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WAL-MART


V. Analysis of Strategic Factors (SWOT)

A. Situational Analysis

SWOT-analysis

Strengths

1. Professional management. David Glass, the former CEO of the company “had established himself as a leader, and innovator, and a team player”. With David Glass holding the position there was a rise in sales from $16 billion to $165 billion.
2. Constant (постоянные) innovation. During the 1980s, Wal-Mart developed a number of new retail formats”; such approach as upgrading, relocation, refurbishing, and remodeling
3. Focus on human resources. Staff is considered the key factor; providing (“people first” philosophy”), human resource development, training programs and seminars designed to prevent from high turnover
4. The largest market share. Wal-Mart is “considered to be the largest retailer in the world, with sales of $217.8 billion in 2001” and “the largest company in the world, as measured by annual revenue” (sales for the year ending January 31, 2002, were $218 billion).
5. Commitment to customer satisfaction at the best price. “Customers would be provided what they want, when they want it, all at a value”
6. Learning from the US best managed companies. “We stepped outside our retailing world to examine the best managed companies in the United States in an effort to determine the fundamentals of their success <…>”
7. Concept of discount prices. Wal-Mart was good at convincing people its prices were low without making people feel that its stores were too cheap.

Weaknesses

1. Inefficient marketing research. The company had not conducted a proper research to find out electricity standards in the country and as a result it sold goods “wired for 110-volt electric power”, while the standard in Argentina is 220.
2. High annual employee turnover “Wal-Mart has always suffered from annual employee turnover of approximately 65%”.


Opportunities

1. Continuing expansion to international markets through acquisitions, mergers and join ventures. The company experienced big gains from entering the international markets (acquisition of Mexico’s largest retailer Cifra; 122 Woolco discount stores in Canada).
2. Increasing demand for environmentally safe products. The company offered products good for the environment in three ways: manufacturing, use, and disposal.
3. Stage of the business cycle. Redesigning the retail company’s strategy in a maturity stage is crucial for the company to survive. The example is collapse of many retailers who reached maturity in late 1990s.
4. Technological advances. Wal-Mart uses scanner cash registers, handheld computers; the sophisticated logistics system
5. Rising demand for on-line shopping. At the beginning of 2000, Wal-Mart set up a separate company for its Web site

Threats

1. Local government regulation in foreign markets. Government regulations and restrictions in Europe, China
2. Economic uncertainty in the market. The period from the 1980s was marked by “economic uncertainty, sluggish consumer spending, the energy crisis, lack of worldwide economic growth, increased competitive pressures”.
3. Stage of the business cycle (maturity). It could be potentially hazardous for the company if it does not redesign its strategy in the view of upcoming maturity in order to avoid decline
4. Unfavorable public opinion. Critics contend that Wal-Mart discriminates against women/unions and underpays workers
5. Involvement in lawsuits. Employees sued the company for forcing to work overtime for free.

A. Review of Mission and Objectives

Obviously the Wal-mart mission is –to be the best-!

1. In the light of the key strategic factors the mission of the company “To be the very best” seems appropriate but unrealizable because of several weaknesses of Wal-Mart. The two objectives also cannot be achieved because of the existing threats to the company. For example, people-first philosophy seems just words in the company’s official documents since we observe the company’s involvement in lawsuits connected with making employees work overtime. Customer satisfaction cannot be obtained on the global level without overriding inefficiency in marketing research.

2. Our team does not think that the current missions and objectives should be changed. In our opinion, the company should try to maximize efforts in attaining its goals by overcoming its weaknesses and coping with threats.







VI. Strategic Alternatives and Recommended Strategy

A. Strategic Alternatives
The three strategies on the corporate level that Wal-Mart would benefit most from are: expanding market share by continuing global operations (horizontal growth), backward vertical integration, no change strategy and divestment strategy.

Horizontal growth??????????????????

Wal-Mart can continue with its current strategy of international expansion. This would mean the sale of present products or services in new geographic regions. The company has the needed resources to fulfill (the needed capital and human resources), Wal-Mart brand is recognizable all over the world, and there are several unsaturated markets still available. As long as Wal-Mart is the best among its competitors, it should take advantage of its superior position. Otherwise competitors can be the first to use this opportunity.

