Strategy Audit - Wal-Mart Stores - Essay Example

Strategy Audit: Wal-Mart Stores s Introduction: According to Ajayi " Several factors such as distance time, culture, history, demographics and the internal and external forces are needed to adjust in order to undertake an effective change process." (David, p.51) Most of the companies experiencing hyper growth rely on the strategic management and flexible business model in order to undertake effective change strategies. But it should also be kept in mind that the strategic management undertaken in a haphazard manner could be harmful for the business. According to Cook and Ferris the practices of high-performing firms reflect a more strategic orientation and longer-term focus. (P.454) The process of strategic management has proven to be the force of providing financial benefits for the organizations. In The Balanced Scorecard, Kaplan and Norton provided managers a framework to measure organizational performance from four perspectives: financial, customer, internal business processes, and learning and growth. While organizations worked to implement their own strategy for using balanced measures, Kaplan and Norton discovered a consistent pattern for achieving strategic focus and alignment." (Kaplan & Norton) In this report we will undertake the strategic audit of Wal-Mart and will suggest the improving measures required for the company. Mission: Everything Wal-Mart do is inspired by their enduring mission: To be the world leader in spirit. To optimize the consumer expectations through brands and actions. To Create Value and Make a Difference everywhere the Company is engaged. Vision: To achieve sustainable growth; the company has established a vision with clear goals. Profit: Maximizing return to shareowners while being mindful of our overall responsibilities. People: Being a great place to work where people are inspired to be the best they can be. Portfolio: Bringing to the world a portfolio of world's famous brands that anticipate and satisfy peoples' desires and needs. Partners: Nurturing a winning network of partners and building mutual loyalty. Planet: Being a responsible global citizen that makes a difference. II. STRATEGIC MANAGERS a. Board of Directors b. Top Management III. EXTERNAL ENVIRONMENT: a In order to analyze the strategic situation first of all SWOT analysis have been under taken, which I have presented as under: SWOT Analysis of the Wal-Mart Company STRENGTHS Strong Brand name. Extended customer in more than 200 countries. Use of SAP R/3 Enterprise Resource planning software Low threat of new entrants. Continuous training programs for employees. High budgets of advertising and promotion. Good relations with media. Web based presence. WEAKNESSES Subsidiaries create legal and territorial problems. Lack of funds for regional suppliers to continue expansion Old image still exists. Inconsistent marketing message. OPPORTUNITIES Expansion in shape of introduction of new and innovative products. Expanding market due to globalization. THREATS Current economic climate. Results to be achieved in future can be less than projected "The Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix is an important matching tool that helps managers develop four types of strategies: So Strategies, WO strategies, ST Strategies, and WT Strategies. SO strategies use a firm's internal strengths to take advantage of external opportunities. WO Strategies aim at improving internal weaknesses by taking advantage of external opportunities. ST Strategies use a firm's strengths to avoid or reduce the impact of external threats. WT Strategies are defensive tactics directed at reducing internal weaknesses and avoiding environmental threats." (David, 180-181) SWOT Matrix: External Opportunities (O) 1. Double-digit growth rate in retail market in Central and North Europe. 2. Consumption of 70 cans per capita annually. External Threats (T) 1. Moderate threat of substitutes. 2. Competitors have gained market share recently. 3. Lack of funds for the distributors. Internal Strengths (S) 1 Wal-Mart has remained a major investor in "the further establishing production facilities, distribution networks, sales equipment, and technology 2. Wal-Mart has an employee base of 50,000. 3.Continuous improvement in the company by research and communication of company with consumers. 4. The company does a fairly good job of disclosing its true drivers of performance and areas of concern in the MD&A and footnotes. 5. Wal-Mart has a number of intangible assets, consisting of trademarks, goodwill, and franchise rights. 6. Wal-Mart is one of the many organizations that use SAP R/3 Enterprise Resource planning software. This software allows all members of the Wal-Mart organization to access the information at anytime where ever they are in the world." (The geographic view of Wal-Mart can be label as global) Internal Weaknesses (W) 1. Wal-Mart showed a relatively low ROE as compare to its close rival. 