Walmart: A Case Study in Strategy
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As I sat down several weeks ago to begin writing this case study, I struggled with how I wanted to lay the paper out, however, when I opened Lee Scott’s 21st century leadership speech that was part of the required reading, the following quote struck me as the essence of the whole case study, so I would like to share it with you. You know, we are in uncharted territory as a business. You won’t find any case studies at the Harvard Business School highlighting answers for companies of our size and scope. If we were a country, we would be the 20th largest in the world. If Walmart were a city, we would be the fifth largest in America. People expect a lot of us, and they have a right to. (Scott, 2005) Walmart: A Case Study in Strategy
From their website, Walmart helps people around the world save money and live better — anytime and anywhere — in retail stores, online and through their mobile devices. Each week, more than 245 million customers and members visit our nearly 11,000 stores under 71 banners in 27 countries and e-commerce websites in 10 countries. With fiscal year 2014 sales of approximately $473 billion, Walmart employs 2.2 million associates worldwide. (Walmart, 2014) Opened in 1962 in Rogers, AR, Walmart has grown from a local company to a global company with international reach. Walmart has opened thousands of stores in the U.S. and expanded internationally.
Walmart operates over 11,000 retail units under 71 banners in 27 countries and e-commerce websites in 10 countries. (Walmart, 2014) Through innovation, they are attempting to create a seamless experience to let customers shop anytime and anywhere online, through mobile devices and in stores. Walmart is completely committed to saving people money so they can live better according to their website and that is the message they have propagated for years. In my humble opinion they are very good at staying on message and selling their company which has helped make them a global powerhouse. With all that being said, no company grows to the size and scope of Walmart without challenges and changes in strategy and, goals and priorities which, we will discuss throughout this case study.
Threats and Challenges
One of the more recent threats to Walmart has been the cost cutting measures that they have taken since the recession. The following passage from a story in Bloomberg Businessweek sums up what I would consider the most recent threat facing Walmart in the last 5 years. Margaret Hancock long considered her local Walmart superstore her one-stop shopping destination. But during recent visits, the retired accountant from Newark, Del., says she failed to find more than a dozen items, including certain types of face cream, cold medicine, mouthwash, bandages, and hangers. Walmart’s loss was a gain for Kohl’s, Safeway, Target, and Walgreens, the chains Hancock visited for the unavailable items. “If it’s not on the shelf, I can’t buy it,” she explains.
“You hate to see a company self-destruct, but there are other places to go.” (Dudley, 2013) Walmart has been cutting staff since the recession, and pallets of merchandise are piling up in its stockrooms as shelves go unfilled. In the past five years the world’s largest retailer added 455 U.S. Walmart stores, a 13 percent increase, according to company filings in late January. In the same period its total U.S. workforce, which includes employees at its Sam’s Club warehouse stores, dropped by about 20,000, or 1.4 percent. (Dudley, 2013) A thinly spread workforce has other consequences: longer checkout lines, less help throughout the store, and disorganization. Last month, Walmart placed last among department and discount stores in the American Customer Satisfaction Index, the sixth year in a row the company has either tied or taken the last spot. (Dudley, 2013)
As a frequent shopper at my local Walmart store I can attest that the customer service of this global giant is deplorable! I would argue that this is the largest current threat facing the company with businesses such as Amazon and Costco in the same market knocking on their door. Walmart just recently hired another CEO, the 3rd such move that I could find in my research for this case study and while replacing a veteran executive with an up-and-coming high performer has all the makings of a strategic shift, early indications suggest that the retail giant will be staying the course with McMillon at the helm. McMillon’s decades of employment, deep institutional knowledge, and company loyalty have been credited as key reasons he beat out Bill Simon, president and CEO of Walmart U.S., an executive seen as more of an outsider for the top job. (Pelletier, 2013)
Being a friend of the Walton’s, with deep Arkansas roots, and decades of experience doing things the Walmart way is not the hallmark of an incoming CEO who is going to shake things up at the world’s largest retailer and America’s largest employer. But, given the many challenges the company faces, change might be exactly what is needed. (Pelletier, 2013) The article goes on to talk about a disappointing third quarter when its largest revenue generator, sales from U.S. stores, dropped 0.3%. The company also has forecasted flat earnings during the critically important holiday season. Walmart still expects to see modest sales growth in FY2015 through the opening of smaller, more targeted stores, and its longtime strategy of lowering prices. However, there is some doubt whether these measures will be enough to stave off Walmart’s competitors.
