Managerial Decision Making Research and Analysis
Managerial Decision Making Research and Analysis
This paper conducts a research analysis of Wal-Mart Company, which is the biggest retail store in the United States and has continued to grow and increase spreading its operations in more than 20 different countries across the world (Roberts, Berg, & ProQuest, 2012). One of the factors, which are attributed to the growth, is good managerial decision-making, which have made the company non-competitive due to the large customer base and low prices that it offers to its customers (Roberts, Berg, & ProQuest, 2012). The ability of the company to offer a large variety of products and services to its customers has played an important role in the growth and development of the company (Roberts, Berg, & ProQuest, 2012). The success and the growth of an organization are largely based on the management of the organization who make important decisions enabling the organization to remain competitive to other organizations in the same industry. Wal-Mart has remained competitive with minimal competition due to competitive strategies implemented by the management (Roberts, Berg, & ProQuest, 2012).
History of Wal-Mart Stores
Wal-Mart Inc is a retail company based in the United States, which operates supermarkets and stores across America and in other countries (Krieg, 2014). This corporation was started by Sam Walton in the year 1962 and is the largest company in the world based on revenue generation with a revenue collection of approximately 486 billion dollars annually (Krieg, 2014). The stores also known as hypermarkets deal with a wide range of products, which can be acquired all under one roof. This includes food and grocery items. This reduces the resources that customers incur in moving from place to place in search of different items, which can use many time and energy resources (Krieg, 2014).
Hypermarkets are aimed at solving all consumers’ needs at one point, which attracts and motivates the consumers and Wal-Mart has over 270 million customers who visit their stores on weekly basis (Roberts, Berg, ; ProQuest, 2012). Currently, Wal-Mart has over 11,700 stores across the world. These facilities take up a lot of space and majority of them are located on the outskirts of the urban areas where customers can easily access and are provided with parking lots for their vehicles (Porter, 2017). Wal-Mart headquarters are located in Bentonville in Arkansas. Wal-Mart also runs retail warehouses in different countries across the globe, which helps customers who buy products in large quantities at low prices (Porter, 2017).
For this to be achieved, members have to pay annual membership fees to be able to shop and access these huge discounts on products (Porter, 2017). Wal-Mart has been able to open retail storehouses in 28 different countries, which include Brazil, Argentine, and Canada (Porter, 2017). Wal-Mart is the largest private employer in the world with over 2.3 million employees across the world and the biggest retailer of grocery in the United States. The Walton family is the major controller of the Wal-Mart company (Porter, 2017).
Graph Showing Its Financial Performance over the Years
PERIOD 2017 2016 2015 2014
REVENUE $500,343,000 $485,873,000 $482,130,000 $485,651,000
COST $373,396,000 $361,256,000 $360,984,000 $365,086,000
GROSS PROFIT $126,947,000 $124,617,000 $121,146,000 $120,565,000
Sources of Risk or Uncertainty in Its Operations
Due to the diversity of its operations, Wal-Mart faces many risks which May affect its operations in the diverse countries it has stores in (Porter, 2017). Some of the risks include natural disasters in countries prone to earthquakes and other natural occurrences, which may affect the normal operations of businesses (Porter, 2017). Wal-Mart operations may also be affected by civil unrests, which may lead to damage, theft, and political instability affecting the gross sales of the company (Porter, 2017). Economic changes may also affect Wal-Mart, which includes inflation, which may affect its income and tax rates paid to the governments of the different countries where their stores are based. Most of these risks are outside the control of Wal-Mart and difficult to mitigate or to adequately prepare for (Porter, 2017).
Other programs operated by the governments, which include nutrition and social assistance programs impact Wal-Mart’s revenue collection (Porter, 2017). Operations were affected for the period ending January 31, 2018 by the winter season in the United States, which largely constitutes Wal-Mart’s market share attributing to 62% of the total market across the world (Porter, 2017). This led to revenue of 4.43 billion dollars a drop of 21% of Wal-Mart’s revenue from 2016. The financial reports indicate changes to the economic environment that ultimately affected the company’s financial outcomes (Porter, 2017). This can be seen in the year 2008 and 2011 when the United States went into the longest recessionary period affecting the sales and revenue of Wal-Mart. This also affected their shareholders who began dropping out of the company and selling their shares (Porter, 2017).