2. Relation ship with subsidiaries creates legal and territorial problems. 3. Lack of funds for regional retailers to continue expansion 4. Old image still exists. 5.Inconsistent marketing message. SO Strategies 1. Increase in investment in the creation of own supply chain. (S1, W2, W3) 2. Add more employees to spend up the production process. (S2, O4) 3. Keep quality standards above the competition for more revenue. (S4, S5, O5) WO Strategies 1. Continuous introduction of new products in different directions with the changing demands of consumers. (W1, O4) 2. Introduction of technology in advertisement. (W5, O1, O2) ST Strategies 1. Advertise more about our top selling products instead of just high end products. (S4, S5, T1, T4, T5) 2. Advertise the products that the company was able to get mass quantities year round. (S4, S5, T1, T4, T5) WT Strategies 1. Obtain a more reliable information management system for the company all over the world. (W2, T3) 2. Having contacts with the subsidiaries offering low supply chain cost and efficient services. (W5, T3) * "The Strategic Position and Action Evaluation (SPACE) Matrix is another important stage 2 matching tool with four-quadrant framework indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organization. The SPACE Matrix represents two internal dimensions; financial strength (FS) and competitive advantage (CA), but also represents two external dimensions; environmental stability (ES) and industry strength (IS)." (David, 184) SPACE Matrix: Internal Strategic Position External Strategic Position Financial Strength (FS) Environmental Stability (ES) Competitive power Product pricing Return on investment Liability consequences Net profit competitive pressure Operational resources Rate of inflation Liquidity Price elasticity of demand Risk of market Technological changes Competitive Advantage (CA) Industry Strength (IS) Quality of product Potential expansion Customer service Potential profit Product life cycle Market stability Market share Technology advances Advertisement strengths Resource exploitation Know competition's operations Productivity Financial Strength (FS) Ratings The Wal-Mart Company has had a strong return on equity (ROE) 2.0 for the past 5 years. Wal-Mart's net equity 32.1% 3.0 Wal-Mart's sustainable growth rate 16.1% in 2004. 3.0 Wal-Mart's Gross Profit Margin 52.6% 4.0 12.0 Industry Strength (IS) Wal-Mart has the largest share in the industry revenue 2.0 Advertisement increases competition in the retail industry. 3.0 Increasing share of Company in retailing industry 4.0 9.0 Environmental Stability (ES) Wal-Mart is in a high volume and relatively low cost products market with a short life cycles, operating efficiencies. -3.0 Technology changes has created competitive struggles -4.0 Increased competitive insecurity due to company expansion -4.0 -11.0 Competitive Advantage (CA) Wal-Mart has strong supply chain relying on subsidiaries. -2.0 Wal-Mart has a large employee base with up to date information -3.0 With the introduction of new retail stores the industry is becoming more popular and more competitive. -4.0 -9.0 Conclusion ES Average is -1.0 / 3 = -3.667 IS Average is +9.0 / 3 = 3.0 CA Average is -9.0 / 3 = -3.0 FS Average is +12.0 / 3 = 4.0 Directional Vector Coordinates: x-axis -3.667 + (+3.0) = -.667 Y-axis -3.0 + (+4.0) = 1.0 The Competitive strategies of Wal-Mart need constant updating. IV. INTERNAL ENVIRONMENT: Sam Walton was admittedly old-fashioned in many respects. Wal-Mart store policies reflect many of his values. For example, store policies for bid employees from dating other employees without prior approval of the executive committee. Also, women in management positions are rare. Annual manager meeting includes sessions for wives to speak out on the problems of living with a Wal-Mart manager. No women are in the ranks of Wal-Mart's top management. Walton also resisted placing women on the board of directors. Only 12 women have made it to the ranks of buyers (they are 12 percent of all buyers. Wal-Mart is an EEOC/AA employer but has managed to get away with apparently discriminator policies. Wal-Mart has instituted several initiatives to increase the recruitment and promotion of women and minorities including: A mentoring program encompassing more than 750 women and minority managers, A women's leadership group, in partnership with Herman Miller and Service Master, to develop opportunities for high-potential female managers, and Store internships during the summer for college students between their junior and senior years, with 70 percent being women or minorities. c. Corporate Resources Wal-Mart encourages employee's stock purchases; employees own about 