The company has been successfully implementing this strategy. This type of strategy will give an opportunity for Wal-Mart employees to be promoted by relocating to new divisions, increase their importance of being part of the successful company.

But this strategy has some drawbacks. The costs of this strategy are very high. As this can entail constructing new buildings and establishing new distribution networks, Wal-Mart has to plan for this with the maximum attention to detail. This is not a very great problem for Wal-Mart, though, because financial resources are enough. The typical store covers over 150,000 square feet, and requires a lot of planning before the construction begins. We believe that Wal-Mart has this capability and will do its best in this strategy. Another disadvantage is the fact that the local shops and stores are generally "forced" out of business because of the superior pricing ability that Wal-Mart has.

Besides the company can undertake some acquisitions, as it did during the recent years. Purchasing another company already operating in this area could make it easier to take a strong position, as well as result in synergistic benefits.

The advantages of this strategy are increased sales, increased market share, increased capital investments, and customer satisfaction.

The disadvantages of this strategy are growing to big too fast, possibility of poor sales in new market area, the expense, increased competition, possible decreased market share, and decreased profit margins.

Stability strategy

Wal-Mart can also initiate no changes. As the company has already established itself as the leader in the retailing industry it can pursue its current course. Advantages of this strategy are the possibility of investing the company’s finances to improve the existing situation: paying salaries to employees, providing various stock benefits, improving quality of its products, adding value to them. It is in consistence with the company’s objective to satisfy customers, both internal and external. Disadvantages of this strategy can be possible entering of aggressive competitors. That is why it can be hazardous to stay idle while the competitors are growing and gaining strength.

Divestment strategy

This strategy suggests that the Wal-Mart should sell off all of its Neighborhood Markets (34 of them) to local, or possibly one global, food-store chains. By doing this, the company would be able to concentrate on the most profitable part of its business, and the cash flow generated from the sale could be invested in further developing it. Wal-Mart’s market share could go down and some customers may be lost as a result of the sale of Neighborhood Markets, but we suppose that these losses would be insignificant to the business, as the main focus and the most profitable parts of the company are Wal-Mart discount stores and supercenters, as well as SAM’s Clubs. But a disadvantage of this strategy is that Wal-Mart could lose loyal customers who got used to these stores.

On the business level we recommend Wal-Mart to continue with being the cost leader in the retail industry.


B. Recommended Strategy

Our recommended corporate strategy is horizontal and vertical growth strategy. Horizontal growth suggests establishing Wal-Mart supercenters and neighborhood market stores in different markets internationally; expanding market share by going to different countries, including Asian countries, East and West Europe. Vertical growth strategy implies backward integration: producing its own brands, such as the “Great Value” as Wal-Mart has already been doing. It produces food products as well as home appliances. Our recommended business strategy is cost leadership.


V. Analysis of Strategic Factors (SWOT)

A. Situational Analysis

What are the most important internal and external factors (Strengths, Weaknesses, Opportunities, Threats) that strongly affect the corporation’s present and future performance? List 8 to 10 strategic factors.


(1)External environment

Wal-Mart have six main branches of external environment: economical, social, technological and global(international), political, and demographic.

1)Economical: Wal-Mart stores Inc. retailer had reported sales growth of 11%, amounting to $6.4 billion.

2)Social: Wal-Mart stores were oriented to the low-income customer segment; headquarters were reflective of the company's tendency to be tightfisted as they were housed in warehouse style buildings with minimalist decor.


3)Technological: Wal-Mart is a leader in the using of technology (one of them is high-speed computer system, with checkout counter) to maximize operational efficiency. Very early on, the company realized the value of proactive investments in technology and deployed a private satellite network. Wal-Mart also managed much of its own logistics through a central system of warehouses and distribution centers. It was estimated that the corporate logistics handled over million loads each year.

