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Table of Contents I.

Introduction Company Profile Industry Overview

II. Business Strategy Factors influencing Organizational Structure

III. Organizational Structure of the company

I. Introduction Company Profile Wal-Mart Stores, Inc. was first established and founded by Sam Walton at Rogers, Arkansas in 1962. The business growth of the retail store was momentous that within a span of seventeen years in operation, Wal-Mart had already topped annual sales at one billion US dollars. By the end of January in 2002, Wal-Mart has been recognized as the largest retailer in the world a sales record of US $218 billion. With this huge and continuous development, the retail store was eventually able to operate at the global level. The global operation of Wal-Mart was marked by the establishment of its first international store in 1991 at Mexico City (Govindarajan & Gupta, 2001). Through its international reach, an estimate of one hundred million customers are said to visit a Wal-Mart store found somewhere in the world. A total of 1.3 million associates worldwide are employed by the company and are distributed within its 3,200 stores in the United States as well at over a thousand other stores in Canada, Brazil, Mexico, Argentina, Puerto Rico, China, Germany, Korea and in the United Kingdom (Govindarajan & Gupta, 2001). Vision and Mission According to Kim Ellis, Public Relations Coordinator of Wal-Mart, the companys lack of a formal vision is attributable to its belief that the interest of their customers are focused on the business other aspects. The company is then more concentrated on meeting their consumers basic necessities. Nonetheless, if a formal mission statement is made for the company to uphold, Ellis stated that it will probably be To provide quality products at an everyday low price and with extended customer servicealways (Shah & Phipps, 2002). Products and Services As a retail company, Wal-Mart offers a wide array of products to the consumers. These include groceries, toys, apparel for women, men and children, jewellery as well as other hard goods; all sold at reasonable and generally affordable

prices. The services of the company on the other hand, are centered on the operation of multiple retail stores both in the United States and international branches. The business is actually divided into three main segments (see the table1 below): Wal-Mart Stores, Sams Club and International Stores. The Wal-Mart stores are further subdivided into Discount Stores, Supercenters and Neighborhood Markets. Sams Club on the other hand, is a business segment that consists of membership warehouse clubs. Wal-Mart Stores operates about 1,478 Discount Stores, 1,471 Supercenters, 538 Sams Club and 64 Neighborhood Markets within the United States as of January 31, 2004 (New York Stock Exchange, 2005). In addition to this huge local operation, Wal-Mart and its international segment conducts retail operation within eight countries and Puerto Rico. Wal-Marts international segment is made into several formats, which include retail stores, restaurants, discount stores, Sams Club and Supercenters. Aside from these operations, Wal-Mart also owns a 37.8% unconsolidated minority interest in one of Japans retailers, The Seiyu, Ltd. (New York Stock Exchange, 2005). Table 1: WAL-MART SEGMENTS SEGMENTS PRODUCTS 1. Wal-Mart Stores - Supercenters, Groceries, toys, apparel for segment - Discount Stores, - Neighborhood Market, - 2. Sams Club segment in United States - American warehouse membership club 3. International segment - Fully-owned subsidiaries in Germany, UK, Argentina, Puerto Rico, Canada, South Korea, Mexico, Brazil and China women, men and children, jewellery, accessories, fabrics and sport merchandise. Sport goods, soft goods and jewellery All the above

Industry Overview

Retail is the second-largest industry in the United States both in number of establishments and number of employees. The U.S. retail industry generates $3.8 trillion in retail sales annually ($4.2 trillion if food service sales are included), approximately $11,993 per capita. The retail sector is also one of the largest worldwide. Retail trade accounts for about 12.4 percent of all business establishments in the United States. Single-store businesses account for over 95 percent of all U.S. retailers, but generate less than 50 percent of all retail store sales. Gross margin typically runs between 31 and 33 percent of sales for the industry but varies widely by segment. Wal-Mart is the largest grocery retailer in the United States, with an estimated 20% of the retail grocery and consumables business, as well as the largest toy seller in the U.S. Also, again tops the list of the Top 100 retailers worldwide, a position it has held since 1990 (see Table 2 bellow). Steady growth, strong consumer appeal and global aspirations indicate that Wal-Mart will remain atop the list for years to come, comments Kalish.
Table 2: Top 100 Retailers Worldwide

