2013 Management and Strategy, Walmart case study

7 July 2016

Wal-Mart operates more than 11,000 retail units under 69 banners in 27 countries and e-commerce websites in 10 countries. (Wal-Mart. com) They employ 2. 2 million associates around the world; 1. 3 million in the U. S. alone. Wal-Mart provides general merchandise: family apparel, health & beauty aids, household needs, electronics, toys, fabrics, crafts, lawn & garden, jewelry and shoes. Also, the company runs a pharmacy department, Tire & Lube Express, and Photo processing center as well (www. Wal-Mart. com).

When Sam Walton created Wal-Mart in 1962, he declared that three policy goals would define his business: respect for the individual, service to customers, and striving for excellence (www. Wal-Mart. com). Wal-Mart’s corporate management strategy involves selling high quality and brand name products at the lowest price. In order to keep low prices, the company reduces costs by the use of advanced electronic technology and warehousing. It also negotiates deals for merchandise directly from manufacturers, eliminating the middleman.

2013 Management and Strategy, Walmart case study Essay Example

This paper will analyze Wal-Mart’s current strategy and challenges. In addition, I will discuss the threats and challenges facing Wal-Mart currently, priorities set by Wal-Mart CEO Lee Scott. I will also discuss the proposals outlined in the “Supplemental Benefits Documentation: Board of Directors Retreat FY06,”the result of the Board Benefits Strategy document leak, Wal-Mart initiatives from the standpoints of strategy and public relations, Wal-Mart’s strategic social challenges from the standpoint of “ When social issues become strategic” (Bonini, et al, 2006).

CURRENT WAL-MART THREAT AND CHALLENGES In recent times, Wal-Mart has faced much criticism over issues such as switching to products made overseas. Consumer surveys had established that Americans cared less and less about buying national brands: Low price trumped brand loyalty. In the period following Sam Walton’s death, when Wal-Mart’s sales slowed and its stock price began to stagnate, this consumer trend freed the company to ramp up the production of its house brands through unbranded suppliers in China, who now had privileged access to Wal-Mart’s 3,500 stores across America.

The result was that Wal-Mart became its own de facto manufacturer, developing and designing products according to the taste of its customers, as analyzed by Wal-Mart’s supercomputer. Profits soared. Wal-Mart attempted expansion internationally, but are closing two stores in 2013. Another threat Wal-Mart faces is its resistance to unionized labor. For several years, Wal-Mart’s annual shareholder’s meeting has turned into protests against the retail giant’s treatment of its employees. None of Wal-Mart’s workers are represented by a union.

Wal-Mart’s success in keeping its American workforce entirely nonunion is, of course, well documented. Many find it shocking that the country’s largest employer has remained union free. While Wal-Mart contends that its employees have no use for union representation, it stretches gullibility beyond the breaking point to think that no group of workers at any of the company’s more than 4,000 U. S. stores would choose to organize themselves into a bargaining unit. After all, Wal-Mart has become almost as famous for its low wages and paltry health benefits as it is for its low prices.

And despite the weakened position of unions in the U. S. economy, unionized workers still enjoy wages that are 13. 6 percent higher on average than those of their nonunion counterparts. Likewise, unionized workers are 28. 2 percent more likely to be covered by employer-provided health insurance and 53. 9 percent more likely to have employer-provided pensions. Similarly, since national labor law allows employers to permanently replace workers who strike for economic reasons, Wal-Mart often threatens employees that they can be permanently replaced as part of its strategy to scare workers into rejecting union formation at its U. S. stores.

This message is echoed during its trainings for new workers, which are part of Wal-Mart’s coordinated, pro-active approach to stopping organizing campaigns in their tracks. (Dickenson, 2013) WAL-MART CEO LEE SCOTT PRIORITIES CEO Lee Scott announced that Wal-Mart was launching a sweeping business sustainability strategy to dramatically reduce the company’s impact on the global environment and thus become “the most competitive and innovative company in the world. ” He argued that “being a good steward of the environment and being profitable are not mutually exclusive.

