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Walmart’s Competitive Advantage Walmart is one of the most

extraordinary success stories in business history.

Started in 1962 by Sam Walton, Walmart has grown to become the world’s largest corporation.
In 2008, the discount retailer whose mantra is “everyday low prices” had sales of $410 billion,
7,400 stores in 15 countries and 2 million employees. Some 8% of all retail sales in the United
States are made at a Walmart store. Walmart is not only large; it is also very profitable. In
2008, the company earned a return on invested capital of 14.5%, better than its well- managed
rivals Costco and Target.

Walmart’s consistently superior profitability reflects a competitive advantage that is based on


a number of strategies. Back in 1962, Walmart was one of the first companies to apply the
self-service supermarket business model. Unlike its rivals such as Kmart and Target who
focused on urban and suburban locations, Sam Walton’s Walmart concentrated on small
southern towns that were ignored by its rivals. Walmart grew quickly by pricing lower than
local retailers, often putting them out of business. By the time its rivals realized that small
towns could support large discount, general merchandise stores, Walmart had already
preempted them. These towns, which were large enough to support one discount retailer—but
not two— provided a secure profit base for Walmart.

The company was also an innovator in information systems, logistics, and human resource
practices. These strategies resulted in higher productivity and lower costs than its rivals, which
enabled the company to earn a high profit while charging low prices. Walmart led the way
among American retailers in developing and implementing sophisticated product tracking
systems by using bar code technology and checkout scanners (RFID now days). This
information technology enabled Walmart to track what was selling and adjust its inventory
accordingly so that the products found in a store matched local demand. By avoiding
overstocking, Walmart did not have to hold periodic sales to shift unsold inventory. Over time,
Walmart linked this information system to a nationwide network of distribution centers where
inventory was stored and then shipped to stores within a 250-mile radius on a daily basis. The
combination of distribution centers and information centers enabled Walmart to reduce the
amount of inventory it held in stores, thereby devoting more of that valuable space to selling
and reducing the amount of capital it had tied up in inventory.

With regard to human resources, the tone was set by Sam Walton. He had a strong belief that
employees should be respected and rewarded for helping to improve the profitability of the
company. Underpinning this belief, Walton referred to employees as associates. He established
a profit-sharing plan for all employees and, after the company went public in 1970, a program
that allowed employees to purchase Walmart stock at a discount to its market value (ESOPs).
Walmart was rewarded for this approach by high employee productivity, which translated into
lower operating costs and higher profitability.

As Walmart grew larger, the sheer size and purchasing power of the company enabled it to
drive down the prices that it paid suppliers, passing on those saving to customers in the form
of lower prices, which enabled Walmart to gain more market share and hence demand even
lower prices. To take the sting out of the persistent demands for lower prices, Walmart shared
its sales information with suppliers on a daily basis, enabling them to gain efficiencies by
configuring their own production schedules to sales at Walmart.

By the 1990s, Walmart was already the largest general seller of general merchandise in
America. To keep its growth going, Walmart started to diversify into the grocery business,
opening 200,000-square-foot supercenter stores that sold groceries and general merchandise
under one roof. Walmart also diversified into the warehouse club business with the
establishment of Sam’s Club. The company began expanding internationally in 1991 with its
entry into Mexico.

What is strategic direction?


Strategic direction is a course of action that leads to the achievement of the goals of an
organization’s strategy. The word “strategy” is derived from the Greek word “stratçgos”;
stratus (meaning army) and “ago” (meaning leading/moving). Strategy is an action that
managers take to attain one or more of the organization’s goals. Strategy can also be defined as
“A general direction set for the company and its various components to achieve a desired state
in the future. Strategy results from the detailed strategic planning process”. A strategy is all
about integrating organizational activities and utilizing and allocating the scarce resources
within the organizational environment so as to meet the present objectives. While planning a
strategy it is essential to consider that decisions are not taken in a vacuum and that any act
taken by a firm is likely to be met by a reaction from those affected, competitors, customers,
employees or suppliers. Strategy can also be defined as knowledge of the goals, the uncertainty
of events and the need to take into consideration the likely or actual behavior of others.
Strategy is the blueprint of decisions in an organization that shows its objectives and goals,
reduces the key policies, and plans for achieving these goals, and defines the business the
company is to carry on, the type of economic and human organization it wants to be, and the
contribution it plans to make to its shareholders, customers and society at large.

