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Wal-Mart is the largest retailer in the world and its more than 11 000 stores operate around the world. While the company uses the name Wal-Mart in the United States, it utilizes other names in various countries. For instance, it uses the name Asda in the United Kingdom, Best Practice in India, and Seiyu in Japan. The names indicate that the company has decided to adapt its practices to the conditions in different international markets, so that it can gain competitive advantage and acceptance among the locals. Its entry into various world markets has not been easy because of cultural barriers that have challenged its established approach to business. This paper will use the contingency theory, apply it to Wal-Mart, and critically analyse it on the basis of its application.
The contingency theory was created in 1960s by Fred Fiedler. The theory claims that there is no single approach that leaders can use to lead organizations, make decisions, or organize their activities. Instead, approaches depend on prevailing conditions. The conditions upon which decisions and strategies depend are both internal and external with regard to a corporation (Czinkota & Ronkainen 2011). According to the theory, optimal results are realized when the right leadership style matches situational favourableness. There are three concepts that determine favourableness of a situation (Obel & Burton 2012). The first one deals with leader-member relations. In this concept, the situation is favourable when employees exhibit loyalty, confidence, and trust towards their leaders. The second concept upon which the theory is founded is a task structure. It deals with clarity of tasks and how they should be accomplished. The situation is favourable when there is clarity regarding the way the tasks should be carried out. The third concept is the leader’s position power, which determines the ability of the leader to reward or punish workers. When the power is strong, the situational favourability is optimal. The theory premises on the fact that various environments pose different challenges. As such, there is no one strategy or leadership style that can solve problems in all situations (Cohen 2009). Consequently, the success of a company depends on how its leaders ensure there is a fit between environmental factors and the leadership style. The relationship between the leader and the followers and the structure of the tasks that need to be accomplished influence the strategies that the organization should use. The combination of the three factors constitutes situational favourableness.
Application of Contingency Theory to Wal-Mart
Wal-Mart is one of the largest companies in the world and it employs more than 2 million people. Its operations traverse the national borders as it has stores in America, Asia, Europe, and Africa. Its success story started in the United States and when the market was saturated, it continued expanding globally. It businesses around the globe have experienced both success and failure. The failures have resulted from the application of a uniform approach to the company’s operations because they have achieved attractive results in other locations. For instance, Wal-Mart used its American market strategies in Germany and failed. The failure in Germany was so massive that Wal-Mart was forced to withdraw from the country in 2006. The analysis of German operations is vital to the application of the contingency theory since its absence led to the failure. One of the company’s signature strategies is to offer a low process to consumers to gain competitive advantage. The strategy has worked in the United States and other locations, which led Wal-Mart managers to think that it can be applied in all countries. The assumption that a single strategy is applicable to all situations was a mistake because unique features of each market may require a change of the strategy (Das 2011). German competitors also used a low process as a means of gaining a competitive edge. As such, Wal-Mart would not have gained an advantage by using the low price strategy because customers were already enjoying low prices. The contingency theory would have worked in this situation because the company would have used another strategy that fitted the situation. Being open to contingencies would have helped Wal-Mart to leave their choices open. Additionally, Wal-Mart used its established ethical codes to restrict relationships among employees. Such a restriction was counter-productive because German culture was different from that of the United States (Landler & Barbaro 2006). Workers in Germany enjoyed socialization, which was part of their work life. The fact that it worked in America did not mean it would work in Germany. The leader-member relationship was poor because the leader failed to consider the needs of the workers. As such, the employees did not trust the leaders and failed to be loyal to them. Although the task structure and position power may have been ideal, the poor leader-member relations made the conditions unfavorable. Moreover, the leadership style was authoritative, which was a mismatch between the style and the situational favorableness. Had the retailer used the contingency theory approach, it could have prevented the negativity generated by its restriction. Since employee expectations in Germany were different, the company would have used the contingency theory to allow socialization because the factors influencing the workforce were different from those in the United States.
Apart from Germany, Wal-Mart failed in South Korea because it stuck to one strategy and approach, despite the need to use contingent factors in each market (Gandolfi 2009). Korean consumers liked fresh vegetables and fruits. However, Wal-Mart continued to offer dry products that did not match the customers’ tastes and preferences (Kim 2008).
Wal-Mart used the contingency theory in China, which ensured its success in that market. In contrast to its entry into Germany, Wal-Mart used a joint venture entry strategy instead of purchasing stores (Allen 2014). In Germany, it had purchased stores and used American executives who had no experience with practices in Germany. The joint ventures allowed the Chinese partners to provide insights about Chinese culture. Wal-Mart allowed its managers to consider the cultural differences between China and the United States and adjust to them where appropriate. The adjustment was made according to the contingency theory. The company was open to changes and used the strategies that could provide it with success. Despite having strong beliefs in its American model of operation, it used contingencies in China to make its business successful.
Critical Evaluation of the Contingency Theory
The contingency theory is a reasonable theory because it suggests application of different approaches, depending on prevailing conditions. The existence of variability in different conditions in organizations and market places suggests that some autonomy on the part of managers is essential for deciding the best strategy. It would be inadequate to use the same strategy in all situations because the contingent factors of every situation determine the necessary course of action.
Despite the need to consider the unique factors that influence an organization and the situations within its operation, the application of the theory as postulated by Fiedler may not always produce the optimal performance. The first reason why the application of the theory may not achieve the desired results is that the variables defined by the theory are few and account for only a small variance in performance (Robbins 2009). There are other subjective factors that can influence the performance of a firm and the ability of a leader to influence followers such as workers’ attitudes. Omission of such essential factors that may influence the leaders’ ability to influence followers limits the theory’s probability of success when applied. Additionally, situation favourableness is leader-centred and evaluates only the relationship between leaders and employees. It leaves out a critical consideration that the relationship among employees can determine the leaders' ability to influence them (Frynas & Mellahi 2011). When the structure of the tasks to be performed requires cooperation among workers, their interpersonal relationships are important. When workers do not have good relationships amongst themselves, the leader may not influence them to the extent of achieving the desired performance. Poor interpersonal relationships among workers can be counterproductive because they may jeopardize teamwork in situations where it is critical for performance effectiveness. Therefore, the absence of interpersonal relations among employees limits the effectiveness of the theory when it is used in situations that require teamwork. Finally, favourable aspects are not quantifiable. When the level of favourableness cannot be measured, it becomes tedious for the leader to determine when conditions are favourable for any leadership style. Consequently, the application of the theory may not provide enough confidence to those seeking to implement it because there is no way of determining the level of favourableness quantitatively.
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The attractiveness of the contingency theory lies in the ability of leaders to use flexibility. It helps organizational leaders take advantage of opportunities swiftly. Its success depends on the fit between leadership and situational favourableness. Its application in Walmart would have stopped the company’s failure in South Korean and Germany. The company’s use of the contingency theory in China led to success. The limitations of the theory include a narrow scope of variables, omission of essential factors, absence of focus on employee relations, and unquantifiable nature of favourableness.