A REPORT

ON
STRTEGIC AUDIT

Submitted to: Submitted by:

Ms. Sanjeela Mathur Rashmi Sharma
PGDM 5th A
Roll No. - 42
 Table of contents

Contents Page No.

what is strategic audit?
Strategic process
How to develop strategic audit?
About walmart
Strategic audit of walmart
What is Strategic Audit?

Strategic audits are examinations and evaluations of strategic

management processes including measuring corporate
performance against the corporate strategy. Whenever a
deficiency is noted or performance of an organization is sub-par,
the organization may elect to perform a strategic audit. This may
be done with in-house auditors, or an audit firm may be
contracted to perform the audit.

The auditors will audit performance of the organization against the

current corporate strategy and seek to identify problems within the
current strategy that may be tied or can be traced to poor
performance. Upon completion of the audit, a report will be
created regarding the auditing firm or group’s findings and submit
the report with recommended remedies to the management of the
organization. The organization will then seek to implement the
proposed remedies with hopes of increasing organizational
performance.
PROCESS OF STRATEGIC AUDIT

In our introduction to business strategy, we emphasized the role

of the "business environment" in shaping strategic thinking and
decision-making.

The external environment in which a business operates can

create opportunities which a business can exploit, as well as
threats which could damage a business. However, to be in a
position to exploit opportunities or respond to threats, a business
needs to have the right resources and capabilities in place.

An important part of business strategy is concerned with ensuring

that these resources and competencies are understood and
evaluated - a process that is often known as a "Strategic Audit".

The process of conducting a strategic audit can be summarised

into the following stages

(1) Resource Audit:

The resource audit identifies the resources available to a

business. Some of these can be owned (e.g. plant and
machinery, trademarks, retail outlets) whereas other resources
can be obtained through partnerships, joint ventures or simply
supplier arrangements with other businesses.

(2) Value Chain Analysis:

Value Chain Analysis describes the activities that take place in a

business and relates them to an analysis of the competitive
strength of the business. Influential work by Michael Porter
suggested that the activities of a business could be grouped
under two headings:-
 a) Primary Activities - those that are directly concerned with
creating and delivering a product (e.g. component
assembly); and
b) Support Activities, which whilst they are not directly
involved in production, may increase effectiveness or
efficiency (e.g. human resource management). It is rare for a
business to undertake all primary and support activities.
Value Chain Analysis is one way of identifying which
activities are best undertaken by a business and which are
best provided by others ("outsourced").

(3) Core Competence Analysis:

Core competencies are those capabilities that are critical to a

business achieving competitive advantage. The starting point for
analyzing core competencies is recognizing that competition
between businesses is as much a race for competence mastery
as it is for market position and market power. Senior management
cannot focus on all activities of a business and the competencies
required undertaking them. So the goal is for management to
focus attention on competencies that really affect competitive
advantage.

(4) Performance Analysis

The resource audit, value chain analysis and core competence

analysis help to define the strategic capabilities of a business.
After completing such analysis, questions that can be asked that
evaluate the overall performance of the business. These
questions include:

- How have the resources deployed in the business changed over

time; this is "historical analysis"
- How do the resources and capabilities of the business compare
with others in the industry - "industry norm analysis"
- How do the resources and capabilities of the business compare
with "best-in-class" - wherever that is to be found- "benchmarking"
- How has the financial performance of the business changed
over time and how does it compare with key competitors and the
industry as a whole? - "ratio analysis"

(5) Portfolio Analysis:

Portfolio Analysis analyses the overall balance of the strategic

business units of a business. Most large businesses have
operations in more than one market segment, and often in
different geographical markets. Larger, diversified groups often
have several divisions (each containing many business units)
operating in quite distinct industries.

An important objective of a strategic audit is to ensure that the

business portfolio is strong and that business units requiring
investment and management attention are highlighted. This is
important - a business should always consider which markets are
most attractive and which business units have the potential to
achieve advantage in the most attractive markets.

