Secrets of Wal-Mart's success

Ptolemy, the ancient astronomer, believed that planets rotated around the earth and developed a theory to explain and calculate that motion. As humankind's understanding of the heavens expanded, Ptolemy's theory of planetary physics had to become more complicated to explain observed motion. Then, in the sixteenth century, Copernicus advanced a theory that the planets rotated around the sun, not the earth. This model of planetary physics triumphed because it explained the motion of the planets much more accurately and simply.

In a similar way, the productivity loop reveals a remarkable simplicity behind Wal-Mart's success. The loop explains the "motion" of Wal-Mart. But the physics behind Wal-Mart, and the management chemistry of strong process that goes along with it, do not fully explain Wal-Mart's success. There is something else that drives the company with equally compelling power: its biology.

Why haven't other companies in the Wal-Mart world been able to triumph like Wal-Mart? What is the difference that makes the difference -- beyond cost-cutting physics and strong-process systems? It's Wal-Mart's "genetic" makeup, what I call its DNA. Most other companies miss this key factor. They fail to recognize that they cannot replicate Wal-Mart's success without replicating its DNA.

The DNA of an organization refers to its internal, hard-wired character. This is in contrast to its external traits. Many executives trying to duplicate the success of Wal-Mart think that they can do so by duplicating visible competitive advantages such as Wal-Mart's everyday-low-price (EDLP) position, its low cost structure, its streamlined logistics and distribution network, its information systems prowess, and its partnerships with vendors. Yet most of these fast-follower efforts fail because they miss the genetic code.

In biology, we describe people by referring to such traits as

blonde hair, blue eyes, fair skin, high cheek bones, long legs, and small feet. But we know full well that these traits are simply the manifestation of an internal code, our genes. Modern medicine, science, and cosmetics offer many ways to modify our traits -- dyeing our hair, smoothing our complexion with plastic surgery, and coloring our eyes with contact lenses. Altering traits does not endow us with the underlying genes, however, and over time, our gray roots show and our crow's feet come back.

The same is true in business. Companies that replicate Wal-Mart's competitive advantages often end up with just a corporate "dye job." They find that the change often doesn't work or doesn't work well, and even if it does work, they have to reapply the fix to sustain the change. To replicate Wal-Mart's enduing operational strengths successfully, we need to start with the DNA.

Wal-Mart executives believe that perpetuating the company's DNA is one of their chief jobs. They dedicate the first Saturday meeting of every month to culture, asking one or two managers to give a prepared talk on what the culture means. They also lead mandatory culture training for all new managers. During training sessions at the Walton Institute, they teach trainees about everything from expense control to continuous improvement.

Wal-Mart's DNA includes some potent genes that encode the leadership and work attitudes lying at the root of its competitive advantages. Of the many genes of this kind, five deserve special attention: focus, correction of errors, constructive paranoia, thrift, and a "we can make it better" attitude.

Excerpted from: Wal-Smart by William H Marquard. Price: Rs 450. Reprinted by permission of Tata McGraw Hill Publishing Company Limited.

Marquard has spent 25 years as a consultant, Fortune 200 executive, and industry observer. As a partner at Earnst & Young, he established and ran Wal-Mart's first-ever strategic planning process.