My boy Maverick taught me that lesson yet again this weekend. Maverick is a wild child – a true feral wild horse. So all of this domesticated living is pretty different for him. But he’s a quick learner, and smart.  You have to be smart to survive in the wild.

This week I had the idea to put Mav in with Shadow, my gelding Morgan. They played in the arena together and had a blast, so I moved Pearl to another slot and let Mav and Shadow have the big paddock.

I was a bit worried that first night – you never know what two horses, especially those gelded later in life like both my boys, are going to do when you’re not around. I knew neither would kill each other, but I didn’t know if they’d fight or bond in the dark of night with no one to watch.

Here’s what I found the next morning. Don’t they look like bookends – Me and MiniMe!

But the mirroring goes far beyond this little nap in the sun.

Yesterday I went into the paddock and there was Shadow to greet me at the gate as always.  I rubbed his nose and turned to find Mav behind me, waiting for his turn.  That was the first time he’s let me rub him without backing away a bit. He watched Shadow and learned it was an okay thing.

I put a halter on Shadow and started to brush him while Mav looked on. I turned and brushed Mav standing free in the paddock – he didn’t move and let me brush him all over. Then he followed me over and I got his halter and put it on without a flinch.

I put a saddle pad and saddle on Shadow. Mav watched on, intent on what was happening. I turned to do the same with Mav – who has yet to allow a saddle without a near heart attack. He stood quietly and let me saddle him – without my even holding his lead rope.  WOW

Mav is a smart dude. He watched Shadow’s response, and he mirrored it.  And he learned new lessons so easily all because of watching Shadow.

That made me think about all of us – and how many people are watching, and learning from our every action.

No matter who we are or what we do, we are role models for someone.  If we’re leaders, we have the eyes of our entire organization on us. If we’re workers, all of our co-workers  are watching us. If we’re parents we have our kids, if partners we have our mates.

We all teach others with our own actions.

What are you teaching?

Porter (2002) states that root of the problem lies in the lack of distinguishing between operation effectiveness and strategy. The expedition for productivity, quality and speed has resulted in management tools and techniques, total quality management benchmarking, time based competition, outsourcing, partnering, reengineering, change management.  In any organization, strategy management is the key to its success. There are many theories based on this assumption that without a proper strategy and planning, it is difficult for any industry to survive irrespective of its size. It is necessary to understand here that all the major corporate organizations have established themselves, thanks to superior strategic planning and implementation. The retail industry is making news everywhere with not only the traditional industries increasing their outlets but some major corporate industries also intruding into this industry like Fresh @ Reliance of Reliance Industries, More of Aditya Birla Group in India. Wal-Mart, a US based retail industry, which is known as the giant in the retail industry has survived and is still the huge enterprise in the world which deals with almost all the F&B products, apparels, etc. It is not only the largest company in world but also the largest company in the history of world.(Fishman, 2006) The present paper is divided into four sections to understand and answer as what makes Wal-Mart the best in the industry, 1) retailing industry at the time of Wal-Mart’s innings, 2) Wal-Mart’s Competitive advantage and key components, 3) Wal-Mart’s Strategy and 4) Sustainable growth of Wal-Mart.

I. Retail Industry – Wal-Mart says Hello!

Strategic decisions are ones that are aimed at differentiating an organization from its competitors in a way that is sustainable in the future. (Porter, 2002) Porter strongly advocates that decisions in business can be classified as strategic if they involve some innovation and difference that results in sustainable advantage. According to Patrick Hayden et al (2002) the retailing industry adopted the style of discounting on its merchandise after the Second World War. It is learnt that discount retailing was not the strategy at the time Kmart, Target and Wal-Mart first started operating their business. Frank (2006) states that when Sam Walton was franchising for Ben Franklin’s variety store, invented an idea of passing on the savings to his customers and earning his profits through volume. Prior to Wal-Mart’s entry into the market, Sidney and Hebert from Harrison founded Two Guys discount store in the year 1946 which dealt in hardware, automotive parts and later on groceries. Two Guys was the forerunner as compared to today’s retailers like Super Target, Wal-Mart which succumbed to the economic recession. Another discount store set up by Eugene as E.J. Korvette, which is often cited as first discount store which did not raise from 5 & 10 cents roots and eventually declared bankruptcy due to inability to compete with the new entrants.

Porter (2002) states that combination of operational effectiveness and strategy is essential for superior performance which is the primary goal of any organization. He also says that a company can perform its rivals only if it can operate in different ways which are not in practice. Much emphasis had been laid on strategic positioning like variety based positioning, needs – based positioning and access based positioning.

