Case No. 5 Wal-Mart in America and Around the World 1lllr'al-llil'lart has become one of the largest companies in the world in terms of sales. It is also one of the biggest private employers in the world. Moreover, the company has one of the most sophisticated logistic systems controlled by computers Yet its headquarters are located in a small town in Bentonville, Arkansas. The smltown orientation in its business approach contributed to its value-based success story. Success did not come by accident; rather, it is based on careful planning ofa unique strategy, a simple organization structure, an effective human resource policy, an inspiring leadership style initiated by founder San Walton, and a clever use of information technology to manage its inventory. When the company made mistakes, it leamed from them. One concern is whether the strategy of invading rural areas will also work in the urban areas ofAmerim and in the global environment The Background it all began in 1952 in a small town in Arkansas when Sam Walton noted the need for serving customers in small towns. Retailers such as Kmart and Sears focused on big towns. This created an opportunity for walMart to ll people's needs in rural areas. This smalltown orientation is reected in the company's values, which emphasize maintaining good relationships with staff as well as suppliers. 5am Walton's values and his philosophy of simplicity and frugality live on after his death. The focus on cost savings enables the company to offer \"everyday low prices\Simple Organizational Structure: Centralized end Decentralized While the company's proprietary information system is centralized, the operation is decentralized with a great deal of authority delegated to local managers in, for example, pricing the merchandise according to the local environment. The autonomy given to store managers makes them in a sense a small shopkeeper who can make decisions to adjust inventory according to local needs. Employees called associates, are Intonhed and celebrated at the Saturday morning meetings, where they are cheered for their accomplishments. The meetings also provide an opportunity to reinforce the notion that the customer ls number 1. Wal-Mart's organization culture ls built on three basic values promulgated by Sam Walton. it was established in 1952 and still permeates the organization. The values are {11 respect for the individual, :2} service to the customer, and :3] striving for excellence. Other factors Inuencing the organization culture Include exceeding the expectations of customers, assisting people so that they make a difference, quickly approaching customers to help, doing today what can be done today rather than postponing it, and pricing for providing value to the customer. Human Resource Management: People, the Most Important Asses Clearly, the organization culture has an Impact on the stafng function. Associates are treated with respect in this lean organization. Having a great deal of authority motivates people. Training is decentralized with management seminars offered at the distribution centers instead of at the company headquarters. The company atmosphere encourages employees to submit suggestions, many of them being Implemented through the "Yes We Gan Sam\" suggestion system. Associates are rewarded bonuses for cost reduction through the "shrink incentive plan\". Supervisors and mangers receive a salary as well as incentive compensation based on store performance. Associates can also participate In a profitsharlng plan with WalMart contributing a certain percentage. Leadership by Ei-mple: Simple Frugality Communicated Effectively Sam Walton, the founder, provided leadership by example. His philosophy inuenced his style. Once the richest person in America, he was a very frugal man, ying economy class and driving an old pickup truck. Similarly, Lee Scott, the present CED, drives a Volkswagen Beetle. Sam Walton was a good communicator during his time as CEO, and his style was described as "management by walking and ying around" because of his frequent visits to his stores. Although he felt that trusting people and giving them responsibility was essential in managing people effectively, be also had the necessary control systems. Although Walton passed away in 1992, his legacy and philosophy still permeate his organintion, as shown by the spartanly furnished headquarters In Bentonville. Controlling a Large Organization: sharing Information and Technologies with Suppliers One of the key factors for Wal-lv'lart's success is the inventory system that uses modern technology. The proprietary computercontrolled logistic system is considered one of the largest In America, ranking just below the pentagon's system. The store manger can easily nd out how his or her department managers are doing in which products are in high demand. Wal-Mart's inventory tums over about twice as fast as the industry average, thus reducing greatly inventory costs. Suppliers who are considered a part of the WalMart family, also have access to the system and receive realtime data to help them plan for the fastmoving items. The relationship with suppliers is, however, very businesslike. Contracts are negotiated in no nonsense rooms with a table and some chairs-no plush offices can be found. What is found, however, is a sign that says Wal-Mart's buyers do not accept bribes, which could inuence buying decisions. Global Challenges for the Future Although Wal-Mart has been successful, there are considerable challenges ahead. To continue its growth, WaIMart would have to continue aggressively with opening new stores at home and abroad. In addition, product and service offerings need to be expanded. such as providing banking services as well as adding food. International expansion is another way to grow. The company has been successful in the expansion into Canada and Mexico. but other strategies have been less successful. One such example was the move into Germany, which the company did not plan carefully. Lee Scott attributes the failure to poor management. The company tries to learn from its mistakes and impresses on its associates to provide good service with a smile. In fact, a big problem for the rapidly growing company is developing competent mangers and associates. Domestically, the Io'lufal-lly'lart image has been hurt by the publicity on the impact ofthe big retailer on small communities. The "50 minutes\" television program showed how small retailers of small towns could not effectively compete against the giant and were driven out of business. Still, consumers in the small communities were attracted by the everyday low prices. One of WaI-Mart's latest attempts to remain the world's largest retailer is to become the neighborhood grocer, which has created tear among other food stores. Food business is big business. People may shop once more times a week for food. At the same time, they may be enticed to buy other goods Wal-Mart has to offer. WalMart effectively practiced the managerial functions of planning, organizing, stafng, leading, and controlling, which led to i3 remarkable success, but challenges remain. Companies such as Costco as well as foreign rms such as the French Earrefour and the German Metro {although both are much smaller than Wal-Ma rt:- are attempting to take business away from Wal-Mart. Questions: 1. With a saturation of stores in the rural areas in America, can Wal-Mart employ the same strategies for setting up stores in the cities? Why or why not? What difficulties may the company encounter? 2. Can the organization culture, which was so effective in the United States, he transferred to other countries? What changes, if any, would you suggest? 3. Could competitors copy the inventory system of Wal-Mart? 4. Would you like to be a manageratWaIMart? Why or why not? 5. What should WalMart do to be successful in other countries? How can WalMart control the global enterprise