Case 2The World’s Shrinking Fish Supply: What Is Walmart’s Responsibility?
Caught without a Plan
The 2006 fiscal year was off to a great start, but that was more than Peter Redmond could say for his efforts to develop a seafood business plan to support Walmart’s new sustainability mission, which had been dubbed “Embrace the Earth.” It had been three months since Walmart CEO Lee Scott had announced that Walmart was going green, and Peter was still trying to figure out exactly what that meant for Walmart’s seafood business.
Indeed, Peter, divisional merchandize manager for seafood at Walmart, sat perplexed as another sustainability meeting ended. Without doubt, some of his colleagues had not just caught the vision but were also starting to reel in real results. Although Peter did not begrudge his colleagues’ success, he realized that their progress was creating expectations he would have to live up to. Yet, when it came to seafood sustainability, Peter saw no saving technology or packaging ploy that would resolve his dilemma. Every day he asked himself and his team of buyers, “How can we best make a viable and valid contribution to Walmart’s highly publicized pledge to go green?”
Walmart’s Leap into Sustainability
On October 24, 2005, Lee Scott, Walmart’s president and CEO, made an epic announcement that caught the world by surprise—Walmart would lead the effort to create a truly green global supply chain. Remarkable not just for its message but also for who was invited to listen, Scott’s speech “Twenty First Century Leadership” was broadcast to associates in all 6,000+ Walmart stores and shared with Walmart's 60,000+ suppliers around the world. Walmart was inviting its entire global supply chain team to make sustainability a priority.
In the years immediately preceding Lee Scott’s sustainability pledge, Walmart, the one-time retail darling of Wall Street, had run into a storm of criticism. Too often, it seemed, leaders at Walmart had picked up a Wall Street Journal, Business Week, or Time magazine only to see Walmart’s name emblazoned across a lead story that was anything but flattering.
Initially, leaders like David Glass (former CEO) and Lee Scott were confident that the storm would blow over. After all, Walmart had always been the champion of everyday consumers—the ones overlooked and underserved by the competition. Walmart’s EDLP (everyday low price) business model had lowered the cost of living for countless people around the world. Managers thus struggled with Walmart’s increasingly tarnished image. Were all of Walmart’s previous good deeds to be overlooked because of a few mistakes?
Nonetheless, the clouds of controversy grew darker as critics and competitors attacked Walmart’s enormous size, “excessive” buying power, and labor practices. It seemed impossible to garner some good public relations among accusations of discrimination against female employees, forcing employees to work off the clock, and strong-arming suppliers to drive prices down. Instead of being the hero of the everyday consumer and one of the “100 best companies to work for in America,” Walmart was often portrayed as the foe of small business and an oppressive employer.
The persistent drizzle of bad publicity had negatively impacted not just Walmart’s image but also its stock price. For the first time in Walmart’s history as a public company, its stock had traded flat for over five years (see Figure 2.3). This reality was particularly frustrating given that Walmart had achieved double-digit sales growth since the turn of the century (see Figure 2.4). Lee Scott and the Walmart leadership team realized that because of Walmart’s size, its every move would be scrutinized. Walmart had a bull’s-eye pasted squarely on its back.
The break in the storm appeared with Hurricane Katrina. As Katrina devastated New Orleans, creating great human suffering and misery, Walmart employees worked to help the people in their communities. Over the following weeks and months, Walmart responded to requests from local governments and relief agencies to provide vital and visible assistance. Using its scale and supply chain prowess, Walmart alleviated suffering at costs no one else could match. The result in Lee Scott’s words: “We were showered with gratitude, kindness and acknowledgements.”
Katrina appeared to rivet Lee Scott’s attention like nothing else had since he became CEO. He realized that Walmart’s defensive posture would have to change to one of leadership. Walmart’s position as the world’s largest retailer (with 2005 sales of $300+ billion) guaranteed that people would listen. Scott emphasized this opportunity in his speech, saying,
You won’t find any case studies at the Harvard Business School highlighting answers for companies of our size and scope. If we were a country, we would be the 20th largest in the world. If Walmart were a city, we would be the fifth largest in America. People expect a lot of us, and they have a right to. Due to our size and scope, we are uniquely positioned to have great success and impact in the world, perhaps like no company before us. . . .