Costco is coming off a big year with more than $100 billion in revenue, 5% growth in U.S. store sales, and 7% growth in international sales. As Costco continues to challenge them domestically and internationally, some are beginning to question whether they could replace them as the largest retailer in the world. (Pelletier, 2013) The Company continues to thwart allegations of bribery for expedited building permits in Mexico and potentially other international markets such as Brazil, China, and India. Here in the United States, the company faces continued criticism for its low wages and its opposition to organized labor within stores. Labor unions have always criticized Walmart for their policies and business practices.
The article “Inside the Leviathan” by Simon Head, points out several reasons why Walmart has to constantly fight off the threat of unions and other labor activists groups. Walmart has a strategy of demanding more productivity out of their employees by simply overworking their employees. When the productivity of labor rises and its compensation stagnates, then, other things being equal, the cost of labor per unit of output will fall and profit margins will rise (Head, 2004). Another major issue that can provide ammunition for union organization is the sexual discrimination that has plagued Walmart. Ramona Scott, a Dukes case petitioner, was told by her store manager that “men are here to make a career and women aren’t. Retail is for housewives who just need to earn extra money” (Head, 2004). During Walmart’s inception many of the females that worked for Walmart were the spouses of farmers that used Walmart to supplement their husbands’ earnings (Head, 2004).
Hearing statements like these would lead one to believe that this type of treatment of women is part of the culture of Walmart, but, given that the majority of Walmart’s customers are women, this is quite alarming. The Dukes case was a class action lawsuit filed in 2001 on behalf of female employees that accused the behemoth retailer of discriminating against women when it came to promotions to salaried positions and pay increases. The Dukes case remained in litigation for almost ten years before it was dismissed by the United States Supreme Court in 2011. Walmart was able to avoid a jury hearing the case, but the suit brought to light a major issue that almost seem to be part of the culture of Walmart. Walmart’s challenges are real but so are the opportunities for new growth. There are ample opportunities for the company to improve on its mediocre performance in e-commerce, refresh its online presence, and truly compete for an increased digital market share.
Walmart has also yet to fully implement the vision of turning its massive footprint of storefronts into nationwide distribution centers for e-commerce or other growth opportunities. (Pelletier, 2013) The company could ease some of its criticisms in the U.S., and eliminate some of its barriers to enter new domestic markets by raising the wage and benefit levels of its employees, and coming to a reasonable agreement with labor organizations. Walmart’s image on this issue continues to be tarnished with reports of stores hosting food drives for its own employees who are not earning enough money at work to put food on the table at home. As Costco continues to be the model retail company for high wages, good benefits, low turnover, and exceptional productivity, Walmart’s position on this issue becomes more unsustainable. (Pelletier, 2013)
Lee Scott and 21st Century Leadership
The main focus of Lee Scotts address was driven by the devastation and destruction that was created by Hurricane Katrina. He spoke of how viewing that destruction and seeing and talking to those affected the most by Katrina prompted him to take a more inside look at the way Walmart was doing business. He wanted to focus on few key areas, jobs, healthcare, community involvement, product sourcing, diversity, environmental impact. These were all the issues that the company had been dealing with historically from a defensive posture. He said that it became clear that in order to build a 21st century company, we need to view these same issues in a different light. (Scott, 2005)
In fact, they represent gateways for Walmart in becoming the most competitive and innovative company in the world. Remember what I said earlier about Sam Walton? He had the courage and foresight to take on the hardest tasks in retailing instead of the easiest, and look what we were able to accomplish. (Scott, 2005) Scott argued that, being a good steward of the environment and being profitable are not mutually exclusive. They are one and the same. (Scott, 2005) He also committed Walmart to three aspirational goals: To be supplied 100 percent by renewable energy, to create zero waste, and to sell products that sustain our resources and the environment. (Scott, 2005) He outlined a new health insurance plan with lower premiums but relatively high out-of-pocket deductible requirements that he said would make benefits more affordable to the company’s 1.3 million United States workers.
But Ron Pollack, executive director of Families U.S.A., a health care consumer advocacy group, criticized the plan, saying employees who signed up for it would be deterred from seeking medical care because of the out-of-pocket costs, which might exceed $2,500 a year. Wages were also addressed which had been and by the way continues to be an issue for the company. However, in an unusual move, Scott asked Congress to consider raising the minimum wage. We can see firsthand at Walmart how many of our customers are struggling to get by (Scott, 2005).