Traditionally, two analytical models have been widely used to

undertake portfolio analysis:

- The Boston Consulting Group Portfolio Matrix (the "Boston

Box");

- The McKinsey/General Electric Growth Share Matrix

(6) SWOT Analysis:

SWOT is an abbreviation for Strengths, Weaknesses,

Opportunities and Threats. SWOT analysis is an important tool for
auditing the overall strategic position of a business and its
environment.
HOW STRATEGIC AUDIT PLAN DEVELOPS?

Enterprise risks are increasing exponentially while the ability to

manage these risks is not keeping pace. Increasingly, companies
are looking to risk assessment as a way to identify and assess
risks either across the organization as a whole or within specific
aspects of the business.

For internal audit departments, risk assessment is a key element

in the development of the annual risk-based internal audit plan.
The identification, prioritization and sourcing of key organizational
risks is critical to ensuring that internal audit resources are
allocated to the areas that matter most.

Accordingly, we help our clients design risk-driven internal audit

plans that are needed to reach specific objectives of management
or boards of directors. This typically entails defining the audit
universe, prioritizing audit activities and recommending a
schedule of audits to be performed.
 About Walmart
Wal-Mart Stores, Inc. (formerly branded as Wal-Mart, branded
as Walmart since 2008) (NYSE: WMT) is an American public
corporation that runs a chain of large discount department stores
and a chain of warehouse stores. In 2010 it was the world's
largest public corporation by revenue, according to the Forbes
Global 2000 for that year. The company was founded by Sam
Walton in 1962, incorporated on October 31, 1969, and publicly
traded on the New York Stock Exchange in 1972. Wal-Mart,
headquartered in Bentonville, Arkansas, is the largest majority
private employer and the largest grocery retailer in the United
States. In 2009, it generated 51% of its US$258 billion sales in
the U.S. from grocery business. It also owns and operates the
Sam's Club retail warehouses in North America.
Wal-Mart serves customers and members more than 200 million
times per week at more than 8,576 retail units under 55 different
banners in 15 countries. With fiscal year 2010 sales of $405
billion, Wal-Mart employs more than 2.1 million associates
worldwide.
A leader in sustainability, corporate philanthropy and employment
opportunity, Wal-Mart ranked first among retailers in Fortune
Magazine’s 2010 Most Admired Companies survey.

History
Wal-Mart was founded in 1962, with the opening of the first Wal-
Mart discount store in Rogers, Ark. The company incorporated as
Wal-Mart Stores, Inc., on Oct. 31, 1969. The company's shares
began trading on OTC markets in 1970 and were listed on the
New York Stock Exchange two years later.

The company grew to 276 stores in 11 states by the end of the

decade. In 1983, the company opened its first Sam’s Club
membership warehouse and in 1988 opened the first supercenter
-- now the company’s dominant format -- featuring a complete
grocery in addition to general merchandise. Walmart became an
international company in 1991 when it opened its first Sam's Club
near Mexico City.

Our Purpose
Saving people money to help them live better was the goal that
Sam Walton envisioned when he opened the doors to the first
Wal-Mart more than 40 years ago. Today, this mission is more
important than ever to our customers and members around the
world. We work hard every day in all our markets to deliver on this
promise. We operate with the same level of integrity and respect
that Mr. Sam put in place. It is because of these values and
culture that Wal-Mart continues to make a difference in the lives
of our customers, members and associates.
 STRATEGIC AUDIT OF WALMART
1) RESOURCE ANLYSIS

Financial Resources

Wal-Mart is the world’s largest and most profitable retailer. Wal-

Mart’s pre tax return on sales was 8% during 1989 which was
double the industry standard and it continues to be the front
runner till today. Wal-Mart commands market value 10 times more
than its book value. Fiscal year 2008 ended as another record
year for the Company. Total net sales increased 8.6 percent to
$375 billion. They added about $30 billion in sales.

Walmart Discount Stores

Stores feature wide, clean, brightly-lit aisles and shelves stocked

with a variety of quality, value-priced general merchandise,
including:

 Family apparel
 Healthy and beauty aids
 Electronics
 Toys
 Lawn and garden items
 Jewelry

 Automotive products
 Home furnishings
 Hardware
 Sporting goods
 Pet supplies
 Housewares
Walmart Supercenters
to meet the growing demand for convenient, one-stop family
shopping featuring famous Every Day Low Prices. It save time
and money by combining a full grocery and general merchandise
under one roof.

