Cause of Failure in Wal-Mart - Case Study Example

• Section 6: Cause of Failure in Your Organization

Number One Cause of Failure in Organization

Organizational strategy provides an overall understanding of the activities within an organization meant to create long-term growth and evolution. Failures in organizational strategy can be systemic, meaning that they pervade many aspects of an organization and making them hard to detect and fix. Finkelstein states that for companies to maintain competitive advantage, they develop a strategy to ensure that they understand the “who, what and how” of the company. These three significant considerations comprise an effective organizational strategy (Finkelstein, 2004, pg.144). Other considerations that make an organizational strategy elaborated on by Finkelstein (2004) include placing limitations on actions an organization take to accomplish its goals since it cannot accomplish everything. This means that an organization should have a strategic focus that creates optimum outcomes and confers competitive advantage. The third and final consideration is that not all strategies produce equal outcomes. An organization should consider the internal competencies at its disposal that can deliver value to the consumer and create products and services that competitors cannot be able to replicate easily. Finkelstein (2004) notes that strategic focus rather than attempting to do everything is the most difficult for executives to grasp.

The organization is Wal-Mart in this case. The company's strategy has some failures especially with regard to the international expansion of the companies to countries such as Brazil. Wal-Mart’s international ventures have failed because of the strategic failures associated with the three considerations in organizational strategies provided by Finkelstein (2004). There are four parts to the company's strategy, which are diversification of retail sectors, the creation of a positive brand and company image, local and international expansion and increasing company dominance in the retail market (Hayden, Lee, McMahon & Pereira, 2002). This four-part strategy has worked in the United States in terms of increasing market share and market dominance but not in some international markets. Some of the countries where market infiltration has failed include Brazil, Germany, and Britain. The company’s corporate strategy has proven unsuitable for these business ventures. Landler and Barbaro (2006) point out that the company’s organizational culture has not managed to fit with the various countries the company has expanded to because of the differences in contexts.

Danger Signals

Ignorance of Local Business Environment in Strategic Decision-making

In the Wal-Mart case, biases and prejudices are apparent in the company’s adamant application of the same strategy developed for the United States markets to other contexts that might not necessarily respond positively to such a strategy. Wal-Mart’s subjective bias has limited their objective decision-making, leading to errors in judgment on infiltrating markets such as Brazil. There is a lack of awareness of the subjective biases among the company executives, who develop the corporate strategy, which guides the business practices in the multinational environment. A major indication of these subjective biases is the renaming of the new stores in foreign companies after the company’s founder, Sam Walton, from whose name Wal-Mart is derived (Landler & Barbaro, 2006). The company might have avoided the strategic failures through identifying the cognitive biases born from a subjective perception of international markets and included objective information such as cultural differences in their strategic decision-making processes. Nelson Fraiman, who is a Columbia Business School professor, has noted that American companies have difficulty incorporating local cultures in their international ventures (Blackman, 2010).

Strategic Failures in Culturally Distant International Markets

As noted before, not all of Wal-Mart’s international ventures have ended in failure. The patterns of failure and success in international markets are danger signals because they elaborate on the need to adapt corporate strategy to the local business environment. According to Lee, McMahon, and Pereira (2002), in the UK and Canada, Wal-Mart has managed to acquire the privileged position of the largest retail company in the retail industry. Canada and the UK have cultural proximity to the United States; therefore, the corporate strategies based on the U.S. business environment stood a higher chance of achieving success. In countries with pronounced cultural differences than the United States, Wal-Mart’s strategy has failed considerably to dominate the local retail industry.

Lutz (2013) provides an overview of four major countries where Wal-Mart has failed in market infiltration. These four countries are similar because of their cultural distance from the U.S. These countries are South Korea, Germany, Russia and India. Finally, the success of companies that do not use Wal-Mart's name in foreign countries provides further proof that cultural distance between local retail industries in the global business environment and the United States should have signaled to Wal-Mart that their corporate strategy was not relevant for all contexts. Landler and Barbaro (2006) point out that as at 2006, 70% of international sales came from acquired outlets that did not adopt Wal-Mart’s brand name. These outlets include some in Brazil, Japan, and Britain.

