Chapter 12: Innovation and Corporate Entrepreneurship

Walmart uses process innovation more than product innovation.  They are in the mature stage of the industry life cycle in which competition is intense and there is more focus on process innovations.  Walmart uses process innovation throughout their value chain.  They use just-in-time inventory to improve logistics.  Walmart has made their trucks more fuel efficient and has improved routing to reduce miles.  They have tried a new way to load their their trucks which allows them to get 3% more product on each load.  Walmart uses ID tags on all their products to track them (Walmart Sustainability Report, 2009).

Walmart uses incremental innovation rather than radical innovation.  The incremental innovations give Walmart a competitive advantage by increasing productivity and decreasing costs.  These incremental innovations have been sustainable because they have done them better than all of their competitors.

Walmart is an example of disruptive innovation.  They appeal to customers who are less demanding and who seek convenient, less expensive solutions.  Even though Walmart is a big corporation, they have a simple structure.  This allows Walmart to enter new markets and enter the low-end of existing markets (Dess, Lumpkin, Eisner, McNamara, 2012).

Of the 5 dimensions of entrepreneurial orientation, I think Walmart uses competitive aggressiveness the most.  They use the technique of entering new markets with drastically lower prices.  This leads to a long-term price competition which drives out competitors and increases their market share.  Other dimensions that Walmart uses are proactive and innovative.   They use these dimensions in their process innovations.

Dess, Lumpkin, Eisner, McNamara. Strategic Management. 6th edition. 2012.

Walmart Sustainability Report. 2009.  Retrieved from http://www.walmartstores.com/sites/sustainabilityreport/2009/en.logistics.html

Chapter 11: Strategic Leadership

Walmart empowers their employees through the top-down perspective.  It starts at the top with corporate management specifying specific guidelines and roles.  They delegate responsibility and hold people accountable for the results.  They do not allow their employees to self-manage as all Walmart stores need to be managed the same way.

Walmart has developed specific policies to fulfill it's mission.

• 3 Basic Beliefs - (1) Respect the individual, (2) Service the customer, and (3) Strive for Excellence.
• Open Door Policy - A managers' door must be open to employees at all levels.
• Sundown Rule - Employees must answer customer, supplier, and employee questions on the same day it is received.
• Grass Roots Process - Executives must ask for ideas from sale employees and other low-level employees.
• 10-Foot Rule - Employees must make eye contact, greet, and offer help to any customer that comes within 10 feet of them. 
• Servant Leadership - Leaders must be able to provide service to the needs of their team (About.com, 2013).

 Walmart has developed principles to guide their employees ethical decision making.

• Always act with integrity.
• Lead with integrity, and expect others to work with integrity.
• Follow the law at all times.
• Be honest and fair.
• Reveal and report all information truthfully, without manipulation or misrepresentation.
• Work, actions, and relationships outside of your position with the company should be free of any conflicts of interest (discussed later in this guide).
• Respect and encourage diversity, and never discriminate against anyone.
• Ask your manager or the Global Ethics Office for help if you have questions about this Statement of Ethics, or if you face an ethical problem.
• Promptly report suspected violations of the Statement of Ethics.
• Cooperate with and maintain the private nature of any investigation of a possible ethics violation.
• When involved in an ethics investigation, you should reveal and report all information truthfully. You should present all the facts you are aware of without personal opinion, bias, or judgment (Walmart Ethics, 2013).

Walmart's Statement of Ethics includes:

• Workplace Integrity Issues - alcohol & drug abuse, harassment, inappropriate conduct, non-retaliation, non-discrimination, wage & hour, and conflicts of interests.
• Marketplace Integrity Issues - fair competition, intentional dishonesty, financial integrity, insider trading, and restrictive trade practices.
• Community Integrity Issues - anti-corruption, anti-money laundering, authority to work, environmental responsibility, health & safety, and protecting personal & business information (Walmart Statement of Ethics, 2013).

About.com, 2013.  Retrieved from http://www.retailindustry.about.com/od/retailbestpractices/ig/Company-Mission-Statements/Wal-Mart-Mission-Statement.htm

Walmart Ethics, 2013.  Retrieved from http://ethics.walmartstores.com/StatementOfEthics/BasicBeliefs.aspx

Walmart Statement of Ethics, 2013. Retrieved from http://az301759.vo.msecnd.net/statementofethics/pdf/U.S_SOE.pdf

Chapter 10: Creating Effective Organizational Designs

Walmart is a divisional organizational structure.  The 3 divisions are (1) Walmart U.S., (2) Sam's Club U.S., and (3) Walmart International.  The divisional structure allows Walmart to have increased strategic and operational control.  It allows them to focus on products and markets.  The divisional structure allows Walmart to give a quick response to environmental changes.  

