strategic management

Strategic Management


ByAjay Joshi

Ajay Joshi L0481RBRB02011


Table of Contents1. Foreword................................................................................................................32. Overview on the company......................................................................................33. Reason of Existence...............................................................................................44. Economic Opportunity...........................................................................................4

4.1. ‘‘What does ‘Wal-Mart’, do to the world?’’..................................................45. Business Model......................................................................................................46. Wal-Mart’s Approach and School- Henry Mintzberg............................................57. Managerial roles by Mintzberg, in regards to Mr. Michael Duke’s role in Wal-Mart5

7.1. Interpersonal skills:........................................................................................57.2. Information processing skills:........................................................................67.3. Decision Making Skill:...................................................................................6

8. Competition and business position.........................................................................69. Wal-Mart business strategy- In accordance to Richard Whittington.....................610. PEST analysis of Wal-Mart....................................................................................711. SLEPT Analysis.....................................................................................................912. PESTEL or PESTLE Analysis...............................................................................913. ‘Porter’s five force’ model on Wal-Mart...............................................................914. SWOT analysis of Wal-Mart Stores:...................................................................1115. 7S model for Wal-Mart........................................................................................1416. BCG matrix for Wal-Mart....................................................................................1517. My suggestion for Wal-Mart................................................................................1718. Bibliography & References..................................................................................17



1. Foreword

Considering, the board of directors approaching me to advise them on the likelihood of Wal-Mart stores (my chosen company) participating more effectively in national and global arena.

I would advise the company quoting Med Yones quote:‘‘Sustaining high business performance is a product of continuous strategic alignment’’Wal-Mart, a mega-retailer, in order to consistently achieve high performance in business need to analyze regularly, decide effectively and execute efficiently to create and sustain competitive advantage. It has to formulate and implement strategies frequently to compete with its local and global counterparts. (Business week, FT & Wal-Mart annual reports)Wal-Mart has been around for a long time and has achieved many milestones and has many more to achieve. A retailer operating only in America became a successful global-player, in around 5 decades. It has achieved this with sheer-blend of excellent merchandising and focused supply chain and human capital management.Around 90’s, Wal-Mart was operating in 50 states in America and found US market getting saturated by then. It expanded its horizon and plunged into global market. Its first global venture started with a joint venture with Mexican largest retailer, Cafera. But Wal-Mart suffered a great loss in this alliance as it was not backed by sound strategic planning. Company learnt it hard way but learnt it fast. Henceforth, after this debacle Wal-Mart adapted itself well next time before entering new market and did their ‘strategic’ homework perfectly.That was year 1991, Wal-Mart ever since then changed and adapted different styles of management strategies, in 2000 they come up with global expansion plan to make a re-entry in global market and has remained on top rung in the list of Fortune 100 companies in the world in terms of ‘annual revenue’.

2. Overview on the company(Fortune Magazine & Sam Walton: Made in America, John Huey)In year 1962, Sam Walton’s Wal-Mart opened with few ‘other’ discount retailing stores, popular during those times. Kmart and Target opened in America around the same time. Earlier regional discount stores had given stiff competition to Walton’s variety stores in 50s. Walton opened this time with a mission to fulfill his philosophy of ‘Low pricing’ and his Global ‘big dream’. He said: ‘‘If we work together , we’ll lower the cost of living for everyone…we’ll give the world as opportunity to see what it’s like to save and have a better life’’. He did what he said, his envision of providing saving in every shopping for customers made Wal-Mart not only the top retailing company but also Numero Uno Company this year, again (Wal-Mart was #2, company in 2009). Last year Exxon Mobil was top on the charts, but CEO Michael Duke managed to lift the sale by whopping 7% more



than the revenue Wal-Mart did in 2008 and regain its position with annual sales in tune of $14.3 billion.

3. Reason of ExistenceWal-Mart’s purpose is to provide a saving in very purchase for its customer in its stores and clubs across the globe. They focus on this, in everything they do; in-fact ‘Low’ is the buzz-word, which is ‘highly’ regarded in Wal-Mart.

4. Economic Opportunity (Business week,2010)Wal-Mart’s Present, CEO and President, Michael Duke Wal-Mart has revolutionized retail industry and has changed the way business is conducted and done, all for the benefit of its customers and to capture national and international market.

4.1. ‘‘What does ‘Wal-Mart’, do to the world?’’

Community Economic opportunity- Its economical impact is phenomenal. According to researcher Wal-Mart is beneficial for the community. It not only help customer save money but also create jobs and raise tax revenue.

