Wal-Mart_Org Structure and Strategy

A REPORT ON WAL-MART: ORGANIZATION STRUCTURE AND STRATEGY

Acknowledgement We wish to express our sincere gratitude to Prof. Dipak Bhattacharyya, Professor of Organizational Behaviour at Xavier Institute of Management, Bhubaneswar for providing us

an

opportunity

to

do my project

work

on

“WALMART

–

ORGANIZATION STRUCTURE AND STRATEGY”. We also wish to avail ourselves of this opportunity and express a sense of gratitude and love to our friends and faculty for their manual support, strength and help for everything.

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Contents Contents.........................................................................................................3 Introduction....................................................................................................4 Wal-Mart Organisation Structure ........................................................................9 Divisional Structure:.......................................................................................11 Wal-Mart’s Differentiator.................................................................................14 Strategies adopted by Walmart.........................................................................17 Strengths & Weakness of Divisional Structure at Walmart.....................................20 Recommendations..........................................................................................22 Competition...................................................................................................23 References:...................................................................................................24

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Introduction Wal-Mart was founded in 1962 by Mr. Sam Walton. It is an American multinational retailer corporation, run large department stores and warehouse stores. It is the largest retailer and biggest private employer in the world with over 2 million employees. The company is the world's 18th largest public corporation, according to the Forbes Global 2000 list, and the largest public corporation when ranked by revenue. It is currently operating in 15 countries and has 8500 stores under 55 different names.The company’s winning strategy or mantra for success is “selling branded products at low price with good service to its customers”. Mission Statement: "We save people money so they can live better." Objective: In addition to this mission statement, the company looks to its founder, Sam Walton

for

a

company

"purpose":

“If we work together, we’ll lower the cost of living for everyone…we’ll give the world an opportunity to see what it’s like to save and have a better

life.”

In order to fulfill its mission, Wal-Mart has developed some unique, policies, principles, rules, processes and procedures, the sum total of which form the WalMart stores corporate culture: ●

Open Door Policy - Managers' doors are open to employees at all levels

●

Sundown Rule - Answering employee, customer, and supplier questions on the same day the questions are received

●

Grass Roots Process - Capturing suggestions and ideas from the sales floor and front lines

●

3 Basic Beliefs & Values - Respect for the Individual, Service to our Customers, Striving for Excellence

●

10-Foot Rule - Making eye contact, greeting, and offering help to customers who come within 10 feet 4

●

Servant Leadership - Leaders are in service to their team

●

Wal-Mart Cheer - An actual structured chant that was created by founder Sam Walton to lift morale every morning

Wal-Mart’s culture revolves around the following four aspects:●

Quality product at low prices

●

Respect for the individuals

●

Service for the customers

●

Strive for excellence

The various initiatives taken by Wal-Mart on sustainability are:● Would implement several environmental measures to increase energy efficiency ●

Is the biggest seller of organic milk and biggest buyer of organic cotton in the world

● various measures to reduce packaging and energy costs ●

Announced a program to improve the nutritional values of its store brands over the next five years. It will gradually reducing the amount of salt and sugar, and eliminating trans fat

Wal-Mart's operations are organized into three divisions: Wal-Mart Stores U.S., Sam's Club, and Wal-Mart International. The company does business in nine different retail formats: supercentres, food and drugs, general merchandise stores, bodegas (small markets), cash and carry stores, membership warehouse clubs, apparel stores, soft discount stores and restaurants. The main types of stores under Wal-Mart are:•

Wal-Mart Stores U.S •

Wal-Mart Stores U.S. is the company's largest division, accounting for $258 billion, or 63.8% of total sales for financial year 2010.

•

It consists of three retail formats that have become commonplace in the

United

States: Discount

Markets. 5

Stores, Supercenters,

and Wal-Mart

•

The retail department stores sell a variety of mostly non-grocery products, though emphasis has now shifted towards Supercenters, which include more grocery items.

