Tag / Walmart

by anthonysmoak

Walmart Technology Brief: April 2019

March 30th, 2019
photo courtesy of technologyreview.com

The King has Left the Building

Jeremy King, Walmart’s Chief Technology Officer for the past 8 years is leaving the company. Mr. King is taking his talents from Bentonville, Arkansas to Silicon Valley. Specifically, to pre-IPO unicorn Pinterest, where he will serve as the company’s Chief Engineering Officer reporting directly to the CEO. CNBC reports that he will be accountable for Pinterest’s “visual discovery engine” that recommends posts and images to Pinterest users. Pinterest had Mr. King pinned on their board as he represents a splashy technical hire that is strategically happening before the company files for an IPO.

King will be replacing Pinterest’s outgoing head of engineering Li Fan who is scooting to become the head of engineering for Lime.

As the head of Walmart Labs, King was instrumental in revamping the company’s e-commerce technology and bringing cutting edge innovations to stores such as automated shelf scanning robots, in-store pickup and grocery delivery. He led the company through more than 10 acquisitions and spearheaded the organization’s transition to the cloud (although not the Amazon Cloud for obvious competitive reasons).

He also championed open source development at Walmart due to the company’s “build rather than buy” philosophy. The organization has historically held the belief that their information systems provide a competitive advantage over other industry players. Additionally, a third party developing custom systems for an organization the size of Walmart would encounter a Herculean task. The Wall Street Journal quoted King as stating, “You would be surprised at the list of companies that have completely choked on Walmart’s scale, because no one really builds products for Fortune One,”.

King’s last day with Walmart is March 29th 2019.

JetBlack

The Wall Street Journal reported on Walmart’s upscale, member’s only, text to order service that is targeted to wealthy NYC moms. For $50 a month, a small beta group in Manhattan will have access to personal shoppers/couriers that will white-glove deliver any non-food item on the same day as the order. The service, named “JetBlack”, is being helmed by Jenny Fleiss of Rent the Runway fame.

The items are wrapped in black (the “Black” in JetBlack) and the idea is a pet project of Jet.com co-founder Marc Lore (the “Jet” in JetBlack). Currently, the initiative is not profitable but its larger aim is to train AI powered systems that could one day “..power an automated personal-shopping service, preparing Walmart for a time when the search bar disappears and more shopping is done through voice-activated devices,” per Jenny Fleiss. JetBlack is essentially a research initiative on AI.

Surprisingly, the service does not restrict users to items only available through Walmart properties and subsidiaries. If a customer wants an Amazon product, then JetBlack will complete the request. Why the customer wouldn’t just order off Amazon themselves is anyone’s guess.

Walmart will be able to inventory the products that their members use after an initial in home visit and the company is building up a trove of data on the products that their wealthy clients order. In this age of data as power, Walmart is taking steps to gather valuable data on upscale clientele which could prove useful in its ongoing battle with Amazon.

Walmart Games?

A number of established tech players have announced or not officially announced their intentions to bring video game streaming to the masses; “Netflix for gaming” is the metaphor. Removing expensive hardware from the gamer equation and running games from giant data centers enables gamers to game with nothing more than a browser, tablet or smart phone.

Google made a big splash recently when it unveiled its cloud based gaming platform named Stadia at the 2019 Game Developers Conference. Microsoft has xCLoud, Amazon has a yet unnamed gaming platform and even Verizon is testing a gaming app on Nvidia Shield.

Walmart, yes Walmart is also rumored to be in on the action with the development of their own streaming game platform. Before we dismiss this as a flight of fancy, consider that Walmart already owns streaming video platform Vudu, where it can leverage existing technology and resources.

It is not known how far along Walmart is in the development process but I would suspect that this initiative is once again driven by the need to keep pace with Amazon.

For more Walmart technology coverage please check out Part 1, Part 2 and Part 3 of my series on Walmart’s overall technology strategy.

Additional Walmart technology coverage can be found here

If you’re interested in Business Intelligence & Tableau check out my videos here: Anthony B. Smoak

References:

  1. Pinterest hires Walmart CTO ahead of IPO. CNBC. (March 21, 2019). https://www.cnbc.com/2019/03/21/pinterest-hires-walmart-cto-jeremy-king-ahead-of-ipo.html
  2. Pinterest Pins Tech Hopes on Walmart Technology Chief. Wall Street Journal. (March, 21, 2019). https://www.wsj.com/articles/pinterest-pins-tech-hopes-on-walmart-technology-chief-11553209071
  3. Walmart Builds a Secret Weapon to Battle Amazon for Retail’s Future. (March, 21, 2019). https://www.wsj.com/articles/walmart-builds-a-secret-weapon-to-battle-amazon-for-retails-future-11553181810
  4. Walmart May Follow Google’s Cue On Game Streaming. Android Headlines. Report (March 22, 2019).https://www.androidheadlines.com/2019/03/walmart-google-game-streaming-service.html
  5. Walmart is reportedly considering taking on Google and Microsoft with a video game streaming service. Business Insider. (March 21, 2019). https://www.businessinsider.com/walmart-video-game-streaming-google-stadia-2019-3

All views and opinions are solely my own and do NOT necessarily reflect those of my employer.

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by anthonysmoak

The Definitive Walmart E-Commerce and Digital Strategy Post

Introduction:

Walmart has long been a dominant player in the traditional “bricks & mortar” retail space. The retailing giant has about 4,600 stores in the United States and about 6,000 stores worldwide that helped it generate fiscal year 2017 revenues of $485.9 billion. However, this retailing “Death Star” has a weakness as technological changes and innovations in its industry represent both an opportunity and a threat. The biggest threat to Walmart is the consumer preference shift from traditional in-store purchases to on-line digital channels. E-commerce is a small piece of the retail pie currently (roughly 10.4% of all retail sales in 2015), but it is growing at a pace that is much faster than growth at bricks and mortar locations. If Walmart does not evolve to defend its dominant market position, the company will erode (see Montgomery Ward, Woolworths, K-Mart, Sears) allowing other industry competitors to capitalize.

Previous disruptions in the retail space have not been kind to dominant players. Sears was able to overtake dominant retailing incumbent Montgomery Ward in the 1950’s by aggressively investing into suburbs (which was a new phenomenon for the time), while Montgomery Ward skittishly hoarded cash in anticipation of another great depression [1].

Walmart is not willing to be a Montgomery Ward in this scenario as the company became aware of the risks of e-commerce underinvestment and complacency. However, e-commerce giant Amazon is more than willing to be Sears in this example by over-investing in the more recent retail business model (e-commerce). Furthermore, Amazon recently encroached into Walmart’s home turf (i.e. physical locations) by purchasing Whole Foods for $13.7 billion. This high profile acquisition signaled to Walmart and the rest of the retail industry that Amazon is willing to take unanticipated bets to develop a competitive advantage across multiple channels.

Walmart certainly has a challenging road ahead if it wishes to catch Amazon in overall e-commerce sales but it is finally competing effectively. Although the company does not break out specific e-commerce dollars, it stated that its e-commerce sales had increased 64% domestically in the first quarter of 2017. Consider that Amazon generated $136 billion in annual sales during 2016, which accounted for half of all online shopping in the United States [2].

“With approximately 160 million items for sale, Amazon has become the go-to outlet for anything. In comparison, Walmart.com sells “only” 15 million items — and just 2 million of them are available for the free two-day shipping. It’s no wonder 52% of online shoppers start their search on Amazon, according IHL Group.” [3]

Walmart will not be able to overtake Amazon’s position as the dominant e-commerce player in the near future, but the company is positioning itself to remain competitive.