What if we used our size and resources to make this country and this earth an even better place for all of us: customers, associates, our children, and generations unborn? What would that mean? Could we do it? Is this consistent with our business model? What if the very things that many people criticize us for—our size and reach—became a trusted friend and ally to all? . . .
During Katrina, I was reminded of the vision and innovation of Sam Walton. We became who we are by serving the underserved. The smart folks predicted we’d lose our shirt with a discount store in a small town. There is another crowd of smart people who think that if a company addresses the environment, it will lose its shirt. I believe they are wrong.
I believe, in fact, that being a good steward of the environment and in our communities, and being an efficient and profitable business, are not mutually exclusive. In fact they are one and the same.1
Sustainability leadership would be Walmart's answer to the critics who called it an irresponsible, callous corporate citizen.
A Mixed Reaction
During his unforeseen message to the Walmart community, Lee Scott set Walmart's new sustainability expectations, saying,
Our environmental goals at Walmart are simple and straightforward:
To be supplied 100 percent by renewable energy.
To create zero waste.
To sell products that sustain our resources and environment.
These goals are both ambitious and aspirational, and I'm not sure how to achieve them . . . at least not yet.2
Not surprisingly, public reaction was mixed. Some in Scott’s targeted audience listened with a jaded ear, translating Scott’s words, “I'm not sure how to achieve them” as “This is all talk; we really don’t plan on achieving them.”
For example, Chris Kofinis, communications director at Wake Up Wal-Mart, a vocal, union-funded Walmart critic, noted, “We don’t know whether Wal-Mart’s environmental changes are real or a Machiavellian attempt to green-wash a declining public image. But its long record of irresponsible behavior forces one to be skeptical.”3
By contrast, some critics expressed both surprise and cautious optimism. Suzanne Apple of the World Wildlife Fund noted, “When you hear your words coming out of their mouths, it’s amazing. These are issues we’ve been working on for years.” Fred Krupp, president of the Environmental Defense Fund, highlighted the possibilities, saying, “Walmart has as much or more potential than any other company to change the way the world does business.” He also underscored a harsh reality that Lee Scott and the entire Walmart team realized—despite a promising start, Walmart will be judged by “the results of its efforts.”4
The Path to Progress
Moving forward to build a sustainable business model required a two-pronged approach:
Set what are sometimes called “big, hairy, audacious goals” (BHAG).
Engage Walmart’s entire supply chain in the ideation and innovation process.
Lee Scott had outlined both overarching and specific goals in his “Twenty First Century Leadership” speech. For example, Scott set the following targets:
Increase the fuel efficiency of Walmart’s trucking fleet (one of the largest private fleets in the world) by 25 percent in three years and double it by 2015. Reaching this goal would save Walmart $315 million per year.
Reduce greenhouse gas emissions at existing stores by 20 percent in seven years. In the process, design a prototype store that is 30 percent more energy efficient within four years.
Reduce solid waste from U.S. stores by 25 percent within three years.
Source environmental products such as seafood, cotton, and forest and paper products in a sustainable manner—without increasing the cost to the consumer.
Of course, enabling the organization and its supply chain to meet such goals was always more daunting than setting them. The challenge would be to obtain global buy-in: the more people who were involved and who really felt a sense of ownership, the easier it would be to ensure a change in the very fiber of the Walmart culture. Only then would practical solutions to real problems emerge consistently over time.
Lee Scott’s Challenge
Because the power of the bully pulpit conveys an obligation to perform to promise, a failure to produce results would be perceived as proof that Lee Scott’s “green” pronouncement was nothing more than a publicity stunt. Such a conclusion would be devastating for both Scott’s and Walmart’s reputations. To be sure, nobody likes to be deceived, especially by the world’s largest retailer. And Walmart’s critics were sure to pay close attention, looking forward to calling out any misstep.
