Key Drivers Of Wal Marts Business Success Commerce Essay

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Wal-Mart is the worlds largest retailer. Within the United Kingdom, retailing has generally been considered as a local or national activity. Wal-Marts purchase of ASDA in 1999 illustrates the global scale of much modern retailing. In this paper we consider the implications of Wal-Marts takeover of ASDA. First, the key drivers of Wal-Marts business success are analysed. Second, the impact of Wal-Mart in Canada and Germany is considered. Third, the match of Wal-Mart with ASDA is examined. Fourth, the key changes Wal-Mart is making to ASDA are reviewed. This consideration of Wal-Mart and ASDA is placed in the context of theoretical discussions of retailing and particularly the internationalisation of retailing.

Introduction

All organisations are experiencing a business environment characterised by rapid change. This is not news to most people- their lives have changed because of it. What may be news is just how much the speed of change has increased. An analysis of Fortune 1000 corporations shows that between 1973 and 1983, 35 percent of the companies in the top twenty were new. The number of new companies increases to 45 percent when the comparison is between 1983 and 1993. It increases even further, to 60 percent, when the comparison is between 1993 and 2003. Any bets as to where it will be between 2003 and 2013? An early indicator is that the 2004 list shows a 10 percent change in comparison to the 2003 list.

Wal-Mart is now seen as an unstoppable giant. In 2004, it was once again at the top of the Fortune 1000, but in 1993 it was not even on the top twenty list. Back then, Wal-Mart ranked twenty-sixth behind Sears. In the ten years from 1993 to 2003, Sears, JCPenney, Kmart, and Montgomery Ward all lost market share to Wal-Mart and to newcomer Costco. (Frank, 2006)

Wal-Mart's Background

Wal-Mart Stores Inc was founded in 1962 as a single Discount Store in Rogers, Arkansas, by a visionary and by the time legendary man named Sam Walton. Wal-Mart Stores, Inc., incorporated in October 1969, operates retail stores in various formats around the world. (Charles Fishman, 2006) The Company operates through three segments: Wal-Mart Stores segment, which includes Supercenters, Discount Stores and Neighbourhood Markets, Sam's Club segment and International segment. The Wal-Mart Stores segment consists of three different traditional retail formats, all of which operate in the United States, and Wal-Mart's online retail format, walmart.com. The Sam's Club segment consists of membership warehouse clubs, which operate in the United States, and the segment's online retail format, samsclub.com. (Charles Fishman, 2006) Having written a unique success story in the history of retail industry, thanks to the rousing leadership of Sam Walton, the company internationally came off the ground by opening its first store abroad in Mexico City in 1991. Since then Wal-Mart has extended its international presence to Puerto Rico (1992), Canada (1994), China (1996), Brazil (1995), Argentina (1995), South Korea (1996) and Germany (1998) (Wal-Mart History). At January 31, 2007, its International segment consisted of retail operations in 12 countries and Puerto Rico. (John Dicker, 2005)

Management Style and Organisational Style

The history of Wal-Mart stores Inc. has suggested that its management style and organisational structure has been transformed and evolved over a number of years in order to gain competitive advantage and consequently superior financial performance. It can be suggested that management style facilities the strategic aims of the company. (Lynch 2003) It can therefore lead to innovation and entrepreneurship or administration and integration within a company. The main criteria for Wal-Mart in adopting any organisational structure for its operations have been used on its division of stores domestically and internationally. (Charles Fishman, 2006) The division of the stores can be summarised with the help of the following mapping:

Source: Own creation

In the recent history of Wal-Mart, it has shown two structural changes aimed at achieving its strategic goals. It has been highlighted that the transformation of the company after its poor key performance indicators during the 1970s and 1980s. (John Dicker, 2005) It's strict structure with no flexibility for its staff during the merger with ASDA, lead to high cost of employee turnover. (Al Norman, 2004) But the company recovered with the help of structural reforms at the top management along with liberalising job descriptions of its employees. The company focused its efforts at improving its operating costs by making management and employees more effective and efficient in their operations. (Arindrajit Dube and Steve Wertheim, 2005) These changes have given rise to the current organisational structure of the company, which details lines of authority and control responsibilities. The current management style in the company can be categorised as administrative and its structure can be seen as hierarchal in which each subsidiary of the company and the staffs has their own operations and job descriptions to satisfy their stakeholders.