8 percent of Wal-Mart stock. Under the stock purchase plan, stock may be bought by two different methods. First, an amount is deducted from each employee's check with a maximum of $62.50 per check. An additional 15 percent of the amount deducted is contributed by Wal-Mart (up to $1,800 of annual stock purchases). Second, a lump-sum purchase is allowed in April up to $1,500, with an additional 15 percent added by the company. Wal-Mart also offers an associate stock-ownership plan, and approximately 4,000 management associates have stock option. Construction of IFE Matrix for Wal-Mart: The evaluation of the strengths and weaknesses of the Company's performance in factors, which are significant for the analysis of company's performance, has been resulted in shape of following IFE matrix. Internal Factor Evaluation -IFE Matrix Strengths Weight Rating weight score 1 Strong brands name and worldwide leadership in retail industry. 0.10 4 0.40 2 Promotion oriented strategy 0.10 4 0.40 3 High level staff recruitment 0.10 4 0.40 4 Product Differentiation 0.05 4 0.20 5 Strong supply chain 0.05 2 0.10 6 Value retention 0.05 4 0.20 Weaknesses 1 0.10 1 0.10 2 Old image still exists 0.10 2 0.20 3 Relation ship with subsidiaries create legal and territorial problems 0.10 2 0.20 4 Inconsistent Marketing message 0.10 1 0.10 5 Lack of funds for regional suppliers to continue expansion 0.10 1 0.10 6 Product, operation, service planning too complicated 0.05 2 0.10 Total 1.00 Score 2.50 Wal-Mart has an average score of 2.5 which means that the company is on an average situation; it has some weaknesses that cause problems in the operation of the company, but as well it has some strengths that are not utilized yet in the right way. Distribution Centers: Wal-Mart has 30 distribution centers nationwide, including six centers in Arkansas; four in Texas; and two each in California, Indiana, Pennsylvania, and South Carolina. Wal-Mart's distribution operations are highly automated. A typical Wal-Mart discount store has more than 70,000 standard items in stock. Super centers carry more than 20,000 additional grocery items, a lot of them perishable, so they have to be ordered frequently. Associates use hand-held computers, linked by a radio-frequency network to in -store terminals, to scan items electronically and check on their availability in other area stores. To place orders, each store wires merchandise requests to the warehouses, which in turn either ship immediately or reorder. Information Technology: Wal-Mart computers are linked directly with over 200 vendors, so deliveries are faster. Wal-Mart has one of the world's largest private satellite communication systems to control distribution. Wal-Mart has installed point-of-sale bar code scanning in its entire stores. Wal-Mart own a fleet of truck-tractors that can deliver goods to any store in 38 to 48 hours from the time the order is placed. After trucks drop off merchandise, they frequently pick up merchandise from manufactures on the way back to the distribution center. This back-haul rate averages over 60 percent and is yet another way Wal-Mart cuts costs. With an annual technology and communication budget of $500 million and an information systems staff of 1,200, Wal-Mart leads the industry in information technology. This means, Wal-Mart is dedicated to providing its associates with the technological tools to work smarter every day. With this technology, we're getting better, quicker, and more accurate information to manage and control every aspect of our business said Randy Mott, senior vice-president and chief information officer. Operations Wal-Mart's expense structure, measured as a percentage of sales, continues to be among the lowest in the industry. Although Walton watched expenses, he rewarded sales managers handsomely. Sales figures are available to every employee at Wal-Mart. Monthly figures for each department are ranked and made available throughout the organization. Employees who do better than average get rewarded with raises, bonuses, and a pat on the back. Poor performers only rarely are fired, although demotions are possible. Human Resource Management: Wal-Mart management takes pride in the ongoing development of its people. Training is seen as critical to outstanding performance, and new programs are implemented often in all areas of the company. The combination of grass-roots meetings, the open-door policy, videos, printed material, classroom and home study, year-end management meetings, and on-the-job training has enabled employees to prepare themselves for advancement and added responsibilities. Wal-Mart managers stay current with new developments and needed changes. Executives spend one week per year in hourly jobs in various stores. Sam Walton himself once traveled at least 3 days per week, visiting competitors