Walmart’s Main Strategic Risks in E-Commerce

Walmart’s annual 2017 10-K filing (a comprehensive summary of financial performance) details the strategic risks that the company faces. As mentioned previously, Walmart is aware of the risks of e-commerce underinvestment and complacency. Consumer preferences are shifting to shopping online and mobile platforms.

Failure to grow our e-commerce business through the integration of physical and digital retail or otherwise, and the cost of our increasing e-commerce investments, may materially adversely affect our market position, net sales and financial performance [4].

Many companies fail to adequately capitalize on the shift in consumer preferences (e.g. Smith Corona, Blockbuster, Kodak), while other firms are able to successfully capitalize (e.g. Intel, Apple). Unsuccessful companies either refuse to risk capital, lack the vision, or lack the execution competency to produce the new products and/or technologies necessary to maintain success. With that being said, Walmart plans to increase its investments in e-commerce and technology, while moderating the number of new store openings.

Screen Shot 2017-06-11 at 5.52.14 PM.pngFigure 1. [4]

Walmart’s capital expenditures back up its strategy. Observe that a $1.023 billion reduction in new stores and clubs dove-tails with a $199 million dollar increase in already impressive expenditures related to information systems, distribution and digital retail ($4.162 billion line item).

Walmart recently divested itself of its Walmart Express brand which contributed to the reduction in new store capital expenditures. These convenience store sized locations were originally conceived in 2011 to compete in the price conscious dollar store segment. Dollar General (a digitally un-savvy competitor) purchased 41 Walmart Express stores and plans to rebrand them under the Dollar General moniker. In an age of stalled wage growth, Walmart is experiencing pricing pressure from both Dollar General and Family Dollar for the most price conscious consumers.

The bottom line is that Walmart has to walk a fine line in the implementation of its e-commerce strategy. On the one-hand, the company may not be successful in implementing and integrating its physical and digital retail channels. As of late the company has been criticized for “overpaying” for growth in regards to its acquisitions. If its e-commerce acquisitions underperform or sustain large losses, this can harm Walmart’s market position and financial performance.

On the other hand, if the company is “too successful” with their e-commerce strategy, the company runs the risk of lowering physical store traffic which could also adversely impact in-store economics. The company seems to be facing a “dammed if you don’t, damned if you do” conundrum.

“The challenge for Walmart, and for all other retailers in the e-commerce era, is to protect both sales and profits. But these goals nay be mutually exclusive. Retailers face pressure to offer both free shipping and competitive prices, which generally makes selling a product online less profitable than doing so in existing stores. To expand sales online, retailers must spend on technology, which squeezes margins further. Making matters even worse, retailers are often not gaining new customers but simply selling the same item to the same person online for less profit. ‘You pour from one bucket into a less profitable bucket,’ explains Simeon Gutman of Morgan Stanley.” [5]

Backend E-Commerce Acquisitions

Walmart’s initial e-commerce forays focused on acquiring companies that helped bolster its prowess in backend technologies. This approach was a departure from the company’s traditional “build rather than buy” philosophy which helped it obtain and retain technological competitive advantages in its supply chain processes. Its research division @WalmartLabs, augmented its e-commerce war chest by making multiple purchases in the first half of the decade. “Between 2011 and 2014, Walmart acquired 15 small companies tied in some way to e-commerce. The other thing most of them had in common was that they were selling for a bargain after failing to attract a new round of venture funding.” [6]

For example, in 2013 @WalmartLabs purchased a company named Inkiru for its predictive analytics technology to target customers in marketing campaigns. The company purchased Kosmix in 2011 to revamp its Walmart.com search capabilities; a project known as Polaris. Site optimization start-up Torbit was purchased in 2013 to optimize page loading of its e-commerce sites. The acquired technology compresses files to an optimum size based upon display by phones, tablets or desktops. The company also purchased Adchemy for its strong pool of data scientists and PhDs who have specialized knowledge in the areas of ad technology and search engine optimization (SEO).

As an aside, “CEO Murthy Nukala and four top executives all got payouts of between $1.5 million and $2 million in the deal” while employees who held common stock saw their holdings become worthless [7]. 

The point of these acquisitions along with others of similar characteristics, was an attempt to grow e-commerce sales organically.

The Acquisition of Marc Lore and Jet.com

cdn.corporate.walmart.jpg

Walmart learned that it is both difficult and time consuming for a firm to obtain organic growth intrinsically. When asked of his biggest regret at the helm of the company, former CEO Mike Duke who held the position from 2009 to 2013 said that the company should have moved faster to expand in e-commerce. One could draw the conclusion that Walmart either believed that growth in e-commerce would shift too much volume from bread and butter physical stores or that Amazon’s rise to e-tail prominence was not a significant threat to its dominant market position.

“When I look back, I wish we had moved faster. We’ve proven ourselves to be successful in many areas, and I simply wonder why we didn’t move more quickly. This is especially true for e-commerce. Right now we’re making tremendous progress, and the business is moving, but we should have moved faster to expand this area.” – Former Walmart CEO Mike Duke [8]

As Walmart’s sales growth continued its trend downward, new CEO Doug McMillon was tapped in 2014 to implement a new e-commerce, digital and technology focused strategy. In fact, for the first time since Walmart became a publicly traded company in 1970, annual sales shrank for the first time in 2015. McMillon was asked why did it take so long for Walmart to get into e-commerce and if the profitability of their original model affected its urgency to change. McMillon responded.

“We wish we had been more aggressive early on, no doubt. In some ways we experienced what Clay Christensen calls the ‘innovator’s dilemma.’ We hired talent, invested, and just kind of meandered along rather than hammering down, being aggressive, and making it a must-win aspect of our business. That’s partly because we had a bird in hand. We knew that if we continued to open Walmart Supercenters, they would do well.” – Walmart CEO Doug McMillon [9]

McMillion, true to his mandate, made a splash by acquiring online retailer Jet.com for 3.3 billion in cash and stock. The deal is reported to be the largest ever purchase of a U.S. e-commerce startup [10]. There were multiple reasons stated by the company for making a splashy purchase of this nature. However, the crown jewel of the acquisition was the procurement of e-commerce wunderkind Marc Lore who was immediately tapped to head both Jet.com and Walmart.com.

Marc Lore established his digital retailing bona fides by founding Quidisi. The start up was known for its diapers.com and soap.com sites amongst others. Quidisi was sold to Amazon in 2010 for $550 million. The purchase of Quidisi at the time was an attempt by Amazon to stifle competition.

“Amazon was slashing the price on diapers on its own site, putting pressure on Quidsi’s margins and making outside investors hesitant to put in more money. Furthermore, Amazon promised to keep dropping prices if Quidsi sold to Wal-Mart.” [15]

Lore stayed at Amazon for two years and then left to ponder his next move. Subsequently, in 2014 Lore founded Jet.com based upon the premise of charging members a yearly fee, encouraging consumers to buy in bulk and incentivizing consumers to purchase items from the same distribution center to lower product prices. On the strength of his name and new business model, Lore was able to raise $500 million in investment capital on this venture. Lore earned $243.9 million in 2016 making him the highest compensated CEO in the United States after the sale. Expect Lore to be at Walmart for at least five years, as he will lose substantial compensation if he exits beforehand.

Walmart previously missed out on buying Quidisi in 2010 as both Walgreens and Amazon were in a bidding war for Lore’s e-commerce property. Walmart decided with the Jet.com acquisition that they were not going to lose an opportunity to buy Marc Lore’s services again.

