Wal-Mart Evaluate How Organization Functions

Wal-Mart Evaluate how organization functions & organizational design

Types of organizational structure business can be structured in several ways, depending on which type of structure fits best its organisational needs. Thus, the most common types of are:

By function - the business is arranged according to the tasks that each department performs. The advantages of such a structure are:

Accountability - the persons responsible for the sections are clearly defined;

Specialisation - each department has its own objectives to focus on;

The disadvantages of such a structure pay respect to:

Resistance to change on behalf of departments;

Time-consuming coordination process;

Lack of focus due to closed communication.

By product/activity - the business is arranged according to each product that it manufactures, or service that delivers to the customer. The advantages are:

Easy to meet customer's needs because the focus is on market segments;

The competition between BUs is a positive one;

Better control, as each BU can be considered a profit centre;

The disadvantages refer to:

Increased complexity as functions are sometimes duplicated;

Weak central control.

By area - organization according to the geographical spread (e.g. regional, country). The advantages of such a structure are:

Easier to meet local customer needs;

Good communication between the firm and its customers;

Positive competition between BUs;

The disadvantages pay respect to:

Increased complexity as functions and resources are sometimes duplicated;

Potential conflict in the local - central management relationship.

By customer - organization according to the specific customer groups, which have different needs to satisfy. The advantages and disadvantages are similar to those mentioned for product-related structure.

By process - for situations in which products go through certain stages to be done. The advantages and disadvantages are similar to those mentioned for function-related structure.

The type or organization made by functions can have 3 complexity levels:

Simple - common for small business. Usually the manager is the same person as the owner and he/she makes all decisions and supervises all activities.

Functional - the responsibilities are divided by function (e.g. finance, marketing, HR, accounting, etc.). The CEO coordinates all functions and is responsible for strategy.

Multi-divisional - common when the company has activities in more than 1 business areas. The organisational functions are replicated in each division the company runs. The CEO is involved in the company's strategy together with the vice-presidents. The CEO is also responsible for balancing the competition and coordination between divisions.

Organisational structure can also be horizontal (matrix) or vertical (hierarchical) according to the relationships between employees. Matrix structures allow for more innovation, stressing on the importance of knowledge transfer and permanent improvement, but in the same time the roles and responsibilities are not clearly defined, which creates authority confusion (D'Annunzio, 2005). Hierarchical structures have a better control over their activities, but they also incur higher control costs.

Organizational functions and structure at Wal-Mart

Wal-Mart is the largest retail store chain worldwide. The American company, that was ranked #1 by Fortune 500 in 2006, made over $300 billion in sales and over $11 billion net income, in the same year. Considered to be one of the largest private employers in the world, the Wal-Mart's personnel size reached 1,900,000 last year.

Wal-Mart has a functional organizational structure, which goes hand in hand with its business strategy: cost leadership.

The functional structure is compatible with this type of strategy as:

this type of structure facilitates specialization and specialization facilitates cost reduction;

cost reduction best practices can be shared among Bus (divisions) within the company;

the CEO can insure that all efforts are coordinated to reach common objectives;

the CEO can encourage responsibility of decision making process of those who are in the right position to do so.

The retailer has the same business strategy of low prices in every country it operates and its marketing activity supports this strategy. Basically, the company has a global control over this function, but it is also aware of the importance of the local content for this type of activity, which is why regional managers are given freedom within limits when it comes to marketing.

The logistics function is strongly connected to the it function as the company's level of automation for the supply chain is very high and writes the best practices in its industry. Suppliers know on permanent basis where there merchandise it and the company know at any point in time the location of any item, the inventory level, etc.

The creation of an it department that works closely to R&D allowed the company to make intensive use of high technologies and be able to reduce costs massively. The great performance achieved by the company couldn't have been possible with dispersed, uncoordinated it and R&D activities.

The recent expansion to Europe and Asia determined the company to implement changes at functional level, which influenced its organizational structure. For instance, marketing maintain its main strategy, but the promotional strategies had to be adapted to the host markets (EU and Asia), which are completely different markets. The financial function suffered changes due to the different accountability system in the host markets.

Overall, the globalization process brought many changes in the company. These changes had to me made for the retailer to be able to compete in foreign markets and they had a significant impact on every level, including the organizational structure.

Organizational design at Wal-Mart

Wal-Mart's strategy is focused on cost reduction. To support that, the retailer maintains its corporate overheads at a low level, has its suppliers tightly integrated, leverages scale economies and has leadership in use of technology (Chapman & Berman, 2006).

These tasks are not easy especially now that the company competes globally and it is more difficult to coordinate its different activities/departments. However, the retailer manages to chose a mix of strategies with respect to organisational design that allows it to maintain the leadership position in both the home market and some of the host markets.