There are 2,772 Supercenters nationwide, and most are open 24

hours. Supercenters average 185,000 square feet and employ
about 350 or more associates. Supercenter groceries feature:

 Bakery goods
 Meat and dairy products
 Fresh produce
 Dry goods and staples
 Beverages

 Deli foods
 Frozen foods
 Canned and packaged goods
 Condiments and spices
 Household supplies
Most Supercenters also have many specialty shops such as:

 Vision center
 Tire & Lube Express
 Brand-name restaurants
 Portrait studio and
one-hour photo center
 Pharmacy
Deficit Reduction Act
  Health clinic
 Employment Agency
 Hair salon
 Bank
Walmart Neighborhood Markets
Neighborhood Markets offer a quick and convenient shopping
experience for customers who need groceries, pharmaceuticals,
and general merchandise all at our famous Every Day Low
Prices. there are now 181 Neighborhood Markets, each
employing about 95 associates. A typical store is about 42,000
square feet. Neighborhood Markets feature a wide variety of
products, including:

 Fresh produce
 Meat and Dairy products
 Frozen foods
 Dry goods and staples
 Health and beauty aids
 Stationery and paper goods
 Drive-through pharmacy

 Deli foods
 Bakery items
 Canned and packaged goods
 Condiments and spices
 Pet supplies
 Household supplies
 One-hour photo center
Marketside
Opened in 2008, Marketside stores are small community pilot
grocery stores specializing in fresh, delicious meals at great
prices. Customers can shop for a variety of fresh ingredients,
restaurant-quality prepared meals and their everyday favorite
national brands - even freshly baked breads and a wide
assortment of wines.

It provide a fresh and convenient shopping experience for busy

people who want an easy answer to the question, 'What's for
dinner?'

Marketside offerings include:

 ENTRÉES AND SIDES inspired by classically trained chefs

and ready to serve in minutes.
 An assortment of HOT FOODS like pizzas, roasted
chickens, soups and breads that are fresh out of our oven.
 Daily deliveries of fresh produce, meats and flowers for
GUARANTEED FRESHNESS.
 More than 300 NATURAL AND ORGANIC products
throughout the entire store.
 A vast assortment of wines, with over 200 under $10.*
 Plus, all the GROCERY BRANDS you want at low, low
prices!
Walmart.com
brings the convenience, great merchandise selection, friendly
service and Every Day Low Prices of your neighborhood Walmart
to the Internet. Walmart.com features more than 1,000,000
products, plus easy-to-use music downloads and digital one-hour
photo services. And we’re adding more great products every day.
During the holidays, Walmart.com features many special offers
available only online. It’s also a convenient place to find out about
our exciting in-store holiday specials.

With innovative Site to Store program, you can purchase items at

Walmart.com and then have them shipped free to your local store
for pickup.

VALUE CHAIN ANALYSIS

PRIMARY ACTIVITIES

Inbound Logistics

Wal-Mart’s primary activity of receiving inventory is planned right

from the point of production, which Wal-Mart is not involved with.
Wal-Mart has integrated systems with key suppliers which
communicate in real time data with sales information and stock
status so it can replenished in time. Shipments are timed and
slotted and planned in an orchestral way

Supply Chain Management

The supply chain of Wal-Mart is considered to be one of the most

efficient and state-of-the-art in the world due to the focus on
integrating logistics into retail operations, often relying on part-
time associates to replenish shelves and assist with inventory
audits. Wal-Mart also relies on Radio Frequency Identification
(RFID) technologies to automate pallet-based shipments.

 Emphasized on reducing purchasing cost and offer best

price.
 Eliminated the intermediaries.
 Tough negotiator on prices and finalized the deal only when
offered the lowest price in the market.
 Their truck picks up the goods from the warehouse.
 Has over 40 distribution centres at different regions in US.
 Wal Mart’s own warehouses directly supplied 85% of the
inventory, whereas competitors only 50-55%.
 Its replenishments process took 2 days(average), whereas
competitors at least 5 days.
 Its shipping cost was 3%, competitors – 5%.
 Used pallets for US and reusable boxes for imported goods.
 Used hand-held computers and bar codes for efficient
management.
 Hand-held computers displayed information about storage,
packaging & shipping, thus preventing paper work.
 Each distribution centre had facilities like shower bath &
fitness centres, provisions like food, sleep etc. Truck drivers
also used these facilities.

