Outline and Thesis

1. Introduction

2. Strategy for Managing Cost

Budgeting payroll cost
Saving on business travel cost
Investing in technology: energy system, new equipped store, and
RFID
Eliminating unnecessary costs
3. Strategy for Managing Growth
Location
Acquisition
4. Strategy for Managing People Resources
Motivating employee
Internal promotion
External recruitment
5. Conclusion
6. References
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Intorduction

Wal-Mart story started from a man with a dream named Sam Walton. Sam first
owned a variety store in Newport, Arkansas. After losing his rent, Sam found a new
location to restart his business which was in Bentonville, Arkansas. By working very
hard to satisfy his customers with possible low price, Sam had increased sale and
grew profit rapidly. Until 1962, Sam and his brother, Bud, had expanded their
business as a large regional chain of 15 stores. After the business grew, Sam
wanted to build larger store in the town. Though, without any support from his
main supplier, Sam and his family worked together to build out the larger store
called Wal-Mart discount store.
The Wal-Mart store was very successful. In 1983, Waltons family expanded their
business into larger metropolitan area and started the first wholesale club called
Sams club in Oklahoma City. As business keeps growing, Wal-Mart has expanded
its division into many countries around the world. Based on the Wal-Mart growth

table, in 1970 Wal-Mart had only $30.8 million revenue, 32 stores, and 900
associates. Wal-Mart had dramatically increased its revenue in 2004 up to $256.3
billion, 4906 stores in eleven countries, and 1.5 million associates worldwide.
Ranging in the 36th largest discount chain in the country in 1971, which below
many other well-known retailers such as Sears with sales of $9.3 billion, JC Penny$4.2 billion, and K-Mart- $2.6 billion, now Wal-Mart is the largest retailer in the
world with hundreds of billions in sales (Soderquist, 2005).
Wal-Mart now has many different divisions around the globe which include discount
stores, supercenters, neighborhood markets, and Sams clubs and the only reason
for these divisions is to provide customers with needed products and services at an
affordable prices and conveniences. From managerial perspective, the most three
important strategies for Wal-Marts operational model are cost management, people
management, and growth management.
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Strategy for Managing Cost

Since cost is the most important tool that drives businesses to success, the strategy
for managing cost is also important for business to succeed especially for giant
retailer like Wal-Mart. Businesss performance can be defined by the success of
minimizing cost due to retailer already have to compete in lower prices to attract
customers. Cost is categorized into two types which are fixed cost and variable
cost. For Wal-Mart, fixed cost includes rent, property tax, payroll, utilities,
inventory, and administration cost which do not change by the sale level of the
store. As business grows bigger, some fixed costs such as bureaucracy has
increased and difficult to avoid or reduce. By regularly review periodical financial
reports, Wal-Marts leaders and associates always work their best to find new
alternatives, approaches, or chances to reduce some costs and increase sales. At
Wal-Mart managing cost include many approaches such as budgeting payroll,
saving on business travel, eliminating unnecessary cost, and investing in
technology.
One of the most important approaches that Wal-Mart used to manage cost is to
budget payroll. Budgeting payroll is useful for store managers to keep trace the
payroll cost, review cost by department, and compare the actual cost to the plan.
This budget will allow store managers to balance between hiring employees and the
available fund. The successful managers must keep the payroll cost below the
budget; however, if the cost is exceeding the budget they have to immediately find
solutions to reduce the cost. A good example of this approach was the case in of
Larry English who was the store manager #18 in Newport, Arkansas in 1970. With
only 8% to the sales of payroll budget for his store, Larry had exceeded the budget
by 0.1% and the problem was pointed out by his district manager, Don Whitaker.
As a solution, Don had ordered the transfer of his stores new assistant to another
store in Poplar Bluff, Missouri due to the lack of Larrys capability to manage his
money. That financial punishment was a new lesson for Larry that had helped him
succeeded in controlling his people with the money he had. As the result he had
successfully opened many new stores in a giant size such as store #278 in

