This paper’s discussion will be about the organizational philosophy that defines Wal-Mart’s organizational structure based on the contingency theory. The contingency theory provides a framework that defines Wal-Mart’s organizational structure and design. Wal-Mart’s organizational design, performance, relationship with the internal and external environment, and exceptional growth in performance both nationally and internationally has been due to the underlying philosophy of the contingency theory being the basis for generating its marketing strategies to encounter situational marketing variables in its retail chain activities.
The theory defines the behavioral basis upon which the organization interacts with the internal and external environment. These interactions are achieved by organizational employees and the strategy the organization uses in its quest for globalization. That is particularly because of the organization’s geographically distributed activities. The organization’s structure is defined by four logistical attributes that define its structure. The attributes include the organization’s commercial orientations in the supply chain, the multimodal gateways through which the retail giants interact with the outside world, its distribution channels, and the chain of its global distribution points. The theoretical basis of the organizational design and structure is viewed from the complex structure of the functional units that work towards achieving the organization’s business strategy. The internal environment is competitively made operational by organizational employees whom the organization values as critical assets in determining its performance
Wal-Mart is one of the most successful retail outlets both in the US and in the international market and a canonical example of both expansion and success. The success of the retail giant outlet is reflected in its rapid growth from a domestic to an international retail outlet. Hatch and Cunliffe (2006) attribute the success factors to be strongly related to the organizational structure and design of Wal-Mart.
The theoretical foundation of Wal-Mart’s organizational structure is strongly relevant to the contingency theory that allows the organization to expand into a global giant. The theoretical foundation of Wal-Mart’s organizational structure views the complex coordination of various organizational units to achieve the ultimate organizational goals and strategy. The contingency theory offers managers the framework upon which to establish organizational behavior and design managerial strategies to meet the globalization challenges.
The contingency theory belongs to a group of behavioral theories. The theory argues that organizations should be designed by factoring in internal and external environmental variables to enable managers to drive organizations to achieve organizational strategies. In addition to that, it enables managers to fit their organizations into emerging business environments. It is evident with Wal-Mart that the contingency theory has played a leading retail outlet role in different environments such as China and many other countries globally.
The contingency theory, Wal-Mart has been dynamically able to address global and national challenges that come with the competitive business environment.
The management of the organization has been able to identify new market fronts such as China to contribute to the impact on the market by Wal-Mart (Gereffi & Christian, 2009). In addition to that, Wal-Mart has created strong competition in the market by exploiting low-cost manufacturing, low input costs, and a reliable and efficient supply chain (Gereffi & Christian, 2009).
Wal-Mart’s executives had on the onset of the retail giant incorporated into its organizational design, a structure that forms a reporting relationship that supports both the organization’s vision and strategy. Hatch and Cunliffe (2006) assert that an organizational design is a tool that enables a business organization to develop core competencies as is typical of Wal-Mart. Wal-Mart’s organizational structure allows employees to continually coordinate activities both vertically and horizontally with the Information Technology tool flattening the reporting relationship. The reporting relationship integrates both vertical and horizontal differentiation in group tasks. In Wal-Mart’s organizational design, clarity and specialization for individual roles and responsibilities, and focus on core values and competencies are the innovative approach that is typical of the organization (Hatch& Cunliffe, 2006).
In its organizational philosophy, Wal-Mart has experienced an impact on its structure due to the global commodity chain in the four attributes mentioned elsewhere. These network elements include both longitudinal concerns of manufactured goods and international globalization. The other network influences are the maritime services, freight distribution services, and corridors and distribution centers. Typical examples abound in North America and the Chinese markets. In China, manufacturing is at the lowest costs particularly with the clothing business (Gereffi & Christian, 2009).
In the global value chain, Wal-Mart relies on a network driven by a buyer-driven value chain which is characterized by labor-intensive activities. On the other hand, commodity chains are producer-driven commodity chains. These characteristics define the structural philosophy of Wal-Mart as one of the lead firms in the distribution channels in the entire structural network of the firm (Gereffi & Christian, 2009).
On the other hand, the above factors coupled with the technological prowess characteristic of Wal-Mart and intense cost-cutting measures have contributed to the firm’s advantaged position in the market. These have influenced the nature of the supply china typical of its structure (Gereffi & Christian, 2009).
Therefore the design principles that reflect Wal-Mart’s organizational design are to reflect the diversity, to be holistic, non-linear, to be intensely networked, non-hierarchical, and to be self-organizing (Hatch & Cunliffe, 2006). Overly, that has partially been the reason for the success factors that have long been experienced at Wal-Mart. Wal-Mart’s core competencies revolve around innovation, integration, speed and flexibility in offering products and services to the customer.
On the other hand, Wal-Mart has overly relied on efficient inbound logistics to further enhance competition against other retail supplies in the local market and international market (Gereffi & Christian, 2009). The organization emphasizes weight compliance making the organization be more competitive, renting containers to minimize costs, and trans-loading facilities meant for supply chain buffering.
It is worth mentioning that Wal-Mart’s organizational dynamically reflected growth by moving away from the classical organizational structure to the modern look organizational structure. Hatch and Cunliffe (2006) clarifies that organizational dynamism in terms of structure must reflect the dynamically evolving market environment shifting from the emphasizing on functionality, structural integrity, and classical integrity to the modern organic organizational structure typical of Wal-Mart.
