Table of Contents

I. Introduction

Company Profile

Industry Overview

II. Business Strategy

Factors influencing Organizational Structure

III. Organizational Structure of the company

I. Introduction

Company Profile

Wal-Mart Stores, Inc. was first established and founded by Sam Walton at

Rogers, Arkansas in 1962. The business growth of the retail store was momentous

that within a span of seventeen years in operation, Wal-Mart had already topped

annual sales at one billion US dollars. By the end of January in 2002, Wal-Mart has

been recognized as the largest retailer in the world a sales record of US $218 billion.

With this huge and continuous development, the retail store was eventually able to

operate at the global level. The global operation of Wal-Mart was marked by the

establishment of its first international store in 1991 at Mexico City (Govindarajan &

Gupta, 2001).

Through its international reach, an estimate of one hundred million customers

are said to visit a Wal-Mart store found somewhere in the world. A total of 1.3 million

associates worldwide are employed by the company and are distributed within its

3,200 stores in the United States as well at over a thousand other stores in Canada,

Brazil, Mexico, Argentina, Puerto Rico, China, Germany, Korea and in the United

Kingdom (Govindarajan & Gupta, 2001).

Vision and Mission

According to Kim Ellis, Public Relations Coordinator of Wal-Mart, the

company’s lack of a formal vision is attributable to its belief that the interest of their

customers are focused on the business’ other aspects. The company is then more

concentrated on meeting their consumers’ basic necessities. Nonetheless, if a formal

mission statement is made for the company to uphold, Ellis stated that it will probably

be “To provide quality products at an everyday low price and with extended customer

service…always” (Shah & Phipps, 2002).

Products and Services

As a retail company, Wal-Mart offers a wide array of products to the

consumers. These include groceries, toys, apparel for women, men and children,

jewellery as well as other hard goods; all sold at reasonable and generally affordable

prices. The services of the company on the other hand, are centered on the operation

of multiple retail stores both in the United States and international branches.

The business is actually divided into three main segments (see the table1

below): Wal-Mart Stores, Sam’s Club and International Stores. The Wal-Mart stores

are further subdivided into Discount Stores, Supercenters and Neighborhood Markets.

Sam’s Club on the other hand, is a business segment that consists of membership

warehouse clubs. Wal-Mart Stores operates about 1,478 Discount Stores, 1,471

Supercenters, 538 Sam’s Club and 64 Neighborhood Markets within the United States

as of January 31, 2004 (New York Stock Exchange, 2005). In addition to this huge

local operation, Wal-Mart and its international segment conducts retail operation

within eight countries and Puerto Rico. Wal-Mart’s international segment is made into

several formats, which include retail stores, restaurants, discount stores, Sam’s Club

and Supercenters. Aside from these operations, Wal-Mart also owns a 37.8%

unconsolidated minority interest in one of Japan’s retailers, The Seiyu, Ltd. (New

York Stock Exchange, 2005).

Table 1: WAL-MART SEGMENTS

SEGMENTS PRODUCTS

1. Wal-Mart Stores

segment

- Supercenters,

- Discount Stores,

- Neighborhood Market,

- Walmart.com

in United States

Groceries, toys, apparel for

women, men and children,

jewellery, accessories,

fabrics and sport

merchandise.

2. Sam’s Club segment - American warehouse

membership club

-samsclub.com

Sport goods, soft goods

and jewellery

3. International segment - Fully-owned subsidiaries

in Germany, UK,

Argentina, Puerto Rico,

Canada, South Korea,

Mexico, Brazil and China

All the above

Industry Overview

Retail is the second-largest industry in the United States both in number of

establishments and number of employees. The U.S. retail industry generates $3.8

trillion in retail sales annually ($4.2 trillion if food service sales are included),

approximately $11,993 per capita. The retail sector is also one of the largest

worldwide. Retail trade accounts for about 12.4 percent of all business establishments

in the United States. Single-store businesses account for over 95 percent of all U.S.

retailers, but generate less than 50 percent of all retail store sales. Gross margin

typically runs between 31 and 33 percent of sales for the industry but varies widely by

segment.

Wal-Mart is the largest grocery retailer in the United States, with an estimated

20% of the retail grocery and consumables business, as well as the largest toy seller in

the U.S. Also, again tops the list of the Top 100 retailers worldwide, a position it has

held since 1990 (see Table 2 bellow). “Steady growth, strong consumer appeal and

global aspirations indicate that Wal-Mart will remain atop the list for years to come,”

comments Kalish.

