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Strategic Analysis Essay


Executive Summary

This paper provides a strategic analysis of Wal-Mart International. Wal-Mart international is one of the biggest retail chain stores in the world. The company has been growing from strength to strength and now boasts of global leadership among retail chains.

Strategic management implies long term planning and doing everything in an organization with a long-term picture or vision. As defined by Mitzberg et al (1998), strategic planning consists in making long or midterm decisions with the aim of delivering a competitive edge to an organization. Strategic planning is not possible without strategic analysis. Through application of strategic tools, one deploys mechanisms of understanding the organization and the environment within which it operates (Yergin & Stanislaw, 2002).

Analysis of the business environment is the primordial function of strategic management (Sadler & Craig, 2003). In this paper, Porters Five Forces and PESTEL model are employed towards understanding the market and the macro environment within which Wal-Mart Operates.

From the market analysis anchored on the five forces model, it is clear that competition is the biggest headache for Wal-Mart International. The company operates in an environment characterized by high competition. Due to stiff competition, it has had to withdraw from some international markets like South Korea and Germany.

The strategies employed by an organization can be based on models and plans or on internal capacity of the organization. Models notwithstanding, the resource based view of strategy holds that organizational resources are the most critical factor in determining a competitive edge (Wernerfelt, 1984). This implies that organizational competencies and capabilities matter a lot when it comes to defining a competitive edge. A SWOT analysis done on Wal-Mart reveals that it has many strengths and hence competencies.

The company has an international presence, a strong work force and employs modern information technology platforms to remain ahead of competition. In terms of revenue, the organization is one of the highest revenue earners in the world. In the last year alone, the organization had a 15.4 billion (US dollars) as net revenue. The SWOT matrix on Wal-Mart reveals that it has enough strengths as well as opportunities that put it is a strong competitive position. The opportunities further offer a huge potential for growth.

Based on identified characteristics of the organization and the business environment within which it operates, managers adopt given strategies. Tools like the BCG matrix, the GE matrix or the grand strategy matrix are helpful when identifying the kind of strategies to adopt for a company (Ulwick, 2000). The grand strategy matrix was used in identifying the kind of strategies Wal-Mart can employ going into the future.

On the grand strategies matrix, the organization falls in the high market growth and strong competitive position quadrant. This implies that the organization can adopt both market consolidation strategies and market growth strategies. The market consolidation strategies will help it keep and retain its traditional market while the growth strategies will enable it to tap into promising markets; especially the international market.

Choice of strategies is an important step; however, there should be policies and mechanism that support adopted strategies. Considering suggested strategies for Wal-Mart, this paper recommends that the management ensure internal consistency of strategies adopted.

Internal consistency ensures that the strategies are not in conflict and can thus be harmoniously implemented (Ulwick, 2000). Furthermore, there is need to ensure that the strategies are organizationally fit and an environmentally fit. Organizationally fit strategies are those that respond to organizational characteristics. Environmentally fit strategies are those that respond to business environment characteristics.

Introduction

This paper explores benefits and limitations to strategic management. To appraise the benefits of strategic management, this paper discusses in depth how the different aspects of strategic management are applied. To concretize the analysis of strategic management, the paper focuses on Wal-Mart International, which is one of the world’s most successful retail chains.

Wal-Mart International has grown steadily to have its presence felt all over the world. Wal-Mart has experienced phenomenal growth since inception due to embracing strategic management practices.

Most successful organizations make strategic planning central to their operations (Sanchez & Heene, 2004, p. 23). The main aim of working on a strategic plan or business plan is to identify ways and means through which an organization can guarantee good results, a competitive edge or a competitive advantage in the long term (Ulwick, 2000, p. 11).

A strategic process should be able to help a company or an organization to understand its current situation, identify a desirable future status and ways of ensuring it arrives at its desired status or end (Wernerfelt, 1984, p. 174). Wal-Mart already has a vision, mission and overriding objectives. This is critical because the strategic process begins by identifying or framing the desired future. The future of an organization is captured in its vision, mission and strategic objectives.

Analysis of Wal-Mart International’s Business Environment

The process of analyzing a business environment requires looking at different facets. To do a proper business analysis, one would have to employ such tools as SWOT analysis, Five Forces model by Porter, Global model or PESTEL, the BCG matrices, competitive profile and Value chain analysis, among others (Joyce & Woods, 2001, p.233).

These tools help in analysis of both the internal and external environment to establish how factors in either environment are affecting or are likely to affect the organization. From the internal environment, the strengths and weakness of the organization are identified for the purposes of defining how best to restructure the organization. From factors in the external environment, the key success factors for the company are adequately mapped out.

