» VIEW ALL POSTS May 27 2008   10:04AM GMT

Wal-Mart’s confused SAP strategy



Posted by: JackDanahy
Tags:
SAP

Wal-Mart, which agreed to buy SAP ERP Financials last year, officially began its rollout yesterday. It’s a massive, multi-phase project that sees Wal-Mart ditching its long history of developing IT systems in-house in favor of working with packaged software vendors (including SAP arch-rival Oracle).

Already, however, there are some red flags around this project, not from a functionality or project expertise perspective — SAP ERP Financials works, and Wal-Mart can afford the finest systems integration — but from a strategic perspective. Consider that Wal-Mart CIO Tom Schoewe has stated that “As you continue to see us grow, enter new countries, [SAP is] something that can accommodate that better than our home-grown solution.”

Growth? Entering new countries? Wal-Mart registered a 3.5% same-store sales decline in April, its worst performance in this metric in nearly three decades, and has been beaten out of South Korea and Germany, where the local retailers easily kept pace with Wal-Mart’s basement pricing strategies and continued to retain local customers, many of whom were no doubt culturally alienated by the faux-friendly in-store Wal-Mart experience. This winter, many of the people who faithfully shop Wal-Mart may have to spend their money on natural gas and gasoline instead, and there’s no indication that the world’s shoppers — outside England — are enthusiastically lining up to shop at Wal-Mart.

Wal-Mart is a vast company, and is a larger economic entity than some countries, but growth isn’t perpetual, and success in foreign markets is fickle. The company would be better served adjusting to these economic realities rather than planning to expand still further. It’s not as if there aren’t other priorities. How about squeezing more margin out of higher-margin goods? How about finally delivering on that RFID promise? How about building a brand friendlier to social issues like the living wage? But no, Wal-Mart anticipates business as usual, and has brought SAP along for the ride.

Certainly, Wal-Mart, like so many other retailers, needs to develop new IT capacities in order to keep up with larger supplier ecosystems, more complex logistics, and pickier customers; but to peg the SAP investment to corporate goals that don’t have much of a chance of succeeding seems like an invitation to project failure of some kind.

Demir Barlas, Site Editor

6  Comments on this Post

 
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  • Marco
    You are right! Sound like Wal-Mart is out for reality again! Thank you for information.
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  • JackDanahy
    It is rightly said that IT can be an enabler of business, but not the driving force behind it. In the same context, migration of Walmart from in-house IT development to vendor-based systems may just prove to be a minor improvement to their overall business framework. However, since SAP is vastly used by many other retail firms, it may prove worthy in case of any acquisitions made by Walmart.
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  • JackDanahy
    So well said Demir - I couldn't agree more. ERP software has never been a fix for anything but IT problems. Important for IT providing day-to-day project requests for missing features because of the high cost of labor in the US, but certainly not a bottom-line issue. Indeed, where labor is cheap, it's usually not even an issue at all - until a company becomes fat with profits (which are usually better spent elsewhere anywhere (see Warren Buffett's thoughts on this matter..:-) Regards Mark
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  • WALT
    The title of this article is misleading. Wal-mart's SAP strategy is not confused; however, their business growth strategy may be.
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  • JackDanahy
    I agree with the comments posted and general questions posed (RFID, wages, etc), but the author is out of touch with international growth of Wal-Mart thru acquisition. Compounded over the last nine years, international growth of Wal-mart is 667%, excluding US. Include the US and it's still a very healthy 174% over the same time frame. Total net sales on a global basis grew last year nearly 9%. That's $30 billion. The year before that, it was closer to 10% growth. This pace doubles their net sales by 2014-15. They needed a revamped systems strategy different than home grown to keep up.
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  • JackDanahy
    What a mistake. Home-grown is what gave WM the advantage to begin with. Now they're going with a massive piece of junk software that is notoriously bad in use. Home Depot's installation here in Canada is a fine example of how it's confusing people, turning obvious practice into delayed response service, and delaying HD's IT's real role of providing IT to get advantages. Ironically that CIO is gone, and they chose Canada as a test bed for the rollout. Their move to a centralized distribution system will make much more sense. Corporate IT fails yet again. As per usual, they need to go to business school to "get it".
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