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Chapter 15 Thinking Small
  "Well, now, Sam, how big do you really want this company to be What is your plan"FEROLD AREND,shortly after coming to work at Wal-Mart"Ferold, we're going to take it as it comes, and if we can grow with our own money, we'll maybe add astore or two."SAM WALTONNot long ago somebody showed me an article written for a local magazine in 1960. It was called"Success Story of the Year," and it described how we had built up an empire of nine variety stores. Thenit quoted me as saying that we probably wouldn't grow much more because I believed in personallysupervising the nine-store group, and I thought any more stores would be "unwieldy" to manage withoutadditional supervisors. So what the heck happened How did we ever get to be the largest retailer in theworld with a philosophy like thatI really believed what I said then, and I still do. But we figured out a way to grow, and stay profitable,and there was no logical place to stop. The way I approached managing the business, I always tried tomaintain a sense of hands-on, personal supervisionusually by flying around to take a look at our storeson a regular basis. But from the very beginning, even on my paper routes in college, I have also been adelegator, trying to hire the best possible people to manage our stores. That's been the case since back inNewport.

An awful lot of water has washed over the dam since 1945, when we bought that little Front Street storein Newport, but almost every single thing we learned, every basic principle we applied in building thatstore up into a respectable business, still applies to our company today. It's hard to think of anothercompany that sustained the kind of growth we did over thirty years without experiencing any majorfinancial problems or dips in profitability. During that time, our business was growing at annual rates ofanywhere from 30 to an incredible 70 percent in some years.

Along the way, we always had lots of people waiting for us to stumble and fallespecially Wall Streettypes. They said we'd never be able to keep doing things our way after we reached $1 billion in sales.

But we did, and kept right on going. Then they said everything would fall apart at $10 billion because youjust couldn't manage a company that big with our little down-home management philosophies. We roaredpast that, and then hit $20 billion and $30 billion, and in the coming year we should hit around $53 billion.

Two years ago, we earned $1 billion in profits for the first time. That's a jump from only $41 million justten years before. Here's a chart that completely amazes me:

1960stores9Sales$1.4 millionprofits$112,0001970stores32--Sales$31 millionprofits$1.2 million1980stores276Sales$1.2 billionprofits$41 million1990stores1,528--Sales$26 billion--profits$1 billionSo now we're the largest retailer in the world, and still growing like a weed. If my chart doesn't paint aclear enough picture for you of how large the company is, here are some other ways to think aboutWal-Mart's size. Every week, nearly 40 million people shop in Wal-Mart. Last year, we sold enoughmens' and women's underwear and socks to put a pair on every person in America, with some to spare.

We sold 135 million men's and boys' briefs, 136 million panties, and 280 million pairs of socks. We soldone quarter of all the fishing line purchased in the U.S., some 600,000 miles of it, or enough to go aroundthe earth twenty-four times. We sold 55 million sweatsuits and 27 million pairs of jeans, and we soldalmost 20 percent of all the telephones bought in the U.S. And here's one I'm really proud of: in oneweek last year, we sold as much Ol' Roy private label dog food as we did in all of 1980. With sales of$200 million last year, Ol' Roy became the number-two dog food in America, and remember, we onlysell it in Wal-Mart. Another one: Procter & Gamble sells more product to Wal-Mart than it does to thewhole country of Japan.

I could go on and on, but you get the idea. We're big. Really big. That's not something I like to focus on.

I always wanted to be the best retailer in the world, not necessarily the biggest. In fact, as I said in thatarticle thirty something years ago, I've always been a little bit afraid that big might get in the way of doinga good job. Of course, being this big has some real advantages. Until we reached a billion dollars, a lot ofsuppliers and vendors just ignored us way out here in the Arkansas outback. For years, some supplierswouldn't even call on us. Now, of course, we're too big to ignore. But being big also poses dangers. Ithas ruined many a fine companyincluding some giant retailerswho started out strong and got bloated orout of touch or were slow to react to the needs of their customers.