The future of retail industry requires an innovative and entrepreneurship approach by the companies to create a sustainable competitive advantage in the long run. (Robert Slater, 2004) Therefore it can be suggested that Wal-Mart should focus on creating a democratic management style which will facilitate in power and decision making sharing between the top and line managers. Team based structure will be best suited for the company in the light of conclusion drawn by (Buchanam & Huczynski, 2004). It is recommended that Wal-Mart should adopt a structure where customer-facing businesses are not changed and restructured but will be converted into divisions, which virtually did not change any service delivery to the customers. While, the main restructuring is recommended at the company's end, where operations of all subsidiaries will be joined and operated in a team like fashion. This will help in reducing cost by eliminating duplication of work, innovative products, better customer service and increased agility.

Contingency theory

Source: (Hendry, 1979)

An important characteristic of the external environment that affects an organisation's ability to obtain resources is the degree to which the environment is changing. Changes in the organisational environment include: changes in technology, which can lead to the creation of new products (such as compact discs) and result in the obsolescence of existing products (eight-track tapes); the entry of new competitors (such as foreign organisations that compete for available resources); and unstable economic conditions. In general, the more quickly the organisational environment is changing, the greater are the problems associated with gaining access to resources and the greater is the manager's need to find ways to coordinate the activities of people in different departments in order to respond to the environment quickly and effectively.

Wal-Mart environment was changing in several ways. First, the development of the European Union had increased competition from other European supermarket companies, such as the United Kingdom's Home Depot. Second, competition from Kmart, Sears and other low-cost American companies had increased. Third, advances in technology in the form of new and more powerful computer chips and lasers printers had ushered in a new era of global competition. Wal-Mart' organisational structure was preventing managers from responding quickly to these challenges.

Over the years, decision making at Wal-Mart had become extremely centralised; all significant new product decisions were made in the US at the company's Arkansas headquarters. At Arkansas, 1000 corporate managers supervised the 800 middle managers who were responsible for coordinating product development on a global scale. Decisions made by these 1800 managers were communicated to managers in Wal-Mart 450 divisions spread across 20 countries, who then made decisions for their respective countries. (Robert Slater, 2004) Wal-Mart tall, centralised, mechanistic structure slowed communication and decision making and undermined the company's ability to respond to the global changes taking place. Moreover, very little communication was occurring between managers on the same hierarchical level but in different divisions (such horizontal communication is critical to speeding up the development of new products and reducing costs). Top managers realised they had to change the organisational structure to allow the company to respond better to its environment. They began by dividing the organisation into four product groups-Food, Cosmetic, Home appliances, and electronics. They gave each product group global responsibility for all aspects of its own activities-research, sales, and manufacturing. In other words, they decentralised authority to the managers of the product groups. In this way, Wal-Mart tried to create a flatter, more flexible organic structure at a global level-a structure in which managers close to the action, not top managers at distant corporate headquarters, made decisions. Throughout the 1999-2000, the change to an organic structure produced major success for Wal-Mart and Asda. Costs fell, the speed of new product development increased sharply, and Wal-Mart made record profits. (Robert Slater, 2004) Nevertheless, low-cost competition from local companies such as Home Depot, Kmart, and Sears is still forcing managers to search continuously for better, more efficient ways to meet the challenges of the global environment.

Weber's Principles of Bureaucracy

Source: (Weber, 1947)

A bureaucratic system of administration is based on five principles:

Principle 1: In a bureaucracy, a manager's formal authority derives from the position he or she holds in the organisation.

Authority is the power to hold people accountable for their actions and to make decisions concerning the use of organisational resources. Authority gives managers the right to direct and control their subordinates' behaviour to achieve organisational goals. In Wal-Mart managers make use of power of authority and make decisions and make optimum use of resources. In Wal-Mart managers delegate authority to subordinates so as to get more efficiency from employees.

Principle 2: In a bureaucracy, people should occupy positions because of their performance, not because of their social standing or personal contacts.

Wal-Mart appreciates employee's performance and delegates the authority to motivate them to do their work.

Principle 3: The extent of each position's formal authority and task responsibilities, and its relationship to other positions in an organisation, should be clearly specified.

When the tasks and authority associated with various positions in the Wal-Mart are clearly specified, managers and workers know what is expected of them and what to expect from each other. Moreover, Wal-Mart can hold all its employees strictly accountable for their actions when each person is completely familiar with his or her responsibilities.

