walmart case
TRANSCRIPT
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
company’s 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
service…always” (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, Sam’s Club and International Stores. The Wal-Mart stores
are further subdivided into Discount Stores, Supercenters and Neighborhood Markets.
Sam’s 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 Sam’s 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-Mart’s international segment is made into
several formats, which include retail stores, restaurants, discount stores, Sam’s Club
and Supercenters. Aside from these operations, Wal-Mart also owns a 37.8%
unconsolidated minority interest in one of Japan’s retailers, The Seiyu, Ltd. (New
York Stock Exchange, 2005).
Table 1: WAL-MART SEGMENTS
SEGMENTS PRODUCTS
1. Wal-Mart Stores
segment
- Supercenters,
- Discount Stores,
- Neighborhood Market,
- Walmart.com
in United States
Groceries, toys, apparel for
women, men and children,
jewellery, accessories,
fabrics and sport
merchandise.
2. Sam’s Club segment - American warehouse
membership club
-samsclub.com
Sport goods, soft goods
and jewellery
3. International segment - Fully-owned subsidiaries
in Germany, UK,
Argentina, Puerto Rico,
Canada, South Korea,
Mexico, Brazil and China
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 Retailer Home Country Sales
1 Wal-Mart Stores, Inc. USA $202,011
2 Carrefour Group France $62,216
3 The Home Depot, Inc. USA $53,553
4 The Kroger Co. USA $50,098
5 Royal Ahold Netherlands $48,239
6 Metro AG Germany $43,816
7 Target Corporation USA $39,176
8 Albertson's, Inc. USA $37,931
9 Sears, Roebuck and Co. USA $37,328
10 Kmart Corporation USA $36,151
Total Top 10 $612,520
Source: Retail Forward,Inc.
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
(www.planetretail.net) 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 Carrefour’s 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, Wal-Mart 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, social-
cultural, 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:
Small-batch production: A print shop is an example of a business that
uses small-batch production.
Mass production: A company that bottles soda pop is an example of an
organization that utilizes mass production.
Continuous-process 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. It’s 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 organization’s culture. Overall, it’s the culture that specifies
appropriate and inappropriate behaviour—reinforced 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 firm’s
strategy isn’t matched with the most appropriate structure and controls, performance
declines (Bower, 2003).
Organizational structure specifies the firm’s formal reporting relationships,
procedures, controls, and authority and decision-making processes (Keats and
O’Neill, 1995). Developing an organizational structure that effectively supports the
firm’s strategy is difficult (Leavitt, 2003), especially because of the uncertainty (or
unpredictable variation (Priem et al, 2002) about cause-effect relationships in the
global economy’s rapidly changing and dynamic competitive environments
(Day,2003). When a structure’s elements (e.g procedures, reporting relationships) are
properly aligned with one another, that structure facilitates effective implementation
of the firm’s 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 region-
specific 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
organization-increase. 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 company’s 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.
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APPENDIX I
Table 1: Global Market Shares: 2003-2008 (%)
Top 6 Market Share 2003 Top 6 Market Share 2008Wal-Mart 6.7Wal-Mart 8.6
Carrefour 2.4Carrefour 3.2Ahold 2.1Metro 2.7Metro 1.6Ahold 1.9Kroger 1.3Tesco 1.9Tesco 1.3Ito-Yokado 1.6Total Top 6 15.4Total Top 6 19.9Source: Planet Retail Ltd - www.planetretail.net
Table 2: Regional Concentration Forecasts: Market Share of Top Ten Retailers, 2003-2008 (%)
RegionMarket Share 2003
Top 3 2003Market Share 2008
Top 3 2008
Western Europe
41.5%Carrefour, Metro, Tesco
43.0%Carrefour, Metro, Tesco
Central/Eastern Europe
24.0%Metro, Tesco, Rewe
32.6%Metro, Tesco, Schwarz
North America 1
40.0%Wal-Mart, Kroger, Target
44.1%Wal-Mart, Kroger, Target
Latin America 22.8%Wal-Mart, Carrefour, Casino
27.6% Wal-Mart, Casino, Carrefour
Asia Pacific 16.5% Ito-Yokado, AEON, Woolworths
16.1%AEON, Ito-Yokado, Woolworths
Middle East & Africa
21.8% Shop Rite, Pick ‘n Pay, Massmart
27.0% Shoprite, Pick n’ Pay, Massmart
Source: Planet Retail Ltd - www.planetretail.net
APPENDIX II
Figure 1: Divisional Structure of Wal-Mart Company: Market structure
CEO
Eating Places
Miscellaneous General
MerchandiseStores
Grocery Products
Retail Variety
Products
Corporate Managers
Drug and Proprietary
Stores