Human resource management strategies for Walmart

Executive Summary

Human resource management is the strategic and coherent approach to the management of an organization’s most valued assets – the people working there who individually and collectively contribute to the achievement of the objectives and of the business (Armstrong, M., 2006). In other words, human resource management is a type of work to deal with employees, and solve employees’ problems. Therefore, human resource is a complicate department, as well as there is several issues which happened among employees, such as recruitment, selection and so on. Nowadays, employee retention becomes the one of the most significant issues in the organizations, and managers are striving to keep the excellent employees for organizations.

In this paper, it will be discussed the issue of employee retention in Wal-Mart, as well as found out how did Wal-Mart use employee retention to build an organization’s human capital as a source of competitive advantage.

Company Profile

History

Wal-Mart is supermarket chain stores all over the world, and there are 803 stores offering a pleasant and convenient shopping experience across the United States. Wal-Mart was founded in 1962 by Sam Walton, with the opening of the first Wal-Mart discount store in Rogers, Ark. The company incorporated as Wal-Mart Stores, Inc., on October 31, 1969 (Wal-Mart, 2010). As a leader in sustainability, corporate philanthropy and employment opportunity, Wal-Mart ranked first among retailers in Fortune Magazine’s 2009 Most Admired Companies survey.

Vision, Mission Statement

“Price Leadership Drives Global Performance” is the Wal-Mart vision statement. There is no doubt Wal-Mart is bringing to life its global vision for Wal-Mart. The management of Wal-Mart focus on price leadership in every market since pricing strategy is the direct approach to achieve performance and attract customers.

In order to implement price leadership, the mission stated that “Save Money, Live Better”, which remains as relevant now as it was in 1962 by Sam Walton. The mission indicated that in terms of external customers, they are able to purchase products in Wal-Mart because the stores offers low price products to them, and resulted in customers can save money to help people who need it. On the other hand, with regard to internal customers, employees and management should reduce cost, and achieve economies of scale, as well as help people who need it.

According to the mission and vision, it might be found that the management of Wal-Mart always concentrated on the price and cost of products. Therefore, Wal-Mart’s business strategies must be related to the price leadership as well.

Environment Analysis

Strengths

Financial strength: Wal-Mart is the world’s largest retailer with a turnover of more than $400 billion in 2009. To be globally, every company needs money. The strong financial can help Wal-Mart invest in new markets, and also is able to keep up with the competition locally.

Computer system: Wal-Mart has one of World’s best Retail Link computer system to keep in check inventories in order to achieve Just-In-Time, as well as it is one of competitive advantages compare to competitors.

Culture: Wal-Mart has flourish culture, and strong work ethics, as well as commitment towards consumers made every employee an asset for the company, such as 10-foot rule, open door, sundown rule and 3 basic beliefs & values (Appendix 1).

Buying power: Wal-Mart enjoys huge economy of scale as it has tremendous buying power, and most of its suppliers are international organizations, such as P&G, Pepsi and so on. Therefore, Wal-Mart is able to have more bargaining power when whole operation becomes the one.

Weakness

Although Wal-Mart diversify products across many sectors, such as clothing, food or stationary, it may not focus on one of them compare with competitors. For example, Jusco is one of best hypermarket who pays more attention on clothing and cosmetics. Furthermore, Wal-Mart is global company, but it has a presence in few of countries worldwide.

Opportunity

Expansion: After financial crisis in 2007, the economy has recovered in most of countries, and the purchasing power increased among customers. As a result, it is an opportunity to expand the business to more countries since the demand is increased.

Threats

Competitors: In the retail industry, the competition is fierce. In addition, Wal-Mart is the leader in retail industry, and it meant that Wal-Mart would be the target of the competition locally and globally. Competitors have a clear vision to compete since they have a target competitor, while it is difficult for Wal-Mart because Wal-Mart has no target to compete.

Currency Exchange Rate: This is an issue that each of global enterprises should be faced. Moreover, the currency exchange rate can influence the profit directly. Nowadays, the exchange rate is fluctuated, especially US and China currency.

