Investment Opportunities for the Walmart - Case Study Example

Running Head: BUSINESS ENVIRONMENT Business Environment of the of the Table of Contents Page…………………………………………………………………………………..1 Table of Contents………………………………………………………………………….2 Introduction……………………………………………………………………………….3-4 Anticipated Target of Technological Investment…………………………………………4-5 The Effects of Macro-economics in the Near Future…………………………………….6-7 Walmart’s Financial Strengths and Weaknesses…………………………………………7-10 Economic Valuation of the Investment Project…………………………………………10-11 The Project’s Procurement Strategy……………………………………………………..12-13 Conclusion………………………………………………………………………………..13 References………………………………………………………………………………..14 INTRODUCTION There is no doubt that the current business environmental challenges and globalization have had widespread effects on organizations. These important driving forces have seriously intensified competition among the organizations. And this phenomenon has further pushed organizations to strategically align their investment on acquiring tools, technologies, and required knowledge, skills and abilities for maximizing competitiveness in order to raise the much-needed efficiency, effectiveness, and productivity (Breweste and Larsen, 2008) These factors have also been impacting the workplace, re-engineering business functionalities, reinventing the roles of business units, redesigning the work process and long-lasting progress of organizations. So keeping all the changes in view and realizing the importance of such factors as keys for success, this paper sets to identify and evaluate an investment opportunity of updating technological facilities for Wal-Mart Stores, Inc., an American public corporation that possesses a chain of large discount department stores all across the world. The Walmart is chosen for this paper because of its successes. However, the successes of an organization now depend on the ways it invests its capital in responding towards rapid globalization and technological advancement. Globally, firms have their own values and status for success. The speed and seriousness of responding towards the pull of globalization is going to be the deciding issue in establishing the champions of tomorrow. (Brewester and Larsen, 2008) Internationalization and integration seem to be the order of the day as organizations fight to mitigate the effect of competition. Along with the change in socio, political and cultural order, the movement of global economy is exerting a new environmental trend in international business, which is significantly influencing the pattern of global competition as seen in organizations. Rapid technological advancements have altered the time dimension and the nature of competition. (Bamber, Ryan and Wailes, 2004) In the past, the new entrants with new technologies and expectancy had years of monopoly to exploit their technological advantages, which have now shrunk to a few months only. This observation indicates that if any company undertakes investment in technology, such a company will dictate the direction of the international business environment in this century and many years to come. Hence, Walmart can invest its huge capital in the technological investment detailed below. Anticipated Target of Technological Investment The proposed technological investment Walmart could put its capital on may be labeled as GlobeMagic. GlobeMagic is composed of a set of software that would facilitate the processing and transfer of information among the employees of Walmart of all ranks and the outside world. Up to now organizations are cautious of allowing outsiders to access their top-secret information about the products and services they offered to the public. Although, GlobeMagic will only allow customers, public, government agencies (like standardization bodies and consumer advocate associations or groups) to access information relating to Walmart’s products and services. Top-secret information about the organization’s finances and internal decision-making will be restricted to the public. This technology will help Walmart’s to understand the desires and feelings of consumers as well as the consumer-related associations. This technology will save the organization from spending billion of dollars worldwide on researching the trends in consumerism, since customers and the public can easily connect with Walmart through GlobeMagic. It will be easy for consumers to leave their feedbacks electronically and as often as they. Before now, Walmart connects with its customers through the application of Customer Relationship Management (CRM). However, the disadvantages of CRM are that it does not establish an environment of interactive communication between Walmart and the customers. CRM only allows customers to leave their feedbacks about the organization’s products and services without being given the opportunity to influence the pricing system in Walmart. CRM does not allow non-customers to contact Walmart. CRM does not give the standardization or quality-controlled agencies or associations the power to influence Walmart’s operations. Finally, Walmart could save money by receive orders for goods and services before they are made available to its stores worldwide. This will reduce the cost of warehousing and help the organization to market goods directly from the manufacturers. GlobeMagic will make Walmart to be quite competitive in the business of international retailing. Most importantly, GlobeMagic will allow customers from all over the world to access Walmart’s database, as far as goods and services are concerned; this instance will create a kind of multi-cultural communication that is not possible with the CRM (Lawler and Ledford, 2003). For example, a customer in Italy who is well-versed in English can help the US operations to apply some ideas that have worked for Walmart in Italy. Due to the openness of US Market to Multinational companies, a rapid change and development is observed in the use of technology by other American chains, too. As a result, the scope of personnel functioning has changed drastically. This has resulted in the growth of the new topics of investment opportunities. So, Walmart will only be leading the pack by investing on GlobeMagic. There are number of examples that justify the advantages of investing on intra and inter-organization communication to improve the performance of the organization in achieving success on global fronts. The Effects of Macro-economics in the Near Future By 2013, the trend in consumerism is