[Individual Assignment] Management Report for Wal-Mart Stores Incorporation Module code & Title BLB10089-3-STRM, Strategic Management Prepared by Chamila Illukkumbura (CB002598) GF1041BA Date of Submission 15 November 2010 Instructor Mr. Marlon Gunasekara Submitted in partial fulfilment for the Degree of Bachelor of Arts (Hons) in Business Administration Word Count (3278 words)
ACKNOWLEDGMENTS
I would like to thank my lecturer Mr. Marlon Gunasekara for his immense support and guidance towards completing this assignment efficiently and effectively. Without his guidance and support this Study would have been short sighted.
My dear parents for their unconditional support and guidance given to me, without whom I would have not come this far. Furthermore I would like to express my gratitude and my appreciation to my dearest friends for standing by me and lending a helping hand to see me through this project. And last but not least to Business school of Asia Pacific Institute of Information Technology for providing me with the background and tools necessary for the accomplishment of this study. Thank you
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TABLE OF CONTENT
1. SECTION ONE ......................................................................................................................... 1 1.1 INTRODUCTION ............................................................................................................... 1 1.2 THE COMPANY ................................................................................................................. 2 1.3 PRODUCT PORTFOLIO .................................................................................................... 3 1.4 METHODOLOGY ............................................................................................................. 5 2. SECTION TWO......................................................................................................................... 6 2.1 AN INTERNAL / EXTERNAL ENVIRONMENT ANALYSIS ........................................ 6 2.2 COMPANY RESOURCES AUDIT .................................................................................... 8 2.3 MICHAEL PORTERS VALUE CHAIN ANALYSIS FOR WALMART ...................... 11 2.4 COMPETITOR ANALYSIS ............................................................................................ 14 2.5 COMPETITIVE SCOPE ANALYSIS ............................................................................... 17 2.6 MICHAEL PORTERS FIVE FORCE ANALYSIS ......................................................... 18 2.7 CUSTOMER ANALYSIS ................................................................................................ 20 2.8 HOFSTEDES CULTURAL DIMENSIONS IN TERMS OF THE UNITED STATES .. 22 2.9 CLIMATE ANALYSIS .................................................................................................... 24 COUNTRY ANALYSIS ......................................................................................................... 24 2.10 STRENGTHS, WEAKNESS, OPPORTUNITIES AND THREATS ASSESSMENT FOR WAL-MART .................................................................................................................. 27 2.11 CRITICAL DISCUSSION OF THE FINDINGS OF WAL-MARTS ENVIRONMENTAL ANALYSIS .......................................................................................... 28 3. SECTION THREE ................................................................................................................... 29 3.1 FUTURISTIC ORIENTATION IN COMPARISON TO KMART ................................. 29 3.2 FUTURISTIC ORIENTATION OF WALMART ............................................................ 30 3.3 FUTURISTIC ORIENTATION TRAGET ...................................................................... 33 3.4 CRITICAL ANALYSIS OF FUTURISTIC ORIENTATION ......................................... 35 4. SECTION FOUR ..................................................................................................................... 36 4.1 THE STRATEGIC MOVES TOWARDS BECOMING US AND GLOBAL MARKET LEADER. ................................................................................................................................. 36 4.2 CORPORATE LEVEL STRATEGIES ............................................................................ 36 iii
4.3 BUSINESS LEVEL STRATEGIES ................................................................................. 40 4.4 FUNCTIONAL LEVEL STRATEGIES ......................................................................... 42 4.5 OPERATIONAL LEVEL STRATEGIES ........................................................................ 43 5. SECTION FIVE ....................................................................................................................... 46 5.1 A CRITICAL EFFECTIVENESS ANALYSIS OF CURRENT ORGANIZATIONAL STRATEGIES.......................................................................................................................... 46 5.2 A CRITICLA REVIEW OF WAL-MARTS FINANCIAL PERFROMCE .................. 49 5.3 NONE FINANCIAL PERFORMNCE ............................................................................ 50 CUSTOMER EXPECTIONS .................................................................................................. 50 5.4 CRITICISM FOR STRATEGY ....................................................................................... 52 5.5 A CRITICLA REVIEW OF WAL-MARTS NONE FINANCIAL PERFROMCE ......... 53 5.6 PERFORMANCE INTERPRETATION MATRICES ...................................................... 54 6. SECTION SIX ......................................................................................................................... 55 6. 1 THE CURRENT STRATEGIES VS FUTURE STRATEGIES OF WAL-MART ......... 55 6.2 GREEN OBJECTIVES OF THE ORGANIZATION...................................................... 56 6.3 RECOMMENDATIONS .................................................................................................. 57 6.4 THE PROPOSED STATEGY EVALUATION TABEL .................................................. 59 7. CONCLUSION ....................................................................................................................... 61 8. REFERENCE ........................................................................................................................... 62 APPENDIX .................................................................................................................................. 68 APPENDIX C .............................................................................................................................. 70 APPENDIX D .............................................................................................................................. 71
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LIST OF TABLES
Table 1 : Methodology ....................................................................................................... 5 Table 2 : Company Resource audit .................................................................................... 8 Table 3 : Quantitative Company Resource audit ............................................................. 10 Table 4 : Michael porter's Value chain analysis .............................................................. 11 Table 5 Quantitative Michael porter's Value chain analysis ............................................ 13 Table 6 : Competitor analysis .......................................................................................... 14 Table 7 Quantitative competitor analysis ......................................................................... 15 Table 8 : Competitive scope analysis ............................................................................... 17 Table 9 : Michael porter's five force analysis .................................................................. 18 Table 10: Quantitative Michael porter's five force analysis ............................................ 19 Table 11: Customer analysis ............................................................................................ 20 Table 12: Quantitative customer analysis ........................................................................ 23 Table 13: Country analysis .............................................................................................. 24 Table 14: Quantitative country analysis ........................................................................... 25 Table 15 : Strengths, weakness, opportunities and threats assessment for Wal-Mart ..... 27 Table 16 : Futuristic orientation of Wal-Mart .................................................................. 30 Table 17 : Futuristic orientation of target ........................................................................ 33 Table 18 : Corporate level strategies ................................................................................ 39 Table 19 : Business level strategies ................................................................................. 40 Table 20 : Functional level strategies............................................................................... 42 Table 21 : Operational level strategies ............................................................................. 43 Table 22 : Total sales revenue ............................ Source: (Wal-Mart annual report, 2009) 46 Table 23 : Earnings per share ........................................................................................... 46 Table 24 : Criticism for strategy ...................................................................................... 52 Table 25 : Proposed recommendations ............................................................................ 57 Table 26 A critical comparisons of the four organisational strategies advocated by Bartlett and ghosal............................................................................................................ 70
