Considering New Ventures

In my post on acquisitions, I mentioned WalMart's recent tech company buying spree. I briefly noted the companies were placed into @WalmartLabs, a digital technology division. What i left out however, is this is a new-venture division in the company. Its purpose is tied to e-commerce. Online sales are increasing annually, and WalMart wants to be a big player in getting a piece of the action. The company already has online sales sites, and is continuously trying to improve them.

But, the company isn't just trying to drive sales to the site. The company is hoping to develop new, easier ways for customers to use Web 2.0 technology to purchase goods. Instead of just incorporating these tech pick ups into one of the established e-commerce divisions, the company wanted to create a new division that thinks like a start-up. The head of @WalmartLabs admitted, "We have to be innovative, we've got to experiment, we've got to try things out."

As evidence @Walmartlabs isn't just about WalMart, the division released an app called ShopyCat. The app allows you to monitor your Facebook friends' likes in an effort to help you with gift recommendations. The kicker: the results aren't just from WalMart, but include other top retailers (just not Amazon).

Organizational Structure

WalMart operates under a multidivisional structure. There are 13 divisions, and some are traditional functional areas while others represent geographic areas of retail operations. An interactive chart is available here. The chart breaks down the divisions of WalMart Stores and also breaks down each divisions (such as WalMart U.S.) into their subdivisions. I'll list the 13 divisions below for ease.

President/CEO - Mike Duke oversees the following divisions of WalMart Stores, Inc.

1. ASDA Stores (U.K. division)
2. Global e-Commerce (online sales division)
3. Finance
4. IT
5. Corporate Affairs (Public policy, brand management, etc.)
6. Legal & Secretary
7. Merchandise & Replenishment (Supply chain)
8. Global Customer Insights
9. Human Resources
10. Sourcing (Merchandise purchasing)
11. International
12. Sam's Club
13. US

Mergers and Acquisitions

WalMart is adamant about using mergers and acquisitions to increase its business. These two vehicles are often used when the company is entering foreign markets. However, I'd like to illustrate how the company is using acquisitions to strengthen its  core business and its online presence.

Walmart.com started as a joint venture between the company and a venture capital firm, Accel Partners. Now, the site is a wholly owned subsidiary of the WalMart via an acquisition.


The company is pushing to increase and improve its presence in social media as well as bolstering its online sales. The company has purchased several tech companies. The company purchased Kosmix, to gain better web analytic capabilities. Another pick-up, Grabble, specializes in point-of-service applications via mobile platforms. Smallsociety, purchased in January, develops iOS apps. Finally, WalMart also acquired OneRiot, a specialist in mobile and social advertising.

These companies have been assimilated into the retailer's digital technology division, @WalmartLabs.

Alliances and Cooperative Strategies

As mentioned in a previous post, WalMart is expanding into foreign markets. This post will cover the company's expansion into India. I'm looking at the Southeast Asian country due to WalMart's entry into that market. The company entered into a joint venture with Bharti Enterprises to create a company called Bharti WalMart Private Limited. The new entity will oversee a chain of wholesale stores (similar to Sam's Club in the U.S.). This represents an alliance centered on knowledge sharing and complementary resources. To illustrate, Bharti is a company with hands in telecommunications, retail, and insurance. The company's expertise is in serving Southeast Asian markets. After previous mishaps occurring when entering markets with a culture dissimilar to American, WalMart partnered with a company with extensive knowledge of Indian consumers and their culture. In return for this expertise, WalMart pledged to support the supply chain infrastructure planning for the joint venture - a subject the company is well-versed in.

International Strategies

WalMart is a transnational company, operating operating 55 brands in 15 countries. The company generally has used two strategies when entering new markets, both of which are forms of foreign direct investment. Initially, the company used greenfield investment, using the WalMart brand name and starting up a new subsidiary in the foreign market. This strategy was used in Mexico, Canada, and Germany. Alternately, the company acquires established retail chains in the foreign market. Examples include the purchasing of ASDA in the U.K., and more recently the planned purchase of Massmart in Africa. The company expects a large percentage of future growth to come from foreign markets.