Features of Strategy

1. Strategy is Significant because it is not possible to foresee the future. Without a perfect
foresight, the firms must be ready to deal with the uncertain events which constitute the
business environment.
2. Strategy deals with long term developments rather than routine operations, i.e. it deals
with probability of innovations or new products, new methods of productions, or new
markets to be developed in future. Strategy is created to take into account the probable
behavior of customers and competitors. Strategies dealing with employees will predict the
employee behavior.
Strategy is a well-defined roadmap of an organization. It defines the overall mission, vision
and direction of an organization. The objective of a strategy is to maximize an organization’s
strengths and to minimize the strengths of the competitors. Strategy, in short, bridges the gap
between “where we are” and “where we want to be”.

Components of Strategy statement


The strategy statement of a firm sets the firm’s long-term strategic direction and broad policy
directions. It gives the firm a clear sense of direction and a blueprint for the firm’s activities for
the upcoming years. The main constituents of a strategic statement are as follows:

1. Strategic Intent
An organization’s strategic intent is the purpose that it exists and why it will continue to
exist, providing it maintains a competitive advantage. Strategic intent gives a picture
about what an organization must get into immediately in order to achieve the company’s
vision. It motivates the people. It clarifies the vision of the vision of the
company. Strategic intent helps management to emphasize and concentrate on the
priorities. Strategic intent is, nothing but, the influencing of an organization’s resource
potential and core competencies to achieve what at first may seem to be unachievable
goals in the competitive environment. A well expressed strategic intent should
guide/steer the development of strategic intent or the setting of goals and objectives that
require that all of organization’s competencies be controlled to maximum value. Strategic
intent includes directing organization’s attention on the need of winning; inspiring people
by telling them that the targets are valuable; encouraging individual and team
participation as well as contribution; and utilizing intent to direct allocation of
resources. Strategic intent differs from strategic fit in a way that while strategic fit deals
with harmonizing available resources and potentials to the external environment,
strategic intent emphasizes on building new resources and potentials so as to create and
exploit future opportunities.

2. Mission Statement
Mission statement is the statement of the role by which an organization intends to serve
it’s stakeholders. It describes why an organization is operating and thus provides a
framework within which strategies are formulated. It describes what the organization
does (i.e., present capabilities), who all it serves (i.e., stakeholders) and what makes an
organization unique (i.e., reason for existence). A mission statement differentiates an
organization from others by explaining its broad scope of activities, its products, and
technologies it uses to achieve its goals and objectives. It talks about an organization’s
present (i.e., “about where we are”). For instance, Microsoft’s mission is to help people
and businesses throughout the world to realize their full potential. Wal-Mart’s mission is
“To give ordinary folk the chance to buy the same thing as rich people.” Mission
statements always exist at top level of an organization, but may also be made for various
organizational levels. Chief executive plays a significant role in formulation of mission
statement. Once the mission statement is formulated, it serves the organization in long
run, but it may become ambiguous with organizational growth and innovations. In today’s
dynamic and competitive environment, mission may need to be redefined. However, care
must be taken that the redefined mission statement should have original
fundamentals/components. Mission statement has three main components-a statement
of mission or vision of the company, a statement of the core values that shape the acts
and behaviour of the employees, and a statement of the goals and objectives.

Features of a Mission

1. Mission must be feasible and attainable. It should be possible to achieve it.


2. Mission should be clear enough so that any action can be taken.
3. It should be inspiring for the management, staff and society at large.
4. It should be precise enough, i.e., it should be neither too broad nor too narrow.
5. It should be unique and distinctive to leave an impact in everyone’s mind.
6. It should be analytical,i.e., it should analyze the key components of the strategy.
7. It should be credible, i.e., all stakeholders should be able to believe it.

3. Vision
A vision statement identifies where the organization wants or intends to be in future or
where it should be to best meet the needs of the stakeholders. It describes dreams and
aspirations for future. For instance, Microsoft’s vision is “to empower people through
great software, any time, any place, or any device.” Wal-Mart’s vision is to become
worldwide leader in retailing.

