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Strategy Management Balanced Scorecards Example -Wal-Mart

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 Strategy Management
Balanced Scorecards Example – Wal-Mart
by
Bassem Abi-Farah, MBA,PMP,B.Eng

1
Introduction
Situation: At the end of 2006, Wal-Mart, the world’s biggest retailer, wants to grow its business by

taking advantage of opportunities related to its sustainability strategy. This report to Andrew Rubin, Vice

President of Corporate Strategy and Business Sustainability, recommends the best strategic direction to

be followed by Wal-Mart, its suppliers and associates.

Current Strategy: Traditionally, Wal-Mart follows a cost leadership business strategy, profiting from a

highly efficient supply chain management. This direction is coupled with a sweeping business

sustainability strategy that differentiates it from its competitors .

Competitive Advantage: Extremely efficient and disciplined supply chain operator allows Wal-Mart to

afford having most prices lower than its competitors.

Identification of the issue: Wal-Mart has a very large environmental footprint which impacts negatively

its reputation relatively to its competitors. Consequently, less consumers shop at Wal-Mart , its stock is

undervalued and its market capitalization eroded . Moreover, sales growth is slowing and the company is

facing increasing resistance from local communities against its expansion. Understandably and in contrast

to one past environmental initiative, Wal-Mart wants its current sustainability strategy launched in 2005,

to be “long-lasting and deeply embedded in its operations”.

Challenge: How could Wal-Mart improve its sustainability strategy implementation while growing its

market leadership?

Analysis

Alignment of the company’s Sustainability with Overall Business Strategy

Differentiation: Providing support for communities generates goodwill and improves reputation.

Sustainability projects differentiate Wal-Mart from its rivals.

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License to grow: Being mindful of environmental issues allows Wal-Mart to expand geographically and

financially with public, legal and governmental buy-ins.

Reducing costs: Improving Supply chain efficiency by analyzing all its depth reduces costs and reinforces

Wal-Mart’s cost leadership strategy.

Mental Models

Andrew Rubin, vice president of corporate strategy and business, believes that substantial performance

improvement of suppliers, customers and employees can be achieved by utilizing specific relevant

measurements. This belief leads Wal-Mart to use the sustainability strategy to make decisions about

measuring the depth of the chain, in order to categorize suppliers. Moreover, it leads Wal-Mart to tie the

bonuses of employees to sustainability measurements. In addition, the company adopts clearer

measurements on their products in order to increase consumer satisfaction.

Tyler Elm, senior director of corporate strategy and business, believes that greater opportunities for

growth can be gained by being outward looking in the corporation. This belief leads Wal-Mart to embark

on a culture realignment from internal focus to, wholeheartedly, embracing the external one too.

Moreover, it leads Wal-Mart to incorporate and to engage non-traditional and external stakeholders in its

corporate structure and in its sustainable value networks. These stakeholders include NGOs, government

and academics, amongst others.

Rubin and Elm share the belief that sustainability is a pure business endeavor. This lead Wal-Mart to

embed sustainability in routine daily job responsibilities. In addition, it lead Wal-Mart to adopt

scorecards to measure the performance of the sustainability initiatives. However, These cards could

reinforce the mental models and would make Wal-Mart stray away from pure humanitarian efforts that

eventually bring goodwill and unwarranted publicity.

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Finally, both men’s mental models of tendency for measurement and outwardness lead Wal-Mart’s

sustainability value networks to adopt the structured process of Engagement, Exploration and Expansion.

Current Value Chain of Sustainability: Areas of Improvement (see Exhibit 3)

Comparison of the Three Networks

The Textiles network was the most successful because it seemed to be making progress, along the

implementation plan of the sustainability strategy which makes it aligned with the overall business

strategy. The success of this network is explained by the fact that a cultural and organizational change has

been initiated targeting the links of the value chain creation that goes from farm to end customer. As a

result, Wal-Mart is able to charge a premium for the organic cotton products, knowing that this additional

charge will, most likely, decline with the progress of the implementation plan.