Developing Corporate Strategy - Vertical and Horizontal Integration

WalMart is always willing to expand. The company practices vertical integration, in that it used to only be a retailer - a place where customers shop for consumer goods. But in 1991, the company expanded into offering consumer goods under its own private label brand, Sam's Choice. Today, the Sam's Choice brand of soft drinks is the third most popular brand in the United States. Also, the company has expanded its offerings in home entertainment. The company acquired Vudu in 2010. The online-streaming service allows users to purchase movies that can be viewed on almost any internet-capable device. The company also experiments with horizontal integration. Being good at retail, the company has sought entering the used car market. The company's use of synergy, such as selling its own products in its stores, is now a standard strategy for the company.

Crafting Business Strategy for Dynamic Contexts - Reconfigure the Value Chain

One of WalMart's most successful strategies has been changing the way it views the value chain. The company has tried to remove the middleman from every aspect of its business. I won't talk about the company's efforts of applying this compression to the  supply chain (this time!), but I will touch on another way it has applied a compression to the value chain. The company directly deals with its suppliers of products. The company has used this relationship to help keep its prices low in two ways. First, the company uses its clout as a major outlet for a company's products to "pressure" the company into operating efficiently. Second, the company sometimes makes adoption of new technologies,like RFID chips, a prerequisite for doing business. Again, WalMart's goal is to create a business strategy geared towards efficiency.

Strategic Positioning

Strategic positioning is a key component of a successful business strategy. WalMart's general strategy is to place itself as the low-cost leader when compared to competitors. The company applies this strategy in every business pursuit. To give an example, the company has partnered with TruConnect to offer a low-cost wifi alternative. The pre-paid service allows users unwilling, or unable, to purchase monthly data plans for mobile devices another alternative for obtaining mobile broadband.
This focused low-cost leadership is just the most recent example of WalMart's drive to expand into product and service markets. Other examples include entries into the soft drink industry (Sam's Choice colas), pet food market (Ol' Roy dog food), and perishables (Great Value brand). Each product's purpose is to offer a lower cost alternative to other brands in the same industry/market.

Wal-Mart's Macro and Industry Dynamics

Here is a quick look at the environment of the U.S. stores division of the company.

Macro environment factors

Political - The company is continuously in the media, usually in a negative light. This negativity has resulted in political pressure in communities Wal-Mart is trying to expand into. Although the recent scandal in Mexico is not related to the U.S. stores division, it's stories like these that generate negative connotations with the company. The end result is usually the company has to negotiate in some areas, in order to enter that location. Here's an article in Forbes about the subject.

 Socioeconomic - Varies from place to place, but is probably most adverse for the company in California. One socioeconomic factor that has been ongoing for the last ten years is equal rights in promotions and pay. The company is facing several lawsuits alleging discrimination based on sex. (more here)

Economic - According to recent reports, the economy is starting to improve, and this is helping Wal-Mart. Its stock is hovering around a 12 year high, and its first quarter earnings was around 10% more than last year's. (more)

Technological - Retail sales over the internet continue to rise annually. Companies are striving to get a piece of the action with their websites, social media use, and emailed advertisements. A new wrinkle in Wal-Mart's website is the addition of a "Pay with Cash"  feature, which allows users to place an order and then pay for it at a local store. This feature is being used to to alleviate fears of online shopping centered around identity theft from online payments.

Environmental - Wal-Mart has a whole initiative centered on helping the environment. Personally, I've seen the addition of efficient lighting, improved chemical cleanup methods, increased emphasis on recycling, and attempts at waste reduction.

Legal Factors - Take your pick from any of the previously listed factors. The company has probably faced a lawsuit regarding one of them in the last 10 years.Here's an environmental one from California.

Industry Environment
 The company is in the retail industry. The company sells groceries, electronics, apparel, and automotive parts among other things.

Strategic Group
Wal-Mart's closest rivals include Target, Dollar General, Family Dollar, etc.

Resources, Capabilities, and Activities

Today, I'll touch on some of the resources and capabilities Wal-mart uses to be successful.