Besides having a president for each division, Walmart has 3 presidents for Walmart U.S. (East, West, and Central).  They also have  a president for each region they are in (Latin America and Asia).  Below is the organizational structure under each president (Wikipedia Walmart Organizational Structure, 2013).

 

Walmart has developed effective relationships with other companies.  Walmart is part of the Business Roundtable which is a business group that promotes pro-business public policy.  It is made up of executives from 97 U.S. companies.  Theses companies share their ideas on how to become more sustainable due to effects of climate change.  The companies are committed to increasing energy efficiency and reducing carbon emissions (Dess, Lumpkin, Eisner, McNamara, 2012).

Dess, Lumpkin, Eisner, McNamara, 2012. Strategic Management. 6th Edition. 2012.

Wikipedia Walmart Organizational Structure, 2013.  Retrieved from http://upload.wikimedia.org/wikipedia/en/d/d3/Walmart%27s_Organizational_Structure_Chart.png

Chapter 9: Strategic Control and Corporate Governance

Walmart's board of directors has 17 members.  Rob Walton, who is the son of Walmart founder Sam Walton, is the chairman of the board.  Having the son of the founder as chairman of the board raises ethical questions.  There are 6 committees and each committee has at least 3 board members on it.  The 6 committees are (1) audit, (2) compensation, nominating, and governance, (3) executive, (4) global compensation, (5) strategic planning and finance, and (6) technology and e-commerce (Walmart Board of Directors, 2013). 

Walmart has bylaws that state the shareholder voting and proxy rights.  Each shareholder has one vote for each share they own.  It gives specific guidelines that explain how a shareholder can force a proxy vote.  The bylaws specifically state how the board of directors operates and how they get elected (Walmart Bylaws, 2013).

The majority of Walmart's board of directors are independent, which is required by the New York Stock Exchange.  Each board member has to have meaningful ownership in the company.  Within 5 years of joining the board, each new director must own 5 times the annual cash retainer offered to each director at the time they joined the board.  Every year the board has to go over the CEO's compensation and the succession plan for the CEO.  The board must perform annual evaluations of the committees to make sure they are functioning properly (Walmart Corporate Governance, 2013).

Walmart's statement of ethics gives their anti-corruption and anti-money laundering policies.  It also states the ethical responsibilities for all of their employees.  The statement explains conflicts of interest through gifts, financial investments, and personal relationships with suppliers or other associates.  It also tells employees how to raise ethical concerns to the company (Walmart Statement of Ethics, 2013).

Walmart's culture is founded on their 3 basic beliefs (1) service to their customers, (2) respect for the individual, and (3) striving for excellence.  Walmart has kept the same culture that their founder Sam Walton started decades ago.  Sam Walton said "Our people make the difference."  Walmart tries to build an culture that exhibits integrity, respect, innovation, and open communication (Walmart Culture, 2013).

Walmart Board of Directors.  Retrieved from:  http://www.stock.walmart.com/corporate-governance  

Walmart Bylaws. Retrieved from: http://www.media.corporate-ir.net/media_files/irol/11/112761/cg/bylaws.pdf

Walmart Corporate Governance.  Retrieved from:  http://www.media.corporate-ir.net/media_files/irol/11/112761/cg/CorporateGovernanceGuidelines.pdf

Walmart Culture.  Retrieved from: http//www.corporate.walmart.com/our-story/working-at-walmart/culture 

Walmart Statement of Ethics.  Retrieved from: http://www.cdn.walmartstores.com/statementofethics/pdf/U.S_SOE.pdf

Chapter 7: International Strategy

Walmart uses a transnational strategy.  This is because of the high pressure to lower costs and the high pressure to sell foods and other products that will adapt to local needs.  Walmart has expanded both regionally and globally as they have expanded in North America, Europe, and Asia.  Walmart has 4,122 stores outside the U.S. that are 100% owned by Walmart.  These stores bring in $100 billion in sales and $5 billion in operation income.  Walmart takes advantage of arbitrage opportunities.  They bought $26.7 billion worth of goods directly form China in 2006.  This saved Walmart between $16 billion to $23 billion (Dess, Lumpkin, Eisner, McNamara, 2012).