•

•

This division also includes Wal-Mart's online retailer, walmart.com.

Wal-Mart Discount Stores •

Are discount department stores with size varying from 51,000 square feet to 224,000 square feet, with an average store covering about 102,000 square feet.

•

Carry general merchandise and a selection of food.

•

Many of these stores also have a garden centre, a pharmacy, Tire & Lube Express, optical centre, one-hour photo processing lab, portrait studio, a bank branch, a cell phone store and a fast food outlet. Some also have gasoline stations.

•

Wal-Mart Supercenters •

Are hypermarkets with twice the size of Discount stores.

•

Wal-Mart Supercenters are hypermarkets with size varying from 98,000 square feet to 261,000 squares, with an average of about 197,000 square feet.

•

Stock everything a Wal-Mart Discount Store does, and also include a full-service supermarket, including meat and poultry, baked goods, delicatessen, frozen foods, dairy products, garden produce, and fresh seafood.

•

They also have a garden centre, pet shop, pharmacy, Tire & Lube Express, optical centre, one-hour photo processing lab, portrait studio, and numerous alcove shops, such as cellular phone stores, hair and nail salons, video rental stores, local bank branches, and fast food outlets.

•

Wal-Mart Neighborhood Markets 6

•

Wal-Mart Neighborhood Markets are grocery stores that average about 42,000 square feet.

•

They offer a variety of products, which include full lines of groceries, pharmaceuticals, health and beauty aids, photo developing services, and a limited selection of general merchandise.

•

•

Are used to fill the gap between Discount Stores and Supercentres

Market Side •

Market Side is a new chain of grocery stores opened in October 2008, the stores are said to be less than half the size of a conventional supermarket.

•

•

Each of their stores is open from 7 a.m. to 10 p.m.

Sam’s Club •

It is a chain of warehouse clubs which sell groceries and general merchandise, often in large quantities

•

Sam's Club stores are "membership" stores and most customers buy annual memberships.

•

Each Sam’s Club employs an average of 160 to 175 associates and offers approximately 5,500 different products and the membership fee are $35 annually for businesses and $40 annually for individuals.

•

All Sam's Club stores are open early hours exclusively for business members and their old slogan was "We're in Business for Small Business." Their current slogan is "Savings Made Simple" as Sam's Club attempts to attract a more diverse member base.

•

Sam's Club's sales during 2010 were $47 billion, or 11.5% of WalMart's total sales

•

As of March 2012, there were 611 Sam's Clubs in the United States. Wal-Mart also operates more than 100 international Sam's Clubs in Brazil, China, Mexico, and Puerto Rico

•

Wal-Mart International •

Wal-Mart's international operations currently comprise 4,263 stores and 660,000 workers in 15 countries outside the United States. 7

•

With 2.1 million employees worldwide, the company is the largest private employer in the US and Mexico, and one of the largest in Canada.

•

Accounts for about 25% of sales.

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Wal-Mart Organisation Structure Wal-Mart follows a Divisional Organisation Structure at the top level and a matrix organizational structure at the store level. The key divisions are:○

Wal-Mart Realty

○

Wal-Mart International

○

Wal-Mart Specialty Stores

○

Sam's Clubs and Super-centers

Each division is given enough resources and autonomy and has its own functional workforce. The benefit of this organizational structure is that companies are able to specialize its activities into self-reliant divisions, each capable of satisfying e.g. customer demands and changes within the business environment. The detailed structure is given below:●

The Head office is essentially the place for Divisional or Senior Vice Presidents

●

There are many districts which in turn consist of many stores. Each district is run by a District Manager, who lives in the field. These District Managers have been replaced by "Market Managers" who will be responsible for a larger number of stores (12-20, or more instead of 5-8).

●

Reason for market divisional structure - The Company is working to increase the merchandising power of the individual markets, which are now based more on the economic landscape of an area, less on the physical geographies.