How Will Walmart Benefit from Jet.com?

walmart_jet.gif

In just one year of operation, Jet.com scaled up to 12 million different products and reached a run-rate of $1 billion in gross merchandise value [11]. With this acquisition, Walmart is buying additional diversity of online product offerings. The brands that Jet.com offers are those that appeal to consumers that reside outside of Walmart’s more suburban, rural, older cost conscious demographic. Jet.com’s brand positioning is targeted to younger, “urban”, millennials who constitute a faster growing demographic than the demographic that Walmart has traditionally attracted. Walmart plans to keep the Jet.com brand identity separate from Walmart.com. Jet.com has relationships with more upscale brands that may not want to sell their products on Walmart.com. Additionally, this brand separation helps maintain Jet’s appeal to higher income consumers.

According to CNBC, Jet.com shoppers are more likely to have $150,000 and up incomes. Additionally, only 20% of Jet.com buyers also purchased from Walmart.com in the past six months (as of August 8th, 2016) [12]. There was little overlap between the customer bases of both companies making the acquisition by Walmart highly attractive. Furthermore Jet.com’s innovative supply chain business model and focus on low prices dovetailed with Walmart’s penchant for supply chain innovation and focus on low prices. Here is how Marc Lore described the company’s novel “smart cart” business process:

“Here’s how it works: If you have two items in your cart which are both located in the same distribution center and can both fit into a single box, then you will pay one low price. If you add a third item that is located at a different distribution center and cannot be shipped in a single shot with the other two items, you will pay more. As you shop on the site, additional items that can be bundled most efficiently with your existing order are flagged as ‘smart items’ and an icon shows how much more you’ll save on your total order by buying them.”

It should be noted that Jet was experiencing a high cash burn rate prior to being acquired by Walmart. Jet.com dropped its annual $50 membership fee which caused it to lose money on every shipment. The advantage of Jet.com being acquired by a deep pocketed industry player like Walmart was to help alleviate the stress of private fund-raising for an unprofitable company [13].

Walmart has to allow Jet.com to maintain its startup, entrepreneurial culture or risk losing talent. For instance, Walmart’s conservative, southern influenced culture clashed with the office drinking, happy hour culture of Hoboken New Jersey based Jet.com. Walmart eventually reversed course and did not impose this “in-office prohibition” rule on subsequent startup acquisitions. However, the more conservative Walmart did ask Jet employees to be mindful of swearing in the office [14].

Jet.com has the potential to infuse Walmart with much needed digital innovation. This fresh perspective has the potential to add tremendous value to the organization as a whole. The “old guard” rooted in Walmart’s core business model needs to allow acquisitions to thrive instead of imposing the more conservative legacy culture. According to CEO McMillon, the core business itself must learn to become more digital.

“The people who run the older parts of our business must also become digital. We can’t have some people live in yesterday while others live in tomorrow. And given the effects of inertia, we need people to lean into the future even more than other companies might. We’re trying to move large numbers of people to change their established habits.” [9]

E-Commerce Executive Shakeup

There was an immediate shakeup in the executive ranks once the Jet.com acquisition materialized. Neil Ashe, Walmart’s global e-commerce head previously ran CBS Interactive and had been named head of technology shortly before the acquisition, was transitioned out to make room for Marc Lore. Lore will assume the title of president and CEO of e-commerce at Walmart. Lore will head not only Jet.com but also all of Walmart’s e-commerce functions. Also leaving is Michael Bender, Walmart’s global e-commerce COO.

Fernando Madiera who previously headed Walmart.com and was previously CEO of Walmart’s Latin American e-commerce business was transitioned. Mr. Madiera had just taken the Walmart.com post in 2014. Other high level executives that transitioned were Dianne Mills, senior vice president of global e-commerce human resources; and Brent Beabout, senior vice president of e-commerce supply chain. Not even Wal-Mart’s chief information officer Karenann Terrell was spared, as she left the company late February of 2017.

Key executives from Jet.com that will join Marc Lore’s new team include Scott Hilton who was previously chief revenue officer at Jet.com. Jet.com co-founder Nate Faust will become the senior vice president for U.S. eCommerce and supply chain for Walmart’s domestic operations.

The point of this game of executive musical chairs is to provide Marc Lore with the executive team he deems necessary to launch an effective attack on Amazon’s e-commerce dominance. Walmart has 3.3 billion reasons to make sure Lore feels he has the necessary team in place to win.

Walmart & Jet.com E-Commerce Timeline

  • February 2016: Jet.com purchases online furniture retailer Hayneedle.com for $90 million. The move is seen as way for Jet.com to acquire revenue growth. Of note, the Hayneedle CEO (John Barker) received a parachute package worth $3.4 million while other employees saw their investment stakes effectively wiped out.
  • August 2016: Walmart purchases Jet.com for $3.3 billion. The deal is reported to be the largest ever purchase of a U.S. e-commerce startup.
  • January 2017: Jet.com purchases Boston based ShoeBuy for $70 million. The purchase increases Jet’s online catalogue of items substantially and will allow the same items to be sold across Walmart.com, Jet.com and Shoes.com.
  • February 2017: Walmart purchases hip Michigan based outdoor retailer Moosejaw for $51 million. Moosejaw sells brands like Patagonia and North Face online and in its 10 brick and mortar stores. Moosejaw has expertise in online sales and social marketing that Walmart wishes to tap. Moosejaw and Its 350 employees will continue to exist as a standalone subsidiary.
  • March 2017: Jet.com purchases women’s online clothing retailer Modcloth for $75 million. The site caters to size diversity and body positivity. The acquisition represents an attempt to appeal to a younger, hipper demographic than Walmart currently courts.
  • March 2017: Walmart launches a Silicon Valley based tech incubator called Store No. 8. The initiative is named after a store where Sam Walton was known to experiment. Walmart plans to invest in businesses like a venture capitalist firm would and then grow this group of startups as a portfolio. “The incubator will partner with startups, venture capitalists and academics to promote innovation in robotics, virtual and augmented reality, machine learning and artificial intelligence, according to Wal-Mart. The goal is to have a fast-moving, separate entity to identify emerging technologies that can be developed and used across Wal-Mart.” [18]
  • June 2017: Walmart purchases NYC based men’s clothing retailer Bonobos for $310 million. The brand started modestly by selling chino pants and expanded its line of offerings for sale in its own stores and in Nordstroms. “Its co-founder and chief executive, Andy Dunn, will oversee Walmart’s digital brands, which also include the independent women’s brand ModCloth.” [16] Passionate Bonobos fans have mocked the acquisition on social media snarkily asking if the popular chinos will be refitted for the average Walmart customer.  Bonobos has a vertically integrated supply chain as it designs and manufactures all products in-house, which allows it to cut out middlemen costs [17]. Walmart is eager to tap founder Andy Dunn for his expertise in this area.

Peddling upscale merchandise will allow Walmart to expand its reach from low and middle income consumers to a more affluent base. As middle income consumers slowly shrink, Walmart is diversifying its customer base.

“Between 2000 and 2014, middle-class populations decreased in 203 of the 229 metropolitan areas reviewed in a Pew Research Center study. In an economically divided America, Walmart has tried to sell not only to shoppers looking for extreme discounts, but also to shoppers with higher incomes seeking higher-quality items. Walmart has been working to increase its sales to more affluent customers for years, especially in e-commerce.” [19]

Conclusion

Walmart’s e-commerce strategy appears to be reaping dividends as of the writing of this post. As mentioned earlier, Walmart stated that its e-commerce sales had increased 64% domestically in the first quarter of 2017.

