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STRATEGIC MANAGEMENT: WALMART CASEAuthors:G. GimondoN. McConvilleA. O’DellS. SmithO. VadilloM. van de Rijt
Table of Contents• Introduction• Industry and Firm Analysis• Competitive Advantages and Sustainability• Recommendations
Walmart• World’s largest company• Discount store and Superstore model• Net income of $8 billion and sales of $245 billion in 2003• Shareholder’s expect growth – Domestic – International
INDUSTRY AND FIRM ANALYSISTo what extent is WM’s performance attributable to industry attractiveness and to what extent to competitive advantage?
Sources of Superior Profitability INDUSTRY ATTRACTIVENESS Which CORPORATE RATE OF PROFIT businesses STRATEGY ABOVE THE should we beCOMPETITIVE LEVEL in? How do wemake money? BUSINESS COMPETITIVE STRATEGY ADVANTAGE How should we compete? 5
Factors Which Underpin Industry Attractiveness• Strong barriers from new entrants 3• High differentiation 2• Growth rate and growth potential 3• low price sensitivity 1• High value added 2• High level of resource utilisation 3• Attractive level of profitability now and in the future 3Overall score : 2.4/6-1975 Ban on resale price maintenance (big retailers favored)-Different sizes and concepts
Profitability of global industries Utilities Utilities 6.2 Telecom Services 6.5 Transportation Transportation Energy 6.9 2003 figures: 7.7 Materials Materials 8.4 Retailing Overall Average 9 Retailing = 9 = Overall Average Overall Average Consumer durables and apparel 9 Food retailing 9.5 Food retailing Automobiles and components 9.6 Wal-Mart = world’s largest Capital goods 9.9 company Hotels, restaurants, leisure Capital goods 9.9 Technology hardware and equipment 10.3 Food , beverages, tobaccoTechnology hardware and equipment 10.3 WM performance not really Healthcare equipment and services 11 Semiconductors Healthcare equipment and services Commercial services 11.3 attributable to industry Media 11.9 ComputerCommercial services software and services 12.8 attractiveness Household and personal products 14.7 Pharmaceuticals Computer software and services 15 15.2 Pharmaceuticals 18.4 0 5 10 15 20 Average ROIC 1963-2003 (%) 7
Factor Which Underpin The Judgment on Competitive Advantage• Market share -1• Quality of product/service offer -3• Customer loyalty -2• Innovation ability -2• Control of inputs and distribution -1• Quality of assets -1• Technology -1• Labour Productivity -1Overall Score: -1.5 / 6-SCM, DCM, Merchandising principle“Technology strategy must support the businessstrategy in developing a competitive advantage”(Managing Tecbnology course)
Support Activities• Firm Infrastructure: • High store volume • No regional HQ • IT support systems for managerial decisions• Human Resource Management: • Introduction of senior manager with background outside retailing (IT) • Lower wages than competitors • Less people employed/store • Higher sales volume / employee • “Associates” • Management Techniques – Balanced Scorecard
Support Activities• Technology Development: • Cutting-edge technology always used in order to maintain CA • Benchmark of competitors successful measure • IT• Procurement: • High bargaining power with suppliers • Long period for Account Payables
Primary Activities• Inbound Logistics • One of first users of EDI to communicate with suppliers • Disintermediation • High bargain power • Example of flags after 9/11 (pp.7)• Operations • They uniquely operate each store • Better in-store execution than competitors• Outbound Logistics • Wal-Mart Distribution Centres • Distribution costs 2-3% compared with 4-5% of competitors • Inventory Turns (7.6 compared with 6.1 – 5.4 from competitors)• Marketing & Sales • Unbeatable prices• Services • People Greeter
Distribution Network• Economies of Scale• Hub and spoke model – 84 distribution centers in United States – Each center serves 150 stores within a 150 mile radius• Cut out the middle man• Inventory Turnover• High store volume
Distribution Network Sustainability• Sustainable due to size and relationship with suppliers• Some aspects can be replicated by competitors – Hub and spoke model – Buying directly from the manufacturer• However difficult to replicate due to necessary capital and size
Information Systems• Electronic Data Interchange (EDI)• “Retail Link” – Operating efficiencies • Ex: partnership with Procter and Gamble – Inventory turnover – Unique merchandise in stores • Local adaptation
Information Systems Sustainability• Partly sustainable• The technological system itself can be replicated/purchased• Capabilities difficult to replicate – Partnerships – Superior supply chain management – How information
Cost Control• Bargaining power with suppliers – Disintermediation lower cost lower prices – Longer accounts payable periods• International Trade – China• Fewer employees lower labor costs – Management techniques – Exclusion of unions
Cost Control Sustainability• Sustainable• Bargaining power is difficult to replicate – Influence – Disintermediation• Ability to keep indirect costs low – Culture of frugality • Difficult to imitate – Labor costs • Exclusion of unions
Resource & Capabilities Analysis1st Step: Assessment of the main resources and capabilities that affect the company and its industry2nd Step: Use the R&C Matrix to show the key strengths of the company
Code Description Performance ImportanceR1 Financial Strength 9 10R2 IS Infrastructure 8 9R3 Distribution Infrastructure 10 9R4 Human Capital 8 4R5 Store Locations 8 7C1 Bargaining Power s/ Suppliers 10 9C2 Inventory Management 7 8C3 Employee Relations 4 6C4 Marketing 5 5C5 Cost Controls 10 10C6 Management Expertise 7 9C7 Distribution Processes 8 7C8 Social Responsibility 2 4C9 International Adaptation 3 8
10 3 5 1Relative Strength of the R&C 6 Capabilities 7 2 1 Resources 2 5 Key Strengths Superfluous Strengths 4 3 4 Zone of Irrelevance Key Weaknesses 8 9 10 Importance
Future of Walmart• How can Wal-Mart sustain its recent performance and defend against other threats? “Story of evolution, not revolution” (Bradley et al, 2003)
Recommendations and Challenges• Four Key Determinants: – Distribution Infrastructure – Globalisation – Competitive Threats – Social Issues
• Distribution Infrastructure – Building upon existing framework in order to sustain competitive advantage• Globalisation – Market expansion – Challenges • Failure • Cultural insensitivity
• Competitive Threats – Intense price competition – Potential competition or too big to fail?• Social Issues – Sustainability 360 – Corporate image • Negativity associated with Walmart regarding HRM issues
Conclusion• Industry and Firm Analysis• Competitive Advantages• Sustainability of each advantage• Recommendations for the future
References• Bradley et al. (2003). Walmart Stores in 2003. Harvard Business Review.• Djeddour, M. (2011). Strategic Management Lecture. [Handout], Strategic Management Module. Grenoble Graduate School of Business.