Walmart: Changing the World for Better or Worse?

Subscribe on iTunes  Follow on Libsyn

Subscribe on iTunes  Follow on Libsyn

Brian Kenny: It's a study in contrasts: a retail chain that was built on the promise of low prices for the working class, yet has created unimaginable wealth for the founding family; a behemoth that employs a workforce as large as the Chinese army, yet has a debilitating effect on the local economies where they locate stores; a company culture that is rooted in Christian values, yet is routinely characterized as a bully to its suppliers, and unfair to women and minorities. What is the real Wal-Mart? Today we'll hear from Professor Rebecca Henderson about her case entitled, “Greening Wal-Mart: Progress and Controversy.” I'm your host, Brian Kenny, and you're listening to Cold Call.

Professor Henderson's work explores how organizations respond to large-scale technological shifts, particularly in regard to energy and the environment. She created Reimagining Capitalism, a course in the MBA program. Rebecca, thanks for joining me today.

Rebecca Henderson: You're welcome, Brian. I'm delighted to be here.

BK: This is a case that I think everybody can relate to. We've all shopped at Wal-Mart. You've shopped at Wal-Mart, yes?

RH: I have indeed.

BK: It's the original big box store, or one of them anyway.

RH: The prices are unbelievable and the selection, too.

BK: That's really true. Can you just start us off—how does the case begin?

RH: The case begins with the CEO talking to the worldwide workforce right after Hurricane Katrina. What he's saying to the firm is, “Look, during Hurricane Katrina, we were perceived as heroes. We were able to move food and materials into New Orleans in a way that the Federal Government was having difficulty with.” He challenged his firm. He said, “What would it take to make us the kind of company that people thought we were heroes all the time? What if we used Wal-Mart's scale and scope to really make a very significant difference in the world?” He used that speech to lay out a sequence of really exciting commitments for Wal-Mart in terms of what they would do environmentally. Then he spent the next few years following up on those commitments. The case is really about that journey.

BK: That he is Lee Scott, the CEO. What prompted you to write this case? Was it that you loved shopping at Wal-Mart so much, or were there other reasons?

RH: I wanted to write a case on Wal-Mart for two reasons. The first is I want to illustrate the way in which a private company, if it decides to make a difference against really large problems, and in particular environmental problems, can really shift the conversation and make a big difference. It seemed to me that Wal-Mart was doing that, is doing that, and is perhaps the leading company in this area, or one of the leaders in the world in how they think about environmental issues. No one denies that they are making real changes in their supply chain and in the way they use energy and the way they think about packaging and the way they work with suppliers.

That was the first reason. The second reason I wanted to write the case is Wal-Mart is a controversial company. My understanding of the company is they perceive themselves as very much a values-driven company, that they see themselves as delivering great quality products at low prices to people who otherwise could not afford them. That's if you like a mission. They wanted to focus on the environment because they thought it would make a real difference in the world. That's not an uncontroversial position on the company. They're widely criticized for the effects they have on local communities, for the effects they have on wage rates, for how they run their business.

Some people claim that the focus on consumption is a real problem in today's world and that Wal-Mart plays right into that, that to be truly environmental, Wal-Mart should shut itself down and not keep selling enormous quantities of cheap goods that are shipped right around the world. Writing the case and teaching the case seemed to me to open up a conversation about the important issues that we face. Can private companies make a difference? What will it take to really reduce environmental footprint? Do companies need to be values-driven or is this just a cynical business case that's going on here? Is Wal-Mart just cynically investing in environmentalism because it improves their image? Is that what's going on?

Does it matter? It opens all these deep issues about environment, capitalism, firms. I thought it would just be a fantastic conversation in the classroom.

BK: All of those things are covered in great detail in the case. Wal-Mart is huge. You have some great statistics in the case. Comparing Wal-Mart to other things. They're larger than their next 4 competitors combined?

RH: That's the case. They're unbelievably large. The statistic that you mentioned earlier, which is they employ as many people as the Chinese army—they're the third-largest employer in the world. The scale of the effort is what's so breathtaking. Wal-Mart's decision to really push efficient light bulbs in their stores has been credited with shifting the whole light bulb market in the entire United States, not to mention the world. It really highlights the question of the power of large corporations to really make a difference. It's the paradigmatic case.

BK: They were small once. It was one store in Arkansas. Can you talk a little bit about Sam Walton and his values and how that infused the company?