4)Global(international): Wal-mart developing and increasing. So on managers of Wal-mart searching new markets for Wal-mart. As it grows around the world, it is important to its success that it exchange best practices among all the countries where it operates. Wal-Mart launched its globalization efforts with an initial foray into Mexico, then to Brazil, as well as Argentina. It then penetrated Europe with its stores in Germany and in the United Kingdom. Its Asian strategy composed of China, Korea and Japan. In some internet mass-media you can read information that Wal-Mart will come to Russia.

5) Political: There was some problems with labor laws, when illegal emigrants worked in Wal-Mart as cleaners. The another point was women discrimination ( 90% of Wal-Mart employee are male).

6) Demographic: In 2006 Wal-Mart was the largest employer in private industry worldwide as it counted over 1.3 million associates among its ranks. Roughly 65% of Wal-Mart management associates started out as hourly associates and it hired locally for most of its foreign operations.


2. Walmart's internal environment


Internal environment of Wal-Mart can be divided into 3 groups: Tangible resources, Intangible resources and capabilities.

tangible resources:

• Financial Resources (financial resources of Wal-Mart)

• Organizational Resources (Wal-Mart structure)

• Physical Resources - Wal-Mart buildings can generally be found on its roots, the rural areas. Its products for selling, shipped and delivered to them by the suppliers through their own sophisticated logistics are easily available within their locations.

• Technological Resources - Wal-Mart employ their own logistics for their product shipping, they also have their own private satellite network for point-of-sales transmission in all their stores.

Intangible resources:

• Human Resources - It was a well-known fact that Wal-Mart advocates stringent standards of employment of fair labor practice, but this fact was clouded by its own employees' cry for abuse and discontentment. Lawsuits were filed against Wal-Mart for unfair labor practices.

• Reputational Resources - Wal-Mart 's reputation with customers is obviously good since it always maintain a "for-the-consumers" attitude. After establishing its own products, they seem to grow more popular among the masses. Their products are always of good quality, are durable an reliable, since they only partner with the best names in the industry. They also get to maintain a good name and reputation with their suppliers as they continue to uphold a good working relationship with them.

Capabilities:

• Distribution - Wal-Mart effectively use logistics management techniques; it was a veritable logistics with a level of efficiency that rivaled even dedicated trucking fleets.

• Human Resources - Wal-Mart motivates and empower employees through free education and trainings that will enrich employees' knowledge. They also promote from within, moving low-level employees to higher positions as a way of retaining and satisfying employees.

• Management – Management system compose every company’s skeleton. Wal-Mart applies effective and efficient control of inventories through information systems such as point-of-sales data collection methods.

• Marketing – Wal-Mart spends all forces for marketing strategy development and promotion. All people remember « Wal-Mart hummer» which cut up prices.

• Manufacturing

SWOT

• Wal-Mart 's main Strengths are its continuous use of cost-effective technology and logistics, as well as its good working relationship with its suppliers. Its Weakness, however, is that they seem not ready to employ 1.3 million individuals as its pays its employees roughly $13,861 annually, which is below the federal poverty line of $14,630. This weakness is the major cause of lawsuit problems that the company will be facing in the near future. The main Opportunity is Wal-Mart faster growing and financial stability. Wal-Mart increasing all the time. Major Threats however are the pending lawsuits filed by angry employees who felt abused and improperly treated and compensated. There are also more experienced competitors who seem to go with each other just to see Wal-Mart fall. Wal-Mart must be watchful and vigilant so as to keep their place in the top of the retailing industry.

B. Review of mission and objectives

1)Are the current mission and objectives appropriate in light of the key strategic factors and problems?

The most important goal of Wal-Mart as a superstores retailer is increasing of profit.TOO MUCH PROFIT, EXTRE PROFIT. Wal-Mart focus on low costs, high customer service, and everyday low pricing to drive sales. Another goal is finding new areas to continue to grow of sales and profits into the future.

All of the profit and results of Wal-Mart are get with the key success factors.

