Core Competencies In Business Sector: Wal-Mart
Wal-Mart, a global leader in the retail market arena, is a unique entity to pick in a discourse about Core Competencies as espoused by Prahalad and Hamel’s theory. Strategy formulation is a core ingredient in the success of a firm/ organization and Wal-Mart has proved to be a good example in its implementation. With the above, this entity provides a good example for discourse to find out if theory application is present or not, among other views.
This paper provides the unique market position and effects of a global retailing outlet, Wal-Mart. The company’s success has been widely acclaimed. This work provides an introduction of the retailer, along with the description of reasons for its selection as a preferred entity. The paper includes a comprehensive application of Prahalad and Hamel’s theory of core competencies in the discussion of Wal-Mart, in addition to a clear conception of the aforementioned approach. Thereafter, the paper provides a critical assessment of the inside-out approach among other strategies, a recommendation, conclusion and limitations.
Wal-Mart: marketing uniqueness
Wal-Mart Stores, Inc. is an American global retailing entity, whose global reach entails a myriad of huge interconnected warehousing and discount department outlets. Acclamations abound as to the great impact it has had, not only on the American economic arena, but also on the global arena at large. It is by far the leading private employer globally (estimates of over 2 million employees), the third largest conglomerate in the public sector, and the chief global retailer. Further adding to its uniqueness, is the fact that this entity is ‘family-owned’, the Walton family stake a claim of 48% of controlling shareholding.
Its headquarters are in Bentonville, Arkansas. It has been publicly traded in the NYSE (New York Stock Exchange) since 1972. Being the principal grocery retail store in the U.S., it generates quite an amount through grocery sales to the tune of over $100 billion. According to its 2009 report, total figures were close to $260 billion in sales in the U.S alone. Owning and thus operating the Sam’s Club retail depots is an added advantage, which has proved to be profitable over time (Ingram, 2010:56).
The ‘Core-competency’ approach; a positive outlook of Wal-Mart’s successful venture
The core-competency approach is rooted in the core analysis and outlook of an entity’s overall management and outlook/ forecast. As aforementioned, strategy (formulation and implementation), is a prerequisite to successful ventures. Long-term prospects entail the very backbone of strategy formulation, in terms of an entity’s objectives and goals. This is achievable through the process of core-competency based strategy formulation. Prerequisites, such as capital/ resources in terms of labor-force, monies and logistical capacity, entail an entity’s strategic value (Suhomlinova & Higgins, 2011: 56).
Through the utility of such competencies, an organization, business entity or corporation is able to explore and gain access to a wide range of available markets. This is possible because of its top management, executive team, thorough planning and implementation schedule, for both opportunities and challenges likely to impact on Wal-Mart’s future. Due to this planning, a business is able to retain its niche in the competitive business arena, through a variant of situations and environments (Prastacos, et.al, 2005:67).
Wal-Mart’s top management has maintained dynamism in its future prospects. Wal-Mart keeps expanding its foreign Markets showing that its leadership has a dynamic strategy that is varied from exploratory ventures, to settling on already existent business undertakings. The global retailer has portrayed an essence of brilliant strategy formulation and its implementation (Gulick, 2011:54).
In addition, Wal-Mart’s business as a retailer is shown through a strong and respected organizational culture that is rooted in customer satisfaction, at the low price strategy. Through this, Wal-Mart as an entity has been able to successfully fulfill its stakeholders/ interest parties various expectations, its variant of associates, stakeholders and partners notwithstanding. Interdisciplinary strategy formulation and implementation across all arenas, pertains to the same use of vocabulary, concerns and present tensions.
Another application of the theory is in key core competency of retail giant’s efficiency in logistics. From ‘low-cost’ suppliers to its warehousing facilities and its strategically positioned stores and centers, the global retailer is thus able to not only efficiently, but also effectively utilize its business resources. Its idea of ‘find all, shop more’ has enabled it to attract many customers. Its principle of always planning has in effect produced a very welcome domino effect. Moreover, its variety of nearly all consumer products, offered at the cheapest price possible all under the same roof, contributes vastly to the company’s success (Porter, 2008: 98).
