Control Mechanisms of Walmart

Running head: CONTROL MECHANISMS OF WAL-MART

Control Mechanisms of Wal-Mart

Dee Dee Brenneman, Jeremy Ferguson, John Marrow, and Ian Weitz

University of Phoenix

Control Mechanisms of Wal-Mart

Wal-Mart is the largest corporation in the world based on sales, or any other metric one would care to employ. Wal-Mart is a multinational firm with 220 billion dollar a year retail sales that is four times the number two ranked retail corporation in the world. Wal-Mart reached this pinnacle of retail through innovation and impeccable management. Through the years the management team at Wal-Mart has instituted many of the basic control mechanisms to increase their effectiveness and efficiency in the marketplace. Four of these controls; bureaucratic, budgetary, financial, and market controls have worked well to make Wal-Mart the unmatched success in the retail world. (Harper)

The continued success of Wal-Mart was carefully planned and developed in 1962 in Rogers, Arkansas by its founder Sam Walton. To achieve his goal of becoming the number one discount retailer Sam implemented control systems that would enable each store to deliver on every front. Sam Walton's implementation of bureaucratic controls allows Wal-Mart to achieve its goal or Purpose, "We save people money so they can live better. Find out what we're passionate about, our strengths and our reason for being." (Walton, 1981) These controls allow the company to offer the same experience in all 7,390 stores by delivering on these three things: Respect for the Individual, Service to our Customers and Striving for Excellence. Unlike the other control functions the bureaucratic controls involve the human element. Missing this control system could lead to dysfunctional behavior and create a breakdown in the system. Wal-Mart embraces employee feedback and has been successful in deploying its bureaucratic controls via its' Grass Roots Process. This process surveys the employees to find ways to improve customer service and better serve the associates.

Wal-Mart uses budget controls to ensure proper allocation of resources amongst its 7,529 units worldwide. The budget control and allocation process enables the company to keep current on sales and expenses to ensure Wal-Mart maximizes product placement and profit. The recent diversification into the grocery business has created more opportunities for growth of the company along with continued growth opportunities for its employees. Wal-Mart's ability to budget resources to its Wal-Mart Supercenters, Wal-Mart Neighborhood Markets, and newly opened Market side Stores, allow it to capture every individual in all demographic areas. Budget controls like these along with many others have allowed Wal-Mart to uncover wasteful spending, improve on best practices and capture market share from its competitors. Wal-Mart has recently been criticized for its extensive foreign product sourcing, low rates of employee health insurance enrollment, resistance to union representation, and alleged sexism. These allegations are being derived from the fact that in order for Wal-Mart to keep driving prices down the company allocates its additional resources to other objectives

The company Sam Walton built has become the world's number one retailer and uses financial controls through various departmental budgets, and reports to show progress toward finical goals. Examples of some of these reports are Comparable Store Sales, the Return on Investment, and Return on Average Cash Flow to Average Debt Ratio, and Free Cash Flow. These reports and financial controls are some of the ways the company show analyst and investors how Wal-Mart is doing compared to the previous year. Financial controls have come under fire recently not only for Wal-Mart but all companies. The disadvantage of financial controls allows companies to move information and numbers around through different accounting practices and reports, which make it difficult for individuals and analyst to compare apples to apples.

Market Controls are one of the prevalent used within Wal-Mart and its business model. These controls are used to maintain market price. Wal-Mart's goal is all about "...saving people money so they can live better." Because of its size and purchasing power Wal-Mart is able to negotiate and regulate prices from its vendors. This gives them an advantage over their competitors because they can undersell the competitor for the same item. Wal-Mart has been criticized on several occasions for having too much of an impact on the market control. This control gives Wal-Mart an unfair advantage over its competition, because of its low price demands on its suppliers.

Wal-Mart is an effectively managed company. Without this efficiency and effectiveness they could not have the highest sales of any corporation in the world. Wal-Mart uses bureaucratic, budgetary, financial, and market controls to measure progress of each business segment, as well as each store, geographical area, and the company as a whole. Wal-Mart sets goals for associates, departments, stores, and districts that are a determining factor in compensation, and continued employment.

Wal-Mart has policies and procedures for almost every possible scenario that is foreseeable by management these bureaucratic controls help in alleviating legal and finical vulnerabilities in their company. They budget down to the smallest department based on forecasts that are updated weekly. These budgetary controls help store and district manager identify areas of lagging sales thus allowing them to take early action to resolve the issues. Wal-Mart's financial controls are complicated to an outsider but still effective. They watch all areas and act to reduce cost and inefficiencies in all manners possible.

Wal-Mart is criticized most often for their treatment of frontline associates and stockers second to that they are criticized for their buying and other practices that squeeze out the competition and even sometimes their vendors. Wal-Mart pays the lowest margins, buys in large quantities, and they have pushed the system to the point that vendors are forced to outsource production to other countries to stay in business. Investors in Wal-Mart are happy with the effectiveness of their management processes and business analysts us them as an example of the right way to manage a company to make money.

Wal-Mart is a large corporation and the company uses its size and stature to make things