The second most successful network is the Seafood one because it was able to have substantial cost

savings. However, it was not able to convey the value creation to the end customer because there is no

differentiation amongst the certified and non-certified products. Cost savings have been achieved due to

the implementation of an information management system that enabled Wal-Mart to consolidate the

supply chain and to disseminate the best performing suppliers.

The least successful is the Electronics network because it is incurring financial losses and there is no

visibility for a turnaround. Moreover, the end customer is impervious of the benefits of recycling which

makes it difficult to convey the differential in cost to price. The lack of success of this network is due to

the fact that its performance management program and its metrics are not customer-oriented . Moreover,

the lack of collaboration in its network and mainly of its suppliers hinders its value.

Motivation of Suppliers
Wal-Mart included its suppliers in its networks thus establishing collaboration model and the primary

criterion for this inclusion is focusing on being committed to future solutions. Wal-Mart engaged its

4
suppliers to identify opportunities and goals for improvements. Furthermore, Wal-Mart explored those

initiatives and defined a future outcome and worked with its suppliers to achieve it.

Wal-Mart took the long term approach and gave its suppliers room to improve by certifying against set

standards and by applying the auditing reports’ remedying actions. Suppliers saw opportunities to

differentiate themselves , to secure long-term commitments with Wal-Mart and to expand them. Wal-

Mart made sure that suppliers benefited through cost savings, premium charges and low inventory levels

resulting from sustainability strategies. Moreover, Wal-Mart provides training and education to its

suppliers and encourages them to license their environmental innovations.

Finally, Wal-Mart ensures that each network determines its sustainability attributes metrics. These

measurements though scorecards motivate the suppliers to continuously increase their businesses with

Wal-Mart.

Analysis of current strategy implementation plan

Strategic Change: The mental models driving the sustainability strategy are on the right track in going

external , in applying metrics and in embedding it as a daily operational routine. However, the metrics

driving this reinforcement of the mental models could lead to a loop that would make Wal-Mart caught

up in driving cost reductions in its supply chain to please Wall Street and shareholders. Moreover, it

could lead the resources to develop competency traps and it could pave the way for first movers that grab

market leadership through revolutionary technologies.

Organizational Structure Change: The Textiles network redefined the role of its main resources along the

value chain. Thus, they aligned their internal processes with the business strategy of the company(see

Exhibit 1) and they instigated a potent competitive advantage. Moreover, it brought the network equally

closer to both stakeholders, its suppliers and its customers.

5
Performance Management Plan: Target is outperforming Wal-Mart in its public environmental image.

Customers surveys are showing attrition tendencies because of this reputation. Suppliers like seafood in

China need tighter auditing control because of corruption tendencies and they need to keep being

motivated through sustained progress. Buyers in Electronics network are not able to track the customers’

needs and trends. Associates need metrics that tie their bonuses to customer satisfaction. Moreover, Wal-

Mart need metrics to manage communications with customers and to manage product assortment between

green and non-green products and to motivate its suppliers for continous process improvement like

certification and compliance to ethical code of conduct. In addition, Wal-Mart wants to introduce four

Wal-Mart defined environmental metrics in China network.

Organizational culture realignment: Wal-Mart could not make its previous sustainability strategies long

running and had to drop them. In 2007, Ruben and Elm are counting on redefining the culture by going

external and by developing a preferred future outcome, to make this attempt a long-term successful

strategy implementation. Moreover, Wal-Mart is aiming to develop long term influential relationship with

each supplier.

Information Management Plan: It seems that Wal-Mart has implemented an information management

system that allows it to analyze the depth of the supply chain, to consolidate its supply base and to

analyze and share information about global logistics savings. In addition, it implemented online

scorecards to convey information between buyers and suppliers related to Packaging. By using these

systems, Wal-Mart saved costs, improved supplier performance and performance management.

Middle Management Plan: Associates are huge resources for Wal-Mart. They are the closest to customers

and communities. Their middle management can deduce issues in sustainability strategy implementation,

their staff can detect unforeseen environmental problems and their in-store personnel protects from
6
litigations. However, Associates lack deep understanding of the details or strategies. Moreover, it seems

that there is not much of a personal level of interest of the associates with these sustainability initiatives.