Shrevepot in the size of 80,000 square foot and the store #512 in El Paso with the
size of 110,000 square foot (Fishman, 2006). Besides transferring employees, the
zero-dollar-overtime budget is also another solution to control payroll cost. After
working on regular hours, people are already exhausted and less alertness; thus, it
does not worth for Wal-Mart to pay extra one-and-a-half for exhausted workers to
get regular job done.
Not only budgeting payroll cost, Wal-Mart also control on business travel cost. Not
like the other company, Wal-Mart always finds the best possible way of saving even
on business travel. Instead of booking first-class flight, Sam and all executive
managers flight is always coach class on a commercial airline. Moreover, those who
are on business travel will have their meal reimbursed only in regular restaurants
not a high-class restaurant. Besides flight and meal, Wal-Mart also saves on the
hotel room. With one of the most impressive policies at Wal-Mart is called two-to-aroom which requires all associates who travel on business to share the hotel room
and usually one manager and one associate have to stay in the room (Bergdahl,
2006).
Another approach to control cost is called elimination approach which will eliminate
all unnecessary costs. Unnecessary cost is unnoticeable cost that already occurred
but customers are not willing to pay for it such as box in/out cost, moving cost, or
recycling cost. Fortunately, Wal-Mart have noticed on these costs and in the early
1990s and it had started to eliminate these costs by corporate with the
manufacturers of these products. For example, the revolution of elimination box
from powder fresh and unscented products. Mathematically, this little change helps
customers save millions of dollars each year. Supposed that only one nickel saving
per container of deodorant, multiply by two hundreds millions of adult citizen in the
US, the answer will be ten millions of dollars saving (Fishman, 2006).
Lastly, technology investment is also a great approach that Wal-Mart used to
minimize cost. According to Wal-Marts history, the first technology investment was
for computer system which was Sams idea. It seemed that this investment worth
too much but the returns of the investment was greatness. The computers
capabilities have great effect on business management such as provide on-time
information for all levels of managers. With technology, the company had fasten
the data processing time, improved customer services, reduced cost for gathering
data from all divisions. Besides invested in information system, Wal-Mart also
invested in electric power supplies which greatly save on utilities cost; for example,
solar power investment. Wal-Mart has conducted many experiments on different
types of new energy provider such as wind power, and solar power by building the
first experimental store in Colorado. The result from that experiment proved that
Wal-Mart had reduced the energy expense by %. From that experiment, Wal-Mart
had decided to sign a ten-year contract to three large-scale solar power providers
which are BP Solar, SunEdison, and PoweLight. The solar power energy will be
installed on 22 sites of Wal-Mart in California and Hawaii (Wal-Mart Launches,
2007). Besides using new energy source to reduce the utilities cost, Wal-Mart also
installed the new lighting system called GE instead of fluorescent lighting, which will
save up to 66% on utilities cost. Moreover, Wal-Mart also equipped the stores with

new technology devices such as sawtooth roof, radiant-heat snow-melt, evaporative

cooling, and light-powered infrared sink. Each device has its own special function
and characteristic which will greatly reduce the utilities cost. The new sawtooth roof
will help the company saving on lighting cost because the new roof will allow more
natural light into the shopping areas which will reduce the use of electricity. The
radiant-heat snow-melt, which is a built-in heater pipe under the concrete across
the sidewalks, will help company save on melting snow cost. The new cooling
system will use less energy than the standard refrigerated air-conditioning system
to keep the store in a comfortable temperature during the hottest days of the
summer. The new sink will use less water than a traditional sink and function
without electric power because the system relies on the restroom lighting which
charges to a battery system (Wal-Mart Continues Green Initiative, 2005).
Additionally, Wal-Mart also invested in technology to reduce inventory cost. For
example, the Radio Frequency Identification-RFID will benefit both suppliers and
retailers in order to control the flow of products from shipping to in-store displaying
(Soderquist, 2005).
All in all, with these great approaches such as budgeting payroll, saving on business
travel, eliminating unnecessary costs, and investing in various aspects of
technology will help Wal-Mart to succeed its goal of minimizing cost with an
efficiency of business operation.
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Strategy for Managing Growth