Porters’ Five Forces: Market Analysis

Porter’s five forces are helpful in understanding the market within which Wal-Mart operates. According to Porter, an organization or products performance is dependent on five distinct forces.

Threat of new entrants

Wal-Mart does not deal in much differentiated products. Therefore, the threat of new entrants is very high. Moreover, given the entrance and exit barriers in the retail industry, the threat of new entrants is present.

Threat of substitutes

Given the stores provide an array of products, the threat of substitutes is not a big issue in the retail chain industry. However, in individual products, some stores tend towards selling exclusive brands. This creates a challenge in terms of customers going for substitute brands in exclusive stores.

Supplier power

Considering supplier power in the retail industry, there are many suppliers thus minimizing supplier power. However, the fact that there are many institutions also targeting the produces gives suppliers relative power. For instance, in the grocery business, there are so many competing grocery stores. Despite suppliers being numerous as well, the competition for supplies among supermarkets and retail chains gives suppliers some relative power.

Buyer power

Buyers, in the retail business, have enormous power due to many retailers and a variety of substitutes. Consequently, it is the stockers like Wal-Mart that have to work on value addition and proper market propositions to attract customers.

Competitor Rivalry

Therefore, the greatest limit to Wal-Mart’s growth is likely to result from competition activity and customer perception of the competition rivalry. Wal-mart has quite a wide range of competition. The biggest competitors of Wal-Mart are a wide range of departmental stores especially in the US, Canada and Mexico. Moreover, there is quite a number of supermarket chains especially in Eastern parts of the United States.

Numerous smaller supermarkets in each locality provide substitute services as well. Examples of small stores that provide immense competition to Wal-Mart include Dollar stores and grocery stores especially in the US. In the foreign markets, Wal-Mart faces stiff competition from local firms. In Germany, the competition was so stiff that Wal-Mart had to withdraw from the German market in 2006. The same happened in South Korea, due to fierce competition, the company had to withdraw by selling its stores to a local firm.

PESTEL Analysis: Other success Factors in the Business Environment

Further, A PESTEL analysis can help in outline other factors likely to affect the performance of Wal-Mart.

Political Factors

In the US, Wal-Mart has had no problems due to political interests. There is no opposition to Wal-Mart’s foray into intentional markets (Fishman, 2006). However, changing political interests in different countries have to inform the company’s operations. The company has to be alive to political issues in each particular company and align its operations to host country policies.

Economic Factors

Wal-Mart thrives on free market systems in the countries in which it operates. Additionally, the fact that it enjoys huge economies of scale due its huge operations places it in an economically advantaged position.

Socio-Cultural Factors

The company through using proper strategies especially in the international market has been able to align itself to the social-cultural realities in its area of operation. For example, the company has registered relative success in China because of aligning its operations with the preferences of the locals. This is very critical because social perceptions matter a lot in determining organizational success.

Technological Factors

Wal-Mart is better placed than all other retail stores in the new markets having adopted IT in its logistical processes (Bianco, 2007). Therefore, using its economic advantage and awesome business strategy, Wal-Mart enters other international markets as is able to outwit competition in those markets; consequently, it became a dominant global player.

Environmental Factors

Wal-Mart is a company that is a live to green strategies. To appeal to customers that are eco-conscious, Wal-Mart strives to store green goods. Moreover, through investing in efficient technology, Wal-Mart has been able to reduce all forms of bad environmental impacts it may have resulting from its operations.

Legal Factors

Through having clean and properly tailored operations, Wal-Mart has been able to steer away from any legal issues in the recent past. The organization has a professional legal department that analyses and responds to legal challenges. The aim of having such a department is to ensure the company complies to legal requirements in area of operation.

An Analysis of the Company’s Resources, Capabilities and Distinctive Competencies

Wal- Mart’s Capital and Revenue Base

Wal-mart is one of the leading global retail chains. It has a formidable capital base and boasts of a well-established tradition that gives it an edge over competition. Given its wide capital base, Wal-Mart is also one of the biggest earners in the world. Forbes ranks it among the 20 biggest and most profitable organizations on planet earth. In the last financial year, Wal-Mart netted 15.4 billion US dollars as net revenues.

Despite registered gains, Wal-Mart can only continue extraordinary growth when it identifies and manages strengths, opportunities, weakness and threats creatively (Mintzberg et al, 1998, p. 100). To consolidate its market share while still growing, Wal-mart needs to capitalize on its strengths, tapping into opportunities in the market, addressing weaknesses and eliminating or minimizing threats. A SWOT analysis is an important tool towards understanding a business’ environment (Ireland et al, 2008, p. 45).