In addition, Chinese auditors hired from their local communities are prone to be corrupt.

Recommendation
Wal-Mart is optimally positioned to have a dual business strategy of cost leadership offering the lowest

price to its customers and of differentiation offering sustainability leadership.

In order to accomplish this strategy, I recommend the following implementation plan.

Strategic Change: Higher Level learning enables Wal-Mart to proactively anticipate sustainability

opportunities pertaining to customers, communities and governments. This would greatly smoothen its

geographical expansions and would favour its standing in customer surveys. Problemistic Search

targeting community problems should be initiated regularly and not just during natural disasters. Human

Resources should be involved in finding personnel that think “out of the box”, add diversity and that

could be added to the 5-member core team. Moreover, in order to deliver “game changer” projects,

disruptive technologies should be implemented and commercialized. Hence, Wal-Mart should be able to

have an Absorptive Capacity. These added capabilities should be achieved by hiring right resources able

to scour the market for startup technologies and to promote them through its networks. In addition, Wal-

Mart, being the market leader, should not shy away from involving the retail industry in establishing

ethical solutions in China. One of the first pilot projects would be to discover and market a revolutionary

technology for the Textiles network. Having first mover advantage in revolutionary technologies would

enable Wal-Mart to grab market leadership and to reduce environmental impacts. (see Exhibits 2 , 3)

Organizational Structure Change: A similar structural change to that of the Textiles network should be

applied to the Electronics network and to any network having a buyer role; thus bringing its buyers closer

to the end customers, enabling them to respond to their needs and to execute on the trends variations.

7
Moreover, sensing trends and creating corresponding products reinforces the problemistic search

capability of Wal-Mart. Finally, these new roles require that the Buyer resources capabilities be enhanced

through proper training. Learning/Growth and Internal Processes will be included in new BSCs.

Performance Management Plan: Wal-Mart should adopt the Textile network model of organizational

change in order to establish a performance management implementation (see Exhibit 1). The

implementation should follow the example of a balanced scorecard. For instance, the performance

management Learning and Growth plans of Electronics and Seafood networks should be changed in order

to follow the value chain breakdown. In addition, the suppliers’ balanced scorecards should follow the

same principles and should tie up with the objectives and measures in Wal-Mart’s BSC (packaging, four

new metrics). Wal-Mart, unlike Target, feels out of touch with its customers. Hence, it is imperative to

include an objective of improving the impression that customers and communities feel about the

environmental impact of Wal-Mart. This objective would be tied to a metric and to a target and plan of

actions. Moreover, metrics about public communications and cannibalization should be considered.

Organizational culture realignment: In order to make it a long term sustained effort, Wal-Mart has to

apply levers, instrumental and symbolic to go from the current culture to the preferred one.(see Exhibit 2)

Wal-Mart appointed network captains and enlarged the scope of the organization to encompass NGOs

and external expertise. However, in order to propagate these changes within the corporation known for its

internal focus, a cultural realignment has to be implemented.

Information Management: Diversity should be promoted through insider-outsider mix and heterogeneous

backgrounds. Hence, information management systems should be expanded to include external side of the

network in order to enhance collaboration. Security barriers would prevent unwanted intrusions. In

addition, shared understandings help manage control and collaboration. In order to manage the tension

between control and collaboration, decision making and interactions should be shared corporation-wide.

IT should be aligned with this objective and ERP/CRM/KM systems should be made collaborative. In
8
addition, supply chain should be monitored through ERP system in order to improve supplier

performance through depth and custody. Thus, consolidating the supply base of all networks would be

achieved. Moreover, information management systems enhance the amount of learning data and improve

the likelihood of understanding relationships amongst them. This increases the Absorptive Capacity of the

organization.

