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


Why Walmart Is Like a Forest

With the appearance of the hardwood trees, forest succession has reached its so-called climax phase. This used to be thought of as a state of equilibrium, but it is not. Reduction in the variety of organisms in the ecosystem leads inexorably to a lack of resilience in the face of change. Too many trees of the same species and similar age are vulnerable to the same challenges, such as wind, disease, and insect attack. The conditions are now right for a sudden catastrophe that will sweep away mature growth and open up the system for renewal.

As Walmart grew and encountered more competition, the size of its stores grew, too. By 2010, they had reached an average size of more than 160,000 square feet, a ninefold growth over 48 years — the hardwood trees in the Walmart ecology. With the twin advantages of innovation and scale, Walmart entered its climax phase.

Thus far, Walmart has largely avoided the vulnerability inherent in this phase by adapting and diversifying. Today Walmart’s stores fall into three broad segments. The first is the original discount stores, of which there are 803, averaging 108,000 square feet. Their numbers are declining as they are replaced by the second type of store, the supercenters, of which there are now 2,747, averaging 186,000 square feet. The third group is a recently added category of neighborhood stores, of which there are 158, averaging 42,000 square feet in area. Walmart locates these latter outlets in areas that cannot justify larger stores. Its profits from these small “shrubs” are probably modest, but their very presence takes away resources from would-be rivals, such as dollar stores, that are trying to start up in the same small-scale way that Walmart did, and that might otherwise disrupt the ecosystem in the same way that Walmart decimated Kmart and Sears.

But like the forest, retail stores can fall prey to systemic problems in the climax phase. As enterprises such as Walmart perfect their recipe for success, their means have a habit of running away with their ends. Senior management often forgets the founder’s original goals, which may have long since been realized. As Walmart’s recent problems with allegations of bribery in Mexico indicate, executives must continually revisit and renew their company’s mission and purpose. Otherwise the company can easily lose its sense of identity and, with that, its moral compass.

The Cycle Begins Anew

Applying an ecological perspective to business yields some interesting insights about how to achieve sustainable success.

• Don’t think of organizations just as structures; also think of them as movements. Organizations are conceived in passion and born in communities of trust. They grow through the application of reason and mature in power. Today Walmart looks like a huge monolithic structure, but it began life as a movement, fueled by the convictions of Sam Walton and his vision of service to a community.

• Realize that change is inevitable: The only real choice is whether you will seek to anticipate it or have it thrust upon you and be forced to respond without the benefit of forethought. Ecosystems need regular disruption to create the open patches necessary for renewal. The use of prescribed burns to renew forests and the release of spring “pulses” of water from dams to renew rivers are excellent examples of proactive interventions in the management of natural systems.

• Pursue change on the edges of systems and in open patches, where variety can flourish on a small scale and without competition. Know that, conversely, change in the core is difficult because there is fierce competition for resources.

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