Table 2: Top 100 Retailers Worldwide

Economic Concentration of the Leading Companies based on 2001 Annual Sales

(in millions - U.S. Dollars)

Rank Retailer Home Country Sales

1 Wal-Mart Stores, Inc. USA $202,011

2 Carrefour Group France $62,216

3 The Home Depot, Inc. USA $53,553

4 The Kroger Co. USA $50,098

5 Royal Ahold Netherlands $48,239

6 Metro AG Germany $43,816

7 Target Corporation USA $39,176

8 Albertson's, Inc. USA $37,931

9 Sears, Roebuck and Co. USA $37,328

10 Kmart Corporation USA $36,151

  Total Top 10   $612,520

Source: Retail Forward,Inc.

In 2001, Fortune magazine named Wal-Mart the third most admired company

in America, and the Financial Times and PricewaterhouseCoopers ranked it as the

eighth most admired company in the world. The following year, Wal-Mart was named

number one on the Fortune 500 list and was presented with the Ron Brown Award for

Corporate Leadership, a presidential award that recognized companies for outstanding

achievement in employee and community relations. Also, it is the world's largest

public corporation by revenue, according to the 2008 Fortune Global 500.

The new Global Retail Concentration report from Planet Retail

(www.planetretail.net) reveals that concentration levels in grocery, general

merchandise and drug retailing will continue to escalate over the coming years, with

world leader Wal-Mart showing little sign of relinquishing its grip on global

domination. As report author Bryan Roberts notes: “the main engine of growth for the

company remains its relentless expansion of its Supercenter format in the USA. It can

afford to rely on rapid and profitable organic growth in its home market in the

medium term, but is also strengthening a portfolio of global activities to sustain it in

the longer term.”

Wal-Mart and its five largest rivals are set to see their global market share

increase to nearly 20% in 2008 up from 15.4% in 2003. This forecast does not factor

in acquisitions and new market entries - suggesting that concentration will actually be

higher than forecast - as evidenced by Carrefour’s recently-announced acquisitions in

Turkey. This concentration process will impact not just on consumers and retailers,

but also manufacturers, who will have to contend with stronger retailer buying power

as well as issues such as international promotional activity (see appendix I, Table 1).

Looking at a broader selection of retailers - the Global Top 15 - indicates that the 15

largest retailers in the world will see their market share advance to 31% by 2008 from

25% in 2003as well as increasing their regional concentration (see appendix I, Table

2).

II. Business Strategy

How an organization is going to position itself in the market in terms of its

product is considered its strategy. A company may decide to be always the first on the

market with the newest and best product (differentiation strategy), or it may decide

that it will produce a product already on the market more efficiently and more cost

effectively (cost-leadership strategy). Each of these strategies requires a structure that

helps the organization reach its objectives. In other words, the structure must fit the

strategy.

The key features of Wal-Mart's approach to implementing the strategy put

together by Sam Walton emphasizes building solid working relationships with both

suppliers and employees, being aware and taking notice of the most intricate details in

store layouts and merchandising techniques, capitalizing on every cost saving

opportunity, and creating a high performance spirit. This strategic formula is used to

provide customers access to quality goods, to make these goods available when and

where customers want them, to develop a cost structure that enables competitive

pricing, and to build and maintain a reputation for absolute trustworthiness (Stalk,

Evan, & Shulman, 1992).

Wal-Mart's success is mainly based on its concentration of a single-business

strategy. This strategy has achieved enviable success over the last three decades

without relying upon diversification to sustain its growth and competitive advantages.

Given its current position in the industry, Wal-Mart may want to continue its single-

business strategy and to push hard to maintain and increase market share. However,

there is risk in this strategy, because concentration on a single-business strategy is

similar to "putting all of a firm's eggs in one industry basket" (Thompson &

Strickland, 1995, p. 187). In other words, if the retail industry stagnates due to an

economic downturn, Wal-Mart might have difficulty achieving past profit

performance.

Factors influencing Organizational Structure

There are three major factors that affect a company's organization structure;

The Organization's Environment, Organization's Technology and Human Resources

and size. (George & Jones, 2005) There are 5 different types of organization

structures, Simple, functional, divisional, matrix and conglomerate. (George & Jones,

2005)

Organizational size

As an organization grows, they are likely however; it becomes

increasingly difficult to manage without more formal work assignments and some

delegation of authority. Therefore, large organizations develop formal structures.

Tasks are highly specialized, and detailed rules and guidelines dictate work

procedures (Robbins, 1990). Interorganizational communication flows primarily

from superior to subordinate, and hierarchical relationships serve as the

foundation for authority, responsibility, and control. With functional structures,

such growth creates pressure for a change to divisional structure(Astley, 1985).

The type of structure that develops will be one that provides the organization with

the ability to operate effectively. That's one reason larger organizations are often

mechanistic—mechanistic systems are usually designed to maximize

specialization and improve efficiency.

Environment

The environment is the world in which the organization operates, and

includes conditions that influence the organization such as economic, social-

cultural, legal-political, technological, and natural environment conditions.