RH: That's a fantastic story and I think a really interesting one. Mr. Walton was, I think, visionary, incredibly hard-working, very hands-on. He accumulated great wealth but never flaunted it. It's well-known he always kept driving his pickup. He wanted to serve people who were not being served. When he founded his first store in the Ozarks region of the U.S., his primary customers were people who didn't have access to department stores. Their choices were basically very, very tiny local stores or expensive goods imported from the cities. He wanted to give people a choice and make a difference in their lives.

The early Wal-Marts, it was fairly clear, were very much places where neighbors served their neighbors. The people who were working as cashiers and in the store were by-and-large women from farming backgrounds who were earning a little extra money. They experienced themselves, as in service to their neighbors, as offering them great products at very low prices. As the company spread initially, that was the focus—these underserved communities, and really making a difference in the places where the store was located.

BK: Something shifted somewhere along the way. You talk in the case about as they started to experience explosive growth, in the '80s and in the '90s—it's hard to hold onto those same, core values as everything around them was changing.

RH: It's very hard to tell from the outside. I wrote the case from second resources for all kinds of reasons. There's a lot written about Wal-Mart but it tends to be highly polarized and I always suspect the truth is somewhere in the middle. Wal-Mart turned into one of the world's most successful firms. People have said that a percentage point of U.S. productivity growth over the last 20 years is Wal-Mart. It's an incredible business. They develop capabilities in IT, and logistics and in purchasing that nobody else had ever seen anything like. It became an incredibly successful corporation.

I study large organizations. The larger the organization, the harder it is to retain that core. People who have worked at Wal-Mart tell me that the focus is still very much on consumers who could otherwise not afford goods. Of course people look at the impact they've had on communities. They look at the degree to which workers at Wal-Mart are often dependent on government support. It's such a difficult issue because of course these criticisms are valid but let's remember they're valid for many other firms as well. Wal-Mart attracts a great deal of criticism simply because it's so big, but you can see other big box retailers, other firms that employ minimum wage at scale having similar effects. I think they catch a lot of grief for that as well.

I read the Katrina moment as a moment that the company realized there was a triple play. The triple play was firstly that there was a business case for addressing environmental issues, that taking waste out of the supply chain, reducing energy use, and operating more efficiently would have very real benefits. You can see that in the case. They redid their trucking network and took out a billion dollars a year in costs.

BK: Just amazing.

RH: There's a real business model and I think they realize that. The second part is they were under a lot of fire. Picking an issue where they could really make a difference and be a world leader would clearly have PR reputational benefits. That's the second element. Then the third is, I believe, Lee Scott. I think he wanted the company to make a real difference. He wanted to use the scale and scope to change the world. I've had the good fortune of meeting the director of sustainability for Wal-Mart—very thoughtful, interesting woman who clearly is passionate about what Wal-Mart can do in the world.

I've talked to people who've supplied Wal-Mart and they said, “Yeah they come in and they make sure we reduce our energy use and we reduce our water use and we make sure that the safety precautions are in place.” I'm confident enough that there's a really important issue going on here. When I've taught the class to my students, we just had the most amazing discussion. You can imagine the fireworks in the classroom. Is it really values? Is it a business case? Is it really PR? At the end, I said, “So, does it make a difference? That is, don’t all real companies have to have multiple motivations?”

It's very well to talk about changing the world, but if you don't have a business case, excuse me, we're a business. We got to make money or we're not in business. I have no problem with having a strong business case. Indeed as a strategy professor I'm really excited about having a strong business case. For me, one of the things that's exciting about Wal-Mart is the risks they're taking. It always looks easy ex post to say, “Well anyone could've seen that there was money there.” By going first in issues like solar and logistics and in packaging, they've laid the foundations for other firms to follow.

BK: These changes played out over a lengthy period of time. So they identified the areas that they were going to take on. Then they stuck to it.

RH: Absolutely.

BK: Ruthlessly, I would say.

RH: Not all companies do that. They brought the operating focus and excellence that they have to this problem of environmental action and just relentlessly kept after it. It's a very hard problem. They take grief because they said, “Well we're going to construct a sustainability index. That will allow us to rank our products and our firms.” It's taken them a long time to do that. Well you know what? It's taken everyone a long time to do that. They're continuing to work very hard at it. I must stress, I don't want to suggest that Wal-Mart is the perfect firm or there aren't real issues or there aren't real criticisms. I think any company of this size and scope is going to have things that are working really well and things that are perhaps not quite as successful, but I think it's a fascinating example.

BK: In addition to the sustainability initiatives that they've tackled, they've taken on some social issues as well.