For years, Walmart has dominated the retail space with its low cost/low price strategy (see my Micheal Porter post). In today’s e-commerce environment, the key is to compete on low prices and convenience, as well as appeal to diversified income groups. Only time will reveal if Walmart has the innovative capacity and leadership to overtake Amazon. The company is making bold bets in the e-commerce space and is aware of the shift in consumer preferences.

Walmart’s core business must be willing to be disrupted by its internal innovators. The current retail landscape is one of declining profits and closing stores. The organization as a whole must not be ideologically wedded to its massive assortment of physical stores while ignoring threats from outside competitors (namely Amazon).

Additionally, Walmart cannot ignore fresh retail ideas emanating from internal disrupters like Marc Lore, Andy Dunn or successful Store No. 8 startups if they materialize. The company must cross-pollinate successful ideas and quickly post-mortem and move on from unsuccessful ones. If Walmart continues to buy online growth at the expense of organic growth, then it must ensure that it does not continually overpay for growth and assets. If its e-commerce acquisitions underperform or sustain large losses, this can harm Walmart’s market position and financial performance.

For more Walmart coverage please check out Part 1, Part 2 and Part 3 of my series on Walmart’s overall technology strategy, where I address areas such as:

  • Strategy for Technology Infrastructure
  • Strategy for IT Capability & Staffing
  • Strategy for Information Risk & Security
  • Strategy for Stakeholder Requirements, Testing & Training/Support
  • Project ROI and Key Success Measures
  • Strategy for Data Acquisition and Impact on Business Processes
  • Strategy for Social Media/Web Presence
  • Strategy for Organizational Change Management, Project Strategy and Complexity

If you’re interested in Business Intelligence & Tableau check out my videos here: Anthony B. Smoak

References:

[1] Kaufman L. & Deutsch, C. Dec 29, 2000. Montgomery Ward to Close Its Doors. New York Times. http://www.nytimes.com/2000/12/29/business/montgomery-ward-to-close-its-doors.html

[2] Abrams, R., May 18 2017. Walmart, With Amazon in Its Cross Hairs, Posts E-Commerce Gains. New York Times. https://www.nytimes.com/2017/05/18/business/walmart-online-sales-jump-63-percent.html?mcubz=0

[3] Yohn, D., March 21, 2017. Walmart Won’t Stay on Top If Its Strategy Is “Copy Amazon”. Harvard Business Review. https://hbr.org/2017/03/walmart-wont-stay-on-top-if-its-strategy-is-copy-amazon

[4] Walmart STORES, INC., ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 31, 2017. http://d18rn0p25nwr6d.cloudfront.net/CIK-0000104169/c3013d40-212d-409e-bf30-5e5fd482fc2f.pdf

[5] The Economist. June 2, 2016. Walmart: Thinking outside the box. As American shoppers move online, Walmart fights to defend its dominance. http://www.economist.com/news/business/21699961-american-shoppers-move-online-walmart-fights-defend-its-dominance-thinking-outside

[6] Levy, A. April 24, 2017. Is Wal-Mart’s New E-Commerce Acquisition Strategy Any Better Than Its Old One? https://www.fool.com/investing/2017/04/24/is-wal-marts-new-e-commerce-acquisition-strategy-a.aspx

[7] Edwards, J. May 27, 2014. Some Employees Are Furious At Management Payouts In Walmart’s Big Adtech Acquisition. http://www.businessinsider.com/adchemy-stock-payouts-in-walmartlabs-acquisition-2014-5

[8] Lutz. A. Dec 12, 2012. Walmart CEO Mike Duke Shares His Biggest Regret. Business Insider. http://www.businessinsider.com/walmart-ceo-shares-his-biggest-regret-2012-12

[9] Ignatius, A. March 2017. “We Need People to Lean into the Future”. Harvard Business Review. https://hbr.org/2017/03/we-need-people-to-lean-into-the-future

[10] Nassauer, S. Nov 1, 2016. Wal-Mart E-commerce Executives Depart in Wake of Jet.com Purchase. Wall Street Journal. https://www.wsj.com/articles/wal-mart-e-commerce-executives-depart-in-wake-of-jet-com-purchase-1478038997

[11] Gustafson, K. August 8, 2016. Wal-Mart: This is why Jet.com is worth $3.3 billion. CNBC. http://www.cnbc.com/2016/08/08/wal-mart-this-is-why-jetcom-is-worth-33-billion.html?view=story

[12] CNBC Interview with Marc Lore. Aug, 9. 2016. https://www.nytimes.com/2016/08/09/business/dealbook/walmart-jet-com.html?mcubz=0

[13] Abramsaug, R. & Picker, L. August 8, 2016. Walmart Rewrites Its E-Commerce Strategy With $3.3 Billion Deal for Jet.com. New York Times. https://www.nytimes.com/2016/08/09/business/dealbook/walmart-jet-com.html?mcubz=0

[14] Baskin, B. & Nassauer, S. June 25, 2017. It’s 5 O’Clock Somewhere—Unless You’ve Been Acquired by Wal-Mart. The retailing giant bought Jet.com for $3.3 billion, then had to cope with its weekly happy hour. Wall Street Journal. https://www.wsj.com/articles/its-5-oclock-somewhereunless-youve-been-acquired-by-wal-mart-1498410840lipi=urn%3Ali%3Apage%3Ad_flagship3_feed%3Bu3d9V%2FcPTBqo%2BB0cP7nSZQ%3D%3D

[15] Levy, A. August 9, 2016. Why Wal-Mart couldn’t let Jet.com’s founder get away…again. CNBC. http://www.cnbc.com/2016/08/09/why-wal-mart-couldnt-let-jetcoms-founder-get-away-again.html

[16] de la Merced, M. June 16, 2017. Walmart to Buy Bonobos, Men’s Wear Company, for $310 Million. https://www.nytimes.com/2017/06/16/business/walmart-bonobos-merger.html?smid=li-share

[17] Sergan, E. June 19, 2017. Bonobos Founder Andy Dunn Knows You Might Be Mad At Him For Joining Walmart. Fast Company. https://www.fastcompany.com/40432313/bonobos-founder-andy-dunn-knows-you-might-be-mad-at-him-for-joining-walmart

[18] Soper, S. March 20, 2017. Wal-Mart Unveils ‘Store No. 8’ Tech Incubator in Silicon Valley Bloomberg. https://www.bloomberg.com/news/articles/2017-03-20/wal-mart-unveils-store-no-8-tech-incubator-in-silicon-valley

[19] Taylor, K. March 24, 2017. Walmart’s latest move confirms the death of the American middle class as we know it. Business Insider. http://www.businessinsider.com/walmart-invests-as-american-middle-class-shrinks-2017-3

Photo Copyright: moovstock / 123RF Stock Photo

by anthonysmoak

More Than You Want to Know About Wal-Mart’s Technology Strategy Part 3

This article is the final piece and a continuation of my earlier analyses (Part 1, Part 2) where I waded into Wal-Mart’s strategy for information risk & security, stakeholder requirements and project ROI. Whether you love or hate Wal-Mart, no one can argue that historically the organization has been highly innovative, effective and efficient. In this third part of my three part series I will broach the company’s strategy for data acquisition, social media, and project execution.