LIST OF FIGURES
Figure 1 Trend set in the retail industry by Wal-Mart ....................................................... 2 Figure 2 Past and present and Wal-Mart logos ................................................................. 2 Figure 3 Product portfolio .................................................................................................. 3 Figure 4 Strategic management model ............................................................................... 4 Figure 5 Kenichi ohmae's 3c model ................................................................................... 6 Figure 6 : Sub analysis of Internal / external environment analysis .................................. 7 Figure 7 : Michael porter's Value chain ........................................................................... 11 Figure 8 : Wal-Mart Segment proportion......................................................................... 16 Figure 9 : Customer expectations ..................................................................................... 21 Figure 10 : Overall customer expectations....................................................................... 21 Figure 11 Hofstedes cultural dimensions........................................................................ 22 Figure 12: Futuristic orientation model ........................................................................... 29 Figure 13 : Envisioned future model ................................................................................ 31 Figure 14 : Hierarchy of Organizational Aims ................................................................ 36 Figure 15 : Location of stores .......................................................................................... 38 Figure 16 : Corporate level Strategies .............................................................................. 40 Figure 17 Low cost strategic process ............................................................................... 41 Figure 18 : Business level strategies ................................................................................ 41 Figure 19: Functional level strategies .............................................................................. 42 Figure 20 Supply chain .................................................................................................... 44 Figure 21 Operational level strategies.............................................................................. 44 Figure 22 : Wal-Mart overall strategy.............................................................................. 45 Figure 23 : Total sales revenue ........................................................................................ 46 Figure 24 : Earnings per share ......................................................................................... 47 Figure 25 : Current ratio analysis ..................................................................................... 47 Figure 26 : Return on Assets analysis .............................................................................. 48 Figure 27 : Return on share holder analysis ..................................................................... 48 Figure 28 : Customer expectations ................................................................................... 50 Figure 29: Overall customer expectations........................................................................ 50
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Figure 30 : Share holder expectations .............................................................................. 51 Figure 31 Overall Share holder expectations ................................................................... 51 Figure 32 : Organizational HR structure .......................................................................... 58
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LIST OF ABBREVIATIONS
TSR - Total Sales Revenue CRA - Current Ratio Analysis EPS - Earnings per Share IHRM- International Human Resource Management PDI Power Distance Index IDV- Individualism MAS- Masculinity UAI- Uncertainty Avoidance Index LTO- Long Term Orientation HR -Human Resource Management PR- Public Relations US- United States CIA- Central Intelligence Agency
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LIST OF APPENDIXES
Appendixes A ...68 Appendixes B .....69 Appendixes C ...70 Appendixes D ...71
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EXECUTIVE SUMMARY
Strategic management is considered as the key factor which determines whether an organization is to succeed or if it is to fail. Thus believing that an organizations sufficient internal resources and ideal external environmental factors will ensure ones success, it is short sighted. For only formulation and implementation of sound strategic management practice and policies can ensure ones future success. However a future is never guaranteed thus the formulation and implementation is not alone sufficient, hence and organization must vigilantly analyze and be aware of its ever changing internal and external environmental factors. The following study intends to identify and assess the internal strengths and weakness and external opportunities and threats for the organization, thus illustrate the strategic aspects currently impacting Wal-Mart. Furthermore critically evaluating Wal-Marts futuristic orientation in contrast to its main competitor and identifies and elaborates the strategic moves of Wal-Mart towards capturing business in the US (United states) and international markets. Moreover the study analyze the effectiveness of the current strategies adopted by the organization in terms of its past and present financial and none financial performance thus present the reader with the necessary strategic recommendation needed to enhance the effectiveness and efficiency of Wal-Mart and the future strategic path needed to be taken to maintain their competitive advantage. The findings of this study indicates that regardless of various criticisms from unfavorable media, small town communities and various labor unions, Wal-Mart has achieved substantial growth in its 50 years of operational history via its sound strategic management operations and policies and practices. However the author recommends that the organization should indentify and thus re-modify its strategic approaches towards its role as environmentally sustainable and socially responsible global organization and pay furthermore close attention to its International human resources and Local human resources within the US.
1. SECTION ONE
1.1 INTRODUCTION
Hyman (1987 cited in Edwards and Rees 2007) states in terms of military context strategy refers to the planning and organizing the expected campaign however Chandler (1962 cited in Edwards and Rees 2007) argues that strategy is the basic long term goals and objectives of an enterprise and that it is the adoption of a course of action and allocation of the resources required for executing these goals. Mintzberg (1987) argues that an organization needs a strategy in order to set direction for themselves and to outsmart their competition or at least to survive in an extremely competitive environment, thus as stated in Black well publishing (2010) the key issue that should be answered when discussing organizational strategy is a Clear sense of organizational objectives and how these objectives will be addressed Viz Mintzberg (1987) states the competitor with a better strategy will win or in other words, a competitor with a clear strategy will beat the one who does not have any. Hamel and Prahalad (1989) points out that managers in numerous industries are working hard to match the competitive advantages of their global rivals thus the authors argues that the application of strategic concepts such as Strategic fit between resources and opportunities, generic strategies of low cost vs differentiations vs focus and strategic hierarchy of goals, strategies and tactics has helped mitigate the process of competitive decline of organizations. Thus Wal-Mart stores.inc has been subjected to testing in the following study.
Figure 1 Trend set in the retail industry by Wal-Mart Wall mart has blazed a path that numerous other retailers are now following, many of them vigorously competing with Wal-Mart (Furman, 2005)
1962-1964
1964-1968
1968-1981
1981-1992
1992-2008
2008-2010
The following report is structured in accordance to the strategic management model as advocated by Gunasekara,( 2010) in order to gain an in-depth understanding of the current strategical approaches taken by Wal-Mart and to understand the effectiveness of these strategies. Furthermore it will in turn aid to formulate the necessary modifications recommended.
