Strategic Management and Strategic Competitiveness essay
Company Description
Public company chosen for analysis is Wal-Mart Stores Inc., further referred to as Walmart. Walmart is an international retailer with headquarters located in Bentonville, AR. The company operates in 27 countries and has more than 11,000 stores which can be classified as discount department stores, warehouse stores and supercenters (Yahoo Finance, 2014). Walmart is the largest retailer in the world, and is also labeled as the largest public corporation in the world as well as the largest private employer. Walmart currently employs more than 2.2 million people (Walmart, 2014). Business value of Walmart is also among the highest in the world, and its impact on local businesses in the regions where Walmart operates is very significant.
Walmart was created in 1962, incorporated in 1969 and became a public company in 1972 (Walmart, 2014). The company’s financial performance remained notable even during the recession, and currently Walmart shows stable growth, primarily due to the expansion into developing markets. During 2012, the company managed to increase its revenues by 4.9% and in 2013 revenues grew by 1.9%. The increase of net profit in 2012 constituted 8.28% and in 2013 Walmart’s net profit declined by 5.75% (Yahoo Finance, 2014). The decrease of profits took place mainly due to the increase of general and administrative expenses. However, Walmart’s operating margin is still slightly above industry average, while its quarterly revenue growth is almost 4 times lower compared to average growth rates in retail industry (Yahoo Finance, 2014). Walmart’s strategy is centered around cost leadership, so its profits are likely to be lower compared to retailers focusing on premium customer segments.
Impact of Globalization and Technology Changes on Walmart
Globalization had a notable impact on the development of Walmart, and Walmart, in its turn, become one of powerful drivers of globalization. First of all, globalization encouraged the expansion of Walmart inside the United States and overseas. Inside the U.S., Walmart used multidomestic strategy and launched stores with local responsiveness. Such strategy led to quick growth of Walmart inside the U.S. Outside the U.S., Walmart adopted a global strategy which was similar for all countries where it operated. Walmart used its economies of scale in order to achieve efficiency and to maintain cost leadership overseas. However, due to the impact of globalization Walmart also had to alter its strategy: in the countries where economies of scale were not so readily available; for example, global approach did not work in Germany and in China (Freeman, Harrison & Wicks, 2007). Currently Walmart is moving towards transnational strategies in the majority of countries where it operates. Such strategy turned out to be efficient in the U.K., for example (Ireland, Hoskisson & Hitt, 2014).
Technology change was an important factor which was one of the cornerstones of Walmart market leadership in retail industry. Walmart used technology to optimize its supply chain, to eliminate extra supply chain links, to share responsibility for delivering the orders with vendors and introduced an advanced information system allowing all supply chain participants to be involved in planning, forecasting demand and product replenishment activities (Freeman, Harrison & Wicks, 2007). Furthermore, using RFID technology and smart tags, Walmart notably reduced internal transportation costs. Currently Walmart is working on using advanced technology to make its operations more sustainable and more environmentally friendly; in particular, Walmart is adopting light solar panels to supply its stores with electricity where appropriate (Ireland, Hoskisson & Hitt, 2014).
Application of Resource-Based and Industrial Organization Model to Walmart
According to the industrial organization model, external factors shaping the environment in the industry are more important than internal factors for achieving business advantage. Therefore, basing on the industrial organization perspective, it is necessary to consider the attractiveness of the industry and Walmart’s position in the industry in order to determine how Walmart could earn higher profits. Porter’s Five Forces model outlines five key factors determining the attractiveness of an industry: competitive rivalry, threat of new entrants, power of suppliers, threat of substitutes and power of buyers (Ireland, Hoskisson & Hitt, 2014).
In retail industry, competitive rivalry is very intensive as there exist various kinds of retail companies, the threat of new entrants is high since it is relatively easy to organize a retail shop in most countries, the power of suppliers is low (for large retailers), the threat of substitutes is high and the power of buyer is high, too. In general, the industry is quite challenging and competitive, and the company should develop unique competitive advantages to earn higher profits. In the case of Walmart, its key competitive advantages are economies of scale and cost leadership. The most straightforward way for Walmart to achieve higher profits would be to achieve further cost optimization, to use advanced technologies and to strengthen economies of scale.