Principle 4: So that authority can be exercised effectively in an organisation, positions should be arranged hierarchically, so employees know whom to report to and who reports to them.

Managers must create an organisational hierarchy of authority that makes it clear who reports to whom and to whom managers and workers should go if conflicts or problems arise. Wal-Mart normally follows the same principle.

Principle 5: Managers must create a well-defined system of rules, standard operating procedures, and norms so that they can effectively control behaviour within an organisation.

Wal-Mart has systematic rules and standard operating procedures like payment collection, customer handling and delivery of products.

Leadership Style

The role every manager must fill in the workplace is leadership. Managers often make the mistake of assuming that because they are the managers, they are also the leaders and that their associates will automatically follow. In reality, position only denotes title, not leadership. Leadership is a process whereby one individual influences a group of individuals to achieve a common goal. (Northouse 2001) To be an effective leader, the manager must influence his associates in a positive way to reach the goals of the organisation. Furthermore, the transformational leadership approach can help managers become exceptional leaders. This paper will explain the transformational leadership approach by discussing its strengths, weaknesses, and steps for application.

Transformational Leadership

To use this approach in the workforce, one must first understand exactly what transformational leadership is. In the simplest terms, transformational leadership is a process that changes and transforms individuals (Northouse, 2001). In other words, transformational leadership is the ability to get people to want to change, to improve, and to be led. It involves assessing associates' motives, satisfying their needs, and valuing them (Northouse, 2001). Therefore, a transformational leader could make the company more successful by valuing its associates.

Sam Walton, founder of Wal-Mart, who often visited Wal-Mart stores across the country to meet with associates to show his appreciation for what they did for the company. Sam Walton gave "rules for success" in his autobiography, one of which was to appreciate associates with praise (Walton, 1996).

Excel at frontline execution

"The bigger we get as a company, the more we shift responsibility and authority to the front lines."

-Sam Walton, founder, Wal-Mart

One telltale sign of a high-performance organisation is the engagement and focus of its front line. Those vital employees include sales, customer service and delivery personnel-people who can turn a first meeting with a customer into a lifelong relationship. They also include the people who play crucial roles in bringing the right product to market at the right time-people involved in a company's R&D, marketing, production and supply chain. At a retail company, for instance, the buyers who decide the next season's assortment of merchandise are a vital part of the front line, along with cashiers manning the checkout lines.

For a mining company, frontline execution is all about miners' increasing their productivity "at the coal face." The front line also needs the right back-office support, another area where effective organisations excel.

When the front line fumbles, the company is weakened-through poor service, poor quality or unnecessary cost. Ultimately, a company's ability to execute is impaired, and customers suffer. The key is to view the front line as a source of competitive advantage, applying the same rigor in setting it up that a company's leaders apply to the rest of the organisation. Strong leadership is important, along with constant communication of the company's vision and priorities. Clear rules for making decisions, with reinforcing measures and incentives, also are vital. At eBay, for instance, customer feedback is weighed alongside productivity in employees' performance reviews. Finally, frontline employees must be equipped with the right tools, working practices and technology to do their job effectively.

UK retailer ASDA, now owned by Wal-Mart, displays a strong front line. ASDA has developed an enviable reputation for the quality and consistency of its frontline execution, despite the fact that its employees are paid less than those of other leading retailers. More than half of its 135,000 employees are part-time, and a high proportion are seniors, drawn to the community and flexibility of working for the company.

ASDA's success predates its acquisition by Wal-Mart. After a move into higher-end supermarkets stalled, ASDA's leaders refocused the company's vision on its core: delivering value through everyday low prices and a deep commitment to local customer needs. (Jessica Moser, 2005)

They recruited new executives who quickly established clear direction on strategy and values. From the beginning, the new team set the company's sights on rebuilding ASDA's market position as a low-price leader.

The new vision quickly permeated the front line. Customer service employees became conditioned to considering the lifetime value of the customer. To further improve frontline execution, ASDA turned its expertise in branding and marketing on itself. A data room that collects best demonstrated practices from stores around the system was promoted as "air traffic control," helping to document and coordinate the most effective approaches in stores. Senior executives have spent years refining the practices that help store managers motivate and manage frontline employees, ranging from the employee selection process ("we don't interview, we audition") to "ASDA Best," where good ideas in a particular store are reapplied and celebrated across the whole network. One example is the golden trolley, a piece of backroom equipment painted gold and reserved in the stockroom for the outstanding warehouse employee of the month.

