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2007

WAL-MART
EXECUTIVE SUMMARY

MGMT 479F - Team B


Michelle Barnes, Sharl Flowers, Alex Layton, Andrew Miller, and Anh Linh Tran

TABLE OF
CONTENT

I.
Current Situation
II. Strategic Managers
III. External Environment
IV. Internal Environment
V. Analysis of Strategic Factors
VI. Strategic Alternatives and
Recommended Strategy
VII. Implementation
VIII. Evaluation and Control

This report discusses an evaluation of Wal-Marts strategic management. The purpose of


this evaluation is comparing and analyzing our performance in the last five years that helps us
better measuring our operation and financial conditions as well as enable us to accomplish our
future objectives and to continue growth of business. This is a critical review the strengths and
weaknesses of each area of Wal-Marts domestic and international strategies and programs to
identify all effective programs and to detect any defective one and make necessary adjustment.

BACKGROUND
I.

Current situation
A. Corporation performance: Overall there is an increase in sales and cash flow from
operating activities. Also there is a growth in national and international business
expansion. Here are some keyed terms in 2006: i) Continuous growth in sales and
earnings. Great international expansion for the last five years; ii) Financial: Current ratio
is 0.9%. Earnings per share increased from $2.41 in 2005 to $2.68 in 2006; iii)
Performance: a) Highpoint: increase in sales of 9.5% comparing to last year. Increase
cash flow from operating activities from $10,267 million to $11,231 million. b) Low
point: low return on assets of 8.91%, low return on shareholders equity with 22.5%,
negative price-earnings per share ratio caused a decline in share price from $56.98 in
2002 to $46.11 in 2006 (;./st decline in 10 years).

B. Strategic posture:
Mission: Always low price, saving people money so they can live better regardless of
background or where they may live and to build a better life.
Objectives: Lines extension and stores expansion.
Strategies: Wal-Marts current strategies concentrate on customer satisfaction and team
spirit. They are implemented through the following programs:

Domestic strategies and programs include: a) The Supercenters with full


general merchandise discount store stocked with full-line groceries and
services such as restaurants, banking, video rental, and beauty salons. b) Add
larger space and more services to the Sams Clubs locations. c) Most
outstanding program was the Green marketing concerning environment

sustainability (manufacturing, use, and disposal). d) A private brand program


such as Ol Roy, Sams Choice, Great Value, Equate, and Spring Valley. e) A
fashion program emphasizes on the clothing line. f) An inventory control
program using RFID technology, data warehouse, and computerized tracking
system that reduces out-of-stock issue 16%.

International strategies and programs: a) successfully acquired discount stores


in Canada; 74 Interspar stores in Germany; 232 ASDA stores in England;
more than 360 CARHCO supermarkets in Central America. b) Mergers and
joint ventures with 599 stores, 105 Supercenters, and 70 Sams Clubs in
Mexico; 51 Supercenters, 3 Sams Clubs, and 2 Neighborhood Markets in
China;

Policies: In supporting the firms strategies, Wal-Marts current policies include


cheerfully offer refunds, store credits, and rain check.

OVERVIEW
The dataset utilized in this situation analysis includes comparison of corporate
performance over the five-year period (2001-2006). Wal-Marts output, behavior, and input
controls were represented by the current ratio (liquidity), earnings per share and return on equity
(profitability), assets turnover ratio (activity), and price-earnings per share ratio. This
comparison indicated the firms current ratio was 0.9%, assets turnover was 8.91%, and negative
price/earnings per share ratio. Though a benchmarking analysis indicated the firms stock price
increase of 9.9% but it is considered low rate comparing to the increase rate of competitors at the
rate from 12.45 to 367%.

II.

Strategic Managers

A. Board of Directors is an outstanding diversity that include: 13 members, 11 are outsiders;


Organized into 5 committees - The Audit Committee, the Compensation, Nominating, and
Governance Committee (CNGC), the Executive Committee (EC), the Stock Option
Committee (SOC), and the Strategic Planning and Finance Committee (SPFC); 2 board
members controlled close to 41% of the shares outstanding; and each director attended at
least 75% of meetings.