Wal-Mart: Strategy for Data Acquisition and Impact on Business Processes:

Wal-Mart has always been on the forefront of how an organization acquires, handles and shares data with internal and external parties. The company’s information technology spans across their 11,500 stores operating under 63 banners in 28 countries and e-Commerce websites in 11 countries (Wal-Mart Stores, Inc, 2015). This diverse assortment of digital and traditional brick and mortar assets services 260 million customers. The company’s sprawling POS system must remain highly operable and robust enough to harvest daily sales data across its global footprint. In order to accommodate data from a substantial customer base of millions of shoppers, the company must have the requisite back end storage infrastructure. As of 2015, Wal-Mart is embarking on a plan to build a massive private cloud which is expected to make 40 petabytes of data available everyday (Buvat et al., 2015). From a strategic standpoint the in-house cloud build-out makes sense, as employing Amazon Web Services would be making the company reliant on a key competitor’s technology offering to house sensitive data.

The data acquired from its POS systems allows the company to better allocate its product mix in real time. For example, on “Black Friday”, which is typically the busiest shopping day of the year, the company’s buyers mine the day’s sales data as early as 6am on the East Coast in order to optimize the company’s product offerings for the day (Sullivan, 2004).

From a data acquisition perspective, Wal-Mart pioneered the use of bar code scanners. The usage of scanners and Universal Product Codes was not just to register the price and make the cashier’s job of processing customers faster (as its early competitors had used the technology); Wal-Mart realized that bar codes enabled the company to determine where and how sales were made. In order to link POS, inventory and supply chain management data together with headquarters, the company invested in its own personal satellite system in 1984 (Sherman, 2013). This investment impacted in-store business processes as analytics could be run against purchase data to determine customer market basket mix and product to product correlations. Being on the forefront of purchasing data analytics allowed the company to more effectively place products in-stores that customers demanded.

This information linkage enabled by Wal-Mart’s satellite investment also led to profound business practice impacts with respect to its supply chain management process. As mentioned earlier in this analysis, with the development of Retail Link, Wal-Mart led the industry by providing first P&G and then the rest of its supplier network with direct visibility to real time store-shelf data. This was a highly innovative move as suppliers and internal buyers could work together on “forecasting, planning, producing, and shipping products as needed” (Sherman 2013). Enabled by its new technology system, the data sharing of information between supplier partners allowed those suppliers to manage inventory at Wal-Mart stores with a more comprehensive understanding of product demand, while Wal-Mart benefited from lower inventory storage costs.

Wal-Mart: Strategy for Social Media/Web Presence:

Wal-Mart operates e-commerce web presences across 11 different countries. Although it is by far the biggest brick and mortar retailer in the world, it has struggled to compete with online “e-tail”, competitors such as Amazon and Target. Updating its digital know-how and refreshing its digital properties will be a requirement in order to keep pace in a shifting industry dynamic. To this end, Wal-Mart has embarked upon a number of strategies to keep itself relevant and enhance its digital capabilities. The company is leveraging its web properties to not only analyze purchasing behavior but also review customer search histories and customer social media interactions. The latter activities are aimed at boosting its online sales and predicting customer demand for its brick and mortar locations.

“Teams at WalmartLabs use visualization techniques to analyze social activity to capture insights that may indicate changes in product demand. Walmart can then use these insights to stock extra inventory at locations where it expects higher demand and reduce it from locations with lower demand” (Buvat et al., 2015).

Wal-Mart has also embarked upon a strategy of purchasing startup companies with the intention of adding to the retailer’s knowledge in the mobile, analytics and social media realm. The retailer purchased a company called Kosmix, whose founders had sold a digital company to Amazon in the late 1990’s. Kosmix is a social media data aggregator which analyzes data from Twitter and other social networks with the aim of helping the company understand the relationship between customers and products. Shortly after the Kosmix acquisition, a small team at @WalmartLabs prototyped a new search capability code-named “Polaris”. Polaris helps to determines customer intent when embedded within Walmart.com. “As a result, if a user types in the word ‘denim’, it returns results on ‘jeans’ while ‘chlorine tablets’ returns results related to pool equipment (Ribiero, 2012). Within 9 months the prototype was production ready as it replaced an Oracle based product (Endeca) whose search functionality was simply keyword based. The company claims that it sees a 10% – 15% boost in shoppers completing a purchase using the Polaris search algorithm.

One recent splashy acquisition in the e-tail space involved Wal-Mart’s purchase of Jet.com for 3 billion in cash. Wal-Mart realizes that customer preferences have shifted to the online retailer space while Wal-Mart has a substantial legacy footprint in brick and mortar locations. According to the Wall Street Journal, “The retailer gains access to a larger group of young, wealthy, urban shoppers through Jet” (Nassau, 2016). The company also gains access to a startup minded employee talent base, startup executive experience and Jet.com’s proprietary pricing software and customer data.

Additional social project activities employed by Wal-Mart include adding a ratings review capability to its products on Walmart.com and a partnership with Facebook to offer individual pages for each of the retailer’s 3,500 stores. The company has also used the hashtag #lovedata to appeal to potential technology hires.

From an employee social engagement perspective, Wal-Mart developed an internal web site called mywalmart.com with the aim of developing an employee social media community where employees are allowed to blog and answer questions related to the company. Roughly 75% of the company’s 1.4 million U.S. based associates log on to the site (Tuttle, 2010). This effort required integrating multiple disparate websites running on different web platforms (for example payroll and benefits sites).

It should be noted that although the company is taking positive steps in the social media space, its initial attempts in the early 2000’s were clumsily executed. “Its Walmarting Across America blog in 2006, about two Wal-Mart enthusiasts traveling around the U.S. in an RV, was revealed to be less than authentic when it was learned that Wal-Mart paid for the flights, the RV and the gas of the two protagonists. ‘The Hub,’ a MySpace-like clone, closed in October 2006, just 10 weeks after it launched, while a Wal-Mart sponsored Facebook group reportedly had lackluster results” (Edelson & Karr, 2011).

Wal-Mart: Strategy for Organizational Change Management, Project Strategy and Complexity:

Best practice project management principles for handling complexity include implementing risk management practices and analyzing project risk/rewards. This series has already addressed Wal-Mart’s heavy reliance on ROI as a measure of project success. But Wal-Mart also has the advantage of running a common information systems platform for its global operations. This has allowed the company to offset the higher costs of developing in-house systems by building a system once and then rolling it out along with the respective business processes enterprise wide.

The company also lowers IT project complexity by closely examining the current process that the system is supposed to improve. This activity has been described by former CIO Kevin Turner as “eliminate before we automate”.

“Eliminate steps, processes, reports, keystrokes; eliminate any activity that you possibly can for two reasons: One, you’ll end up building a whole lot better system that’s easier to support, and two, invariably you will have a better solution that’s more [user] friendly” (Lundberg, 2002).

Once the system is built, then a piloting phase occurs amongst the stores, distribution centers and customers that will present the most challenges. If the challenges are caught and addressed by pilot builds in the most trying situations, then installing at less challenging locations should experience minimal interruptions.

From an Enterprise Risk Management standpoint Wal-Mart uses a 5 step process that allows its ERM group to work with the business to mitigate many of the risks that the company faces. “The five-step ERM process involves: 1. risk identification, 2. risk mitigation, 3. action planning, 4. performance metrics, and 5. shareholder value” (Atkinson, 2003).

An additional project strategy is to funnel all IT projects through the central IT office with a single enterprise-wide portfolio overseen directly by the CIO. King (2014) asserts that objectively ranking projects by using an automated spreadsheet tool helps to eliminates politically-driven decisions. Resources are assigned to projects based upon criticality and available funds. When available employees and funds are exhausted for the quarter, remaining projects on the list do not make the cut. Technology resources are asked to remain flexible as they rotate to different jobs within the company to gain additional skills. The flexibility of IT resources is a boon to change management plans as resources can be swapped out without minimal interruption to the overall project plan.