Here's the point: the bigger Wal-Mart gets, the more essential it is that we think small. Because that'sexactly how we have become a huge corporationby not acting like one. Above all, we are small-townmerchants, and I can't tell you how important it is for us to rememberwhen we puff up our chests andbrag about all those huge sales and profitsthat they were all made one day at a time, one store at a time,mostly by the hard work, good attitude, and teamwork of all those hourly associates and their storemanagers, as well as by all those folks in the distribution centers. If we ever get carried away with howimportant we are because we're a great big $50 billion chaininstead of one store in Blytheville,Arkansas, or McComb, Mississippi, or Oak Ridge, Tennesseethen you probably can close the book onus. If we ever forget that looking a customer in the eye, and greeting him or her, and asking politely if wecan be of help is just as important in every Wal-Mart today as it was in that little Ben Franklin inNewport, then we just ought to go into a different business because we'll never survive in this one.

BILL FIELDS:

"I'm sure that our whole focus on thinking small all relates to Sam running that store in Newport, wherehe was the entrepreneur, and he was out there involved as a leader of the community. He sees thatentrepreneurial element as being so important and something he never wants us to lose. He saw the bigchange in Ben Franklin and all those other companies that lost it because they got too big and distracted,and he's just determined it won't happen here."For us, thinking small is a way of life, almost an obsession. And I suspect thinking small is an approachthat almost any business could profit from. The bigger you are, the more urgently you probably need it.

At our size today, there's all sorts of pressure to regiment and standardize and operate as a centrallydriven chain, where everything is decided on high and passed down to the stores. In a system like that,there's absolutely no room for creativity, no place for the maverick merchant that I was in the early daysat Ben Franklin, no call for the entrepreneur or the promoter. Man, I'd hate to work at a place like that,and I worry every single day about Wal-Mart becoming that way. I stay on these guys around here allthe time about it. Of course, all those vendors and suppliers would love to see us get that way. It wouldmake their jobs a lot simpler for sure. If anybody at Wal-Mart thinks we as a company are immune toBig Disease, I wish they'd just pack up and leave right now because it's always something we'll have toworry about.

For several decades now we've worked hard at building a company that's simple and streamlined andtakes its directions from the grass roots. It's a pretty tall order for an outfit that is spreading out all overthe country as fast as we are. But along the way we've learned some practical things about thinking smalland developed some principles that have had a big effect on our company's success. Before you can fullyunderstand how we got where we are today, it's important to understand these principles. Then you canrecognize how we've applied them all along the way in the building of the company. Seeing how we'vedone some of these things might help other folks out there who face the same challenge of growing theirbusiness without losing touch with the customer.

There's nothing at all profound about any of our principles. In fact, they're all common sense, and mostof them can be found in any number of books or articles on management theorymany of which I've readand studied over the years. But I think the way we've applied them at Wal-Mart has been just a littledifferent. Here are six of the more important ways we at Wal-Mart try to think small:

Think One Store at a TimeThat sounds easy enough, but it's something we've constantly had to stay on top of. Because our salesand earnings keep going up doesn't mean that we're smarter than everyone else, or that we can make ithappen because we're so big. What it means is that our customers are supporting us. If they stopped, ourearnings would simply disappear, and we'd all be out looking for new jobs. So we know what we haveto do: keep lowering our prices, keep improving our service, and keep making things better for the folkswho shop in our stores. That is not something we can simply do in some general way. It isn't somethingwe can command from the executive offices because we want it to happen. We have to do it store bystore, department by department, customer by customer, associate by associate.

For example, we've got one store in Panama City, Florida, and another only five miles away in PanamaCity Beach, but actually they're worlds apart when it comes to their merchandise mix and their customerbase. They're entirely different kinds of stores. One is built for tourists going to the beach, and the other ismore like the normal Wal-Mart, built for folks who live in town. That's why we try our best to put amerchant in charge of each store, and to develop other merchants as the heads of each department inthose stores. If the merchandise mix is really going to be right, it has to be managed by the merchandisersthere on the scene, the folks who actually deal face to face with the customers, day in and day out,through the seasons.

That makes it management's job to listen to those merchandisers out in the stores. We have these buyershere in Bentonville218 of themand we have to remind them all the time that their real job is to supportthe merchants in the stores. Otherwise, you have a headquarters-driven system that's out of touch withthe customers of each particular store, and you end up with a bunch of unsold workboots, overalls, andhunting rifles at the Panama City Beach store, where folks are begging for water guns and fishing rodsand pails and shovels; and at the Panama City store in town you've got a bunch of unsold beach gearstacked up gathering dust.

