How Wal-Mart lost its technology edge

If you do not stay on top of the game it is easy to slip to the bottom of the pile in terms of IT and customer service.

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Sam Walton did not care much for technology. The legendary patriarch of Wal-Mart Stores was well-known for his lack of excitement about "computers," as he called the company's IT systems. "Truthfully, I never viewed computers as anything more than necessary overhead," he wrote in his 1992 memoir, Made in America. "A computer is not – and will never be – a substitute for getting out in your stores and learning what's going on."

If Walton were alive today (he died the year his book was published), he might be saying, I told you so.

Many still consider Wal-Mart's pioneering, IT-driven supply chain to be the world's most efficient, and the company's technology standards still command respectful attention from its thousands of suppliers. But the $349bn retailer is stumbling, and IT has played a role in its woes.

Last year, the behemoth sold its stores in South Korea and Germany (incurring a $1bn loss in Germany alone), reportedly due to its inability to adapt to the local cultures and unseat established players. At home, Wal-Mart twice reduced the number of new US supercentres it planned to open this year – the second time, in June, by 30%. In August, the company reported that it had missed second-quarter profit estimates and warned that its profits would be lower than expected for 2007.

Wal-Mart executives blamed this slump on the effect of high energy prices on its low-income core shoppers, as well as the company's failure to move to new high-end apparel and home-decor merchandise. Analysts blame Wal-Mart's inattention to customer service at home, merchandising mistakes and its insensitivity to local markets abroad. Meanwhile, Wal-Mart has struggled online. Its website lags behind competitors like Amazon.com and Target, and recent marketing experiments using social networking technologies have achieved mixed success. The company has even suffered in its sweet spot, with serious setbacks to its deployment of radio-frequency identification (RFID) tags throughout its supply chain.

The company's performance, said president and CEO Lee Scott in a press release, "is not what we expect of ourselves, and not what our shareholders expect of us." He said management would spend the rest of this year "focused on inventory improvements, delivering quality products at low prices, and store execution at the highest standards."

At the crossroads

Wal-Mart today is caught between two worlds: Sam Walton's, where a zealous commitment to "everyday low prices" is enforced (despite Walton's scepticism about "computers") by IT-assisted decisions, and a new global marketplace in which the retailer's sheer size is not as big an advantage as it once was. Competitors such as Target and Tesco can match Wal-Mart in technological sophistication and surpass it by innovating in new retailing segments with higher-margin goods.

"Wal-Mart was making their margins on sourcing and great technology systems, but everyone has got that now," says Patricia Edwards, a portfolio manager and managing director at Wentworth, Hauser and Violich who focuses on retail.

The question for Wal-Mart CIO Ford is how much the legendary IT infrastructure and supply chain systems that turned Wal-Mart into a juggernaut, it has nearly 2 million employees and 6,775 stores worldwide, can help right a listing ship. The command-and-control, technology-enabled culture that allowed Wal-Mart to flourish may not help it to maintain its market dominance. Greg Buzek, president of IHL Consulting Group, which advises retailers, says that store managers say in key areas where Wal-Mart has tried to grow, such as in apparel sales, the company has relied too much on centralised decision making-for example, letting corporate systems override local input about what items to stock.

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