1.4 METHODOLOGY
The necessary data and information needed for the successful completion of this study has been attainted via primary and secondary research. Relevant journal articles from leading academics and authors in the fields of strategic management, furthermore the corporate website, other relevant web information and relevant publications has been referred. Table 1 : Methodology
The first section presents the reader a brief
SECTION ONE
company and industry analysis Will assess the internal strengths and
SECTION TWO
weakness and external opportunities and threats for the organization ,thus illustrate the strategic aspects currently Mart Presents a critical evaluation of Wal-Marts impacting Wal-
SECTION THREE
futuristic orientation in contrast to its main competitor. Identifies and elaborates the strategic moves
SECTION FOUR
of Wal-Mart towards capturing business in the US (United states) and international markets. This section will analyze the effectiveness of
SECTION FIVE
the
current
strategies
adopted
by
the
organization in terms of its past and present financial and none financial performance. The final section of this study will present the
SECTION SIX
reader
with
the
necessary to
strategic the
recommendation
needed
enhance
effectiveness and efficiency of Wal-Mart and the future strategic path needed to be taken to maintain their competitive advantage.
2. SECTION TWO
2.1 AN INTERNAL / EXTERNAL ENVIRONMENT ANALYSIS
In order to analyse the manner in which the internal and external environment effect towards Wal-Mart gaining opportunities to understand the main forms of threats the organization faces from its competitors and how Wal-Mart mitigates its internal weaknesses via its corporate strengths, kenichi ohmaes 3c model has been adopted.
Internal company Strengths, and Weaknesses External company Opportunities, and Threats
Figure 5 Kenichi ohmae's 3c model (Source: Authors work, 2010 Based on kenichi ohmaes 3c model) Sub analysis of Internal / external environment analysis is as follows
Figure 6 : Sub analysis of Internal / external environment analysis Source: (Authors work, 2010)
2007 344.8
2008 374.3
2009 401. 2B
2010 405
It is evident that the organization is currently indicating a stable financial position with a progressive path.
7.2% 22.8
PHYSICAL RESOURCES
TECHNOLOGY AND INNOVATIVENES S
Internet shopping,
The organization has implemented the latest achieve technological competitive invasions advantage to of
lower operational costs via cross docking inventory systems, MIS etc.
ORGANIZATION AL CULTURE
Respect for individuals, service for customers and strive for excellence as advocated by Sam Walton.
The senior management of Wal-Mart strongly believes that a key to success in having the right corporate culture and, Wal-Mart is ready to implement their way of doing things no matter where they operate.
LOCATION OF OPERATIONS
In comparison to its financial position the geographic is dispersion relatively of the poor,
organization
however Wal-Mart has realized the need of becoming a global company. INTANGIBLE RESOURCES
POLICIES AND PRACTICES
and Sam Waltons 3 philosophies of Respect for individuals, Service for customers and strive for excellence
the customer with a smile, respecting individuals and striving for never ending excellence has given Wal-Mart an extremely that positive no consumer retailer
perception possesses.
other
Wal-Mart 79% K mart 13% Target 8% Wal-Mart US 64% International 24% Sams Club 12%
Sam's Club International Wal Mart US 12% 24% 64%
According the annual sales Wal-Mart has captured 79% of the current market share Wal-Mart US the oldest segment for the organization has captured the largest percentage of sales; however Wal-Mart expected that in the future the International sale will exceed their domestic sales and bubble its overall turnover.
HUMAN RESOURCES
TOP MANAGEMENT
Rob Walton Chairmen Michael T Duke President/ CEO Brian C. CornellExecutive vice president C. Douglas McMillanExecutive vice president
veterans of the industry. Thus far the decision they have take have proved them itself to be most successful.
ASSOCIATES
Wal-Mart believes recruiting the most talented individual in to its ranks thus creating a knowledge pool which it believes create a long term competitive advantage.
Financial Resources Technology innovativeness Organizational culture Location of operations Policies and practices The Market share in terms of Net sales. Market segments Top management Associates
Overall score
11.1%
5 5 4 3 4 5
and
3 5 5 39
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Source: (Michael porter 1985 cited in Wilmott, 2010) Figure 7 : Michael porter's Value chain In order to clearly understand the position of Wal-Mart within the retail industry it is vital to analyze the manner in which the organization adds value to the services it renders. Hence the following table illustrates the value addition of primary and supportive activities of Wal-Mart. Table 4 : Michael porter's Value chain analysis
PRIMARY ACTIVITIES Factor Inbound logistics Description The use of cross docking systems, Value addition More accurate
Management information systems and decision inventory management support systems and decisions Operations The organization is a service oriented company NA and does not operate any form of purchasing
manufacturing.
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Transportation services ,shipping services 4 times Faster self management and Low prices always marketing
Faster
and
more
Appendix (A) for example. All ways smile perception in the mind marketing campaign of the consumer that Wal-Mart prices are the lowest in the market place.
Services
Training
and
development
of
Wal-Mart Will
deliver
high
associates to be more courteous and helpful standards of customer towards customers. satisfaction in terms of service quality. SUPPORT ACTIVITIES Procurement Finds the suppliers who offer the lowest market The organization will price for commodities which meet the highest of cut down cost of sales. Wal-Marts quality standards Technology development The organization uses the latest technological Create a competitive developments in inventory management and advantage over its
retailing in order to minimize operational cost to competition in terms of maximize process efficiency. service operational quality, efficiency
and effectiveness. HRM The organization selects, recruits, trains and Will create a team who develops to retain the best talent in the industry. has the potential to understand the strategic path of Wall-Mart and be able to implement it successfully. Infrastructure Wal-Mart fully own vast amount of real-estate The fixed assets of the which include lands, store buildings, warehouse organization will create and mega stores. Furthermore the organization a sense to credibility owns its own fleet of transportation vehicles. towards organizations in the the
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Sources: (Authors work ,2010) Table 5 Quantitative Michael porter's Value chain analysis
Likert scale Factors Inbound logistics Operations Out bound logistics Marketing and sales Services Procurement Technology development HRM Infrastructure Weight 11.1% 11.1% 11.1% 11.1% 11.1% 11.1% 11.1% 11.1% 11.1% 100% unfavorable 1 2 3 Favorable 4 5 Score 4 5 4 3 4 5 4 5 5 Weight score 0.44 0.55 0.44 0.33 0.44 0.55 0.44 0.55 0.55 4.29
Sources: (Authors work ,2010) The above illustrated a detailed company resources analysis in which each factor was rated by means of Likert rating. The overall quantitative company resources audit revealed a score of 4.29 indicating that the internal resources of the organization are sufficient for Wal-Mart to maintain its current position as market leader, thus implying that the organization is internally strong.