So when we sit down at our Saturday morning meetings to talk about our business, we like to spendtime focusing on a single store, and how that store is doing against a single competitor in that particularmarket. We talk about what that store is doing right, and we look at what it's doing wrong.

DAVID GLASS:

"We believe that we have to talk about and examine this company in minute detail. I don't know anyother large retail companyKmart, Sears, Penney'sthat discusses their sales at the end of the week inany smaller breakdown than by region. We talk about individual stores." Which means that if we'retalking about the store in Dothan, Alabama, or Harrisburg, Illinois, everybody here is expected to knowsomething about that storehow to measure its performance, whether a 20 percent increase is good orbad, what the payroll is running, who the competitors are, and how we're doing. We keep the company'sorientation small by zeroing in on the smallest operating unit we have. No other company does that."Focusing on a single store can accomplish a number of things. First, of course, it enables us to actuallyimprove that store. But if in the process we also happen to learn a particular way in which that PanamaCity Beach Wal-Mart is outsmarting the competition on, say, beach towels, then we can quickly get thatinformation out to all our other beach stores around the country and see if their approach workseverywhere. Which brings us to the next principle.

Communicate, Communicate, CommunicateIf you had to boil down the Wal-Mart system to one single idea, it would probably be communication,because it is one of the real keys to our success. We do it in so many ways, from the Saturday morningmeeting to the very simple phone call, to our satellite system. The necessity for good communication in abig company like this is so vital it can't be overstated. What good is figuring out a better way to sell beachtowels if you aren't going to tell everybody in your company about it If the folks in St. Augustine,Florida, don't get the word on what's working over in Panama City until winter, they've missed a bigopportunity. And if our buyers back in Bentonville don't know we're expecting to double our sales ofbeach towels this summer, the stores won't have anything to sell.

Nowadays, I see management articles about information sharing as a new source of power incorporations. We've been doing this from the days when we only had a handful of stores. Back then, webelieved in showing a store manager every single number relating to his store, and eventually we begansharing those same numbers with the department heads in our stores. We've kept doing it as we'vegrown. That's why we've spent hundreds of millions of dollars on computers and satellitesto spread allthe little details around the company as fast as possible. But they were worth the cost. It's only becauseof information technology that our store managers have a really clear sense of how they're doing most ofthe time. They get all kinds of information transmitted to them over the satellite on an amazingly timelybasis: their monthly profit-and-loss statement, up-to-the-minute point-of-sale data that tells them what'sselling in their own store, and a lot of other paper they probably wish we wouldn't send them.

I'm not going to pretend we're perfect at this. We do have our share of miscommunication, like that timethe Moon Pies were shipped to stores in Wisconsin, where they didn't exactly jump off the shelves. Andsometimes a simple attitude is as valuable as all the technology in the world. For example, we've got thisone rule I hope we never give up enforcing: our buyers here in Bentonville are required to return callsfrom the stores first, before they return the calls of vendors or anybody else, and they are required to getback to the stores by sundown of the day they get the call.

Obviously, we're too doggoned big to have every department head in every Wal-Mart spend a lot oftime with the vendors who call on us in Bentonville, so we try to think up ways to get at a similar result.

Recently, we've started seminars for our department managers. We'll pick a department, like sportinggoods or lawn and garden, then we'll pick one department headthese are the hourly associates whoactually run those departments in their storesfrom each of our store districts. That's 184 folks right now.

We'll bring all of them in to Bentonville to talk to the buyers about what's working for them, and what'snot. Then they meet with the vendors and explain what kinds of complaints we're getting about theirproducts, or what's working well. Together, all these folks formulate their plan for the coming season,and then the department heads go back to their districts and share what they've learned with theircounterparts in neighboring stores.

