Walmart Example
We will use Walmart as an example to illustrate the various course concepts. The examples provided in this document are to assist you in understanding the concepts and applying them to the class assignments, which consist of a case study and four staged projects. The examples are provided for illustrative purposes only, and may not precisely conform to the specific directions given in the class assignments. Student should follow the instructions provided in the assignments.
Business Analysis (Stage 1) – Follow the directions in the Stage 1 Assignment
The following is a discussion of the Five Forces Analysis, Generic Strategy for Competitive Advantage and business process improvement to help you understand the topics. Your assignment specifies the content and format to be used for your paper.
Applying Porter’s Five Forces Analysis
The Five Forces are explained in the reading assignments for Week 1. Below is an example showing the application of the Five Forces analysis to Walmart.
We know that Walmart’s objective is everyday low prices, which is their competitive advantage. When we look at the Five Forces model as applied to Walmart, we can determine that the Buyer Power of their customers is high because patrons have many other choices. However, customers expect and demand the lowest prices
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from Walmart, and they are willing to overlook, but not ignore, other factors like customer service, store location, and atmosphere.
Walmart’s Suppliers have little power because of the sheer size of Walmart, and because being a Walmart supplier can provide huge sales potential. The suppliers must do what Walmart wants regarding business processes and technical requirements. They will also be pressured for lower prices, which may cause the suppliers to move production to lower priced labor markets.
The threat of substitute products means that customers can go elsewhere for the same or substitute items. There could be some threat here only because of web based stores as they may be able to have lower prices because of low overhead.
Threat of new entrants in the Brick and Mortar Store area is low, because of the costs involved in building stores and the infrastructure to support the business processes. The threat of new entrants in the Internet market would be high, because of the low costs involved and the potential to specialize in different areas with especially low prices.
Rivalry between competitors at a store level would be high and could be affected by the breadth of products and quality of customer service or even the cleanliness and appearance of the store. On a company level, Walmart’s Sales are $418 billion and Target, their closest competitor, has annual sales of $67 billion, so while it may seem there is a large rivalry, the size of Walmart limits the threat.
Generic Strategy for Competitive Advantage
If we look at the table below, we can see that the Generic Strategy for Walmart is in the upper left quadrant, Broad Market and Low Cost. You can see how they compare to the other retailers shown in this example.
(Baltzan, 2014, p. 22)
The broad market will bring in the largest number of buyers, which would have the effect of lowering buyer power. The Low Cost indicates that many things could affect Walmart’s costs, but their biggest cost is for the goods that they sell and therefore the Suppliers are important and Walmart uses their size to decrease the Supplier power. The Generic Strategy identified makes sense.
The Five Forces analysis above indicates that two areas of highest concern for Walmart would be
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Supplier-related activities, like Supply Chain Management (SCM), supplier training, supplier selection, and supplier facilitation, that would reduce Walmart’s costs; and
Customer-related activities, like easy payment, easy return of merchandise, web purchasing with free delivery to the nearest store, and stocking the items wanted in the community, which would increase the number of customers and retain the ones they have; these also help reduce operating costs.
Note that neither the Five Forces Analysis nor the table of Generic Strategies for Competitive Advantage mentions IT or computer systems. IT is not a strategy; the initial focus is on improving the business processes, which may or may not have anything to do with IT.
Business Process to be Improved
If Walmart decided to improve its business processes to increase profits, it would begin with the processes related to the identified strategy for competitive
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