Project Deliverable 5: Capstone Final Project and Presentation

Walmart’s Response to Change

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The strength or weakness of Walmart’s industry, based on the evolution industry

Wal-Mart Stores, Inc., commonly known as Walmart is an American retail corporation operating a chain of discount department stores, grocery stores and hypermarkets. The company operates in the retail industry. Since its founding by Sam Walton in 1962, the company has grown to become an international brand, currently owning 11,593 stores and clubs spread across more than 28 countries (Hwang, & Park, 2015). The stores are operated under 63 banners. According to the Fortune Global 500 list of 2016, Walmart is the largest company in the world by revenue, which means its growth has been steady and exponential. Additionally, its growth in the retail industry has expanded to a position of 2.2 million workers, which puts the retail giant as the largest private employer globally. By market value, Walmart has grown to become one of the most valuable firms in the world by market value, and topping the list of grocery stores in the United States (Hwang, & Park, 2015).

For the past half-decade, the brick and mortar retail establishments has experienced significant challenges. The retail industry is not declining, it is maturing with the advancement of technology. The economic experts, marketers and the shoppers believe that the operations of brick and mortar retail stores are going the way of dinosaurs. However, the retail industry has manifested continued resilience and therefore it deserves more credit than it is getting currently (Pantano, et al. 2014). Data-driven shopping experiences, personalized mobile experiences and emerging mobile shopping technologies like iBeacon are giving brick- and mortar retail shops a second look. The future of the retail industry will largely depend on how the physical stores can coexist with and adjust to their digital counterparts (Pantano, et al. 2014).

Now, benefits of the digital world and the lines between the physical shopping experiences are converging to create new retail experience based on excitement, convenience and ease. There exists four trends in the retail industry which is likely to make the future of the industry brighter for Walmart and other companies operating along this line. Firstly, it is important to consider all-inclusive mobile shopping experiences (Pantano, et al. 2014). The emergence of personalized shopping trips and mobile apps are changing retail. The digital personal concierges are used in welcoming shoppers into stores; with some stores using the iBeacon technology to as a form of digital messaging to guide purchases to their favourite goods and services, alerting them of the new deals and discounts (Pantano, et al. 2014). Mobile shopping apps are increasingly improving the area of customer service.

Through tablet devices or mobile, sales representative are able to respond to questions immediately, construct customized shopping experience and pull up buying histories of customers that is profitable for the store and convenient for the customers. The second component of the retail industry making it mature is digital advertisements sent to the passers-by. Soon, retailers will start targeting people with digital messages as they walk by their retail stores (Pantano, et al. 2014). For instance, if a man passes by men’s grooming store stocked with products appealing to him, an in-app or email alert can use his past purchasing habits to notify him of some other products currently being sold. For customers, personalized advertisements of these forms are likely to make the shopping experience more convenient.

Smart shelving and 3-D holograms are making the retail industry more mature than what we have seen in the past (Pantano, et al. 2014). Advanced holograms assist the customers in better visualization of the upcoming products, Retail stores strategically position the eye-catching 3-D renderings in glass windows and at checkout counters to engage the customers at higher levels. For instance, the technology-based intelligent shelving by Intel positions prominent digital displays close to new products to increase awareness amongst the customers. The displays are updated easily to move products efficiently before their sell-by dates. This innovation can help retail stores improve sales and revenue on several products.

Lastly, the improved self-checkout experiences are improving the maturity of the retail industry. When the self-checkout kiosks were introduced by grocery stores, they got it right there. The tactic can continually be used on larger scales in several other retail verticals. For instance the EasyPay self-mobile checkout by Apple is an important innovation that is helping revolutionize the customers’ experiences as they grow in their comfort using contactless payments (Sorace, Pantano, Priporas, & Iazzolino, 2015, November). From these perspectives, the future of the retail industry is not bleak. The brick- and-mortar retail stores are continuing to combine the benefits of the digital and physical world to become mature and hence gain positive response from the loyal customers.

Using Porter’s National Diamond to evaluate the main advantages and disadvantages of vertical integration versus outsourcing for the company.

According to Michael Porter, a nation is able to create new advanced factor endowments in the form of knowledge base, culture, government support, strong technology and skilled labor. The diamond used in illustrating the determinants of national advantage by Porter represents the national play filed that nations establish for their nations (Fainshmidt, Smith, & Judge, 2016). The ingredients leading to national comparative advantage are; the pressure on firms to invest and innovate; the goals of individuals in business organizations; the availability of skills and resources; and the information that organizations use to decide which opportunities are to be pursued with those skills and resources (Fainshmidt, Smith, & Judge, 2016).

The points of the diamond: factor conditions, demand conditions, related and supporting industries and the firm strategy, structure and rivalry. Using the diamond, vertical integration should be largely used by Walmart where outside industries are outsourced to provide services which can be easily obtained if vertical integration is used (Fainshmidt, Smith, & Judge, 2016).

Firstly, vertical integration is cost effective. Because of the eliminated market transaction cost, implementing vertical integration at Walmart will control costs using their own supply and distribution strategies and channels. More importantly, by setting the goods and services directly to the consumers without third party involvement, Walmart is able to minimize the distribution costs and hence increase their profits. Secondly, vertical integration is important for Walmart since it is a weapon against competition and the competitors. Components business can be applied as a competitive weapon (Markusen, & Xie, 2014). Using vertical integration, and according to Porters force of threat of new entrants, high barriers can be set by Walmart for those newly entering the market.