As much as we travel to our stores, and bring our folks in to Bentonville, though, sometimes I have thefeeling that the word is not getting out. And if it's on a subject I feel strongly enough about, I'm not abovegetting in front of one of our TV cameras here and going out by satellite to all our associates gathered infront of their TV's in the break rooms of our stores. A few years ago, I had an idea aroundChristmastime that was just burning me up to tell people about, so I went on the camera and visited witheverybody about how our sales were doing, and talked a little about my hunting, and let them know that Ihoped their holiday season was going well. Then I got to the point: "I don't think any other retail companyin the world could do what I'm going to propose to you. It's simple. It won't cost us anything. And Ibelieve it would just work magic, absolute magic on our customers, and our sales would escalate, and Ithink we'd just shoot past our Kmart friends in a year or two and probably Sears as well. I want you totake a pledge with me. I want you to promise that whenever you come within ten feet of a customer, youwill look him in the eye, greet him, and ask him if you can help him. Now I know some of you are justnaturally shy, and maybe don't want to bother folks. But if you'll go along with me on this, it would, I'msure, help you become a leader. It would help your personality develop, you would become moreoutgoing, and in time you might become manager of that store, you might become a department manager,you might become a district manager, or whatever you choose to be in the company. It will do wondersfor you. I guarantee it. Now, I want you to raise your right handand remember what we say atWal-Mart, that a promise we make is a promise we keepand I want you to repeat after me: From thisday forward, I solemnly promise and declare that every time a customer comes within ten feet of me, Iwill smile, look him in the eye, and greet him. So help me Sam."Now, I had no way of knowing how much effect a little communication like that would have on ourassociates, or on our customers. But I felt so strongly about the idea that it was worth calling attention toit by satellite, and I really meant it when I said I didn't think any other retailer in the country could do it. Ido know thisa lot of our associates started doing what I suggested, and I'm sure a lot of our customersappreciated it. We used mass communications to transmit the idea, but it was a small idea, aimed at thefolks on the front lines, the ones most responsible for keeping our customers happy and coming back toour stores over and over. And I'm not saying one way or another whether my little pep talk had anythingto do with it, but we went on from that Christmas to pass both Kmart and Sears in sales at least twoyears before even the most optimistic Wall Street analysts thought we could do it.

Keep Your Ear to the GroundAs chairman of Wal-Mart, I, of course, was the one who ultimately authorized all those expenditures fortechnology, which proved absolutely crucial to our success. But truthfully, I never viewed computers asanything more than necessary overhead. A computer is not and will never bea substitute for getting outin your stores and learning what's going on. In other words, a computer can tell you down to the dimewhat you've sold. But it can never tell you how much you could have sold.

That's why we at Wal-Mart are just absolute fanatics about our managers and buyers getting off theirchairs here in Bentonville and getting out into those stores. We have twelve airplanesonly one of them ajet, I'm proud to sayin our hangars out at the Rogers, Arkansas, airport, and that's why they're there.

We stay in the air to keep our ear to the ground. Our whole travel system is really an outgrowth of theway I managed those nine stores back in 1960 when I said I didn't want to grow anymore. Back then, asyou now know, I would get in my old Tri-Pacer and fly to those stores once a week to find out what wasselling and what wasn't, what the competition was up to, what kind of job our managers were doing,what the stores were looking like, what the customers had on their minds. Of course, I have continued tovisit stores almost constantly ever since, and it is the part of my job I enjoy the most, the part where I feelI make the greatest contribution, but with almost two thousand stores today, a lot of other folks have toget in on the act with me.

Today, the idea is pretty much the same. Our district managers are doing the job that I did back in 1960the real hands-on, get-down-in-the-store stuff. But also, we have eighteen regional managers, all ofthem based here in Bentonville. Every Monday morning, they pile into those airplanes and head acrossthe country to the stores in their regions. It's a condition of their employment. They stay out three to fourdays, usually coming back in on Thursday. We've drummed into their heads the belief that they shouldcome back with at least one idea that will pay for the trip. Then they gather with the senior managementof the companyall of whom should also have been visiting stores earlier in the week if they expect to askany intelligent questions or know the first thing about what's going onfor our Friday morningmerchandising meeting.

In addition to the fieldwork, of course, we have computer printouts at the meetings which tell us what'sselling and what's not. But the really valuable intelligence that surfaces in these sessions is what everybodyhas brought back from the stores. If they're doing their jobs right, they'll know why things are or aren'tselling, and what we ought to be thinking about selling next, or dropping from our assortment. If they'vebeen to that Panama City Beach store and seen a suntan cream display that's blowing the stuff out thedoor, they can share that with the other regionals for their beach stores. Or if they've been to a big storein the Rio Grande Valley and found out that we're getting beat by a competitor on ladies' dressesbecause their assortment is more suited to the particular tastes of that area, we can start fixing it. Whenthat meeting is over, every one of those regionals should be on the phone to the district managers, whoshould be passing the word along to the store managers, who'll get the department managers to act on itright away.