Economic Concentration of the Leading Companies based on 2001 Annual Sales (in millions - U.S. Dollars) Rank 1 2 3 4 5 6 7 8 9 10 Retailer Wal-Mart Stores, Inc. Carrefour Group The Home Depot, Inc. The Kroger Co. Royal Ahold Metro AG Target Corporation Albertson's, Inc. Sears, Roebuck and Co. Kmart Corporation Total Top 10 Source: Retail Forward,Inc. Home Country USA France USA USA Netherlands Germany USA USA USA USA Sales $202,011 $62,216 $53,553 $50,098 $48,239 $43,816 $39,176 $37,931 $37,328 $36,151 $612,520

In 2001, Fortune magazine named Wal-Mart the third most admired company in America, and the Financial Times and PricewaterhouseCoopers ranked it as the eighth most admired company in the world. The following year, Wal-Mart was named

number one on the Fortune 500 list and was presented with the Ron Brown Award for Corporate Leadership, a presidential award that recognized companies for outstanding achievement in employee and community relations. Also, it is the world's largest public corporation by revenue, according to the 2008 Fortune Global 500. The new Global Retail Concentration report from Planet Retail

( reveals that concentration levels in grocery, general merchandise and drug retailing will continue to escalate over the coming years, with world leader Wal-Mart showing little sign of relinquishing its grip on global domination. As report author Bryan Roberts notes: the main engine of growth for the company remains its relentless expansion of its Supercenter format in the USA. It can afford to rely on rapid and profitable organic growth in its home market in the medium term, but is also strengthening a portfolio of global activities to sustain it in the longer term. Wal-Mart and its five largest rivals are set to see their global market share increase to nearly 20% in 2008 up from 15.4% in 2003. This forecast does not factor in acquisitions and new market entries - suggesting that concentration will actually be higher than forecast - as evidenced by Carrefours recently-announced acquisitions in Turkey. This concentration process will impact not just on consumers and retailers, but also manufacturers, who will have to contend with stronger retailer buying power as well as issues such as international promotional activity (see appendix I, Table 1). Looking at a broader selection of retailers - the Global Top 15 - indicates that the 15 largest retailers in the world will see their market share advance to 31% by 2008 from 25% in 2003as well as increasing their regional concentration (see appendix I, Table 2). II. Business Strategy How an organization is going to position itself in the market in terms of its product is considered its strategy. A company may decide to be always the first on the market with the newest and best product (differentiation strategy), or it may decide that it will produce a product already on the market more efficiently and more cost effectively (cost-leadership strategy). Each of these strategies requires a structure that helps the organization reach its objectives. In other words, the structure must fit the strategy.

The key features of Wal-Mart's approach to implementing the strategy put together by Sam Walton emphasizes building solid working relationships with both suppliers and employees, being aware and taking notice of the most intricate details in store layouts and merchandising techniques, capitalizing on every cost saving opportunity, and creating a high performance spirit. This strategic formula is used to provide customers access to quality goods, to make these goods available when and where customers want them, to develop a cost structure that enables competitive pricing, and to build and maintain a reputation for absolute trustworthiness (Stalk, Evan, & Shulman, 1992). Wal-Mart's success is mainly based on its concentration of a single-business strategy. This strategy has achieved enviable success over the last three decades without relying upon diversification to sustain its growth and competitive advantages. Given its current position in the industry, Wal-Mart may want to continue its single-business strategy and to push hard to maintain and increase market share. However, there is risk in this strategy, because concentration on a single-business strategy is similar to "putting all of a firm's eggs in one industry basket" (Thompson & Strickland, 1995, p. 187). In other words, if the retail industry stagnates due to an economic downturn, WalMart might have difficulty achieving past profit performance.