Along with Wal-Mart, other stores that started operating were Target, Woolworth (Woolco) and K-Mart. However, Target has been functioning successfully, courtesy Wal-Mart, but other two failed in their operations and filed bankruptcy.( Michael Bergdahl, 2004) Porters five forces model explains what strategic decisions should be made and on what basis.  The model explains the basic strategies to be considered while starting a business like bargaining power of suppliers. While franchising of Franklin he always looked for cheaper deals and thought of passing his savings to the customers and earning through the margin on volume of bulk purchases. Through the way of discount stores, shoppers were given the cheapest price as compared to any other store. In regard to threats of new entrants, Wal-Mart has been constantly in the news for acquisition of other small retail shops in view of its expansion. But nevertheless it has stiff competition from likes of Super Target, Tesco, etc. it is the world’s biggest retail industry.

II. Key Components of Wal-Mart Business Model

Wal-Mart is the leader in retailing industry with fiscal revenue of $244.52 billion in 2003 making it the world’s largest corporation. Mike reports that Wal-Mart as of 2002 had 1,283,000 employees growing at 11.2%. The above data explains that strategy of Wal-Mart is extraordinary which manages and operates over 4150 retail facilities globally. The key components of Wal-Mart (The Value Chain), which offers cheap prices than its competitors includes firm infrastructure like frugal culture, no regional offices and pleasant environment to work. Managements take lots of visits and it is learnt there are no rehearsals before any meeting which is usually scheduled on every Saturday. In any organization, human resource is the key to development and Wal-Mart efficiently manages its sources. Wal-Mart terms its employees as associates. Manager compensation is linked to the profit of store operated by him, within promotions, compensation offered to associates depending on company’s profits and also offered some incentives on their performances. The workforce at Wal-Mart is not unionized as the company takes all the measures of their benefits and provides them training on related issues. Technology plays a vital role in development of the organization and Wal-Mart is well equipped with technological innovations like POS, store performance tracking, real time market research, satellite system and UPC. Wal-Mart procurement measures like hard-nosed negotiations, partnerships with some vendors, centralized buying, planning packets, etc. helps at large the cause of providing the goods and services on cheap prices. The other factors that increase the margin of profit for Wal-Mart are inbound logistics with frequent replenishment, automated DCs cross docking, pick to flight, EDI, hub and spoke system. Wal-Mart strategy of operation is innovative with big stores in small towns with monopoly in the market at low rental costs, local prices, concentric expansion, merchandising in brand name, private labels, little space for inventory, store within store, etc. In relation to marketing and sales, merchandising is tailored from locals, spent less on advertising and the prices are fixed low and it depends on the store manager to fix the latitude of pricing. All the above factors combined together form the key components of Wal-Mart which not only increase the margin of profits through bulk sales but also boost the confidence of the customers with services like point of sale information system and everyday low prices.

III. Wal-Mart Strategy

Wal-Mart dominates the American retailing industry due to number of factors like its business model which is still a mystery and its effectiveness in not letting the rivals let know about the weaknesses. Wal-Mart made strategic attempts in the its formulation to dominate the retail market where it has its presence, growth by expansion in the US and Internationally, create widespread name recognition and customer satisfaction in relation to brand name Wal-Mart and branching into new sectors of retailing.

It is learnt that Wal-Mart strives on three generic strategies consisting of Focus Strategy, the Differentiation Strategy and overall cost leadership. Managers strive hard to make their organizations unique, distinctive and identify key success factors that will drive the customers to buy their products.Thus, firm specific resources and capabilities are crucial in explaining the firm’s performance. The Resource Based View (RBV) explains competitive heterogeneity based on the premise that close competitors differ in their resources and capabilities in important and durable ways. The company’s capability can be found through its functionality, reliable performance, like Wal-Mart superior logistics. (Helfat, 2002) Wal-Mart has firm infrastructure, well equipped in human resource with management professionals and technologically too.

Any organizations thrive hard to be successful for which it needs to have better resources and superior capabilities. Wal-Mart has strong RBV with economically and financially very strong enough to stand still in the time of crisis. Pereira states that dominating the retail market is its key strategy. Wal-Mart operates on low price strategy which is operated as every day low prices (EDLP) which builds trust among the customers.(Brunn, 2006)The strategy lies in purchasing the goods at lower prices and selling the goods to customer at much lower prices, cutting the price as far as possible and increasing the profit by increasing the number of sales. This ferociously increases the competition in the market and Wal-Mart competes with all its competitors till it is dominant it the market.

