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Strategic Management: A Case study of
Walmart Inc
Strategy Management
A case study of Wal-Mart
Introduction
Porter (2002) states that root of the problem lies in the lack of distinguishing between operation
effectiveness and strategy. The expedition for productivity, quality and speed has resulted in
management tools and techniques, total quality management benchmarking, time based
competition, outsourcing, partnering, reengineering, change management. In any organization,
strategy management is the key to its success. There are many theories based on this assumption
that without a proper strategy and planning, it is difficult for any industry to survive irrespective
of its size. It is necessary to understand here that all the major corporate organizations have
established themselves, thanks to superior strategic planning and implementation. The retail
industry is making news everywhere with not only the traditional industries increasing their
outlets but some major corporate industries also intruding into this industry like Fresh @
Reliance of Reliance Industries, More of Aditya Birla Group in India. Wal-Mart, a US based
retail industry, which is known as the giant in the retail industry has survived and is still the huge
enterprise in the world which deals with almost all the F&B products, apparels, etc. It is not only
the largest company in world but also the largest company in the history of world.(Fishman,
2006) The present paper is divided into four sections to understand and answer as what makes
Wal-Mart the best in the industry, 1) retailing industry at the time of Wal-Mart's innings, 2) Wal-
Mart's Competitive advantage and key components, 3) Wal-Mart's Strategy and 4) Sustainable
growth of Wal-Mart.

I. Retail Industry Wal-Mart says Hello!
Strategic decisions are ones that are aimed at differentiating an organization from its competitors
in a way that is sustainable in the future. (Porter, 2002) Porter strongly advocates that decisions
in business can be classified as strategic if they involve some innovation and difference that
results in sustainable advantage. According to Patrick Hayden et al (2002) the retailing industry
adopted the style of discounting on its merchandise after the Second World War. It is learnt that
discount retailing was not the strategy at the time Kmart, Target and Wal-Mart first started
operating their business. Frank (2006) states that when Sam Walton was franchising for Ben
Franklin's variety store, invented an idea of passing on the savings to his customers and earning
his profits through volume. Prior to Wal-Mart's entry into the market, Sidney and Hebert from
Harrison founded Two Guys discount store in the year 1946 which dealt in hardware, automotive
parts and later on groceries. Two Guys was the forerunner as compared to today's retailers like
Super Target, Wal-Mart which succumbed to the economic recession. Another discount store set
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up by Eugene as E.J. Korvette, which is often cited as first discount store which did not raise
from 5 & 10 cents roots and eventually declared bankruptcy due to inability to compete with the
new entrants.
Porter (2002) states that combination of operational effectiveness and strategy is essential for
superior performance which is the primary goal of any organization. He also says that a company
can perform its rivals only if it can operate in different ways which are not in practice. Much
emphasis had been laid on strategic positioning like variety based positioning, needs based
positioning and access based positioning.
Along with Wal-Mart, other stores that started operating were Target, Woolworth (Woolco) and
K-Mart. However, Target has been functioning successfully, courtesy Wal-Mart, but other two
failed in their operations and filed bankruptcy.( Michael Bergdahl, 2004) Porters five forces
model explains what strategic decisions should be made and on what basis. The model explains
the basic strategies to be considered while starting a business like bargaining power of suppliers.
While franchising of Franklin he always looked for cheaper deals and thought of passing his
savings to the customers and earning through the margin on volume of bulk purchases. Through
the way of discount stores, shoppers were given the cheapest price as compared to any other
store. In regard to threats of new entrants, Wal-Mart has been constantly in the news for
acquisition of other small retail shops in view of its expansion. But nevertheless it has stiff
competition from likes of Super Target, Tesco, etc. it is the world's biggest retail industry.
II. Key Components of Wal-Mart Business Model
Wal-Mart is the leader in retailing industry with fiscal revenue of $244.52 billion in 2003 making
it the world's largest corporation. Mike reports that Wal-Mart as of 2002 had 1,283,000
employees growing at 11.2%. The above data explains that strategy of Wal-Mart is extraordinary
which manages and operates over 4150 retail facilities globally.The key components of Wal-
Mart (The Value Chain), which offers cheap prices than its competitors includes firm
infrastructure like frugal culture, no regional offices and pleasant environment to work.