To help bring out Wal-Marts strengths, competencies and challenges, a SWOT analysis is informative.

Wal-Mart’s SWOT Matrix

Strengths
  • High sales (strong brand)
  • Large market
  • IT enabled logistical functions
  • Diverse (international) work force
  • Long tradition of operations (42 years)
  • Good pricing strategy
  • The biggest private employer
  • Largest public company by revenue
Weaknesses
  • Store format not appealing in other settings
  • Technology deployment issue
  • Human capital issues
  • Internationalization related challenges e.g. stiff competition from local firms
Opportunities
  • International markets
  • E-commerce
  • Large super store opportunities
Threats
  • Vigorous, focused competition
  • Price fluctuations

SWOT analysis on Wal-Mart based Yoffie (2005)

Extrapolation from SWOT Analysis

As shown in the SWOT analysis, Wal-Mart has quite a number of competencies. It is one of the largest retail store chains in the world. It has largely diversified by going into areas like grocery stores. It has an international presence and boasts of a huge employee base. A company’s growth is limited both by internal and external factors (Peteraf, 1993, p. 178).

Internal Factors/ Internal Environment

Based on the SWOT analysis, considering internal factors, the only limitation to Wal-Mart’s growth is challenge in managing a global conglomerate of sorts. Externally, social and cultural perceptions are likely to shape and limit Wal-Marts expansion. Wal-Mart employs very many people.

As it continues on the path of extraordinary growth, it means more people being employed to work in the branches and subsidiaries or joint ventures. Managing all the people and the multifaceted conglomerate will not be ease. In actual sense, unless the organization is fragmented such that given regions or lines become completely independent, managing the organization becomes a nightmare. Therefore, the extraordinary growth of Wal-Mart is likely to be checked by management complexities or challenges.

External Factors/ External Environment

On the external front, there is likely to grow a sort of disenchantment about Wal-Mart and its conglomerate size. For many individuals out there, although Wal-Mart is growing based on honest and best business practices, as it continues to whoop in billions in profits; inevitably, seeds of discontent will sprout among people of different nations.

Wal-Marts growth will be interpreted as the reason why small businesses can no longer develop or grow. A percentage of the world population does not like identifying with Mega things (Dess et al, 2009, p. 227).

Therefore, they will continue to seek small specialty brands rather than a mega brand that promises everything. For some people, small specialized is identical to personalized, caring and detailed thus more quality conscious (Sadler & Craig, 2003, p. 66). Such like sentiments are likely to make competition buoyant. Other people will just desert Wal-Mart in search of difference or something new. The products may not be new but given they buy from a new brand, the shopping experience is different.

Wal-Mart’s Options and possible Strategic Choices

There are a number of strategic tools that can be used in determining the strategic direction for a company. To discern the strategic direction for Wal-mart, the grand strategy matrix comes in handy.

Grand Strategy Matrix

Weak Competitive Position High Market Growth Strong Competitive Position
1

Product development

Market development

Market penetration

Horizontal/vertical integration

Liquidation/Divestiture

3

Product development

Market development

Backward and forward integration

Diversification

2

Diversification

Integration

Liquidation

Retrenchment

Divestiture

4

Diversification

Integration

Joint Ventures

Divestiture

Low Market Growth

Grand Strategy Matrix adopted from Joyce & Woods (2001).

Quadrants in the Grand Strategy Matrix

The grand strategy matrix above provides a number of possible strategic choices for an organization. The first quadrant applies to an organization that has a weak competitive position and a high market growth. Such a company has opportunities and thus efforts have to be geared towards penetrating the market. Market penetration can be achieved when products are developed, markets are activated and the organization diversifies its product portfolio.

The second quadrant signifies an organization that is not competitive and has no growth prospects. Such an organization does not offer much hope and it is only prudent to either diversify, seek out strategic alliances to breathe life into the company or to liquidate the company.

The third quadrant signifies an ideal company that is both strong competitively and in terms of market growth. Such a company utilizes the opportunities available for growth e.g. integration while at the same time trying to consolidate or lock in customers through concentric diversification.

The final quadrant signifies an organization that has a strong competitive position but low market growth. Such an organization needs use either rejuvenation strategies or market consolidation strategies. Rejuvenation or consolidation is possible through diversification, integration or through strategic alliances.