Wal-Mart is expanding seriously and rapidly which is also its strategic goal. Wal-Mart employs over 1.3 associates, owns over 4000 stores out of which 3000 are in US and serves around 100 million customers weekly. Wal-Mart has acquired many international stores and merged with some super stores like ASDA in UK. Wal-Mart far flung network of retail outlets has ensured that Wal-Mart interacts with and has impact on virtually every locality within US. (Helfat, 2002) The expanded strategy has led the hunger of Wal-Mart to many European Countries. It is learnt that three countries with no Wal-Mart stores became part of corporation’s international presence wherein the domestic retail chains were taken over by Wal-Mart including 122 Woolco stores in Canada, 21 Wertkauf stores in Germany and 229 ASDA units in United Kingdom. The takeover strategy by Wal-Mart keeps the company at forefront when entering into the new market and the number of competitors is also minimized. The strategies have helped the Wal-Mart to rein in number one position in international countries making it the largest retailer in the world.

It is seen that Wal-Mart has significantly the Porters five force model wherein through proper strategic planning and strategic implementation has led to removal of barrier entry, rivalry from competitors and pricing norms. In regard to substitutes, Wal-Mart in order to achieve its aim of customer satisfaction has selling goods under its own legal brand.  Wal-Mart’s big box phenomenon has changed the retailing industry in the United States which is often considered as discount stores and makes profit through high volume of purchases and low markup on profits.(Parnell, 2008)Wal-Mart with its low cost and ever expanding strategy has made a dramatic impact since 1962 when Sam Walton first started his business. With this strategy, Wal-Mart has now over 4000 stores and outlets in US and other countries through acquisition and mergers.

IV. Sustainability in Discount Retailing – Wal-Mart

According to Porter, (2002) operational effectiveness and efficiency are the key elements of success in any organization. A company can outperform its rivals or competitors in the market only with superior management and efficient control creating a difference from the others which eventually attracts customers. Porter defines operational effectiveness as performance of similar activities as its rivals but better than them. In a study, it is stated the Wal-Mart is expert in manipulating perceptions. It is termed that low price is not the strategy of Wal-Mart but the advertisement manipulates the consumer perceptions by making them think that its prices are lower than its competitors’ price using ‘price spin’. Wal-Mart makes the consumer addicted coming to its stores by convincing them the prices are lower than in the other stores by selling itself cheaper by advertising that ‘we have lower prices than anyone else’ and placing a ‘opening price point’. The ‘opening price point’ is the lowest price in the store which is kept at high visibility which makes consumer believes that the products in this store are really cheaper. (Race Cowgill, 2005)

The SWOT analysis of Wal-Mart reveals that it is most powerful retail brand, reputation for money, value, commitment, and provides wide range of products. It is growing at a brisk pace with expanding its horizon to other parts of world through acquisition and merger. Wal-Mart has good opportunities in markets of Europe and China and focuses on acquiring the market through acquisition of smaller stores and merger with leaders in the specific markets. Wal-Mart is always under threat to sustain its top position in market nationally and internationally. Global leader in the industry leaves the organization vulnerable to many socioeconomic and political problems of the country.

Sustainability at the top place is the most important job that makes its managers strives hard to frame the policies and strategy to compete with its rivals in the market. Slack, Imitation, Substitution and Hold-up are some of the threats to any organization in retail industry. However, Wal-Mart with its visionary goal of attaining zero waste status and reaching 100% renewable energy has planned to launch number of sustainability initiatives. (GreenBiz, 2008) Imitation increase profits by increasing the supply. But imitation puts reputation, relationship at stake. James Hall reports that Wal-Mart is planning to open convenience stores as Tesco has started and operating in US called Fresh & Easy Neighborhood Markets. (James, 2008) Such tactics will create mixed response among the consumers while degrading the reputation of the leader in market. Substitution reduces the demand for what a firm uniquely provides by shifting the demand elsewhere due to changes in technology. The threats of substitution can be subtle and unexpected like minimizing expenses through videoconferencing instead of air flights to long distance meetings with its managers of other stores, etc. Therefore, substation is an especially effective way of attacking dominant rivals in the market. Substitution offers mixed responses after identifying and understanding the threats. The organization should fight the threat and merging with them, switching to different options of substitution to be in the market. Hold-up diverts the value to customers, suppliers or complementors who have some bargaining leverage which results in tough negotiations, contractual agreements and vertical integration.

Wal-Mart is having great network with almost over 7800 stores       and Sam’s Club locations in 16 markets worldwide. It employs more than 2 million associates and serves more than 100 million customers every year. According to Fishman (2006) Americans spend $26 million every hour at Wal-Mart which makes it believable that Wal-Mart is financially very strong and is capable of combating any threat from its rivals in the market. Wal-Mart is ever expanding its boundaries by way of acquisition and mergers. Thus Wal-Mart with such a vast network of stores and alliances in the forms of ASDA, Target and many other stores is well protected enough to sustain its top position in the retail industry.