going to drastically change as consumers will be more interested in the cheapest products and services. The reasons for is that inflation will be high as the prices of goods go up, and the rate at which countries are piling up huge debts now indicate that there will be strict financial or fiscal regulations in the near future. One of the ways countries attempt to fight inflation is by increasing their interest rates and cut public expenses (Hauner et al., 2006). With high interest rates, producers will have to pay more to borrow from the banks and other financial institutions. Undoubtedly, the increase in the prices of goods and services will affect the consumer demands. As the world economies sank deeper and deeper into sovereign debts, citizens of the world would have to be ready to pay more for even fundamental services that are offered by their countries (Hauner et al., 2006). As a result of this, retailers like Walmart would have to rely on the possibility of selling the cheapest products or services that would attract the most unwilling consumers (Hauner et al., 2006). And there is no better way to reduce the overhead cost of marketing and sales of products than involving customers and non-customers in each step of the marketing strategies—which include but not restricted to the provision of price suggestions, feedbacks of products previously consumed and the demand for certain new products. On the part of the consumerism advocates, Walmart can understand which products could lead to legal suit and which one may be rejected by the consumers. The public can give their opinions about the best approach to use in marketing and delivery of goods bought from Walmart. Hence, the most probable way to achieve this is by using GlobeMagic. Macro-economics is a dynamic phenomenon that changes with the time; retailers have to keep their eyes on the fluctuating prices and work hard to reduce them in order to keep their long-time customers. This task may be difficult for organizations that have no foresight about how consumers can avoid their products due to the increase in interest rates and harsh economic situation (Hauner et al., 2006). Walmart’s Financial Strengths and Weaknesses It is imperative to investigate the financial strengths and weaknesses of Walmart before suggesting that the procurement and implementation of any technological concept. The financial performance of Walmart in the last five years is tabulated as follows: (Amounts in millions of US Dollars) 2010 2009 2008 2007 2006 Net Sales $405,046 $401, 087 $373, 821 $344,759 $308, 945 Total Assets $170, 706 $163, 429 $163,419 $151,587 $138, 793 Operating income $23, 950 $22, 798 $21, 952 $20, 497 $18, 693 Net Sales Increase 1.0% 7.3% 8.4% 11.6% 9.8% Courtesy of Walmart’s 2010 Annual Report, available at (http://cdn.walmartstores.com/sites/AnnualReport/2010/PDF/01_WMT%202010_Financials.pdf) Below is the graph showing the trading of Walmart’s shares in the past three months (December included). Courtesy Walmart’s Website, available at (http://investors.walmartstores.com/phoenix.zhtml?c=112761&p=irol-irhome) The statistics and graphs above show some encouraging developments about the financial health of Walmart. First of all, the organization’s Net Sales and Total Assets have increased over the past five years, giving the confirmation that Walmart has enough capital to invest in whatever new technology to solve the main problem in the organization, which is the plummeting Net Sales increase, which went from 9.8% in 2006 to 1.0% in 2010. This reveals that the organization may be experiencing some problems with its customers. Also, operating income increased vertically, giving the impression that Walmart has been spending a lot in recent years to keep its operations in good shape. However, the implementation of GlobeMagic is going to cost Walmart up to $5 million, because this technology has to be centralized in a way that all Walmart stores worldwide can access it. This means that a new IT structure and system will have to be established, and all other technologies that are presently in use at Walmart must be customized to work perfectly in line with the new technology. The main source of capital for Walmart is the sales of its shares, which price fluctuates depending on the financial performance of the organization in each quarter. Issuing more of its shares will help the organization raise enough money to fund the procurement and implementation of GlobeMagic. This means that Walmart does not need to secure loans that could add more burden to its current long-debts. Using the capital realized from its shares will give Walmart management the chance of having a long-term goal on the issue of intra and inter-organizational communication through GlobeMagic. Since this technology is going to allow Walmart’s customers and employees to be interactive with one another on the issues of the organization’s goods and services, the technology will be instrumental in the reduction of the operating income and help Walmart to maximize its profits. In other words, the application of GlobeMagic will help Walmart to save cost of processing and transferring of multi-cultural communication within the system. Without doubt, GlobeMagic will be more efficient that Customer Relationship Management, which does not allow customers to contribute meaningfully to some decisions that are made within Walmart management structure (Tomsen and Faith, 2003). Interactive customers are dynamic, current and helpful: they could help Walmart to know the prevailing consumer trend and prices the customers are willing to pay for certain goods and services. Initially, Walmart used to spend a lot of money to research the markets and elicit responses from customers. Through the use of GlobeMagic, customers could connect with Walmart to know the latest news and product introductions going on in the organization. They can then offer advice about price, packaging and method of delivery. The customers will not be paid for their actions, but will perceive such as part of the shopping experience with Walmart. Invariably, GlobeMagic will gradually reduce the cost of operations and improve the quality of services to Walmart’s customers, who would be desirous of buying quality products at the reduced prices. Hence, Walmart can afford to give these goods out at the cheapest price having reduced its overall cost of operations. Economic Valuation of the Investment Project As stated in the foregoing, GlobeMagic is going to cost Walmart about $5 million; however, this