Managements take lots of visits and it is learnt there are no rehearsals before any meeting which
is usually scheduled on every Saturday. In any organization, human resource is the key to
development and Wal-Mart efficiently manages its sources. Wal-Mart terms its employees as
associates. Manager compensation is linked to the profit of store operated by him, within
promotions, compensation offered to associates depending on company's profits and also offered
some incentives on their performances. The workforce at Wal-Mart is not unionized as the
company takes all the measures of their benefits and provides them training on related issues.
Technology plays a vital role in development of the organization and Wal-Mart is well equipped
with technological innovations like POS, store performance tracking, real time market research,
satellite system and UPC. Wal-Mart procurement measures like hard-nosed negotiations,
partnerships with some vendors, centralized buying, planning packets, etc. helps at large the
cause of providing the goods and services on cheap prices. The other factors that increase the
margin of profit for Wal-Mart are inbound logistics with frequent replenishment, automated DCs
cross docking, pick to flight, EDI, hub and spoke system. Wal-Mart strategy of operation is
innovative with big stores in small towns with monopoly in the market at low rental costs, local
prices, concentric expansion, merchandising in brand name, private labels, little space for
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inventory, store within store, etc. In relation to marketing and sales, merchandising is tailored
from locals, spent less on advertising and the prices are fixed low and it depends on the store
manager to fix the latitude of pricing. All the above factors combined together form the key
components of Wal-Mart which not only increase the margin of profits through bulk sales but
also boost the confidence of the customers with services like point of sale information system
and everyday low prices.
III. Wal-Mart Strategy
Wal-Mart dominates the American retailing industry due to number of factors like its business
model which is still a mystery and its effectiveness in not letting the rivals let know about the
weaknesses. Wal-Mart made strategic attempts in the its formulation to dominate the retail
market where it has its presence, growth by expansion in the US and Internationally, create
widespread name recognition and customer satisfaction in relation to brand name Wal-Mart and
branching into new sectors of retailing.
It is learnt that Wal-Mart strives on three generic strategies consisting of Focus Strategy, the
Differentiation Strategy and overall cost leadership. Managers strive hard to make their
organizations unique, distinctive and identify key success factors that will drive the customers to
buy their products.Thus, firm specific resources and capabilities are crucial in explaining the
firm's performance. The Resource Based View (RBV) explains competitive heterogeneity based
on the premise that close competitors differ in their resources and capabilities in important and
durable ways. The company's capability can be found through its functionality, reliable
performance, like Wal-Mart superior logistics. (Helfat, 2002) Wal-Mart has firm infrastructure,
well equipped in human resource with management professionals and technologically too.
Any organizations thrive hard to be successful for which it needs to have better resources and
superior capabilities. Wal-Mart has strong RBV with economically and financially very strong
enough to stand still in the time of crisis. Pereira states that dominating the retail market is its
key strategy. Wal-Mart operates on low price strategy which is operated as every day low prices
(EDLP) which builds trust among the customers.(Brunn, 2006)The strategy lies in purchasing the
goods at lower prices and selling the goods to customer at much lower prices, cutting the price as
far as possible and increasing the profit by increasing the number of sales. This ferociously
increases the competition in the market and Wal-Mart competes with all its competitors till it is
dominant it the market.
Wal-Mart is expanding seriously and rapidly which is also its strategic goal. Wal-Mart employs
over 1.3 associates, owns over 4000 stores out of which 3000 are in US and serves around 100
million customers weekly. Wal-Mart has acquired many international stores and merged with
some super stores like ASDA in UK. Wal-Mart far flung network of retail outlets has ensured
that Wal-Mart interacts with and has impact on virtually every locality within US. (Helfat,
2002) The expanded strategy has led the hunger of Wal-Mart to many European Countries. It is
learnt that three countries with no Wal-Mart stores became part of corporation's international
presence wherein the domestic retail chains were taken over by Wal-Mart including 122 Woolco
stores in Canada, 21 Wertkauf stores in Germany and 229 ASDA units in United Kingdom. The
takeover strategy by Wal-Mart keeps the company at forefront when entering into the new
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market and the number of competitors is also minimized. The strategies have helped the Wal-
Mart to rein in number one position in international countries making it the largest retailer in the
world.