Lee Scott’s sustainability pledge was thus followed promptly by an invitation for everyone within the supply chain to identify opportunities to get involved. The key was to assure that each opportunity pursued could deliver documentable benefits. Only then could Walmart build momentum to fully implement its sweeping sustainability strategy. Scott acknowledged that this challenge represented a departure from Walmart’s “typical ‘call to action' where we are asking you to go do something by the end of the day or end of the week.”5 A longer-term perspective coupled with greater patience and persistence would be needed. Nonetheless, action was expected.
Within Walmart, each merchant unit leader received the mandate to develop a valid business case to improve the sustainability of its operations. At Walmart, a “valid” business case meant that any idea had to deliver to three targets:
Align with current corporate strategic objectives.
Support one or more of the three sustainability goals.
Deliver a 10 percent increase in comparative sales vis-à-vis the previous year.
Simply stated, a truly sustainable business case had to have both positive environmental as well as positive profit impacts.
Among Walmart’s supply partners, the call to action was more nuanced. The message was, however, still compelling. Walmart would work with and provide training to suppliers who were interested in improving their own sustainability practices. More importantly, Walmart would develop a scorecard or index to measure supplier compliance and progress toward Walmart’s sustainability goals. The clincher was that Walmart would show preference to “suppliers who set their own goals” and moved toward sustainable business practices.
A Fish Story
As Peter left the conference room following the sustainability meeting, he contemplated what his team had discovered over the past two months.
Overfishing had been identified as the biggest, most intractable challenge facing the planet after global climate change.
Since 1950, the demand for seafood had increased fivefold. By 2005, as many as 90 percent of the oceans’ large fish species such as halibut, marlin, and swordfish had disappeared.
A study conducted and recently released by Stanford University suggested that by 2048 the world’s fishing industry would become extinct. In essence, fishing would cease as decimated fish populations disappeared. Already, one-half of all fisheries around the world were defined as “maxed out.” Another 25 percent were described as depleted and/or exploited.
Looking forward, an increasing world population promised to wreak havoc on global fisheries. The forecast growth from six to nine billion people would dramatically increase demand for fish as a staple food—even as fish populations continued to dwindle. This relationship was unsustainable. And its impact would be huge. Already, over one billion people worldwide depended on seafood as their primary source of animal protein. An additional 200 million people earned their livelihood harvesting seafood (see Figure 2.5 and Figure 2.6 for statistics regarding wild-caught fish harvesting).6
These stark realities were enough to cause Peter some sleepless nights. Clearly, finding a way to assure the sustainability of marine life was never more important than it was now. Success meant more than meeting the corporate mandate; it was a matter of survival—for both the fish and the people that depended on them for food or earnings.
A fifth fact stared Peter in the face every morning as he looked in the mirror. Although Walmart was the largest seller of fish in the world, Walmart’s global market share was miniscule—well under 2 percent. Even so, Peter’s sense of responsibility for the world’s fisheries had become personal since Lee Scott’s sustainability speech. The persistent question that confronted decision makers across Walmart was, “What could they and Walmart realistically do—and by extension, what could they not do—to drive sustainable practice into every aspect of the business?”
Feeling the Pressure
As Peter walked down the corridor leading to his office, he couldn’t help but feel the pressure to come up with a game-changing business case for seafood sustainability. After all, he was walking by brightly colored banners touting a few of his colleagues’ early sustainability successes. He paused for a moment to do a little scanning—perhaps he could catch a little inspiration.
One of Walmart’s initial sustainability initiatives—Acres for America—caught Peter’s eye. Acres for America had launched in 2005. The idea was to completely offset Walmart’s land footprint by protecting one acre of valuable “greenspace” for every acre of Walmart developed land. A competitive land program allowed conservation groups like the Nature Conservancy, Trout Unlimited, and the Pacific Forest Trust to buy and permanently conserve land across America. Walmart had set aside $35 million for this initiative.