Walmart's international revenues are 28% of their total revenues.  Their international revenue has increased 29% from 2010 through 2012.  Walmart is planning to add 73 stores in Canada in 2013.  They also plan to slow down their store expansions in Brazil and China in 2013 because they want to increase sales growth with their current stores (Forbes, 2012).
        
Walmart has used acquisitions for international expansion.  They acquired Yihaodian Ltd. in February 2012.  Yihaodian is a Chinese online shopping website.  Walmart hopes to use it to gain market share in China's growing economy (Alcara Store, 2012).  Walmart acquired Kosmix in April 2011.  Kosmix is a social media company focused on e-commerce.  Walmart bought Kosmix because it wanted to interact with their customers better around the world.  Walmart plans to use Kosmix to offer store deals to their customers (Minyanville, 2011).

 Walmart has used joint ventures for international expansion.  They have a joint venture with Bharti Enterprises.  The joint venture is for cash-and-carry supply chain management operations in India.  It is a  50/50 partnership and they opened their first cash-and-carry facility in India in 2009 (Walmart, 2009).  Most Walmart joint ventures have been with overseas companies because Walmart already has a strong U.S. presence.  Walmart had a merger with Cifra in Mexico.  Cifra is the largest retailer in Mexico.  The merger consolidated Walmart stores with Cifra stores (Business Week, 1997).

Alcara Store, 2012. Retrieved from http://www.alcarastore.com/deal-snapshot/Wal_Mart_Stores_Inc_acquires_Yihaodian_Co_Ltd-682601

Business Week, 1997.  Retrieved from http://www.businessweek.com/bwdaily/dnflash/june/nf70603.htm

Dess, Lumpkin, Eisner, McNamara. Strategic Management.  6th edition. 2012. 

Forbes, 2012. Retrieved from http://www.forbes.com/sites/greatspeculations/2012/11/14/wal-marts-earnings-international-will-drive-growth-amid-sluggish-u-s-sales/

Minyanville, 2011. Retrieved from http://www.minyanville.com/businessmarkets/articles/ebay-merger-amazon-internet-stocks-mergers/4/25/2011/id/34136

Walmart, 2009. Retrieved from http://www.walmartstores.com/pressroom/news/6638.aspx

Chapter 5: Business-Level Strategy

Walmart uses an overall cost leadership strategy.  Walmart's transportation, logistics, and information systems lower their costs.  They also lower costs by having no-frills service and by having economies of scale.  Walmart's successful overall cost leadership strategy leads to high entry barriers for competitors.  It also makes it hard for substitute products to enter the market.  Walmart also has bargaining power with their suppliers.  They changed their competitive challenge from retailing to transportation logistics and communication industries to play to their strengths (Dess, Lumpkin, Eisner, McNamara, 2012).

Walmart has many overall cost leadership value-chain activities.  They have fewer management layers than their competitors which reduces overhead costs.  Walmart has effective inbound logistics by using just-in-time inventory.  They have cut costs from outbound logistics by creating better fuel efficiency in their trucks, getting more pallets on a load, and decreasing empty miles driven by their trucks.  Walmart also reduces costs by buying in large blocks.

Walmart is in the mature stage of the industry life cycle.  The only new competition for them is from focus businesses such as grocery, clothing, and auto parts stores.  There has been no new competitors that can offer all of the different products that Walmart can and do it with Walmart's low prices.  Some competitors have recently closed stores including Kmart, Sears, and Pamida.  Walmart has a  price competition with their bigger competitors, especially Target.  Walmart has been able to stay ahead of it's competitors in the mature stage by keeping their costs low and still be able to offer a wider variety of products than anyone else.

The Internet has helped Walmart grow their business by lowering transaction costs.  Walmart allows customers to order products online which reduces sales force expenses.  Customers can have their own account page on the Walmart website to look at prior orders and track current orders.  Their Internet site allows you to ask questions and give feedback.  Walmart's website allows customers to give product reviews.

  Dess, Lumpkin, Eisner, McNamara. Strategic Management.  6th edition. 2012.

Chapter 4: Intellectual Assets

Walmart has a market value of $71.66 per share compared to a book value of $22.86 per share (Yahoo Finance, 2013).  The intellectual capital value of Walmart is $48.80 per share and the ratio of market value to book value is 3.14.  It is not surprising that Walmart has a low market value to book value ratio.  Companies that have high ratios are usually tech companies that have a high investment in knowledge resources and technological expertise.  Walmart invests heavily in physical resources, such as stores and warehouses, and less investment in knowledge.  Walmart's market value to book value is higher than their competitors in the industry.