Government Regulations That Have Affected This Company’s Operations Domestically or Abroad
Wal-Mart faces the risk of being in violation of U.S. Securities and Exchange Commission (SEC) and Internal Revenue Service (IRS) rules for the use of tax havens. This could affect its profit margins negatively impacting investors with shares in the company (Krieg, 2014). The United State government requires that revenue collection outside the country be subject to a 35% tax rate, which may incur Wal-Mart a huge cost if forced repatriation is enacted (Krieg, 2014). Due to the many stores across different locations in different countries, Wal-Mart faces the challenge of regulatory compliance, which may incur the company many costs in implementing required rules and policies, which are different in different countries (Krieg, 2014). Some of the costly requirements include workplace standard required in a country like China, which are more complex than in the United States. This brings about regulatory uncertainty (Krieg, 2014).
Non-compliance to these regulatory requirements leads to a heavy fine affecting the company’s revenue collections. Some companies in the past have collapsed due to failure to observe these regulations resulting to heavy fines, which negatively affected the companies’ operations. Some of these companies include Enron and WorldCom (Krieg, 2014). Government regulations in China affected Wal-Mart’s operations abroad when China fined Wal-Mart 10 million dollars for food safety violations. This led to increased operation costs, as Wal-Mart had to pay the fine, and then implement operation strategies to address the issue. This involved implementation of new inspection procedures, increasing the number of training programs for its employees, and recalling the affected products (Krieg, 2014).
Inputs That Are Used in This Company’s Production Function and Any Challenges to Securing These Inputs
Wal-Mart provides products to their customers as well as services (Roberts, Berg, & ProQuest, 2012). Wal-Mart’s products include grocery items, entertainment products, and sporting goods and crafts. Wal-Mart has largely invested in products made, assembled, and grown in the United (Roberts, Berg, ; ProQuest, 2012). Some of the inputs in the manufacturing and production facilities operated by Wal-Mart include agricultural products and other raw materials used in the production of household items (Roberts, Berg, ; ProQuest, 2012). This includes textiles and clothing, small motors, which are, used at home operations, and manufacturing of plastic made items (Roberts, Berg, ; ProQuest, 2012). With Wal-Mart owning majority of manufacturing facilities for their products, the Wal-Mart foundation has implemented strategies to fund research, which is aimed at making manufacturing easier (Roberts, Berg, ; ProQuest, 2012).
Wal-Mart also requires skilled personnel in the production function, as this is necessary in the manufacturing facilities owned and operated by Wal-Mart management (Roberts, Berg, ; ProQuest, 2012). For a large entity like Wal-Mart, adequate workforce is important in the running of operations and in the provision of services to their customers. Any resources that are not available in the United States are imported from other countries, which can be accessed online on Wal-Mart’s website under the shipment profile (Roberts, Berg, & ProQuest, 2012). For this to be achieved, Wal-Mart must use financial resources to access these products and services. Challenges in securing these inputs include the high costs involved in acquiring skilled personnel and setting up manufacturing plants. Taxes relating to the exportation of products from overseas countries also increase the costs related to securing these inputs (Roberts, Berg, & ProQuest, 2012).
Determine If the Company Has Introduced New Products in Existing Markets or Created New Markets over Time
With strategies to expand their operations all over the globe, Wal-Mart has put in efforts in designing new products aimed at increasing customer’s shopping experience and addressing the changing customers’ needs (Bank, Kenny, & Stecher, 2018). Wal-Mart aims at fulfilling customer’s needs at a one stop shopping point. This includes baby products, which were unveiled by Wal-Mart in 2017, creating a new market for young consumers. By enhancing the baby-product line, Wal-Mart has created a new market targeted at the young families, which is an advantage in the coming generation where young families are increasing (Bank, Kenny, ; Stecher, 2018). Wal-Mart also plans to introduce new brands in the market, which include a home decor line and new toys.
Wal-Mart’s chief marketing officer in the United States Tony Rogers stated that as customer’s habits change as well as technology trends and this requires for new brands or modifications of existing brands to be availed to solve the issues (Bank, Kenny, ; Stecher, 2018). This has helped Wal-Mart to avoid a decline in sales that affected most retail stores in 2013 and 2014 where sales decreased drastically (Bank, Kenny, ; Stecher, 2018). The manufacturing process involved with introducing a new product in the market is costly to any organization including Wal-Mart. However, Wal-Mart has benefited from gradual accelerating sales, which positively impact their revenue collection and increased dividends for the shareholders. Although the costs associated with new product innovation are high, Wal-Mart conducts research on the expected trends, which later increase the profit of Wal-Mart (Bank, Kenny, ; Stecher, 2018).