Strategy for business expansion is one of the most important strategies for driving
Wal-Mart to be the biggest company in the world. Since 1962, Wal-Mart has
geographically expanded in North America, Europe, and Asia. With positive vision of
Sam Walton how the business can grow, Wal-Mart had dramatically expanded from
a single store to thousands of store, clubs, and supercenters around the world.
Annually, Wal-Mart always has many growing plans which include regional and
international expansion plans. From the managerial standpoint, these plans can
succeed based on two basic components which are location and acquisition.
Location is one of the basic components for expansion plan. Location is very
important for a retailer like Wal-Mart. When Wal-Mart has to plan on opening new
store, it always looks for the best site for the store. The best location for each store
vary by geography and involve with many outsource factors such as distant and
cost. One characteristic of a best location for Wal-Mart store is positioning close to
the distribution center. By choosing the nearest location to the distribution centre
will reduce the shipping time and gas expense for the truck. Moreover, the best
location also must be around the community not in a rural area. By placing the
store around town will be convenience for customers to shop by saving their time of
driving. Beside these characteristics, parking lot is also an important characteristic
of a good location because it is one of the most considerable factors that can bring
customers back to the store. If a customer goes to Wal-Mart but he has to drive
around about five minutes just to find a space to park his car and he has to walk
about four minutes from the car into the store, how much is the possibility that he
would return to that store? The answer will be one out of 100. Therefore, a

convenience parking lot is very important for each store.

Another basic component of expansion strategy is acquisition. Acquisition is a term
referred to company that will corporate with Wal-Mart in order to serve people. This
component is very important for Wal-Mart to grow. Wal-Mart is very selective on its
acquisition and it had turned down many opportunities by most companies so far.
In order to corporate with Wal-Mart, a good acquisition must built-in by quality
people with experience and high commitment especially they must get along with
Wal-Mart culture. One of the great benefits of operating with a well-known
acquisition is that company will gain returns on the investment in a shorter period.
Because the acquisitions are already well-known in the regional, by only apply WalMarts operational model to those stores and operate the stores by almost the same
people, at the same place, and with the same merchandise, those stores will
increase its sales and eventually businesses will rise to the top rank. For example,
Woolco is the number four discounter in Canada. After three years of joining
operation with Wal-Mart, now it has doubled the sales and become the number one
retailer in Canada. Another benefit of joint-operation with international acquisition
is fewer competitors in the tough market such as UK. Due to the market in UK is
owned largely by two biggest companies which are ASDA and AA. ASDA was the
second biggest supermarket chain in the UK with many criticisms such as
misleading advertisement, breaking law and regulation, and polluting environment.
However, Wal-Mart has found many opportunities in the UK market by acquiring
ASDA and operating with its low cost strategy. After five years under Wal-Marts
operational model, ASDA had increased grocery sales from 13% to 16% within the
same store. Beside grocery, ASDA had expanded into many divisions by converting
stockroom space into non-food sales such as merchandise, pharmacy, vision, and
vacation services such as hotel and car rental. Moreover, ASDA also is the first
company in the UK that initiated environmental program such as reduces
greenhouse gas emission from stores acidifying gas emission from transportation,
and improves waste management. After all, ASDA/Wal-Mart had received many
awards such as the best workplace in 2004 by Fortune magazine and named as the
Britishs Best Value Retailer for eight consecutive years.
As a result, successfully identify a great location will help Wal-Mart reduce shipping
time and cost as well as increase in sales. With the right acquisition, Wal-Mart will
reduce risky time, gain the returns of investment faster than usual, and also fewer
the competitors. Therefore, these two basic components will succeed the growth
plans of Wal-Mart.
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Strategy for Managing People Resources