Wal-Mart also has operated in environments with different political, religious, military, cultural and judicial spheres, which is a core competency. However, it managed to give the customers the services and products that they require (Bani-Hani & AL-Hawary, 2009:97). Here, the core-competency approach has been utilized where Wal-Mart has come up with a strategy that ensures it does well in different market segments. Its stores operate according to the needs of the customers in a particular region.
Wal-Mart has a skill set of new market creation. Wal-Mart is one of the few entities that have mastered the concept of new market creation. Its management has created an entity capable of infusing an array of products and services with irresistible aspects of functionality that responds to the needs of their customers. As a core competency, Wal-Mart has established over 8500 stores in 15 countries and 55 associated brand names that has enabled it position itself as a global entity.
From the start, as envisaged by Sam Walton, Wal-Mart has concentrated on a core competency of providing quality services and products, at the lowest prices possible. This aimed at initiating greater sales volumes at the lowest margin of profit. He was able to find and then build on a strong relationship with low-cost suppliers, who were willing to supply at costs relatively lower than the rest of existent suppliers (Ingram, 2010:55).
Another core competency is that Wal-Mart has a highly developed customer supplier relationship with a known business culture that customers identify with. The employees are committed to serving customers an all Wal-Mart stores. Thus, from the above, Core competencies in Wal-Mart entail strengths in possessionof stores distinguishable from other rival competing entities. This is the primary basis in the provision of added business value (Anon, 2012:24).
In Wal-Mart, another core competency involves the effective coordination of varied skills of production and incorporated variants of production technologies utilized. Thus, they can be viewed as the involvement of personal communication and strong commitment to functionality across boundaries of the organization. Wal-Mart stores have been developed in such a way that the customer does not worry about going to the market the next day and finding the store closed. Through continuous enhancement, there are crucial results in the development of a business or organization’s core competencies over time (Prahalad, 1990:79).
Another core competency is that Wal-Mart has executives who are highly qualified and strategize on the success of the stores in different market situations. Key to the above is the development of independent viewpoints about prospective future opportunities and thus advance preparations in terms of the creation of capabilities prerequisite for their exploitation (Gallon, 1995:25).
Neighborhood Market concept enabled Wal-Mart to surpass all other retailers in the business of retail groceries and consumables. It is essential to emphasize its ownership of over 6,200 facilities globally; these include 3,800 stores in America only, with 2,800 elsewhere. It is the employer to more than 1.6 million workers, whom it refers to as ‘associates’ globally. Key to its success is the concept of strategic placement. This is best exemplified in America, where the amount of Wal-Mart stores is substantial, since these stores are rarely over 60 miles from the nearest social setting or community (Godfrey, 2012:76).
In my view, the application of ‘the core competency theory’ has successfully been utilized in the case of the Wal-Mart. Thus, I am a proponent of the aforementioned application of theory.
Its continuous growth and profit-making streak, is proof of an existent success-story in its core strategy formulation and implementation team/ section. Despite the recent economic meltdown, the entity recorded superb profits, this being because of higher sales volumes. For instance, as grocery retail store in the U.S., it generates quite an amount through grocery sales to the tune of over $100 billion annually. According to 2009 New York Stock Exchange report, total figures were close to $260 billion in sales in the U.S alone. Strategy being long-term, is reflective of an entity’s objectives and goals, thus the retailer is proof of excellent strategy and management (Ingram, 2010:87).
The ‘inside-out approach’: a critical evaluation of its utility in strategy formulation
Wal-Mart has successfully utilized the inside-out approach in its business entities. First, Wal-Mart has used its culture that is one of its core competencies to run its business as an inside-out approach. The employees in Wal-Mart stores are efficient, professional, process oriented and hardworking. Sam Walton considers his employees as associates and treats them as partners. The employees translate this relationship when handling customers and help grow the business. Employees contribute their opinions on improving the company. Wal-Mart has also ensured the provision of excellent customer service, in addition to charities. All these are identified as Wal-Mart’s culture.
