The Ethical Critics of Walmart from Its Cost-reduction Operational Strategy

Discussion

Employee restructuring and customer satisfaction

Walmart operates a vast network of physical stores worldwide, primarily staffed by its own employees. The company has made a commitment to the public, as well as its current and potential customers, that each store will have an adequate workforce to ensure smooth operations and provide the best possible shopping experience. Employees play a pivotal role in maintaining order and enhancing customer satisfaction, a well-known concept essential for business success. Companies like Apple and Google leverage high customer satisfaction as a key factor to attract more consumers during product launches.

In the retail industry, customers often require assistance when making decisions among various options. Customer satisfaction in this sector typically hinges on the quality of service provided by retail staff, who possess familiarity with the store, its products, and are experienced in offering valuable guidance. Given that most of Walmart's stores are large, they require a substantial workforce to operate efficiently. In fact, Walmart employs approximately 1.3 million individuals in the United States alone. Employee compensation constitutes a significant portion of the company's overall expenses.

In pursuit of its cost-reduction strategy, Walmart has opted to reduce staff numbers in physical stores, a strategy it terms "employee restructuring." This approach involves downsizing store staff and introducing updated technology or employing fewer individuals with advanced skills. The intention behind this move was to enhance the overall customer experience while shopping in their stores. However, the outcomes seem to contradict this goal. A recent survey conducted by Marketforce reveals that Walmart ranks lowest in the industry in terms of customer satisfaction and checkout speed. According to the American Customer Satisfaction Index, Walmart receives a score of 68 out of 100, the lowest among all retailers. This problem can be primarily attributed to understaffed stores. When there is an insufficient number of workers available, customers unfamiliar with the new technology have no one to turn to for assistance. Consequently, wait times increase, and customers find it challenging to seek help due to the store's size and low staff density.

This issue, though not widely acknowledged by the public, is on the rise. A comparison of retail footprints between 2005 and 2015 reveals a 45% increase, while the workforce grew by a mere 8%. This indirectly suggests that customers spend more time in the store due to understaffing. It harkens back to Walmart's inception, when it revolutionized the retail industry by offering the lowest prices, thanks to its cost-efficient logistics and warehousing. Over the years, as competition intensified, Walmart maintained its cost-focused strategy with few improvements to stay competitive. Consequently, customer satisfaction has waned, and customer loyalty has shifted from Walmart to its competitors.

Gender discrimination

Another critical issue pertains to gender discrimination cases within Walmart. As the world's largest retailer by revenue, Walmart prioritizes profit in its business strategy, often resulting in instances of gender discrimination within the company. Assumptions suggest that the company's business strategy fosters such unethical behavior. Gender discrimination encompasses actions that intentionally hinder opportunities, preferences, or compensation for individuals or groups based on their gender. Walmart's ethical conduct is evaluated by the Equal Employment Opportunities Committee (EEOC), which has provided evidence of the company engaging in unethical behavior related to gender. The EEOC's disclosure indicates that Walmart regularly employed "gender stereotypes" when filling certain positions, thus violating Title VII of the Civil Rights Act of 1964.

Over the years, Walmart has paid $12 million in back wages and damages related to discriminatory actions involving denied promotions, hiring disparities, and unequal wages for female employees. The company's profit-centric strategy has made gender discrimination issues, particularly concerning employee compensation, more likely to occur.

A 2003 study unearthed evidence indicating that female employees at all levels within Walmart earned less than their male counterparts. On average, there was a $5,200 compensation gap between female and male employees. While Walmart's cost-focused strategy has undeniably led to consistent financial success, it has adversely affected its female employees, who experience unfair treatment within the organization. Intuitively, it is evident that gender discrimination is detrimental to a company. The erosion of confidence among female employees significantly diminishes their productivity and efficiency, ultimately impacting the company's overall financial and operational performance. As female employees assume increasingly critical roles in a company's workforce, the cumulative negative effects of gender discrimination become more pronounced over time.