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14
Islands
NUMBER OF EMPLOYEES
69%
11%
12%
8%
Sources: (Authors work, 2010, investors.target, 2010, sears holdings, 2010, costco, 2010) Table 7 Quantitative competitor analysis
Likert scale Factors 2009 revenue Number of employees Income Share holder expectations Earnings per share Customer expectations Stakeholder expectations Product portfolio Number of outlets Total Weight unfavorable 1 2 11.11% 11.11% 11.11% 11.11% 11.11% 11.11% 11.11% 11.11% 11.11% 100% 3 Favorable 4 5 Score 5 5 5 5 4 3 1 4 4 Weight score 0.55 0.55 0.55 0.55 0.44 0.33 0.11 0.44 0.44 3.96
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Wal-Mart during 2009 has recorded substantial sales revenue, one which is 70 % higher than that of its two main competitors. The analysis revealed that this organization in all aspects in average is 50% higher that its main competitors, for e.g. as pointed out in the above table Wal-Mart net work of stores amounts to 8000+ where as target owns only 1740. Thus the quantitative competition analysis indicates despite the fact that there are external threats for Wal-Mart from its competitors, the organizations fanatical and physical resources are superior than that is its competitors.
K mart 8%
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Traget
Sears
K mart
Metro
Tesco
Baugar Group
Costco Wholesale
Industry competition
Pharmacies, drug stores, department stores. groceries. auto spare parts shops, hardware stores,
Form competition
News papers stands , hot dog stands , magazine stands, one dollar shops ,
Generic competition
Cinemas, Restaurants, Fast food outlets, Pest control, Building contractors, telemarketing, Gardeners door to door sales organizations,
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Table 9 : Michael porter's five force analysis Threat of new entrants Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost of advantages Government policies Threat of substitute products H H L H Concentration of buyers No of alternatives H Importance of price to H Cost effectiveness buyers H No of alternative sources Switching costs M Standardization Vs L Price sensitiveness substitutes H Switching costs Possibility of vertical integration Level of intensiveness of rivalry among existing Firms No of main competitors Market growth rate Degree of differentiation Cost of Structures Source: (Authors work ,2010 adapted from Michel Porter) H M H H H H H Bargaining power of suppliers Concentration and size of suppliers Buyer importance in terms of cost and quality Switching costs Possibility of forward and vertical integration H L H H
M M L H
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Table 10: Quantitative Michael porter's five force analysis Likert scale Factors
Threat of new entrants Bargaining power of suppliers Bargaining power of Buyers Threat of substitute products Level of Intensiveness of rivalry among existing Firms
unfavorable
Favorable
Score 5 2 4 4 2
Overall score
Sources: (Authors work, 2010) The organization face moderate threat of new arrivals, however it currently possesses the internal strength to counter these threats. The suppliers relatively do not have bargaining power over Wal-Mart due to its volume purchasing. Thus Wal-Mart is able to provide goods at the lowest possible prices in turn eliminating bargaining power of buyers. However if a consumer who wish, not to purchase from Wal-Mart , may choose from a range of direct substitute organizations. Nevertheless the internal level of rivalry is high among leading retailers, yet Wal-Mart leads by more than 70% ahead of any competitor.
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check out time, more variety The global financial crisis of 2009 has left most
global retailers in near bankruptcy. More over it has negatively affected consumer buying patterns in all US income classes. Mostly middle incomers who are considered as the main target market for retail business. 79% of market share is owned by Wal-Mart
MARKET
SHARE
BASED
ON
ANNUAL REVENUE
that Wal-Mart offers the lowest prices for commodities. Despite the fact that it may not be true in terms of most commodities, for the consumer can buy it elsewhere for a much cheaper price, Wal-Mart marketing has created the
PERCEPTION
310 232 863 46 000 USD According to Zenith management consulting (2005)
CUSTOMER EXPECTATIONS
the target customers of the retail industry has a hand full of core expectations that must be met by the retailer who wishes for continuous purchasing such as convenience, price, service, quality and scope.
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The following figure illustrates the extent Wal-Mart has achieved these expectations in contrast to its main competitors.
Figure 10 : Overall customer expectations Sources: (Authors work 2010) Zenith management consulting (2005)
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Inline US culture they possess a low uncertainty percentage, hence US has far less uncertainty avoidance levels.
INDIVIDUALISM / COLLECTIVISM(IDV)
Americans are a race who respects the privacy of physical and psychological space. They relatively do not bother to intrude in to ones personal business unless they are invited to do so.
MASCULINITY / FEMININITY(MAS)
Americans are
work related activities more over they are assertive, ambitious thus according to Hofstede (2010) has a tendency to prefer the accumulation of wealth and material possessions
TIME ORIENTATION(LTO)
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The analysis reviles that the organizations target consumers market trend has become Low price seekers , quality service seekers, faster check out time and more variety seekers and that the US market still holds large potential, more over the next generation consumers of the organization does not reside in the US but rather the international market. The analysis further relived that Wal-Mart achieves 100% in term of consumer price and scope expectations, however it fails to deliver on consumer Service, quality and convenience expectations. However as illustrated in Figure 7 the organizations ability to meet overall consumer expectations is recorded at 72% the highest among its competitors.
