Walmart – June 29, 2007

German AliceaKimmie HardinMichael MabenJohn McLaurinKyle Simmons

Current DefinitionsIndustry – World Wide Retail

Market share = ?%

Corporate Level Strategy – Related Diversified

Business Level Strategy – Broad Cost Leadership

Global Standardization Strategy currently trying to improve local responsiveness

Tactics employed:Joint VenturesWholly Owned Subsidiaries (?)Increasing Market Share by opening up more stores/new markets

Strategic DecisionWhether or not to enter the American Consumer Banking Industry

Options:•Open a new bank from the ground up•Acquire an existing bank•Merge with an existing bank•Lease floor space to an existing bank•Stay out of the industry

Facets of the industry:

–credit cards, savings/checking accounts, check cashing, money orders, wire transfers, debit cards, online banking, mortgage generation/servicing, loans, lines of credit, CDs

Porter’s Five ForcesCompetitors (Rivalry) – 

Established banks are a huge threat due to size/history

Faltering banks are an opportunity for acquisition, but also represent a threat if other major banks acquire them

Highly competitive environment, with aggressive mergers/acquisitions climate, as it is less-risky to take on a new bank, and their corresponding customer base, than it is to market to new customers

Risk Of Potential Entrants

Substitute products – 

Non-bank vendors, and e-banking, offerings pose a significant threat - online banking, ATMs, general push towards a cashless society, check-cashing services, tomato can/mattress saving, loans directly from Honda, Dell…

Opportunities exist in all of the above if Walmart can focus on convenience and trust

Opportunity in partnership agreements/co-branding, threats if other banks/retailers do so

Suppliers – 

Federal Reserve/government – the ultimate power?

Armored truck companies – minimal threat as numerous companies compete, opportunity for mergers/acquisitions (vertical integration)

Software vendor (proprietary?) – will need to research Walmart’s current software’s ability to integrate financial functions, but possible (minor) threat of being ‘held hostage’ by vendor, as well as opportunity for Walmart to acquire vendors and/or start/develop its own in-house programmers (likely already have this division in place – need to research)

The greatest threat and opportunity likely isn’t in the form of money supply or transfer agents, but rather in human capital (shifting of employees amongst competitors and/or supply chain partners)

Customers – 

42% of Walmart customers do not currently have bank accounts – great opportunity to service

Individual customers have essentially no power as their business has so little impact

Corporate customers would wield significant power given the size of their debts/assets

Low/no switching costs is an opportunity to gain other banks’ clients, but also represents a threat if Walmart’s customers are not happy with their servicing

Some say: if someone needs a bank account, they already have one (limited client/prospect base?)

Macro Analysis1. Economic – CBA, (past and future expected…… >) interest/inflation/growth/gdp/ exchange rate; and how are we expecting all of this to affect the consumer banking industry; cash on hand reserve requirements (drain on capital); currency fluctuation; NEED TREND DATA

2. Government/legal – FDIC, Federal Reserve, government regulations, Graham-Leach-Bliley Act 1999, retrofitting existing stores to accommodate the legal security measures a bank needs (safes, secure boxes, anti-theft); cash on hand reserve requirements (drain on capital) (retrofitting is also an internal weakness)

3. Technological - What technological trends are affecting the consumer banking industry?

4. Socio-cultural/Demographics – What social trends are affecting the consumer banking industry? Anti-Walmart (and big box) sentiment; brand loyalty; convenience/location; push towards cashless society; cobranding/partnership agreements; loans directly from producers (ie: Dell, Honda)

5. International/global (may be incorporated into above topics)

Industry/Market Analysis1. Competition/industry definition/industry structure/basis of competition (6 %)-Retail Industry-Competitors of Wal-Mart include Kmart, Target, ShopKo and Meijer-Sam’s Club competition includes Costco and BJ’s Wholesale Club-Industry Structure: Wal-Mart is the largest publicly owned business in the United States and is a Franchise Operated structure. Which means they may receive price support from their wholesaler. Price support enables the wholesaler to influence the retail prices set by the operator of the site.*Focus on space leasing and how walmart relates to the banking/pharmaceutical industry*

2. Potential for new entry (entry barriers) (4 %) – economies of scale, brand loyalty, absolute cost advantage, switching costs

Dr Tyler: pick two potential entrants and consider each of the five barriers to entry to see how much threat to each; pick two kinds of suppliers and buyers and evaluate each using porter’s five forces and 6 economically based criteria to determine if each is very low, low, moderate… threat to the industry