●

Wal-Mart has rolled out a "Store of the Community" program, which customizes everything in a store based on a community's specific needs, from store layout to item selection, which has been illustrated in the new Plano, TX store.

The Market Office is not only going to be home to the Market Manager, but to a 9

series of Market Merchandisers in each of the general areas of the store: Food &

Consumables,

Fashion/Apparel,

Homelines & Hardlines (the first two of which have already been created and filled in most, if not all, markets). ●

Each Wal-Mart store has the same

job

descriptions

categories, and

job

management

hierarchy. ●

At the bottom of the ladder, the primary

entry

level

positions

are

cashier,

hourly sales

associate and stocker. ●

The

first

Department

step

up

is

hourly

Manager.

Other

hourly supervisor positions include Customer Service Manager (CSM), known as Check-Out Supervisor (COS) at Sam's Club.The highest level hourly manager at Wal-Mart is Support Manager. ●

The next step up is to management trainee, a four-to-five month program which prepares employees for positions as Assistant Managers.

●

The first salaried management position is Assistant Manager.

●

Each store has several Assistant Managers, varying with the size of the store

●

The next level is Co-Manager, a position used only in larger stores.

●

The top store position is Store Manager/General Manager in Sam's Clubs

●

The stores contain 40-50 different departments

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Divisional Structure: When a company expands to supply goods or services to a variety of customers, offers a variety of different products or are engaged in business in several different markets, the company could adopt a divisional organizational structure. A divisional structure groups its divisions according to the specific demands of products, markets or customers. Unlike the functional organizational structure, where the different organizational functions of the company conduct activities satisfying all customers, markets and products, the divisional structure focuses on a higher degree of specialization within a specific division, so that each division is given the resources, and autonomy, to swiftly react to changes in their specific business environment. Therefore, each division often has all the necessary resources and functions within it to satisfy the demands put on the division Each division will likely be structured as a functional structure. A company with a divisional structure therefore has a subset of different and specialized SBU's satisfying the demands of different customers, markets or products. Under a divisional structure, Companies are able to specialize their activities into selfreliant divisions, each capable of satisfying e.g. customer demands and changes within the business environment The benefit of this organizational structure is that companies are able to specialize its activities into self-reliant divisions, each capable of satisfying e.g. customer demands and changes within the business environment. Divisional Structure has 3 different categories Product Structure: Product structure groups workers together based upon specific goods produced by the company. An example of this would be a company that produces three different products, "product a", "product b", and "product c". This company would have a separate division for each product. Market Structure: Market structure groups workers together based upon specific markets in which the corporation sells. When I worked at the ISP, we also 11

used a figure of market structure. We sold internet access to individual clients and business customers. So the sales and customer service departments were organized using market structure. Consumer sales and consumer customer check worked together, and corporate sales and corporate customer service worked together. Geographical Structure: Organization is grouped in such a way that employees located in one geographic location are grouped together to make one division. For example: the company may have a head-quarter, a European division, a south Asian division etc.

Advantages of divisional organization structure: •

Suited to fast change in unstable environment.

•

Leads to customer satisfaction because product responsibility and contact points are clear.

•

Involves high coordination across functions.

•

Allows units to adapt to differences in products, regions, clients (heterogenous markets) 12

•

Best in large organizations with several products.

•

Decentralizes decision-making

Disadvantages of divisional organization structure: •

Eliminates economies of scale in functional departments by

splitting functions and allocating them to units. •

Leads to poor coordination across product lines.

•

Eliminates in-depth competence and technical specialization.