Determine If The Price Of Its Products Increased Or Declined Over Time And Analyze The Reasons For Price Fluctuations. Study The Demand Elasticity For Its Products And Discuss The Availability Of Close Substitutes For Its Products. How Does That Affect Pricing Decisions?
Wal-Mart has maintained low prices all through which have negatively affected their competitors who include Kroger and Target (Bank, Kenny, ; Stecher, 2018). This is a marketing strategy, which Wal-Mart uses to increase their sales and minimize competition from other retail stores (Bank, Kenny, ; Stecher, 2018). Price has a major influence on the performance of majority of business organizations as this has an impact on the consumers of the product or service. Wal-Mart’s slogan is “Save Money. Live Better,” which indicates that price matters a lot to consumers (Bank, Kenny, & Stecher, 2018). Wal-Mart has even implemented a Price Matching Policy, which is aimed at providing products at the lowest price than any competitor. However, there has been a price difference for products shopped online and those shopped offline with online products having increased prices. This has been due to the shipment costs incurred in the delivering of products shopped online (Bank, Kenny, & Stecher, 2018).
Since most of its products are low-priced products, covering shipping costs would negatively affect the company’s revenues. Wal-Mart is committed to low prices, which gives the company an advantage over other companies. This is sustained by Wal-Mart’s demands on low prices from suppliers (Bank, Kenny, & Stecher, 2018). This has kept the demand for its products at an increasing rate, which has been enhanced by the incorporation of technology into the buying process, which becomes easier for consumers to access Wal-Mart’s products (Bank, Kenny, ; Stecher, 2018). The availability of close substitutes affects the prices negatively as Wal-Mart with the use of the Price Matching Policy compares price of products between different companies, which leads to decrease of their prices to help the company in maintaining its customers. Wal-Mart also refunds excess cost of accessing products to affected customers after a pricing match is done (Bank, Kenny, ; Stecher, 2018).
Analyze the company’s profitability. Identify the Economy or Industry Influences on Its Costs, Operations, and Profitability
Wal-Mart’s revenue has been increasing as well as the profits for the last four years (Barroso, Sanguino, ; Alam, 2017) The profit margin for 2017 was $126,947,000, which had increased from $124,617,000 in 2016. This is attributed on the increasing number of customers and the integration of technology in its operations including the shopping process, which has increased their customer base due to the easy access of products and services at a low cost (Barroso, Sanguino, ; Alam, 2017). Future forecasts indicate a rise in the profit margins for 2018 due to the introduction of new products in the market, which have a large customer base.
Wal-Mart has also been negatively affected by the economy negatively where it has faced challenges affecting its operations (Barroso, Sanguino, ; Alam, 2017). This includes regulations on labor costs with the government requiring a minimum wage salary for all employees of private organizations. This has led to Wal-Mart increasing its hourly wages from 1 to 1.75 dollars per hour which has increased the cost of operations. (Barroso, Sanguino, ; Alam, 2017). Economic changes, which include the great recession, also increased operation costs of Wal-Mart. This led to Wal-Mart’s reduced performance resulting to a decline in revenue as customers preferred to shop in other stores, which included the Dollar Stores (Barroso, Sanguino, & Alam, 2017).
Customers stated that the company provided them with greater value products compared to Wal-Mart’s products. Regulatory requirements also influence Wal-Mart’s costs, operations, and profitability (Barroso, Sanguino, & Alam, 2017). This can be seen by the United States requirement that revenue collected from overseas is subject to 35% tax obligation, which affects its operations in overseas countries. The government has also other regulations on the retail industry and mostly on food items where certain standard measures are required in different regions. The implementation of these policies has an impact on the costs related to operations also affecting their profits (Barroso, Sanguino, & Alam, 2017).
Describe the Competitive Environment in Which the Firm Operates, the Distribution of Market Power, And the Strategic Behavior of the Firm and Its Competitors
Wal-Mart operates in a competitive environment from other retail stores, which include Target, K-Mart, and Pet Co which provide the same products and services provided by Wal-Mart (Bank, Kenny, & Stecher, 2018). With Wal-Mart providing a diverse list of products and services all under one roof, the list of its competitors is large making Wal-Mart a unique company (Hammond, DeHerder, & Blatt, 2014). Wal-Mart faces competition from general merchandise retailers, supermarket retailers, and clubs. This industry is constantly growing and changing both locally and internationally. With Wal-Mart having branches in over 20 countries, the competitive environment has also increased with competition in pricing, technology integration, and location (Hammond, DeHerder, & Blatt, 2014). This environment is also affected by economies of scale in the different countries. Wal-Mart market power has been increasing over the year with a large supplier base regardless their low pricing requirements from suppliers.