In case you missed something, make sure to revisit Part 1 & Part 2 of the series.

If you’re interested in Business Intelligence & Tableau check out my videos here: Anthony B. Smoak

References:

Atkinson, W. (December, 1, 2003). Enterprise Risk Management at Wal-Mart. Risk Management. Retrieved from Factiva.

Buvat, J., Khadikar, A., KVJ, S. (2015). Walmart: Where Digital Meets Physical. Capgemini Consulting. Retrieved from https://www.capgemini-consulting.com/walmart-where-digital-meets-physical

Edelson, S., & Karr, A. (April, 19, 2011). Wal-Mart to Buy Kosmix. Retrieved from Factiva.

King, R. (October 2014). Wal-Mart Becomes Agile But Finds Some Limits. Dow Jones Institutional News. Retrieved from Factiva

Lundberg. A. (July 1, 2002). Wal-Mart: IT Inside the World’s Biggest Company. CIO magazine. Retrieved from http://www.cio.com/article/2440726/it-organization/wal-mart–it-inside-the-world-s-biggest-company.html?page=2

Nassau, Sarah (2016). Wal-Mart to Acquire Jet.com for $3.3 Billion in Cash, Stock. Wall Street Journal http://www.wsj.com/articles/wal-mart-to-acquire-jet-com-for-3-3-billion-in-cash-stock-1470659763

Sherman, Richard J.. ( © 2013). Supply chain transformation: practical roadmap to best practice results. [Books24x7 version] Available from http://common.books24x7.com.libezproxy2.syr.edu/toc.aspx?bookid=49746.

Ribeiro, J. (August 31, 2012). Walmart rolls out semantic search engine, sees business boost. Retrieved from http://www.computerworld.com/article/2491897/internet/walmart-rolls-out-semantic-search-engine–sees-business-boost.html

Sullivan, L. (September 24, 2004). Wal-Mart’s Way: Heavyweight retailer looks inward to stay innovative in business technology. Retrieved 6/17/16 from http://www.informationweek.com/wal-marts-way/d/d-id/1027448?

Tuttle, D. (February, 17, 2010). Wal-Mart’s social media community earns accolades. Retrieved 6/17/16 from Factiva

WAL-MART STORES, INC. (January 31, 2016). FORM 10-K. Retrieved from https://www.sec.gov/Archives/edgar/data/104169/000010416915000011/wmtform10-kx13115.htm

Photo Copyright: dutourdumonde / 123RF Stock Photo

by anthonysmoak

More Than You Want to Know About Wal-Mart’s Technology Strategy Part 2

This article is a continuation of my earlier analysis (Part 1 here, continued here at Part 3) where I waded into Wal-Mart’s strategy for technology infrastructure and strategy for IT capability & staffing. Whether you love or hate Wal-Mart, no one can argue that historically the organization has been highly innovative, effective and efficient. In this second part of my three part series I will broach the company’s strategy for information risk and security, stakeholder requirements and project return on investment.

Wal-Mart: Strategy for Information Risk & Security:

Wal-Mart operates a massive information system infrastructure that has been called the largest private computer system in the country. As such, the company must be strategic in implementing the proper information security protocols and vigilant in order to react to attempted compromises to its confidential information. Any compromise of sensitive customer information could lead to a significant expense in compensating affected parties and lead to updating systems, processes and procedures to restore customer confidence. This scenario is especially relevant as Wal-Mart’s extensive point of sale system, from a black hat hacker’s perspective, registers a veritable treasure trove of customer debit, credit and gift card information.

In order to mitigate the aforementioned risks, Wal-Mart has complied with the PCI DSS or Payment Card Industry Data Security Standard. PCI DSS offers, “compliance guidelines and standards with regard to our (Wal-Mart’s) security surrounding the physical and electronic storage, processing and transmission of individual cardholder data” (Wal-Mart Stores Inc., 2016). Some operational system components of PCI DSS include maintaining a secure network via use of firewalls to protect sensitive data, encrypting cardholder data that is transmitted across public networks, regularly updating anti-virus software as well as tracking and monitoring all access to network resources and cardholder data. (PCI Security Standards Council, 2016). Former CIO Turner has stated, “Necessity is the mother of invention, and we’ve invested a lot of knowledge and capital in intrusion detection and playing as much offense as we can to make sure that we’re protecting our company. Personally, every day I spend time on security” (Lundberg, 2002).

From a disaster recovery perspective, Wal-Mart maintains redundant primary and secondary information systems to mitigate the risks of operational downtime and/or significant loss of information. The organization keeps primary and secondary information systems physically separated. In 2005, the company was lauded for its disaster recovery and business continuity efforts in the wake of Hurricane Katrina. The company stood up satellite links for its retail centers enabling those centers to correspond with headquarters despite the loss of phone lines and internet connectivity (Worhten, 2005). Wal-Mart also maintains an Emergency Operations Center (EOC) established in the wake of the September 11, 2001 terror attacks. The organization has a central EOC located at headquarters in Arkansas which works in concert with decentralized EOCs at a division level. During Hurricane Sandy, the organization was successful in moving generators across state lines in order to reopen stores and provide systems operability in a timely manner (PricewaterhouseCoopers, 2005).

Wal-Mart: Strategy for Stakeholder Requirements, Testing & Training/Support:

Wal-Mart’s immense size allows it considerable influence over its supplier stakeholders. Typically, suppliers reside in an inferior position (Wal-Mart can end the supplier relationship or demand sub-optimal concessions from the supplier) which enables the retailing behemoth to dictate industry wide changes in how suppliers and merchants interact. This unbalanced power relationship allows the company to micromanage its supply chain partners from a business process and respective information technology project perspective. When the power balance is more on an equal footing, Wal-Mart is willing to work collectively with a supplier.

Case in point is the lauded cooperation between Procter & Gamble and Wal-Mart in the late 1980’s to implement Retail-Link. Retail-Link was a joint business process and related technology systems project between the two organizations for mutually beneficial gains. Wal-Mart’s in-store point of sale data acted as a pull to automatically trigger manufacturing orders to P&G when stocks were low (Wailgum, 2007). When this concept proved successful, Wal-Mart dictated to 2,000 supplier stakeholders that they must all update their information systems to integrate with Retail-Link. The integration and information sharing with Retail-Link was a boon to Wal-Mart’s suppliers as it provided predictable volumes and constantly humming factories, but the takeaway is that Wal-Mart mandated the terms to stakeholders based upon its asymmetrically favorable power position.

In some cases, Wal-Mart’s technical project mandates to suppliers did not yield mutually beneficial Return on Investment (ROI). An example of this scenario is embodied in the much publicized initiative to have its suppliers adopt RFID in the mid 2000’s. Wal-Mart was seeking to increase its inventory visibility at the warehouse and in its stores. In this case, Wal-Mart did not adequately consider stakeholder technology implementation concerns before issuing its RFID mandate. A supplier is on record stating that the consumer packaged goods industry was not the best early adaptor for RFID and that the small margins and project complexities didn’t offer compelling ROI (Wailgum, 2007). The ROI that could be established from a supplier standpoint was to continue doing business with Wal-Mart while only investing the bare minimum in upgrades required to implement RFID. A Gartner analyst has estimated that the implementation costs of RFID for smaller companies would cost between $100,00 to $300,000, while larger manufacturers could experience investment costs of up to $20 million (Network World, 2008).

