Wal-Mart Strategy

Wal-Mart has enjoyed success in the economic downturn by virtue of their strategy.

For Wal-Mart, their operational efficiency is a means to an end, rather than an end unto itself. Wal-Mart has adopted a low-cost strategy, whereby they seek to derive competitive advantage by undercutting the competition. This involves a significant amount of operational efficiency in order to maintain a lower cost structure than the competition, but Wal-Mart always maintains focus on the reasons why they want to have a lower cost.

Part of Sam Walton's initial strategy for the company was to offer goods in smaller, rural centers for the same prices at which those goods could be purchased in larger cities. This is how Wal-Mart has sought to derive competitive advantage. Their operational efficiency has allowed them to make this a sustainable competitive advantage. The low cost strategy has been successful even in the face of the economic downturn because consumers have been compelled to "trade down" to Wal-Mart during times of restricted cash flows. Existing Wal-Mart consumers remain, because there is nobody to "trade down" to - Wal-Mart is already the lowest cost provider.

The reason why Wal-Mart has been able to succeed with this strategy is because they have always focused on the strategy. Their operational excellence is driven by strategic goals, rather than operational ones. Moreover, each operational goal that Wal-Mart sets directly relates back to its core strategy of being the low-cost provider. When operational goals support strategic ones, they are in general more successful. Porter's lesson is that oftentimes managers focus on operational goals without considering whether or not they support the firm's strategy. Operational success, Porter maintains, is irrelevant if that success does not support a viable long-term strategy for competitive advantage. Wal-Mart succeeds because its operational objectives are explicitly aligned with greater strategic goals.