B. Top Management includes: 25 corporate officers, CEOs assigned to each business unit (WalMart U.S., Sams Club, and Wal-Mart International); Lee Scott was only the third CEO in
the entire history of Wal-Mart when he was selected to the position; During the 12 years
David Glass, the previous CEO held the position, sales grew from 16 billion to 16.5 billion
annually; they are uniquely qualified individuals.

III.

External Environment

A. Natural Physical Environment

The gasoline prices increase cause the closing of Wal-Marts operation in Germany
due to reduce of customer visit the stores

Wal-Mart is rising to the challenge of sustaining a green culture in its operations,


which will keep them up to the challenges they may face in the future with their
natural environment.

B. Societal Environment
Economic

The increase of consumer debts, interest, and unemployment rates caused rivalry
in the retailing industry on low-price. Wal-Mart also was facing the cost increase
due to currency translation, increase of government restriction in the countries of
its subsidiaries, and changes in local legislature.

Technological

Wal-Mart positively responded to the increase of global market, cloud computing


technology, and virtual community with high-speed computerized inventory
control, data warehouses, and real-time reporting system.

Political-Legal

Wal-Marts oversight on management of its subsidiaries outside the United States


and caused in violation of immigration, and fair labor regulations.

Socio-cultural

Wal-Mart responded to the increase of environment awareness in society with


promoting the concept of green marketing and support American manufacturing

with the Buy American program. The firm has centered its operations on the
low income customer, but recent made changes to including many other
demographic types into its plan.
C. Task Environment

Threats of new entrants in the wholesales segment such as Costco, BJ, etc with
direct attack to Sams Clubs but not Wal-Marts low price, product lines, and
convenience locations.

The bargaining power of suppliers is low. Goods can be purchased from many
different locations and suppliers.

Rivalry in the market that Wal-Mart competes in is at an all time high. Many
companies are beginning to grow and expand into markets and areas which WalMart has been in for years, and as the growing population of special interest groups
expands, so does the dislike for Wal-Marts greedy business actions.

IV.

Internal Environment

A. Corporate Structure
Wal-Mart is structured into three business units. Wal-Mart USA, Sams Club, and
Wal-Mart International. The majority shares are held by family members of its founders and
its centralized management control with the headquarters out of the Bentonville home.
C. Corporate Culture
The firms strong corporate culture of, the Wal-Mart Waywas a reflection of
the values of its founder..southern, rural, conservative (19-23), can be its strength (crosstraining and carry out its mission) as the same time can be a weakness (reject to changes of
mission, objectives, strategies, or policies).
D. Corporate Resources
Wal-Mart operates under economic of scales using marketing mix (low price, the
green marketing program through TV, internet, and through distribution channels). The
firm maximize its resources and with economic value added products and services, private
brands, human resources (skilled employees), and technology competence (computerized
inventory control and real-time reports system). That promotes the firms maximum buying

power, ability to maintain its market position, and financial stability and continue growth of
business.
E. Summary of Internal Factors (Core Competencies)
With the firms abilities to consolidate and maximize its resources and find
propitious niche with its distinctive competencies (outputs, behavior, and inputs controls),
Wal-Mart can win the market competition.
The current financial condition shows there is a strategic inflection point or a
performance gap exists in the firms strategies and programs that need an emphasis in
behavior and input controls. It requires a comprehensive analysis of the market that includes
analyzing of strategic factors using the Strengths, Weaknesses, Opportunities, and Threats
(SWOT) analysis and Strategic Factor Analysis Summary (SFAS) Matrix.

V.

Analysis of Strategic Factors


Wal-Mart has many internal and external strategic factors which are identified
through the SWOT analysis. SWOT divides into four situations: strengths, weaknesses,
opportunities and threats. In this analysis we focus on the most important factors for each
situation which is described below.
A. Key Internal and External Strategic Factors (SWOT)

Strengths: Wal-Marts most important strengths (internal factor) are defined in the
management of distribution and logistics. That include: operate under economic of
scales (stores located within the contact of the firms distribution centers); accurate
computerized inventory control systems with real-time reports generated; economic
value-added products and services. These gave Wal-Mart a distinctive competency.

Weaknesses: The most impact on withdrawal of stores located outside of the U.S. was
culture differences due to the strong corporate culture (reflect its founder background
southern conservative). It makes difficult to accept to changes of the corporate
mission, objectives, strategy, and policies.