Price leadership- Company emphasize on being low-price leader on all its commodities. By being so, it make the competition tough in Retail business for its competitor, end of the day, customer gets the benefit of this. Everyday low price help customer save money so that they can spend these saving in improving their standard of living.

Manage customers finance- Wal-Mart has partnered with Visa to provide financial tools, to help American people take control of their financial needs by rolling out ‘‘Operation main street: money management’’. Wal-Mart by doing this is trying to benefit its customer not only in retail but also taking care of their financial needs.

5. Business Model(Wal-Mart annual reports)Wal-Mart business model is based on ‘everyday low price’ it operate with wide-variety of general merchandising, discount stores, supermarkets, neighborhood markets and Sam’s club, categorized as ‘a Retail industry’. To achieve this it leverage economies of scale, enhance supply chain, and upgrade IT based inventory and shelf management. On average Wal-Mart sells its goods in 7 day and pay supplier back in 90 days.Wal-Mart has always strived hard to strengthen its supply chain. Now it has to improve its demand side to exceed its sales further. Company has forayed in providing range of financial services. It can be company’s new growth sector. According to current CEO- To improve revenue it has to either sell more to same customer, or sell same to more customer- which can be a daunting task as it has already captured wide-market. Wal-Mart has opted to sell more to same customer and



thus moved to financial sector. Wal-Mart has got a good response from the market (its pilot-venture is operational in USA).(Business Week)‘In a decade Gen Y might think that Wal-Mart is as much a bank as Bank of America’Younger generation is comfortable carrying out financial transaction with companies that are not ‘Bank’. Wal-Mart has better chances of growing, if it can provide its excellent service in financial sector to its already loyal customer and improve its revenue further.Wal-Mart’s vision and mission statement can be enhanced with its plunge in financial services. ‘Financing’ can be added in Vision statement- with ‘retailing’, which is its forte.Wal-Mart stores’ slogan- ‘Wal-Mart. Always low price. Always.’ Vision Statement- ‘To become the worldwide leader in retailing’Mission statement- ‘Saving people money so they can live better’

6. Wal-Mart’s Approach and School- Henry Mintzberg(Strategy Safari FT Prentice Hall, 2002)Wal- Mart’s approach is descriptive; as its external environment is ever so changing, fast and dynamic. Its supplier is from all over the world, wide global market and intense global competition. Had external environment been relatively stable prescriptive approach would have been fine. According to Henry Mintzberg, concept of 10 strategic schools, Wal-Mart belongs to- The Entrepreneurial School. Company’s strategic formation was a visionary process of its founder Sam Walton. It was Mr. Walton’s idea to earn profit by making people save money. It was Sam Walton vision and leadership that has provided Wal-Mart it current position and enormous success. Mr. Sam’s values and vision is taken care by its current president and CEO, Michael T. Duke. Mr. Duke has a vision to growth as a company, leverage to create competitive advantage and high-return for shareholder. In, The Entrepreneurial School a good CEO can benefit its organization with his vision and can overcome all its shortcomings. Wal-Mart when lost its number one position in 2009, Mr. Michael Duke with his leadership helped Wal-Mart knock-out Exxon Mobil to be #1 again.

7. Managerial roles by Mintzberg, in regards to Mr. Michael Duke’s role in Wal-Mart

(Strategy Safari FT Prentice Hall, 2002 & Wal-Mart annual report, 09-10)

7.1. Interpersonal skills:

1. Figurehead- CEO’s decades of exposure in retail industry help him perform his duties perfectly. He is role-model for his employee and is ‘Captain of the ship’.

2. Leader- His vast experience in executive leadership help him in operating multiple locations of Wal-Mart stores. His leadership helped Wal-Mart reach #1 position in Fortune 100 companies in less than a year as CEO.



3. Liaison- He is good at maintaining and developing external contacts to expand business in different countries.

7.2. Information processing skills:

4. Monitor- Michael is a keen observer which helps him gather internal and external information for business.

5. Disseminator-CEO cascade relevant information to individuals to facilitate smooth functioning in business. He possesses full operating responsibilities in national and global markets.

6. Spokesperson- He communicates to outside world about the performance and the policy of Wal-Mart. Annual report of Wal-Mart is addressed by him, where he communicates company’s new plans and strategies.

7.3.Decision Making Skill:

7. Entrepreneur-Mr. Duke is the one who designs and initiates change at Wal-Mart. He has over 23 years of experience in retail with Federated Department stores and May department stores. CEO means business, in every venture he undertakes.

8. Disturbance Handler- He deals with roadblocks or any adverse occurrences in operations. Recently CEO decided to close Wal-Mart’s Russian operation as Wal-Mart was unable to find ‘suitable’ partner to work with in Russia.