Financial Highlight & Board of Directors

In the year 2009, the financial of Wal-Mart increased stable (Appendix 2). The total net sales increased by 7.2% and 8.6% in fiscal 2009 and fiscal 2008 when compared to the previous fiscal years. Those increases resulted from its global expansion programs, comparable store sales increase and acquisitions, especially in international market, the net sale growth from existing units and international expansion program, as well as offset by the unfavorable impact of changes in foreign currency exchange rates of $2.3 billion.

Return on Investment (ROI) is a meaningful metric to share with investors since it helps investors assess how efficiently Wal-Mart is employing its assets. However, the ROI in Wal-Mart is decreased from 19.6% to 19.6% during the period fiscal 2008 -2009. It is because Wal-Mart invested in Chile, and the accrual for its settlement of 63 wage and hour class action lawsuits.

With regard to the board of directors (Appendix 3), it is a comprehensive team. They have energy, they have thinking, and they have creativity. Michael T. Duke said:” our company is so well positioned for today’s difficult economy and tomorrow’s changing world. We have an exceptionally strong management team, able to execute our strategy, perform every single day, and deliver results.” It showed that directors had encouraged challenging in the future, as well as their outstanding thinking can help company maintain the leader in the retailing industry. Moreover, there are several unique strategies developed by those leaders, which pushed Wal-Mart in the top of mountain.

Overall Business Strategies

One Global Focus

In recent years, expansion becomes a part of strategic direction in Wal-Mart. Although it operates in 15 markets, but the focus is quite clear – deliver price leadership to customers. ‘Save Money, Live Better’ may translate into many languages where Wal-Mart operates, but the information behind the mission is universal. The management continues to build the strategic framework – every day low cost, every day low price (EDLC-EDLP). It is because customers around the world are looking for value all the time, so leaders are focus on continuing to improve productivity and managing costs that enable price leadership. Nevertheless, low cost does not represent low quality of products and service. Product quality and sustainability is important in terms of organization, and management will try to satisfy customer needs, as well as sell the best products and service to consumers.

Now More Than Ever

In Wal-Mart, managers make decisions from the purpose of saving money so people can live better. Wal-Mart promises its corporate social responsibility as a global company to lead and collaborate on issues important to associates, customers, members, suppliers and shareholders. For instance, Wal-Mart created more jobs worldwide year by year, and offer training program to associates. Moreover, Wal-Mart set goals to supply 100% of its energy needs through renewable sources, to generate zero waste and to promote markets for environmentally sound products (Wal-Mart, 2009). Lastly but not least, Wal-Mart keens on charity business all the time. The company supported programs that help people live better in the aspect of education, health care, job opportunities, as well as help communities rebuild after natural disasters with financial support and donations.

Overall Human Resource Strategy

Before the explanation of human resource strategy in Wal-Mart, the advantage of human resource strategy should be discussed. Obviously, effective human resource management will create a high perspective teamwork, fair competition and respective environment. Especially in the large-size company, Wal-Mart has more than 1.6 million associates to work, so human resource management plays the most important role in the organization. Furthermore, in Wal-Mart, there is never called “employee” or “worker” while it is called “associate” since the founder believed that there is no boss and workers, as well as the people who work for War-Mart are partners to make profit together.

With regard to the biggest retailer in the world, the success of managing human resource department is acquired through three basic stuffs: motivation, internal promotion and external recruitment.

Motivation

In order to achieve ‘serve customer’, human resource management must motivate associates maximum, and create a comfortable environment which realize to value added. In the Wal-Mart market, each of associates put on staff card without name, even CEO also put on the same staff card which shows some characters — ‘Our People Makes Difference’. It indicated that there is no difference among directors and employees. Furthermore, base on the culture of open door (Appendix 1), there is a platform to communication between associates and CEO, and associates are able to suggest and complain. Besides, Wal-Mart provides a lot of benefits to motivate associates as well. For example, people, who join the Wal-Mart more than one year and work more than 1000 hours per year, are able to share the company’s bonus which is equal to 5.6% of annual income. In addition, associate and associate’s family is able to get discount when they purchase products in the Wal-Mart, as well as they have a chance to purchase Wal-Mart stocks in the Associate Stock Ownership plan (Ye, X., 2005).

