SWOT Analysis Wal Mart Stores Inc

SWOT Analysis Wal Mart Stores Inc To analyse or diagnose any business, we must examine closely the issues with which the company is confronted. We will need to look very hard to grasp the overall picture of what is happening try and establish a helicopter view of the company to discover and grasp the specific problems. Generally, a detailed analysis of any business should include seven areas: The history, development, and growth of the company over time The identification of the companys internal strengths and weaknesses The nature of the external environment surrounding the company A SWOT ANALYSIS The kind of corporate-level strategy pursued by the company The nature of the companys business-level strategy The companys structure and control systems and how they match its strategy Analyse the companys history, development, and growth A convenient way to investigate how a companys past strategy and structure affect it in the present is to chart the critical incidents in its history that is, the events that were the most unusual or the most essential for its development into the company it is today. Some of the events have to do with its founding, its initial products, how it makes new-product market decisions, and how it developed and chose functional competencies to pursue. Its entry into new businesses and shifts in its main lines of business are also important milestones to consider. Identify the companys internal strengths and weaknesses once the historical profile is completed, we can begin the SWOT analysis. Use all the incidents we have charted to develop an account of the companys strengths and weaknesses as they have emerged historically. Then we examine each of the value creation functions of the company, and identify the functions in which the compa ny is currently strong and currently weak. Some companies might be weak in marketing; some might be strong in research and development. Make lists of these strengths and weaknesses. 2) SWOT ANALYSIS AND MACRO ENVIRONMENT FOR DECISION MAKERS Many changes from the macro environment have the potential to cripple even the best of strategies and must therefore be watched. Managers should note any changes in the environmental factors as conducive to innovation. Potential changes in exchange rates, especially unanticipated large ones, central bank policies that raise interest rates, and taxation laws, along with demographic and socio political changes, all have the potential to impact firm strategies. Managers should examine them carefully for potential threats and opportunities. In particular, they should examine the potential impact of changes in tax policies concerning the Internet. This analysis of a firms current performance, appraisal of its business model, appraisal of its competitors business models, analysis of industry attractiveness, assessment of its macro environment, projection of the evolution of the Internet, and a forecast of its environmental changes is sometimes called a strengths and weaknesses, opportuniti es, and threats (SWOT) analysis. After an analysis of where the firm is now, a manager may also decide not to pursue profits as previously planned but to hone the firms capabilities to fit another firms portfolio of capabilities so that it can be acquired by the other firm. On the other hand, a firm whose exit strategy had been to be acquired, with no intention of ever making profits, may decide that it now wants to become profitable after all. In all these cases, a firm has decided to move into new areas. It is now intent on doing certain things that it had not done before. If moving into these new areas requires entirely new capabilities, the objective to do so is sometimes referred to as a firms strategic intent. 2.1) SWOT ANALYSIS AND COMPANYS STRATEGIES Having identified the companys external opportunities and threats as well as its internal strengths and weaknesses, we need to consider what our findings mean. That is, we need to balance strengths and weaknesses against opportunities and threats. Is the company in an overall strong competitive position? Can it continue to pursue its current business or corporate-level strategy profitably? What can the company do to turn weaknesses into strengths and threats into opportunities? Can it develop new functional, business, or corporate strategies to accomplish this change? Never merely generate the SWOT analysis and then put it aside, because it provides a succinct summary of the companys condition, a good SWOT analysis is the key to all the analyses that follow. Over all we can say that a good strategy is designed to fit organizational capability with environmental opportunity. It is best summarized by the SWOT approach. 3) ANALYSE CORPORATE-LEVEL STRATEGY AND SWOT ANALYSIS 3.1) Companys businesses. Do the company trade or exchange resources? Are there gains to be achieved from synergy? Alternatively, is the company just running a portfolio of investments? This analysis enable us to define the corporate strategy that the company is pursuing (for example, related or unrelated diversification, or a combination of both) and to conclude whether the company operates in just one core business. Then, using SWOT analysis, we debate the merits of this strategy. Is it appropriate, given the environment the company is in? Could a change in corporate strategy provide the company with new opportunities or transform a weakness into a strength? For example, should the company diversify from its core business into new businesses? We should consider other issues as well. How and why has the companys strategy changed over time? What is the claimed rationale for any changes? Often it is a good idea to analyse the companys businesses or products to assess its situation and identify which divisions contribute the most to or detract from its competitive advantage. It is also useful to explore how the company has built its portfolio over time. Did it acquire new businesses, or did it internally venture its own? All these factors provide clues about the company and indicate ways of improving its future performance. 