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E+
E-
S+
S-
Asian and Pacific Islands 2.7% Other 0.7% Literacy rate 99% TECHNOLOGICAL Telephone users 150 Million Cellular phone users 270 Million Internet hosts 439 Million Internet users 231 Million Railways 226 457 KM Road ways 6 506 204 KM ENVIRONMENTAL Area 9 826 675 Sq KM Land 9 161 966 Sq KM Coastline 19 924 Sq KM Climate Temperature mostly yet tropical in Florida and Arctic in Alaska Natural resources Coal ,Copper , Lead, Molybdenum , Phosphate, Uranium, Bauxite, Gold, Iron , Mercury, Nickel, Potash , Sliver , Tungsten, Zinc, Petroleum, Natural gas , Timber Sources: (Authors work 2010,CIA Fact book 2010 )
T+
T-
En+
EN-
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The current US political environment is extremely favorable to all domestic US organizations, for the current Obama administration is keen of lending a helping hand to all MNCs with US origins. However during the period of 2008- 2009 the US markets and consumer spending patterns were severally effected by the global recession. However Wal-Mart has managed to keep its progressive financial growth stable. The social and technological factors are favorable to the organization due to the fact in US, Wal-Mart has trouble free access to the latest technological innovations, and the average US consumer prefers low price, high quality goods with best customer service. Furthermore environmental factors plays a positive and vital role in the success of all Wal-Marts operations due to the fact that most of Wal-Mart products are made with US resources for its policy of Buy American.
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Internal
Strengths Adequate number of people to do the work Information systems that use the best technology available Strong brand name and brand recognition High investor confidence. Positive consumer perception regarding price. Leader of industry. Consumers demand ease of shopping. Economies of scale due to the organizational large size and structure. Positive consumer perception regarding quality of service. High levels of financial stability Ability to take over or wipe out competition. Opportunities The world economic crisis has left many retailers face bankruptcy. Supernormal profits provide financial security for future diversifications. Decrease of consumer buying power of luxury and branded goods. Low cost good manufacture from rising nations (India, China) CSR projects minimizing damages caused to corporate good will. Obama administration keenness to lend a
helping hand to US corporations in order to boom the US economy Growing, larger and potential Asian markets.
Weaknesses Extensive labor relation problems Community relation problems. High levels of criticism regarding organizational strategy of dominance. Miscellaneous public relation problems Numerous issues regarding labor union demands. Membership limited to Sams club stores. Lack of diversification on service offering, all diversification are within same industry. No formal Vision statement. Few women and minorities in higher management.
External
Threats Increasing numbers of online retailers Global recession aftermath effects Increasing number of competitors creating price wars. Small committees dislike Wal-Mart entering their market Diminishing profit margins. Respective local laws projecting small scale business (US and international) US income taxation policies. Regulation of Wal-Mart pharmacies
5 3 5 3
Source: (Authors work, 2010) When critically analyzing the internal company resources of Wal-Mart it is evident that the organization does have sufficient internal resources. Scoring 4.29 on a Likert scale it has proven that Wal-Marts current resources are sufficient for the organization to achieve and maintain high levels of competitiveness. Furthermore the value chain analysis which were conducted in order to indentify the value addition of Wal-Mart current processes presented an overall score of 4.29 indicating that the value addition is substantially large. However Michel Porters Five Force analysis indicated a score of 3.2 which can indicate that the retail industry is extremely competitive. Nevertheless the company SWOT analysis indicated a score of 4 which revealed numerous threats and weaknesses of the organization. Regardless above, Wal-Mart via its internal strengths and opportunities is able to counter theses weakness and threats.
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3. SECTION THREE
3.1 FUTURISTIC ORIENTATION IN COMPARISON TO KMART
Any organization that wishes to become the leader of their industry must gain a thorough understanding of the future strategic path they intend to follow, to a greater extent than that of their competitors. Thus be ready to tackle all barriers that may arise in the industries future. Hence in order for Wal-Mart to gain a futuristic orientation of their strategic path, it must initiate a proper headlight team who possesses a visionary leadership of the organization. Therefore in order to clearly understand Wal-Marts foresight of its future, the futuristic orientation model of Gunasekara, (2010) has been adopted. The following illustrates the model.
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The organization within the next 4 years wishes to : To capitalize on the down fall of other competitive retailers due to the global financial crisis. (Times, 2010) To keep the Wal-Mart culture strong in its international operations. (WalMart, 2010)
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FORWARD LOOKING
The organization within the next 6 years wishes to : To play an even bigger leadership role on the social issues that matter to their customers. (Wal-Mart, 2010) To achieve Sam Waltons Vision of Giving the world an opportunity to see what its like to save money and have a better life (Wal-Mart, 2010)
The organization within the next 10 years wishes to : To understand on the business
challenges that retailer face and solve them (Wal-Mart ,2010 ). To become a truly global MNC. (Wal-Mart, 2010) VISION = CORE IDEOLOGY + ENVISIONED FUTURE Long term goals Internationalization
As of November 2010 Wal- Core purpose Mart has not formulated an Giving the world an vision statement opportunity to see what its like to save money and have a better life (Wal-Mart, 2010)
Vivid description Giving the world an opportunity to see what its like to save money and have a better life (Wal-Mart, 2010)
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Organizational goals
To build an extremely strong management team who can execute the organizational strategy effectively. To offer more brands To offer sustainability forced products To create more value for Sams members To help consumers save on their energy bills
To archive zero waste To create local supply chains for all outlets To help the community they serve.
To create a enhanced and memorable customer experience To create faster check out time To create a more friendly and cleaner environment
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VISION
As of 2010 Target corporation has not formulated a vision statement Our mission is to make Target the preferred shopping destination for our guests by delivering outstanding value, continuous
MISSION
innovation and exceptional guest experience by consistently fulfilling our Expect More. Pay Less brand promise.