The focus of another model – resource-based model – is on internal resources. In terms of this model, the keys to market success are the company’s tangible and intangible resources. Key resources should possess VRIO characteristics – valuable, rare, inimitable and non-substitutable (Ireland, Hoskisson & Hitt, 2014). These resources can be used for creating a sustainable competitive advantage. In the case of Walmart, its key resource is its highly efficient supply chain (combined with Walmart’s advanced information sharing system). It is valuable and hard to imitate, rare and cannot be substituted. In the context of resource-based model, Walmart should encourage further integration with its suppliers and other stakeholders and reduce operating costs due to better planning and demand forecasting.
Impact of Mission and Vision Statement on Walmart Success
Vision statement of Walmart is not explicitly stated on its corporate website, but one of the key statements describing the company has clear characteristics of a vision statement: “innovative thinking, leadership through service, and above all, our commitment to saving people money so they can live better have made us the business we are today and are shaping the company we will be tomorrow” (Walmart 2014). Walmart’s mission statement is currently formulated as follows: “Saving people money so they can live better”. Initially, Walmart’s motto was stated as “Always low prices”, but eventually the focus of the company shifted from keeping prices low to increasing customer welfare.
This change of mission was accompanied by the transformation of Walmart’s business practices and goals. Initially, Walmart was focused on achieving market leadership and offering lowest prices. This strategy was highly successful, but such approach also affected local businesses and employees. Eventually, Walmart agreed to slightly increase its bottom line in order to provide better conditions for people and communities. Therefore, Walmart’s mission had a notable impact on its strategy and market positioning, and the change of mission was followed by the change of corporate strategy.
Impact of Stakeholders on Walmart’s Success
Walmart’s corporate success and development is notably influenced by different categories of stakeholders. In general, it is possible to identify the following stakeholders of Walmart: top management, store management, Walmart employees (non-managerial positions), suppliers, customers, competitors and communities. Naturally, top management, and especially Sam Walton, the founder of the company, had a dramatic impact on the company’s success. The principles and values of Walmart laid by Sam Walton created the background for the company’s success and let Walmart create a giant network of stores worldwide. Store managers have an influence on the company’s local business decisions and are responsible for Walmart’s success in specific areas.
The relationships with suppliers are critical for Walmart. Walmart depends on supplier efficiency to remain competitive; the sustainability and environmental policy of suppliers are also important for Walmart. Recently Walmart started switching to suppliers from Asia to reduce costs. At the same time, Walmart currently became a global power so it also affects the suppliers: Walmart urges them to comply with quality standards, reduce waste, improve sustainability, etc. Hence, the role of suppliers in Walmart’s business success is critical.
The relationships with customers have a direct impact on Walmart’s success. The company’s revenues depend on customers, so Walmart focuses on keeping prices low and making the process of purchasing convenient and quick for the customer. Although Walmart’s cost cuts sometimes reduce the quality of customer experience, Walmart attempts to balance between cost cutting and customer convenience (Ferrell & Fraedrich, 2014).
Competitors influence Walmart’s strategy in two ways: through offering better products and/or service compared to Walmart and filing lawsuits against Walmart. In the former case, Walmart is forced to become more competitive and more efficient, and therefore competition adds to its business success. In the latter case, Walmart has to defend itself and its strategy in the court and has to prove that it is not using predatory pricing to push other competitors out of business. In this case, competitors increase the costs of Walmart and make its market position slightly more vulnerable.
Employees are valuable Walmart’s stakeholders, and their role in Walmart’s business rise is critical. The functioning of Walmart depends on the employees; at the same time, Walmart was suited many times for low wages, improper working conditions, discrimination and the lack of healthcare benefits (Ferrell & Fraedrich, 2014). These legal challenges forced Walmart to reconsider its approach to employment, and currently HRM practices of Walmart have somewhat improved.
The communities are also reshaping Walmart’s strategy as community members force Walmart to pay attention to environmental regulations, sustainability, community development, etc. As a result, Walmart started paying more attention to corporate responsibility and started replacing technologies by more sustainable ones (Ferrell & Fraedrich, 2014). These developments made Walmart more competitive and more efficient and therefore contributed to its market success.
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