•

Makes integration and standardization across product lines

difficult. Earlier Wal-Mart followed Geographical Structure but now they have shifted to Market Structure. For example Wal-Mart offers vision, pharmacy, haircuts, grocery, crafts, clothes, electronics, house wares and etc

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Wal-Mart’s Differentiator Wal-Mart biggest differentiator behind its EDLP strategy is it effective Supply Chain Management process. With the help of information technology, this has been possible to develop a flexible, adaptive Supply-Chain Management System. With an increased competition in the marketplace, and an increase in product offerings in the market, there has been a constant need of improving the SupplyChain Management Processes One such application of Information Technology in the area of Supply Chain Managements is an Network Virtual Organization (NVO) which has largely grown out of the outsourcing strategy and vast opportunities that surfaced along with the development of information technology. Wal-Mart has tried to optimize its internal processes and has come up with an integrated supply chain via implementing NVO. In an NVO, companies evolve their core competencies and outsource remaining activities to improve productivity, cash flow, and profitability. An NVO is more efficient, effective, and adaptable to changes in the market compared to the traditional methods. Wal-Mart also used RFID technology for a seamless Supply Chain Management flow. With the help of RFID, Wal-Mart’s suppliers use RFID tags so that it becomes easy to identify and track groups of products as they arrive at the Wal-Mart warehouse up until shelving at the giant retailer. Some products, such as Gillette razors, had been testing individual item tracking up until final sale and removal from the Wal-Mart store. Apart from NVO, Wal-Mart follows a Supply-Chain collaboration model. The different models are:Strategic supply chain collaboration

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Supply Chain collaboration on a strategic level deals with structural design and configuration of the relationships between an enterprise and its suppliers and customers. In the food sector Wal-Mart has strategic type relationships with large suppliers

Tactical supply chain collaboration Supply chain planning encompasses activities such as planning and coordination of procurement, production, distribution, demand, transportation, load building, supply-demand matching, product allocation, and available/capable to promise functions. Operational supply chain collaboration Operational supply chain collaboration includes day-to-day transactional activities such as order management, billing, financials tracking, inventory and material and other resource tracking.

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Strategies adopted by Walmart Generic strategy – It is evident that the generic strategy adopted by Wal-Mart is Cost-Leadership. Wal-Mart adopts a very firm policy to maintain the low cost. It follows the Everyday low price ("EDLP") strategy where it promises consumers a low price without the need to wait for sale price events or comparison shop. EDLP saves the effort and expense needed to mark down prices in the store during sale events and to market these events; and is believed to generate shopper loyalty. Porter’s Five Forces – ●

Competition between rival companies ●

Currently, there are three main incumbent companies that exist in the same market as Wal-Mart: Sears, K Mart, and Target

●

Wal-Mart

often

has

an

absolute

cost

advantage

over

other

competitors ●

Wal-Mart has a mature industry life cycle and thus a tough competition is maintained

●

Bargaining Power of Buyers ●

The individual buyer has quite a minimal power when it comes to Wal-Mart

●

Consumer could shop at a competitor who offers comparable products at comparable prices, but the convenience is lost as the convenience

●

Wal-Mart has a wide range of customers, but they most target the lower middle class citizens because those are the customers that are seeking the best quality for the lowest price

●

Bargaining Power of Suppliers ●

The high market-share of Wal-Mart

doesn’t

give

a lot of power

because by Wal-Mart threatening to switch to a different supplier would create a scare tactic to the suppliers ●

Another potential risk to suppliers is that Wal-Mart could vertically integrate 17

●

Substitute Products ●

When it comes to this market, there are not many substitutes that offer convenience and low pricing

●

Online shopping proves another alternative because it is so different and the customer can gain price advantages because the company does not necessarily have to have a brick and mortar store, passing the savings onto the consumer

●

Entry barriers ●

Entry barriers are relatively high, as Wal-Mart has an outstanding distribution systems, locations, brand name, and financial capital to fend off competitors

●

The new entrants will definitely face a stiff competition to enter into the industry which has already some matured players

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Strengths & Weakness of Divisional Structure at Walmart The divisional organizational structure at Walmart gives a large business enterprise such as Walmart the ability to segregate large sections of the company's business into semi-autonomous groups. These groups are mostly selfmanaged and focused upon a narrow aspect of the company's products or services. As with any organization structure, divisions have both strengths and weaknesses. The strengths of Walmart can be enumerated as: 1.

