the company also has profiles of the types of people it wants to hire for those position, and screens specifically for them, in order to help reduce turnover intention.
Another challenge lies at the managerial level, where Wal-Mart faces challenges. While it is a prestigious company at which to work for some, it is not as attractive as it once was. The high-flying tech companies of the world get first dibs on all the good candidates, so even a successful brick and mortar company like Wal-Mart is going to be picking from the second-best candidates. For a company that is the best in the world at what it does this is not just disconcerting but a threat to its dominance. Consider that Wal-Mart is one of the largest online retailers in the world. At one point, a few years ago, it set the objective of overtaking Amazon, and began to make progress in that area. But in the last few years, Amazon has completely run away from Wal-Mart, and access to top technological talent is a big driver of Amazons advantage.
A third HR issue that Wal-Mart has is interesting the company hires for pretty much every position. It doesnt just have associates and managers, it has roles like pilots, specialists in a variety of fields who provide management with advice, even a meteorologist to provide a second opinion on the weather forecast in order to plan shipments better.
Probably also worth noting is that Wal-Mart operates in a lot of different countries, and thus has to meet employment laws and standards in all of them. This typically means setting up subsidiaries in each country, and bringing on local HR personnel who can manage that process. In doing that, Wal-Mart has been able to successfully dodge major issues around the world. The company also seeks to be efficient in the human resources process, and has recently laid off a number of its HR workers in order to attempt to increase efficiency (Reuters, 2017).
That said, there are some interesting human resources-related challenges that the company has faced. It faced legal action for its treatment of women, for example, and its treatment of minorities (Holman, 2017). It has faced unionization threats, and had to find ways to deal with that, without violating labor laws laws which differ in every jurisdiction.
Wal-Mart has an aggressive marketing spend. The company utilizes traditional advertising extensively. This helps to maintain a high brand presence, and to continually reinforce the companys messaging around being the lowest cost provider of consumer goods. The smiling face icon has become known as a Wal-Mart icon, and that contributes to the organizational culture of teamwork, and seeks to put consumers in a good frame of mind. Advertising costs were $2.9 billion in FY2017, up from $2.5 billion the year before (Wal-Mart 2017 Annual Report, p.44). This represents less than 1% of revenues, meaning that despite having a strong advertising presence, the spend level is actually quite low relative to the size of the company.
Digital marketing has become increasingly important for the company since it began pursuing an e-tailing strategy in earnest. Furthermore, there is tremendous growth in digital marketing in recent years. Wal-Mart does not have a concerted inbound strategy, which would be more towards the cutting edge, but rather it has transferred its traditional advertising strategy into digital channels. The company does not break out how much of its advertising spend is focused on digital. An examination of Wal-Marts social media presence it is actually rather nascent.
Wal-Mart has 904K Twitter followers, which is a relatively low number, and it underperforms on most other social channels as well, other than Facebook. The companys Twitter account seems more focused on public relations than advertising the company mostly tweets about community initiatives it has undertaken, and various programs with which it is involved. The companys Instagram account has 948K followers, and features a mix of content similar to its Twitter feed but also a little bit more of traditional marketing efforts. The company has a YouTube channel, with 248,000 subscribers, and this is used to air Wal-Mart ads and PR spots.
The company has had the greatest success with Facebook, where it has over 33 million followers. Facebook is used by Wal-Mart to promote a wide range of things, including deals. The popularity of the Facebook page likely relates to offering deals, which are attractive to a much greater segment of the target market. It is interesting to note also that the company can be quite active in other social media as well. For example, there are blogs and memes dedicated to Wal-Mart, and in many cases mocking the company. Yet, Wal-Mart has been able to navigate such instances adeptly. For example, when the website Wal-Mart People was launched, the company spun it well, arguing that everybody shops at Wal-Mart, meaning that even if there are complete freaks in the store, thats because the store is so popular that everybody goes there.
Wal-Marts use of different social media in different ways is aligned with best practice. The company has a wide range of different messaging, and has determined that different media are valuable for different types of messaging. It is a little bit of a surprise that Twitter is mostly used as a public relations tool, but Wal-Mart is a strongly data-driven company so one assumes that this was a data-driven decision.
