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Wal-Mart and the Baldrige Award

Executive Summary

Wal-Mart saw a growth rate of just over 10% between 2008 and 2014, but that pales in comparison to competitors like Amazon who boast a growth rate of over 230% in that same time. This might have something to do with the lack of investment into innovations to solve problems that customers repeatedly have. The innovation (perhaps the motivation) to solve these problems remains absent.

While Wal-Mart is repeatedly recognized for different things, the award that Wal-Mart has yet to receive is the Malcolm Baldrige National Quality Award. Wal-Mart simply may not be competitive for it. The Baldrige Criteria attempts to identify and recognize role model organizations, which Wal-Mart may simply no longer be.

Wal-Mart either does not focus on the Baldrige Criteria or they struggle in areas significantly in ways that would render them ineligible. Still, Wal-Mart has been known to benchmark against the Malcolm Baldrige National Quality Award winners who were their vendors. But the practice of consuming the ideas instead of creating them might be another part of why Wal-Mart is not competitive for the award, and why their competitors continue to outpace them.

If Wal-Mart wants to be competitive and otherwise eligible for the award, the operational practices associated with its major organizational functions will need to become available for examination and they will need to share ideas in the required areas as detailed out in the criteria. While it is likely that Wal-Mart will not apply for the Baldrige Award, it is also correct that they likely would not be competitive for it anyway. Wal-Mart must improve in several areas in order to become competitive for the award, and to even remain competitive in the marketplace.


Wal-Mart and the Baldrige Award

The Environment

Wal-Mart was 2014’s number one, Top 100 Largest U.S. Based Retail Companies, on the World’s Largest Retailers List (Farfan, 2014). Basically that means that Wal-Mart is the largest US retail chain in the world. Actually, they are the largest private employer in the world too. In fact, they are the third largest overall employer in the world; next to the US Department of Defense and China’s People’s Liberation Army (Alexander, 2012). The point is that Wal-Mart is huge. Perhaps too big.

As of October 2009, Wal-Mart stores operate in Argentina, Brazil, Canada, Chile, China, Costa Rica, El Salvador, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, Puerto Rico, the United Kingdom, and the United States. Wal-Mart isn’t just big box stores though. In 2010, Wal-Mart confirmed it was acquiring the video streaming company Vudu, Inc. In 2011, Wal-Mart also acquired 51% of Massmart Holdings, which gave the company access to the elusive African countries of: South Africa, Botswana, Ghana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Swaziland, Tanzania, Uganda and Zambia (Wal-Mart, 2014).

Sam Walton, the creator of Wal-Mart, started out his retail career by borrowing $25,000 from his father-in-law to buy his first store, a Ben Franklin franchise in Newport, Arkansas in 1945 (Biography, 2014). Eventually, he owned 15 Ben Franklins. However, Sam’s ultimate vision was not shared with the leadership at Ben Franklin. That vision was to open retail stores in rural areas, the very thing that would make Wal-Mart the powerhouse it would soon be. In 1962 Sam opened up his first Wal-Mart store in Rogers, Arkansas (Biography, 2014). Within fourteen years, Wal-Mart would be a publicly traded company and worth over $170 million.

Today, Wal-Mart has over 11,000 locations and reports a US revenue of over $470 billion. But the Wal-Mart environment is a unique one and ever changing. Many, both inside and outside of the company say that Wal-Mart is a different company today than it was during Sam’s reign, and not in a good way. People suggest that perhaps the priorities are different. Sam died of cancer April 5, 1992, in Little Rock, Arkansas (Martin, 2013). Some say the “real” Wal-Mart died along with him. According to Arkansas Business, “some put the blame on Wal-Mart’s management team, saying it has drifted away from Walton’s essential philosophy…” (Friedman, 2012).

Relationships

Customer relations aside, internally speaking there is a rift that is growing. In Wal-Mart, there is a faction of leadership that is very old school. They focus on old ideas and look out for their buddies. Some could call it the “good ol’ boy system”. On the other side, there is a faction that is very new school, who want to see growth and innovation. This often confuses employees in regard to direction and cultural atmosphere. This also greatly confuses company policies in regard to interpretation and implementation. Ultimately, this creates a level of stagnation in regard to getting things done or having ideas even looked at, let alone implemented. There is a sort of “inside joke” at Wal-Mart in regard to its change; that is to expect change now, but to expect positive change later.