A vision is the potential to view things ahead of themselves. It answers the question
“where we want to be”. It gives us a reminder about what we attempt to develop. A vision
statement is for the organization and it’s members, unlike the mission statement which is
for the customers/clients. It contributes in effective decision making as well as effective
business planning. It incorporates a shared understanding about the nature and aim of
the organization and utilizes this understanding to direct and guide the organization
towards a better purpose. It describes that on achieving the mission, how the
organizational future would appear to be.

An effective vision statement must have following features-

0. It must be unambiguous.
1. It must be clear.
2. It must harmonize with organization’s culture and values.
3. The dreams and aspirations must be rational/realistic.
4. Vision statements should be shorter so that they are easier to memorize.

In order to realize the vision, it must be deeply instilled in the organization, being owned
and shared by everyone involved in the organization.
4. Goals and Objectives
A goal is a desired future state or objective that an organization tries to achieve. Goals
specify in particular what must be done if an organization is to attain mission or vision.
Goals make mission more prominent and concrete. They co-ordinate and integrate
various functional and departmental areas in an organization. Well made goals have
following features-

0. These are precise and measurable.


1. These look after critical and significant issues.
2. These are realistic and challenging.
3. These must be achieved within a specific time frame.
4. These include both financial as well as non-financial components.

Objectives are defined as goals that organization wants to achieve over a period of time.
These are the foundation of planning. Policies are developed in an organization so as to
achieve these objectives. Formulation of objectives is the task of top level management.
Effective objectives have following features-

5. These are not single for an organization, but multiple.


6. Objectives should be both short-term as well as long-term.
7. Objectives must respond and react to changes in environment, i.e., they must
be flexible.
8. These must be feasible, realistic and operational.

Strategic Quality Planning (SQP)

Strategic quality planning (SQP) is a systematic approach to defining long-term business goals,
including goals to improve quality and the means (i.e., the plans) to achieve them. Many
organizations have created a vision “to be the best,” toward a goal of outperforming
competitors. Many of these organizations fall short in achieving this vision. Most do not align,
or have difficulty aligning, their performance excellence initiatives like lean and Six Sigma to the
annual business plan. This leads to lack of resources to complete projects, which in turn makes
them hard to justify.

To achieve a vision it is necessary to align the annual goals to your major change initiatives or
quality programs and integrate them into the strategic plan. This will ensure the new focus
becomes part of the plan and sustainable. Japanese quality leaders refer to this process
as hoshin kanri or “policy deployment. Ho, shin, kan, and ri are actually four words that loosely
translate to “focus, direction, alignment, and reason.”
Focus by creating goals that provide direction and alignment of the resources needed from the
organization to meet those goals and the reasons for selection them. The reasons force
management to understand why it is selecting these goals.

The potential benefits of strategic quality planning and deployment include:

 Clarification of goals
 Achievability of goals
 Scheduled reduction of chronic wastes and improved quality of products and services
 Better or new focus on customers

Strategic planning is the systematic process by which an organization defines its long-term
goals with respect to quality and customers, and integrates them into a cohesive business plan.
It enables an organization to execute organizational breakthroughs to achieve a competitive
advantage and quality leadership. The approach to providing organization wide financial goals
has evolved into a more robust strategic plan, incorporating these goals into a hierarchy that
includes the voice of the customer. A structured methodology must include a provision of
rewards, universal participation, a common language, and training.

Launching a strategic plan

Creating a strategic plan requires that leaders be personally involved, eliminating the
atmosphere of blame, and making decisions on the best available data. The strategic
deployment process requires incorporating the customer focus. The elements needed are
generally alike for all organizations. The ones in most widespread use tend to be:
• Mission
• Vision
• Values
• Policy
The mission is the reason for the organization’s existence. The vision is the desired future state
of the organization. Values are what the organization stands for, and they tie into strategies,
which are the means to achieve the vision. Policies represent a guide to managerial action,
guiding day-to-day decision-making. And finally, the deployment plan is what turns vision into
action.

