Analysis of Wal-Mart using some Strategic Management tools: *** Value Chain *** Strategic Position And Action Evaluation (SPACE) *** Resource & Capabilities analysis ***

1. STRATEGIC MANAGEMENT:
WALMART CASE
Authors:
G. Gimondo
N. McConville
A. O’Dell
S. Smith
O. Vadillo
M. van de Rijt

2. Table of Contents
• Introduction
• Industry and Firm Analysis
• Competitive Advantages and Sustainability
• Recommendations

3. 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

4. INDUSTRY AND FIRM ANALYSIS
To what extent is WM’s performance attributable to industry attractiveness
and to what extent to competitive advantage?

5. Sources of Superior Profitability
INDUSTRY
ATTRACTIVENESS
Which CORPORATE
RATE OF PROFIT businesses STRATEGY
ABOVE THE should we be
COMPETITIVE LEVEL in?
How do we
make money? BUSINESS
COMPETITIVE STRATEGY
ADVANTAGE
How should we
compete?
5

6. 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 3
Overall score : 2.4/6
-1975 Ban on resale price maintenance (big retailers favored)
-Different sizes and concepts

7. 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, tobacco
Technology 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

8. 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 -1
Overall Score: -1.5 / 6
-SCM, DCM, Merchandising principle
“Technology strategy must support the business
strategy in developing a competitive advantage”
(Managing Tecbnology course)

9. AGGRESSIVE

10. KEY COMPETITIVE ADVANTAGES
AND SUSTAINABILITY

12. 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

13. 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

14. 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

15. 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

16. 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

17. Information Systems
• Electronic Data Interchange (EDI)
• “Retail Link”
– Operating efficiencies
• Ex: partnership with Procter and Gamble
– Inventory turnover
– Unique merchandise in stores
• Local adaptation

18. Information Systems Sustainability
• Partly sustainable
• The technological system itself can be
replicated/purchased
• Capabilities difficult to replicate
– Partnerships
– Superior supply chain management
– How information

19. 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

20. 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

21. Resource & Capabilities Analysis
1st Step: Assessment of the main resources and
capabilities that affect the company and its
industry
2nd Step: Use the R&C Matrix to show the key
strengths of the company

22. Code Description Performance Importance
R1 Financial Strength 9 10
R2 IS Infrastructure 8 9
R3 Distribution Infrastructure 10 9
R4 Human Capital 8 4
R5 Store Locations 8 7
C1 Bargaining Power s/ Suppliers 10 9
C2 Inventory Management 7 8
C3 Employee Relations 4 6
C4 Marketing 5 5
C5 Cost Controls 10 10
C6 Management Expertise 7 9
C7 Distribution Processes 8 7
C8 Social Responsibility 2 4
C9 International Adaptation 3 8

23. 10
3 5
1
Relative 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

24. RECOMMENDATIONS FOR THE
FUTURE

25. 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)

26. Recommendations and Challenges
• Four Key Determinants:
– Distribution Infrastructure
– Globalisation
– Competitive Threats
– Social Issues

27. • Distribution Infrastructure
– Building upon existing framework in order to
sustain competitive advantage
• Globalisation
– Market expansion
– Challenges
• Failure
• Cultural insensitivity

28. • 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

29. Conclusion
• Industry and Firm Analysis
• Competitive Advantages
• Sustainability of each advantage
• Recommendations for the future

30. 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.