Wal-Mart is not exactly dysfunctional though. Their name and reputation carry a lot of weight. Wal-Mart actually thrives from its relationships with outside vendors and non-competing companies. A new Wal-Mart store will actually boost businesses in the area significantly when a new store is being opened (Walmart-Washington, 2013). This is due to an increase in employment in the area as well as new revenue from the businesses who supply to the store. Other retailers will open up new locations near a Wal-Mart too because they understand the boost and “spill-over” that occurs accordingly. A recent California study confirms that after a new Wal-Mart store opens, revenues for other local retail outlets increase by an average of 10.2% in just the first year (Hatamiya, 2014). From there, it creates a sort of perpetual business/retail model where most in that area benefit from the activity. The opposite can also be true when a Wal-Mart leaves though.

Strategic Situations

From this perspective, Wal-Mart’s strategic situation is beginning to falter. This is evidenced by the drastically low growth rate in comparison to their competitors. Target, Costco, and Amazon are eating up market share at an amazing rate. For example, Amazon boasts a growth rate of 231.9% from 2008 to 2012, compared to Wal-Mart’s 10.3% (NYSE). In fact, Wal-Mart has grown slower than Target, Costco, and Amazon over the past several years and is under-performing its competition in both discount and warehouse sales (Hoium, 2013). True, Amazon and Target have a lot of catching up to do, but with strong growth rates as they have seen over the last several years, to say that it is impossible would be naïve.

This growth from Target and Amazon has a lot to with the shift of online retail purchases by consumers, but it can also be speculated that it might have something to do with the lack of investment into innovations by Wal-Mart. I have argued that limited selection or unattractive products in apparel, home furnishings and consumer electronics add to the problem. Others have pointed the finger at slow checkout service as a result of the company seeking to reduce hours for workers. Environmentalists continue to repeat the idea that Wal-Mart encourages waste by selling low-quality goods, and building warehouse-sized stores. Chances are though; it is more than likely a combination of them all.

Baldrige Criteria and Awards

Wal-Mart is not exactly down or even on their way out. They are still very much a contender in regard to numerous retail aspects, businesses and government entities from around the world continue to recognize this. Wal-Mart has won many awards over the years. An example of this would be their website, which has won the Retail council of Canada Excellence in e-commerce award for providing groundbreaking customer responsiveness (Retailing Today, 2014). Wal-Mart also recently won an award for Outstanding Contributions in Food Safety & Public Health in Shanghai (Wal-Mart Global, 2012). Wal-Mart has even won an award for ‘Coming Back to America’ for its $250 billion program to source American-made goods (Made in the USA Foundation, 2014).

More than that, Wal-Mart is repeatedly recognized for their diversity. Former Wal-Mart CEO Mike Duke was recently inducted into the Network of Executive Women's CPG/Retail Diversity Hall of Fame (O'Neill, 2012). In fact, Wal-Mart is widely recognized as a top employer for women and has won numerous awards for that, including:

  • 2010 Top Companies for Executive Women – National Association for Female Executives
  • 2010 Best Companies for Multicultural Women – Working Mother Media
  • 2009 Top 50 Places to Work for Women by the Times (awarded to ASDA)
  • 2009 Top Diversity Employers for Multi-Cultural – Women Professional Women’s Magazine
  • 2009 Top Companies for Executive Women – National Association for Female Executives
  • 2009 Best Companies for Multicultural Women – Working Mother Media
  • 2009 10 Best Companies for Women – PINK Magazine
  • 2009 Top 12 Companies for Latinas – Latina Style

These of course, just to name a few (Walmart-Washington, 2013).

Still, the award that Wal-Mart has yet to receive is the Malcolm Baldrige National Quality Award. The Malcolm Baldrige National Quality Award promotes the collection and sharing of best practices within successful organizations around the United States (Dean  & Tomovic, 2004). The idea behind the award is to ensure the United States remains competitive against other nations economically and to encourage a sort of “team” environment among American organizations.

This award is given to organizations that excel or show amazing improvement in innovation management, intelligent risk, and strategic priorities, social media, operational effectiveness, and work systems and core competencies (NIST Criteria, 2013). It used to be funded by the government, but due to budget cuts and tax increases instated by President Obama, the Baldrige Performance Excellence Program was eliminated from public funding and now has to acquire funding from participants who want to win the award (Borawski, 2010). Speculatively speaking, one would be hard pressed to imagine Wal-Mart investing in participation on that point alone.

Understanding that every company has its issues, and even though Wal-Mart wins award after award, Wal-Mart may not even be competitive for the Baldrige award in the first place. The Baldrige Criteria for Performance Excellence basically attempts to identify and recognize role model organizations, establish criteria for evaluating improvement efforts, and to disseminate and share best practices in things like visionary leadership, agility, focus on the future, social responsibility, customer driven excellence, managing for innovation, and systems perspectives. (Summers, 2009). Therein lies the problem.

