Internal Risk Assessment

MGT/488

Al Funderburk

Internal Risk Assessment

Wal-Mart operates throughout the world in various segments including super centers, neighborhood markets, discount stores, and the Wal-Mart website. Wal-Mart was founded by Sam Walton in 1962 and the headquarters is in the United States. Wal-Mart operates in the retail industry and offers products at low prices through its discount super stores and neighborhood markets.  Wal-Mart’s net sales for the 2010 fiscal year were approximately $405 billion, a 1% increase from 2009 (Walmart Annual Report, 2010, p. 15). Wal-Mart also experienced 5.1% increase in operating profit from $22,798 million in 2009 to $23,950 million in 2010 (Walmart Annual Report, 2010, p. 15). Further, net profits increased from 7% from $13,400 million in 2009 to $14, 335 million in 2010 (Walmart Annual report, 2010, p. 30). Although the financial reports illustrate much strength for the company, weaknesses are prevalent within the corporation as well.

Walmart Stores, Inc.: Strengths and Weaknesses

            Wal-Mart has a reputation for providing convenience, low prices, and a variety of consumer goods. Wal-Mart has experienced tremendous growth because of this reputation and has expanded internationally. Therefore, Wal-Mart obviously possesses much strength.

Wal-Mart redefined discount retailing and outperformed the industry in profitability by 4.5 % of sales—a 200 % improvement. Four resources—store locations, brand recognition, employee loyalty, and sophisticated inbound logistics—allowed Wal-Mart to fulfill customer needs much better and more cost effectively than Kmart and other discount retailers (Pearce & Robinson, 2009, p. 173).

Wal-Mart has gained a competitive advantage in the market that will prove difficult for other businesses to overcome, especially during an economic downturn. Customers will continue to purchase goods offered at low prices while personal budgets are tight.

Although Wal-Mart possesses strengths, the company has weaknesses as well. Public opinion in some areas has expressed distain of Wal-Mart because of its ability to drive small businesses out of the market forcing closure for local retailers. Portland, Oregon, is known for its stance on Wal-Mart as the city has fought to keep the retailer from building additional stores. Currently, Wal-Mart has one store within the Portland’s city limits, and plans to build a second store have been turned down repeatedly. The mayor of Portland, Sam Adams, is recorded as saying, “this is a company that has my enmity. They treat their employees poorly and the communities they go into with total disdain" (Frank, 2009, para. 4).

Marketing Strengths and Weaknesses

            Wal-Mart’s primary objective is certainly obvious; low pricing. Wal-Mart’s purpose is simple, ““We save people money so they can live better” (Corporate, 2010, p. 1).Wal-Mart definitely has followed and achieved its purpose. Wal-Mart persistently has exhibited its ability to accomplish this objective and expanded the company to be the number one retailer in the world.

            Wal-Mart experiences the most difficulty in expanding into market areas. Many small towns throughout the United States deny Wal-Mart from penetrating the local market because of the economic affects Wal-Mart is known for. Many small businesses are forced to close because of the inability to compete with Wal-Mart’s pricing.

Human Resources Strengths and Weaknesses

            Wal-Mart has implemented training programs and encourages furthering education to empower employees. This employee incentive had helped lead Wal-Mart in becoming the largest employer in the United States. Wal-Mart employs training and education programs to help improve employee efficiency and effectiveness. In return, this helps Wal-Mart sustain competitive advantage by increasing nonsubstitutable capabilities in knowledge, expertise, and experience. Further, Wal-Mart prefers to employ from within which provides additional incentive for employees.

            Wal-Mart does experience an area of weakness in human resources. Recently Wal-Mart has experienced lawsuits that negatively affect employee relations. “After years of being embarrassed by lawsuits over its wage practices, the company agreed to settle 63 cases pending in federal and state courts in 42 states” (Greenhouse & Rosenbloom, 2008, para. 2). As a result of these settlements, Wal-Mart has agreed to “pay at least $352 million, and possibly far more, to settle lawsuits across the country claiming that it forced employees to work off the clock” (Greenhouse & Rosenbloom, 2008, para. 1). Therefore, Wal-Mart has earned a reputation “that the company achieves its low prices in part by cheating workers” (Greenhouse & Rosenbloom, 2008, para. 4). Wal-Mart’s weaknesses in human resources may cause employees to require increased compensation. In addition, skilled employees may choose to work for competitors, which can result in losing competitive advantage.

Management Strengths and Weaknesses

Supply chain management is one of Wal-Mart’s strengths and has proven to be cost effective. Wal-Mart maintains the ability to track products throughout the value chain using a well-organized inventory control system. Wal-Mart has the capability to track inventory from the manufacturer, through distribution channels, to store warehousing, on to the shelves, and even as the product is purchased and removed from inventory. This efficiency enables Wal-Mart to retain necessary inventory levels and recognize the products that sell from the products that do not. Further, Wal-Mart employs a practice called managing by walking around. According to Thompson, Gamble, & Strickland, 2006:

Wal-Mart executives have had a long-standing practice of spending two to three days every week visiting Wal-Mart’s stores and talking with store managers and employees. Sam Walton, Wal-Mart’s founder, insisted, “The key is to get out into the store and listen to what the associates have to say” (p. 340).

Although Wal-Mart possesses core values, the company lacks an official mission statement. As mentioned, the company does have a purpose to “save people money so they can live better” (Corporate, 2010, p. 1); however, the company fails to characterize the company to customers and employees. A mission statement is an essential characteristic for a company. The mission statement provides focus, guidance, and motivation to help lead the organization toward its goals.

