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 / Autumn 2012 / Issue 68(originally published by Booz & Company)


Why Walmart Is Like a Forest

Thinking about your company as an ecosystem yields lessons for innovation, growth, and renewal.

The story of Wal-Mart Stores Inc.’s growth from a chain of small, rural discount stores to its current position as the world’s largest retailer and private employer is the stuff of business legend. Analysts cite numerous reasons for the company’s growth, ranging from its logistical prowess and the entrepreneurial genius of founder Sam Walton to predatory pricing and the abuse of labor laws. But a cause of Walmart’s success that one rarely sees advanced is that of the firm’s roots in rural Arkansas, and the disciplines imposed on the fledgling business by that challenging context.

To understand this, it’s helpful to think of Walmart as an ecosystem, like a forest, and track the company’s growth from its small beginnings to large-scale maturity. In addition, the forest analogy gives us insight into the process of organizational renewal — a challenge that faces many corporations and institutions in the West.

The development of a forest, or forest succession, in a temperate climate begins in an open patch of land that provides equal access to sun and rain. Its initial colonizers are migrants — weeds and wandering animals that spread seeds. These colonizers are the entrepreneurs of the ecosystem. They are attracted by the ready availability of small-scale resources and the absence of competition, a combination that enables everything to grow like crazy.

You can see the same dynamics at work in Walmart’s early years. Entrepreneurial merchant Sam Walton perfected a way to make profits from small outlets in sparsely populated rural areas, which he often identified from the air. His first store was only 16,000 square feet; subsequent stores were even smaller, at 12,000 square feet.

Because of the absence of competition in small towns, Walmart grew like a weed. Walton, the wanderer, had a network of 24 stores in Arkansas before he moved into neighboring states, still pursuing a rural strategy and avoiding competition in denser population centers. This was in the 1960s, when the development of the suburban mall was well under way and many retailers, like Kmart and Sears, Roebuck and Company, were pursuing economies of scale. Sears at this time could probably not have made a decent return from stores much under 50,000 square feet, and suitable locations were hard to find and were packed with competitors.

In the forest, the weeds and wanderers thrive in the open patches until they start to bump into one another. This creates competition for resources, and favors shrubs and plants that develop efficient infrastructures. Their roots get to the water first, and the light gets to their branches and leaves first, helping them grow faster (which then stunts the growth of their competitors). In turn, the shrubs are succeeded by softwood trees, which are complex, hierarchical organisms that use resources even more efficiently.

It’s not hard to see the same progression at Walmart. Because traditional wholesalers refused to make small drop-offs on remote country routes, Walton was forced to develop his own distribution infrastructure. This was the genesis of the company’s famed logistics system, which was steadily refined as the constraints to efficient shipping were overcome by novel solutions such as cross-docking, in which goods delivered from suppliers are shipped directly to branches without intermediate warehousing. Walton’s continual innovations in infrastructure soon helped him bypass his competitors, and then prevented them from catching up.

Seeds of Destruction

In the idealized forest succession, softwood trees are supplanted by hardwood trees, which vie for resources using different strategies. In the mixed forests of the southeastern United States, for example, the longleaf pine gives way to the oak. The longleaf pine’s needles are designed to promote fire on the forest floor, because its seeds can germinate only on bare ground. The deciduous oak, however, sheds its leaves, which absorb and hold groundwater, damping any fire and creating a deep mold in which acorns can germinate. Once established, the oaks will outcompete the pines.

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