RH: It's important to say that Wal-Mart's done initiatives on a whole range of fronts. They work actively to employ veterans. Most recently they announced a significant increase in the minimum wages they pay. What's interesting about that is it was associated with a significant drop in their stock price. They announced that they thought paying more would allow them to address issues of retention and commitment and productivity. It's not clear the market believes them entirely but what's interesting is the company is sticking to its guns and continuing those higher wage rates. We'll see how that plays out.

BK: It almost seems like every move they make in the right direction, there's this counter-swing that's taken at them. It almost seems unfair in some regards. You talk about the way they've dealt with their suppliers in the past. By all accounts, they have helped their suppliers become more efficient, yet they are accused of squeezing suppliers relentlessly in the negotiations that they have with them.

RH: Well they do squeeze their suppliers relentlessly in negotiations. That's good business practice. Critique of business is complicated, right? But I'm very uncomfortable with some of the conversation in this country and worldwide which suggests that somehow companies are inherently evil or greedy and that that's a problem. I think companies are one of the few instruments we have for changing the world at scale.

It seems to be clear business is in partnership with an effective and strong society and needs to play its role in sustaining that partnership.

The population of the world has tripled and GDP per head has quintupled. That was capitalism. That was private firms. That was relentless bargaining with suppliers because that's what drives innovation. That's what drives change. That's what drives efficiency. I don't mean to justify each and every one of Wal-Mart's business practices. There are always issues. The general principle that successful firms are aggressive and relentless, that's what we like. That's what gives us growth and prosperity.

BK: I think anybody who has these kinds of questions about Wal-Mart would benefit from reading the case because I do think it does a great job of showing a balance of both sides of that coin. Is there anything that you would say to the next Sam Walton who might be listening to this podcast? Would you advise them to do things differently than Sam did or stay that course?

RH: If I could talk to Sam, if I could go back in time or talk to a current Sam, the thing I would suggest is he give some stock to his workforce. I think he created enormous wealth. He created great value for his customers, but he created great wealth. I wonder if some of that wealth could have been shared with the employees. I can imagine a world in which company-ownership is much more widely shared, in which everyone's a capitalist. I think that world might have many strengths.

BK: It's a great vision. Rebecca, thank you so much for joining me today.

RH: You're welcome. Thank you for inviting me.

BK: You can find this case along with thousands of others in the Harvard Business School case collection at hbr.org. I'm Brian Kenny. Thanks for listening to Cold Call, the official podcast of Harvard Business School.

 Read more

Brian Kenny: It's a study in contrasts: a retail chain that was built on the promise of low prices for the working class, yet has created unimaginable wealth for the founding family; a behemoth that employs a workforce as large as the Chinese army, yet has a debilitating effect on the local economies where they locate stores; a company culture that is rooted in Christian values, yet is routinely characterized as a bully to its suppliers, and unfair to women and minorities. What is the real Wal-Mart? Today we'll hear from Professor Rebecca Henderson about her case entitled, “Greening Wal-Mart: Progress and Controversy.” I'm your host, Brian Kenny, and you're listening to Cold Call.

Professor Henderson's work explores how organizations respond to large-scale technological shifts, particularly in regard to energy and the environment. She created Reimagining Capitalism, a course in the MBA program. Rebecca, thanks for joining me today.

Rebecca Henderson: You're welcome, Brian. I'm delighted to be here.

BK: This is a case that I think everybody can relate to. We've all shopped at Wal-Mart. You've shopped at Wal-Mart, yes?

RH: I have indeed.

BK: It's the original big box store, or one of them anyway.

RH: The prices are unbelievable and the selection, too.

BK: That's really true. Can you just start us off—how does the case begin?

RH: The case begins with the CEO talking to the worldwide workforce right after Hurricane Katrina. What he's saying to the firm is, “Look, during Hurricane Katrina, we were perceived as heroes. We were able to move food and materials into New Orleans in a way that the Federal Government was having difficulty with.” He challenged his firm. He said, “What would it take to make us the kind of company that people thought we were heroes all the time? What if we used Wal-Mart's scale and scope to really make a very significant difference in the world?” He used that speech to lay out a sequence of really exciting commitments for Wal-Mart in terms of what they would do environmentally. Then he spent the next few years following up on those commitments. The case is really about that journey.

BK: That he is Lee Scott, the CEO. What prompted you to write this case? Was it that you loved shopping at Wal-Mart so much, or were there other reasons?

RH: I wanted to write a case on Wal-Mart for two reasons. The first is I want to illustrate the way in which a private company, if it decides to make a difference against really large problems, and in particular environmental problems, can really shift the conversation and make a big difference. It seemed to me that Wal-Mart was doing that, is doing that, and is perhaps the leading company in this area, or one of the leaders in the world in how they think about environmental issues. No one denies that they are making real changes in their supply chain and in the way they use energy and the way they think about packaging and the way they work with suppliers.