Wal-Mart’s Position in the Grand Strategy Matrix

Wal-Mart’s characteristics make more befitting the quadrant three strategies. As an organization, it has a very strong competitive position. The organization has a high growth rate and there are enough opportunities for growth in the international market. This means that with proper strategies, the organization can consolidate its market while increasing it at the same time.

Strategic Options/ Strategic Direction

Wal-mart already has a vision and mission that defines the organization’s aspirations and its purpose or key business functions. As an organization, it has a high market scope and a high low cost competence. The organization’s characteristics and the business environment should determine the kind of strategies that an organization adopts. In the case of Wal-Mart, by adopting multivariate strategy e.g. combining product differentiation, cost leadership and proper market segmentation, it can maintain its extraordinary growth.

The two grand strategies should be translated into business objectives that are further translated into operational objectives and strategies. Building and sustaining a competitive advantage is largely dependent on product characteristics, value for customer’s money and proper positioning and targeting of products.

In porter’s generic strategies, market segmentation looks at customer peculiarities and narrows concern to particular markets. Product differentiation and cost leadership as strategies are more diverse and broader in their scope. As Wal-mart’s characteristics show clearly, a good fusion of these generic strategies should enable it to continue growing in an extraordinary way (Bianco, 2007).

Wal-Mart is a strong brand developed over many years and supported by over 42 years experience as a major market player (Yoffie, 2005, p. 1). It has a high market share and due to expanded operations benefits immensely from economies of scale. Management, by riding on its huge market share and well-built brand resonance, can create more revenue streams under the same brand. The company is already doing this through creation of superstores with a variety of products on offer (Yoffie, 2005, p. 1).

There exists opportunities in the international market. However, in as much as the low pricing strategy has driven its growth in America, the company has to devise market segmentation strategies to enjoy opportunities abroad.

One weakness with Wal-Mart is its store formats (Yoffie, 2005, p. 2). It is getting stiff competition because while it is building super stores, competition is going for specialized store formats. Product differentiation comes in handy here so that as competition from specialized stores grows, Wal-Mart retains and grows its market share.

Wal-Mart needs to appreciate the growth potential in small stores like the ones it initially had; the stores it is replacing with super stores. Although having superstores has its own advantages, a fusion of superstores and small-specialized stores should guarantee continued extraordinary growth (Fishman, 2006).

Structures, Systems and Policies for Strategy Implementation

Policy on Internal Consistency in Strategies

In implementing strategies, their internal consistency thus plausibility and feasibility should guide the implementation process (Joyce & Woods, 2001, 113). Therefore, each strategy has to be adopted based on a clear strategic direction that the company wishes to adopt. If the strategic direction is not clear, there is danger of running conflicting strategies.

For instance, market consolidation tends to be in conflict with market expansion strategies. Wal-mart as a company with a strong competitive base and growth prospects has to do market consolidation while penetrating other markets and growing its market internationally. To be able to do this, strategy implementation has to be monitored and evaluated for the purposes of ensuring internal consistency in the strategies.

Strategies have to be broken into specific actions that deliver on strategic objectives. There has to be interrelation and consistence in the specific actions flowing from each adopted strategy. Each strategy should somehow have a bearing on other strategies i.e. they should mutually and intrinsically be complementary towards the same goals.

The intrinsic consistency of strategies translates into the internal consistency in the specific actions to be carried out during implementation. This inner consistency and plausibility gives a sequence or order in which the implementation is to be done.

Monitoring and Evaluation

Even as implementation is done, it is critical that monitoring and evaluation is instituted. The strategic process is not complete without strategic control (Dess et al, 2009, p. 234). Strategic control consists in putting in place long term measures that would ensure deviations are identified and corrected.

There are always changes in the environment. Therefore, in as much as one may have a great plan and strategies in place, the environmental changes require close monitoring. Monitoring helps identify ways of improving on strategy or correcting deviations from strategy (Yergin & Stanislaw, 2002). It is only through such a process that strategies are applied effectively.

There are about five elements of control i.e. there is the activity or item to be controlled, the performance indicator, the standard against which performance is compared, the corrective action to be taken in case of deviations and the individual who is to take the corrective action (Morden, 2004, p. 165). All these elements have to be identified during strategic planning and proper directions given with respect to each of them (Morden, 2004, p. 165).

Organizational Structure

An organizational structure is a critical component that determines operations and power spread in an organization. For an organization to achieve its objectives, the organization structure has to be one that allows or facilitates the same. The organizational structure shows how power is shared and balanced in an organization.

It forms the central channels of communication and gives the basic reporting structure or official communication channels followed in an organization. The way an organization is systematically designed, planned and arranged determines how effectively and efficiently operations are done in the organization.