sum of money could be sourced from the sales of the organization’s shares. Interestingly, the cash flows for this investment project are outlined below: Sales of shares Operating Capital Procurement Quality Control Implementation Customization Each of the processes highlighted above will cost Walmart averagely about $350,000 to $500,000. The sales of shares will help Walmart to raise the enough capital needed for the entire investment project. The process of customizing the software to suit the purposes of Walmart and its customers appears to be a significant step in the procedures. The new software should be able to identify and adapt to the organizational culture of Walmart. This would prevent a disturbing problem of disconnection between the organization and its many customers (Keen and Digrius, 2003). The implementation phase requires that a new IT structure be erected to house the IT infrastructure that would be used in setting up a central station whereby all Walmart stores worldwide will connect to. The purpose of making this IT system a central meeting-point for all other systems is that it will reduce the extent of pressure access from all over the world would have had on the in-house IT structures (Keen and Digrius, 2003). There are all indications that this investment project is going to be profitable in a short-term considering its effects on Walmart’s operations in the following ways: (i) it will reduce the operating expenses; (ii) it will speed up the decision-making process as Walmart management will have the unique opportunity to know what exactly customers want and at what suggestive prices; (iii) it will increase the quality of information transfer within Walmart, and between the organization and the outsiders—which include the customers, consumerism advocates and groups, governmental agencies and so on; (iv) It will help the organization to increase its net sales increase over a short period of time; (v) it will provide the opportunity for multi-cultural exchanges among the employees of Walmart; (vi) finally, it will create more customer loyalty that would help Walmart to constantly satisfy and retain its customers. If all the advantages of using GlobeMagic is quantified financially, it is evident that Walmart will save a lot of money from all the processes outlined above. This signifies that the idea of implementing the project will be profitable to Walmart in the short-run (Keen and Digrius, 2003). Walmart can also benefit financially from selling the concept to other non-rival organizations which are interested in the establishing smooth and qualitative communication between themselves and their array of customers. The investment in the project seems a great idea that the management of Walmart will never regret because of it high-yielding profitability (Keen and Digrius, 2003). The Project’s Procurement Strategy The physical IT infrastructure could be bought from Walmart’s current IT vendors or suppliers. But since the software need skilled programmers to design them, Walmart need to search for experienced developers or programmers that would work on the software until a perfect IT solution has been produced. GlobeMagic is an entirely new technology, so it will be difficult to find it in any IT stores worldwide. Walmart will be responsible for funding the development of the software while making sure that the prior requirements of the organization is fulfilled. Most importantly, when purchasing physical IT infrastructure, Walmart must make sure that only IT vendors or suppliers that follow the standardization of IT equipment should be allowed to sell IT equipment to the company. The danger of procuring wrong IT equipment is that it would undermine the quality of the system and may eventually lead to the collapse of whole project (Feinstein and Stefanelli, 2007). Care should be taken in ensuring that the procured IT structures are compatible with the existing systems in the organization so as to avoid unwanted hitches during the utilization of the project. The Risks Associated with the Investment Project At this stage, some of the probable risks associated with this investment project are that of security. Walmart management would be afraid to see that their secret interactive discussions with their customers have been leaked to the organization’s rivals. More so, if the IT structure is hacked, this could leak so much sensitive information that may threaten Walmart’s reputation. The organization may not know how to shut out “spies” for its competitors, who may pose as customers but just on a mission to spy on Walmart’s price regime, product introduction and delivery methods (Keen and Digrius, 2003). Apart from this security concern, the GlobeMagic seems to be the most appropriate technology Walmart needs to make the prices of its goods and services the cheapest. Conclusion This paper has critically looks at the importance of investing on technology that would make an organization like Walmart to be highly competitive among its rivals. An IT technology like GlobeMagic will help the Walmart cut-down its cost of operations in order to maximize its profits over a long period of time. And as a new IT system, GlobeMagic will help revolutionize the way inter and intra-organization communication is conducted. This technology will also assist people—employers and customers—from different cultural background to discuss vital issues with one another in a way that it would be beneficial to the organization’s projected growth. GlobeMagic, as a set of software, will produce maximum efficiency if it is customized according to the requirements of Walmart and its customers (Keen and Digrius, 2003). The good news is that this technology will yield good results within a short period of time as many customers will be excited about using the technology. 　　　　　　　　　　　　 　References　 Bamber, G.J., Ryan.S., and Wailes, N. (2004). Globalization, employment relations and human resources indicators in ten developed market economies: international datasets. The International Journal of Human Resource Management, 1481-1516.　　　　　　　　　 Brewester, C., and Larsen, H.H. (2008). Human resource management in Europe: evidence from ten countries. The International Journal of Human Resource Management, 409-433. Feinstein, A.H., and Stefanelli, J.M. (2007). Purchasing: selection and procurement for the hospital industry. London: John Wiley and Sons. Hauner, D., Kumar, M.S., and International Monetary Fund. (2006). 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