Basis of Establishment of the Wall Mart's Strategy - Case Study Example

WALL - MART Introduction: "Every big corporation today is the result of dream of some one yesterday". This anonymous saying aptly fits in the case ofWall-Mart. Around this statement lies the strategy, vision, mission and future policy of the company. This world's largest retailing company is the fruition of the dream of Samuel Moore Walton combined with the hard work of 3, 71,000 associates (employees). Walton after returning from his military duty set up a five - and - dime type of store called Walton's Ben Franklin store in Versailles, Missouri in late 1940s. When he lost his lease in 1950 moved his business to Bentonville, Arkansas where he opened a Walton 5 & 10 stores. Simultaneously Walton set up two other enterprises called Ben Franklin franchises and Wall - Mart Discount City. The former expanded into 15 more stores by 1962. In 1969 the company became Walt Mart Stores inc. with 15 Ben Franklin stores, 18 Wall Mart spread through out Oklahoma, Kansas, Arkansas and Missouri. To-day with combined revenue reaching to 44 billions and spread through out the 42 central and southern states the company has 1720 Wall-Marts, 208 Sam's Whole sale club, and 6 Wall Mart Supercentres in addition to two stores in joint ventures in Mexico. STRATEGY: The company has a strategy of identifying areas with under population of 50,000 to open a store and gradually expanded by setting up distribution centres at some place closer to the store with a view to facilitate supply to all the other stores also within a day. The excellent success of the company is considered to be the result of 19 such distribution centres today. The other factor of the success of the company is treating the employees as associate partners having access to complete information about the costs, freight charges, and profit margin. The associates play a major role in the overall and individual success of stores and achieving the company's goals. It will be worthwhile to note here that each of the stores operates independently of the other. This kind of relationship in the organization components known as "pooled interdependence". If there is poor customer service at one store and how the customers view it will have ripple effect on the Wall-Mart as a whole. Basis of establishment of the Strategy: The management of the company prominently relies on the goals achieved. It is treated as a part of the planning process. The top management provides guidelines about the profits and growth. These become the basis of setting of goals. The individual stores provide their own inputs as they have their own annual goals to achieve. However, specific tactical goals are evolved at the division and the stores level. These are then forwarded to the top corporate level for further dissemination, evaluation and measurement for formulating a strategic over all policy. It will be interesting to note a typical target set for an annual goal: Opening 160 new stores; 45 new Sam's Whole sale clubs; 12 - 15 new Wall Mart Super centre; Increasing sales to more than 54 billions; Pursuing a "Buy American" plan to give preference to stocking merchandise manufactured in the United States. The individual stores have a target to achieve a sales increase of 10% over the previous period. Once the goals are established the process of action planning is commenced to provide an outline as to how the goals are to be achieved. It is done at every level. The associates also get a share of the profit above the goals set for every stores. Monitoring: Throughout the year goals achieved are monitored as laid out. But if the Wall Mart has not been satisfied of the result those stores are sold out. The Ben Franklin stores were closed in 1976 and Wall Mart stores were replaced with it. A chain of Helen's Arts and Crafts, the DOT discount drug chain met the same fate. Despite all the evaluation, assessment, dissemination of the in formations and monitoring quite a few of the ventures have failed. Financial aspect: Of interest to the Board of Directors, Stakeholders, Bankers and others interested in the company: The failures mentioned above do not give a dismal future of the company. Every business venture with the best crafted management practices does occasionally fail. Overall the company is performing exceedingly well. The value of a share of $1000 in 1970 is not less than half a million now. Its growth rate estimated to be 20% a year. The annual financial health of the company reflects a positive outlook. The company had a net profit margin ratio of 4% in 2007 compared to 3% of 2008. The return on assets which reflects the efficiency was 8% in 2007 and January 2008, highest in the industry. As regards stockholders equity is concerned it was .19 in January 2008 indicating that Wall Mart is a dependable profitable company. It gave almost a 20% return for shareholders. The P/E ratio computed by dividing the market price per share by the current earnings per price was 17.89 in 2007 and in January 2008 16.28% Resources: The Wall Mart had remarkable capacity to turn its inventory into cash, 49.36 days the shortest operating cycle in the industry. Similarly the cash conversion cycle is 12.36 days, the best among its competitors. The company has a very efficient system as they need less working capital due to the short cash cycle. The company sells only common stocks having a current selling price of 58.62 per share. It had a 52-week average price between high 40's and low 50's. Cost of Capital: It had 5.3% cost of capital in 2007 where as in January 2008 it was 4% - indicating that Wall Mart borrows very cheaply. It may be because the rating given by Standard & Poor about the long term debt as "AA". The bond holders may consider themselves safe as the company is capable of repaying the debt. The company's strong brand image helps it to sell the bonds. Besides Wall Mart has a strong history of repaying its obligation. It enables the company to borrow cheaply. The excellent performance of the company revives the optimism of the management, share holder, employee, and bondholder as well the consumer. Despite the present economic down turn there is no reason for pessimism for anyone as the company has expanded its activities in the Asian growing markets. It has the capacity to monopolise the market as a retailer. Environment: Quoting the former Vice - President Al Gore, "there is no conflict between the environment and the economy. Gore said Scott had recognized not just the danger of global warming and a moral obligation to act, but also a business opportunity in innovation. "The message from Wal-Mart today to the rest of the business community is there need not be any conflict between the environment and the economy. We will find the way not only to reconcile (those), but to find new profits and new opportunities as we do the right thing." The present Chief Executive of the company