Once a critical mass of important supplier stakeholders decided that their operating costs were being negatively impacted, Wal-Mart decided to back down from its mandate. Only when the favorable power dynamic shifted from Wal-Mart to the supplier network, did the company walk back its mandate.

From a development standpoint, Wal-Mart traditionally used the more structured Systems Development Lifecycle (SDLC) methodology. All systems within the company require testing & validation. According to former CIO Turner, “In any development effort, our [IS] people are expected to get out and do the function before they do the system specification, design or change analysis. The key there is to do the function, not just observe it. So we actually insert them into the business roles. As a result, they come back with a lot more empathy and a whole lot better understanding and vision of where we need to go and how we need to proceed” (Lundberg, 2002). Turner also eschews testing systems in low volume stores or with the easiest customers.

Recently, in its more cutting edge Silicon Valley based development division (@WalmartLabs) the company has moved to adopt an Agile development methodology. Agile methodology allows the group to react faster to changing market conditions with respect to the much slower SDLC methodology. This approach is necessary in a cut-throat marketplace where competitors such as Amazon have been using Scrum for over a decade (King, 2014).

Wal-Mart: Project ROI and Key Success Measures:

Despite the less than successful analysis and grasp of intended project benefits related to its RFID initiative, Wal-Mart relies heavily on ROI as a measure of project success. Cost is a major driver of IT related expenses thus a reliance on ROI is a sensible approach. Former CIO Turner has stated that 33% of Wal-Mart development projects are canceled before they are completed and that 56% of completed projects are subjected to budget overruns of 189%. “One of the problems is that a lot of companies don’t require an ROI except for major purchases. ‘At Wal-Mart, everything has to pay its way, even infrastructure [investments]. A lot of people say you can’t cost-justify infrastructure, but you can. There is a way. You have to make ROI the center of what you’re about, to begin to pay your way’” (Power, 1998). At Wal-Mart all technology implementations are assigned a payback analysis and the savings from the analysis must be incorporated into the business plan. A quarterly report on each project is shared at the executive level to ensure that business unit profit and loss statements reflect the investment value that was initially calculated. The mentality at Wal-Mart is a focus on turning information technology from a traditional cost center to a profit center.

Additionally, the centralized information technology group at Wal-Mart does not saddle its divisions with a chargeback funding method. The company takes a holistic enterprise wide view approach with respect to determining which projects make sense for the company. Wal-Mart can be said to employ the corporate budget funding method where IT managers have considerable control over the entire IT budget. When it’s time to implement a project, the divisions with the largest budgets are treated the same as divisions where resources are more scarce. As of 2004, the organization lacked an IT steering committee which helped speed up the project selection process (Sullivan, 2004). The drawback to this funding method approach is that IT competes with all other budgeted items for funds (Pearlson, Galletta & Saunders, 2016).

Project completion dates in the organization’s nomenclature are referred to as “end dates”. All projects are tracked against the end dates and problem projects are scrutinized when they fall behind schedule. When new systems are deployed it is not uncommon for high level management to solicit feedback from line employees involved in using the system. When necessary, personnel are replaced on project teams in order to increase project effectiveness (Lundberg, 2002).

To be continued in Part 3 where I address these three areas:

  • Strategy for Data Acquisition and Impact on Business Processes
  • Strategy for Social Media/Web Presence
  • Strategy for Organizational Change Management, Project Strategy and Complexity

If you’re interested in Business Intelligence & Tableau check out my videos here: Anthony B. Smoak

References:

King, R. (October 2014). Wal-Mart Becomes Agile But Finds Some Limits. Dow Jones Institutional News. Retrieved from Factiva

Lundberg. A. (July 1, 2002). Wal-Mart: IT Inside the World’s Biggest Company. CIO magazine. Retrieved from http://www.cio.com/article/2440726/it-organization/wal-mart–it-inside-the-world-s-biggest-company.html?page=2

Network World. (September, 2008). “Wal-Mart’s RFID revolution a tough sell; Even for the world’s biggest retailer, championing an unproven technology with no clear ROI has been difficult” Retrieved from Factiva on June 13/16

PCI Security Standard Council. (2016). Maintaining Payment Security. Retrieved from https://www.pcisecuritystandards.org/pci_security/maintaining_payment_security

PricewaterhouseCoopers. (September, 2013). Interview with Mark Cooper. Walmart takes collaborative approach to disaster recovery. Retrieved from http://www.pwc.com/gx/en/industries/capital-projects-infrastructure/disaster-resilience/walmart-disaster-response-strategy.html

Power, D. (June, 1998). WAL-MART: TECHNOLOGY PAYBACK IS IMPERATIVE. Supermarket News. Retrieved from Factiva

Pearlson, K., Galletta, D., & Saunders, C. (January, 2016). Managing and Using Information Systems: A Strategic Approach, Binder Ready Version, 6th Edition

Sullivan, L. (September 24, 2004). Wal-Mart’s Way: Heavyweight retailer looks inward to stay innovative in business technology. Retrieved 6/17/16 from http://www.informationweek.com/wal-marts-way/d/d-id/1027448?

Wailgum, T. (October 2007). How Wal-Mart Lost Its Technology Edge. Retrieved from http://www.cio.com/article/2437953/strategy/how-wal-mart-lost-its-technology-edge.html

WAL-MART STORES, INC. (January 31, 2016). FORM 10-K. Retrieved from https://www.sec.gov/Archives/edgar/data/104169/000010416915000011/wmtform10-kx13115.htm

Worthen, B. (November 1, 2005). How Wal-Mart Beat Feds to New Orleans. CIO Magazine.Retrieved from http://www.cio.com/article/2448237/supply-chain-management/how-wal-mart-beat-feds-to-new-orleans.html

by anthonysmoak

More Than You Want to Know About Wal-Mart’s Technology Strategy Part 1

Wal-Mart has long been associated with innovations in its home-grown information technology systems, which in turn have exerted tremendous influence on its business strategy of everyday low prices. The company was a pioneer in bar code scanning and analyzing point of sale information which was housed in its massive data warehouses. Wal-Mart launched its own satellite network in the mid 1980’s which led to profound business practice impacts with respect to its supply chain management process. Strategic systems such as Retail-Link, spearheaded by industry luminary Kevin Turner, enabled data integration and sharing between Wal-Mart and its suppliers. These systems also enabled the concept of vendor managed inventory. However, not every technology project in which the company invests significant resources turns to gold as Wal-Mart encountered missteps with its RFID technology initiative. Despite the less than stellar ROI and supplier adoption rate of RFID, that effort demonstrated the willingness of its technology to push the envelope in exerting tremendous changes on business processes not only within Wal-Mart but throughout the industry.

Storm clouds are on the horizon as consumer preferences change from “big-box” brick and mortar stores to online retail platforms such as Amazon. To counter Amazon’s online dominance, the company must continue to invest in its digital know-how. Adding new capabilities to its online presences and refreshing its digital properties will be a requirement in order to keep pace in a shifting industry dynamic.

Wal-Mart: Strategy for Technology Infrastructure:

Wal-Mart’s architectural philosophy can be classified by the twin sentiments of “build rather than buy” (the organization has historically held the belief that their information systems provide a competitive advantage over other industry players) and one of innovation. Recently, as consumer preferences have shifted away from “big-box” brick and mortar stores to the convenience of online “e-tail”, competitors such as Amazon and Target have begun to erode Wal-Mart’s retail dominance. In order to react, Wal-Mart has been allocating resources to invest in digital capabilities that will allow the organization to effectively compete and become better aligned with consumer shopping preferences.

