Wal-Mart's Epic Strategy FailAlaina Love
Your team has just spent weeks in a series of strategic planning sessions, reviewing the opportunities and environmental landscape while assessing your strengths and challenges. All of your work has resulted in voluminous binders containing analysis, charts, graphs, tactical plans, and metrics. You've assembled everything that you need for success, right? Guess again.
The grim reality is that most strategies fail. In fact, many different studies have suggested that some 90 percent of them don't live up to expectations. Think of GM's (GM) failed auto design strategies and more recently, Blockbuster's (BLOAQ) lethargic adjustment to the consumer shift to digital media. Just ask retail giant Wal-Mart (WMT), whose U.S. sales have slumped for the past seven consecutive quarters, despite the fact that the big-box retailer seemed poised to slay such competitors as Target (TGT) and Costco (COST) during the economic downturn.
Where did Wal-Mart go wrong? It held seemingly every advantage: a strong brand, discount pricing, new supercenters offering one-stop shopping, and remodeled stores likely to attract new buyers. Yet Wal-Mart failed to effectively address the three stages of any successful strategy: framing the problem, energizing the workforce, and equipping the organization for success. Here are five rules for achieving this triple play, followed by an analysis of where I suspect Wal-Mart went wrong.
1. Frame it: Solve the right problem. Beyond data collection, environmental scans, and traditional SWOT (strengths, weaknesses, opportunities, and threats) analysis lies an important step: engaging all the stakeholders in identifying the problem you're trying to address, rather than solving the wrong problem really well. We call this "framing." It means honestly acknowledging where you are today and developing a strategy for transforming into the organization you want to become. It's accomplished through an examination of the opportunities available, the possibilities you might create, and the capabilities of your organization, conducted within the context of your particular market. Framing includes a fearless review of the company's sacred cows—those programs, strategies, people, or practices deemed beyond criticism or elimination. You must determine which ones to put out to pasture.
2. Paint the picture. Good planning also demands a compelling visual (yes, visual) framework for how the organization will execute its strategies. Imagery and visual frameworks serve as road maps for employees to follow as they execute strategies. Slide presentations and binders swollen with data, charts, graphs, and spreadsheets make no substitute for the power of a picture. You need visual frameworks, too. Pictures provide a holistic perspective of the business so that people know where to focus their efforts during each phase of strategy execution.
3. Execute flawlessly via the workforce. The difference between success and insignificance lies in execution. Without energizing and equipping the workforce, you'll achieve only minimal sustained progress. Follow these steps:
Harness the unique skills and passions of employees.
Help existing staff develop new skills.
Recruit needed talent. Timing is everything. You may find that not all the requisite skills, experiences, or passions exist on the team and that you have insufficient time to develop them. Look for new team members as soon as you identify a gap.
Engender enthusiasm and excitement. If you don't feel truly excited about the new direction, your workforce will feel it—even if your words say the opposite. Leadership is energy.
Invest in team development. Strategy execution works best when individuals understand one another and value the role that each team member plays. Facilitate this understanding and your team will deliver greater effort.
4. Address cultural barriers to success. There is an old saying: "Culture eats strategy for lunch." Ask yourself some questions about your organization's culture. Is it one in which employees feel empowered? Is the leadership style one of command and control or does decisionmaking happen during the customer interface? Does the culture encourage innovation and creativity? Does the company value employee input? Do compensation and performance-management systems support the new strategy?
5. Remember: Conversation rules. Don't confuse communicating to employees with conversing with them. Many organizations develop elaborate communication strategies designed to "cascade down the plan," supported by PowerPoint presentations. Too often these presentations will elicit in workers a feeling of déjà vu followed by skepticism. To lead your organization in a new direction, improve the quality of the dialogue and engage in conversation with employees, individually and collectively, in a way that allows each to offer input that will improve execution.
Wal-Mart Didn't "Frame" Its Questions
So what went wrong at Wal-Mart? The retailer simply failed to address the most critical questions facing its business: Who are our customers now? Who do we want to attract to the customer base in the future? How will we retain both customer types while staying true to our vision and mission? In short, Wal-Mart inadequately framed the problem to be solved.
Based on its actions—creating supercenters, remodeling, decluttering shelves by reformulating its brand mix, going organic—it seemed that Wal-Mart wanted to attract more-affluent consumers who found themselves squeezed by the recession and were searching for high-quality, yet value-priced items such as organic foods and wines, as well as basic household items and electronics. As Wal-Mart moved to attract well-heeled customers in order to capitalize on the economic downshift, it struggled to manage the overhead costs associated with expansion.
The company responded by increasing prices. No longer could Wal-Mart's core customers (households earning $30,000 to $70,000 a year) count on a low-price guarantee on every item, which was especially troublesome since they represented the group most severely affected by the economy. In framing its strategy to expand and remodel to attract new customers, Wal-Mart put its most sacred cow out to pasture—its founding mission of "saving people money so they can live better." Over the last seven quarters, Wal-Mart's grip on the customer sector that helped build the brand has weakened. Meanwhile, discount competitors such as Family Dollar Stores (FDO), Dollar Tree (DLTR), and Dollar General (DG) are anticipated to open 2,400 stores collectively over the next two years, which will nibble away at Wal-Mart's core customer base unless the company responds.
The most vibrant sign of an energized and equipped workforce in the retail sector is the quality of the shopping experience employees provide. Wal-Mart appears to have failed here. Despite the retailer's huge investment in infrastructure—not to mention the greeters who offer a smile and shopping cart at the door—many customers report they find it difficult to obtain help from associates prior to checkout.
The University of Michigan's Customer Satisfaction Index has rated Wal-Mart consistently at the low end of its list since the index began tracking in 2004. Some might suggest that the trade-off for low prices is limited customer service, but in light of Wal-Mart's strategy to capture a new, more affluent customer segment, that philosophy is flawed. Frankly, price-conscious consumers at every economic level value good customer service.
Of course, labor issues—including the class-action filed against Wal-Mart alleging unfair treatment of female employees—make it difficult to energize a workforce. To support a new strategic direction when such a large portion of the workforce says it feels disenfranchised may have been impossible for Wal-Mart. Strategies to resolve the labor problems promptly should have been devised early in the framing stage.
Most of what occurred at Wal-Mart could have been predicted. The quality of the process through which an organization engages in setting strategy and considering possibilities will determine its success—long before the plan is implemented.