Solutions Based on Section 5 Formats

Ignorance of Local Business Environment in Strategic Decision-making

• The danger signal identified for the Wal-Mart case is the inability to adapt to the local business environment. The company has used the same strategy in all of the countries into which it has acquired retail outlets. This uniform application of strategy to different contexts means that there is no consideration of differences in culture, consumer behavior and demographics between countries.
• The root cause of the problem is the leadership’s strategic approach where the company’s executives have not made an extensive evaluation of the “who, what and how” of different operating environments. This myopia in the execution of the company’s strategy means that the company cannot foresee strategic failures such as the negative impact of cultural impact on strategy execution or business processes such as marketing.
• The company leadership, comprising of the executives, will be responsible for the creation and execution of the plan. This is because they have an overall understanding of the international expansion decisions and the future implementation of the strategy. However, they should consult with different marketing and department heads to acquire input to guide their decision-making processes.
• The following is the plan developed to allow the company to adapt its corporate strategy to the local business environment in international ventures and acquisitions:
• The company should avoid self-referencing in strategic decision-making. Self—referencing refers to the tendency of companies to use their home business environment as a framework for making strategic decisions for market entry into international markets. The company should redefine their corporate strategy in different countries and consider local business environments in their new strategy. This is a multi-level strategy that recognizes the differences in operating environments
• It should also redefine its corporate goals and objectives in the new foreign markets while considering objective factors. For example, it should consider the consumer habits in foreign markets in structuring their product offerings and service delivery
• The company should consider abandoning the fully owned subsidiaries in acquisitions in order to maintain the management and operational characteristics of foreign acquisitions. This will ensure that the traditional structures are not disrupted, which has a high potential to produce undesirable effects such as loss of market share and public perception of the acquired company in the foreign market
• The managers of the international outlets in countries where Wal-Mart has failed in their corporate strategy execution will be responsible for ensuring that the strategy will be implemented. These managers understand the local dynamics of the retail industry in the respective countries, thereby placing them at a better position to oversee strategy implementation.
• Success will be measured by the balance sheets of the different outlets in underperforming countries. Because Wal-Mart is a retail goods provider, the financial data is a better indicator of the success of proposed plan. Some non-financial measures for assessing success include employee and customer feedback on experiences with their interactions with the company.
• Celebrations will occur periodically, mainly in the financial quarters, where the various employees that have performed exemplary will be awarded after performance evaluations.
• The completion time for the proposed solution will depend on the company’s future acquisition patterns in global expansion. However, the redefinition of the corporate strategy for the different underperforming international outlets should occur within the first three months of the next financial year.

Strategic Failures in Culturally Distant International Markets

• Another danger signal that displays issues in the company’s strategy is the failure in countries where there is a large cultural distance with the United States. Successes in countries with similar cultural inclinations to the United States such as Britain and Canada shows that the problem is not the core strategy but the lack of adaptation of the strategy for countries where cultural differences might create problems in strategy implementation.
• The significant root leadership cause that has led to the strategic misapplication in distant cultured countries is the “true believer” phenomenon. The true believer is the leader that sticks to the company’s strategy despite evidence that it is not working optimally to contribute to improved competitiveness. The true believer can impede strategic changes to reflect the realities in strategic implementation. The top management or executives are the most likely people within an organization to fall prey to the true believer phenomenon.
• The person responsible for creating and executing the plan is the regional manager in the international outlets facing problems in achieving optimal financial performance. Since the company’s headquarters might not have a clear understanding of the strategic needs of the international outlets, the local regional managers are better placed to create and execute the plan because of their understanding of the local dynamics influencing the retail industry.
• The plan developed adopts a simple two-fold approach to dealing with the identified danger signal. The solution is meant to help regional managers to incorporate professional knowledge about the local business environment in their management practices.
• Wal-Mart should seek the services of local market consultants to acquire an understanding of the cultural differences with the home environment that might influence business outcomes. This will ensure that the company does not make cultural blunders like it has done in Germany
• The company should use different marketing strategies for the different foreign operating environments while factoring into their marketing strategies the recommendations offered by local market consultants. Changes to the corporate strategies based on the changes in the external business environment will remove the true believer phenomenon of executives and provide more autonomy to the regional managers to develop local strategies that are consistent with the local business environment.
• The person accountable in overseeing the execution of the plan is the regional manager. Based on the hierarchical management structure of Wal-Mart stores, the regional manager has the mandate to report to the head office on the developments at the regional level.
• Success will be measured by consumer feedback and the findings of market surveys on consumer perception of the company. Positive consumer feedback and consumer perception will show that Wal-Mart has managed to adapt to the local consumer. This should reflect in improved financial performance as well.
• Celebrations will occur during the various culturally significant events depending on local cultures and customs. Making celebrations during such periods and active involvement of the company in the local culture and customs will indicate the company’s respect and recognition of the local consumer, thereby improving consumer perceptions of the company.
• The proposed solution is continuous in nature. Consultations and adaptation of marketing strategies depending on the prevailing local culture will be a continuous process to ensure that the company’s management is always aware of the dynamics of local retail industry in order to adapt its local corporate strategy based on these dynamics.