Tangible Resources
Real Estate - The company owns all of its buildings, and most of the surrounding storefronts next to it. This is a departure from normal commercial practice, as most retailers lease. The company now purchases and develops its new locations, refurbishes old ones, and resells unused locations.(Read more here)

Intangible Resources
Experience -The company knows how manage a large retail chain. This is evidenced by its domination of the U.S. market. The company has tried to use its domestic strategy overseas, literally building new Wal-Marts. However, the company was not successful in early attempts at "forcing" the market to succumb to its style of doing business (more here). It learned from those mistakes, and has modified its strategy. Instead of trying to introduce the Wal-Mart brand when entering a foreign market, the company buys one of the largest players and then applies general proprietary strategies to the domestic retail chain. It's working so well, other U.S. retailers are attempting to repeat Wal-Mart's success when entering new markets. (more here)

Company Culture - One of the primary facets of the culture is to embrace change. In my orientation class, I was told "The one constant thing about Wal-Mart is change." This willingness to alter has allowed the company to adapt to changes in the external environment. Wal-Mart has lost market share over the last couple of years to companies like Dollar General and Family Dollar, which use small stores built for convenience shopping. Wal-Mart already operates Neighborhood Market stores, stores smaller than regular and supercenter ones, and has now created a smaller platform - Wal-Mart Express. This store is about one-tenth the size of a supercenter, and is being used to compete with the small discount retail chains. And apparently, the company is succeeding.

Capabilities
Logistics - Already touched on in a previous post.

Vision and Mission

WalMart's mission statement and its ad slogan are nearly identical. The mission statement is "Saving people money so they can live better". Or as the ad slogan goes, "Save money. Live better."

As for a vision, the company doesn't have one in writing. But at the annual shareholder's meeting, CEO Mike Duke did say there were 5 values guiding WalMart's future:

1. Integrity
2. Opportunity
3. Family and Community
4. Purpose
5. Responsibility

A better summation of these values and their importance can be found here.

Introducing Strategic Management

As the name of this post implies, I am going to be talking about introductory topics regarding Strategic Management, and applying them to the Fortune 500 company of choice. The three main themes according to the text (Strategic Management 2nd Ed., by Mason Carpenter and Wm. Sanders) that are important to understanding strategic management are:

1. Firms and industries are dynamic in nature.
2. To succeed, the formulation of a good strategy and its implementation should be inextricably connected.
3. Strategic leadership is essential if a firm is to both formulate and implement strategies that create value.

Going forward, I'll be looking at how WalMart implements its strategies to succeed in the retail sector. This will have relevance to me as I am currently working for them. I'm sure I'll touch on business vs. corporate strategy, as this is a major concern for investors in the company. WalMart's corporate strategy, of investing in foreign markets via acquisitions, is working well for the company. However, its business strategy for its U.S. stores division hasn't produced desired results in the last few years. But according to this article, things are turning around.

Almost everyone knows about the company's main competitive advantage - low product prices. In fact, their name for this strategy is EDLP ("Everyday Low Prices"). Not everyone knows the major determinants of this advantage.

Focusing internally, WalMart's largest contributor to low selling points is its logistics division. Some info on this can be gleamed here. I can attest to this as I work in the logistics division. One of the components the company is implementing is an e-commerce distribution network nestled in its regional distribution centers (DCs). Currently, a couple of warehouses handle the company's website orders. The orders are processed and shipments are sent to the regional DCs, where they are sorted and sent to trailers going to specific stores. This is assuming the customer chooses the "site-to-store" option. Any home shipments are sent via parcel services like UPS and Fed-Ex. The goal with the mini-version of an "eDC" nestled at regional centers is to significantly reduce delivery times to the customer. With a DC located within a few hundred miles of a customer, the hope is next day deliveries become the norm and not a premium service the customer has to pay extra for.

If successful, WalMart will continue to distance itself from the competition, continuing to position itself as a price leader in the retail sector. Advantage, check.....for now. If it works, other retailers are sure to follow. And, that leads us back to theme 1.