ORGANIZATIONAL GOALS
To become a upscale discount chain who provide trendy merchandise at extremely affordable prices
To work diligently to remove the price perception gap. To select team members from diverse backgrounds
P fresh design to be implemented on all stores To leverage the power of Target brand on target household essentials brand. To create safe and secure working environments for all its employees To control expenses without effecting the quality of service (Target ,Annual report 2009)
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4. SECTION FOUR
4.1 THE STRATEGIC MOVES TOWARDS BECOMING US AND GLOBAL MARKET LEADER.
Figure 14 : Hierarchy of Organizational Aims Source: (Authors work adopted form Gunasekara, 2010, Pereira, 2003, Daugherty 1993 cited in online essays, 2010) When critically analyzing Wal-Marts current operations it is evident that they have different strategies throughout its organizational levels in order to become the market leader. According to (Pereira, 2003) theses strategies are:-
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According to (Pereira, 2003) all local Wal-Mart outlets are given directions to use maximum price competition with other local organizations, in the process eliminating smaller retailers and gaining a monopoly in the respective local area. The strategy of dominating the retail market despite its various criticisms which will be presented in the following section, has proved itself to be a foolproof strategy. Growth strategy: To grow by expanding in the US and Internationally. Ranked as the number one organization in the world by the fortune 500 magazine, WallMart in its near 50 years of operational history has become the number one retail service provider in the US. Thus now the organization has laid its path on becoming the worlds most preferred retailer. This phase of their international operations have been swift yet powerful. For Wal-Mart uses corporate takeover as their main strategy of entry into new markets. For example:
1994 1998 1999 Wal-Mart took over Wooko Stores chain in Canada. Wal-Mart took over 21 Werkauf Store units in Germany Wal-Mart took over ASDA of the United Kingdom
Source : (Wal-Mart 2010) This strategy gains a competitive advantage for Wal-Mart even before it enters the target market. Furthermore it allows the organization to wipe out its main competition. The strategic steps of entering a target market for Wal-Mart is as follows:-
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Create substantial presence in targeted location by means of the organizational size and wealth.
Create brand familiarity on target location without changing old chains brand name.
Once local outlets are performing to desired levels conduct a local management analysis of its competitive environment.
Change old name into Wal-Mart and redesign the outlets to appear in line to Wal-Mart.
MAIN STRATEGY
DESCRIPTION Offers unique warranties and brand images thus Wal-Marts customers believe that they are being provided with the best buying options among competitors. The organization has launched a range of programs in order to encourage sustainability of the
AIM
Consumer loyalty
To more
become
environmental ly responsible
world fisheries, forests and farmers. Furthermore via this Wal-Mart intends to reduce energy use and wastage, and push its nearly 60 000 suppliers to produce goods that are eco friendly. and thus encouraging consumers to buy green items Corporate strategy Growth Strategy Vertical Integration The organization develops its own brand name products called Sams Choice (Carlson, 2004) 1990 Wal-Mart acquired McLane a leading US supply chain services company. (McLane co,2010) Strategic partnerships
To control pricing
gain over of
Pioneering effort with Proctor and Value Gamble, Partnership with CRM and environmental defense fund to
service offering.
implement sustainability. Clinic at Wal-Mart, partnership with leading medical institutes in local areas. Furthermore Wal-Mart has entered into co partnerships with organizations such as McDonnells, Hollywood movie companies and Music recording label companies (Pereira, 2003). (The Week, 2010)(e How, 2010)(USA today, 2006) (Scribe, 2010)
39
DESCRIPTION Wal-Mart Creates positive perception in the mind of the consumer. The organization want the consumer to believe that they are conducting business with most reputed retailer and that they are getting the best price deal in the market. To create stores that are 20 000 sq feet or less which is 1/7 the organization size of Wal-Mart stores. These new stores will mix market side and
AIM
To
attract
new
ALLWAYS
neighborhood market concepts. To create stores which exceeded 50 000 Sq feet long, Single storey building with no doors, this achieves economies of scale by high volumes and low price. Volume purchasing The organization uses its high volume purchasing power to negotiate the best prices from suppliers.(Thomas & Strickland cited in online essays,2010) Long term relationships with supplier, Best price deals for Economies of scale
40
Furthermore the organization at all times intend to maintain positive relationships with its suppliers.(Thomas & Strickland cited in online essays, 2010 )
More Customers
Figure 17 Low cost strategic process Source: (Authors work adopted form Slide share, 2010)
41
Local tailoring
To
come
more
oriented customers
merchandise.
logistics : Suppliers to check out, provide continues and reliable service (Bcit Business, 2010)
42
MAIN STRATEGY
DESCRIPTION
AIM
The company has created a culture of Supporting values, skills, technology of suppliers, customer relationship and its human resources
Competitive advantage
Technology
Wal-Mart
has
created
significant
Allow organization
the to
competitive advantage through the IT systems, it has developed to manage its warehouses and stores. Furthermore OPERATIONAL LEVEL STRATEGIES Implementation of Wal-Marts unique cross docking Massively parallel processor computer system to track stock movement. (Daugherty 1993 cited in online essays, 2010 ) Strategy of use of IT in all vertical of business Location selection The organization selects target location without any form of direct competitions. Transportation and logistics Operations efficiency strategy effective use of logistic management strategy, faster check out time, real time data used to profile each market strategy predicts demand and optimizes stock strategy.
achieve economies of scales and thus give mangers more control in terms of store level. (online essays ,2010)
(Scribe, 2010)
43
Figure 20 Supply chain Source: (Authors work adopted form Slide share, 2010)
44
45
5. SECTION FIVE
5.1 A CRITICAL EFFECTIVENESS ANALYSIS OF CURRENT ORGANIZATIONAL STRATEGIES
TOTAL SALES REVENUE (TSR) Table 22 : Total sales revenue
Wal-Mart 2009 401.1 2008 373.8 2007 344.8 2006 308.6 2005 281.5 2009 65.3 2008 64.9
500 400 300 200 100 0 2009 2008 2007 2006 2005 Wal-Mart Target
EARNINGS PER SHARE BILLIONS USD (EPS) Table 23 : Earnings per share
Wal-Mart 2009 3.35 2008 3.16 2007 2.92 2006 2.72 2005 2.46 2009 3.30 2008 2.86 Target 2007 3.33 2006 3.21 2005 2.71
46
4 3.5 3 2.5 2 1.5 1 0.5 0 2009 2008 2007 2006 2005 Wal-Mart Target
Figure 24 : Earnings per share CURRENT RATIO 0.95 0.9 0.85 0.8 0.75 2005 2006 2007 2008 2009 0.8 0.9 0.9 0.9 0.9 Current ratio
47
RETURN ON ASSETS 10.00% 9.50% 9.00% 8.50% 8.00% 7.50% 2005 2006 2007 2008 2009 Figure 26 : Return on Assets analysis
2009 8.4% 2008 8.5% Wal-Mart 2007 8.8% 2006 9.3% 2005 9.8%
RETURN ON SHAREHOLDERS 23.50% 23.00% 22.50% 22.00% 21.50% 21.00% 20.50% 20.00% 19.50% 23.10%
2005
2006
2007
2008
2009
48
49
Figure 28 : Customer expectations Sources: (Authors work, 2010) Zenith management consulting (2005) OVERALL CUSTOMER EXPECTATIONS
80% 70% 60% 50% 40% 30% 20% 10% 0% Wal-Mart Traget Kmart Avg. Grocery Avg. Drug Chain chain
50
51
systematically given less pay than that of male workers. Furthermore it was alleged that women were give less opportunities to progress in their careers. (Wal-Mart watch, 2010)
LABOUR UNIONS
Labor unions, Christian organizations and environmentalists have criticized Wal-Marts strategic Numerous polices labor and business practices. the
unions
accuse
organization of not allowing its employees to form any union with its Anti union stance (Fair companies, 2010)
The Wal-Mart strategy of creating dominance in whatever market they operate, had caused many small scale retail organizations to face bankruptcy, thus creating numerous social problems in rural communities.