Thirdly, for Walmart, vertical integration is important because of secured supply. With vertical control, Walmart is able to take more control over the supply and distribution. When the company outsources from other firms, several uncertainties come up especially when the outsourcing company is also a competitor. Once Walmart’s supply chain is controlled by itself, it is able to ensure their own sufficient supply. The other strength of vertical integration is its ability to allow for positive differentiation. Positive differentiation can give Walmart access to more process and retail channels, more production inputs and distribution resources (Markusen, & Xie, 2014).

According to Porter, vertical integration based on the diamond provides more competitive advantages. However, vertical integration has weaknesses such as: capacity-balancing challenges when Walmart needs to create excess upstream capacity to ensure the downstream operations get sufficient supply; decreased feasibility; can create barriers to market entry; and requires extensive capital used in investment (Markusen, & Xie, 2014). On the other hand, outsourcing according to the pyramid, has some setbacks. Loss of managerial control of the outsourced roles is top of the list. Secondly, Walmart is likely to suffer hidden costs in the implementation of outsourced roles (Markusen, & Xie, 2014). The third challenge is that outsourcing can be a threat to confidentiality and security especially on customer information. Lastly, the outsourced roles can lack in quality.

The company’s strategic position as of 2013 using the Boston’s Consulting Group’s growth-share matrix

The BCG Growth-Share Matrix is based on the observation that Walmart’s business units can be classified into four categories based on the combinations of market share and market growth relative to the largest competitor (Palia, De Ryck, & Mak, 2014). The matrix framework is based on the assumption that an increase in relative market share can result in an increase of the generated cash. The assumption is true most of the time because of the experience curve; when the relative market share increases, it implies that Walmart is moving forward on the experience curve relative to its competition, hence a cost advantage is developed (Palia, De Ryck, & Mak, 2014).

Secondly, since the retail market is growing, investment is required in the assets to increase capacity and hence lead to consumption of cash. The strategic position of Walmart as of 2013 on the growth –share matrix provides an indication of its cash consumption and cash generation. Since the retail store has been investing in the market to become the market share leader since its formation in the 1960s in a rapidly growing retail market, its business unit’s move along the experience curve and hence develop a cost advantage (Palia, De Ryck, & Mak, 2014). The four categories of the matrix are: dogs, question marks, stars and cash cows. Dogs have low growth rate and low market share, and hence neither consume nor generate large cash amounts.

As of 2013, Walmart business units were in this category. Secondly, question marks grow rapidly and hence large amounts of cash are consumed but since they have low market shares, much cash is not generated. The net cash consumption is therefore larger. Stars on the other hand generate large cash amounts owing to their strong relative market shares, but large amounts of cash are also consumed since the growth rate is high; and therefore the cash in each direction nets out approximately. As of 2013, the strategic position of Walmart was that of cash cows (Palia, De Ryck, & Mak, 2014). Since Walmart has been a leader in the mature retail market, it exhibits a return on assessment that is larger than the market growth rate.

Implementing strategies and Changes decision making, main changes in planning structure and measures of success.

Decision making remains a key pillar of Walmart’s success, not today, but even tomorrow. Therefore, effective changes should be implemented aimed at improving results and efficiency of operations both in the United States and other stores offshore. Making effective decisions require the input of a lot of information on the issue at hand. The management of the organization should involve employees more regularly and deeply in decision making process. Business analytics and technology should also be integrated in the decision making process.

The planning structure should be leaner and effective; and this means incorporating best planning strategies such the teamwork and development. The planning structure is very important for the success of Walmart and hence it should be transparent, invest in knowledge and skills. The planning structure should be more focused on the philosophy of Walmart and the goals or objectives of the organization. The other change is incorporating the industry and environmental analysis of Walmart into the planning structure and conducting a SWOT analysis regularly. Measures of success include: financial viability of Walmart, which can be determined by its profitability; customer satisfaction which is indicated by performance on customer satisfaction surveys; employee satisfaction and the firm’s contribution to the society.

References

Fainshmidt, S., Smith, A., & Judge, W. Q. (2016). National Competitiveness and Porter's Diamond Model: The Role of MNE Penetration and Governance Quality. Global Strategy Journal, 6(2), 81-104.

Hwang, M., & Park, S. (2015). The Impact of Walmart Supercenter Conversion on Consumer Shopping Behavior. Management Science, 62(3), 817-828.

Markusen, J. R., & Xie, Y. (2014). Outsourcing versus vertical integration: Ethier–Markusen meets the property‐rights approach. International Journal of Economic Theory, 10(1), 75-90.

Palia, A. P., De Ryck, J., & Mak, W. K. (2014). Interactive Online Strategic Market Planning With the Web-Based Boston Consulting Group (BCG) Matrix Graphics Package. Developments in Business Simulation and Experiential Learning, 29.

Pantano, E. (2014). Innovation drivers in retail industry. International Journal of Information Management, 34(3), 344-350.

Sorace, S., Pantano, E., Priporas, C. V., & Iazzolino, G. (2015, November). The Future Role of Digital Technologies in Emerging Technology-Based Retail Environments. In 2015 8th International Conference on u-and e-Service, Science and Technology (UNESST) (pp. 72-76). IEEE.