Research Paper on "Wal-Mart's Inputs Nadler & Tushman's Congruence Model"

Research Paper 5 pages (1621 words) Sources: 4 Style: APA

[EXCERPT] . . . .

Wal-Mart's Inputs

Nadler & Tushman's congruence model explains organizational performance as being the degree to which inputs and matched with desired outputs. This is measured by the degree to which the actual outputs match the desired outputs. Therefore, the greater the degree of congruence between the inputs, the more closely related the actual and desired outputs will be. The variable that affects this congruence is the organization's strategy. This paper will illustrate how this model works by examining a company widely considered to be one of the most successful in business today, Wal-Mart. In theory, Wal-Mart should have a high degree of congruence between the actual output and the desired output. From that starting point, we shall examine the inputs to determine which ones are well-matched and which ones are less well-matched.

Nadler & Tushman identify three key groups of inputs: the environment, resources and history.

Environmental factors place demands on the organization, but they also place constraints on the organization's ability to meet those demands. The environment also provides the organization with opportunities. For Wal-Mart, the environment is the most important input. Consumer demands and environmental constraints drive much of Wal-Mart's business model. There is substantial demand for a wide selection of goods at low prices. Indeed, Wal-Mart's growth was based on Sam Walton's understanding of these demands and his ability to develop an organization to meet them. The company was able to identify cost and convenience as a key driver of business in the retail sector, especially in the small town markets Wal-Mart originally served. The company adopted a focus on meeting these demands, and that focus has driven their strategic decision-making. Wal-Mart developed aggressive purchasing strategies, sophisticated inventory management schemes and efficiency-focused innovations at all levels of their business, all in order to meet this perceived need.

Another critical environmental input for Wal-Mart has been environmental constraints. If their strategic thrust was developed in response to the demands placed upon them by consumers, many of their individual strategies resulted from their response to various environmental constraints. One key external constraint to offering the lowest cost goods is the relatively high cost of manufacturing in the United States. In response to this, Wal-Mart developed strong relationships with China, and their suppliers now lean heavily on Chinese goods. Estimates put the percentage of Wal-Mart's inventory hailing from China at around 80%. Therefore, the company developed a core strategy specifically in response to a key environmental constraint.

Resources are another category of input in the Nadler-Tushman model. These include human resources, technology, capital, and information. The most important of these to Wal-Mart are information and technology, two resources which at Wal-Mart are inextricably tied. Information technology has been at the core of Wal-Mart's ability to reduce costs. The company's approach to information technology begins with its core philosophy of reducing steps in order to simplify the systems. From there, Wal-Mart tests cutting edge technology in order to determine how it may be best employed. The simplicity philosophy is evidenced in their use of cutting edge technology to perform simple but effective tasks. For example, Wal-Mart has long been at the fore of inventory management - they leveraged the informational power of bar codes to a degree other companies did not match for years. Wal-Mart was the first retailer to have their own satellite to help route crucial inventory information in the 1980s. This use of technology helped lower Wal-Mart's cost in surprising ways. One was having orders ready at the distribution center so that when the truck pulls in to deliver the goods to the distribution center, the goods can be processed and loaded onto the store truck immediately. This technology allowed Wal-Mart to reduce the costs of goods sold for inbound logistics to 3.7% versus an industry average of 4.8%. Information is a significant resource for Wal-Mart, but it is the technology Wal-Mart leverages to extract maximum value from that information.

The Wal-Mart of today was directly shaped by its history. The two most important historical inputs are the strategic decisions and the behavior of key leaders. Wal-Mart's very existence is the result of a strategic decision made by Sam Walton to expand his chain of franchised department stores to small towns. When the franchisor declined the request, he started his own company. The strategic decision to focus on small towns is one of the most significant inputs for Wal-Mart. First, it allowed the company to grow with very little direct competition from larger retailers. Second, it focused the company on its two most important value propositions of cost savings and convenience. Small towns lacked a wide range of goods, and they tended to lack low prices because there was no nearby competition. Many of Wal-Mart's other key strategic decisions have shaped the company today, such as the forging of a relationship with China to help bring costs down. Another example is the decision to launch Sam's Club, which is now a major contributor to the company's bottom line.

The behavior of founder Sam Walton is another of the most important historical inputs for Wal-Mart. The company's corporate culture is a direct reflection of his personality and approach to business. Wal-Mart's belief system evolved out of Walton's belief system. Walton would, for example, walk to business meetings to save money on taxi fare. This type of behavior at the leadership level inevitably became adopted throughout the organization, resulting in an intense culture of cost-cutting.

Synthesizing these inputs into outputs is the role of what is essentially another input, strategy. Corporate strategy is the sum of the company's explicit choices regarding markets, offerings, technology, and distinctive competence. At its core, Wal-Mart is a strategy-driven company. When Wal-Mart's strategies are examined, each clearly addresses the company's key resources. Its information technology strategy is driven by its recognition of the value of information in cutting costs. Nadler, Tushman and Nadler point out that strategy flows from a company's vision of its future. For Wal-Mart, that vision is shaped by its environmental demands and constraints. The company's resources and history are then leveraged specifically to meet the strategy.

Wal-Mart is one of the world's most successful companies because of the high degree of congruence between its key inputs and its desired outputs. The company goes to great lengths to ensure availability of these inputs. They spend a substantial amount of money on it development, for example. Wal-Mart is aggressive in reinforcing the corporate culture developed by Sam Walton. This includes pledges of allegiance to the company at morning meetings, constant reinforcement in its advertising campaigns, and even at its shareholder meetings. Walton himself is almost a cult figure within the organization, and his story one of the most widely told in not only the company but in the business world as a whole.

There are many other inputs that go into Wal-Mart. Yet, these inputs form the core of its competitive advantage. They represent its ability to understand their external demands and constraints; working around the constraints to meet the demands. The inputs of past strategies, strong historical leadership from Sam Walton, information technology are all areas where Wal-Mart has outmaneuvered the competition. Their strategies have collectively leveraged their strengths, eliminated their weaknesses in order to achieve the company's desired outputs.

Much of Wal-Mart's success hinges on its ability to recognize what its most important inputs are, to secure those inputs, and to apply them very specifically to the company's strategy.

Moreover, that strategy is formulated based on the desired outputs and the availability of inputs. It is apparent that there is a high degree of congruence between Wal-Mart's use of inputs and their desired outputs. Those desired outputs are not much different today than they were when the company was founded. Wal-Mart seeks to provide a wide variety of low cost goods… READ MORE

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