One of two things may be occurring in regard to the areas listed; 1) Wal-Mart does not focus on these areas or 2) Wal-Mart struggles in these areas significantly in ways that would more than likely render them ineligible. Of course, it could simply boil down to sharing information. The idea of Wal-Mart disseminating information is almost laughable. Wal-Mart is rather secretive in many regards, at least that has been the case under their old leadership. Benefit of the doubt; this might change with their new leadership. In February of 2014, Rob Walton announced that Doug McMillon was going to be Wal-Mart’s new CEO. Time will tell.

The irony is that while Wal-Mart has not seemed interested in competing for the award, the Baldrige award has definitely been in the back of their collective minds. This actually goes back to Sam Walton himself who actually benchmarked his practices against the Malcolm Baldrige National Quality Award winners who were vendors to Wal-Mart (Bergdahl, 2007). Many practices in Wal-Mart actually come from other organizations, all the way down to their stretching routines and morning cheer.

Critical Analysis

This practice of consuming the ideas of others instead of creating them might be another part of why Wal-Mart is not competitive for the award, and why companies like Amazon.com continue to grow at such amazing rates. Innovation is a big part of improvement efforts. Wal-Mart is not known for their innovations. They are however; known for taking an idea and making them work great… eventually. There are efforts and the occasional success in regard to innovation sure, but Wal-Mart is simply not known for this.

This is especially true in regard to technology. When the internet was first exploding, Wal-Mart missed the first boat because it did not see internet as a focus or “real” opportunity. They saw it as a fad of sorts. They were thinking in very old ways. It was not until their competitors were making a lot of money that they saw its real potential. In response, they re-vamped their website (again) but other retailers already had their jump and it took years for Wal-Mart to gain any real market share online. Another example in this same regard is that while companies like Amazon.com were figuring out ways to get product to the doorsteps of their customers in two days or less, Walmart.com launched a service called “Site to Store” which enabled customers to make a purchase online and pick up that merchandise in the store of their choosing, free of charge (Wal-Mart, 2014). This is not exactly a competitive posture. This plays into many different aspects really. For instance, Wal-Mart is not really known for their social media skills either.

These points are vital in regard to the position that Wal-Mart is very old in their thought processes. True, there will always be something said about the value of the basics and the fundamentals, but taking “risks” in regard to innovation will always be important. Proof of this is found throughout this paper, and eligibility for the award requires both innovation (risk), and dissemination. Both of which, Wal-Mart simply lacks.

Sure, Wal-Mart is headquartered in the United States, it has been around since 1962, but from what I can tell, the operational practices associated with all of its major organizational functions are not exactly available for examination and as addressed before, another reason why Wal-Mart may not be eligible. Wal-Mart does not share ideas in innovation management, intelligent risk, and strategic priorities, social media, operational effectiveness, or even work systems and core competencies. This combination ultimately makes them ineligible for the award (NIST Eligible, 2013).

That being said and to be perfectly honest, some of Wal-Mart’s major organizational functions and other “innovative ideas” have been known to be “acquired” from other organizations or individuals when Wal-Mart has the opportunity and can see that it might pay off somehow (Norman, 2013). Information could not be found on whether theft of intellectual property disqualifies an organization from consideration, but one can be certain that disclosure of such activity would not be in the better interests of the organization applying.

In all fairness, it should be noted that there are aspects of their operations that they will share. However, this usually comes with a court order or some kind of significant pressure or strategic advantage to make themselves look good. For example, in 2005 Wal-Mart made a public commitment in regard to environment sustainability (Wal-Mart, 2014). Out of almost nowhere, Wal-Mart had announced a goal to create zero waste and use only renewable energy. This was very innovative in the minds of most, and Wal-Mart even went as far as opening up new lines, selling products that sustain people and the environment. This was great PR for the company and it benefited the company substantially in the long run.

However, Wal-Mart Stores have since paid multiple millions of dollars for what prosecutors have said was for negligently dumping pollutants from stores into sanitation drains (Neuman, 2013). Was their environmental generosity a positive change, or a preemptive strike for what would surely be fallout over related lawsuits? The violations occurred between 2003 and 2005 and resulted in $81 million in penalties as part of a guilty plea on criminal charges of improperly disposing of hazardous waste in California and Missouri. This would not be the last time the company was forced to pay out for environmental issues to either state (Neuman, 2013).