(fair companies,2010)
52
Likert scale Factors Weight unfavorable 1 2 3 Favorable 4 5 4 5 1 4 Score Weight score 1 1.25 0.25 1 3.5
customer expectations stake holder expectations criticism for strategy leadership orientation
Overall score
53
High
Sound performance.
Low
Sound long term performance does not perform in the short run.
Weak performance.
Sound
Sound performance.
Wal-Mart
Weak
Weak performance.
54
6. SECTION SIX
6. 1 THE CURRENT STRATEGIES VS FUTURE STRATEGIES OF WAL-MART
To capitalize on the down fall of other competitive retailers due to the global financial crisis. (Times, 2010)
To play an even bigger leadership role on the social issues that matter to their customers. (Wal-Mart, 2010)
To achieve Sam Waltons Vision of Giving the world an opportunity to see what its like to save money and have a better life (Wal-Mart, 2010)
To understand on the business challenges that retailer face and solve them (Wal-Mart, 2010)
The global financial downturn left many organizations facing near bankruptcy, especially the retail industry throughout the world has had its toll due to this scenario. However, supported by its financial power, Wal-Mart has survived past turbulent economic situations. Thus the organization plans to reformulate its corporate strategy to capitalize and use the misfortune of its competitors as a window of opportunity to wipe out competition (Times, 2010). Furthermore as discussed in the previous section, the organization faces numerous criticisms regarding their strategic approaches by various communities and organizations thus the organization intends to create strategic move to play a bigger role on social issues that matter to its consumers (Wal-Mart, 2010).
55
Moreover as Wal-Mart CEO Mike Duke (2010) points out, Wal-Mart is ready to achieve Sam Waltons vision of Giving the world an opportunity to see what its like to save money and have a better life thus Duke (2010) indicates that the organization must understand on the business challenges that retailer face and solve them by becoming a truly global company and the undisputed leader of the global retail industry.
To buy 10% of its wild caught salmon and frozen fish for North American markets only form fisheries that are certified for sustainability by the non - profit marine stewardship corporation. Within three to five years.
To Reduce energy usage of all 7000+ Wal-Mart stores around the globe by 30 % and green house gas emissions by 20 % within 7 years.
To reduce solid wastes from Wal-Mart stores by 25% within three years.
56
6.3 RECOMMENDATIONS
Table 25 : Proposed recommendations CHANGE NEGATIVE PUBLIC PERCEPTION OF COMPANY SO1
Pereira, (2003) points out that the current public image of the Wal-Mart in terms of NGOs and Labor unions and community organizations is Bully and Tyrant thus the author recommends that the organization restrategies it approach towards public
As mentioned above Wal-Mart strategy of zero tolerance for unionization has affected the corporate good will in a negative manner, thus the author recommends that the
organization let loose of its stance and allow labor unions to form under a controlled environments in order to give Wal-Marts associates the opportunity to express their legitimate grievances.
Wal-Mart is rapidly expanding on its international operations, however as (Michael T Duke, Wal-Mart ,2010) CEO of Wal-Mart states the organizational culture of Wal-Mart is a competitive advantage for the companys success, the company strongly believe that all practices and policies of Wal-Mart should be diverged in order to create uniformity, barriers such as national level, company level, institutional level, industry level, and individual HRM practice factors as argued by Liu (2004) thus the author recommends that Wal-Mart should adopted a transnational strategy when dealing with its international subsidiaries
A detailed analysis of MNC strategic models are presented in Appendix (C) the following illustrates a graphical illustration of the recommended strategy. 57
58
SUITABILITY
SC1 Would it Help to strengthen the tangible and intangible recourse base? SC2 Would it Help in building distinctive competencies? SC3 Would it Help in gaining comparative, competitive advantage, corporate advantage? SC4 Would it Help in enhancing overall financial and non financial performance? SC5 Would it Help In achieving the objectives, goals, mission and vision of the organization. SC6 Would it Produce timely and reliable results? SC7 Would it Have a positive impact on corporate and brand image? SC8 Would it have a positive impact on corporate governance? SC9 Dose it address or take advantage of the critical SWOT factors in the internal and external environment. SC10 Dose it improve the overall strategic position of the organization.
Y Y Y
Y Y Y
Y Y Y
Y Y Y Y
Y Y Y Y
Y Y Y Y
ACCEPTABILITY
AC1 Would the proposed strategy help to provide a positive effect on customer expectations? AC2 Would the proposed strategy help to provide a positive effect on shareholder expectations?
59
AC3 Would the proposed strategy help to provide positive effect on society expectations? AC4 Would the proposed strategy help to provide positive effect on employee aspirations? AC5 Would the proposed strategy help to provide positive effect on management aspirations?
FEASIBILITY
FC1 Would the proposed strategy implementation be supported with adequate availability of financial resources? FC2 Would the proposed strategy implementation be supported with adequate availability of human resources? FC3 Would the proposed strategy implementation be supported with adequate availability of physical resources? FC4 Would the proposed strategy fit with the existing culture of the organization? FC5 Would the proposed strategy fit with the existing structure of the organization? FC6 Would the proposed strategy fit with the skill inventory level of the organization? FC7 Would the proposed strategy fit with the current resources capabilities of the organization? FC8 Would the proposed strategy fit with the current technology of the organization? FC9 Would the proposed strategy be capable of coping with competition?