1. Remember that any SLA is open for negotiation, but only in initial purchase- although the supplier may propose a very rigid position on the SLA (especially common in large companies), the SLA is part of the sales process. Standing by a rigid position should immediately raise red flags that the proposed “unchangeable” SLA is protecting the supplier, not the buyer. So the best opportunity to negotiate it is during the initial RFP negotiations. Once the product/service is sold and goes into production use, the buyer has lost all power of negotiation. So be very wary to agree that you will negotiate the SLA after delivery, end of warranty or some similar wording.
2. Define Availability as you would expect it – availability is usually calculated as a percentage of time the product under SLA is up and running. Usual numbers vary from 98% to 99.999% of the time. Now, let’s examine the “time” factor in the formula. Upon first reading, a person will usually interpret that 98% will be 98% of any time measure, whether it be hour, day, month, year, century…But let’s observe the following table:

In a SLA contract specifying a percentage of availability per time period, the total downtime is accumulated over the entire time period. Furthermore, if there is no time period specified in the availability percentage, the default time period is the period of the validity of the contract – which is very often 1 year or more. So, if you sign a yearly contract with an SLA of 99%, it doesn’t guarantee you that you will have at most 10 minutes of downtime per week. It means that you won’t have more then 3.65 days (or 86 hours) of downtime over the entire year, which means that you can have full 10 8-hour workdays WITHOUT ANY SERVICE in that year. If you take the same 99%, but insist on applying it on a weekly level, you suddenly get much better odds – now, you can’t have more then 1.68 hours of downtime in any of the days. So take a day of meetings in your company to define what is your maximum possible downtime per day, and use the above matrix to find the best option for you.

3. Always keep in mind the distinction between reaction time and correction time – During the negotiation of an SLA It is usual to have very tense negotiations to achieve a good “response time”. But this umbrella term is an excellent umbrella – for the supplier! Response time is defined as the time passing between formal logging of problem and until a representative from the supplier logs a response (sends a reply on e-mail, makes a phone call or arrives on-site). So when defining the response times, ALWAYS define two or three different times: reaction time – which is equivalent to response time, workaround time – the time in which it is expected to achieve a temporary solution which will alleviate the problem and correction time – the time in which it is expected that a final solution will be found.
4. Make precise definitions of problem severity levels and tie them in with reaction and correction times – as in my previous post, the severity of the problem can be viewed differently by the buyer and supplier. So, define a clear matrix of severity levels, and have a clause which states that if severity level differently, the view of the buyer prevails. A sample of severity levels are presented in the table below:



5. Define response time for all levels of severity – naturally, the buyer should expect faster reaction and correction for more severe problems. When defining the severity levels, in each one include at least the expected reaction time and workaround time.
6. Define channels of communication and escalation – At first glance a very simple thing, but one that is very often a reason for not being able to dispute the SLA contract. For the problem to be considered properly reported, the supplier will expect a report from an authorized person to specific persons via email, fax number or phone. Any deviation from the agreed upon process is an excellent reason for not meeting SLA parameters on the grounds of “not being informed”. So always have at least three authorized persons for problem reporting, and modify internal procedures so these persons are the first to be informed of a problem. The same is true for the escalation of problems to higher levels, should the problem persist.
7. Define the conditions under which the SLA criteria are applied to a problem – It is not uncommon in SLA agreements to see that the SLA criteria start to apply from the time of problem reporting from the buyer to the supplier. This is an element usually insisted upon by the supplier, since it offloads the burden of monitoring and reporting on the buyer. By the time the problem is reported, the actual problem is already existent for several minutes up to half an hour. Even more so, there are products for which the supplier cannot perform the monitoring and cannot conclude that a problem is occurring. So although this point will not be applied in the contract, adjust internal procedures so that the authorized persons of the buyer IMMEDIATELY report the problem to the supplier. Internal metrics can be even applied to this process, to identify internal lags in communication.
8. Define measurements and reporting – An SLA is useless if you can’t measure and document each problem length properly. So the buyer should keep track of problems, with info on the severity, duration of problem, reaction time and correction time, with all relevant e-mails and messages exchanged. Tracking can be achieved with something as simple as an excel sheet, all it requires is regular update.
9. Tie in penalties and contract back-out options – this is the actual big stick in the SLA. Breach of SLA parameters should be tied to serious penalties and possibility for contract termination. When defining penalties, always strive to define them in monetary value payable immediately upon breach of SLA. Also, you should try negotiate a penalty that has an exponential growth with each further hour of SLA breach. Do not accept a penalty to be compensated with other goods or services from the same supplier, since the supplier will value such services at sales price in the refund, while their internal costs for such services are significantly lower, thus reducing the actual loss of the supplier in SLA breach.