Middle Management: The involvement of associates in strategy implementation is crucial. Their sensing

capabilities should be enhanced. Middle Managers should act as key strategic actors in making sense of

sustainability opportunities in their local areas. Being closely involved in strategy formulation would

make local managers less corruption prone. Hence, middle managers should be privy of strategic details

and they should participate in strategy formulation given their on-site advantage over senior managers. In

addition, they should act as coaches to subordinates to drive up the personal interest in sustainability

initiatives. Middle Managers have the responsibility of monitoring the performance of associates

subordinates. Their motivation is revved up by tying up their bonuses to specific metrics of customer

satisfaction related to sustainability attributes is key to drive the initiative throughout all-level ranks.

Finally, middle managers should champion new ideas shared by associates on information systems.

New Value Chain and Financial Performance after recommendation

Wal-Mart will grow its market capitalization, its stock price, reduce its costs and expand its revenues

following the recommendation( see Exhibit 2). In addition, Wal-Mart will improve its reputation and

goodwill image amongst public and governments. The strategy implementation improvements will

substantially increase the value creation for its customers(see Exhibit 3). This long-term plan will

drastically reduce the organization’s global environmental impact and will usher the way for

sustainability strategies targeting employees’ healthcare and welfare, ethical sourcing and globalization.

9
 Exhibit 1 – Mental Models, Comparative Analysis of 3 networks and Strategy Map and BSC of Textile

ADDED VALUE Through Network Seafood Electronics Textiles

Supply 5 5 5
Distribution(Global Logistics) 5 5 5
Operations 1 1 3
Marketing and Sales 3 1 5
After Sales 3 1 5
Finance 5 1 3
R&D/Innovation 1 3 3
Scoring: High=5 Medium=3 Low=1

Seafood Mental Models

Pros Cons Occurrence in statements Ruben Elm
30-40% certified No price premium Ouwardness (same meaning) 8
High cost of certification Does not offer solution for a guarantee of continuity of supply in long term measurements 4
Reduce supplier costs Still a high percentage not certified customers 5
Reduced paperwork Cannot show value to customer
Improve transportation Outwardness- helps decision making(prices, product
Increase revenues by $14 M assortment)/improves communications,performance
Increase profits by $ 4.3 M

Electronics Measurements added value/diversity of ideas,innovation/

Pros
Opportunity of legislation raising prices
1% participation
Opportunity to license innovations
Cons
Loss from packaging
Customers unwilling to pay to participate
Expensive programs
Unwillingness to collaborate amongst suppliers
No Cost savings through efficiency improvement

Textiles
Pros Cons
Customer appeal No game changer
Transferrable knowledge to other network(organic)
Healthier than conventional
Few projects at once
All projects feed into a master plan (5-10 year outlook) long term sustainable
Collaboration with opposition
Opportunity to eliminate all toxicity by switching to organic
Opportunity to purchase directly from farmers using organic means at reasonable rates

Strategy Map - Textile Network- similar one to be implemented for Electronics Network

10
11
 Exhibit 2 – Culture Realignment – Strategy roll out impact – Finances after recommendation

Current culture Preferred culture

Stories: Associates
Structure: Buyer Role
Internal focus stories,quick wins stories Outwardness
customer centric

Supplier centric Redefineadd

Buyer Role Customer centric
Process: customer Rituals: Reward
metrics , ERP/CRM Associates, Suppliers Relationships
Transactions
value|long term
value|short term HR: “out of box” hires, Norms: explain strategy
Community
Inf. mgmt training details to associates
outreach |collab.
Passion for low
Practices: Strategic Symbols: “network Passion for
prices
Planning /prioritize of captains”, coloured tags sustainability
projects/PMO

Establish
steering Conduct Culture Gap Audit
committee
and PMO to
oversee quick
wins/innovati Promote Grassroots: encourage pockets of self motivated employees
ve/game
changers
Include metrics to assess progress
projects

Environmental and implementation impact after roll out of recommendation (green is where the implementation will occur)

