A Case Study of Wal-Mart

Competitive advantage is the achieved advantage over rivals when a company’s profitability is greater than the average profitability in its industry. Wal-Mart’s return on equity over the last 10 years is more than double K-Mart and ROIC is rather high (Exhibit 1), indicating the company has managed to maintain above-industry profitability, thereby creating a sustained competitive advantage. Wal-Mart has successfully operated as a discount store according to their “Everyday Low Price” philosophy since 1970. The discount store industry is a saturated market, with competitors like K-Mart opening stores in nearly all Wal-Mart locations. The industry is in its maturity stage, and therefore, in order to have superior profitability, Wal-Mart’s success lies beyond the industry and can be found within its strategy. There are four building blocks to competitive advantage: efficiency, quality as excellence/reliability, innovation, and customer responsiveness. Wal-Mart places strong emphasis on efficiency (as per their cost-leadership strategy) and customer responsiveness. Wal-Mart has taken a superior position in the discount industry based on the following strategies: 1) Efficient purchasing/distribution system, 2) Productive store operations, 3) Competitive marketing, 4) Differentiated human resources, 5) A dynamic administration, and 6) A strong diversification strategy. The following will analyze these strategies to ascertain the secret to Wal-Mart’s success.

Wal-Mart uses an efficient information system, which is centralized purchasing. Unlike its competitors, the company uses an in-store terminal to wire merchandise requests to a centralized computer. This system enables the company to reduce the amount of time it takes to get merchandise into a store. In terms of distribution, the company utilizes a central computer that is linked to several of their vendors, increasing efficiency. Furthermore, Wal-Mart does business with a multitude of vendors, with no vendor...