WMT as Exemplar II: Diving Into the Details of the Retail Enterprise
Earlier we took a pretty deep dive on WMT(WMT as Performance Exemplar: Re-Think, Re-Factor, Re-Energize), at least from a top-down, strategic perspective that was somewhat well received 
(judging by readership and feedback). Here we propose to "de-construct" that top-down view with a more bottom-up view of key details including the virtual enterprises made up by the different business units, Marketing & Branding, Product Management, Store Operations, International Operations and Support Functions (Logistics, IT). At the same time this exploration serves two other purposes. We ended the last post on innovation(Disruption vs Innovation: Change, Response, Resilience) by pointing to the need for understanding industry dynamics and used the Oil Industry as one of several possible examples. [Other Industry Examples:Auto Market Structure, IT Industry Stack Evolution,Finance Credit Environment, Technomediatainment Stack,Air Industry Network] The processes and functions of the enterprise are as critically important where processes are how you run the enterprise while functions are the things you do. The great re-engineering revolution failed because the consultants doing the analysis created greenfield process architectures that lacked a grasp of the functional details that business experts needed to supply. Those changes still lie in front of us as vital necessities. The accompanying graphic lays out an idealized Retail Enterprise Architecture that is a blueprint for what an ideal Retailer needs to do. And let us re-assure you is that it wasn't invented and composited in a vacuum - it's the result of well over a decade of accumulated work with many retailers of all sizes and across all geographies. [The equivalent graphic for Manufacturer's]. So with all that said let's take our dive into WMT for it's own sake and as exemplar; and keep the enterprise architecture in mind as a checklist.
Business Unit Performance
The accompanying graphic speaks to key business units as enterprises within an enterprise. In fact given WMT's size, scale and scope each of these units is in fact a major industry leader in it's line of business. At the same time each of these business units is embodied in each store in one form or another. Here four key BU's are shown.. Home Furnishings and Apparel are somewhat old hat so let's consider Grocery. Back in the early '90s WMT wasn't in the industry but was thinking about. They went from no presence to, 10 years later, both WMT and Sam's separately were each in the top 10. The industry mounted a massive effort to re-think itself with ALL the industry groups, major retailers and CPG manufacturers and every one of the major consulting groups involved. As it happens I led one of the task forces responsible for re-thinking distribution and store replenishment and we came up with a breakthru in how those operations should work. Like every other major component of this massive initiative (Efficient Consumer Response[ECR]) almost none of them were adopted (on this one, Flow-thru Replenishment - THE critical enabler for complex store level stocking) almost the only adopters were Wakefern (parent of Stop-N-Shop) and (sorta) Target. The real point is that WMT is well along in the process of simlar disruptions in other major industries with it's entry into Electronics and Health. Watch out CC and the pharmacy chains !
Marketing and Store Operations
This next graphic conjoins a complete re-thinking and re-map of WMT's Marketing strategy with Store Operations. For literally decades their motto was EDLP, Every Day Low Price, but they've since evolved that into a major new theme that still builds on that history. That theme is "Save Money and Live Better" which should resonate at any time but is perfectly suited for these times. At the same time they're also carrying it down to the store level. We'll talk more about how that message and strategy is, and must be, carried down to Product Management and discussed Marketing Strategy re-factorings in the prior post. But on the store level, which is vital for making this credible, they're basically taking their blueprint for an ideal store enterprise in, rather like applying the sort of business blueprint we talk about with our BizzXeleration framework, to each and every store. And notice the synergies between changing the store rollout plans, more efficient and controlled capital management and operational level performance improvements. That's what we'd call a virtuous cycle indeed !
Product Management & Logistics
This next graphic links the re-vamped Marketing Strategy to specific product categories. EDLP meant that the sole previous strategy was Price Leadership; now they've expanded that tremendously to create new value-creating dimensions and directions. As shown in the UR corner that means getting the world's best brands into WMT store. It also means, on the store level and in the core enabling operations, other major changes. In fact the LR corner is in some ways the most stunning change. For almost the last two decades WMT has been on the "usual suspects" list for best use of logistics and technology but their highly effective logistics operation was designed to put a standard unit into a standard store and NOT adapt to local sociographics and variable demand patterns. In fact a few years ago when they tried to move up-scale in Target's part of the value-equation by putting more fashionable apparel in their stores the effort failed miserably because the logistics operation couldn't support it (at least as best we could judge). For the LR corner to be feasible, workable and profitable implies a huge re-factoring of those operational capabilities. In other words WMT must have developed a complex and adaptive flow-thru distribution and replenishment operation. Logistics is both the most under-appreciated operatioinal capability, and like none other but IT touches all other aspects of the enterprise, and represents the largest un-tapped source of performance improvement in almost every company in America ! The synergistic links between better links between logistics and the rest of WMT's operations creates yet another reinforcing virtuous feedback loop. Without these changes the entire new Marketing, Product Management and Store Operations strategies would be likel to fail as well. Yet judging from their performance all the piece parts are clicking along in a highly synchronized fashion. Talk about orchestrating a revolution !
