CASE STUDY: WAL-MART
Competitive advantage is the ability of a business to have an added advantage over its rivals in the business (Siedel and Haapio 2012). Every company strives to achieve a competitive edge over the competitors by offering products that exceed the expectations of the customers. According to Michael Porter (2009), products should be developed with the consumer in mind. According to Kotler and Keller (2009), a product can be perceived on three dimensions. These include the core product, the actual product, and the augmented product. A customer not only buys a car, but also expects other non-tangible benefits. Competitive advantage falls into two categories; cost advantage and differentiation advantage. A company that pursues a cost advantage offers products at a lower price as opposed to competitors (Siedel and Haapio 2012). From the provided case, it is evident that Wal-mart has over the years pursued a low cost approach to woo customers to its shops. On the other hand, differentiation takes place if the company offers additional features and services at the same price that competitors are offering (Siedel and Haapio 2012).
Organizations are made up of people who come together to work in a structured system to achieve predetermined goals and objectives by exploiting the different resources such as human, financial and other resources. The structure of an organization differs depending on different factors. Porter (2009) notes that market forces influence organizational responses. Market forces of demand and supply represent the total influence of buyers and sellers regarding price and quality of products being availed in the market (Power, Whelan & Davies 2008). Accordingly, high demand results in an increase in prices and quantity supplied (DuBrin 2010). Similarly, high supply leads to a drop in prices and quantity consumed. Market forces influence the organizational structure of Wal-mart in the following ways;
The Bargaining Power of Buyers.
The power of buyers is determined by the customers base and how much they contribute to the company’s revenues. Wal-mart has a high power of buying from suppliers and most of them would go any length to protect their business with the company (Lussier & Achua 2009). These benefits are transferred to customers as well.
The Entry of New Competitors
The threat of entry in the market is low. With the company dominating the industry through low cost and products differentiations, it would be impossible for new players to enter the market or outwit Wal-mart in any way (Lussier & Achua 2009).
The Threat of Substitutes.
The threat of substitutes and new entrants in the industry is low. This is because Wal-mart focuses on exceeding the expectation of customers by ensuring timely delivery and low cost of their products. This ensures the company is always ahead of its rivals (Koontz & Weihrich 2010).
Bargaining Power of Suppliers
The bargaining power of suppliers, where there are few their bargaining power is stronger but when many, their bargaining power are reduced (Mullins 2010). Supplier power at Wal-mart is low, from the case provided. The manner in which they are treated and how they are forced to cut on the cost of their supplies. The low power of suppliers would allow the company to have as many suppliers as possible. This helps the company maintain a high standard in delivering quality products and at a low cost.
The dominance of Wal-mart and its pricing strategies have put competitors at bay for a long time. The above market forces shapes the way Wal-mart responds to market forces. For example, where the level of competition is high, the company would respond by cultivating better customer relationships to create customer loyalty and retain their customers (Mullins 2010).
This is a comprehensive model for achieving the company’s visions and strategy. The model identified five elements: financial perspective, customer satisfaction, community perspective, operations perspective and people perspective (Mullins 2010).
The Financial Aspect:
The financial aspect is critical because it shows Wal-mart’s focus on returning value for customers and achieving growth (Mullins 2010). From the case, it is evident that the company reported revenue growth of 7.2% and net income of 5.3% despite the harsh economic realities. Wal-mart continues to focus on low prices to attract more customers and maintain their loyalty. This will continue to create higher profits for Wal-mart.
An effective balanced scorecard will keep a keen eye on the market share, customer satisfaction and retention. With low prices and discount retailing, Wal-mart attracts and retains more customers. The company has a huge share in the American market, and meets the expectation of clients through supercenters, discount stores and neighborhood markets (Grout and Fisher 2011).
Wal-mart is always keen to provide products that appeal to people’s values and norms. In addition, the company has shown commitment to social and environmental responsibility in an effort to attract more customers and counter claims by activities that brand the company as a heartless corporation (Grout and Fisher 2011).
The management and leadership style adopted by a the leadership at Wal-mart is critical to its success (Grout and Fisher 2011). The management of Wal-mart, and especially Sam’s managerial skills are geared for the success of the company. Every aspect of the company’s operation are based on the culture of close collaboration between managers and employees. In addition, internal business processes is conducted efficiently to provide efficient delivery of services.
Human resource practices were recognized by Sam as important in turning around Wal-mart. Wal-mart values its workers, gives them good incentives and ensures open communication
Employees have e a high degree of autonomy and their inputs are valued by the management (Grout and Fisher 2011).
The Corporate Steering Wheel
The corporate steering wheel has provided an impressive performance for Wal-mart in line with its objectives and mission. Each of the five perspectives has helped Wal-mart position itself for long term growth.
Value Chain Analysis
The analysis looks at the primary and support activities pursued Wal-mart and how effective they are in enhancing the company’s competitiveness.
General Administration: Wal-mart has a unique administrative practices compared to other retailers (Grout and Fisher 2011). The flow of communication is direct between each store and the headquarters. People are sent from the headquarters to go and gather information at the grassroots, which creates a close connection between the headquarters and the individual stores. In addition, Saturday meetings are norm in the company. These meetings create a unique bond between employees and enhance a sense of belonging.
