The Ethical Critics of Walmart Inc. from its Cost-reduction Operational Strategy

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The Ethical Critics of Walmart Inc. from its Cost-reduction Operational Strategy

Abstract

The globalisation brings opportunities to the worldwide businesses. It is a chance as well as a challenge. The rules and standards are different when situations and places change. Ethics, an intuitive kind of standard, which is widely adopted by the worldwide business to judge about good and bad on the business behaviours. Ethics seems more and more important in this context. By using Walmart’s cost saving strategy as a clue, this report digs into the information about Walmart’s ethics claims and its most recent unethical behaviours. Walmart currently is facing many ethical critics, the report found that most of them are generated for financial and cost reasons. We selected three main points for this issue, i.e. running understaffed stores, gender discrimination, and lower than industry average compensation arrangement. It can be concluded that the cost-saving strategy is quite short sighted. Saving the money ultimately results in more problems that is even harder for the company to resolve in the future. Furthermore, the overall image of the company diminished. Losing customer satisfaction and loyalty result in more lose than the gain. The last part of the report gives several recommendations to help the company regain the focus on its ethical behaviour and moving toward a updated, long term orientational strategy.

Introduction

As the globalisation moves forward, the elevated demand of ethical standard regarding manners and behaviours has been crucial for a firm to survive in the globalised business environment. This report analyzes the ethical claims held by Walmart Inc. and investigates the degree the company has been living up to those claims.

Ethics, in the business circumstance, can be defined as a set of moral standards used to determine the appropriateness for a business manner or behavior. A company that has been being accused of having unethical behaviours is Walmart. Walmart Inc., established in 1962, is the largest company in the world by revenue and one of the most globalised companies as well. As of July 31, 2019, Walmart has 11,389 stores and clubs in 27 countries. The ethical issues have been brought out by various groups and individuals for gender discrimination, charges of racial, employee compensation and work conditions and so forth.

Walmart is one of the largest companies in the world due to its high performance on both business and finance sector. The business success is mainly from its cost control. However, several ethical problems occurred which are highly related to the business strategy conducted currently by the company. Therefore, using the company’s cost reducing strategy as a clue, this report focuses on assessing the company’s ethical issues in running understaffed stores, gender discrimination, and its lower than industry average employee compensation issue.

Discussion

Walmart owns thousands of physical stores around the world which are mainly operated by its own employees. As a promise to the public and its current and potential customers, Walmart claims that each store will have enough workers in order to keep the operations fluent and make sure its customers could get the best shopping experience from its physical stores. Employees are core to keeping the operations in order as well as maintaining a good customer satisfaction. Customer satisfaction is a well-known concept which is especially essential to a business to succeed. Companies such as APPLE and GOOGLE have been using their high customer satisfaction as an important factor to charm more people in their new products initiation announcements. In a retailing business, customers are always in need of help when making decisions from various options. The customer satisfactions in this industry are generally from the service of the retail staff who are supposedly more familiar with the store and the products and usually more experienced on deciding which one is worth of buying so they can give their customers a good guidance. Since most of Walmart’s stores are large, the quantity of employees involved in each store is huge. In fact, Walmart has 1.3 million employees just in the U.S. The employee compensation constitutes a significant part of its overall cost. Therefore, as a part of the company’s cost reducing strategy, Walmart cuts its staff from physical stores. The company calls this strategy as employee restructure, which involves downsizing the store staff and replacing them with updated technology or fewer employees with more advanced skills. This was about to improve the overall customer experience in shopping in their stores. However, the result seems indicate the opposite. A recent survey by Marketforece showing that Walmart has ranked the lowest in the industry in the aspects of customer satisfaction and checkout speed. The American Satisfaction Index gives Walmart 68 out of 100, the lowest of all retailers. This problem is mostly attributed to its understaffed stores. When there are inadequate workers available in a store, customers who are not familiar with the new technology has nowhere to ask for help. As a result, the waiting line is lengthened, and the customers can’t easily get helped since the store is large and the density of staff is low. The problem is not widely recognized by the public and it is actually growing. By looking at the retail footprints between 2005 and 2015, the number grew 45% comparing to the workforce grew by only 8%. It indirectly indicates that customers spend longer time in the store than before because of the understaffing. It reminds us when Walmart just started many years ago, it saw a brand-new orientation for the entire retail business starting by offering the lowest price in the industry because of its cost savings logistic and warehousing. With the competition surged during the years, Walmart kept its cost focused strategy with few other improvements to help business remain competitive. As a result, there comes more critics regarding customer satisfaction and transfers of customer loyalty from Walmart to its competitors.