The second view on the inside-out approach in Wal-Mart can be seen through the application of Low Cost Operations. Wal-Mart has focused on small towns and lower overhead. As economic recession hits, customers can still go to Wal-Mart stores to make purchases. Therefore, the company generates huge sales volume but with a low profit margin, thus attracting more customers (Lee, 1999: 67).
Thirdly, Wal-Mart has opened up a global network of up to 146 distribution stores and is still looking to add more. This inside-out approach helps the company experience a trickle-down effect. The company’s tracks need not travel long distances to make deliveries. This reduces costs and the time that could be used in transportation, which is advantageous to the company.
Wal-Mart has also uses JIT and other technologies to make its business operations efficient, fast and reliable. Wal-Mart uses the technologies to maintain communication and relationship between the company, suppliers and customers. This has increased the company’s efficiency and made it a top retailer in the market.
The inside-out approach enables the company to consider socio-cultural and political factors as espoused in Wal-Mart’s variant of associates, labor-force, customers/ clients and regional outlets. It has been keen on identifying these factors and respond appropriately, in dealing with industry-level issues. The retailer has also been able to ensure that its various entities individually apportion their available resources in their quest for fulfilling each customer/ consumer’s needs
The inside-out approach, through low cost operations, has enabled Wal-Mart to provide unique services and products in the field of home/ family consumer-ship. This has enabled the entity cut a niche for itself fulfilling its various customers’ needs/ desires. Hand in hand with the above is functional-level strategy, which entails the day-to-day running of each of its individual composite entities. These are distinctively developed, as entailed in its marketing and accounting facets, in addition to its logistics, technology and human resource fields (Vargo, 2004, p17).
The inside-out approach entails the integration of a sequence of activities, which result in standardized products/ services, with appealing features at the lowest prices. Wal-Mart ensures that it rolls out products that are of high quality, yet at manageable prices as compared to its competitors. Here, the inside out approach is seen in the sense that decisions are made internally which affect the customer on the outside directly.
In comparison to the inside-out approach, Wal-Mart’ has also utilized theory/ approach called ‘Parenting theory’. This is applied the presence of the entity’s corporate center represented by its HQ in Arkansas, USA. From this focal point, its global business procedures are determined through value adding activities/ ventures that contribute to the easy, effective and efficient management of the global retailer (Gulick, 2011, p. 76). The entity’s future course is not only set through enterprise-level processes at the corporate center, but also advisory roles, policy issues and overall protection and security of the global retailer’s various outlets. Central services including capital and resource procurement, in addition to logistical issues, are fundamentally pertinent to Wal-Mart’s business success. In the contemporary arena, based on its growth rate, Wal-Mart may be considered a ‘cash-cow’ as pertaining to most of its well-known and lonng-functioning composite entities. Its supercenters and outlets are long established entities that prevail in the contemporary matured market; bring good returns (positive cash balances) with minimal reinvestment necessary.
The Porter Five Forces can also be applied on Wal-Mart. The first force is the competition between the rival companies. As clearly stated, Wal-Mart operates in various parts of the world where competition is high. For instance, in the French retail industry where Wal-Mart operates, competition is high and major acquisitions have occurred in the past few years. Wal-Mart faces competition from top retailers, such as Intermarche, Promodes and Carrefour, which operate in different countries just like Wal-Mart. Carrefour and Promodes are considered almost as global companies because of their market occupation. Wal-Mart has been able to beat this competition from its absolute cost advantage, distribution systems, brand name and its steady financial capital.
The second force is the threat of new entrants. In countries where Wal-Mart operates, the growth of retail industry has been steady. Factors, such as strong economies, stable government policies for foreign investment and highly developed infrastructure attract new entrants and established companies such as Sears, K-Mart and Target. Therefore, Wal-Mart has had to deal with this challenge.
The third force is the bargaining power of buyers. The individual buyer has little or no pressure on Wal-Mart. Certain customer advocate groups have laid complaints on Wal-Mart’s pricing techniques. A consumer might decide to shop at a competitor who offers comparable goods for comparable costs. However, Wal-Mart wades off this issue because of convenience and reliability.