Factors influencing Organizational Structure There are three major factors that affect a company's organization structure; The Organization's Environment, Organization's Technology and Human Resources and size. (George & Jones, 2005) There are 5 different types of organization structures, Simple, functional, divisional, matrix and conglomerate. (George & Jones, 2005)

Organizational size As an organization grows, they are likely however; it becomes increasingly difficult to manage without more formal work assignments and some delegation of authority. Therefore, large organizations develop formal structures. Tasks are highly specialized, and detailed rules and guidelines dictate work procedures

(Robbins, 1990). Interorganizational communication flows primarily from superior to subordinate, and hierarchical relationships serve as the foundation for authority, responsibility, and control. With functional structures, such growth creates pressure for a change to divisional structure(Astley, 1985). The type of structure that develops will be one that provides the organization with the ability to operate effectively. That's one reason larger organizations are often mechanistic mechanistic systems are usually designed to maximize specialization and improve efficiency. Environment The environment is the world in which the organization operates, and includes conditions that influence the organization such as economic, socialcultural, legal-political, technological, and natural environment conditions. Environments are often described as either stable or dynamic. According to Burns and Stalker (1961) the firms had different structural characteristics, depending on whether they operated in a stable environment with relatively little change over time or unstable environment with rapid change and uncertainty. In general, organizations that operate in stable external environments find mechanistic structures to be advantageous. This system provides a level of efficiency that enhances the long-term performances of organizations that enjoy relatively stable operating environments. In contrast, organizations that operate in volatile and frequently changing environments are more likely to find that an organic structure provides the greatest benefits. This structure allows the organization to respond to environment change more proactively (Burns and Stalker, 1961). Technology Advances in technology are the most frequent cause of change in organizations since they generally result in greater efficiency and lower costs for the firm. Technology is the way tasks are accomplished using tools, equipment, techniques, and human know-how.

In the early 1960s, Joan Woodward found that the right combination of structure and technology were critical to organizational success. She conducted a study of technology and structure in more than 100 English manufacturing firms, which she classified into three categories of core-manufacturing technology:

production: A print shop is an example of a business that uses

small-batch production.

production: A company that bottles soda pop is an example of an

organization that utilizes mass production.


production: Examples are automated chemical plants

and oil refineries. Woodward discovered that small-batch and continuous processes had more flexible structures, and the best mass-production operations were more rigid structures. Once again, organizational design depends on the type of business. The small-batch and continuous processes work well in organic structures and mass production operations work best in mechanistic structures. Culture and Structure Culture is probably felt more through its definition of roles than in any other way. Its the culture that defines how people conceive of the reasons and routes for their actions. Leaders are mainly under the hold of organizational culture when know that, although they may do many things, usurping the decision making authority of the membership is fundamentally wrong. Similarly, staff recognition of when and when not to act often follows from an understanding of an unwritten organizing model, another facet of the organizations culture. Overall, its the culture that specifies appropriate and inappropriate behaviourreinforced by structural contingencies (rewards and punishments)for members, leaders, staff, and even consultants. A number of organizations, such as Wal-Mart, McDonalds and Hewlett-Packard attribute their success partly to distinctive cultures that are rooted in values articulated by strong founders and reinforced by subsequent top executives (Huse and Cummings, 1985)

The need for developing a knowledge culture is obvious for most organizations. With the continuing globalization of the economy, organizations are facing increasing pressure to effectively manage their intellectual capital. Organizations that attempt to introduce a knowledge management initiative without having a managerial support structure will soon find that the investment in knowledge management does not produce any perceived benefits (Goh, 2003;Nahm et al., 2004). Gold et al. (2001) state that organizational structure is an important factor in leveraging technology and more specifically that organizational structures must be flexible to encourage sharing of knowledge and collaboration across traditional organizational boundaries to promote knowledge creation. Achieving a knowledge culture requires managerial focus in three areas: preparing the organization, managing knowledge assets, and leveraging knowledge for competitive advantage (Abell and Oxbrow, 1997). Preparing the organization is the first step in developing a knowledge culture and often involves changing the culture of the organization, changing the way employees work and interact. Organizational culture shifts are difficult to accomplish (Roth, 2004). Smaller organizations, 200 or fewer employees, and newer entrepreneurial organizations will have an advantage in making the prescribed culture shift over larger and older organizations that have a long history of corporate culture and a more rigid managerial structure (Becerra-Fernandez et al., 2004).