In an effort to shore up their perceived lack of diversity, Walmart will continue to ensure that their hiring represents the diversity of their communities, and grow the percentage of women and minorities in their management ranks, increase outreach to colleges and universities with large diverse enrollments, continue to hold officers financially accountable by tying officer incentive bonuses to the achievement of diversity goals, including mentoring and participation in diverse organizations, increase amount of business they do with minority companies using their size and leverage to create companies of significant size and stature, and the importance of transparency within the company, by releasing information on the gender and racial makeup of the workforce on a regular basis. (Scott, 2005) Board benefits strategy.
The board proposals that were made by Susan Chamber in the internal memo from 2006 sound very familiar to the challenges that I wrote about that the U.S. Army is currently facing. Defense Secretary Chuck Hagel on Monday the 24th of February proposed shrinking the Army to its smallest size in 74 years, closing military bases and making other military-wide savings as part of a broad reshaping after more than a decade of war. The Pentagon must also begin to control the spiraling costs of its pay and benefits, Hagel said. Department officials want to work with Congress to cut pay increases, reform troops’ health care and dial back some of the perks that military families receive, including discounts at on-base stores and payments to help with their housing. (Ewing, 2014) Joint Chiefs Chairman Gen.
Martin Dempsey said he believes Congress should protect current military benefits so troops can keep what they expected to receive when they joined. But Washington can no longer put off reforming compensation, he warned. “Otherwise we’ll be forced into disproportionate cuts to readiness and modernization,” Dempsey said. “I know this weighs heavily on the minds of men and women in uniform and their families, a force that’s extraordinarily capable of handling change, but less understanding of piecemeal approaches. They want and they deserve predictability.” (Ewing, 2014) I only use this passage to highlight that Walmart has appeared to weather the storm from this document being leaked but was under what I would consider an extreme amount of scrutiny for trying to balance a growing company with rising healthcare and benefits costs.
I mean the U.S. Army is 522,000 employees, which doesn’t even scratch the surface of Walmart’s 2.2 million employees. Recent Initiatives Disruptive Innovation is one of the most recent initiatives from Walmart’s new CEO Doug McMillon. On their corporate website I watched a video from Bloomberg TV where he and several CEO’s talked about the speed of technology and how disruptive innovation was a tool for companies to stay connected to consumers. (McMillon, Disruptive Innovation Ahead, 2014) McMillon went as far as to say that Walmart considers themselves a technology company more than a logistics company. Walmart has purchased a lab for this purpose to build a capability to help them data mine for social media purposes, they have hired more than 2,500 engineers, programmers and data scientists, and acquired 14 companies in the last three years.
They recently became interested in a product search firm called Adchemy and bought it less than 3 months later. They focused on a wireless services provider named Simplexity and completed a deal 7 weeks later. With the ultimate goal of adding value to the customer. They also have increased their drive through ordering system in one of their UK businesses, AZDA. They have found that the amount of customers that want to order online via their smartphone and then use the drive through to pick up their orders, so they don’t have to spend an hour in the store has increased exponentially. He went on to say at Walmart, we now get more ecommerce traffic in the U.S. from mobile devices than from desktop and laptop computers. And, increasingly, our customers will do their grocery shopping on their phone or tablet in their spare time, not during their precious family time.
We’re going to make that possible. (McMillon, Disruptive Innovation Ahead, 2014) These are all in addition to the company continuing to focus on their employees while they grow and change. McMillon is driving their strategy to continue to focus on the consumer and I believe the initiatives mentioned above are moving towards that goal. Social Challenges The authors of “When Social Issues Become Strategic” were ahead of their time when they laid out the following statement; businesses have never been insulated from social or political expectations. What’s different today is the intensifying pressure and the growing complexity of the forces, the speed with which they change, and the ability of activists to mobilize public opinion. Yet even as the social contract evolves, the typical corporate response appears to have become increasingly flat footed.
The changing social contract Companies have always had a contract with society. The contract embraces not just direct stakeholders (such as consumers, employees, regulators, and shareholders) but also, and increasingly, a broader set of stakeholders (such as the communities where companies operate, the media, academics, and the nonprofit sector). (Bonini, Mendoca, & Oppenheim, 2006) I would like to submit that Walmart with their acquisition of their lab and with the infusion of social media and data mining for customer service purposes also need to delve into data mining to ensure that they are keeping and maintaining their social contract with their employees. McMillon mentions this in an address to all employees with the following: Our values won’t change. Integrity, Service, Respect and Excellence.
