Case Wal-Mart (Ricardo López Pérez)

Introduction

Walmart was founded by Sam Walton and his brother in 1962 (Ghemawat and Bradley,
2002). Previously from 1945 he was responsible for managing 15 franchised stores of thr
brand Ben Franklin. In 1970 Wal-Mart was a chain of 30 discount malls in rural towns of
Arkansas, Missouri and Oklahoma. In 1985 Wal-Mart had 859 stores (Ghemawat, 2007).
Half of them were located in towns between 5,000 and 25,000 population. In about one
third of these, Wal-Mart had no direct competitor on those towns. When Sam Walton
died in 1992, Wal-Mart was an unprecedented success story. With ratios such as: Return
on equity (ROE) of 33% on average over the past 20 years and an average annual sales
increase of 35%. The market capitalization of Wal-Mart was 57.5 billion dollars and the
average sales-per-square-meter was $300, compared with $210 average for competitors.
It was widely recognized in academic and social environments that had revolutionized
many aspects of retailing and was famous for his heavy investment on information
technology.

Value Proposition

The initial value proposition of Wal-Mart founder Sam Walton was: "Our key strategy was
to put considerable size stores in small towns, which the rest of the competition were
ignoring ... if we offered Prices as good or better than other stores that were four hours
away, customers prefer to buy at home. "

Therefore, the innovative proposition Wal-Mart for the client was to give the products
needed in their own city and a better price. Wal-Mart customer saved him two of its
scarce resources: time and money.

Implementation of activities and processes, using innovative resources and capabilities

For Sam Walton the most important ingredient of his success was the way they build
relations with its partners and employees (Ghemawat and Bradley, 2002). In the words of
Sam Walton: "If you pretend that the people in the shops take care of customers, you have
to take care of care for people in the stores." It also places a special trust in its employees
"Give the kids responsibility, you have to trust them, then you have to check what they
do".
Another cultural characteristic of the founder and the organization itself is austerity, "... I
do not think the big houses and flashy cars represents the culture of Wal-Mart, the key is
customer service."

Wal-Mart is excellent empowering partners, maintaining technological superiority over its

competitors, building trust on their partners, customers and suppliers. Some critical
points of the activities and processes carried out by Wal-Mart are:

The marketing strategy of Wal-Mart is tailored to individual markets, in many cases even
individually for each store. This is made possible by information systems. The store
manager, using sales data and inventory choose which products they want in their store,
based on customer preferences. They also manage its space according to product
categories as demand for its establishment. The slogan is very clear and consistent with
the strategy: "everyday low prices" this makes advertisement not necessary. While its
competitors are investing a lot on it, Wal-Mart invests in being true to its strategy and not
disappoints their customer value proposition. Besides a policy satisfaction guarantee, so
that if the customer is not satisfied can return items.

Operations within the stores also incorporate specific features. They were the first to use
the bar code readers and optical starting in 1983. In 1988 all the shops possessed this
system, two years before its main competitors. The order management needs was
necessary to improve communications between stores, distribution centers and it is the
main reason why in 1983 they installed a satellite communications system. In this way
they could analyze daily sales for each store and department and inventories to improve
decision-making. From 1987-1993 he had invested $700 million in satellite
communications. In 2004, Wal-Mart was ready to take the leadership in the new
technologies of information on radio frequency identification over other distributors
(Yoffie, 2005). This technology is that the products include a chip to pass through a
magnetic arch communicates all references and so the customer does not have to leave
all products for verification. Wal-Mart believes that this technology will reduce costs by
6%, but will not be an easy road.

For Wal-Mart human resources are a critical piece. It has been recognized as one of the
100 best companies to work for. Although they are having some complaints due to
increased temporary and part-time contracts in recent years. Shops open with regular
hours of 9 h. 21 h. Monday through Saturday and Sunday from 12:30 to 17:30. Despite all
this, Wal-Mart has no unions despite being the largest road transport operator, the third
largest pharmacy and one of the largest sellers of vegetables and fruits (Yoffie, 2005).
The management team of Wal-Mart, except some exceptions, people in their forties and
fifties who have started working at Wal-Mart since leaving high school. Therefore they are
well known inside the organization. They also have rules like working in a store a certain
number of days per year, visit a number of shops or at least, talk via videoconference with
all the stores every year.

The distribution system Wal-Mart is based on a system of centralized distribution "hub

and spoke). Orders of the various stores accumulate and are delivered by suppliers in a 27
distribution centers. There orders are prepared and delivered to the store that requested
them. Normally the order is delivered within 48 hours to the realization of the original
order. Also, the trucks never travel empty, because from the stores is sent to the central
warehouse products that have been returned by customers or are not selling well. In
addition they are asked to perform certain stops on the way back to pick up merchandise
suppliers to bring to the store.

The relationship with suppliers is done through centralized purchasing from

headquarters. They are required a minimum of social responsibility as maximum hours of
60 hours per week, safe working conditions and no child labor. Through a system of
standardized data interchange (EDI) providers receive orders directly from Wal-Mart that
allows them to quickly prepare orders to be delivered.

Innovative Value Chain

The value chain Walmart is no different from the value chain of any organization in the
sector with a traditional model. What does vary is the form in which its components are
related. This is what makes each link generates additional value over other competitors in
the industry.

Suppliers receive orders directly so they are able to reduce the time in which the products
are available in stores. The distribution is optimized to deliver the products as soon as
possible. Truck travel will also take the opportunity to collect unmarketable goods and
products around. Ultimately, the value chain is maximizing value for the customer and for
Wal-Mart in each link and to the highest possible level.

This business model despite being innovative does not have alternative ways of capturing
value for the organization. The routes of entry are the same as in traditional business
sector, which is the sale of goods.
Innovation Culture

Business innovation culture was steeped in the mind of Sam Walton when he created
Wal-Mart and he currently remains. The continued pursuit of the ultimate technological
advance to be cheaper or more efficient in satisfying what the customer is looking into
the DNA of the organization. It is continually analyzing how they can sell cheaper and
which is the best technology that has application to generate customer value. That thirst
for continuous improvement is the key to its corporate culture and innovation.