Wal-Mart: Low entry and exit barriers. There is always a threat of new entry into the retail industry, and it is especially easy because the retail companies are not producing a product, however Wal-Mart has become so well established there is a greater chance of the government implementing a statutory monopoly, eliminating all competition in the industry. Some of the barriers include consumer loyalty, distributor agreements, and predatory pricing.-Bank (WoodForest)- High entry and Low exit barriers http://www.jstor.org/pss/1056377-Pharmacy- Low entry and exit barriers 

Industry/Market Analysis3. Power of buyers (4 %) – pg. 60 in book (low switching costs…)Buyers have tremendous power over Wal-Mart since they are a retail outlet. Wal-Mart is dependent on both buyers and suppliers to operate, and if one group is unhappy it hurts Wal-Mart in the long run

4. Power of suppliers (4 %) – pg. 61 in book; armored truck companies; software vendors (scalability of current system); threat in the form of human capital transferring among competitors

-Since Wal-Mart operates as a discount distributor, they are at the mercy of their suppliers. If the suppliers choose to increase prices, Wal-Mart in turn has to increase their prices as well. 

5. Substitutes (2 %) – pg. 63 in book

Internal Analysis - CorporateCorporate strategy- centralization, differentiation (via quantity of items to choose from), cost leadership, single business, vertical integration, related diversification, unrelated diversification, global expansion

business strategy- chapter 5, pg 1120 focused/broad and/or cost leadership, differenetiation, distinctive competencies (use abell's framework in discussion) does economies of scale count as a distinctive competency? use table 6.1 from chapter 5 slides- hightlight cost leadership through low product differentiation, mass market segmentation and materials management (ie: rapid inventory turnaround)

Note as well any important tactical strategies and their relationship with the strategic decision (acquisitions, strategic alliances, licensing, etc.)-- entering new business (law/garden, pet supplies, electronics, clothing, gym equipment, groceries, red box, restaurants, tires/oil changes, banks, outsourcing, horizontal integration, internal venturing (leasing floor space?), acquisitions, joint ventures

Internal Analysis - FunctionalFunctional strategies (8-10) most closely related to the decision made, that have led to resources and capabilities or the lack thereof. Try to have these distributed across the organization: marketing, finance, operations, HR, R&D, etc.

- talk about how these MUST lower costs and/or increase perceived value (chapter 4)

functional strategies (not all inclusive)- design products that are easy to manufacture, pioneer process changes, exploit economies of scale, learning effects, experience curve, flexible manufacturing, mass customization, flexible machine cells, increasing demand, retaining customers, JIT, marketing strategies

Resources and Capabilitiespage 101- resources: land, buildings, plant, equipment, inventory, money, brand name, reputation, intellectual property (patents, copyrights, trademarks), technical or marketing know-how

capabilities- a company's INTANGIBLE skills at coordinating its resources and putting them to productive use- ways individuals interact, cooperate and make decisions

Building BlocksWhat building blocks do these resources and capabilities support or fail to support (efficiency, quality, innovation, customer responsiveness) and determine if the strategies in #2 have lead to distinctive competencies, parity or disadvantages related to cost or differentiation and how this relates to the strategic decision made.

Efficiency- customer responsiveness (in offering what customers demand)Economies of scale- is that a building block? Walmart was the innovator

StructureStructure (vertical and horizontal differentiation and integration), control and reward systems (you may need to deduce this or make assumptions)

Vertical Differentiation- centralized: selling virtually the same products at all stores—are trying to move towards a de-centralized structure in some divisions that allows local store/region managers autonomy to change what they stock in each store… going to use data mining technology “they try to force merchandise through the system whether or not local managers and their customers want it”

Large enterprises, such as Wal-Mart, would never consider decentralizing procurement of lower levels. Their solution is to centralize supply chain functions with a small group of experts with powerful computers, and let the computers do all the workHorizontal Differentiation- Multidivisional Structure (aviation and travel, benefits and claims management, business sustainability, corporate affairs, finance, global security, information systems, marketing, merchandising, HR, Real estate/store planning, replenishment (supply chain), store operations, walmart.com

Integration-- WTF??