Historically, Wal-Mart’s information technology strategy has long favored an internal “build rather than buy” approach which has spawned innovative business strategies. Wal-Mart prefers to build in house strategic systems that allow the company to gain competitive advantages. Retailers are known to prefer home-grown systems and Wal-Mart’s immense size has traditionally been a hindrance in running off the shelf packages (Wailgum, 2007). Globally, the company runs a heavily modified version of IBM’s elderly point of sale (POS) supermarket application at all of its checkouts with the exception of Japan (Zetter, 2009). The in-house systems approach has been a source of competitive advantage for Wal-Mart. “Wal-Mart was a pioneer in applying information and communications technology to support decision making and promote efficiency and customer responsiveness within each of its business functions and between functions” (Ustundag, 2013).

The advantage of an in-house strategic system is that it offers tight alignment between the company’s business strategy and the finished solution. Another advantage of in-house strategic systems as opposed to running off the shelf packages from third parties is the ability to keep proprietary business process and systems knowledge out of the hands of competitors. A third party developer would have no problem advertising a system that was in use at Wal-Mart and then selling that system to competitors. The advantages of the in-house development approach must be weighed against the downsides, namely the higher cost of development and the internal staffing required for new innovative development and on-going maintenance.

Recently, as Wal-Mart tries to use its geographic reach and existing retail infrastructure to compete with Amazon, it is making a move to ramp up its cloud based technology assets. In keeping with its “build rather than buy” approach, the company built its own data centers and developed supporting cloud based commerce applications using open source tools. “‘We took back control of the technology and largely built it ourselves,’ explained Jeremy King, chief technology officer for global e-commerce at Walmart” (Lohr, 2015). Additionally, as of 2015, the company is in the middle of an IT systems overhaul called Pangaea that “includes a hybrid cloud platform and search technology” (Nash 2015). King, in keeping with the Wal-Mart approach has stated, “Most people don’t replace entire systems in one shot, especially with from-scratch development…but given how rapidly this place is changing, we didn’t have time to screw around” (Nash 2015).

Wal-Mart: Strategy for IT Capability & Staffing:

Wal-Mart is not a technology company, but it is a company in which technology is a key enabler of business strategies. Since technology has been a crucial component of the organization’s competitive advantage, its IT governance archetype can be characterized as an IT duopoly. The IT duopoly arrangement allows technology executives and business unit leaders to collaborate on technology projects and decisions. Kevin Turner, who was a Wal-Mart vice president for application development, a former CIO and the current CEO of Citadel Securities, has stated that technology payback figures for Wal-Mart initiatives are put into writing, “which in turn requires the affected business units to acknowledge savings and work them into their business plan — or dispute the savings and work with the IT department toward a resolution” (Power, 1998). “‘Do the [business units] always agree with us? No. Will they work with us? Yes. If they don’t, we won’t do anything more for them in the future. And I’ll tell you, that works,’ said Turner” (Power, 1998).

Traditionally, Wal-Mart’s IT staff have a background in other non-technology areas of the business. The company looks to promote its staff out of the IT department which allows a technological “cross-pollination” of knowledge to occur across the organization. When Wal-Mart is looking to develop new systems it dispatches its top engineers to perform “regular” operations jobs so they can gain working hand knowledge of the challenges that line employees face (Boyer, 2003).

As Wal-Mart has looked to withstand new online retail challenges from chief competitors Amazon and Target, its technology staffing mix and organizational structure have had to adapt in order to remain competitive. Former CEO Mike Duke was looking to combine the organization’s stores, information technology assets and logistics expertise into one channel in order to drive growth (Buvat, Khadikar, & KVJ, 2015). Wal-Mart was cognizant that it could not realistically expect the technical staff that it required in order to compete with Amazon, to relocate to Bentonville Arkansas. Therefore, in 2010 Wal-Mart re-organized and consolidated its worldwide e-commerce staff into a new Global division located in Silicon Valley California. Historically, the company has favored a centralized Information Systems structure coupled with an in-house development approach. Former Wal-Mart CIO Turner has stated, “What we’ve come up with is a model of decentralized decisions but centralized systems and controls. We will have a common system and a common platform, but we have to allow a great deal of flexibility in our systems so that the people in those local markets can do their job in the best, most effective way” (Lundberg, 2002).

The new Global E-Commerce initiative is in keeping with that philosophy as the new division’s key responsibilities include, “running Walmart’s ten websites worldwide, building and testing cutting-edge technology at @WalmartLabs, and building Walmart’s eCommerce capabilities” (Buvat et al., 2015). Additionally, in order to bolster its e-commerce staff, Wal-Mart has purchased 14 companies primarily for the purpose of gaining access to engineering personnel. As a result of Wal-Mart’s emphasis on ramping up e-commerce talent, its e-commerce sales grew from 4.9 billion to 12.2 billion dollars between 2011 and 2014; an increase of nearly 150% (Buvat et al., 2015).

To be continued in Part 2 and Part 3 where I address additional areas such as:

  • Strategy for Information Risk & Security
  • Strategy for Stakeholder Requirements, Testing & Training/Support
  • Project ROI and Key Success Measures
  • Strategy for Data Acquisition and Impact on Business Processes
  • Strategy for Social Media/Web Presence
  • Strategy for Organizational Change Management, Project Strategy and Complexity

Also check out The Definitive Walmart E-Commerce and Digital Strategy Post and The Definitive Walmart Technology Review to see how Walmart is ramping up to compete with Amazon.

Finally check out Costco’s Underinvestment in Technology Leaves it Vulnerable to Disruption to learn how Costco currently competes and how the company should compete.

If you’re interested in Business Intelligence & Tableau check out my videos here: Anthony B. Smoak or on Facebook.

References:

Boyer, J. (February, 2003). Technology Helps Stores Order Only As Much As They’ll Sell. Albany Times Union. Retrieved from Factiva

Buvat, J., Khadikar, A., KVJ, S. (2015). Walmart: Where Digital Meets Physical. Capgemini Consulting. Retrieved from https://www.capgemini-consulting.com/walmart-where-digital-meets-physical

Lohr, S. (October 2015). Walmart Takes Aim at ‘Cloud Lock-in’ Retrieved from http://bits.blogs.nytimes.com/2015/10/14/walmart-takes-aim-at-cloud-lock-in/

Lundberg. A. (July 1, 2002). Wal-Mart: IT Inside the World’s Biggest Company. CIO magazine. Retrieved from http://www.cio.com/article/2440726/it-organization/wal-mart–it-inside-the-world-s-biggest-company.html?page=2

Nash, K. (October, 2015). “Wal-Mart to Pour $2 Billion into E-Commerce Over Next Two Years.”, Dow Jones & Company, Inc. Retrieved from Factiva

Power, D. (June, 1998). WAL-MART: TECHNOLOGY PAYBACK IS IMPERATIVE. Supermarket News. Retrieved from Factiva

(ed), Alp Ustundag. ( © 2013). The value of rfid: benefits vs. costs. [Books24x7 version] Available from http://common.books24x7.com.libezproxy2.syr.edu/toc.aspx?bookid=49466.

Wailgum, T. (October 2007). How Wal-Mart Lost Its Technology Edge. Retrieved from http://www.cio.com/article/2437953/strategy/how-wal-mart-lost-its-technology-edge.html

Zetter, K. (October 13, 2009). BIG-BOX BREACH: THE INSIDE STORY OF WAL-MART’S HACKER ATTACK. Wired. Retrieved from https://www.wired.com/2009/10/walmart-hack/