Operations

Wal-Mart maintains a lean approach to inventory. Wal-Mart

innovated a technique of replenishment called the Cross-
Docking where incoming goods are offloaded into outgoing
trucks directly without stocking them even for a few hours. Most
goods pass through the warehouses within a span of 48 hours,
enabling minimum idle time and lowering excess inventory
possibilities. Most of the goods never touch the floor of the
warehouse, as goods are passed on 24 miles length of
conveyor belts between incoming trucks to outgoing trucks.

 Wal-Mart relies on their Super Centers to also be distribution

centers. Wal-Mart also made use of Algorithm System,
 helped them to forecast the exact quantities of each items
that had to be delivered.

 Wal-Mart also made use the Bar Coding. it helped efficient

picking, receiving and proper inventory control.

 Use of Massively Parallel Processor(MPP). This helped

them to keep a track of the goods.

Distribution

 Advanced distribution systems eliminated the needs to make

purchases

 Creates the same value of wholesalers but at a much lower

cost

 Has over 40 distribution centres at different regions in US

 Wal Mart’s own warehouses directly supplied 85% of the

inventory, whereas competitors only 50-55%.

 Hand-held computers displayed information about storage,

packaging & shipping, thus preventing paper work.

 Each distribution centre had facilities like shower bath &

fitness centres, provisions like food, sleep etc. Truck drivers
also used these facilities.

Sales

Wal-Mart Stores, Inc. beat analysts' expectations reporting record

sales and earnings for the latest quarter. Net sales were $98
billion, an increase of 10.9 percent over the fourth quarter of fiscal
year 2006, while income from continuing operations was $3.9
billion, an jump of 8.8 percent.
Wal-Mart said robust growth in international operations, as well as
cost-cutting measures in its U.S. stores, boosted its performance
in the quarter ended Jan. 31, 2007. A $98 million net tax benefit
recorded in the company's tax provision also favorably affected
quarterly earnings.

Net sales for the full fiscal year were $345 billion, an increase of
11.7 percent over the previous fiscal year. Income from continuing
operations for the year increased 6.7 percent, to $12.2 billion.

Support Activities

Wal-Mart Stores Inc. has recently completed the international

implementation of PeopleSoft 8 Human Resources Management
Systems (HRMS). PeopleSoft's applications will provide the
world's largest retailer with a pure Internet solution for
administering to its workforce of more than one million associates.

Wal-Mart is the only retailer to be in Fortune’s 100 Best Places to

Work. Wal-Mart’s empowerment of Associates is laudable with
instances such as allowing its Associates to get on the network
and lower its prices, nationwide if its found to be higher than its
competitors, all this done without any consultation or permission
requests from superiors

2) Swot Analysis

Strengths

 Wal-Mart is a powerful retail brand. It has a reputation for

value for money, convenience and a wide range of products
all in one store.
 Wal-Mart has grown substantially over recent years, and has
experienced global expansion (for example its purchase of
the United Kingdom based retailer ASDA).
  The company has a core competence involving its use of
information technology to support its international logistics
system. For example, it can see how individual products are
performing country-wide, store-by-store at a glance. IT also
supports Wal-Mart's efficient procurement.
 A focused strategy is in place for human resource
management and development. People are key to Wal-
Mart's business and it invests time and money in training
people, and retaining a developing them.

Weaknesses

 Wal-Mart is the World's largest grocery retailer and control of

its empire, despite its IT advantages, could leave it weak in
some areas due to the huge span of control.
 Since Wal-Mart sell products across many sectors (such as
clothing, food, or stationary), it may not have the flexibility of
some of its more focused competitors.
 The company is global, but has has a presence in relatively
few countries Worldwide.