That was the first reason. The second reason I wanted to write the case is Wal-Mart is a controversial company. My understanding of the company is they perceive themselves as very much a values-driven company, that they see themselves as delivering great quality products at low prices to people who otherwise could not afford them. That's if you like a mission. They wanted to focus on the environment because they thought it would make a real difference in the world. That's not an uncontroversial position on the company. They're widely criticized for the effects they have on local communities, for the effects they have on wage rates, for how they run their business.

Some people claim that the focus on consumption is a real problem in today's world and that Wal-Mart plays right into that, that to be truly environmental, Wal-Mart should shut itself down and not keep selling enormous quantities of cheap goods that are shipped right around the world. Writing the case and teaching the case seemed to me to open up a conversation about the important issues that we face. Can private companies make a difference? What will it take to really reduce environmental footprint? Do companies need to be values-driven or is this just a cynical business case that's going on here? Is Wal-Mart just cynically investing in environmentalism because it improves their image? Is that what's going on?

Does it matter? It opens all these deep issues about environment, capitalism, firms. I thought it would just be a fantastic conversation in the classroom.

BK: All of those things are covered in great detail in the case. Wal-Mart is huge. You have some great statistics in the case. Comparing Wal-Mart to other things. They're larger than their next 4 competitors combined?

RH: That's the case. They're unbelievably large. The statistic that you mentioned earlier, which is they employ as many people as the Chinese army—they're the third-largest employer in the world. The scale of the effort is what's so breathtaking. Wal-Mart's decision to really push efficient light bulbs in their stores has been credited with shifting the whole light bulb market in the entire United States, not to mention the world. It really highlights the question of the power of large corporations to really make a difference. It's the paradigmatic case.

BK: They were small once. It was one store in Arkansas. Can you talk a little bit about Sam Walton and his values and how that infused the company?

RH: That's a fantastic story and I think a really interesting one. Mr. Walton was, I think, visionary, incredibly hard-working, very hands-on. He accumulated great wealth but never flaunted it. It's well-known he always kept driving his pickup. He wanted to serve people who were not being served. When he founded his first store in the Ozarks region of the U.S., his primary customers were people who didn't have access to department stores. Their choices were basically very, very tiny local stores or expensive goods imported from the cities. He wanted to give people a choice and make a difference in their lives.

The early Wal-Marts, it was fairly clear, were very much places where neighbors served their neighbors. The people who were working as cashiers and in the store were by-and-large women from farming backgrounds who were earning a little extra money. They experienced themselves, as in service to their neighbors, as offering them great products at very low prices. As the company spread initially, that was the focus—these underserved communities, and really making a difference in the places where the store was located.

BK: Something shifted somewhere along the way. You talk in the case about as they started to experience explosive growth, in the '80s and in the '90s—it's hard to hold onto those same, core values as everything around them was changing.

RH: It's very hard to tell from the outside. I wrote the case from second resources for all kinds of reasons. There's a lot written about Wal-Mart but it tends to be highly polarized and I always suspect the truth is somewhere in the middle. Wal-Mart turned into one of the world's most successful firms. People have said that a percentage point of U.S. productivity growth over the last 20 years is Wal-Mart. It's an incredible business. They develop capabilities in IT, and logistics and in purchasing that nobody else had ever seen anything like. It became an incredibly successful corporation.

I study large organizations. The larger the organization, the harder it is to retain that core. People who have worked at Wal-Mart tell me that the focus is still very much on consumers who could otherwise not afford goods. Of course people look at the impact they've had on communities. They look at the degree to which workers at Wal-Mart are often dependent on government support. It's such a difficult issue because of course these criticisms are valid but let's remember they're valid for many other firms as well. Wal-Mart attracts a great deal of criticism simply because it's so big, but you can see other big box retailers, other firms that employ minimum wage at scale having similar effects. I think they catch a lot of grief for that as well.

I read the Katrina moment as a moment that the company realized there was a triple play. The triple play was firstly that there was a business case for addressing environmental issues, that taking waste out of the supply chain, reducing energy use, and operating more efficiently would have very real benefits. You can see that in the case. They redid their trucking network and took out a billion dollars a year in costs.

BK: Just amazing.

RH: There's a real business model and I think they realize that. The second part is they were under a lot of fire. Picking an issue where they could really make a difference and be a world leader would clearly have PR reputational benefits. That's the second element. Then the third is, I believe, Lee Scott. I think he wanted the company to make a real difference. He wanted to use the scale and scope to change the world. I've had the good fortune of meeting the director of sustainability for Wal-Mart—very thoughtful, interesting woman who clearly is passionate about what Wal-Mart can do in the world.