Environments are often described as either stable or dynamic. According to Burns

and Stalker (1961) the firms had different structural characteristics, depending on

whether they operated in a stable environment with relatively little change over

time or unstable environment with rapid change and uncertainty.

In general, organizations that operate in stable external environments find

mechanistic structures to be advantageous. This system provides a level of

efficiency that enhances the long-term performances of organizations that enjoy

relatively stable operating environments. In contrast, organizations that operate in

volatile and frequently changing environments are more likely to find that an

organic structure provides the greatest benefits. This structure allows the

organization to respond to environment change more proactively (Burns and

Stalker, 1961).

Technology

Advances in technology are the most frequent cause of change in

organizations since they generally result in greater efficiency and lower costs for

the firm. Technology is the way tasks are accomplished using tools, equipment,

techniques, and human know-how.

In the early 1960s, Joan Woodward found that the right combination of

structure and technology were critical to organizational success. She conducted a

study of technology and structure in more than 100 English manufacturing firms,

which she classified into three categories of core-manufacturing technology:

Small-batch production: A print shop is an example of a business that

uses small-batch production.

Mass production: A company that bottles soda pop is an example of an

organization that utilizes mass production.

Continuous-process production: Examples are automated chemical

plants and oil refineries.

Woodward discovered that small-batch and continuous processes had more

flexible structures, and the best mass-production operations were more rigid

structures.

Once again, organizational design depends on the type of business. The

small-batch and continuous processes work well in organic structures and mass

production operations work best in mechanistic structures.

Culture and Structure

Culture is probably felt more through its definition of roles than in any other

way. It’s the culture that defines how people conceive of the reasons and routes for

their actions. Leaders are mainly under the hold of organizational culture when know

that, although they may do many things, usurping the decision making authority of the

membership is fundamentally wrong. Similarly, staff recognition of when and when

not to act often follows from an understanding of an unwritten “organizing model,”

another facet of the organization’s culture. Overall, it’s the culture that specifies

appropriate and inappropriate behaviour—reinforced by structural contingencies

(rewards and punishments)—for members, leaders, staff, and even consultants.

A number of organizations, such as Wal-Mart, McDonalds and Hewlett-

Packard attribute their success partly to distinctive cultures that are rooted in values

articulated by strong founders and reinforced by subsequent top executives (Huse and

Cummings, 1985)

The need for developing a “knowledge culture” is obvious for most

organizations. With the continuing globalization of the economy, organizations are

facing increasing pressure to effectively manage their intellectual capital.

Organizations that attempt to introduce a knowledge management initiative without

having a managerial support structure will soon find that the investment in knowledge

management does not produce any perceived benefits (Goh, 2003;Nahm et al., 2004).

Gold et al. (2001) state that organizational structure is an important factor in

leveraging technology and more specifically that organizational structures must be

flexible to encourage sharing of knowledge and collaboration across traditional

organizational boundaries to promote knowledge creation.

Achieving a “knowledge culture” requires managerial focus in three areas:

preparing the organization, managing knowledge assets, and leveraging knowledge

for competitive advantage (Abell and Oxbrow, 1997). Preparing the organization is

the first step in developing a “knowledge culture” and often involves changing the

culture of the organization, changing the way employees work and interact.

Organizational culture shifts are difficult to accomplish (Roth, 2004). Smaller

organizations, 200 or fewer employees, and newer entrepreneurial organizations will

have an advantage in making the prescribed culture shift over larger and older

organizations that have a long history of corporate culture and a more rigid

managerial structure (Becerra-Fernandez et al., 2004).

III. Organizational structure

Research shows that organizational structure and the controls that are part of it

affect firm performance (Burns and Stalker, 1961). In particular, when the firm’s

strategy isn’t matched with the most appropriate structure and controls, performance

declines (Bower, 2003).

Organizational structure specifies the firm’s formal reporting relationships,

procedures, controls, and authority and decision-making processes (Keats and

O’Neill, 1995). Developing an organizational structure that effectively supports the

firm’s strategy is difficult (Leavitt, 2003), especially because of the uncertainty (or

unpredictable variation (Priem et al, 2002) about cause-effect relationships in the

global economy’s rapidly changing and dynamic competitive environments

(Day,2003). When a structure’s elements (e.g procedures, reporting relationships) are

properly aligned with one another, that structure facilitates effective implementation

of the firm’s strategies (Barth,2003). Thus, organizational structure is a critical

component of effective strategy implementation processes (Barkema et al, 2002).

Divisional Structures: Product, Market and Geographic

Wal-Marts organizational structure consists of a divisional structure. A

divisional structure has three different categories in which are product structure,

market structure, and geographic structure. Wal-Mart falls under market structure (see

Appendix II, Figure 1). This is where groups function by types of customers so that

each division contains the functions it needs to service a specific segment of the

market (Bartol and Martin, 1998). The divisional structure has many advantages as

well as some disadvantages (Bartol and Martin, 1998) as explained below.