Opportunities

 To take over, merge with, or form strategic alliances with

other global retailers, focusing on specific markets such as
Europe or the Greater China Region.
 The stores are currently only trade in a relatively small
number of countries. Therefore there are tremendous
opportunities for future business in expanding consumer
markets, such as China and India.
 New locations and store types offer Wal-Mart opportunities
to exploit market development. They diversified from large
super centres, to local and mall-based sites.
 Opportunities exist for Wal-Mart to continue with its current
strategy of large, super centres.
Threats

 Being number one means that you are the target of

competition, locally and globally.
 Being a global retailer means that you are exposed to
political problems in the countries that you operate in.
 The cost of producing many consumer products tends to
have fallen because of lower manufacturing costs.
Manufacturing cost have fallen due to outsourcing to low-
cost regions of the World. This has lead to price competition,
resulting in price deflation in some ranges. Intense price
competition is a threat.

'Wal-Mart Stores, Inc. is the world's largest retailer, with $256.3

billion in sales in the fiscal year ending Jan. 31, 2004. The
company employs 1.6 million associates worldwide through more
than 3,600 facilities in the United States and more than 1,570
units.

Core Competence Analysis:

WalMart's Distinctive Capability

WalMart has the goal of providing "quality goods at low prices,

responsible manufacturing, and opportunities for growth"
Due to their expansive nature and broad customer base, they are
able to provide discount on many of their products. They are also
the leading employer in the united states of African Americans,
Hispanics, women and senior citizens.

Walmart is in the business of providing high quality products at

affordable prices. They do this through three branches: walmart
stores, sam’s club and their international division.
They provide the opportunity for one stop shopping and economic
value.

It is the leading provider for many different corporations, such as

procter and gamble.

At Walmart, its major competitive core competence is its superior

logistics system. The company has a core competence involving
its use of information technology to support its international
logistics system.

 Wal-Mart had developed an ability to cater to the indivual

needs of its stores.
 Wal-Mart heavily invested in IT and communications system
to effectively track the sales
 With the rapid expansion of the stores in US, it was
necessary to have a good communication system.
 Wal-Mart also networked with its suppliers through
computers.
 They had a collaboration with P&G for maintaining their
inventory at stores.
 Wal-Mart and P&G was in a win win situation.
 Employees in the stores had a MAGIC WAND: a hand held
computer.
 Wal-Mart also made use of Algorithm System, helped them
to forecast the exact quantities of each items that had to be
delivered.
 Wal-Mart also made use the Bar Coding. it helped efficient
picking, receiving and proper inventory control.
 Use of Massively Parallel Processor(MPP). This helped
them to keep a track of the goods.

3) Performance Analysis
Wal-Mart is the world’s largest corporation (Fortune, 2003). Wal-
Mart is also the largest private
employer in the United States of America.

Wal-Mart is U.S.A.’s biggest seller of DVDs, diamonds, groceries,

toys, guns, CDs, apparel, dog food, detergent, jewellery, sporting
goods, videogames, socks, bedding, and largest film developer,
optician, private truck fleet operator, energy consumer, and real
estate developer (Fortune, 2003).

Americans save about US$10 Billion by shopping at Wal-Mart.

Wal-Mart’s revenue accounted for 15% of the entire U.S. retail
market in 2002, excluding automobiles. Sales globally have been
affected over the recent weeks. International sales increased
14.3% to $10.3 billion. Wal Mart’s revenues are forecast to
approach $700 billion in 2010. Wal-Mart has four large scale retail
formats; Wal-Mart Stores, SAM’s Club, Wal-Mart Supercenters
and Neighbourhood
Markets.

FINANCIALS

Last 12 Months 5 Year Growth

Sales 416.6 Bil 7.5%
Income 14.8 Bil 6.6%
Dividend Rate 1.21 15.95%
Dividend Yield 2.34% 1.70%
Growth Rates Company Industry S&P 500
%
Sales (Qtr vs 2.804 4.40 15.20
year ago qtr)
Net Income 6.4 12.80 69.40
(YTD vs YTD)
Net Income 3.40 11.3 87.40
(Qtr vs year
ago qtr)
Sales (5-Year 7.5 7.53 9.01
Annual Avg.)
Net Income (5- 6.58 6.29 8.41
Year Annual
Avg.)
Dividend (5- 15.95 15.73 4.57
Year Annual
Avg.)