They are one and the same. ” Scott also committed Wal-Mart 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. ” To meet those goals, Wal-Mart would seek to transform its supply chain, in cooperation with suppliers and environmental nonprofit organizations. In addition, Mr. Scott said that as the largest buyer of manufactured goods in the world, Wal-Mart has the power to encourage its more than 60,000 suppliers to adopt environmentally conscious business practices.

“Our most direct impact will be on our suppliers,” he said. “If we request that our suppliers use packaging that has less waste or materials that can be recycled, everybody who buys from that manufacturer will end up using that package. ” As an example of how the company can encourage better packaging, Mr. Scott said he would ensure prime placement, at the end of store aisles, for a 32-ounce bottle of All laundry detergent that has been concentrated to reduce the container’s size. The goal, the company said, is for all laundry detergent suppliers to offer similar packaging by the end of the year.

Healthcare was another issue he addressed. In his speech, Mr. Scott 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.

Mr. Scott struck a rebellious note on Wal-Mart’s wages, which average less than $10 an hour, or less than $19,000 a year. “Even slight overall adjustments to wages eliminate our thin profit margin,” he said. However, in an unusual move, Mr. Scott asked Congress to consider raising the minimum wage. “We can see firsthand at Wal-Mart how many of our customers are struggling to get by,” he said.

The final priority he discussed was diversity. In an effort to continue to lead in diversity, Wal-Mart 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.

This leaked document that was intended as an internal memo sent to Wal-Mart’s board of directors proposes numerous ways to hold down spending on health care and other benefits while seeking to minimize damage to the retailer’s reputation; among the recommendations are hiring more part-time workers and discouraging unhealthy people from working at Wal-Mart. In the memorandum, M. Susan Chambers, Wal-Mart’s executive vice president for benefits, also recommends reducing 401(k) contributions and persuading younger, and presumably healthier, workers by offering education benefits.

The memo also states concern that workers with seven years’ seniority earn more than workers with one year’s seniority, but are no more productive. To discourage unhealthy job applicants, Ms. Chambers suggests that Wal-Mart arrange for “all jobs to include some physical activity (e. g. , all cashiers do some cart-gathering). ” The memo acknowledged that Wal-Mart, the world’s largest retailer, had to walk a fine line in restraining benefit costs because critics had attacked it for being stingy on wages and health coverage. Ms. Chambers acknowledged that 46 percent of the children of Wal-Mart’s 1. 33 million United States employees were uninsured or on Medicaid.

Wal-Mart executives said the memo was part of an effort to rein in benefit costs, which to Wall Street’s dismay have soared by 15 percent a year on average since 2002. Like much of corporate America, Wal-Mart has been squeezed by soaring health costs. The proposed plan, if approved, would save the company more than $1 billion a year by 2011. One proposal would reduce the amount of time, from two years to one, which part-time employees would have to wait before qualifying for health insurance.

Another would put health clinics in stores, in part to reduce expensive employee visits to emergency rooms. Wal-Mart’s benefit costs jumped to $4. 2 billion last year, from $2.8 billion three years earlier, causing concern within the company because benefits represented an increasing share of sales. Ms. Chambers also proposed that employees pay more for their spouses’ health insurance. She called for cutting 401(k) contributions to 3 percent of wages from 4 percent and cutting company-paid life insurance policies to $12,000 from the current level, equal to an employee’s annual earnings. Life insurance, she said, was “a high-satisfaction, low-importance benefit, which suggests an opportunity to trim the offering without substantial impact on associate satisfaction.

” Acknowledging that Wal-Mart has image problems, Ms. Chambers wrote: “Wal-Mart’s critics can easily exploit some aspects of our benefits offering to make their case; in other words, our critics are correct in some of their observations. Specifically, our coverage is expensive for low-income families, and Wal-Mart has a significant percentage of associates and their children on public assistance. ” Her memo also stated that 5 percent of Wal-Mart’s workers were on Medicaid, compared with 4 percent for other national employers. She said that Wal-Mart spent $1. 5 billion a year on health insurance, which amounts to $2,660 per insured worker. The memo, prepared with the help of McKinsey & Company, said the board was to consider the recommendations in November.