Human resource management. Human resource practices are critical to the success of any company. At Wal-mart interaction between the company and its employees are based on respect, high expectations and close communication. Employees, although they are not highly paid, receive several benefits which increase their motivation. Employees have e a high degree of autonomy and their inputs are valued by the management.
Technology integration. Integration of technology in the company’s supply chain has enhanced efficiency. This allows Wal-mart to offer products at low prices to its customers.
Procurement. The company deals directly with manufacturers. In addition, purchasing is centralized at the company headquarters. Manufacturers are expected to cut their margins and meet its employment policies. Such policies have enabled the company to buy inputs at the lowest cost, thus saving money. These savings lead to low cost of the products.
Inbound logistics and outbound logistics.
The company has superiors logistics system, which keeps inventory level low at all stores. Wal-mart does not rely on 3rd party logistics, and this is critical for its success.
The company offers quality products at low costs. A key features of its operations is decentralization, which helps managers make decisions that affect product range, display and pricing.
Marketing and sales.
The company relies on word-of-mouth marketing, focusing on the low cost of its products. This reduces costs, which aligns with the overall goals of the company.
Wal-mart has an excellent customer service. Employees are trained to greet customers when they are as close as 10 feet, which enhances their experience in the stores.
The value chain analysis indicates that the core competencies of Wal-mart can be summarized as follows;
- Effective supply chain
- Large sales volumes
- Decentralization of operations
- Strong organizational culture
- Effective team management
- Superiors logistics
Further, the analysis of the company using the Resource Based view shows that the company’s core competencies are sustainable (Appendix 1). Based on the VRIN table, it is evident that the supply chain is integrated with technology which provides competitive parity. In addition, production of large volumes of products helps the company secure economies of scale from suppliers (Carpenter & Sanders 2009). In addition, Wal-mart can decentralize its operations to minimize costs and get value for money. In addition, Wal-mart has superior logistics and employees are well motivated to enhance their competitiveness.
Richard Rumelt’s model can be used to access Wal-mart’s strategy. Rumelt identified 4 components that he believed were critical in understanding a firms overall direction: consistency, consonance, feasibility and advantage.
Strategies should be consistent to ensure growth and predictability (Carpenter & Sanders 2009). The management has consistently continued to embrace the values and management style of Wal-mart founder, one of them being providing low prices.
Strategy must ensure adaptation to the external forces and critical changes occurring within a company. Changes at Wal-mart are not random. For instance, price changes remain virtually unchanged in spite of competitors actions or the promotional activities pursued by Wal-mart.
Strategies put in place by an organization should not place undue pressure on the available resources. However, for Wal-mart, this has not been the case. The company was forced to compensate employees for unpaid overtime and for its failure to provide workers with enough rest. It is important for Wal-mart to identify its capabilities before implementing any strategy to avoid putting too much pressure on the available resources.
Wal-mart has numerous advantages as opposed to its main rivals. For instance, the company has a strong brand that resonates well with buyers seeking low costs, and which can be positioned well in the market (Carpenter & Sanders 2009). This keeps rivals far, making it impossible to unseat Wal-mart’s leadership capabilities. This leads to volume sales which gives the company a strong bargaining power over its suppliers. In addition, the use of technology in the supply chain enhances efficiency of operations. Wal-mart has superior internal logistics system, which saves on transportation costs, thus helping Wal-mart offer low prices (Carpenter & Sanders 2009).
The following recommendations are based on the above discussion and conclusions
1) Monitoring the external environment: In order to achieve the best possible result, the Wal-mart should continue to get feedback from their customers. Customers are critical in the marketing process because they play an important part in the success or failure of the company. Without people buying from the retail store, it would be impossible for the company to survive in the market. Indeed, if the companies are providing services that do not resonate well with the clients, they will lose a lot of market as client seek alternative outlets to meet their needs. For instance, customer can go to competitors. Indeed, these feedbacks will help identifying the aspects that require improvements or those that require maintaining. Further, Wal-mart might continue to face challenges in cost because of increased labor wages and competition from other retailers. Therefore, Wal-mart should continue taking decisive action to keep competitors at bay.
2) Effective management of internal factors: Although low cost is core at Wal-mart, the company still needs to make more improvements by enhancing performance management techniques. These will reveal where the staff is either responsible for improved performance or otherwise.
3) Wal-mart only targets customers who are keen to buy at low prices. People who demand premium quality products would go to shop in other retail outlets. The company is not able to satisfy all the segments of the market. However, Wal-mart should try to minimize this weakness by having outlets or stores that can appeal to premium shoppers as well.
4) Wal-mart has continued to respond favorably to the pressure from environmental activists and advocacy from women and children’s advocates. Although these initiatives do not have a direct impact on the company’s bottom line, Wal-mart should continue its corporate social responsibilities to maintain a positive image in the market.
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Appendix 1: VRIN TABLE
|Integrated technology of supply chain||Yes||No||No||Yes||Competitive parity|
|Ability to generate large sales volume||Yes||Yes||No||Yes||Temp. comp. adv|
|Superior logistics system||Yes||Yes||No||Yes||Temp. comp. adv|
|Operation decentralization||Yes||Yes||Yes||No||Temp. comp. adv|
|Strong culture||Yes||Yes||Yes||Yes||Sustainable comp. adv|
|Human resources (management team and employee autonomy)||Yes||Yes||Yes||No||Temp. comp. adv|
|Management routines and practices||Yes||Yes||Yes||Yes||Sustainable comp. adv|