Internal Promotion

Because Wal-Mart aimed at peoples’ involvement for all levels of association, it had developed many learning program to prepare associated to be a leader. According to Archive (2007), more than three quarters of the stores managers had started as an hourly association. Larry English is the best example with regard to internal promotion. He started at one of Wal-Mart stores in Harrison as a stock associate, and then he became an assistant manager in Rogers, Arkansas. In 1970, he had become a manager in Newport, Arkansas. After financial management training, Larry became a field manager that operating many giant stores. Internal promotion instance happened frequently, and associates achieve self value added, as well as they can loyal to Wal-Mart.

External Recruitment

Except of internal promotion, Wal-Mart also recruits for associates and high level managers. According to the history of Wal-Mart, company has hired many business owners when it first started. They are important for Wal-Mart because they possessed the entrepreneurial characteristics and cultures, such as penny saving and risky. Furthermore, Wal-Mart recruited external persons who were good at certain field in business management. For example, Clarence Archer was a pharmacist expertise. When he was employed by Wal-Mart, he suggested that Wal-Mart developed pharmacy division to serve customers comprehensively. The idea came true in near future, and since now Wal-Mart has more than 3500 pharmacies and is the fourth of pharmacy business.

From what has been discussed above, human resource strategies are utilized in the Wal-Mart successfully, and it achieved to increase productivity, and working efficiency. However, employee retention becomes an issue. It is because although Wal-Mart has the best benefits, employees would leave if management does not understand how to keep them in the organization. Generally speaking, employee retention is a popular topic which discussed among managers. Enterprises are easy to look for a good employee, but it is difficult to keep them and persuade them loyal to companies all the time.

Literature Review

Employee retention can be defined as “a systematic effort by employers to create and foster an environment that encourages current employees to remain employed by having policies and practices in place that address their diverse needs.” (Workforce Planning for Wisconsin State Government, 2005) In other words, employers prefer to remain the existing employees because the replacement cost usually more than individual salary. The cost includes lost customer, interviewing, hiring, and training and so on. As a result, satisfying employees’ needs becomes a condition to remain them in the organizations.

Amanda H. (2009) summarized an equation: leadership= team= customers= $$. In other words, if management takes care of its team, treats them well and earns their respect; the team will take care of customers, and finally the company will make supernormal profit. The equation seems obvious and easy, but implementation is difficult. Many leaders might not know how to start, and felt that retention employee likes turning a Titanic right now. Amanda H. (2009) suggested that leaders must share the idea with teams, and invest in teams. Specifically, management should let staff know that the companies concentrate on them, and provide more skills to them in order to achieve self value added. Then, appreciation must be in the culture of company because employees contribute to organization and company should respect them.

According to the August A. (2010), he believed that 2009 was a tough year because 65% of companies froze their salary plan, 25% of companies cut back on employer contributions and 17% of enterprises reduced hours worker for some or all employees in 2009. It resulted in companies lost a lot of key talents. Employee retention will be recovered in 2010 in order to keep top talents in organizations. The research showed that some of companies lack of confidence and uncertain about employee retention, because financial crisis brought several bad impacts to companies, and they have not recovered by themselves. Due to organizations cannot sit back and watch top talents walk out the door, August A. (2010) advised that companies were able to use differentiated compensation strategies as a means of retention and recognition. Differentiating pay and other compensation programs allows managers to adjust annual salary increases or bonuses to match an employee’s performance or value to the organization’s long-term needs. There are 48% of companies indicated that they will continue with differentiation strategies they used in 2009; and additional 40% of organizations will use pay differentiation strategies at the first time in 2010. It meant that more and more enterprises organized that pay differentiation is a precise strategy to keep top talents efficiently. Therefore, the author believed that although the time is difficult, the retaining employees must be implemented by leaders.

Len B. (2010) has a same view with August A., and Len B. thought that motivated and experienced team is one of key to manage in the current environment as well as in long term period. Nowadays, the current environment is belonged to economic downturn, and it is an opportunities for companies to re-evaluate their compensation system, as well as consider whether the system has been designed to encourage and reward behavior that is consistent with the objectives of the company stakeholders. Len B. held the opinion that although the current environment is tough, compensation still is the best practice to retain the key talents. However, the new compensation system might be slightly different compare to previously, because economic downturn brought low revenue to companies. Besides, another approach is a focus on internal pay equity. It uses the relationship between the CEO’s pay against one or more layers of employees. The advantage of internal pay equity is to range from removing concerns about CEO pay being driven too much by competitive market to restoring fairness internally.

