Efficiency always matters. Good management kept payroll costs and shrinkage substantially below the industry averages.
Competitive advantages, in this case local economies of scale coupled with customer captivity, matter more. Good management could not make Sam’s Clubs a runaway success, nor could it prevent the deterioration of Wal-Mart’s profitability after 1985, nor assure success in international markets.
Competitive advantages can enhance good management. In this case, Wal-Mart utilized its advantage of local economies of scale by passing on a portion of its savings to its customers and by running a very tightship. It made efficient use of management’s time, the scarcest of all company resources. Good management was welded to a good strategy.
Competitive advantages need to be defended. Wal-Mart’s low-price approach was an intrinsic part of the local economies of scale strategy, and not a separate policy choice. Other discounters like Kmart, Caldor, and Korvette all had profitable periods during which they took advantage of their local economies of scale. But in their drive to expand beyond their home turf, itself an ill-chosen strategy, they let competitors move uncontested into their local areas and lost on two fronts.