4) ANALYSE BUSINESS-LEVEL STRATEGY AND SWOT ANALYSIS Once we know the companys corporate-level strategy and have done the SWOT analysis, the next step is to identify the companys business-level strategy. If the company is a single-business company, its business-level strategy is identical to its corporate-level strategy. If the company is in many businesses, each business will have its own business-level strategy. We will need to identify the companys generic competitive strategy differentiation, low cost, or focus and its investment strategy, given the companys relative competitive position and the stage of the life cycle. The company also may market different products using different business-level strategies. For example, it may offer a low-cost product range and a line of differentiated products. Be sure to give a full account of a companys business-level strategy to show how it competes. Identifying the functional strategies that a company pursues to build competitive advantage through superior efficiency, quality, innovation, an d customer responsiveness and to achieve its business-level strategy is very important. The SWOT analysis will have provided us with information on the companys functional competencies. You should further investigate its production, marketing, or research and development strategy to gain a picture of where the company is going. For example, pursuing a low-cost or a differentiation strategy successfully requires a very different set of competencies. Has the company developed the right ones? If it has, how can it exploit them further? Can it pursue both a low-cost and a differentiation strategy simultaneously? The SWOT analysis is especially important at this point if the industry analysis, has revealed the threats to the company from the environment. Can the company deal with these threats? How should it change its business-level strategy to counter them? To evaluate the potential of a companys business-level strategy, We need to perform a thorough SWOT analysis that captures the ess ence of its problems. Once we complete this analysis, we will have a full picture of the way the company is operating and be in a position to evaluate the potential of its strategy. WAL-MART 5) COMPANY HISTORY AND ITS FOUNDERVISION Samuel Moore Walton, the billionaire boy scout of Bentonville, Arkansas, built an empire on a fervid belief in value, pioneered by ideas like empowerment, and revolutionized retailing in the process. Dead at 74 after a long fight with cancer, he did not invent the discount department store, although it hardly seems possible that he didnt. He grabbed hold of the leading edge of retailing in 1962 and never let go, creating a value-powered merchandising machine that seems certain to outlive his memory.. In 1994, the still-young company earned $2.3 billion on sales of $67 billion. A $1,650 investment in 100 Wal-Mart shares in 1970, when they began trading, is worth $3 million today. He taught American business that the vast amount of American people want value. He saw the future, and he helped make the future. According to a retail executive, while Walton was one of the great showmen of retailing, if he had been a television preacher hed have become Pope. As a manager he applied such concepts as a flat organization, empowerment, and gain-sharing long before any one gave them those names. In the 1950s, he shared information and profits with all employees. He ingested as much data as he could to get close to the customer and closer to the competition. He stressed flexibility and action over deliberation. Wal-Mart is ultimately a monument to consumers: it has saved them billions. Sam Walton truly believed that nothing happens until a customer walks into a store with a purpose, buys some thing, and walks out. His philosophy was simple: satisfy the customer. Operating nearly 2,000 stores in 47 states, Wal-Mart remains the leader in the discount store industry. In addition, with over 400 Sams Clubs, Wal-Mart is a major factor in the Warehouse Club industry. Combining general merchandise and groceries, Supercenters represent the companys fastest growing segment, with 65 to 70 stores planned in fiscal 1995 on a base of 68. Walton long ago wanted manufacturers to see themselves, wholesalers, retailers, and consumers as parts of a single customer-focused process rather than as participants in a series of transactions. He personally and permanently altered the relationship between manufacturers and retailers, which has historically been, to put it politely, antagonistic. About five years ago he asked Procter Gamble executives to view a focus group of Wal-Mart executives talking about their prickly relationship with the packaged-goods company. It was sobering. His strategy clearly was that we ought to be able to work together to lower the costs of both the manufacturer and the distributor and get lower costs for consumers. Walton got both sides to focus on distribution costs and how to cut them. Wal-Mart linked PG with its computers to allow automatic reordering, thus avoiding bulges in order cycles. With better coordination of buying, PG could plan more consistent manufacturing runs, rationalize distribution, and lower its costs, passing on some of the savings. This systematic approach is now in broad use throughout the industry. Walton has been described as a visionary, and he clearly was that. His vision was apparent in 1956 as a Ben Franklin variety store owner. To lure one of his first store managers, Bob Bogle, away from the state health depart ment, Walton showed him the books and offered to pay him 25 percent of the stores net profit in addition to salary. 