The fourth force is the bargain power of suppliers that is low to medium. Wal-Mart holds much of the market share and offer business opportunities to manufacturers and wholesalers. This has given Wal-Mart a lot of power over suppliers. Wal-Mart deals with large suppliers, such as Coca-Cola and Proctor & Gamble that have more bargaining power than many small suppliers do. However, Wal-Mart controls the bargaining power of most of its suppliers.
The fifth force is the substitute products. These products have a low pressure. The retail market that Wal-Mart operates in does not have many substitutes that offer low pricing and convenience. Wal-Mart enjoys the absence of substitutes because it is difficult for customers to find retailers that match its convenience and pricing. Wal-Mart also has online shopping services that have no substitute as it offers customers with an opportunity to save on costs.
The cost leadership strategy entails weakening existing rivals through greater sales volumes. The cost leader is the only entity that can effectively compete not only in price settings but also through financial endowment, market placement and service placement. When new market entrants increase competition, price settings are utilized to force competition out. When substitutes pose threats, the presence of accrued large reserves enable the rapid entry into substitute industries. On the alternative, price fluctuations can be employed to bring back customers (Porter, 2008:54). Wal-Mart has actively applied this strategy in its stores. Wal-Mart offers quality goods at lower prices compared to its competitors. It also offers good quality products resulting in not allowing competitors to share Wal-Mart’s market. Instead, it attracts more and more customers (Swamidass, Darlow & Baines, 2001: 1289).
Having compared the approaches, the inside-out approach stands as the best approach in Wal-Mart’s case. The culture developed in Wal-Mart, low cost of operation, the use of JIT and other technologies, spreading of distribution stores, communications and highly skilled employees puts Wal-Mart ahead of other companies. These are the inside-out core competencies used by Wal-Mart and have helped it maintain a competitive edge on the market. The other outside-in approaches are not as efficient as the inside-out approach because they have loopholes that can be manipulated by Wal-Mart’s competitors. Besides, despite the fact that they are outside in, they still rely on aspects of inside-out approach.
Wal-Mart as per the above, maintains a ‘cost-leadership strategy as pertaining to the formulation of strategy. Through the inside-out approach, the entity has been successful in franchising foreign outlets, in supporting its logistics angle and in the procurement of products and services core to its success. Its strategy is based on upper-management roles in accordance with its Board of Directors and stakeholders wishes. Prahalad is able to work with them through the utility of the ‘core competency’ approach in evaluating the global entity.
The core competencies are very significant in the success of an organization as seen in Wal-Mart’s case. Wal-Mart used several core competencies including employing highly skilled staff, healthy supplier and customer relationship and low cost operations among others. These core competencies have enabled Wal-Mart maintain its position as a top class retailer in the market and remain on the competitive edge. The inside-out strategy is relevant in Wal-Mart’s case and can help it attract more customers and achieve greater success.
Wal-Mart is an international retailer that provides customers with quality goods that are sold at reasonable prices. However, Wal-Mart still has not managed to fulfil its full potential because of the available competition. Therefore, Wal-Mart is supposed to ensure that the strategies it applies in the different market segments are developed for those specific markets as opposed to others.
Secondly, Wal-Mart should continue using the inside-out approach and engage in actions such as further data collection and analysis. This will help in observing, inquiring, analyzing and producing a detailed report that will help change strategy where necessary.
The market changes constantly with new competitors coming in. Wal-Mart should include organizational adaptation as one of its core competencies in order to adjust to the changes and achieve success.
Wal-Mart experiences certain limitations, such as a lack of sufficient data/ information. This is seen in the inside-affairs of the company, as information it sources information from other sources not from the entity itself. Core business strategy and processes involved, is a treasured secret that is not often disclosed to the public (Johnson, 2009:40). Another form of limitation is the fact that Wal-Mart has to do many logistics with respect to the fact that its stores operate in different markets that require different strategies. As such, the company cannot apply the same strategy in every market segment, which means that it is costly not only in financial terms but also time, and personnel (Anon, 2012:30).
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