At many retailers, store managers attend to every aspect of operations, from the front door to the loading dock. ASDA's store managers are accountable for one overriding task-managing the people working in the store. To help sharpen their focus on the interaction between the stores' customers and employees, even the company's senior managers spend half a day each month on the checkouts. The results have been impressive: ASDA moved from the brink of bankruptcy in the late '90s to one of the best-performing companies in the UK retail sector.

Recommendations

Approach towards Change

The main challenge for the structural and cultural change proposed is to motivate people and contingency plans at Wal-Mart. The management theory suggests that the possibilities are infinite in an organisation; the difficult part is deciding which interventions are likely to have the most impact and the answers are different for every organisation (Gibb et al., 1998). In the case of Wal-Mart, as structural and cultural change requires both hard and soft systems to work therefore a 'Planned Transformational' change approach is suggested, which can be depicted as follows:

Source: Force field Analysis (Lewin, 1951)

A four step 'Planned Transformational' approach towards the initiation of structural and cultural change has been proposed in this report. This change process has been slightly modified from force field analysis proposed by (Lewin, 1951) to fit the change situation of Wal-Mart. The steps that are proposed can be summarised in the form of following diagram:

Source: Own creation

These four steps cover the following four points:

Make sure that the company and people understand the pressure of change - why do we need to change?

Develop and share a clear version about where the organisation is headed - where are we going?

Put in place the individual, departmental and organisation capabilities for change - what do we need to make the change?

Have a plan of action that outlines what has to be done to get it all started - What do we have to do tomorrow when we come to work?

The pressure of change is essential for the effectiveness of a change program (Chorn, 2001 & Atkinson, 1996). In order to define the problem and thus create a sense of urgency for different groups a stakeholder mapping is required for Wal-Mart. The core and peripheral stakeholder for this change can be defined and grouped together to create a strategy for each group. In case of Wal-Mart, employees and business partners are the core stakeholders in this change and therefore the sense of urgency should be directed and induced into these with the help of a clear shared vision.

Establishing a shared vision is the second step of the forced field analysis (Lewis, 1951). If there is no clear, shared vision the change begins quickly but then dies out because people do not know what they are aiming for (Atkinson, 2005). Therefore it is the responsibility of the leader to not just communicate this vision but also make employees see the practical example of it. In order to make a list of pushing forces (Lewis, 1951), the company should identify the possible impacts on each of its stakeholders and devise a strategy to tackle these impacts smoothly. The stakeholders and the impacts for the company can be summarised with the help of following table:

Key Stakeholders

Impacts

Employees

Financial & Territorial

Shareholders

Financial

Customers

Social

Distributors

Financial

Regulators

Social & Environment

Pressure Groups

Social & Environment

Providing the capacity to change in an organisation must be achieved at both the individual and group level. As the new structure and culture would have autonomous teams therefore to emphasis at the group level is very important. For individuals, we need recognise the 'ladder' that produces results (Atkinson, 2005) i.e.:

Source: Own creation

This shows that the desired results should be clearly understood before it can be specified what behaviours are required. Once the behaviours are identified, the change process can address the development of the required competencies.

The change attempts can be failed because no one knows where to start. (Chorn, 2001) Having articulated a vision, it is needed to break down the vision into its separate parts.

SMART: specific, measurable, achievable, rational and time bound objectives need to be setup. Then listing the actions needed to bring about these objectives should be done. Finally setting performance measures needs to be taken care of. This stepwise approach ensures that milestones are reached in time and the transformation takes place in a time bound framework.

Conclusion

In order to sum it up, it can be concluded that is a need to constantly evolve for businesses like Wal-Mart in today's turbulent and predictable business environment to create a sustainable competitive advantage. The current standing of the company can be seen as a sigmoid curve (Handy, 1994) which has evolved over time into an administrative yet performing system but is now on its edge towards decline. The content, context and process of change proposed for Wal-Mart can lead the company towards a new sigmoid curve which can be the source of competitive advantage in the long run. This conclusion can be depicted as follows:

Source: (Handy, 1994, p. 51)

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