6) STRATEGIC ANALYSIS OF WAL-MARTS SUCCESS Wal-Marts Competitive Capabilities What accounts for Wal-Marts remarkable success? Most explanations focus on a few familiar and highly visible factors: the genius of founder Sam Walton, who inspires his employees and has molded a culture of service excellence; the greeters who welcome customers at the door; the motivational power of allowing employees to own part of the business; the strategy of everyday low prices, which offers the customer a better deal and saves on merchandising and advertising costs. Strategists also point to Wal-Marts big stores, which offer economies of scale and a wider choice of merchandise. Such explanations only redefine the question. Why is Wal-Mart able to justify building bigger stores? Why does Wal-Mart alone have a cost structure low enough to accommodate everyday low prices and greeters? What has enabled the company to continue to grow far beyond the direct reach of Sam Waltons magnetic personality? The real secret of Wal-Marts success lies deeper, in a set of strategic business decisions that transformed the company into a capabilities-based competitor. 6.1) Competitive Environmental Change Rivals are constantly changing their strategies and such changes, especially new game strategies, have to be watched very carefully. A firm is said to pursue a new game strategy if by performing value chain, value shop, or value configuration activities that differ from what the dominant logic of the industry dictates, or by performing the same activities differently than the logic dictates, the firm is able to offer superior customer value. Wal-Marts early strategies were new game strategies. It decided to move into small towns, saturate adjoining towns with stores, build distribution centers, and improve logistics, with an empowering culture and information technology to match. This allowed Wal-Mart to achieve high economies of scale and bargaining power over its suppliers. This in turn allowed the firm to offer its customers lower prices than its competitors. The starting point was a relentless focus on satisfying customer needs. Wal-Marts goals were simple to define but hard to execute: to provide customers access to quality goods, to make these goods available when and where customers want them, to develop a cost structure that enables competitive pricing, and to build and maintain a reputation for absolute trustworthiness. The key to achieving these goals was to make the way the company replenished inventory the centerpiece of its competitive strategy. This strategic vision reached its fullest expression in a largely invisible logistics technique known as cross-docking. In this system, goods are continuously delivered to Wal-Marts ware houses, where they are selected, repacked, and then dispatched to stores, often without ever sitting in inventory. Instead of spending valuable time in the warehouse, goods just cross from one loading dock to another in 48 hours or less. Cross docking enables Wal-Mart to achieve the economies that come f rom purchasing full truck- loads of goods while avoiding the usual inventory and handling costs. Wal-Mart runs a full 85 percent of its goods through its warehouse system-as opposed to only 50 percent for Kmart. This reduces Wal-Marts costs of sales by 2 percent to 3 percent compared with the industry average. That cost difference makes possible the everyday low prices. Thats not all. Low prices in turn mean that Wal-Mart can save even more by eliminating the expense of frequent promotions. Stable prices also make sales more predictable, thus reducing stock- outs and excess inventory. Finally, everyday low prices bring in the customers, which translate into higher sales per retail square foot. These advantages in basic economics make the greeters and the profit sharing easy to afford. With such obvious benefits, why dont all retailers use cross-docking? The reason: it is extremely difficult to manage. To make cross-docking work, Wal-Mart had to make strategic investments in a variety of interlocking support systems far beyond what could be justified by conventional ROI criteria. For example, cross-docking requires continuous contact among Wal-Marts distribution centers, suppliers, and every point of sale in every store to ensure that orders can flow in and be consolidated and executed within a matter of hours. Wal-Mart operates a private satellite-communication system that daily sends point-of-sale data directly to Wal-Marts 4,000 vendors. Another key component of Wal-Marts logistics infrastructure is the companys fast and responsive transportation system. The companys 19 distribution centers are serviced by nearly 2,000 company-owned trucks. This dedicated truck fleet permits Wal-Mart to ship goods from warehouse to store in less than 48 hours and to replenish its store shelves twice a week on average. By contrast, the industry norm is once every two weeks. To gain the full benefits of cross-docking, Wal-Mart has also had to make fundamental changes in its approach to managerial control. Traditionally, in the retail industry, decisions about merchandising, pricing, and promotions have been highly centralized and made at the corporate level. Cross-docking, however, turns this command-and-control logic on its head. Instead of the retailer pushing products into the system, customers pull products when and where they need them. This approach places a premium on frequent, informal cooperation among stores, distribution cen ters, and suppliers-with far less centralized control. The job of senior management at Wal-Mart, then, is not to tell individual store managers what to do, but to create an environment where they can learn from the market-and from each other. The companys information systems, for example, provide store managers with detailed information about customer behavior, while a fleet of airplanes regularly ferries store managers to Bentonville, Arkansas headquarters for meetings on market trends and merchandising. As the company has grown and its