Finally, the strategy for managing people is one of the three important strategies
that lead Wal-Mart to be the biggest company in the world with the highest amount
of employee. Human resource is defined by economists as a scarce resource to all
businesses. Many businesses and organization have different strategies in
managing this special resource. These strategies vary by the type, size and location
of the businesses. Managing human resources at financial company will be different

from government institution as well as managing human resource in mid-size firms

will completely different and less complicated than managing human resource at
the retailer businesses. In turn, effective human resource management will create a
high perspective teamwork, fair competition, and respective employees. For the
world biggest retailer like Wal-Mart, the success of managing this department is
acquired through three basic activities which are motivation, internal promotion,
and external recruitment.
One of the basic activities that lead Wal-Mart to successfully manage its people is
motivation. Motivating employees into the same culture is one of Sams goals. WalMart takes all of its effort to make employees feel like they are part of the company
because they are sources of new idea for Wal-Mart to develop (Soderquist, 2005).
Motivation is alive through all levels of positions at Wal-Mart. This company
motivates employees in many different ways in order to prove that the company is
not only care about profit they can gain from employees but also employees crises.
One of the facts proved about this motivation is the used of term association
instead of employee. Wal-Mart had agreed with J.C Penny by referring the
employees as associates because it can make them feel more engagement with the
company. After that, Sam had suggested a new way of treating his associates by
calling all levels of them by their first name and displaying only the first name on
the ID badge. Sooner, from hourly associations to top managers or even the
founder of the company is calling each other by their first name only. Everyone in
the company is getting more involves by calling the others first name because it
can create a family-oriented business instead of boss-oriented one. Because of
Sams belief that the company was built by the people, Wal-Mart had renamed its
human resource department as a people department. Though, the word sound
simple but it touches peoples heart deeply. Moreover, people at Wal-Mart are full
with respect regardless of their position. Soderquist had told from his experience of
visiting the Wal-Mart store in Bartless, Tennessee. He was unbelievable to see all
associations and department managers had stood up with ovation to Gracie, who
was a cleaner lady of the store for many years (Soderquist, 2005). Beside the way
of treating people, Wal-Mart also encourage people through health care benefit and
financial benefit. All associations at Wal-Mart and their immediate family can get a
health insurance at a very low price which includes primary doctor, pharmacies,
vision, and dental. For financial benefit, Wal-Mart started to share profit to its
people in 1971. After that, Wal-Mart has enabled all associations an access to own
companys shares by selling stock to them at a discounted price and without
brokerage fee. Wal-Mart also had implemented a cash incentive plan for employees
to get additional income depend on companys performance. Addition to these
benefit plans, Wal-Mart also tries to get involve with associations crisis directly and
indirectly. The program called door open which provides a direct access for all
associations to express their problems to the store manager and if the manager
cannot find the solution the next level of management such as supervisors, CEO,
board of directors or even Sam will be in charged. Wal-Mart also helps the
associations crisis by hiring a special psychologist team to counsel on their
problems. As a result from all of these motivations, Wal-Mart has created an
exciting environment workplace with respect, prospective, and value. Beside
emotional motivation, Wal-Mart also provides educational motivation via many