Strategic control in a conglomerate like Wal-Mart is not easy. However, through standardization of procedures and operations, this can be achieved. To ensure proper monitoring and evaluation, Wal-Mart managers would have to consider setting up a special restructuring team. The restructuring/ strategy team would have to receive daily, weekly and monthly reports on implementation activities. Such a feedback mechanism handled by a special M & E team would ensure earlier identification of deviations and prompt corrections

Usefulness of Strategic Management Models for Company Analysis

This paper explored the benefits and limitations of strategic management. For better appraisal of the strategic process, Wal-Mart International was used. From the discussions based on Wal-Mart, it is clear that strategic management helps guarantee an organization long-term result. Clearly, proper planning is critical and no organization succeeds without planning. However, environmental changes or not scanning the environment properly limits planning efforts. Due to poor environmental scanning, organizations come up with plans based on wrong data.

Environmental Scanning

To scan the environment is important however, the data generated is only useful if it is analyzed and properly employed in decision-making. Using models like the SWOT matrix, the strengths, weaknesses, opportunities and threats are easily identified from data collected.

Moreover, using models like PESTEL analysis, other factors that are important for the organizational success are identified. This helps towards crafting strategies that properly respond to the business environment and organizational characteristics. Using models like the Grand Strategy Matrix, the planners are able to easily identify the most viable kind of strategies to employ.

Strategic Analysis and Adoption of Proper strategies

As discussed, detailed planning cannot be accomplished unless one answers the question of “where to”. Therefore, in strategic management starts in deciding on the long term aspirations of an organization. The long-term aspirations are largely captured through an organization’s vision, mission and strategic objectives. Once the strategic objectives are clear, the organization then considers the necessary changes, steps, or plans that will enable the realization of the same (Kay, 2001, p. 113).

Such tactics or plans are widely known as strategies. Strategy implementation is only successful if the strategies have been selected rationally. The strategies have to complement organizational resources, respond accurately to the organizational environment and have internal consistency. Finally, it is clear that strategic management is not complete without the element of control.

Conclusion

In conclusion, every organization that adopts proper strategic management reaps awesome results in terms of market share growth and profitability. As the analysis on Wal-Mart has shown, strategic management makes all the difference. Through strategic management, an organization is able to curve out clear long term and midterm plans that deliver on set organizational objectives. To come up with desirable strategies or plans, the use of given strategic tools makes work easy and systematic.

References

Bianco, A., 2007. Wal-Mart: The Bully Of Bentonville: How The High Cost Of Everyday Low Prices Is Hurting America. Doubleday: New York

Dess. G., G., Lumpkin, G., T., & Eisner, A., 2009. Strategic Management: Creating Competitive Advantages. McGraw-Hill: London

Fishman, C., 2006. The Wal-Mart Effect: How The World’s Most Powerful Company Really Works– And How It’s Transforming The American Economy. Penguin: New York

Ireland, D., R., Hoskisson, R., E., & Hitt, E., M., 2008. Understanding Business Strategy: Concepts and Cases. Cengage Learning: London

Joyce, P., & Woods, A., 2001. Strategic Management: A Fresh Approach to Developing Skills, Knowledge and Creativity. Kogan Page Publishers: New York

Kay, J., 2003. Foundations of Corporate Success: How Business Strategies add Value. Oxford University Press, Oxford

Mintzberg, H., Ahlstrand, B., W., & Lampel, J., 1998. Strategy Safari: A Guided Tour through the Wilds of Strategic Management. Free Press: New York

Morden, T., 2004. Principles of Management 2nd Ed., Ashgate Publishing, Ltd: London

Peteraf, M., A., 1993. “The cornerstones of competitive advantage: a resource-based view”. Strategic Management Journal, 14(3), 179–191

Sadler, P., & Craig, J., C., 2003. Strategic Management. 2nd ed. Kogan Page Publishers: New York

Sanchez, R., & Heene, A., 2004. The New Strategic Management: Organizations, Competition and Competence. John Wiley & Sons: New York

Ulwick, A., W., 2000. Business Strategy Formulation: Theory, Process and the Intellectual Revolution. IAP Inc: Charlotte, NC

Wernerfelt, B., 1984. “A Resource-Based View of the Firm”. Strategic Management Journal, 5(3), 171–180

Yergin, D., & Stanislaw, J., 2002. The Commanding Heights, New York: Simon and Schuster

Yoffie, D., B., 2005. “Wal-Mart”. Harvard Business School, 9, 705- 460

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