9. Resource Allocator- CEO Handles and control business resources as he is expert in corporate strategy, development and execution with available resources.

10. Negotiator- Mr. Michael Duke is an excellent negotiator with other organization and individuals.

8. Competition and business position(Fortune Magazine)Wal-Mart has competition from many companies inside and outside US. It is undoubtedly number one company in Retailing and has a strong market position in America, where it earns more than 75% of its revenue. Target, Costco and Sears holding is it immediate competitor, rank-wise Target is at 30 and Sears holding at 48 position in annual revenue. Merger of Sears and Kmart got it to the position of number 3 in America, although Wal-Mart is way ahead in competition nationally and globally.

9. Wal-Mart business strategy- In accordance to Richard Whittington

(What is strategy-and does it Matter, 2002)The theories of strategy in organization are the basic of action. It is formed to determine the result, to understand what is expected. Adopting a strategy has four different view and perspectives. ‘‘Theories of action’’ -

Planning-This classic approach, emphasize on the profitability, through rational long-term planning. Return on capital has to be to maximize profit.



According to Alfred Sloan if strategy doesn’t work-out there is no point being in the business. Wal-Mart is very good at it every investment it does is backed with strategic planning.

Evolutionary-Is an efficiency driven approach, business rely on market for profit maximization, top management role act as a second fiddle in the approach. As best performer evolves as a winner in the market.

Processual- It is craft-like approach. This method does not believe in Rational-strategy of planning or depending on market for profit maximization. However is depends on it available resources and conditions. This approach simplifies complex processes to make profit.

Systemic- An internationally-systemic approach, that believes in efficient planning and effective execution in business. In this method social activity is as important as economic. Business is made of social groups, thus this strategy depend majorly on social environment of company, to attain goal.

Wal-Mart implements its business strategies on the classic approach. It does rational planning to capture market-share or entering in new country. Wal-Mart has been actively planning to get into Indian market for a long time. It has started a joint-venture with Indian telecom giant, Bharti Enterprise to transform retail industry in India. It is part of their long term planning for profit-maximization; and has done good market research.

10.PEST analysis of Wal-Mart(Planning and managing public relations campaigns, 2000)PEST analysis is the external analysis of Macro-environmental factors, which facilitate the internal drive of the business by understanding the business environment or doing environmental scanning. Some analyst include two extra factors in this ‘legal’ (SLEPT analysis) and ‘Environmental’ (PESTEL or PESTLE analysis) popular done in United Kingdom.This framework would help Wal-Mart do external analysis to do the market research. It is vital in determine market potential, business position, forming and implementing operational strategies for its business. PEST framework would be essential in doing green business which will help Wal-Mart, have no negative impact on local and international environment, economy and society.

Four components/Factors Political- Would help Wal-Mart understand government and its impact on the

economy of the country. Company has to analyze law and order like tax policy, trade law, tariffs, labor law and what influence does government have on the country’s infrastructure, education and health. Stability of government is also very important for the business; hence need to understand before starting any new venture.

Economic- Wal-Mart has to understand economic condition of market before starting a new project. What is the interest rate on the cost of capital? What is the inflation rate of the country? Should be thoroughly checked. Wal-Mart’s business highly depends on supply chaining, exchange rate is important aspect



to consider as higher the exchange rate lower the profit, there are lots of goods Wal-Mart import-export to different countries and has stores operating at different countries, thus a good study is mandatory.

Social- Social factor is also very important for Wal-Mart. Each factor has its importance in every business, but few factors are more important in a particular business than other, like with Wal-Mart or any retail business or B2B, social factor is one of the important factor. Wal-Mart need to consider culture of the country, health of the people, and its population distribution- it will help Wal-Mart in future planning like opening a new store or changing business strategy. Education-factor to understand the job market, safety measures required should be studied well. Transport of goods is also important for Wal-Mart to balance the demand and supply of its customer’s need. Wal-Mart has to carefully scrutinize all the reasons that influence social factor.

Technological- This aspect is very vital as Wal-Mart rely heavily on its IT based supply chain system. Wal-Mart’s R&D and automation that improves the goods and services has to be considered more and relevant technology is to be regularly upgraded and updated. Technology factor is vital in lowering cost, improving quality and leading innovation at Wal-Mart.

PEST Analysis Diagram



11.SLEPT Analysis (‘Legal’ in one extra factor added in PEST Analysis):

Legal- Wal-Mart stores also need to evaluate the legal aspect before entering market. Laws like Consumer law, labor law, employment law, health and safety law has to be foreseen thoroughly to reduce any legal issue and company can abide to all the rules and regulation of country/state.