Network/strategy Environmental Environmental Environmental Structure Information Performance Strategic Middle Culture Realignment Plan
implementation/env Impact(initial) impact (after impact (after change Plan Management Plan Management Plan Change Plan management
ironmental impact recommendation- recommendation-10 Plan
5 years) years)
Textiles 5%x42% 50%x5%x42% 50%x50%x5%x42 Market >1.3% cost savings Motivation increase Consolidate Align associates Ensure long term effort
Leadership per year Market with sustainability
leadership
Electronics 4%x42% 50%x4%x42% 50%x50%x4%x42% Market >1.3% cost savings Motivation increase Consolidate Align associates Ensure long term effort
Leadership per year Market with sustainability
Leadership
Food 50% 50%x50% 50%x50%x50% >1.3% cost savings Motivation increase Align associates Ensure long term effort
per year with sustainability
Forest&paper 4%x42% 50%x4%x42 50%x50%x4%x42% Motivation increase Align associates Ensure long term effort
with sustainability
Chemical Intensive 5%x42% 50%x5%x42% 50%x50%x5%x42% Market >1.3% cost savings Motivation increase Align associates Ensure long term effort
Products Leadership per year with sustainability

Jewelry Motivation increase Align associates Ensure long term effort

with sustainability
Seafood >1.3% cost savings Motivation increase Align associates Ensure long term effort
per year with sustainability
China >1.3% cost savings Motivation increase Align associates Ensure long term effort
per year with sustainability
Packaging $ 680 M cost savings Motivation increase Align associates Ensure long term effort
per year with sustainability
Operations and 4% 50%x4% 50%x50%x4% Motivation increase Increase Align associates Ensure long term effort
Internal Goodwill more with sustainability
than Target
Procurement
Global Logistics $75 M cost savings Motivation increase Increase Ensure long term effort
per year Goodwill more
than Target
Energy, Design Motivation increase Increase Ensure long term effort
Construction and Goodwill more
than Target
Maintenance
Alternative fuels Motivation increase Ensure long term effort
Global Greenhouse Motivation increase Increase Ensure long term effort
Gas Strategy Goodwill more
than Target
Wal-Mart’s finance increases from Market Capitalizaton increase >16 B$ Stock >8.4% Savings >3.4B$ Revenues > 8%
sustainability strategy implementation (1year) :

12
 Exhibit 3 – strategic Change – Restructuring Buyer – Value Chain Comparisons

Strategic Change Value Chain Analysis

Service
Improve customer understanding and relative product assortment

Lower Level Higher Level Marketing and Sales

Improve product design and trend execution
Learning Learning Improve customer impression of Wal-Mart’s environmental impact
Outbound Logistics
Keep on Improving transportation fuel savings
Operations
Improve Packaging
Respond to Commercialize Improve in-store execution

community revolutionary Inbound Logistics

Improve supplier pricing and quality and environmental impact
problems technologies
Procurement
Improve technical specifications
Encourage Human Resources
Operational disruptive start- Hire for diversity
improvements ups Hire trainers for IT systems
monitored by Search for
Firm Infrastructure
Align ERP with control systems
performance community Align ERP with Collaboration in networks
mgmt problems and help Technological Development
Encourage R&D to find disruptive technologies
proactively
Sustainability core team responsibilities

50% 50%

New Structure where Buyer role exists

Buyer Buyer

Technical
Merchandising Services and
Sourcing

Product Planning and

Development Execution

Old Value Chain Analysis Resolved by new value chain additions

Areas that need improvement:
Supply: NoInformation
cost savings fromManagement
e-waste| Not enough knowledge
sharing between suppliers | Toxicity in post production
Services: Public communications confusing and not transparent |
Need to get government support for CFLs and Recycling
Operations: Need metrics for “green” products categorization not
leading to cannibalization | metrics for public communications
Finance/IT/HR/Procurement: investments to improve
interaction/collaboration/sharing/training/diversity are needed
Supply: change structure of Electronics to make it more customer centric to
encourage e-waste recycling increase |Encourage sharing through ERP and
by licensing | Add metric about post-production toxicity reduction
Services: add Objective about customer appreciation of transparency and
the metric is taken from survey | Involve the new resources in dealing with
government
Operations : Customer surveys will determine the demand for new “green”
products | Customer surveys will determine if more transparency is needed
HR/IT/Fin./Proc: enable training of associates, middle managers| Align IT13
systems with sustainability strategy|Investments are in systems| Improve
tech. specs

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