These are our guiding beliefs, and our behaviors will support those beliefs. Our culture is what makes us special. It’s what makes us different. We must nurture it and reward those who live it. And, as it relates to integrity, we are committed to conducting business in an ethical manner. Integrity is at the heart of everything we do. It’s supported by our culture and the world class compliance and ethics capabilities we continue to strengthen. Doing the right thing, the right way, is the only way for us. But we don’t stop there. We believe in Walmart’s responsibility to lead on big issues, in big ways. It’s one of the reasons many of us love being part of Walmart. About 10 years ago, we began to understand that we could make a larger difference in the area of social and environmental sustainability.
That period of learning was the beginning of a new era for us, and it really changed my personal perspective. Ultimately, creating a more sustainable company is about people. It’s about our customers, our associates, our kids and grandkids. We care about not only our own associates but also about the farmers and factory workers who make it possible for us to sell merchandise. We care about how they are treated and compensated. That’s why we’re investing to support additional training and safety. We’re focused, for example, on women. We’re on track to help train 1 million women on farms and in factories, in technology, retail, and throughout the workforce. And we’re ahead of schedule on sourcing $20 billion from women-owned businesses.
We’ll also keep giving back in the communities we serve – whether that’s through disaster relief or local manufacturing around the world or the millions of hours our associates volunteer each year. As it relates to the environment, we’ve made terrific progress against our three big goals – to run on 100% renewable energy, to create zero waste, and to sell products that sustain people and the planet. I believe in those goals – as an associate and as a dad. There are so many ways that Walmart can make a difference around the world. We’re committed to doing just that. We will strengthen the trust we’ve established with customers and the communities we serve. (McMillon, news.walmart.com, 2014) Issues now and 2003 Issues that were brought to light in the HBR article from 2003 are very similar to the issues that the company is trying to combat today.
I would argue that Doug McMillon’s statement that I have above is essentially the proof in the pudding so to speak. Walmart as a corporation is focused on combatting the same pressures and the same problems from 10 years ago however, they have focused on them for 10 years and are improving daily while simultaneously growing their brand and continuing to provide the product they sought out to provide, which speaks to the quality of the company. I think that in today’s day and age the importance of strategic messaging cannot be underestimated. I would submit that is exactly what Walmart is trying to do with their new labs and initiatives, stay ahead of the bow wave and keep providing the consumer with the products that they need and want and McMillon is working diligently to keep their strategy current and relevant.
I think the closing from his speech on their website sums it up better than I can; so I’ll leave you with a few words from Sam himself. He said, “I’ve made it my own personal mission to ensure that constant change is a vital part of the Walmart culture itself. I’ve forced change sometimes for change’s sake alone at every turn in our company’s development. In fact, I think one of the greatest strengths of Walmart’s ingrained culture is the ability to drop everything and turn on a dime.” (McMillon, news.walmart.com, 2014)
Bonini, S. M., Mendoca, L. T., & Oppenheim, J. M. (2006). When Social Issues become strategic. McKinsey Quarterly, 20-32. Dudley, R. (2013, March 28). businessweek.com-articles. Retrieved from businessweek.com: http://www.businessweek.com/articles/2013-03-28/walmart-faces-the-cost-of-cost-cutting-empty-shelves Ewing, P. (2014, 02 24). Chuck Hagel details Pentagon Budget Cuts. POLITICO, p. 2. Head, S. (2004, December 16). Inside the Leviathan. The New York Review of Books, pp. 1-9. McMillon, D. (2014, January 28). Disruptive Innovation Ahead. (S. Ruhle, Interviewer) McMillon, D. (2014, June 6). news.walmart.com. Retrieved from walmart.com: http://news.walmart.com/executive-viewpoints/picking-up-the-pace-of-change-for-the-customer Pelletier, J. (2013, November 27). fool.com/investing general. Retrieved from www.fool.com: http://www.fool.com/investing/general/2013/11/27/3-challenges-new-wal-mart-ceo-doug-mcmillion.aspx Scott, L. (2005). 21st Century Leadership. (L. Scott, Performer) Walmart. (2014, September 20). Our Story. Retrieved from Walmart.com: http://corporate.walmart.com/our-story/?povid=P1171-C1093.2766-L6