12.PESTEL or PESTLE Analysis (‘Environmental’ an addition in SLEPT Analysis):

Environmental- Wal-Mart can consider weather condition; climate changes basically ecological and environmental aspects of its market before entering any new market. Wal-Mart has recently ventured in financial services, this factor can be important if Wal-Mart start providing insurance as well to its customer.

This analysis would help Wal-Mart plan its strategies and identify threats. It would help business to exploit opportunity and explore new avenues. This framework is very simple but requires time in research. It is vital, helps in anticipating future hassles and minimizes them by systematic planning. Further planning can be done by doing SWOT analysis on Wal-Mart.

To do business strategy development Wal-Mart can use five competitive forces.

13.‘Porter’s five force’ model on Wal-Mart(Strategy Safari FT Prentice Hall, 2002)It can also be done to analyze business competitiveness and attractiveness in market through ‘outside-in’ business unit tool. It is frequently used business strategy tool. It has five fundamental competitive forces, which are close to company and that affect Wal-Mart’s earning/profit. It will help Wal-Mart identify the dependence that can hamper company’s prospect in its earning:Threat of new entrants depends on

Brand loyalty Customer switching cost Economic of scale Subsidies to all new entrant Return on investment

Threat of substitutes depends on Quality Buyer’s preference Cost of switching Performance and benefit

Bargain power of buyers depends on Few buyers and many sellers More supply, less demand Switching supplier easy



Quality and service not important Substitute available

Bargain power of suppliers depends on More buyers and fewer sellers Profitability of supplier Strong- brand of supplier Easy to find new customer

Business rivalry depends on More competition when there is no market leader If degree of product-differences is high, competition is tough Low switching cost, high rivalry Competitive advantage through innovation and technology

Five competitive forces are best to assess the balance of power or dependency in general term. It is an effective tool for competitive analysis and doing SWOT analysis.

Porter five competitive forces diagram



14.SWOT analysis of Wal-Mart Stores:(Planning and managing public relations campaigns, 2000)

Wal-Mart can do strategic planning by using SWOT analysis, which would help company to do pre-crisis planning by evaluating its strength, weakness, opportunity and threat. SWOT analysis can be done based on the objective of Wal-Mart’s project or its venture. It could help business understand its ‘favorable’ and ‘unfavorable’ by evaluating company’s internal factors- strengths and weaknesses and external factors- opportunities and threats. Based on the outcome, grey-area in the business can be rectified and area of improvement can be highlighted and corrected.

Wal-Mart’s Strength: All the advantage that business has above its competitor.

Good market position- top in retailing. Great range of brands- Host of choices for customer. Aggressive marketing and expansion plan- Capturing global market. Excellent supply chain management- Best in the industry Good market in Brazil, China & Mexico- Doing better than local/home

companies.

Wal-Mart’s Weakness: its intrinsic characteristic that is its disadvantage.

Legal issue- Lots of labor, supplier and health and safety related issues. Exit from South Korea and Germany- Due to political and adverse strategy

planning. Closing down of Moscow Wal-Mart office- According to Doug McMillon,

head of international business it could not find potential partner, thus was forced to close down its operation in December, 2010.

Company’s Opportunities: External condition that are favorable for Wal-Mart.

Own-brand product- Private product has good demand & high margin Capturing US healthcare and financial market- Apart from Retail it has good

future in this by catering to more to same customer. Increase in online sales and number of stores opening in different locations. Growth opportunity in Brazil, China & India, as these big countries will have

big sale for Wal-Mart.

It’s Threat: elements that are its obstacles in achieving objective

Stiff competition from local and Home companies, Wal-Mart’s UK subsidiary, ASDA is #2, after Tesco PLC.

Opposition from different groups/communities- Many companies and small time retailer are opposing its entry in their country. In India, there was strict opposition by retailers to stop Wal-Mart from entering.

SWOT analysis can thus help Wal-Mart in planning. It can also help business in matching its strengths with the opportunities and converting its weakness or threat to strength and opportunities.



SWOT Analysis Diagram

15.7S model for Wal-Mart(Strategy Safari FT Prentice Hall, 2002)

The Mckinsey 7S framework would help Wal-Mart in its operational activities by helping it achieve organizational goal. It has seven internal aspects which are to be aligned and reinforced to improve performance, manage changes, and synchronize department and its responsibility. 7S model is very beneficial in identify gaps and inconsistencies in business.

7S has two elements:



‘Hard-elements’ which has three internal aspects which are easier to define and identify. These aspects can be influenced by management.

1. Strategy- Wal-Mart needs to plan strategy to get an edge in competition and gain competitive advantage. Determine its objective, confront competition and deal with customer demand. Its strategy has to focuses on market and competition.