Suppliers are loyal to Wal-Mart due to the benefits that are associated with a strong retailer and the rapid growth of the company over the past years (Hammond, DeHerder, & Blatt, 2014). Wal-Mart has a strategic behavior used as an advantage over its competitors. This strategic behavior involves Price Matching Policy, which is meant to maintain and increase its customer base (Hammond, DeHerder, & Blatt, 2014). Due to the large customer base that Wal-Mart has, competitor companies have a difficult time in competing with Wal-Mart, which creates a monopolistic environment (Hammond, DeHerder, & Blatt, 2014). Wal-Mart impacts the economy of the United States as it is the largest public corporation. With other companies unable to compete with Wal-Mart, it is evident that Wal-Mart has created a monopolistic market environment, which is further enhanced by the low prices of Wal-Mart’s products decreasing competition from other companies (Hammond, DeHerder, ; Blatt, 2014).
How Does The Company Make Pricing And Production Decisions?
The revenue collected by Wal-Mart is also huge to impact the economy of a country with revenues of up to $ 475 billion annually. Wal-Mart makes pricing and production decisions based on the customer’s needs as well as the competitors prices (Porter, 2017). Wal-Mart carries out price and quality comparisons between products provided by other companies, which are used to determine the pricing of the products. Cost-effectiveness is also considered in the pricing and production decisions as these impact revenue collected. The company has also developed its brand of products to reduce production costs by mass production (Porter, 2017).
Non-Price Competitive Strategies That the Company Might Be Engaging In
With Wal-Mart having an advantage of having the lowest price in the retail industry, Wal-Mart has implemented strategies to lower its operation costs, which influence its gross profit margins (Barroso, Sanguino, & Alam, 2017). Non-price competitive strategies include the integration of technology into their retail services where customers are able to access shopping services using a mobile phone application, which is an advantage over other companies (Barroso, Sanguino, & Alam, 2017). Wal-Mart also produces its products, which are of more value and quality and designed to meet specific customer needs. This makes customers to prefer Wal-Mart’s products, which is an advantage to the company (Barroso, Sanguino, ; Alam, 2017).
Evaluate If The Company Made Any Mistakes In Its Decisions Over Time, And Recommend Any Changes Or Improvements For Future Operations. Refer To the Financial Reports When Making Specific Observations or Recommendations
In 2012, Wal-Mart made a mistake in repositioning store agents positioned at the store’s entrances. This was a strategy implemented in cutting costs to the company (Hammond, DeHerder, & Blatt, 2014). These employees were given new responsibilities within the stores as the company viewed it as unnecessary to have employees welcoming customers at their stores. These greeters are very useful in welcoming shoppers and minimize theft cases in the stores (Hammond, DeHerder, & Blatt, 2014). This decision impacted the company negatively as theft cases increased which affected their gross profit margins. This resulted to Wal-Mart bringing back the greeters and additional responsibilities were added to the greeters, which included checking receipts to prevent and discourage thieves from stealing merchandise from the stores (Hammond, DeHerder, & Blatt, 2014).
Another mistake that Wal-Mart has made in its decisions overtime include decreasing suppliers prices on their commodities supplied to the stores (Porter, 2017). Due to the low prices offered by Wal-Mart, it has resulted to Wal-Mart buying commodities from suppliers at low costs to sustain its profit margins. This is a mistake as supplier may move to other companies, which may negatively affect the company’s operations. Recommendations include selling their products and services at the average prices compared to other companies while at the same time increasing the prices of commodities supplied by suppliers (Porter, 2017).
Wal-Mart has continued to be the most preferred company by customers due to the strategies implemented by the management, which include integration of technology into its system, which allows customers to shop using their mobile phones (Roberts, Berg, ; ProQuest, 2012). Wal-Mart has also provided all products and services required by customers at one point reducing the costs incurred in accessing these products from different locations (Roberts, Berg, ; ProQuest, 2012). The biggest competitive advantage to Wal-Mart is provision of goods and services at the lowest costs compared to other companies. All these strategies are aimed at maintaining and increasing the customer base, which has been successfully achieved (Roberts, Berg, ; ProQuest, 2012). This is all attributed to good managerial decision-making process and for organizations to grow and develop, it is important for them to have good managerial decision-making process and implement researched strategies (Roberts, Berg, ; ProQuest, 2012).
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