training programs such as technology, leadership, and management to all of it

associates.
Another basic activity beside motivation employees is internal promotion that brings
Wal-Mart to succeed in managing its human resource. Because Wal-Mart aimed at
peoples involvement for all levels of association, it had developed many learning
program to prepare them to be a leader. Reported by Soderquist, about more than
three-quarters of the stores managers had started as an hourly association
(Soderquist, 2005). As in the case of Larry English who started at one of Wal-Mart
stores in Harrison as a stock boy, then became an assistant manager at Wal-Mart
#1 in Rogers, Arkansas. In 1970, he had become a manager of the store 18 in
Newport, Arkansas. After a financial management lesson given by his district
manager, Larry became a field manager operating many giant stores after thirtyfive years with the company (Fishman, 2006). Another case of Kevin Turner is also
similar to Larrys case. Kevin had started as a temporary cashier at one of Wal-Mart
store in Ada, Oklahoma in 1986 (Soderquist, 2005). After he graduated from the
East Central University, he decided to work full-time in the company as an auditor.
Later on he was transferred to the technology department at the entry-level
position. After gradually promotions, Kevin had become a senior vice president and
the CIO of this company in 1999. Later on, Kevin was promoted to president and
CEO of Sams clubs, a $30 billion division of Wal-Mart. Theresa Barrera also has the
same story like Kevin. Started from a part-time cashier in Sams club in Texas,
Theresa was granted a Wal-Mart scholarship in 1986 which let her finished her
college degree. After five-year working in the home office of the company, she was
transferred back to the Wal-Mart store division and was promoted to divisional
merchandise manager in 1999. Until 2001, she is now a vice president of the
company whom responsible for more than $5 billion of purchasing merchandise for
the stores (Soderquist, 2005).
Beside bottom-up internal promotion, Wal-Mart also excels at external recruitment
for both new associates and high-level managers. From Wal-Marts history,
company had hired many small business owners when it first started. Those
business owners were very important to the company because they possessed the
entrepreneurial characteristics such as penny saving and risky. Moreover, Wal-Mart
also hires external people who have experience in business management or
expertise in a specific division to back up the business; for example, Wal-Marts
pharmacy division. The pharmacy division was started by Clarence Archer, a
pharmacist expertise. Based on Archers background, he was the ideal candidate for
pharmacy division of Wal-Mart because not only he was a pharmacist but he also
had experience in running pharmacies for drugstore chain like Kroger and Zales.
Archer started his drugstore at Wal-Mart in 1981 in his forties when Paul Carter was
the executive vice president. Pharmacy business at Wal-Mart at that time is very
challenging. It moved very slow year for the first year because there are many
well-known drugstores such as Kroger and SuperX. However, financially supported
by Sam Walton, Archer had started up with some philosophy strategies such as
hiring the best pharmacists in town to attract customers, giving out dollars coupons
to increase sales, and always having important medicine in stock. Due to Archers

competitive nature, now Wal-Mart has 3,535 pharmacies and is the fourth of
pharmacy business (Fishman, 2006).
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Conclusion

All in all, by implementing these three important strategies successfully, Wal-Mart

has become from a single store to the biggest retailer in the US and to the biggest
company in the world. The cost management strategy of Wal-Mart wills create an
operational model with the lowest cost which will increase the margin of profit on
the financial statements. Moreover, the growth management strategy had dragged
Wal-Mart into the right direction of investment and expanded radically around the
distribution center. Lastly, the people management strategy inspires all associates
to work more efficiency and creates a great workplace environment which full of
self-improvement, competition, and respects. It also provides an opportunity for
people to build-up experience from the low-rank position to the high-rank position.
Therefore, strong management in these three strategies had transformed Wal-Mart
into the biggest company in the world with the highest number of employees
worldwide and had also provided benefits to millions of people around the world by
transferring unnecessary cost into low-cost products.
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References

Bergdahl, M. (2006). The 10 Rules of Sam Walton. Hoboken, NJ: John

Wiley & Sons, Inc.
Corporate Watch. (2007).
ASDA/Wal-Mart A Corporate Profile. Retrieved August 7, 2007 from
http://www.corporatewatch.org.uk/?lid=800
Fishman, C. (2006). The Wal-Mart Effect. New York, NY: Penguin Group.
Soderquist, D. (2005). The Wal-Mart Way: The Inside Story of the
Success of the Worlds
Largest Company. Nashville, TN: Thomas Nelson.
Wal-Mart Facts. (2007). Retail Divisions. Retrieved August 7, 2007 from
http://www.walmartfacts.com/articles/2502.aspx
Wal-Mart Launches Sola-Power Pilot. (2007, July). Chain Store Age, 83.
Retrieved July 24, 2007, from
http://web.ebscohost.com/ehost/detail?vid=7&hid=7&sid=603a
2d92-12feWal-Mart Stores. (2007). The Wal-Mart Story. Retrieved July 24, 2007,
from
http://walmartstores.com/globalWMStores