Divisions at Walmart work well because they allow a team to focus upon a single product or service, with a leadership structure that supports its major strategic objectives.

2.

The division's focus at Walmart allows it to build a common culture and esprit de corps that contributes both to higher morale and a better knowledge of the division's portfolio

3.

Clear Accountability – Structuring along product lines provides clear correlation between expense & profit of divisions

4.

Intra-Departmental Coordination – Leads to better cohesion between boundaries of department( Coordination between various functions of Walmart International)

5.

Broader skills development along a particular division

6.

Reacts quickly to unstable environment.

The weaknesses of Walmart can be enumerated as: 1.

Resource Duplication – Some of the resources that could be shared are duplicated (Eg CMO of Walmart US and Sam’s Club)

2.

Hinders growth of specialists – Good for top level managers but bad for specialists(A Manager for Walmart US cannot work for Electronics Media Record of Sam’s Club) 20

3.

The products or services are dispersed among multiple departments through the organization.

4.

The company comprised of competing divisions may allow office politics instead of sound strategic thinking to affect its view on such matters as allocation of company resources. Thus, one division will sometimes act to undermine another.

5.

Problem in Product/Services Integration – Problems in integration when company produces multiple products

6.

Divisional Association – Inherent lack of a sense of the bigger organization.

7.

Also, sometimes the divisions can bring compartmentalization that can lead to incompatibilities.

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Recommendations There is lack of inter-divisional cooperation. Therefore it can switch to a match between corporate-level strategies & multi-divisional structure: i.e. It can change to Cooperative form of Divisional Structure. Some of the benefits are:●

Cooperative form: Organizational structure using horizontal integration to bring about inter-divisional cooperation.

●

Structural integration creates tight links among all divisions

●

Divisions formed around product, market or both. Therefore there’s greater synergy within the company.

●

Corporate office decides strategic planning, HR, marketing, etc to eliminate redundancy

●

Links resulting from effective integration mechanisms support sharing of both tangible and intangible resources.

●

Rewards are according to division and overall company performance

●

Centralization is one integrating mechanism that can be used to link activities among divisions, thus allowing the firm to exploit common strengths and share competencies.

●

Culture stresses cooperative sharing.

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Competition When we look at Walmart from the US Context, the main competitors are Target & K-Mart. An interesting fact to note about these companies is that all three originated in different parts of the US but in the same year. The comparison of Walmart with K-Mart is given below: WALMART Strategically

Changed

K-MART from Stuck to Geographical Divisional Structure

Geographical Divisional Structure to Market Divisional Structure Maintained Organic Growth in the US Indications of Inorganic Growth: Merger with Sears in 2005 aiming at becoming No. Constantly

gained

market

1 Discount Store in the US share Unable to gain the market share

irrespective of competition A brief insight into K-Mart reveals the following points: ●

K-Mart was very inflexible in terms of its business operations which led to the decline in their market share

●

After 2005 merger with Sears, the new CEO and the Board of Directors were not competent enough to take tough decisions on time which also contributed to the inflexibility in the operations in general

●

The market scenario in the USA reveals that it has more or less matured and there hardly seems to be any expansion horizons left. This has led to an intense competition among the rivals and the margins have been decreasing drastically

●

K-Mart lacked an efficient supply chain management system. Its policies with the various warehouses and other distribution intermediaries were not competitive enough. Thus K-Mart lost a large number of warehouses to Walmart which in turn increased their Supply Chain Costs

●

The K-Mart & Sears together hold 3rd position in terms of market share in the USA currently

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References: http://en.wikipedia.org/wiki/Walmart http://www.walmart.com/ http://en.wikipedia.org/wiki/Organizational_structure http://www.businessmate.org/Article.php?ArtikelId=185 http://en.wikipedia.org/wiki/Virtual_enterprise

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