But the memo said that three top Wal-Mart officials – its chief financial officer, its top human relations executive and its executive vice president for legal and corporate affairs – had “received the recommendations enthusiastically. ” RECENT WAL-MART INITIATIVES Recently, Wal-Mart, the nation’s largest retailer, gave its suppliers an added incentive, announcing that it would increase sourcing of American-made products by $50 billion over the next 10 years. Wal-Mart said it would buy more goods already produced in the United States, like games and paper, as well as help vendors in areas like furniture and textiles return production that had moved overseas. The company did not disclose the value of the American-made products it already sourced. In its most recent fiscal year, Wal-Mart spent $335 billion buying and transporting merchandise globally.

The $50 billion commitment, $5 billion a year, represents about 1. 5 percent of that annual total. Many have seen this as a public relations move by the company to combat Wal-Mart no longer being a “Made in America” company. (Clifford, 2013) One of Wal-Mart’s newest strategic initiatives is they are opening small versions of its mega-stores on college campuses. The retailer recently announced its plan to open a new concept store at Arizona State University. The initiative is part of the chain’s new “Wal-Mart’s On Campus” initiative. A similar store is already open at the University of Arkansas in Fayetteville, and a third is planned at Georgia Tech.

Arizona State’s Wal-Mart will only have about 10 employees and includes plans for a pharmacy, grocery and convenience items, and campus merchandise. Wal-Mart’s new campus stores are smaller than regular Wal-Mart supercenters. Arizona State’s store will be about 5,000 square feet and Georgia Tech’s will be only 2,500. That’s tiny compared to the chain’s 180,000-plus square foot Super Wal-Mart’s. (Durisin, 2013) In the area of Public Relations, Wal-Mart announced in 2011 a multi-billion dollar women’s initiative, in a big move to repair its reputation after a high-profile gender discrimination lawsuit. The retailer plans to buy $20 billion worth of products from female-owned businesses over the next five years, and provide another $100 million to nonprofits for women.

Plus, Wal-Mart says that it will be hiring and training more women, in both its factories and retail, all over the world. One key point is that there is still a potential for some smaller gender discrimination lawsuits in relation to the giant class-action one from earlier, so this may also be an effort to get a head start on that. (Bhasin, 2011) 2003 CASE STUDY REVIEW: The article by Bonini, et al (2006) approaches the issues of how companies must approach social issues. When a company innovates in, say, lowering environmental impact, enhancing the health of its customers, or enabling personal financial security, it creates shared value.

Scalable, self-funding solutions are then able to actually solve the pressing social problems we face while driving company growth and profitability. The many companies starting to think and act this way are going to be the most successful. However, it should not be about simply repairing reputations as it appears that Wal-Mart is doing. Porter and Kramer (2006) suggest a new approach to corporate social responsibilities (CSR), which both acknowledges the interdependence of companies and the broader community, and enables companies to develop a tailored, rather than generic, CSR strategy. Porter and Kramer offer a new approach to CSR which focuses on identifying the shared values between a particular company and its social context, and developing a tailored and strategic response.

Using Porter and Kramer’s tool to map social opportunities, and practical steps to identify, develop and organize for CSR, companies now have a new CSR framework to enhance business and social outcomes. If companies are able to successfully use this model (and Porter and Kramer’s article provides numerous case studies to that effect) then the benefits will be reaped in terms of both a competitive advantage and social enhancement. CONCLUSION In conclusion, there has been a lot of controversy around how Wal-Mart does business. The company has not always kept its promises and has often made strategic decisions or proposals that are opposite of their promises. Bonini, et al. (2006) suggests that companies such as Wal-Mart take a real role in socioeconomic issues and begin improving their image and the world around them.

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