Developing the plan

Strategic deployment begins with a customer-focused vision, which should define the benefits
that can be expected. Good vision statements should be compelling and shared throughout the
organization. But vision statements are only words—a reminder of what the organization is
pursuing, which must be carried out through actions. When forming a vision, it’s important not
to focus exclusively on shareholders, to properly explain the vision to everyone involved, and
not to create a vision too easy or difficult to achieve. A mission is often confused with a vision,
but a mission statement should clarify an organization’s purpose. Together, a vision and mission
provide an agreed-upon direction, which can be used as a basis for decision-making. To convert
the vision into an achievable plan, it must be broken into key strategies. Responsibility for them
must be distributed to key executives.
To determine what the strategies should be, five areas must be assessed:

 Customer loyalty and satisfaction


 Costs related to poor quality of products or processes
 Organization’s culture
 Business processes
 Competitive benchmarking

Each of these areas can form the basis for a balanced business scorecard. The key strategies can
be modified to reflect long-term goals. An organization must set specific strategic goals that
must be achieved for the broad strategy to be a success.
Seven areas must be addressed to ensure that the proper goals are established:

 Product performance
 Competitive performance
 Business improvement
 Cost of poor quality
 Performance of business processes
 Customer satisfaction
 Customer loyalty and retention

Goals that affect product salability and revenue generation should be based primarily on
meeting or exceeding marketplace quality. A widely used basis for setting goals has been
historical performance.
Corporate values reflect an organization’s culture. Some organizations create value statements
to further define themselves. Values are what an organization stands for, and must be
supported with actions from management lest their publication create cynicism. Policy
declarations are a necessity during a period of major change. Most declare the intention to
meet the needs of customers, and include language relative to competitiveness in quality. Some
include specific reference to internal customers, or indicate that the improvement should
extend to all phases of the business. Enforcement of new policies is a problem due to the
relative newness of documented quality policies. Sometimes, an audit process is mandated to
ensure the policy is carried out.
A fundamental step in establishing any strategic plan is the participation of upper
management. The executives are responsible for ensuring all business units have a similar
council at the subordinate levels of the organization. If a council is not in place, the organization
should create one. Once the strategic goals have been agreed upon, they must be subdivided
and communicated to lower levels. Those who are assigned responsibility must determine the
needed resources and communicate this to higher levels. The deployment process starts by
identifying the needs of the organization.

Measuring progress
There are several reasons why an organized approach to measuring performance is necessary:

 Performance measures indicate the degree of accomplishment of objectives


 Performance measures are needed to monitor the improvement process
 Performance measures are required for periodic reviews by management

Once goals have been broken down into sub-goals, key measures need to be established. The
best measures of the strategic planning process are simple, quantitative, and graphic. As goals
are set and deployed, the means to achieve them must be analyzed to ensure they satisfy the
objective they support. Once the system is in place, it must be reviewed periodically to ensure
that goals are being met. A formal, efficient review process will increase the probability of
reaching the goals. The review process looks at gaps between what has been achieved and the
target. Frequent measurements of progress displayed in graphic form help identify the gaps in
need of attention. Success in closing those gaps depends on a formal feedback loop with clear
responsibility and authority for acting on those differences. Pursuing too many objectives at the
same time will dilute the results. Trying to plan without adequate data can create an
unachievable plan. If leaders delegate too much, there will be a lack of direction. The biggest
disruption caused by strategic planning is created by imposing a structured approach on those
who prefer not to have it. Resistance will be evident at the outset. Therefore, the most
important prerequisite is the creation of an environment conducive to change.
Change management and employee involvement should be embedded into the five stages of
strategic planning for ISO 9000 initiatives. First, a SWOT (strengths, weaknesses, opportunities,
threats) analysis helps to create an effective quality system. Strengths and weaknesses within
the business can be analyzed by internal audits and corrective and preventive actions. External
opportunities and threats are analyzed by tools like contract reviews and corrective action.
These analyses should include an examination of visible and invisible products, the latter being
knowledge and information. Second, mission and vision are developed using tools like
benchmarking. The company’s principles and values will be described in its quality policy. Third,
there should be a gap analysis of products, processes, skills, suppliers, and technology. These
are related to ISO 9000 elements such as design control, inspection and test results,
requirements training, supplier evaluation, and process control. Fourth, operational objectives
must be established. They should emphasize skills, suppliers, and technology. Development of
these objectives should involve an analysis of the manageable size of business units. Fifth,
implementation and monitoring can be successful if employees were involved in the
development of the previous four stages. Other keys to implementation and monitoring are
measurement ownership, corrective action reporting , and internal audits results