            Wal-Mart illustrates additional weakness in management regarding women employees. In addition to lawsuits over wages, Wal-Mart has experienced lawsuits regarding sex-discrimination. “The suit alleges Wal-Mart created a system that frequently pays its female workers less than their male counterparts for comparable jobs and bypasses women for key promotions” (Associated Press, 2004, para. 3). Further, Wal-Mart does not employ many females in upper management positions. This apparent discrimination may create a negative image for Wal-Mart and female support may be lost.

Research and Development Strengths and Weaknesses

            Wal-Mart places high priority on research and development. Wal-Mart is continually looking for new innovations or technologies to aid in increasing business. For example, Wal-Mart is implementing a new system called the “Walmart Smart Network that provides shoppers with relevant and useful information via in-store TV” (Press Room, 2010, para. 1). Furthering technology and promoting innovation is of high priority for Wal-Mart, which has proven to be a strength for the company’s performance.

            Wal-Mart is deprived in research and development when opening new locations. Locations such as the yearling store in Cleveland, Ohio, are suffering financially because of poor research and development to meet consumer needs. “Wal-Mart aimed to revive sales …by returning items to shelves and revamping promotional displays. Those moves have not worked yet because of poor in-store execution and a lack of advertising to explain changes to customers” (Boyle, 2010, para. 2).

Finance Strengths and Weaknesses

            According to the Walmart 2010 Annual Report (2010), Wal-Mart reported net sales of $405, 214 million in 2010. This increase holds a positive affect for the company’s cash flow of $14.1 billion. Further, a definite strength for Wal-Mart is the company’s ratios. Virtually every ratio is greater than that of the industry.

            Wal-Mart does possess an unusual weakness however. Because Wal-Mart is such a large corporation, its own stores are competing for a share of the market. Therefore, sales suffer between individual stores such as Sam’s Club and Wal-Mart. Further, the current economic downturn has caused many shoppers to frequent the store less. A difficult economy and rising unemployment rate have created a negative affect for Wal-Mart’s financial growth. Wal-Mart also depends on the products made in China to support its low pricing. This reliance has caused Wal-Mart to become dependent on the weakening U.S. dollar. Wal-Mart purchases billions in inventory from China and therefore revenues are affected by a steadfast Yuan.

Organizational Dynamics: Influence upon Strategic Business Continuity

            Wal-Mart appears to have a capable organizational structure; although some flaws are prevalent that create challenges for the company. Offering the lowest prices and meeting customer needs is a goal Wal-Mart is successful in maintaining.  However, reducing costs has created a conflict within the organization’s culture. Cutting costs has helped meet customer needs but only at the apparent expense of the employees. The savings consumers receive are gained by cutting corners with employee compensation and benefit programs. Inadequate wages and forcing employees to work without pay, has affected employees negatively and poor customer service is a result. This practice has caused employees to lose respect for the company and that attitude has transpired to the customer. Forcing employees to work off the clock is unjust and detrimental to the company’s culture and consumer needs. These issues have created a negative image of Wal-Mart and a major reason the company experiences difficulty in penetrating new markets. Further, legal issues are viewed poorly by the public and reduce continuity.

Conclusion

Despite Wal-Mart’s legal issues and internal weaknesses, the company is still able to provide products at lower prices than most retail stores. The company’s purpose to “save people money so they can live better” (Corporate, 2010, p. 1), has proven successful and the company continues to be a world leader in retail. Although large payouts in settlements have damaged the company’s bottom line and reputation, Wal-Mart still posts increases in revenues each year. Therefore, the company’s strengths are still greater than the weaknesses resulting in rewards outweighing the risks.
                                                                  References

Associated Press. (June 22, 2004). Judge certifies Wal-Mart class action lawsuit. Retrieved October 18, 2010, from http://www.msnbc.msn.com/id/5269131/

Boyle, M. (October 12, 2010). Wal-Mart U.S. sales not bouncing back, Cleveland Research says.

Retrieved October 18, 2010, from, http://www.bloomberg.com/news/2010-10-12/wal-mart-u-s-same-store-sales-not-bouncing-back-cleveland-research-says.html

Frank, R. (2009). Oregon Business News. OregonLive.com. Retrieved October 18, 2010, from http://www.oregonlive.com/business/index.ssf/2009/12/wal-mart_will_build_second_por.html

Greenhouse, S. & Rosenbloom, S. (2008). Wal-Mart settles 63 lawsuits over wages. Retrieved October 18, 2010, from http://www.nytimes.com/2008/12/24/business/24walmart.html

Pearce, J. A. II, & Robinson, R. B. (2009). Strategic management: Formulation, implementation, and control (11th ed.). New York: McGraw-Hill.

Thompson, A. A., Gamble, J. E., & Strickland, A. J. (2006). Strategy: Winning in the marketplace: Core concepts, analytical tools, cases (2nd ed.). New York: McGraw-Hill.

Wal-Mart Stores, Inc.. (2010). Corporate. Retrieved October 18, 2010, from http://investors.walmartstores.com/phoenix.zhtml?c=112761&p=irol-faq

Wal-Mart Stores, Inc.. (2010). Press Room. Retrieved October 18, 2010, from http://walmartstores.com/pressroom/news/8566.aspx

Wal-Mart Stores, Inc.. (2010). Walmart 2010 Annual Report. Retrieved October 18, 2010 from http://walmartstores.com/sites/annualreport/2010/financials.aspx 

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