Nevertheless, Hay Group (2009) held the opinion that no matter good or bad times, organizations should remain the top talents since they are the main power in organizations. On the one hand, retention strategies commonly focus on compensation, retention bonuses or stock options in the flourish time. On the other hand, the downturn has brought difficult to companies if they rely on pay to keep top talents. In the research, Hay Group (2009) found that organizations must focus on two key stuffs to retain employees: increasing employee engagement and developing systems that provide better support for the success of their employees. Usually, engagement is non-monetary rewards including career growth opportunities, meaningful job designs, training and recognition programs. Nevertheless, only engagement is not enough for companies. They must support employees and create a right atmosphere to them. It meant that managers should make sure that right employees are sent to the right jobs, and figure out which types of job will draw upon the employees’ distinctive competencies in organizations. Moreover, leaders must have the right competencies to engage employees in order to create a positive work climate. The engagement framework (Appendix 4) shows the process of engagement in organizations step by step.

John B. (nd) was against that compensation was just one piece in the career satisfaction. Retaining successful top talents is not a secret recipe, but a formula that includes factors such as leadership, recruitment, training, and professional growth opportunities. In depth, while there is no testing instrument that can guarantee management will hire the right person every time, a temperament evaluation will provide valuable insight into candidate’s career suitability and potential success in the process of recruitment and selection. Then, training is critically important for new and existing employees, and experienced managers usually target a high premium on training and purposefully design their programs to be timely, relevant, realistic and reoccurring. Furthermore, companies should offer a clear career path and support the leadership development of key talents since each of employees would like to grow personally and professionally. Lastly but not least, to be effective, John suggested that companies should set up incentive program to encourage average level of employees. Once employees stretch to a new level of personal production, their self-confidence and expectations will skyrocket.

Critical Analysis

Why employee retention becomes popular in companies? The simple question brings a difficult answer. In this part, it will be discussed the reasons of employee retention, the measurements of employee retention, and find out what types of employee retention used in Wal-Mart and how it can be a competitive advantage in the retailing industry.

Reasons of Employee Retention

Cost and customers are the main reasons that companies prefer to retain employees rather than changing new employees. According to the newsletter of the International Association of Professionals in Employment Security (2002), “when a valuable employee leaves, it costs the employer money – possibly up to a third of the employee’s annual salary.’ The cost usually is categorized as separation cost and replacement cost. On the one hand, separation costs are includes interview, administrative and paperwork cost, disbursement of benefits to separating employees, as well as diminished productivity of remaining personnel. On the other hand, the replacement costs are consisting of job advertisement, recruitment activities, applicant selection, testing, travel and moving expenses. An employee quit means that all of costs are gone, and company should invest to another person again. Furthermore, the number of clients will be decreased if workers left, because employees are bridges to connect between companies and customers. As a consequence, employee retention is an approach to save cost and achieve economies of scale.

Measurements of Employee Retention

Based on the literature review, the measurements can be divided into monetary systems and non-monetary systems. The monetary systems are mainly about compensation, bonus, and internal promotion to satisfy employees’ physical needs. On the contrary, in order to meet psychological needs, companies often provide training courses, communication, and reward them. Generally, organizations would not cover all of system to retain employees because it needs to spend a lot of funds and human resources. That is why implementing employee retention is difficult in companies as well.

Employee Retention Plan in Wal-Mart

Absolutely, Wal-Mart is a company with strong cultures. It is the key successful strategy that those cultures infiltrate into management. Moreover, Wal-Mart’s human resource division is to incorporate Walton’s culture and philosophy into a human resource management strategy effectively. At first sight, people may find that Wal-Mart’s human resource strategy is obvious since there are only three steps: getting good people, keeping good people and growing good people. In fact, the three steps are meaningful in depth.