International Operations and IT continued below
International Operations
Several years ago WMT went into Japan and Germany and had many challenges...in fact the word failure again comes to mind. At the same time they did much better, though not exceptionally so, in Mexico and Latin America, and eventually in China. Places where their basic EDLP mantra and the associated enterprise blueprint played well. Further along they went full-bore into England by buying a local chain, ASDA, and have since become a force in the market. A particularly challenging one because England is home turf for what we think is the best example of a flexible, adaptable and astute retailer Tesco who thru similar strategic thinking and operational execution managed to drive Marks and Spencer into a defensive crouch and over-take them as the largest and most profitable retailer. But all that doesn't mean WMT gave up internationally as the graphic illustrates. Instead they again re-thought their approach and capabilities and adapted old and new core capacities to the idiosyncrasies of each market's special characteristics. Now they've segmented each market by stage of maturity, created a three-pronged international strategy, developed multiple alternative formats and built up local supplier relationships. If the Chinese want dog's feet WMT will find a good supplier ! Look out Carrefour and Aldi's !
Adaptive Flexabilities
Let's take that down a level and look at their specific strategies in two representative international cases. The UL corner summarizes the overall worldwide opportunity and specifically breaks out Japan, which tells us that they plan to stay and compete thru adaptation and value. It also tells us very explicitly that the highly fragmented Japanese market presents huge under-served opportunities for them. Which, as shown in the UR corner, they are specifically addressing with a carefully thought out and customized operationally-based strategy. Similarly the LR corner takes a major emerging market, Brazil, and indicates the size and scope of the market potential there. Again a decent display of local knowledge and focus. Finally the the LL corner rolls all that up and lays out the quantitative aspects of the overall international strategy. A strategy that shows every promise of being effective.
Technology
The last remaining enabling capability we'll focus on is Technology. An area as we've mentioned where WMT has been one of the top 10 enterprise in the world for decades. The reason they were so effective was that they drove Tech spending by business needs instead of letting tech idiosyncrasies constrain operational capabilities and strategic choices. Tech folks tend to be fascinated by bright shiny things while business folks tend to leave them without adult supervision. Bridging that cultural gap is the other biggest black hole of enterprise strategic re-vitalization and has been for decades. Yet WMT's IT folks haven't been resting on their laurels - far from it. The UL corner is one of the best simple representations of business-driven IT we've ever seen but you may need to decode it a bit to get that. At the top you see how they've aligned their IT focus around each major business unit and/or corporate function. At the bottom you see the major functional objectives and management principles they've developed and deployed to ensure effective alignment is delivered. Finally the next two parts of the graphic show you how their spending is allocated to drive innovation and how they link IT strategy to critical business value objectives. We have to tell you that there are very few enterprises, even very well known ones, that manage their Technology like this. Again WMT qualifies as an exemplar. And again, think about the synergistic linkages back to all the other functional and process components of the ideal Retailer and their strategies.
Closing the Loop: WMT Enterprise Framework
Let's come to the bottomline here by re-using an earlier chart that abstracts and summarizes the new WMT enterprise that we used in the prior post. Like we said earlier if you built this graphic for the old WMT it would be a simple monolithic block with no differentiation. The reason for their prior international failures as well as their attempts to move up-scale. Now they've created an enterprise built around customizable components that can be adapted to each country and region that also has huge new operational capabilities in each critical functional and product area. That means for example that in developed economies they're a new threat to folks like Circuit City with their branded electronics and supporting capabilities. It also means that they have an ability to go effectively into Developed, Emerged and Emerging markets flexibly.
Now the real question is who else has done as much ? Don't think of this as just a WMT story. Think back to the last post on Innovation (Disruption vs Innovation: Change, Response, Resilience) and ask yourselves - who else is prepared to meet the challenges for change, adaptation and innovation that are already here and putting enormous pressures on every firm. Darn few in general we think and fewer yet in Retailing.