Opportunities: The firms international expansion is excellent opportunities. With the


inventory control system, Wal-Mart is able to speed up the market reaction time and
better detect buying trends in a timelier manner. Also Expanding into the

international market is an opportunity that enables Wal-Marts financial growth,


which leads to competitive advantage.

Threats: the Wal-Mart focus on low cost and centralized structure caused oversight
some ethical issues. This can result in losing skilled workers due to low pay rate
(who might leave Wal-Mart for other companies and the firms distinctive
competence might become transparency) and make easy for attack from competitor.

B. Review of Current Mission and Objectives:

Current mission is appropriates for output controls and effectively use of resources
(knowledge, skills, abilities, values, and motives)

Current objectives are appropriate with modified business model include global
culture awareness (capabilities). Wal-Mart establishing a program to ensure
awareness of its Open Door policy, Responsibility Center, and Ethics Report
Hotline.

In conducting a strategic audit that includes examination, evaluation, and analyzing; the
qualitative finding leads us to the strategic alternative and a recommended strategy is presented
along with implementation and evaluation and control as follows:

VI.

Strategic Alternative and Recommended Strategy


After completing our SWOT analysis we found three possible strategic alternatives for

Wal-Mart to consider. Each of them has pros and cons to consider before making the best
decision. These are: the horizontal growth strategy (growth), the pause-proceed with caution
strategy (stability), and the turnaround strategy (retrenchment).
A. Alternatives:

Horizontal Growth Strategy: Wal-Mart can achieve this strategy, both internally and
externally, by expanding their operations into more international locations while also
offering more fashionable products both domestically and internationally.
o The pros to this strategy include: the ability to form a joint venture with
another country (develop new products and technologies) and acquisitions
(purchasing other companies already operating in the area). The cons to this
strategy

o The cons to this strategy are the fact that Wal-Mart has already entered some
international markets and did not succeed. They had to withdraw from South
Korea because they failed to research the geographic and demographic
characteristics. They did not offer any products the majority of customers
shopped for.

Pause/Proceed-with-caution strategy: Wal-Marts current strategies work but the


result is less than expectation. Therefore a pause strategy may be appropriate.
o Pros: this give a temporary break (with a set time) to review, make
adjustment, and then proceed with all the necessary tools.
o Cons: it may set performance activities in limbo (especially with new hired
managers) and may be freeze (if sitting longer the needed time) or fall into the
wrong direction.

Turnaround Strategy: In this strategy Wal-Mart would place emphasis on improving


their operational efficiency. They could achieve this through contraction which would
include cutting back costs and expenses as well as eliminating up to 10% of their
employees. Wal-Mart does not have any critical corporate problems yet because they
are still doing better than Target.
o The greatest pro to this strategy would be the improved competitive
position because employees would get involved with many
productivity improvements. The company would then emerge from
this period much stronger and better organized than ever before.
o The major con to this strategy would occur if Wal-Mart did not
properly consolidate. They could potentially lose many key
employees. Consolidating (cutting cost and downsizing) is appropriate
but too much could put the company in a worse position allowing no
improvements.
B. Recommended Strategy
The qualitative finding reflects there is a performance gap exists (withdrawal from
French, Japan, and Korea). Therefore, a pause/proceed with caution strategy for six month
would be appropriate. It allows Wal-Mart to develop a corporate infrastructure and redesign its
strategic business units and to reengineering business process, in achieving its synergy include
detailed laid-out job redesign (enrichment) with cross-functional work teams and employee
flexibility by carefully hiring, promoting, and training especially with multi functional in the
multi-culture environment. That included effective communication and diverse cultures

(integration, assimilation, separation, or deculturation) management. Redesigning its strategic


business units and reengineering business process will prepare Wal-Mart to coordinate strategies
in the economies of scales and increase flexibility to adapt strategic implementation processes
and effectively use of collaborated tools to reduce time on extra steps readily for mergers and
multi-national acquisitions. Then continue with horizontal growth strategy.

VII.

Implementation

A. Total Quality Management (TQM) functions on the premise that the quality of the products
and processes is the responsibility of everyone who is involved with the creation or
consumption of the products or services offered by the organization. In other words, TQM
capitalizes on the involvement of management, workforce, suppliers, and even customers, in
order to meet or exceed customer expectations.