The Internal Environment
The internal environment is defined by the characteristic nature of the organizational for the organization to own property. The organization, at the onset is recognized the legal environment with rights and privileges, rights and liabilities distinct for Wal-Mart’s the organizational employees (Tilly, 2007).
Thus, by focusing on the organizational employees as organic agents that play the most distinct roles in the development of the organization, it is important for the management to focus on developing the employee (Gereffi & Christian, 2009).
Current strategic growth of the organization is to grow employees in relation to hiring employees with the right skills thus providing employment and contributing to the alleviation of unemployment. In addition to that, for the organization to sustain its competitiveness, it guarantees employees to borrow money and provides the securities appropriate for the employees to secure loans (Gereffi & Christian, 2009).
Contribution to the Economy
The organization’s contribution to the economy is further enhanced by the remittances of tax money into the government’s coffers. To optimize on profit maximization, appreciate income, and create further string contributions to the economy, the organization has a strategy where it pays relatively low wages. As an additional strategy, the organization has contracted with supplies and manufacturers who fit into its business strategy. Typically, the Chinese provide an excellent source for products in refreshing Wal-Mart’s supply chain inventory (Gereffi & Christian, 2009).
In its growth strategy, Wal-Mart has grown from an internal retail outlet into an international retail outlet despite the fierce rivalry and competition it experiences in each market entry. The growth into the international market reflects an organizational design, based on the contingency theory that allows functional parts of the organization to work into a single whole by focusing on the ultimate organizational strategy (Gereffi & Ong, 2007).
Wal-Mart’s executives recognize the need to capture and develop a strong relationship with international partners who may be interested in giant organization’s activities. The relationship may form a network of joint venture partners, tax collecting agencies and organs, consumer groups, and suppliers of the products and services offered to the customer (Gereffi & Ong, 2007).
It is important to note that in its expansion strategy, Wal-Mart has traversed different economies and cultures to establish self as an international retail giant. Typically, the organization is characterized by flexibility, strategic approaches in offering differentiated products and services while integrating vertical and horizontal differentiations in its managing the functional units of the organization. The products and services offered by the organization are tailored to reflect new and emerging trends in environmental and cultural dynamism (Gereffi & Ong, 2007).
Wal-Mart’s position in the market is driven by a dynamic relationship between its operating environment and its functional units, typical of the contingency organizational theory. As part of its corporate social responsibility, Wal-Mart in its strategic relationship with the external environment has endeavored to invest in community outreach programs and donate generously to charities. To further enhance its profile among the external environment, the organization ploughs some of its profits into sponsorship programs for college students (Petrovic & Hamilton, 2006).
On the other hand, business organizations such as Wal-Mart have to thrive in a competitive environment and endeavor to maintain a competitive advantage over rivals. Wal-Mart provides low cost products with tailored services to meet customer satisfaction (Jaques, Thomas, Foster, McCann & Tunno, 2003).
Wal-Mart’s has experienced difficulties in the recent past that stem from the dynamism of the marketing environment. One of the problems stems from the unpredictable economic environment experienced in several countries. Increased competition from other global giants, demand for higher salaries by organizational employees, rising inflation in many counties, and global recession, and unstable global market and depreciating consumer buying strengths are some of the current problems and challenges facing the global retail giant. In addition to the problems, the giant is now faced with political uncertainties that are unfolding in many countries particularly in the Middle East and the possibility of such revolts spilling over to their operating countries (Jaques, Thomas, Foster, McCann & Tunno, 2003).
Wal-Mart has grown from a domestic to an international retail giant and sustained its competitive position with time. The theoretical foundation of the retail giant is the contingency theory, evidently a driving philosophy of the organization. Wal-Mart’s organizational design, performance, relationship with the internal and external environment, and exceptional growth in performance both nationally and internationally has been due to the underlying philosophy of the contingency theory being the basis for generating its marketing strategies to encounter situational marketing variables in its retail chain activities. In practice, the reporting relationship between organizational employees defines the flexibility and efficiency with which employee services are provided. However, despite having registered strong growth and expansion both locally and internationally, the organization faces challenges and problems typical of a dynamically evolving environment. That calls upon the management of the organization to continually design put in place strategies typical of the evolution. The contingency theory as the basis of the organizational structure allows for the flexibility.
Gereffi, G. & Christian, M. 2009. The impacts of Wal-Mart: the rise and consequences of the World’s Dominant Retailer. Annual Review of Sociology 35, pp. 573-591.
Gereffi, G.& Ong, R. 2007. Wal-Mart in China. Harvard Asia Pacific Review 9(1), pp.46-49.
Hatch, M.J. Cunliffe, Ann L.2006. Organisational theory, modern symbolic and postmodern perspectives. 2nd eds. London: Oxford university press.
Jaques, P., Thomas, R., Foster, D., McCann, J. & Tunno, M 2003. Wal-Mart or World-Mart?: A teaching case study.
Petrovic, M. & Hamilton, G. 2006. Making global markets: Wal-Mart and its suppliers. In Lichtenstein, Nelson. Wal-Mart: the face of twenty-first century capitalism, (p.107-141). New York: New Press.
Tilly, C. 2007. Wal-Mart and Its workers: not the Same all over the world. Connecticut Law Review 39 (4), pp.1805-1823.