Advantages of a Divisional Structure

Coordination Advantages

1. Quality products and customer service - Functions are able to focus their

activities on a specific kind of good, service, or customer. This narrow focus

helps a division to create high-quality products and provide high-quality

customer service.

2. Facilitates communication - between functions improve decision making,

thereby increasing performance.

3. Customized management and problem solving - A geographic structure puts

managers closer to the scene of operations than are managers at central

headquarters. Regional managers are well positioned to be responsive to local

situations such as the needs of regional customers and to fluctuations in

resources. Thus regional divisions are often able to find solutions to region-

specific problems and to use available resources more effectively than are

managers at corporate headquarters.

4. Facilitates teamwork - People are sometimes able to pool their skills and

knowledge and brainstorm new ideas for products or improved customer

service.

5. Facilitates decision making - As divisions develop a common identity and

approach to solving problems, their cohesiveness in- creases, and the result is

improved decision making.

Motivation Advantages

1. Clear connection between performance and reward - A divisional structure

makes it relatively easy for organizations to evaluate and reward the

performance of individual divisions and their managers and to assign rewards

in a way that is closely linked to their performance. Corporate managers can

also evaluate one regional operation against another and thus share ideas

between regions and find ways to improve performance.

2. Customized service - regional managers and employees are close to their

customers and may develop personal relationships with them-relationships that

may give those managers and employees extra incentive to perform well.

3. Identification with division - employees' close identification with their

division can increase their commitment, loyalty, and job satisfaction.

Disadvantages of a Divisional Structure

1. High operating and managing costs - because each division has its own set of

functions, operating costs- the costs associated with managing an

organization-increase. The number of managers in an organization, for

example, increases, because each division has its own set of sales managers,

manufacturing managers, and so on. There is also a completely new level of

management, the corporate level, to pay for.

2. Poor communication between divisions - Divisional structures normally have

more managers and more levels of management than functional structures

have, communications problems can arise as various managers at various

levels in various divisions attempt to coordinate their activities.

3. Conflicts among divisions - divisions may start to compete for organizational

resources and may start to pursue divisional goals and objectives at the

expense of organizational ones.

Wal-Mart has chosen the appropriate structure in relation with the business

strategy that develops because, as it previously mentioned, when changes in the

strategy occur then changes in the structure should follow. Wal-Mart is a global retail

company which means that apart from the U.S market it develops in many other

countries and also taking into consideration the various products that offers the most

appropriate structure that should apply is the divisional and more specifically the

market structure.

            Wal-Mart is indeed one giant retail company whose position in the industry is

more or less assured. Nonetheless, there will always be internal and external factors

that would affect it and may result to business problems. However, by means of

optimizing the company’s available resources and considering its environment, it is

possible for the retailer to overcome its present as well as future issues. From this

analysis, it has been stressed that the success of the company is actually derived from

its low cost strategy and its divisional structure.

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APPENDIX I

Table 1: Global Market Shares: 2003-2008 (%)

Top 6 Market Share 2003 Top 6 Market Share 2008Wal-Mart 6.7Wal-Mart 8.6

Carrefour 2.4Carrefour 3.2Ahold 2.1Metro 2.7Metro 1.6Ahold 1.9Kroger 1.3Tesco 1.9Tesco 1.3Ito-Yokado 1.6Total Top 6 15.4Total Top 6 19.9Source: Planet Retail Ltd - www.planetretail.net

Table 2: Regional Concentration Forecasts: Market Share of Top Ten Retailers, 2003-2008 (%)

RegionMarket Share 2003

Top 3 2003Market Share 2008

Top 3 2008

Western Europe

41.5%Carrefour, Metro, Tesco

43.0%Carrefour, Metro, Tesco

Central/Eastern Europe

24.0%Metro, Tesco, Rewe

32.6%Metro, Tesco, Schwarz

North America 1

40.0%Wal-Mart, Kroger, Target

44.1%Wal-Mart, Kroger, Target

Latin America 22.8%Wal-Mart, Carrefour, Casino

27.6% Wal-Mart, Casino, Carrefour

Asia Pacific 16.5% Ito-Yokado, AEON, Woolworths

16.1%AEON, Ito-Yokado, Woolworths

Middle East & Africa

21.8% Shop Rite, Pick ‘n Pay, Massmart

27.0% Shoprite, Pick n’ Pay, Massmart

Source: Planet Retail Ltd - www.planetretail.net

APPENDIX II

Figure 1: Divisional Structure of Wal-Mart Company: Market structure

CEO

Eating Places

Miscellaneous General

MerchandiseStores

Grocery Products

Retail Variety

Products

Corporate Managers

Drug and Proprietary

Stores