DAVID GLASS:

"Our Friday merchandising meeting is unique to retailing as far as I can tell. Here we have all theseregional managers who have been out in the field all week longthey are the operations guys who directthe running of the stores. Then you have all your merchandising folks back in Bentonvillethe people whobuy for the stores. In retailing, there has always been a traditional, head-to-head confrontation betweenoperations and merchandising. You know, the operations guys say, 'Why in the world would anybodybuy this It's a dog, and we'll never sell it.' Then the merchandising folks say, 'There's nothing wrong withthat item. If you guys were smart enough to display it well and promote it properly, it would blow out thedoors.' That's the way it is everywhere, including Wal-Mart. So we sit all these folks down togetherevery Friday at the same table and just have at it.

"We get into some of the doggonedest, knock-down drag-outs you have ever seen. But we have a rule.

We never leave an item hanging. We will make a decision in that meeting even if it's wrong, andsometimes it is. But when the people come out of that room, you would be hard-pressed to tell whichones oppose it and which ones are for it. And once we've made that decision on Friday, we expect it tobe acted on in all the stores on Saturday. What we guard against around here is people saying, 'Let'sthink about it.' We make a decision. Then we act on it."Once these regional managers have come back on Thursdays, we load up the planes with some buyersand send them out to visit the individual stores. As we've gotten bigger, we've added on all kinds of waysto keep our buyers responsive to the store needs. These days we've got folks called regional buyers,who go around and help the store managers customize the merchandise for their own stores. My favoritebuyer program is one called Eat What You Cook. Once a quarter, every buyer has to go out to adifferent store and act as manager for a couple of days in the department he or she buys merchandise for.

I guarantee you that after they've eaten what they cooked enough times, these buyers don't load up toomany Moon Pies to send to Wisconsin, or beach towels for Hiawatha, Kansas.

Push Responsibilityand AuthorityDownThe bigger we get as a company, the more important it becomes for us to shift responsibility andauthority toward the front lines, toward that department manager who's stocking the shelves and talkingto the customer. When we were much smaller, I probably wasn't as quick to catch on to this idea as Ishould have been. But as an avid student of management theory, back in the mid-seventies I startedreading the work of W. Edwards Deming, the famous statistician who taught so much to the Japaneseabout improving their productivity and competitiveness. Then Helen and I took a trip to Japan andKorea, which got me thinking about a whole bunch of different things we could do to improve ourcompany. That's probably when I first began thinking about some of the very real ways that we couldimprove our teamwork and put more authority in the hands of our people in the stores.

Our most famous technique for doing this is a textbook example of thinking small. We call it StoreWithin a Store, and it's the simplest idea in the world. Again, in many big retail companies the departmenthead is just an hourly employee going through the motions, somebody who punches a clock, then ripsopen boxes and stacks whatever's in them onto shelves. But we give our department heads theopportunity to become real merchants at a very early stage of the game. They can have the pride ofproprietorship even if they weren't fortunate enough to go to college or be formally trained in business.

They only have to want it bad enough, pay close attention, and work very hard at developingmerchandising skills. We've had many cases where the experience has fired people up with ambition, andthey've gone on to work their way through college and move on up in the company, and I hope we havemany more cases like that.

Again, this only works because we decided a long time ago to share so much information about thecompany with our associates, rather than keep everything secretive. In Store Within a Store we makeour department heads the managers of their own businesses, and in some cases these businesses areactually bigger in annual sales than a lot of our first Wal-Mart stores were. We share everything withthem: the costs of their goods, the freight costs, the profit margins. We let them see how their store rankswith every other store in the company on a constant, running basis, and we give them incentives to wantto win.

We're always trying for that fine balance between autonomy and control. Like any big retailer, Wal-Martobviously has certain procedures which we require our stores to follow or items they must stock. But wehave taken steps to make sure our stores have some autonomy. The responsibility for orderingmerchandise lies with the department head. The responsibility for promoting merchandise is with the storemanager. Our buyers have much more responsibility for deciding what's carried in our stores than buyersat most other companies. We run them hard, and we give them a tough time because we don't want themgetting a big head and thinking they're all-powerful. But the fact is that our buyersjust like our folks in thestoresare in unique positions of authority for the retail business.