On more of a macro level, Wal-Marts prices have been found in studies to not actually be the lowest in a lot of cases (Lutz, 2013) but the company still trades on this perception. As such, this messaging can be seen as effective marketing. On the whole, there is little doubt, anywhere in the world that the company does business, of who Wal-Mart is, what they stand for, and what their brand means. That is the product of effective marketing.
Wal-Mart is known for operational excellence. As effective as its marketing is, the messaging around low prices can only be made viable by operations that actually allow them to price at low prices and still be profitable. The income statement indicates that Wal-Mart is able to do this, so it is reasonable that they have succeeded with their strategy of operational excellence. At the core of this excellence is the companys supply chain management and logistics.
Soni (2015) notes that the company has long been an innovative leader in the field of supply chain management. One of its inventions was cross-docking, where goods are moved off of one truck and straight onto another, reducing the need for warehouse space altogether, but also reducing the cash conversion cycle significantly. The use of RFID and other high-end tracking systems has been innovative, in part helping the company not just to know where its good are at all times, but also to identify the bottlenecks that exist in its supply chain.
Jawad (2017) notes that Wal-Mart also works hard on risk management as part of its operations it recognizes what might blow up a schedule, and how to prevent that. An example of this is the company hiring its own meteorologist. Weather forecasts are widely available, but having someone in-house allows for real time updates on things that matter to the company like knowing if there are tornadoes in an area where its trucks are headed. This level of attention to detail is one of the ways that Wal-Mart has been able to succeed it manages risk better than most of its competitors.
One of the most critical components of successful operations is that they have to support the overall organizational goals. This is very much the case. By seeking to extract efficiency at all points along the supply chain, Wal-Mart is doing what it does best enhancing its ability to offer low prices. Each step of the way merchandising and sales at the retail level, warehousing, procurement and ordering is designed with one objective in mind, to deliver these end results to the consumer. With this high degree of alignment between tactical actions and desired outcomes, it should not really be a surprise that Wal-Mart has become as successful as it has.
Wal-Mart has embarked on an effective globalization strategy. They have gone international, so to speak, in that they have basically sought to take their basic business model and do that in other parts of the world. They have gone into many countries at this point. While the US is by far their biggest market, operations in Mexico and China in particular have proven to be lucrative for Wal-Mart.
The internationalization strategy has definitely backfired on a couple of occasions, though. The company struggled in Germany, where it thought the whole efficiency thing would work, but German consumers are quite a bit different from American ones, and the way that those differences manifested at Wal-Mart made those operations unsuccessfully.
Wal-Mart is also rather famous for sourcing from overseas. The company does have a buy American program, per its latest Global Sustainability Report, but the company is known for shifting production overseas. It asks its suppliers to drive down prices, and then is willing to point out how those suppliers can deliver those prices by shifting production offshore. So that is definitely something that the company had done well China became dependent on Wal-Mart that the company has the ability to call the shots of its entry into the Chinese market.
1. Wal-Mart uses a centralized planning process. The general idea is that the company makes decisions centrally in order to make these sorts of decisions at scale. For the decisions to genuinely have value, they must be replicable, and that is one of the things that Wal-Mart seeks to accomplish with its centralized approach. This gives the company a relatively thin management layer, and fewer back-end costs. Furthermore, the centralized strategy allows for the diffusion of great ideas and best practices across the entire company much more quickly than any sort of decentralized decision-making strategy will allow for. The international Wal-Marts have more of a blend. They utilize the basic strategy from head office, but they also seek to incorporate certain aspects of local conditions in their tactics as well. This is done to account for specific differences that management has identified that would impact on the ability of the company to execute its strategy in the international market. An example would be the structure of the distribution network in Canada, which is more sparsely populated than the US, to accommodate for larger gaps between cities while maintaining the right size of facilities.
2. The planning process includes all of the aspects above. The companys strategy is strategic in nature all components and activities are important in the process, and each plays its role. The basic means by which this is done I have yet to sit in a Wal-Mart boardroom is that the company has set out this particular goal of low cost, and the activities of the different managers have to fit within this goal. This allows the managers to create alignment, because no matter what the strategy or what the tactic, there is a common goal. That common goal makes it easier for the different components of the company to work together.
