Post on 22-Oct-2014
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
Introduction......................................................................................................................... 5
Wal-Mart Organisation Structure...............................................................................................9
Divisional Structure:.............................................................................................................11
Wal-Mart’s Differentiator......................................................................................................14
Strategies adopted by Walmart...............................................................................................16
Strengths & Weakness of Divisional Structure at Walmart..............................................................18
Recommendations...............................................................................................................20
Competition....................................................................................................................... 21
References:........................................................................................................................ 22
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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 Wal-Mart 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
● Servant Leadership - Leaders are in service to their team
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● 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 Stores, Supercenters, and Wal-Mart Markets.
• 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.
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• 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
• 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.
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• 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 Wal-Mart'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.
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• 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 series of Market
Merchandisers in each of the general areas of the store: Food & Consumables, Fashion/Apparel,
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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
categories, job descriptions and
management hierarchy.
● At the bottom of the ladder, the primary
entry level hourly positions are cashier,
sales associate and stocker.
● The first step up is hourly Department
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 self-reliant 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 used a figure of market structure. We sold
internet access to individual clients and business customers. So the sales and customer service
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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)
Best in large organizations with several products.
Decentralizes decision-making
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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
Supply-Chain 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
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
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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
● Substitute Products
● When it comes to this market, there are not many substitutes that offer convenience
and low pricing
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● 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 self-managed 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)
3. The products or services are dispersed among multiple departments through the
organization.
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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 K-MART
Strategically Changed from Geographical
Divisional Structure to Market Divisional
Structure
Stuck to Geographical Divisional Structure
Maintained Organic Growth in the US Indications of Inorganic Growth: Merger with Sears
in 2005 aiming at becoming No. 1 Discount Store in
the US
Constantly gained market share irrespective
of competition
Unable to gain the market share
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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