One of the main key success factors is low prices. ( It calls Wal-Mart effect. In brief Wal-Mart effect is when Wal-Mart’s top management push on the suppliers to ger lowest prices and very huge supplies. But there was exclusion like Makin Bacon, Wal-Mart don’t push them about prices and they have a profit deal.)

Another key success factor is saving of money all the time in all spheres of the company. (e.g. when suppliers send to Wal-Mart samples of furniture managers use it in office in future, they not buy new premium office furniture as some of they competitors do they use examples and low-cost furniture, the another example: Wal-Mart compensate only 25% of air tickets in business trips for their employees.(in another companies 80 – 100% compensation for tickets)

Next key success factor is aggressive plans for new store opening. When Wal-Mart open in small town, another businesses goes down, because there are non-competitive in this situation.
Wal-Mart have different models of retailing – Wal-Mart Supercenters, small-markets (new conception) an Sam’s club (new format of Wal-Mart for wholesalers with annual payments and limited membership)

All of the above factors makes Wal-Mart success.

Of course Wal-Mart have problems.

One of the most problems is social image of Wal-Mart. Illegal immigrants working in Wal-mart for cleaning is one of the image problems. By the way Wal-Mart paid record fine to Federal government - $11 millions after illegal immigrant’s scandal.

Another image problem is small business killing. In «South park» cartoon you can see a episode when Wal-mart «monster» come into a small city and all small retailers have closed. A lot of people in small cities don’t want Wal-Mart but prices attract them.


Next image problem is sexual discrimination. There was lawsuits from women, working in Wal-Mart. Statistically, 90% of Wal-Mart employees are male person. So on women try to have equal rights and brought an action against Wal-Mart.


2) Our team does not think that mission and objectives should be changed.


VI. Strategic Alternatives and Recommended Strategy

A Strategic Alternatives.

The three strategies on the corporate level that Wal-Mart would benefit most from are: expanding market share by continuing global operations (horizontal growth), backward vertical integration, no change strategy and divestment strategy.


Horizontal growth

Wal-Mart can continue with its current strategy of international expansion. This would mean the sale of present products or services in new geographic regions. The company has the needed resources to fulfill (the needed capital and human resources), Wal-Mart brand is recognizable all over the world, and there are several unsaturated markets still available. As long as Wal-Mart is the best among its competitors, it should take advantage of its superior position. Otherwise competitors can be the first to use this opportunity.

But of course this strategy has some drawbacks. The costs of this strategy are very high. As this can entail constructing new buildings and establishing new distribution networks, Wal-Mart has to plan for this with the maximum attention to detail. This is not a very great problem for Wal-Mart, though, because financial resources are enough. The typical store covers over 150,000 square feet, and requires a lot of planning before the construction begins. We believe that Wal-Mart has this capability and will do its best in this strategy. Another disadvantage is the fact that the local shops and stores are generally "forced" out of business because of the superior pricing ability that Wal-Mart has.

Besides the company can undertake some acquisitions, as it did during the recent years. Purchasing another company already operating in this area could make it easier to take a strong position, as well as result in synergistic benefits.

The advantages of this strategy are increased sales, increased market share, increased capital investments, and customer satisfaction.

The disadvantages of this strategy are growing to big too fast, possibility of poor sales in new market area, the expense, increased competition, possible decreased market share, and decreased profit margins.

Stability strategy

Wal-Mart can also initiate no changes. As the company has already established itself as the leader in the retailing industry it can pursue its current course. Advantages of this strategy are the possibility of investing the company’s finances to improve the existing situation: paying salaries to employees, providing various stock benefits, improving quality of its products, adding value to them. It is in consistence with the company’s objective to satisfy customers, both internal and external. Disadvantages of this strategy can be possible entering of aggressive competitors. That is why it can be hazardous to stay idle while the competitors are growing and gaining strength.

Divestment strategy

This strategy suggests that the Wal-Mart should sell off all of its Neighborhood Markets (34 of them) to local, or possibly one global, food-store chains. By doing this, the company would be able to concentrate on the most profitable part of its business, and the cash flow generated from the sale could be invested in further developing it. Wal-Mart’s market share could go down and some customers may be lost as a result of the sale of Neighborhood Markets, but we suppose that these losses would be insignificant to the business, as the main focus and the most profitable parts of the company are Wal-Mart discount stores and supercenters, as well as SAM’s Clubs. But a disadvantage of this strategy is that Wal-Mart could lose loyal customers who got used to these stores.