2. Structure- The hierarchy of Wal-Mart should be clear and easily associable to avoid any lapses. Coordination between departments should be smooth and align to attain common goal.

3. System- Job-responsibility should be concise and should get the work done effectively across the board. Controlling, monitoring and internal rules should be good and effective.

‘Soft element’ has four internal aspects and is hard to describe, less tangible in nature and more culturally influenced.

1. Shared value- Wal-Mart should take care of its corporate culture and work ethic. This aspect is centre to development of all the other six aspects or super-ordinate goal. Team culture, work culture should be strengthened and should achieve high results.

2. Skills- Individual skill and the job profile should match to the tee, skill gaps should be curtailed and regular feedback should be given to enhance performance.

3. Style – Business like Wal-Mart should frequently identify and develop the management and leadership style adopted in operation. It should be effective and should encourage team-work.

4. Staff- Wal-Mart employee and their assigned job responsibilities should be competent. Staffing gaps should be taken care regularly for smooth functioning of operational.

These entire elements are interdependent and a change in one aspect can influence other as well. 7S model can help Wal-Mart in organizational change, resolve ineffectiveness in business and sustain competition.

7S Model Diagram



16.BCG matrix for Wal-Mart(Strategy Safari FT Prentice Hall, 2002)It is Portfolio management tool, to determine product market share and market growth. Wal-Mart has better chances of success if its product has bigger market share and faster market-share growth. High-growth products need more investment and low-growth products incur more cost. Thus, it is necessary for Wal-Mart to evaluate all these segment in long-term to succeed.Four segment of BCG Matrix

Stars- All that product/project that has high growth and high market share for Wal-Mart would require large investment and would generate large revenue. It is the leader in business. For Wal-Mart its ‘Star’ is private-product as it has high demand and earn high margin. Wal-Mart should invest more and increase the range of own-brand products to earn more profit.

Cash cows- Product that has low growth for Wal-Mart but has high market share will have low investment, but would earn high profit. It is yesterday’s ‘Star’, Today’s ‘Cash cow’. Chinese products were one of the highest selling products at Wal-Mart but have now low growth due to low-durability.



Dogs- Those products that Wal-Mart has low growth and has low share, should be avoided and minimized. Company should opt for rescue plan if certain product/project is not delivering cash. The best practice is to liquidate and invest in profitable ventures.

Question mark- Wal-Mart product that has low growth, but high share is worst cash characteristics of all segments. It has high cash demand with low return. If market share don’t change it can be a loss for the business. Best thing for Wal-Mart would be to earn as much as it can without investing and get rid of it.

BCG Matrix Diagram

BCG Matrix is a simple and effective management tool for large companies like Wal-Mart. Wal-Mart can use experience curve to best of its benefit and get successful. BCG Matrix can help managers in balancing current business profile and future planning at Wal-Mart.

17.My suggestion for Wal-Mart.

Wal-Mart would benefit from the above mentioned models, tools and frameworks. It would provide Wal-Mart get proactive approach in ever-changing, global-scenario of



business. These tools would help in executive building and development in its entire operation units. These models will serve in cross-functioning, goal-defining, measuring success and creating competitive advantage for Wal-Mart.According to Thomas Friedman, Author of international Business book of the year, The World Is Flat, ‘‘Wal-Mart is the largest company of America, but it does not do the single manufacturing of its product all is does is excellent supply chaining to the last atom of perfection’’, according to me that is fabulous, no other retail business thought about this before Wal-Mart. All this it has achieved is with excellent strategic management and planning. So I would advise them to keep up the good work and achieve more and more milestones for the business and for the benefit of the society. As periodic review is must for the business, reviewing and revisiting these models is high recommended for a large business like Wal-Mart.Wal-Mart’s good strategic management system and these models would reduce conflict in organization by setting clear guidelines for the business for national and global operation and help it participate more actively in local, national and global market. It would also speed-up formation and implementation of core strategies, by empowering manager and focusing all in same framework of business-Like a ONE-BIG-WINNING-TEAM.

18.Bibliography & References

BooksSam Walton: Made in America, John Huey,1996Strategy Safari FT Prentice Hall, 2002What is strategy-and does it Matter, Richard Whittington, Ahlstrand & Lampel 2002Planning and managing public relations campaigns, Anne Gregory, 2000Wal-Mart annual report 1996-2010Magazine & NewspapersBusiness week,2010Financial Times,2010Fortune Magazine,2010Websites accessed between- 8 th Dec - 20 th Dec 2010 Fortune.com12manage.comMindtools.comBooks.books.comInvestors.Walmartstore.com


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