Walmart has had a hard time retaining employees as 70% of their employees decide to leave in their first year.  The biggest reason for their turnover is low wages and inadequate health care.  Walmart employees are paid 20% less than the average retail worker.  Walmart also has had a hard time retaining workers due to poor working conditions.  They have had lawsuits filed against them for forcing their employees to do off-the-clock work, not giving overtime pay, and not allowing workers rest and lunch breaks.  They have also been sued for discriminating against women (Wikipedia, 2013).

Walmart's mission statement is "We save people money so they can live better."  I think their employees identify with Walmart's mission, but their mission does not lead to employee retention.  They also have a hard time retaining employees because the work is not challenging.  Walmart is trying to improve their retention rate.  They are now offering their employees who have been on the job for at least one year full-time or three years part-time, the chance to get a 15% tuition reduction from American Public University which is an online college (Inc. 2010). 

Walmart has a hard time attracting quality employees because of their bad reputation with their employees.  They can't rely on getting quality referrals from their current employees like other companies can.  Walmart has programs to develop employee skills.  They have a Assistant Management Training program to develop managerial skills.  Walmart has the Walton Institute which allows employees to learn about the company culture and how to foster that culture (Walmart, 2012).

Walmart's intellectual capital strength is their logistics strategy.  By using just-in-time inventory, they are able to move products quickly which reduces inventory costs.  They use ID tags to better control inventory.  They constantly try to improve their supply chain, especially with their trucks.  Walmart has seen a 21% increase in fuel efficiency in their trucks, 5.5% increase in the pallets in their trucks, and a 6.5% reduction in empty truck miles (About.com, 2010).    

About.com. 2010. Retrieved from http://logistics.about.com/od/industryfocus/a/Wal-Mart.htm

Inc. 2010. Retrieved from http://www.inc.com/news/articles/2010/06/wal-mart-worker-retention.html

Walmart. 2012. Retrieved from http://careers.walmart.com/training-and-development/

Wikipedia. 2013. Retrieved from http://en.wikipedia.org/wiki/Criticism_of_Walmart

Yahoo Finance. 2013.  Retrieved from http://finance.yahoo.com/q/ks?s=WMT

Chapter 3: Assessing the Internal Enviroment

 

Walmart Financial Statistics as of 2/26/13 (Rueters, 2013)

                                                            Company         Industry          Sector

Quick Ratio                                          0.22                 0.48                 1.18    

Current Ratio                                        0.83                 1.13                 1.53

Debt to Equity Ratio                             70.91               67.73               53.69

Inventory Turnover                               8.34                 6.64                 9.34

Receivables Turnover                           73.85               100.36             17.58

Asset Turnover                                    2.37                 2.01                 0.96

Profit Margin (5 year avg.)                   3.67                 2.86                 5.84

Return on Assets (5 year avg.)             8.85                 6.10                 6.43

Return on Equity  (5 year avg.)            21.90               15.90               12.05

P/E Ratio                                            14.03               24.65               14.41

Market to Book                                  3.15                 4.46                 1.45

Walmart has efficient inbound logistics.  They use the just-in-time inventory to reduce inventory costs.  They made their trucks 25% more fuel efficient from 2005 to 2008.  Walmart has improved the routing of their trucks to reduce miles.  They have tried a new way to load their trucks which allows them to get 3% more product in each load.  Walmart plans to double the fuel efficiency of their trucks by 2015 (Walmart, 2009).

Walmart markets their customer segments well.  Not all Walmart stores are "one size fits all."  Walmart tailors stores specifically for: Hispanics, African Americans, the affluent, empty-nesters, rural resident, and suburban residents (Wikipedia, 2013).  They use facebook, twitter, and cellphone apps as marketing tools.  Walmart changed it's procurement strategy to buy 80% of their products directly from it's manufacturers compared to the current 20%.  This will save Walmart between 5% to 15% on the products they buy (SC Digest, 2010).

Walmart has strong financial tangible resources as they have cash on hand and have good borrowing capacity.  Their physical tangible resources include their 4,200 U.S. stores and their 140 distribution centers (Wikipedia, 2013).  A strong intangible resource is their specific procedures like their logistics system.  Another important intangible resource is their brand name.  Walmart's brand name is associated with lower prices.