Now recently, Wal-Mart has made efforts to promote transparency in their supply chain in regard to their international sourcing. They have released the results of their factory assessments in Bangladesh for instance (Wal-Mart Global Responsibility, 2014). They have also begun to share best practices in regard to their global supply chain and are attempting to share them with other organizations. Still, one cannot help but wonder if this will end up being something similar to their environmental debacle.

Becoming Competitive

Regardless, if Wal-Mart really wants to be competitive and otherwise eligible for the award, there are a few things the retail giant must do. The operational practices associated with all of its major organizational functions will need to become available for examination and it will need to share ideas in areas of required criteria and competencies. Let us look at this a bit deeper.

The operational practices associated with all of its major organizational functions will need to become available for examination in a very open and honest way. Historically speaking, and in spite of the claims of openness and transparency, this will probably not happen any time soon. Wal-Mart will not even let their own people see certain kinds of information, even when it directly affects them and even when the information is already somewhat public. For example, in July of 2014, it was reported that Wal-Mart had argued to the Delaware Supreme Court that shareholders were not entitled to internal documents from an FCPA investigation that might show what executives and directors knew about alleged bribes paid to officials in Mexico (Cassin, 2014).

The public was already aware of much of it though. In 2005, according to documents released by members of the U.S. Congress and a former lawyer for the company, Wal-Mart used a state governor in Mexico to facilitate $156,000 in bribes meant to help open stores. Among details released since then by Waxman and Cummings, Wal-Mart paid at least $273,000 in bribes to local officials and managers of a power company to expedite construction projects (Feeley, 2013). The point is that Wal-Mart is notoriously secretive about almost everything, unless it serves them strategically to be open. This position would need to change in order to be competitive. Of course, this would more than likely also require that the company change a few of its practices ahead of disclosure so as to not expose themselves to more lawsuits.

Wal-Mart would also need to start sharing ideas on their innovation management; that is… if anyone would want them. Wal-Mart boasts US revenue of roughly $476 billion a year. Their big recent news was that they had created a $10 million innovation fund to be spread out over a five year period. This is yet another example of old thinking, if one would want to call it thinking at all. In that five year period, the company will generate roughly two trillion three hundred eighty billion in revenue versus their measly 0.000004% they plan to put back into innovations (Walmart Foundation, 2014). This plays into their intelligent risk and strategic priorities which appear to be faltering as a direct result. In my opinion, this explains their comparatively slow growth.

Meanwhile, companies like Amazon.com who are seeing growth at over 230% are labeled as one of the top innovative companies in the world (Safian, 2012), because the vast majority of their revenue goes right back into figuring out ways to facilitate faster shipments, ideas such as a grocery delivery service and a TV set-top box to compete with Netflix Inc. and Apple Inc. in video streaming and more (Satariano & Frier, 2014). Sure, Amazon reported a $41 million loss on $17 billion in sales, but that is not the point (Clark, & Young, 2013). Amazon is trying to figure out a way to lead the industry and maybe even change the world. Wal-Mart spends their money on old programs, following other companies and trying to defend the “big box” model. They need to increase the percentage or investment into innovations if they want to lead the way into the future. Technological advancement is not slowing down and their intelligent risk is no real risk at all. This equates into a demonstrable lack of strategic priority and their market share is beginning to suffer accordingly.

As far as social media goes, again… Wal-Mart is not exactly leading the way. It would be good if Wal-Mart would again benchmark themselves off of Malcolm Baldrige National Quality Award winners to see what they are doing in this regard. This might also be good idea in regard to operational effectiveness, and even work systems and core competencies because there are other companies that are simply beginning to lead the way in these sectors and leaving Wal-Mart behind. Having your own truck fleet and distribution houses are nice, and they will get you a long way, but these are not the end-all of the program.

Conclusion

While it is likely that Wal-Mart will not apply for the Baldrige Award any time soon, it is also correct that they likely would not be competitive for it anyway based on the information provided herein. Via the provided critical analysis, we can see that Wal-Mart must improve in several areas in order to become competitive for the award, and perhaps even remain competitive in the marketplace. Paramount is their willingness to share ideas on operational practices associated with all of its major organizational functions. They need to become a leader in regard to innovation, intelligent risk, and strategic priorities. Finally, they need greater focus on social media, operational effectiveness, and even work systems and core competencies. Realistically, it would be wise if Wal-Mart attempted to improve in all of these areas regardless of whether or not they even care about the award. If not, just for the sake of their own longevity as a company.


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David Robertson

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