III. Organizational structure Research shows that organizational structure and the controls that are part of it affect firm performance (Burns and Stalker, 1961). In particular, when the firms strategy isnt matched with the most appropriate structure and controls, performance declines (Bower, 2003).

Organizational structure specifies the firms formal reporting relationships, procedures, controls, and authority and decision-making processes (Keats and ONeill, 1995). Developing an organizational structure that effectively supports the firms strategy is difficult (Leavitt, 2003), especially because of the uncertainty (or unpredictable variation (Priem et al, 2002) about cause-effect relationships in the global economys rapidly changing and dynamic competitive environments (Day,2003). When a structures elements (e.g procedures, reporting relationships) are properly aligned with one another, that structure facilitates effective implementation of the firms strategies (Barth,2003). Thus, organizational structure is a critical component of effective strategy implementation processes (Barkema et al, 2002). Divisional Structures: Product, Market and Geographic Wal-Marts organizational structure consists of a divisional structure. A divisional structure has three different categories in which are product structure, market structure, and geographic structure. Wal-Mart falls under market structure (see Appendix II, Figure 1). This is where groups function by types of customers so that each division contains the functions it needs to service a specific segment of the market (Bartol and Martin, 1998). The divisional structure has many advantages as well as some disadvantages (Bartol and Martin, 1998) as explained below. Advantages of a Divisional Structure Coordination Advantages 1. Quality products and customer service - Functions are able to focus their activities on a specific kind of good, service, or customer. This narrow focus helps a division to create high-quality products and provide high-quality customer service. 2. Facilitates communication - between functions improve decision making, thereby increasing performance. 3. Customized management and problem solving - A geographic structure puts managers closer to the scene of operations than are managers at central headquarters. Regional managers are well positioned to be responsive to local situations such as the needs of regional customers and to fluctuations in

resources. Thus regional divisions are often able to find solutions to regionspecific problems and to use available resources more effectively than are managers at corporate headquarters. 4. Facilitates teamwork - People are sometimes able to pool their skills and knowledge and brainstorm new ideas for products or improved customer service. 5. Facilitates decision making - As divisions develop a common identity and approach to solving problems, their cohesiveness in- creases, and the result is improved decision making. Motivation Advantages 1. Clear connection between performance and reward - A divisional structure makes it relatively easy for organizations to evaluate and reward the performance of individual divisions and their managers and to assign rewards in a way that is closely linked to their performance. Corporate managers can also evaluate one regional operation against another and thus share ideas between regions and find ways to improve performance. 2. Customized service - regional managers and employees are close to their customers and may develop personal relationships with them-relationships that may give those managers and employees extra incentive to perform well. 3. Identification with division - employees' close identification with their division can increase their commitment, loyalty, and job satisfaction. Disadvantages of a Divisional Structure 1. High operating and managing costs - because each division has its own set of functions, operating costs- the costs associated with managing an organizationincrease. The number of managers in an organization, for example, increases, because each division has its own set of sales managers, manufacturing managers, and so on. There is also a completely new level of management, the corporate level, to pay for. 2. Poor communication between divisions - Divisional structures normally have more managers and more levels of management than functional structures have,

communications problems can arise as various managers at various levels in various divisions attempt to coordinate their activities. 3. Conflicts among divisions - divisions may start to compete for organizational resources and may start to pursue divisional goals and objectives at the expense of organizational ones. Wal-Mart has chosen the appropriate structure in relation with the business strategy that develops because, as it previously mentioned, when changes in the strategy occur then changes in the structure should follow. Wal-Mart is a global retail company which means that apart from the U.S market it develops in many other countries and also taking into consideration the various products that offers the most appropriate structure that should apply is the divisional and more specifically the market structure. Wal-Mart is indeed one giant retail company whose position in the industry is more or less assured. Nonetheless, there will always be internal and external factors that would affect it and may result to business problems. However, by means of optimizing the companys available resources and considering its environment, it is possible for the retailer to overcome its present as well as future issues. From this analysis, it has been stressed that the success of the company is actually derived from its low cost strategy and its divisional structure.