Lee Scott has assured to be a leader in sustainability by reducing waste to zero, moving toward using only renewable energy and offering more products produced in a way that preserves the environment. The company officials also agreed that it had great avenues to reduce the greenhouse effect. Wall Mart emitted last year some 20.8 million tons of carbon dioxide, the main green house gas. It was the first time the company disclosed its carbon dioxide figure in this year. The company is striving to reduce the demand of energy by installing more efficient lighting system and retrofitting the refrigerators. The new prototypes of stores are expected to be 30% more efficient compared to today's stores and in future terms 50% more efficient. The company aspires to run on 100% renewable energy and emit zero waste. It is ambitious to cut emissions of greenhouse gas by 20% over a period of next seven years, double the fuel efficiency of its fleet of trucks in 10 years and reduce the solid waste by 25% from its stores in the coming three years. The company is going to offer more organic foods this spring selling at a price that common masses may afford. Mr. Scott agreed in the conference that being the world's largest company it had great responsibilities towards sustainability and has a major role to play in the changing of the climate. It is not a false statement but being supported by indentifying the work which are avoidable and not required as in the case of packaging, use of energy, equipment for refrigeration in stores etc. But critics have to say different story. For many environs, the name "Wal-Mart" has always triggered a shudder. The world's biggest retailer has been charged with exacerbating suburban sprawl, burning massive quantities of oil via its 10,000-mile supply chain, producing mountains of packaging waste, polluting waterways with runoff from its construction sites, and encouraging gratuitous consumption. (And those are just the environmental complaints.) Environs hope Wal-Mart will have the same game-changing effect on mainstreaming environmental strategies that it has had on reducing prices. Quoting "Wal-Mart's new commitments to increase efficiency and reduce pollution and waste are important first steps for a company that has such a profound impact on our environment," Sierra Club Executive Director Carl Pope said in a public statement In a Vote: It may be noted that 30% Americans believe that Wal-Mart may be sincere towards its greenhouse commitment but 70% say they are just "green washing. Vision: The company never made any vision statement. But from the strategic goal of the company we can infer that its vision is continue to be its leader in providing a unique service of diversified goods with a combination of low prices and customer satisfaction. Its vision is to sell a diversified range of products such as foods, consumable goods, clothing, pharmacy, gasoline through distributors, photo processing, video rental stores, and just about everything else might need. Wal-Mart has become the one stop shop for a person and it has provided quality as well as quantity. It may be confidently said today that Sam Walton's dream has been realized and company continues to cater to the masses at affordable prices. Wall-Mart is often criticised for paying cut throat rates to its vendors. The vendors often complain of manufacturing and supplying to Wall Mart below the cost of production price. It makes the managers to work longer hours without any compensation. Another accusation is not paying to workers for working on overtime. The company was recently involved in a number of litigations and in some cases had to pay compensations. It has no consideration of women workers either. The company says that by asking the vendors to supply at gilt edged prices it has encouraged further inventions, look for the manufacturing places where the wages are low and quality is good. Take the example of Unilever washing machine product which was made to a third of the size than it was before, reducing the number of trips by a third. Or take concentrated laundry detergent -- you get more value in a smaller container. These are called VPIs -- volume-producing items. The company gives the producers of VPIs confidence that it will give these products priority on its shelves and help customers understand their value. So it is taking affirmative action to sell more sustainable products. Wal-Mart pushed the retail industry to establish the universal bar code, which forced manufacturers to adopt common labeling. The bar allowed retailers to generate all kinds of information -- creating a subtle shift of power from manufacturers to retailers. Wal-Mart became especially good at exploiting the information behind the bar Mission: Is to enhance and integrate their supplier diversity programmes into all of their procurement practices and to be an advocate for minority, and women businesses. The main goal of the Wall Market is to keep the prices low and it is estimated that their customers buy from them groceries at least 15% below of the prices of the other retailers. As reported in Fortune Small Business magazine: The first major retailer to demand manufacturers use radio frequency identification technology (RFID). The technology uses radio frequencies to transmit data stored on small tags attached to pallets or individual products. RFID tags hold significantly more data than bar codes. During the first eight months of 2005, Wal-Mart experienced a 16 percent drop in out-of-stock merchandise at its RFID-equipped stores, according to a University of Arkansas study (as reported in Fortune Small Business magazine) CONCLUSION: Being world's largest retailers attracts controversies. But there is no denying to the fact that Wall Mart is to day an economic force. It has maintained the philosophy of the founder Sam Walton that offer customers at prices lower than anywhere else. It has been the company's basic strategy and culture. It has forced its suppliers to outsource the production of their commodities to developing Asian Markets like Vietnam, Indonesia, and Thailand where the cost of production is low as the wages there are low. This policy is criticized for compelling smaller retail shops to close the business. If the suppliers are outsourcing to other countries they are at the same time creating jobs there also. More jobs mean more purchasing power in the hands of prospective customers. The company's progress clearly indicates that it is in the hands of capable management lead by Mr. Scot to day. References: 1. Management by Bartol & Martin 2. www.Answer.com 3. http://money.howstuffworks.com/wal-mart.htm 4. www.samples-help.org.uk/mission-statements/wal-mart-mission-statement.htm 5. www.samples-help.org.uk/mission-statements/wal-mart-mission-statement.htm 6. www.samples-help.org.uk/mission-statements/wal-mart-mission-statement.htm Number of words: 2273 Number of Pages: 6 Read More