It is seen that Wal-Mart has significantly the Porters five force model wherein through proper
strategic planning and strategic implementation has led to removal of barrier entry, rivalry from
competitors and pricing norms. In regard to substitutes, Wal-Mart in order to achieve its aim of
customer satisfaction has selling goods under its own legal brand. Wal-Mart's big box
phenomenon has changed the retailing industry in the United States which is often considered as
discount stores and makes profit through high volume of purchases and low markup on
profits.(Parnell, 2008)Wal-Mart with its low cost and ever expanding strategy has made a
dramatic impact since 1962 when Sam Walton first started his business. With this strategy, Wal-
Mart has now over 4000 stores and outlets in US and other countries through acquisition and
mergers.
IV. Sustainability in Discount Retailing Wal-Mart
According to Porter, (2002) operational effectiveness and efficiency are the key elements of
success in any organization. A company can outperform its rivals or competitors in the market
only with superior management and efficient control creating a difference from the others which
eventually attracts customers. Porter defines operational effectiveness as performance of similar
activities as its rivals but better than them. In a study, it is stated the Wal-Mart is expert in
manipulating perceptions. It is termed that low price is not the strategy of Wal-Mart but the
advertisement manipulates the consumer perceptions by making them think that its prices are
lower than its competitors' price using price spin'. Wal-Mart makes the consumer addicted
coming to its stores by convincing them the prices are lower than in the other stores by selling
itself cheaper by advertising that we have lower prices than anyone else' and placing a opening
price point'. The opening price point' is the lowest price in the store which is kept at high
visibility which makes consumer believes that the products in this store are really cheaper. (Race
Cowgill, 2005)
The SWOT analysis of Wal-Mart reveals that it is most powerful retail brand, reputation for
money, value, commitment, and provides wide range of products. It is growing at a brisk pace
with expanding its horizon to other parts of world through acquisition and merger. Wal-Mart has
good opportunities in markets of Europe and China and focuses on acquiring the market through
acquisition of smaller stores and merger with leaders in the specific markets. Wal-Mart is always
under threat to sustain its top position in market nationally and internationally. Global leader in
the industry leaves the organization vulnerable to many socioeconomic and political problems of
the country.
Sustainability at the top place is the most important job that makes its managers strives hard to
frame the policies and strategy to compete with its rivals in the market. Slack, Imitation,
Substitution and Hold-up are some of the threats to any organization in retail industry. However,
Wal-Mart with its visionary goal of attaining zero waste status and reaching 100% renewable
energy has planned to launch number of sustainability initiatives. (GreenBiz, 2008) Imitation
increase profits by increasing the supply. But imitation puts reputation, relationship at stake.
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James Hall reports that Wal-Mart is planning to open convenience stores as Tesco has started
and operating in US called Fresh & Easy Neighborhood Markets. (James, 2008) Such tactics will
create mixed response among the consumers while degrading the reputation of the leader in
market. Substitution reduces the demand for what a firm uniquely provides by shifting the
demand elsewhere due to changes in technology. The threats of substitution can be subtle and
unexpected like minimizing expenses through videoconferencing instead of air flights to long
distance meetings with its managers of other stores, etc. Therefore, substation is an especially
effective way of attacking dominant rivals in the market. Substitution offers mixed responses
after identifying and understanding the threats. The organization should fight the threat and
merging with them, switching to different options of substitution to be in the market. Hold-up
diverts the value to customers, suppliers or complementors who have some bargaining leverage
which results in tough negotiations, contractual agreements and vertical integration.
Wal-Mart is having great network with almost over 7800 stores and Sam's Club locations in
16 markets worldwide. It employs more than 2 million associates and serves more than 100
million customers every year. According to Fishman (2006) Americans spend $26 million every
hour at Wal-Mart which makes it believable that Wal-Mart is financially very strong and is
capable of combating any threat from its rivals in the market. Wal-Mart is ever expanding its
boundaries by way of acquisition and mergers. Thus Wal-Mart with such a vast network of stores
and alliances in the forms of ASDA, Target and many other stores is well protected enough to
sustain its top position in the retail industry.

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