Wal-Mart Stores’ Discount Operations Strategic Management The article, What is Strategy, by Michael E. Porter, defines strategy as the creation of a unique and valuable position, involving a set of unique activities that require trade-offs (sometime) and are consistent, mutually reinforcing and optimised in nature. The article differentiates Operational Effectiveness from Strategic Positioning by defining operational effectiveness as performing similar activities better than the rivals perform, and strategic positioning as performing different activities from rivals’ or performing similar activities in different ways.To the best of our understanding from the article and observations from the case, Creating Competitive Advantage, we find that the strategic positioning of Wal-Mart discount stores and later Sam’s, warehouse clubs, is based upon lowest price and it gets reflected very well from its punch line, “We sell for Less”. The positioning for the discount stores is, basically, a needs-based positioning while for Sam’s it is a combination of needs-based positioning and access-based positioning.To sustain its positioning Wal-Mart involves activities (many of them unique in nature), as given below.
Some of these activities involve a trade off but, remarkably, all of them are consistent with the strategic position, mutually reinforcing and optimized. Activities: 1. In starting, opened stores in rural Arkansas (population 5000 to 25000) against the conventional wisdom of a need of a population base of at least 100,000. Later Wal-Mart opened 30000 square feet stores for the population between 1000-5000. 2.Developed company owned warehouses and raised public money ($3. 3 MN) for the same through IPO.
3. Hard bargaining with the 3000 odd vendors to keep the costs low. 4. More freedom to the store managers (then competitors) to set the store prices depending upon the geographical location of the store and the market conditions prevailed. 5. Strong spoke and hub distribution system to keep the transportation costs low and an investment of $20 million to establish a satellite network for ease of communication between stores and distribution centres. .
No acceptance for credit cards in the stores to keep the cost low. 7. Passing of shrinkage to store employees to check the theft in the stores. 8. Tight-fisted salaries and wages 9. No frill administrative style 10. More emphasis for hard goods (than soft goods) to gain more sale per square feet and for that trades off gross margin (35% for soft goods & 29 % for hard goods).
11. Leasing of warehouse to trim the initial investment by $4 millions, emphasised soft goods and offered membership to all Wal-Mart stockholders.The above activities fulfil the criteria to be called strategic (as per the article). All of them are unique to a great extent, involves trade-off (see Activity 10), consistent with each other (see Activities 2 & 5 for very obvious examples) and the strategic positioning, self reinforcing and optimized. In other words, Michael E. Porter would very well consider Wal-Mart a, highly, strategic organisation.