I've talked to people who've supplied Wal-Mart and they said, “Yeah they come in and they make sure we reduce our energy use and we reduce our water use and we make sure that the safety precautions are in place.” I'm confident enough that there's a really important issue going on here. When I've taught the class to my students, we just had the most amazing discussion. You can imagine the fireworks in the classroom. Is it really values? Is it a business case? Is it really PR? At the end, I said, “So, does it make a difference? That is, don’t all real companies have to have multiple motivations?”

It's very well to talk about changing the world, but if you don't have a business case, excuse me, we're a business. We got to make money or we're not in business. I have no problem with having a strong business case. Indeed as a strategy professor I'm really excited about having a strong business case. For me, one of the things that's exciting about Wal-Mart is the risks they're taking. It always looks easy ex post to say, “Well anyone could've seen that there was money there.” By going first in issues like solar and logistics and in packaging, they've laid the foundations for other firms to follow.

BK: These changes played out over a lengthy period of time. So they identified the areas that they were going to take on. Then they stuck to it.

RH: Absolutely.

BK: Ruthlessly, I would say.

RH: Not all companies do that. They brought the operating focus and excellence that they have to this problem of environmental action and just relentlessly kept after it. It's a very hard problem. They take grief because they said, “Well we're going to construct a sustainability index. That will allow us to rank our products and our firms.” It's taken them a long time to do that. Well you know what? It's taken everyone a long time to do that. They're continuing to work very hard at it. I must stress, I don't want to suggest that Wal-Mart is the perfect firm or there aren't real issues or there aren't real criticisms. I think any company of this size and scope is going to have things that are working really well and things that are perhaps not quite as successful, but I think it's a fascinating example.

BK: In addition to the sustainability initiatives that they've tackled, they've taken on some social issues as well.

RH: It's important to say that Wal-Mart's done initiatives on a whole range of fronts. They work actively to employ veterans. Most recently they announced a significant increase in the minimum wages they pay. What's interesting about that is it was associated with a significant drop in their stock price. They announced that they thought paying more would allow them to address issues of retention and commitment and productivity. It's not clear the market believes them entirely but what's interesting is the company is sticking to its guns and continuing those higher wage rates. We'll see how that plays out.

BK: It almost seems like every move they make in the right direction, there's this counter-swing that's taken at them. It almost seems unfair in some regards. You talk about the way they've dealt with their suppliers in the past. By all accounts, they have helped their suppliers become more efficient, yet they are accused of squeezing suppliers relentlessly in the negotiations that they have with them.

RH: Well they do squeeze their suppliers relentlessly in negotiations. That's good business practice. Critique of business is complicated, right? But I'm very uncomfortable with some of the conversation in this country and worldwide which suggests that somehow companies are inherently evil or greedy and that that's a problem. I think companies are one of the few instruments we have for changing the world at scale.

It seems to be clear business is in partnership with an effective and strong society and needs to play its role in sustaining that partnership.

The population of the world has tripled and GDP per head has quintupled. That was capitalism. That was private firms. That was relentless bargaining with suppliers because that's what drives innovation. That's what drives change. That's what drives efficiency. I don't mean to justify each and every one of Wal-Mart's business practices. There are always issues. The general principle that successful firms are aggressive and relentless, that's what we like. That's what gives us growth and prosperity.

BK: I think anybody who has these kinds of questions about Wal-Mart would benefit from reading the case because I do think it does a great job of showing a balance of both sides of that coin. Is there anything that you would say to the next Sam Walton who might be listening to this podcast? Would you advise them to do things differently than Sam did or stay that course?

RH: If I could talk to Sam, if I could go back in time or talk to a current Sam, the thing I would suggest is he give some stock to his workforce. I think he created enormous wealth. He created great value for his customers, but he created great wealth. I wonder if some of that wealth could have been shared with the employees. I can imagine a world in which company-ownership is much more widely shared, in which everyone's a capitalist. I think that world might have many strengths.

BK: It's a great vision. Rebecca, thank you so much for joining me today.

RH: You're welcome. Thank you for inviting me.

BK: You can find this case along with thousands of others in the Harvard Business School case collection at hbr.org. I'm Brian Kenny. Thanks for listening to Cold Call, the official podcast of Harvard Business School.

Post A Comment

In order to be published, comments must be on-topic and civil in tone, with no name calling or personal attacks. Your comment may be edited for clarity and length.