Another issue is about its gender discrimination cases. Walmart is the largest retailer in the world by revenue. The company’s business strategy is highly profit focused. As a result, gender discrimination issues often occurred inside the company. Assumptions are made about this situation, saying it is its business strategy that caused this kind of unethical behaviour. Gender discrimination is the actions that intentionally prohibits opportunities, priorities, or compensations to an individual or a group because of gender. Walmart’s ethical behaviours are judged by the Equal Employment Opportunities Committee (EEOC). There are evidences showing the company has been behaving unethically on the gender issues. According to EEOC’s disclosure that Walmart violated Title VII of the Civil Rights Act of 1964 by regularly using “gender stereotypes” for filling certain positions. Over the years, Walmart paid $12 million back in wages and damages in the discriminatory actions which involved denying promotion, hiring, and equal wage of female employees. Since the company’s strategy is too profit concentrated, it made the gender-discrimination issues, especially regarding the employee compensation cases, easy to occur. An evidence found in a 2003 study, saying Walmart’s female employees at all levels earning less than their male counterparts. On average, there is a $5,200 difference between female and male employees in their overall compensations. Lots of evidence showing that the company has been highly profitable and financially stable due to its cost focused strategy. A source from “Statista” (2018) showing that during the year of 2006 to 2018, Walmart’s net sales had grown constantly, from the lowest of $308.95 billion to the highest of $495.76 billion. The success could be attributed to the company’s cost-reducing business strategy. However, the negative effect about the strategy is mainly on their female employees who are treated unfairly in many cases inside the company. Intuitively, we know that having gender discriminatory actions is ultimately bad to a company. The confidence destroyed inside the female employees significantly drops their productivity and efficiency to their work which ends up moving the company’s overall financial and business performances downward. As female employees have become more and more important to the employee structure of a company, the negative effect from gender discrimination is accumulative as time moves forward.

The last discussion is about its overall employee compensation. Walmart, as the current leader of the retail industry, has more than 2.2 million employees worldwide. the company has a strict ethics claims saying the company strictly follows the required minimum compensation standard and make sure each employee, regardless of their working status in the company, will be compensated fairly and reasonably. The facts we have found however, indicated an opposite result. Lots of Walmart employees are compensated not only unfairly, but also inadequately. In the U.S, this situation often happens on part time employees. Since the company has business worldwide, compensation problem is quite complex since its employees are from various countries. The compensation rules vary according to the local situation. Thus, making a certain rule to make everyone satisfied is quite difficult. Many of the developing countries whose compensation level is lower than developed countries and the level of restriction that compels companies to comply with the standard varies.

Walmart has a clear motivation to lower its operating cost from reducing the employee compensation level since the company’s strategy is cost saving focused. Statistics from a book saying in 2006, Walmart’s workers earned an average of $10.11 per hour. This figure is lower than lower than the workers from department stores, grocery stores, and warehouse club, which is a clear indication that employees are underpaid by Walmart.

A call for higher compensation has become more and more urgent for the living standard has outgrown the rate of income raise. Walmart’s business ethics claims include a part which calls for a fair and reasonable compensation to all employees. However, this goal is not met by looking at the low compensation has already caused many problems, including the high turnover ratio which Walmart currently experiences. Employees start leaving Walmart mostly because they have not been paid well. Customers began to criticize for having trouble to find employees in Walmart stores and receiving suggestions from inexperienced staff.

Generally, the demand of better income has become more and more important in both developing and developed countries. The benefits from compensating the frontline workers well are abundant. it is an effective way to improve productivity since the frontline workers are more motivated by monetary compensation. As the problem has been progressively raised from domestic to the international level, the company really has to figure out a way to resolve this unethical issue and comply to the compensation rule more strictly in order to keep the problem from being worse.

Conclusion

On one hand, globalization is helping the world to become more connected and giving businesses more opportunities. On the other hand, it is the ethical problems that raised from more complex situations. For example, different countries, cultures, rules and standards make the ethics harder to be followed for an international company. Walmart Inc, a well-known international company, whose ethics claims are often broken. From analyzing different reports addressing Walmart’s ethical issues, we see some of the unethical behaviours are even intentional rather than accidental. That indicates a great potential to make the unethical behaviours be well controlled by reviewing the ethical standards, the ethical claims and reinforcing the management on the ethical behaviour for the whole company. No critics could be put on a company for being profitable or financially effective. However, following the ethics claims is a strict responsibility for all companies to hold. Ethics not only works as a bottom line for a company to exist in a market. It is seen more importantly to make a company’s operation more effective. Weighting the pros and cons for complying to the ethics rules, we will see it brings more benefits later rather than near. If we put our sight to a longer orientation, we could see how the ethics can positively impact on a company’s operations in a long run. If we can see that clearly, Walmart should do that too.

Reference

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