stores have multiplied, even Wal-Marts own private air force hasnt been enough to maintain the necessary contacts among store managers. Therefore, Wal-Mart has installed a video link connecting all its stores to corporate headquarters and to each other. Store managers frequently hold video conferences to exchange information on whats happening in the field, such as which products are selling and which ones arent, which promotions work and which dont. The final piece of this capabilities mosaic is Wal- Marts human resources system. The company realizes that its frontline employees play a significant role in satisfying customer needs. Therefore, it attempts to enhance its organizational capability with programs such as stock ownership and profit sharing geared toward making its personnel more responsive to customers. Even the way Wal-Mart stores are organized contributes to this goal. Where Kmart has five separate merchandise departments in each store, Wal-Mart has 36. This means that training can be more focused and more effective, and employees can be more attuned to customers. 6.2) COMPETITORS AND THEIR STRATEGIES Kmart did not see its business this way. While Wal-Mart was fine-tuning its business processes and organizational practices, Kmart was following the classic textbook approach that had accounted for its original success. Kmart managed its business by focusing on a few product-centered strategic business units, each a profit center under strong centralized line management. Each SBU made strategy -selecting merchandise, setting prices, and deciding which products to promote. Senior management spent most of its time and resources making line decisions rather than investing in a support infrastructure. Similarly, Kmart evaluated its competitive advantage at each stage along a value chain and subcontracted activities that managers concluded others could do better. While Wal-Mart was building its ground transportation fleet, Kmart was moving out of trucking because a subcontracted fleet was cheaper. While Wal-Mart was building close relationships with its suppliers, Kmart was constantly switching suppliers in search of price improvements. While Wal-Mart was controlling all the departments in its stores, Kmart was leasing out many of its departments to other companies on the theory that it could make more per square foot in rent than through its own efforts. This is not to say that the Kmart managers do not care about the business processes. After all, they have quality programs too. Nor is it that Wal-Mart managers ignore the structural dimension of strategy: they focus on the same consumer segments as Kmart and still need to make traditional strategic decisions such as where to open new stores. The difference is that Wal-Mart emphasizes behavior-the organizational practices and business processes in which capabilities are rooted-as the primary object of strategy and, therefore, focuses its managerial attention on the infrastructure that supports capabilities. This subtle distinction has made all the difference between exceptional and average performance. Kmarts management did not pay attention to this new game strategy, which resulted in the firm being overtaken by Wal-Mart. Kmart has never recovered. 6.3) SWOT ANALYSIS (S)trengths Wal-Mart is a powerful retail brand. It has a reputation of value for your money, convenience and a wide range of production all in one store. Wal-Mart is a powerful retail brand. It has a reputation of value for your money, convenience and a wide range of products all in one store. Wal-Mart has grown substantially over the years both domestically anmd through acquisition globally. For example, it purchased the United Kingdom-based retailer ASDA. The Company has a core competence in information technology to support its international logistics system and IT also supports its efficient procurement. A focused strategy is in place for human resource management and development. Talent is key to Wal-Marts business, and its invests time and resources into the training and retention of its people. (W)eaknesses Wal-Mart is the worlds largest grocery retailer, and control of its empire, despite its IT advantages, could leave it weak in some areas due to the huge span of control. Since Wal-Mart sells products across so many sectors (clothing, food, electronics, etc) it may not have the flexibility of some of its more focused competitors. The Company is global; but has a presence in few other countries. (O)pportunities It has the opportunity to take over, merge with or from strategic alliances with other global retailers, focusing on specific markets such as Europe or the greater China Region. The Stores are only in a few countries and opportunity exists to expand in large consumer markets India and China. New locations and stores types are mobbing from large super centres to local malls. Continued strategy for the opening of large super centers. (T)hreats Being number one means that you are the target of competition, locally and globally. Being a global retailer exposes you tp political and social problems in countries where you operate. Intense price competition in a threat. 7) CONCLUSION Completing a SWOT would have identified the threat as a focus on immigration and the possibility of lost crops due to un-harvested products. That threat turned to a weakness for those organizations that did not develop alternative strategies. For those who made the investments in increased mechanical harvesting, no business interruption occurred. For those who waited, it became a competitive disadvantage. Being able to forecast changes in the market and business will lead to insight regarding potential issues and opportunities to be faced in the future. The insights gained from engaging in this forecasting exercise can then be used to create plans of action to deal with the issues before they can have detrimental effects on the functioning of the business.