3. The strengths and weaknesses of Wal-Mart can be summarized as follows:
Some HR issues
Good reputation in business circles
Some negative reputation in other circles
Very high brand awareness
Strong international presence
As one of the worlds largest and most successful companies, there is little doubt that Wal-Mart has more strengths than weaknesses. The company is known for operational excellence, and as such has a good reputation in business circles as both a fierce competitor and a company to emulate. Managers who work at Wal-Mart are sought after by other retailers, routinely. There are still some issues hiring certain types of talent, and overall senior management of the company has not been entirely happy with the HR department, but Wal-Mart is also a place where major management shake-ups are fairly common.
Wal-Mart has very high brand awareness, to the point where its name has political clout in a lot of places. With this comes a certain reputation there are communities that view the company poorly, as well as labor groups, US manufacturers who see the company as symbolizing offshoring, and other critics. These critics have not stopped the companys success, however, but they do create challenges where reputation matters.
The companys international presence has proven to be a source of strength. There are actually very few large format retailers that have succeeded in other countries, but Wal-Mart has succeeded in many. This speaks to the universality of its business model, and to its reliance on repeatable processes for success. Metrics-driven decision-making is more repeatable and more sustainable than otherwise.
Thus, Wal-Marts strategic planning process, and its current strategic plan, are sound. They have proven to be successful in the past, and it is worth noting that there are areas where Wal-Mart has succeeded that other well-run companies have failed. While the company is by no means batting 1.000, it is definitely among the best-run companies in the world, and the one with the most sustainable strategy in the world.
Wal-Mart is one of the best-run companies in the world. It has built its success on operational excellence, in particular in supply chain and logistics, and has remained innovative in this area as a means of maintaining its competitive advantage. Whether it can be innovative enough to win competition against the likes of Amazon and Costco, who are dominating Wal-Mart in their particular categories, is another matter altogether.
But strategically, Wal-Mart is genuinely in a good position. It has a strategy that works, and delivers consistent profits, even if the margin is thin. The organizational culture is strong, and has a credible champion in the current CEO. The company is one of the more successful retailers in the world at going international, and has been successful even where competitors have failed. All told, Wal-Mart is at the very least positioned to continue doing what it does, but there is also upside potential if it can better adapt its strategy to the online business in particular, and build some competitive advantage in that area.
Bose, N. (2017) Wal-Mart shuffles US leadership teams in food, merchandising. Reuters. Retrieved November 15, 2017 from https://www.reuters.com/article/us-walmart-moves/wal-mart-shuffles-u-s-leadership-teams-in-food-merchandising-idUSKBN1AG23T
Donlon, J. (2013) How Walmart trains better leaders. Chief Executive. Retrieved November 15, 2017 from https://chiefexecutive.net/how-walmart-trains-better-leaders/
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Holman, J. (2017) Wal-Mart female employees try again for sex-based discrimination. Bloomberg. Retrieved November 15, 2017 from https://www.bloomberg.com/news/articles/2017-11-07/wal-mart-female-employees-try-again-for-sex-bias-class-action
Jawad, S. (2017). A literature analysis of Walmarts supply chain excellent in terms of integration, distribution and operations. Haaga-Helia University of Applied Sciences. Retrieved November 15, 2017 from http://publications.theseus.fi/bitstream/handle/10024/133063/Jawad_Stevan.pdf?sequence=2&isAllowed=y
Lutz, A. (2013) The biggest myth about Wal-Mart. Business Insider. Retrieved November 15, 2017 from http://www.businessinsider.com/the-biggest-myth-about-walmart-2013-2
Reuters (2017). Walmart plans to cut hundreds of jobs before the end of the month. Business Insider Retrieved November 15, 2017 from http://www.businessinsider.com/walmart-job-cuts-are-coming-2017-1
Reuters (2017) Walmarts leadership expands executive roles in online push. Fortune Retrieved November 15, 2017 from http://fortune.com/2017/01/13/walmart-online-push/
Robinson, S. (2015) Supply chain management innovation keeps Walmart on Gartners top 25 list. B2B.com. Retrieved November 15, 2017 from http://www.b2b.com/blog/2015/04/24/supply-chain-management-innovation-keeps-walmart-on-gartners-top-25-list/
Soni, P. (2015) Managing Wal-Marts supply chain cross-docking and other tools. Market Realist. Retrieved November 15, 2017 from http://marketrealist.com/2015/02/managing-walmarts-supply-chain-cross-docking-tools/
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