60
7. CONCLUSION
The Study conducted an internal strengths / weakness and external opportunities and threats assessment for Wal-Mart. Stores Inc, an organization considered as global business titan and classified as the largest retailer in the United States. The SWOT assessment revealed that the strategic factors that has the greatest impact on the organizational performance. Furthermore, this study evaluates and understands the futuristic orientation of the organization in comparison to Target Corporation, the organizations main competitor. The analysis revealed both organizations despite Wal-Mart not possessing a clear vision statement does indeed posses clear and specific futuristic orientation regarding their respective future strategic direction. The study moreover identifies and explains each strategic move the organization has implemented in all levels of the organizational structure in order to become the market leader. Thus critically evaluating the effectiveness of these strategies in terms of WalMarts financial and none financial performance, which indicates that regardless of various criticism from unfavorable media, small town communities and various labor unions, Wal-Mart has achieved substantial growth in its 50 years of operational history via its sound strategic management operations and policies and practices. However the author recommends that the organization should indentify and thus remodify its strategic approaches towards its role as environmentally sustainable and socially responsible global organization and pay furthermore close attention to its International human resources and Local human resources within the US.
61
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APPENDIX
APPENDIX A
(gearlive,2010)
68
APPENDIX B
INDUSTRY PERFORMCE
Total retail Sales 2009 Total retail Sales 2008 Total E commerce retail sales 2009 Total E commerce retail sales 2008 Furniture and fittings electronics Materials and Gardening equipment Food and beverages Health and personal care Clothing and accessories Music and sports 4281 Billion USD 4413 Billion USD 131.8 Billion USD 132.3 Billion USD 105.5 Billion USD 111.1 Billion USD 323.3 Billion USD 587.7 Billion USD 245.8 Billion USD 216.0 Billion USD 87.7 Billion USD
69
APPENDIX C
A CRITICAL COMPARISON OF THE FOUR ORGANISATIONAL STRATEGIES ADVOCATED BY BARTLETT AND GHOSAL
FACTOR MULTIDOMESTI C INTERNATIONAL GLOBAL TRANSNATION AL Simple Global Complex global -
Country-centered
Multinational flexibility
Worldwide learning
Global efficacy
STRUCTUR ES R
Centralized Hub
Integrated Network
CONTROL S
GRAPHICAL ILLUSTRAT ION OF
MODELS
Table 26 A critical comparisons of the four organisational strategies advocated by Bartlett and ghosal
Source (Harzing and Ruysseveldt, (2004), Edwards and Rees, (2006) Adopted form group assignment
70
APPENDIX D
EXTERNAL ANALYSIS CHECKLIST
PORTERS FIVE COMPETITIVE FORCES
POTENTIAL ENTRY: How difficult is it for new firms to enter your market Easy 1- 2 -3 -4 -5 Difficult
Few 1- 2 -3 -4 -5 Many SUPPLIER POWER : How much bargaining power do your buyers have? How many options exist for lessening buyer power? BUYER POWR : How much bargaining power do your buyers have? How many options exist for lessening buyer power? POTENTIAL SUBSTITUTES : How many alternatives do buyers have for getting the benefits of your products or services in some other way? How many options exist for improving your price performance tradeoff? How many options exist for finding less substitute sensitive customers? RIVALRY : What level of intensity exists in the rivalry between you and your direct
71
Much 1- 2 -3 -4 -5 Little
Few 1- 2 -3 -4 -5 Many
Much 1- 2 -3 -4 -5 Little
Few 1- 2 -3 -4 -5 Many
Many 1- 2 -3 -4 -5 Little
Few 1- 2 -3 -4 -5 Many
Few 1- 2 -3 -4 -5 Many
High 1- 2 -3 -4 -5 Low
competitors? How strong are these direct competitors? How many options exist for taking on these competitors head to head?
Strong 1- 2 -3 -4 -5 Weak
Few 1- 2 -3 -4 -5 Many
How many options exist for picking areas Few 1- 2 -3 -4 -5 Many of the market that are not so competitive?
Product/Service pricing
12345 12345
customers
Market share 12345 12345 12345 Efficient asset management (TAT*) 12345 12345 Proper balance of debt and equity (EM*) 12345 Strong and recurring return on equity (ROE*) 12345 12345 12345
FINANCIAL RESOURCES
73
Personnel plans
procedures
Training programs
Good morale as evidenced by absenteeism, turnover, tardiness, complaints, bickering, employee growth and development 12345 12345 12345 12345 12345 12345 12345
74
performance
and satisfaction
Operations/Production Resources
Capacity of needed facilities to serve 12345 customers 12345 Up-to-date and appropriate technology (building, machinery, etc.) 12345 12345
Effective and efficient work flow 12345 Effective and efficient inventory control 12345 Effective and efficient purchasing practices 12345 12345 12345 Effective management style 12345 Timely decision making
75
MANAGEMENT/LEADERSHIP RESOURCES
Effective delegation
Effective participation
Effective leadership 12345 ORGANIZATIONAL RESOURCES 12345 Appropriate mix of resources (people, money, equipment) available 12345 Resources properly placed to do the job 12345 Effective interdepartmental communications 12345 Effective reporting relationships Firms public image 12345 12345
Strong organization culture (productivity, honesty, dispute handling, tolerance of change) 12345
Planning system appropriate for internal analysis (assessing strengths and weaknesses)
12345
Planning system appropriate for external analysis (assessing opportunities and threats)
12345 12345
Control system that highlights problems and generates corrective action 12345
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WAL- MART
TARGET
COSTCO WHOLESALE
K MART
Product Offering
Electronic office Movies music books Apparel, Shoes, jewelry Baby and kids products Toys and video games Sports fitness Auto home improvement Photo Crafts and party supplies Pharmacy, health and beauty Grocery Pets.
Home Entertainment Electronics Mens Womans Bed and bath Movies Video games Kids Kitchen and dining Sports Beauty Furniture Toys Baby Gift giving Books Gaming Pharmacy Clinic Optical
Appliances Automotive Baby and Necessary Beauty and health Bed and Barth Books and magazines Clothing Electronics / office Fitness and sports Food and grocery Home Improvement Jewelry and Watches Music, movies and Gaming Pharmacy Pets Shoes Toys
78