Competitors

Companies Location

Carrefour SA Levallois-Perret, France
Costco Wholesale Corporation Issaquah, WA
Target Corporation Minneapolis, MN

WAL-MART GLOBAL STRATERGY.

Multinational retailer’s entry is usually by mergers & acquisitions,

which is what Wal-Mart did in its initial entry into Mexico, with a
joint venture with CIFRA, the most powerful retailer in Mexico.
This results in a faster and more reliable learning knowledge
base. CIFRA enables Wal- Mart’s entry with stronger networks in
the trade especially with vendors and understanding the local
needs and culture while Wal-Mart brings in its competency like
logistics and service.

Especially the management is a key resource and enable its

contribution to its success. Casse (1994) argues people are not
resources and ethically should not be classified such. In a
remarkable editorial in The Economist (2000), Wal-Mart’s entry
into Europe and global expansion plans have been heavily
criticized and undermined due to the inability of global sourcing
capabilities of supermarket products and apart from the already
well established retail networks of chain stores and discounters
like Metro, Carrefour, Aldi which all individually and collectively
dominate the market and aren’t up for sale as Wal-Mart would try
to.
Development in technology and satellite systems has given a
boost to Wal-Mart. Basic infrastructure still lacks for effective
warehousing and distribution, the lifeline of a retail chain

WAL-MART AND INDIA

 India is a ripe and appealing market for Wal-Mart with its

growing middle class of 250
 million and an economic growth rate of nearly 9%
 In November 2006, Wal-Mart beat out Tesco for a joint
venture opportunity with Indian
 mobile services leader, Bharti.
 The company’s priority seemed to be an early entry.
 Bharti would manage the front-end of the business, while
Wal-Mart would take care of
 the supply chain, logistics and other back-end operations.
 The proposed Bharti venture seeks to serve the retail market
by supplying it with goods directly from producers such as
agriculturists, craftsmen and artisans.
 FINDINGS

 Wal-Mart’s pre tax return on sales was 8% during 1989

which was double the industry standard and it continues to
be the front runner till today.

 Wal Mart’s own warehouses directly supplied 85% of the

inventory, whereas competitors only 50-55%.
 Its replenishments process took 2 days(average), whereas
competitors at least 5 days.
 Its shipping cost was 3%, competitors – 5%.
 Its shipping cost was 3%, competitors – 5%.
 Due to their expansive nature and broad customer base,
they are able to provide discount on many of their products.
 Robust growth in international operations, as well as cost-
cutting measures in its U.S. stores, boosted its performance
in the quarter ended Jan. 31, 2007. A $98 million net tax
benefit recorded in the company's tax provision also
favorably affected quarterly earnings.
 The company has a core competence involving its use of
information technology to support its international logistics
system.
 People are key to Wal-Mart's business and it invests time
and money in training people, and retaining a developing
them
 Wal-Mart is the World's largest grocery retailer and control of
its empire, despite its IT advantages, could leave it weak in
some areas due to the huge span of control.
 Since Wal-Mart sell products across many sectors (such as
clothing, food, or stationary), it may not have the flexibility of
some of its more focused competitors.
 The company is global, but has has a presence in relatively
few countries Worldwide.
 Being number one means that you are the target of
competition, locally and globally.
 Being a global retailer means that you are exposed to
political problems in the countries that you operate in.
 The cost of producing many consumer products tends to
have fallen because of lower manufacturing costs.
Manufacturing cost have fallen due to outsourcing to low-
cost regions of the World. This has lead to price competition,
resulting in price deflation in some ranges. Intense price
competition is a threat.
 RECOMMENDATION

 To take over, merge with, or form strategic alliances with

other global retailers, focusing on specific markets such as
Europe or the Greater China Region.
 The stores are currently only trade in a relatively small
number of countries. Therefore there are tremendous
opportunities for future business in expanding consumer
markets, such as China and India.
 New locations and store types offer Wal-Mart opportunities
to exploit market development. They diversified from large
super centres, to local and mall-based sites.
 Opportunities exist for Wal-Mart to continue with its current
strategy of large, super centres.