Getting Good People

Due to some of companies ignore to recruit and select people, they are failed as soon as possible. Getting good people is the part of retention strategy since the quality of employees decides the efficient of productivity. During the period 1994 to 1999, economy rose in US and unemployment dropped from 6.6% to 4.3% (Coleman H. Peterson, 2005). It meant that employment demand was increased and many job holders seek employees. In Wal-Mart, employee turnover was not going to work and prevented its growth program. As a result, management realized that they must found out strategies to reduce rising turnover. One of strategy was to obtain high-quality personnel. Wal-Mart did not just provide monetary benefits to keep associates, but the management first concentrated on recruiting strategy.

In the normal recruiting and selecting process, human resource managers focus on references, education, experience and other background information in the face to face interview. Nevertheless, they missed the most important thing – observation. Interviewer always cared about the answer, but they never observed interviewee’s behavior, such as eye contact, gesture and so on. Hence, management decided to provide interview training courses to human resource associates, which taught some behavioral instruments and validation processes in the interview.

Keeping Good People

Many research conducted the topic “Why people leave?” The answers were including poor supervision, lack of job opportunities and pay. However, people know that employees do not leave companies, and they leave bad supervisors. In Wal-Mart’s culture, leaders maintained that if companies could answer three questions well, it was on its way to establish a long term relationship with its employees:

Do you care about me?

What do I need to do to get ahead?

Where can I go to get justice? (Coleman H. Peterson, 2005)

One of Wal-Mart’s retention strategies called for mandatory participation of the location manager in new-employee orientation meetings, because it is a good opportunity that let associates know their leaders from the beginning.

Sam Walton had said: “treat the staff like the garden of flowers and trees, need spiritual encouragement, job promotion and better treatment to watering them, so as to ensure timely transplant with the best and, if necessary also carefully remove the weeds the garden in order to facilitate their growth.” (SXC, 2009) Wal-Mart’s employees as business partners to treat relationship between managers and employees is the true sense of partnership. “We care about our employees” indicated that managers pay more attention to listen to the views of the staff. The founder of Wal-Mart believed that if the company shares profits with employees, such as salary, bonus or dividend, stock, etc. Then the profit still can flow into the company’s account. It is because the staff will treat with customers better based on the monetary system. Nowadays, Wal-Mart has more than 80% of the associates who enjoy with profit sharing plan, employee stock plan or direct ownership of the company’s stock, so that associates are able to treat the company as their own, and the brand awareness enhances more and more.

Except for economic benefits, the management is more emphasis on the spirit of encouragement. For instance, wherever and whenever any of associates have ideas, suggestion or complaints, and they can report to management via oral or written form. Wal-Mart has a special relationship between people engaged in the work of employees, solve complaints, and listen to the views of the staff and so on, so that each of associates feels the warmth of the family of Wal-Mart. Moreover, in each of stores, there are windows to paste advanced staff photo in order to encourage and motivate them psychologically.

Growing Good People

After Wal-Mart provides retention strategies to associates, the key importance is how associates are able to see the opportunities in the future. In other words, Wal-Mart would like to create self promotion opportunities to associates, and let them understand everyone can have their own future in Wal-Mart if you are ready. In the organization, 70% of all management people are began as hourly workers whom has always been strong proof that the opportunities are truly exists (Coleman H. Peterson, 2005). Moreover, the most incredible instance is about the single-parent telephone operator from a California Wal-Mart store who eventually became the vice president of recruitment and placement of the entire organization.

Wal-Mart’s success is based on a strong belief :”Let each one of our colleagues to achieve the value of the individual, and our colleagues are not only seen as a tool to work with both hands, but more should be regarded as a rich intellectual the source of the creation of our colleagues is indeed remarkable.” (SXC, 2009) Wal-Mart’s effective training put a lot of money to ensure the implementation of the companies located in countries all over the world including the training with the head office in September per year. The staff training includes induction, technical training, job training, overseas training, and leadership training which attend by all of managers. Furthermore, there is a Walton College near to the Wal-Mart’s headquarters in the US, and it provides training courses to people who have potential for development of management and are good at working. In addition, Wal-Mart also established rotation system to in charge of the regular rotation at all levels through different work. The rotation system can bring several benefits to associates and company. For example, associates are able to learn variety of skills and techniques, as well as the company become more competitive compare to its competitors.