On the business level we recommend Wal-Mart to continue with being the cost leader in the retail industry.
C.
Recommended Strategy

Our recommended corporate strategy is horizontal and vertical growth strategy. Horizontal growth suggests establishing Wal-Mart supercenters and neighborhood market stores in different markets internationally; expanding market share by going to different countries, including Asian countries, East and West Europe. Vertical growth strategy implies backward integration: producing its own brands, such as the “Great Value” as Wal-Mart has already been doing. It produces food products as well as home appliances. Our recommended business strategy is cost leadership.
VII. Implementation

Due to substantial financial opportunities Wal-Mart has, the company can conduct a thorough global marketing research to determine and define what countries are the most promising to enter to. Such countries can be Brazil, and as already mentioned before Asian countries as well as East and West Europe. Different countries have different cultures and values, and therefore they will not all share the values and management style of Wal-Mart.

As for HR Department, it might need to find expatriate employees in certain countries in order to maintain Wal-Mart standards and ways of management. Some countries may be more difficult to enter than others. As for vertical integration, the company may use piece-rate compensation i.e. if a worker over performs the plan by producing more items than were planned; he or she gets a higher wage/compensation or bonus.

As for Marketing Department Wal-Mart should be very careful when defining what products to sell in a selected country. For example, when entering Argentina, the company decided to sell jewelry with sapphires and diamonds, and did not take into consideration that women in Argentina mostly preferred purely golden and silver jewelry. That was a costly mistake for Wal-Mart. The company should be very responsive to the local customer and attentive to the customer wants and demands, as they vary from country to country. So we suggest that surveys should be taken by in order to find out customer’s desires in each selected country. Besides, in order to implement vertical integration strategy Wal-Mart should perform promotional campaigns. To attract customer’s attention, Wal-Mart should distinguish itself from competitors by using appealing packaging.

As for business strategy, Wal-Mart can cut costs on Research and Development. Besides, as Wal-Mart is quite an established brand, it can not spend a significant amount of money on advertising campaigns.

Cost factors of implementing functional strategies

1. Involving expatriate employees may incur considerable expenses because of visa travel, hotel accommodation.
2. Marketing research in foreign countries can be difficult to conduct because of inconvenient infrastructure.
3. High costs of piece-rate compensation for overwork.

Recommendations

Due to the cultural differences the company will face when operating in other countries, Wal-Mart should consider those difference and take significant steps to encounter them: adjust the company’s products, management style and marketing decisions to the target country culture.

VIII. Evaluation and Control

In order to verify if the international expansion strategy is indeed adding to the success of the company, Wal-Mart will need to take periodic readings from sales figures, department heads, inventory turnover, and customer surveys. This strategy will be fully implemented within days of its selection from management.

To find the sales figures we would have to go to the Accounting Department where all the information on sales should be recorded. The information from department heads will be useful because it will allow us to recognize the problems and what they are doing good in each department. Inventory turnover allows us to know whether a firm holds excessive stocks of inventories and whether a firm is selling its inventories slowly compared to the industry. Finally, customer surveys will help the whole company by getting an outsiders point of view on the company.

After some time of operation in a new country, Wal-Mart should summarize and calculate the progress of the company in order to track and control the company’s performance.

As for HR Department, it should perform employee surveys; evaluate workers’ performance in order to adjust wages respectively.

As for Marketing Department, it should track domestic sales and compare it to sales of other companies as well as its own sales during recent years. It should monitor net sales, and compare it to sales in other countries; measure the number of stores opened and the cost of each opening; determine if the company should change the strategy or somehow adjust it in order to be successful in the country of operation.





QUOTES!
Wal-Mart's success strategies and tactics are easy to understand yet hard to duplicate.
Michael Bergdahl

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