Walmart
Modelling is when an organization uses statistics to predict the possible outcome of an action. Walmart(WMT) trades on NYSE, Walmart which is the leading retail company in the world applied uplifting modelling where they decided to treat their staff well and expected this will in turn make their staff treat customers’ right. “This worked for them as employees are highly motivated and now Walmart is known for taking care of customer’s complaints in a friendly and fast manner” (Stankevičiūtė, 2012).
Walmart applied predictive modelling in setting up its stores. It set up its stores in strategic locations where its competitors would not even dare with the aim of expansion. For example near distributors and even where other stores had ignored e.g. rural areas. This policy was aimed at establishment of a wide supply network that enabled the company to exploit economies of density and spread costs. “Because of this modelling, Walmart could easily set up stores as their approach to the market is already laid out and they know what they are to expect when they set up a store at a certain location” (Brea-Solís, 2014).
Walmart stores all over applied a predictive modelling when they decided to start offering a wide variety of high quality products branded and unbranded, at lower prices. In fact, Walmart prices are in most cases lower than by almost 20% the prices in their competitor stores. This business models are the factors that helped it became quite popular and be able to be at the top of the fortune 500 with an average revenue of 482,130 Million dollars and create close to 125,000 new jobs, have over 3,000 stores all over the world and offer products from 70 different countries.
This model has made their decision making process quite easy as they already have a guideline on what they are supposed to do, their aims were well laid out and means of achieving the goals were also laid out by the consecutive visional managers it has had over the years. “This modelling helped the stores determine price with the aim of selling a lot of goods to make profits through quantity sold and not high prices” (LI, Y, 2016).
Limitations in using a model
Prediction of success in spreading across countries may not always go well, a Walmart store may receive different treatment in other areas due to different cultures, population, and other factors. For example in Germany Walmart was not very successful.
Predicting success in setting up stores in rural areas may lead to losses for some time before the company starts making profits.
Predicting profits from sale of goods at lower prices and expecting to obtain profits due to quantity sold and not the prices may disappoint when sales do not reach the intended amount.
Key Questions
How long is the success of Walmart going to last?
How long will it be at the top of the Fortune 500?
What will be the outcome if other stores start applying the same mechanisms Walmart is applying, will they outdo it? This is the question I would want a model to address for me.
Risk reduction
A model functions to determine the probable outcome and by applying statistics a model can predict what is to be expected if a particular cause of action is taken. Once one has known the possible outcome, it becomes easier to determine whether that outcome is favorable or unfavorable for one’s firm. By doing this it reduces the chances of taking the wrong direction in one’s actions hence reducing the risk of getting an undesirable outcome.
References
Brea-Solís, H., Casadesus-Masanell, R., & Grifell-Tatjé, E. (2014). Business Model Evaluation: Quantifying Walmart's Sources of Advantage. Strategic Entrepreneurship Journal, 9(1), 12-33. http://dx.doi.org/10.1002/sej.1190
Fortune 500. (2016). Fortune. Retrieved 18 August 2016, from http://beta.fortune.com/fortune500/list/
LI, Y. (2016). Walmart Business Model Study. Scribd. Retrieved 18 August 2016, from https://www.scribd.com/doc/177033441/Walmart-Business-Model-Study
Stankevičiūtė, E., Grunda, R., & Bartkus, E. (2012). PURSUING A COST LEADERSHIP Strategy and business sustainability objectives: Walmart case study. Ecoman,17(3). http://dx.doi.org/10.5755/j01.em.17.3.2143
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