http://www.time.com/time/magazine/article/0,9171,404212,00.html

Control SystemsControl Systems- 

http://walmartstores.com/sites/AnnualReport/2009/docs/fr_shareholders_report.pdf

Financial- Audit Committee, regularly reviews management’s financial policies and procedures, objectivity of financial reporting. Audited and deemed “effective” in January 2009.Behavior- “disclosure controls” – information is accumulated and communicated to management in a timely fashion. Ethical Standards, adopted statement of ethics, code of ethicsOutput- monitor turnover

Reward SystemsReward Systems- http://walmartstores.com/Careers/7750.aspxStock Purchase Plans w/ company match of 15%Profit Sharing401k

Leadership/Power/Politics/Change/Conflict

Leadership/power/politics/change/conflict (discuss this if it is at all relevant to your decision)

http://investors.walmartstores.com/phoenix.zhtml?c=112761&p=irol-newsArticle&ID=1344705&highlight=

Problem AddressedProblem addressed by the strategic decision, alternative evaluation, and choice (20%, 5 each)

A. Develop your strategic decision alternatives (explain in some detail what they are)Acquiring an existing consumer bank or Joint Venture-Search for both poorly-performing as well as newer(smaller) banks-Either purchase a lot of stock or/ work out a full-out purchase agreement-Make this bank ‘Wal Mart’s’Starting its own bank-Ground-up work-Found a bank (non-investments)-small loans, paycheck cashing, money orders, cashiers checks, simple checking accountsLeasing floor space to an existing bank (outsourcing) – compare multiple-Either add on to existing Wal-Marts/ Clear out space within existing Wal-Marts for bank use (maybe current space leiser’s contracts are about to be up?), or Incorporate into plans for future Wal Marts (all or some)-Draw up contracts with one chosen bank to work in cooperation with Wal Mart (5 year provisional lease?)Staying out of bank altogether -Costs much outweigh the benefits - Stay out altogether 

SWOT AnalysisEvaluate each using the most relevant SWOT discussed above (What are the threats and opportunities evident in the external analysis and the firm’s internal strengths and weaknesses most relevant to the decision). Provide no new information, everything should have already been said.

Acquiring an existing consumer bank or Joint VentureS Boost Company Assets, added diversity, more involved customersW Failing banks could bring down image of wal martOTStarting its own bankS added diversity, Boost Company Assets, more involved customersW Inexperience to runOTLeasing floor space to an existing bank (outsourcing)S added diversity, more involved customersWOT Poorly ran banks would negatively affect Wal MartStaying out of bank altogetherS N/AW N/AO Not take a hit on bank failure, stick to what they do best (and more space for it)T Competitors could get into banking (Costco, K mart, Target) 

Strategic Decision and RationaleChose the most appropriate strategic decision alternative and your rational.

KYLE- add some specific #'s or facts about how much leasing brings in vs how much the company could make from other departments if they were to occupy that space (i.e. if pharmacy was in that space instead of a leased bank, how much would they make?)

Leasing floor space to an existing bank (outsourcing)-Least risky of current options available in order to seek profit, add potential to certain stores, and diversify the company.-Is Wal Mart ready to bank? Most likely not right now, but they’re ready for banking. (not ready to take losses b/c of inexperience, inability to top competitive advantages of current market players) -

BANKING IS NO JOKE!! Talk of blocking wal mart from banking 

Implementation Explain how the company should implement the strategic decision, i.e., do this now, this in 6 months and this in 2 years.**

-(1-3 months) Begin by contacting various banks which Wal Mart shows interest in, and picking one to team up with for “wal mart banking”. Draw up an initial 5-year contract with a provisional renewal (subject to leasing payment amounts, alterations in banking procedures, etc.) and a 1-year operational re-design-(month 4-5) Space Planning: plan out new store plots for all super centers as well as non-super centers, as well as where banks will be situated insided-(month 6) Initiate the incorporation of whichever bank is chosen into the design plans for each Wal Mart super center built from this date out (us based, only).-Build on space if sufficient amounts aren’t already available in any non-super center Wal Marts in which banking would tend to prove profitable (ex: only include banks in Wal Marts where no other standalone banks are within a 1-mile radius, or wal marts in close proximity to appt. complexes)-(month 6) advertise heavily that “wal mart now does banking”, and “+1 capability for your already low-price one-stop-shop local wal mart”-Banks will be located at the fronts of every wal mart, but operate on their own hours (i.e. 9am-5pm).- (1 year out) operational re-designing of bank, profitability analysis performed-(5 years out) Revisions made to original contract, profitability analysis performed, and contract is/isn’t renewed

Questions?