Force Ideas to Bubble UpThis goes hand-in-hand with pushing responsibility down. We're always looking for new ways toencourage our associates out in the stores to push their ideas up through the system. We do a lot of thisat Saturday morning meetings. We'll invite associates who have thought up something that's really workedwell for their storea particular item or a particular display to come share those ideas with us.

The VPI (Volume Producing Item) contest is a perfect example of how we put this into practice.

Everybody from the department manager level on up can choose an item of merchandise they want topromotewith big displays or whateverand then we see whose item produces the highest volume. I'vealways thought of the VPI contest not just as a way to stimulate sales, but as a method of teaching ourassociates how to become better merchants, to show them what can be done by picking an item that'savailable and figuring out a creative way to sell it, or buy it, or both. It gives them the opportunity to actthe way we used to in the early days. They can do crazy things, like pick an item and hang it all over atree filled with stuffed monkeys in the middle of the store. Or drive a pickup truck into action alley and fillit with car-washing sponges.

We're not just looking for merchandising ideas from our associates. Our latest effort is a program calledYes We Can, Sam!which, by the way, I did not name. Again, we invite hourly associates who havecome up with money-saving ideas to attend our Saturday morning meeting. So far, we figure we've savedabout $8 million a year off these ideas. And most of them are just common-sense kinds of things thatnobody picks up on when we're all thinking about how big we are. They're the kinds of things that comefrom thinking small. One of my favorites came from an hourly associate in our traffic department who gotto wondering why we were shipping all the fixtures we bought for our warehouses by common carrierwhen we own the largest private fleet of trucks in America. She figured out a program to backhaul thosethings on our own trucks and saved us over a half million dollars right there. So we brought her in,recognized her good thinking, and gave her a cash award. When you consider that there are 400,000 ofus, it's obvious that there are more than a few good ideas out there waiting to be plucked.

TOM COUGHLIN:

"Let me tell you how Wal-Mart came to have people greeters. Back in 1980, Mr. Walton and I wentinto a Wal-Mart in Crowley, Louisiana. The first thing we saw as we opened the door was this oldergentleman standing there. The man didn't know me, and he didn't see Sam, but he said, Hi! How are yaGlad you're here. If there's anything I can tell you about our store, just let me know.'

"Neither Sam nor I had ever seen such a thing so we started talking to him. Well, once he got over thefact that he was talking to the chairman, he explained that he had a dual purpose: to make people feelgood about coming in, and to make sure people weren't walking back out the entrance with merchandisethey hadn't paid for.

"The store, it turned out, had had trouble with shoplifting, and its manager was an old-line merchantnamed Dan McAllister, who knew how to take care of his inventory. He didn't want to intimidate thehonest customers by posting a guard at the door, but he wanted to leave a clear message that if you camein and stole, someone was there who would see it.

"Well, Sam thought that was the greatest idea he'd ever heard of. He went right back to Bentonville andtold everyone we ought to put greeters at the front of every single store. A lot of people thought he'd losthis mind.

"Our folks felt that putting someone at the door was a waste of money. They just couldn't see what Samand Dan McAllister were seeingthat the greeter sent a warm, friendly message to the good customer,and a warning to the thief. They fought him all the way on it. Some people-tried hard to talk him out of it.

They tried to ignore it.

"Sam just kept pushing and pushing and pushing. Every week, every meeting, he'd talk about greeters.

He'd throw fits whenever he went into a store and didn't find one. Gradually, he wore everyone downand got his way. I'd say it took about a year and a half because they really resisted it. But Sam wasrelentless.

"I guess his vindication had to be the day in 1989 when he walked into a Kmart in Illinois and found thatthey had installed people greeters at their front doors."If people greeters were the only good idea I'd picked up from the associates in the stores over the years,I'd still say that visiting the stores and listening to our folks was one of the most valuable uses of my timeas an executive. But really, our best ideas usually do come from the folks in the stores. Period. I shouldsay, though, that the people greeters were an exception in that I'm not generally disposed to ideas thatrequire adding on people and expenses.

