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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