Employee compensation

The final aspect under consideration is Walmart's overall employee compensation. As the reigning leader in the retail industry, Walmart employs over 2.2 million individuals worldwide. The company asserts that it strictly adheres to the required minimum compensation standards, ensuring that all employees, regardless of their position within the company, receive fair and reasonable compensation. However, the available evidence paints a contrasting picture. Many Walmart employees not only receive inadequate compensation but are also unfairly compensated. In the United States, this issue frequently affects part-time employees. Given Walmart's global reach, addressing compensation issues is a complex task, as local circumstances dictate varying compensation rules. Consequently, establishing uniform rules that satisfy everyone proves challenging. In many developing countries where compensation levels lag behind those of developed nations, compliance with standard compensation is not enforced strictly.

Walmart has a clear incentive to reduce operating costs by lowering employee compensation levels, in line with its cost-saving-focused strategy. Data from a 2006 study revealed that Walmart's workers earned an average hourly wage of $10.11, lower than workers in department stores, grocery stores, and warehouse clubs. This wage disparity indicates that Walmart's employees are underpaid.

The call for higher compensation has become increasingly urgent, as the cost of living has outpaced income growth. Although Walmart's business ethics claim includes a commitment to fair and reasonable compensation for all employees, this goal appears unmet, as evidenced by the numerous problems it has caused, including a high turnover rate, which Walmart currently experiences. Employees often leave Walmart due to inadequate pay, resulting in customer complaints about difficulties in locating employees within Walmart stores and receiving advice from inexperienced staff.

Demand for better wages has grown in both developing and developed countries. The benefits of adequately compensating frontline workers are manifold, as it serves as an effective means of improving productivity, as these employees are highly motivated by monetary compensation. As the issue has gained international attention, Walmart must find a way to address this unethical problem and adhere more rigorously to compensation standards to prevent the situation from worsening.

Conclusion

Globalization has opened doors to increased connectivity and business opportunities, but it has also brought forth complex ethical challenges. Different countries, cultures, rules, and standards make it challenging for international companies to adhere to ethical principles. Walmart Inc., a prominent global corporation, has faced numerous ethical breaches. A close examination of various reports addressing Walmart's ethical issues reveals that some of these unethical behaviors appear deliberate rather than accidental. This suggests a significant potential for better control of unethical conduct by reviewing ethical standards, reinforcing ethical claims, and bolstering ethical management throughout the organization. No criticism can be levied against a company for being profitable or financially effective. However, upholding ethical claims is a strict responsibility that all companies must shoulder. Ethics not only serves as a baseline for a company's existence in the market but also plays a crucial role in enhancing a company's overall operational effectiveness. When weighing the pros and cons of ethical compliance, the long-term benefits outweigh the short-term gains. By adopting a longer-term perspective, it becomes evident how ethics can positively impact a company's operations in the long run. If this vision is clear, Walmart should act accordingly.

Recommendations

Based on the comprehensive analysis presented in this report, it is evident that the company's current operational strategy has led to numerous ethical challenges. While reducing excessive costs is imperative for a company's survival, it must be done within the bounds of acceptable ethical standards. As highlighted in the conclusion, neglecting the repercussions of unethical behavior may yield short-term efficiency gains but ultimately result in long-term harm.

Our recommendations can be summarized in three categories:

1. Firstly, there is a need to strengthen ethical compliance management. This involves a series of actions, such as a thorough review of ethical claims and the establishment of a dedicated compliance department. Unethical behaviors can often stem from poor management practices, making it essential to address this issue at its root by managing the management team from within the organization.
2. Secondly, conducting surveys both within and outside the company, involving employees and customers, is crucial. This approach will help the company gather valuable information about the recent unethical incidents, their locations, and the underlying issues. This information will serve as a roadmap for initiating reforms.
3. Lastly, the company's management team should engage in a comprehensive discussion about the advantages and disadvantages of enforcing ethical behavior. By conducting a deep analysis of the benefits and costs associated with ethical management, the team can gain a clearer vision of the company's long-term development prospects and identify potential growth opportunities by adhering to ethical claims. This process will enable the team to make informed decisions, prioritize important and urgent ethical issues, and abandon those that are either cost-prohibitive or unattainable.