Recommendations

Wal-Mart’s employee retention strategies are completely and its logistic thinking is outstanding in the retailing industry. That is why Wal-Mart can achieve the mission – save money, live better, and also maintain the leader in the industry. However, from my point of view, although the Wal-Mart’s employee retention strategies were more advanced than other competitors, they did not organize well, and showed that the employee retention systems were complicate as well as in a mess.

First of all, management should define the term – ‘key talent’ clearly. Generally, key talent is a person who has ability to react quickly to new circumstances, and generate revenue or the willingness to take risks. It is also a term that displays that the place of person is difficult to replace by others, as well as he has high potentials and unique techniques or skills to handle problems in his department. In Wal-Mart, the employee retention strategies should be used in the group of key talents effectively since only retaining key talents can save cost in the organization.

In the step of ‘Getting Good People’, Wal-Mart chose the face to face to collect data and found the key talent. However, interview cannot provide enough evidence to decide the key talent. It is suggested that some selection tests should be done by candidates because the results are able to reflect to the abilities of people, such as intelligence test. For example, P&G has the intelligence test before the interview in order to collect statistics from the person. The intelligence test can help P&G choose capable person to interview easily.

Then, monetary and non-monetary systems are attractive in the step of ‘Keeping Good People’ at Wal-Mart, especially the profit sharing and stock sharing plan is the model that companies imitate, and this step can be perfect and hard to fault. Furthermore, the distinctive ideas should be appreciated by the culture of Wal-Mart, but now the issue is how Wal-Mart should generate the culture to the next generation. It is because once the culture cannot come into the future generations, maybe the excellent retention strategy would disappear at all. Therefore, cultural seminars should be held by Wal-Mart in a certain period. Not only can management describe and teach Wal-Mart’s culture to associates, but also are seminars able to motivate people psychologically. Moreover, the percentage of monetary and non-monetary system should leverage depends on the economic factors. If the economy downturn and it affect the Wal-Mart’s sales, management should implement more non-monetary strategies to keep key talents while Wal-Mart should decrease the compensation or bonus approximately. On contrary, when the economy recovers, the monetary strategies should be implemented more and more, because Wal-Mart’s associates are part of company, and they have rights to share the profit.

Lastly but not least, with regard to the step of ‘Growing Good People’, the advice is that promotion training courses and rotation courses should be mixed to achieve economies of scale. The mixed way can help associates receive skills and techniques as soon as possible, and also associates are able to create potential profit to company. It is win-win situation. Furthermore, managers should delegate some tasks to the potential persons so that they can feedback some creative ideas, or use different cost leadership to finish the tasks.

Conclusion

All in all, a strong company always has its own culture and philosophy, and Wal-Mart is one of them. Thanks to the founder’s culture, Wal-Mart has a clear vision which is ‘price leadership drive the global performance’. Hence, saving cost is the main goal in the organization. In the terms of human resource department, labor cost is primary cost that management should monitor all the time. Then, employee turnover becomes the key problem that human resource department should be conquer. Wal-Mart’s employee retention strategies are distinctive among the top companies because 3 steps retention strategies have their own culture in the organization. The employee retention strategies build an organization’s human capital as a source of competitive advantage. Imagining it, if there is no top talent to support management, it would look like strewing sand and nobody can concentrate into the company. Obviously, employee loyalty does not need to discuss at all. Wal-Mart utilized excellent retention strategies to keep top talents, and let them contribute to companies maximum. Then, the company becomes more competitive since it has labor power to support the business with their high level thinking. Besides, retention strategies can stimulate associates’ creativity to make supernormal profit to the company. As a result, the employee loyalty is high to build human capital at Wal-Mart.

Finding a good company is easy while finding a good boss is difficult. Similarly, finding a good employee is easy but keeping a good employee is more difficult. Moreover, a top talent can easy to make wealth to company, and contribute to company, but is tough to loyal to the company. In order to retain key talent, 3 steps retention strategies can guide people and let top talent becomes human capital in organizations. Wal-Mart’s retention strategies are good examples to show that how Wal-Mart can become leader in the retailing industry, and because of retention strategies, it is more competitive compare to others.

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