Walmart needs to work on their organizational capabilities.  They struggle to retain human capital due to low pay and not treating everyone fairly, especially women.  Walmart needs to improve their customer service.  A 2008 study by the University of Michigan concluded Walmart had the worst customer service among American companies (Seeking Alpha, 2008).

Walmart's organizational resources are valuable.  The organizational resources have provided Walmart with greater efficiency and effectiveness.  Walmart's business is not rare as grocery stores and department stores sell the same products.  Many stores have tried to imitate Walmart's low prices and have failed.  There are substitutes available for the products they sell including Target, Kmart and Shopko.  The problem is their competitors can't match Walmart's low prices.

Reuters. 2013. Retrieved from http://www.reuters.com/finance/stocks/financialHighlights?symbol=WMT.N

SC Digest. 2010. Retrieved from http://www.scdigest.com/Assets/ON/Target/10-01-06-1.php

Seeking Alpha. 2008. Retrieved from http://seekingalpha.com/article/6533-walmart-s-poor-customer-service-has-to-go

Walmart Sustainability Report. 2009. Retrieved from http://www.walmartstores.com/sites/sustainabilityreport/2009/en.logistics.html

Wikipedia. 2013.  Retrieved from http://wikipedia.org/wiki/Walmart

Chapter 2: Analyzing the External Enviroment

Porter's "Five Forces" Model

Threat of New Entrants - It is very difficult to compete on the same scale as Walmart.  They have economies of scale and a great logistics system.  Walmart has stores around the world with many distribution channels.  They have large financial capital that no start-up business can match.  Walmart has their own brand names which gives them even more market share.  Departments stores and specialty stores can enter the market, but on a smaller scale.

The Bargaining Power of Buyers - The bargaining power of Walmart buyers is low since Walmart relies on sales from individuals and not large buyers.  Buyers can't switch competitors for lower prices since typically Walmart has the lowest prices.

The Bargaining Power of Suppliers - Small suppliers have no or very low bargaining power against since Walmart is so large.  Large companies like Proctor and Gamble, may have some bargaining power.

Threat of Substitute Products - The threat of substitute products is low because it is hard for other companies to offer such a wide variety of products at such a low price.  Both department stores and specialty stores have struggled to compete with Walmart's low prices.

Intensity of Rivalry - Target has become Walmart's biggest rival.  Target has made the competition even closer by adding more grocery items and lowering their prices.  Shopko and Kmart have fallen behind and have closed stores in recent years.  The rivalry among the businesses is intense since the industry is in the mature stage.

The General Environment

Demographic - Walmart targets people of all ages and both sexes.  They tailor stores specifically for: Hispanics, African Americans, the affluent, empty-nesters, rural residents, and suburban residents (Wikipedia, 2013).  Walmart target people who have low incomes.

Sociocultural - Walmart has shown greater concern for the environment.  The 2011 Walmart Global Responsibility Report says their 3 main environmental goals are: (1) to be supplied by 100% renewable energy, (2) to create zero waste, (3) to sell products that sustain people and the environment.  They have reduced greenhouse gases from their stores 10.61% from 2005 levels.  Walmart reduced their plastic bag waste by 3.5 billion bags in 2011 (Walmart 2011 Global Responsibility Report, 2012).  With a greater concern for health and fitness, Walmart needs to add more healthy food options and exercise equipment.

Political/Legal - Walmart has to worry about the increase in minimum wage because they pay low wages to their employees.  They will have to adapt to the recent increase in taxes for individuals as the payroll tax went up on all U.S. citizens.  Federal taxes and capital gain taxes went up on higher income individuals.  Congress is also thinking about changing the corporate tax code.

Technological - Walmart uses new technology for their logistics system.  They use ID tags to manage their inventory.  Walmart uses the latest technology to improve the fuel efficiency of their trucks.  Walmart uses the Internet technology to sell their products and give people information about their products.

Economic - The stock price of Walmart has recently went down because sales have been down for the first two months of the year.  Walmart says the loss of sales is due to the increase in the payroll tax.  If the unemployment rate goes up, their low income customers will have less money to spend.  They could gain some new customers if some people have to give up shopping at upscale stores.

Global - Walmart is a global retailer as they have stores in 15 different countries.  With being a global retailer, they have to deal with exchange rates.  Smaller currencies have more volatile exchange rates than larger currencies.

 Walmart 2011 Global Responsibility Report. (2012).  Retrieved from http://walmartstores.com/sites/responsibikityreport/2011/executive_summary.aspx


Wikipedia. 2013. Retrieved from http://en.wikipedia.org/wiki/Walmart