stores, and attending the opening of new stores. Marketing: The 4P's are the most important founding factors on which the marketing plan of a company basically depends. Effective use of these 4P's can lead to successful marketing of a product or service. All the 4P's are volatile in nature and keep on changing according to the requirements. Constant evaluation of all the 4P's is important losing focus on any one of them can lead to a disaster. We will analyze the marketing strategy of Wal-Mart below keeping in view the 4P's: Product: Since the Wal-Mart are the retailing stores an array of products is available to cater the needs of the customers. The Company has started manufacturing some of the products such as dairy and baking items. The products available at Wal-Mart are a symbol of quality and variety. Promotion: Some of the best promotion activities are undertaken at Wal-Mart including advertising, personal selling, sales promotion, public relations. Price: "There is a very sensitive relationship between price and the placement of a product. Cheap is easy to sell, or so says history, but expensive can be easy to sell too" (Barac, 2005). Lower prices and discount offerings are the cutting edge benefits of the company. "The giant retailer's low prices often come with a high cost. Wal-Mart's relentless pressure can crush the companies it does business with and force them to send jobs overseas. (Fishman, 2003) Placement: The presence of the Wal-Mart stores at every important place in the country is the evidence of the effective placement of the stores. Wal-Mart is getting by having a dense network of stores is to facilitate the logistics of deliveries. The added 3P's are as follows: People: Wal-Mart is famous for its effective recruiting and training of the staff. Although the company remains in news for its controversial policies sex discrimination and labor law violations but the customers are catered with efficient services and best knowledge provision by the staff. The depth of Wal-Mart's management team allows the managers to tap into tremendous internal talent. Process: Efficient system of processing the customer's demand gives a cutting edge advantage to Wal-Mart. In fact the efficient and speedy services are the trademark of Wal-Mart. Physical evidence: Physical evidence is an essential ingredient of the service mix; consumers will make perceptions based on their sight of the service provision, which will have an impact on the organizations perceptual plan of the service. The environment at the Wal-Mart stores are clean and user friendly which adds to the uniqueness and competitive advantage of Wal-Mart. Recommended Strategy: Wal-Mart infrastructure is a major source of sustainable competitive advantage. Investments in building infrastructure must continue to keep up the company's competitive edge. More attention should be paid to Human Resource Management, a support activity that can be leveraged to provide competitive advantage. Considerable scope for improvement exists in the areas of sales force recruitment and training as well as in monitoring and co-ordination of the work force indigenisation program. Wal-Mart has already acquired considerable expertise in the application of Information Technology to its business. It is recommended that the scope of applications be enhanced to provide vertical linkages both with the value chains of suppliers and key customers. Such applications can provide sources of both cost and differentiation advantage. A detailed study should be undertaken of the company's inbound logistics, costs related to which are a sizeable component of operating costs. The use of Operations Research techniques and a careful review of the design of the operating system could reduce costs and enhance differentiation in the conduct of organizational routines. Similar benefits could also apply to warehousing operations and out-bound logistics. Value Chain analysis should also be used a basis for determining organizational structure by providing a logical and systematic way of grouping activities. References Ajayi, O. "Leading Change," EXPRESS EXEC.COM, Capstone Publishing, United Kingdom. P. 47-51 Barac, R., The Marketing Mix: The 4P's, The Basics, 16 December 2005, retrieved from http://www.marketingroots.net/p=4 Fishman, C., (2003). Wal-Mart you don't know, Issue 77, December 2003, Page 68Q2: Compare and contrast promotional mixes or communications strategies of two companies. How can a change of positioning affect the effectiveness of the companies' strategies. Fred R. David, Strategic Management Concepts and Cases, Eleventh Edition, pp.165-166. Kaplan, Robert S. & Norton, David P., The Strategy-Focused Organisation: How Balanced Scorecard Companies Thrive in the New Business Environment; Harvard Business School Press, 2001, available at Read More