Wal-Mart could enter into a new agreement and expand to Australia. Australia is
known for the Outback and Wal-Mart carries a wide variety of outdoors gear. It
would be a joint effort between Marketing and the New Zealand government to
develop a plan that will bring adequate products to the country. This could result
in a significant increase in revenue internationally for Wal-Mart.

IT and Marketing are instrumental in determining if logistically this market is a fit


for Wal-Mart. They can scout out the land and taste of locals to see if the need is
there. IT needs to verify that the cost for the telecommunications fees and
equipment will be worth the move. This would mean job relocation, hiring and
training of locals. This could be cost effective if the wage cost is low in these
areas.

B. A capital budget program could be set aside that allocated $10 billion for any new
acquisitions of supercenters, discount chains or viable retail companies that would yield a
profit within the first year of operation under the Wal-Mart brand. A timetable should be
imposed on all steps of a business plan regardless if they are individual or not. This is less
than 10% of Wal-Mart operating budget.
C. Standard Operating Procedures (SOP) are a must have for a viable businesses. Once a SOP is
developed for the Australia expansion, a very in depth overview can be obtained; because the
very nature of an SOP will be to determine what is working and what is not. Since this is not

Wal-Marts first international venture, a modified model SOP can be used that should cut
cost and yield greater result.

VIII. Evaluation and Control


A. The current Information System is capable of providing sufficient feedback on
implementation activities and performance. When Wal-Mart was expanding internationally
they faced conversion issues that were expensive, difficult and time consuming.
1. Wal-Mart countered with an upgrade to its computer systems introducing RFID in 2004,
it tested the system in 150 pilot stores and Sams Club because of the success and
amazing results of in depth data that was collected and stored to reduce costs (up to 16%
reduction of out of stocks, it was expanded.
B. The Wal-Mart way is more than just a slogan/phase it is a philosophy. Strategically WalMart is paced by the advancement of technology and the expansion internationally to
continue to be a leader for years to come. Sure, a few stores were closed in South Korea and
Germany, but overall Wal-Mart is still a giant and has the most aggressive negotiations in
any retail environment.

Investing in a database system when no other retailers had tried this technology was
just a lasting example of the innovative nature of this company. Decreasing costs and
improving the store, employees and customers are very important to Wal-Mart.
Annual audits as well as scheduled maintenance ensures how well the systems that
are in place are performing. Time is money, so every precaution is taken to document
and to review all systems in a timely manner.

Wal-Mart reviews the Strategic Plan to verify that all activities are in direct
compliance. Good performance is awarded based on performance; this is tracked by
the RFID system and reporting. Fuel efficiency has increased by 25% and energy was
reduced. Continuing to be green conscience will allow the company to monitor its
activities to stop any deviation from its goals. The focus of the company is to expand
and continue to operate with strict guidelines that ensure control and continued
evaluations of how to improve, review and implement new procedures.

C. Wal-Marts current information system is excellent using high-speed computerized inventory


control and sales tracking from manufactures to store checkout counters and provide nearer

real-time reports that helps management decision especially in critical situation. The firms
joint partnership with Accel Partners is an effective program in term of financing and cost
eliminating in e-commerce. It provided pull technology (higher positioned in search engine,
webpage design, tracking website visitors) and push technology (TV, popup, pop-under,
email ads and webinar for training), and website maintenance. However, sharing information
with oversea partners (Australia and New Zealand) involves some software differences and
Wal-Marts cost of goods sold increased by sharing of (unused) software upgrading cost.
Communication has been delayed due to being screened or blocked by government tricked
legislature. Also there is an increase for security protection software and risky if security
breached and customers information is compromised. It is also a risk of trade secrete
become transparency. Therefore an Automate Decision Making (ADM) system is needed to
global standardization and monitor SOP. It continues collecting statistic information allocate
intelligence and locates the area of ineffective or inefficient use of the ADM. More security
software should be updated and developed for all possible virus types. In the long run, these
costs of software upgrading and real-time information system will be paid off. It is looked
promising ahead for Wal-Mart and is ready for horizontal growth strategy.

Works Cited
Wheelen, Thomas L. and Hunger, J. David. Strategic Management and Business Policy: Achieving
Sustainability. 12th Edition Upper Saddle River: Pearson Education, Inc., 2010.