Stay Lean, Fight BureaucracyAnytime a company grows as fast as Wal-Mart has, pockets of duplication are going to build up, andthere will be areas of the business which we may no longer need. No boss or employee really likes todwell on such matters: it's only human nature not to want to have your job, or the jobs of the people whowork for you, eliminated. But it is absolutely the responsibility of a company's top management to bethinking about this issue all the timeto ensure a sound future for the overall company.

One way I've approached this is by sticking to the same formula I used back when we had about fivestores. In those days, I tried to operate on a 2 percent general office expense structure. In other words, 2percent of sales should have been enough to carry our buying office, our general office expense, mysalary, Bud's salaryand after we started adding district managers or any other officerstheir salaries too.

Believe it or not, we haven't changed that basic formula from five stores to two thousand stores. In fact,we are actually operating at a far lower percentage today in office overhead than we did thirty years ago,and that includes tremendous expenses for computer support and distribution center supportthough notthe actual cost of running the distribution centers. Really, it includes everything that we supply centrally inthe way of support for the stores.

Some folks in the retail business have asked me where I came up with the 2 percent formula, and thetruth is I just pulled it out of the air. In the early days, most companies charged 5 percent of their sales torun their offices. But we have always operated lean. We have operated with fewer people. We have hadour people do more than in other companies. I think we came to work earlier and stayed later. It hasbeen our heritageour obsessionthat we would be more productive and more efficient than ourcompetition. And we've accomplished that goal.

A lot of first-time visitors are kind of shocked by our executive offices. Most people say my office andthose of all the other Wal-Mart executives look like something you'd find in a truck terminal. We're in aone-story office-warehouse building. The offices aren't real big, and the walls are covered withinexpensive paneling. We never had fancy furniture or thick carpet, or suites with bars for our executives.

I like them just like they are. We sure as heck won't win any interior decorating awards, but they're allwe need, and they must be working fine. Just ask our shareholders.

DAVID GLASS:

"If you don't zero in on your bureaucracy every so often, you will naturally build in layers. You never setout to add bureaucracy. You just get it. Period. Without even knowing it. So you always have to belooking to eliminate it. You know when Tom Watson, Sr., was running IBM, he decided they wouldnever have more than four layers from the chairman of the board to the lowest level in the company. Thatmay have been one of the greatest single reasons why IBM was successful.

"A lot of this goes back to what Deming told the Japanese a long time ago: do it right the first time. Thenatural tendency when you've got a problem in a company is to come up with a solution to fix it. Toooften, that solution is nothing more than adding another layer. What you should be doing is going to thesource of the problem to fix it, and sometimes that requires shooting the culprit.

"I'll give you an example that just drove Sam crazy until we started doing something about it. Whenmerchandise came into the back of a store, it was supposed to be marked at the right price or markedcorrectly on the spot. But because it often wasn't getting done properly, we created positions called testscanners, people who go around the stores with hand-held scanners, making sure everything is pricedcorrectly. There's another layer right there, and Sam didn't ever visit a store without asking if we reallyneeded these folks.

"Well, we still have some, but what we've done is overhaul our back-office procedures to make sure weget it right more often the first time, and, in the process, we eliminated one and a half people out of theoffice in every Wal-Mart store in the company. That's big bucks.

"Really it's a pretty simple philosophy. What you have to do is just draw a line in the dirt, and force thebureaucracy back behind that line. And then know for sure that a year will go by and it will be backacross that line, and you'll have to do the same thing again."I guess one reason I feel so strongly about not letting egos get out of control around Wal-Mart is that alot of bureaucracy is really the product of some empire builder's ego. Some folks have a tendency tobuild up big staffs around them to emphasize their own importance, and we don't need any of that atWal-Mart. If you're not serving the customer, or supporting the folks who do, we don't need you. Whenwe're thinking small, that's another thing we're always on the lookout for: big egos. You don't have tohave a small ego to work here, but you'd better know how to make it look small, or you might wind up introuble.

So you see what I mean when I say you have to think small to grow big. And really, I don't have anydoubt that Wal-Mart will stay the course and reach $100 billion in sales by the year 2000. It's achallenge. Nothing like it has ever been done before, but our folks will do it. And now I'm going toconfess to a really radical thought I've been having lately. I probably won't do anything about it, but thefolks who come after me are eventually going to have to face up to this question. Even by thinking small,can a $100 billion retailer really function as efficiently and productively as it should Or would maybe five$20 billion companies work better


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