The Walmart Paradox

I got the following email from someone who'd just read my book Corporate Culture: Getting it Right (in the UK published as Organisation Culture: Getting it Right).

"Something is wearing on me, something I can't get around. I am calling it the Walmart paradox. If indeed we believe (almost religiously) in the culture / business model connection, and that organizational success is in partly predicated on the tightly woven alignment between the two, how can we explain Walmart success? I mean the almost flagrant and overt inconsistency between Wal-Mart business practices and the so-called "respect for the individual" (one of three) core value is hard to reconcile. And I mention this because I am trying to do more transformational consulting and I espouse everything you put forth, and just wondering what do I say when someone says in a meeting, "what about Wal-Mart?"

I know you mention that one must consider the complexity of Wal-Mart's environment and all of the trade offs involved … and that determining cause and effect is a futile endeavor. But isn't that inconsistency between culture and behavior ultimately unsustainable? That's the kind of irreconcilable stuff that incite revolutions and over throws governments, yet Wal-Mart's been at it for decades – and thriving!!!! Naomi help!"

Initially I passed the buck on answering and got the following response from a colleague:

"Isn't Walmart's success down to the fact that it is a very well-run and organized business, and that in its own weird way it does get high levels of loyalty and commitment. My view is that a lot of people are quite happy not to have to think for themselves so long as they feel secure in their job and that they are not treated unfairly vis-a-vis their colleagues, and I suspect Walmart is rigid in its "fairness" but that its round holes are unsuited to square pegs. "

But today I was in Lush, Oxford, UK and started chatting to one of the store supervisors. She told me that the store was active in many kinds of local community support, they had an allotment (vegetable patch) where they composted unsold products, they minimized packaging, part of her role was to suggest and introduce green/sustainable practices, and so on. She was clearly committed and engaged in what Lush culture and business model were about and in her descriptions they appeared to be aligned.

Hearing her talk reminded me that I hadn't tackled the Walmart paradox myself. So here goes. I think there are three critical things at play when it comes to lining up culture, behavior, and the business model.

1 Whether the company is publicly or privately owned. Privately owned companies (as Lush) have a lot more leeway to make choices and demonstrably live their values without fear of repercussion from shareholders. Privately owned Lush, claims to be "a campaigning company that takes direct action … we demonstrate ethics at work, getting our hands dirty." I wonder what Walmart's individual and collective shareholders would say if, in pursuit of the "Respect for the Individual" basic value that they eschew the company visibly and actively supported something like the No One Is Illegal Campaign that Lush supports with money, activity, and a 'World Passport' that "gives all the information anyone should need, to confirm that you are indeed a human being, not an alien, or a business corporation, nor a figment of some racist's imagination."

2 What the customer base is. Walmart generally targets low income families, and/or those conscious of cash outlay. When individual customers are making a trade-off between the amount of money they have available to buy necessities and the ethical/behavioral stance of the company they are more likely to ignore the latter. Walmart's second value "Service to our customers" is to "offer quality merchandise at the lowest prices, and we do it with the best customer service possible." However, this can compromise spend on employee wages, paying fair prices to suppliers, and give rise to other potentially damaging practicesrelated to maintaining low prices. In this model customer loyalty is determined more on price point than brand.

Lush, however, does not target customers interested in 'lowest prices'. They target customers who go along with Lush's beliefs in "long candlelit baths, sharing showers, massage, filling the world with perfume and in the right to make mistakes, lose everything and start again," combined with "making effective products from fresh organic fruit and vegetables, the finest essential oils and safe synthetics." Neither of these beliefs comes cheaply. But they do make for a very defined brand-loyal customer who Lush is skilled at keeping, in part by demonstrating alignment to business model, values, and behaviors.

3 Competition and the drive for growth. Any publicly traded company strives for growth in order to meet shareholder demands. But often this compromises the alignment of business model, culture and behaviors (read Daniel Vasella, CEO of Novartis, comments on this topic). Walmart – not content with being the largest global retailer despite operating in only 15 countries – continuously strives for growth.

Whether it lives up to its third value "Striving for Excellence", in doing so is a matter for debate. Currently, the company has no presence in Washington DC but is trying to open four stores against fairly strong local opposition. What does one make of the fact that during the last fiscal year "Walmart provided more than $2.4 million to charitable organizations in Washington DC". Is that striving for excellence or currying good press to counter the bad press? Would Walmart's presence in the District demonstrate "the passion we have for our business, for our customers and for our communities"? Or would it put local retailers like Yes Organic out of business?

Lush's niche market inventing, making and selling their own brand products and fragrances, "using little or no preservative or packaging, and only vegetarian ingredients" enables it to grow without same threat of competition or loss of customer loyalty that Walmart battles. Lush has strong single brand identity, quirky approach, loyal customer base and epitomizes many of the best practices suggested by the Centre for Integrated Marketing (CFIM).

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So is the Walmart approach of what I'll call value compromise unsustainable? Probably not, because business model is more focused on quarter by quarter financial growth, as demanded by shareholders, achieved more by low prices to mass market customers, and less on brand reputation and alignment to values, niche products and services, and loyal customers. That is the trade off that Walmart leaders make. That doesn't mean that Walmart itself has a sustainable model: other behemoths have collapsed (think Enron, Arthur Andersen, Lehmann, etc).

It does seem that privately traded companies are better able to align business models, values, and behaviors whilst still without sacrificing growth. (Think Zappos – before being bought by Amazon, Mercadona – a Spanish retailier, and W.H. Gore).

Whether this answers the original question to the reader's satisfaction I don't know (yet). What are your views?

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