An interactive display used to educate consumers about the advantages of the compact fluorescent light (CFL)—an Andy Ruben favorite—stood near by. Andy had promoted CFL technology, saying, “Tell everyone to buy this light bulb! If we could get every American to change a single light bulb, we’d be doing the world a world of good.” Why was Andy so passionate? CFL bulbs were 75 percent more efficient, saving the customer $30 in electricity costs over the bulb’s life and preventing more than 690 pounds of greenhouse gases from reaching the atmosphere. Walmart had used volume purchasing to bring prices down. It had also allocated more shelf space, including prime eye-level space. No wonder the CFL bulb was flying off the shelves, helping Walmart move quickly toward its goal of selling 100 million CFL bulbs.
Next in the sustainability “hall of fame” was a nondescript product that had delivered huge results—concentrated laundry detergent. In 2005, Walmart initiated a project with Unilever to reduce the packaging of its 100 oz. all® bottles to a miniscule 32 oz. size without reducing the number of loads that could be washed. Unilever had resisted strongly since such a move would reduce the shelf space its product received. Walmart countered by promising to make the Unilever product a VPI, or volume-producing item. The VPI designation gave all small & mighty® heavy promotion and highly visible space on coveted endcaps. Why all the fuss over going small? The answer: Walmart estimated that over three years, concentrating a volume leader like all® detergent could save 80 million pounds of plastic resin, preserve 430 million gallons of water, and eliminate 125 million pounds of cardboard packing.
Peter finished his quick tour of sustainability successes by perusing the packaging fact sheet at the end of the displays. A favorite Lee Scott story stood out. In 2005, Walmart’s packaging team partnered with key suppliers of its private-label Kid Connection toy line. Tweaking the packaging just a little bit enabled Walmart to ship 497 fewer containers, saving $2.4 million in freight costs. From the “green” point of view, 3,800 trees and 1,000 barrels of oil were also saved.
The evidence was clear that Walmart had the influence to get things done when it worked closely with suppliers to develop new technologies and improve production and logistics processes. The fact that Peter knew he could make a difference was a real benefit of working at Walmart. The trade-off was what Peter felt as he entered his office: the pressure of persistent calls to action to do things better.
Angling for an Answer
As Peter sat at his desk, he considered Lee Scott’s pronouncement, “Due to our size and scope, we are uniquely positioned to have great success and impact in the world, perhaps like no company before us.” Yet, Peter reminded himself of the fact that in this arena, as large as Walmart was, it could not police the seven seas. Nobody could realistically hold Walmart responsible for being the guardian of the oceans—could they? But, the thought brought little solace.
Peter opened a file on his computer that contained the summary notes chronicling his team’s quest for “the better way.” Over the past couple of months, the team had spent a ton of time exploring unrelated sustainability success stories, brainstorming aggressively to devise a novel plan of attack. The team had also benchmarked sustainable practices in other “live” ecosystems, including agriculture and forestry. Yet, common practices in similar areas seemed to lack transferability to the wild-capture fisheries that were on Peter’s radar. Despite the passion for the project, the team kept running into the irresistible force of nonapplicability. For example,
Unlike catfish, shrimp, tilapia, and trout aquacultures, it seemed unlikely that the big fish that were so much in demand in global markets could be farmed in ponds.
Unlike salmon, it would be difficult to capture live fish, strip the eggs, and raise hatchery fish for later release into ocean fisheries.
Unlike timber and other related industries, the team had not come up with an affordable approach to “planting” a fish for every one harvested.
Unlike some agricultural products, the genetic engineering needed to increase fertility rates, spawn survivability, or the rate of maturation seemed to be more dream than near-term reality.
Unlike the certification programs his team had implemented with apparent success among shrimp suppliers, the extreme fragmentation of the deep-sea fishing industry limited Walmart’s influence. Thousands of companies (if they could be called that) and millions of fishermen took fish from the oceans on a daily basis. What could Walmart do that could make a dent in the depletion of the world’s fisheries?
More importantly, some countries were simply unwilling to curb their appetite for endangered species. Others, especially less-developed countries, were unable or poorly equipped to regulate their fisheries. Even with Walmart’s unique size and market power, how could it make a difference where international pressure had failed?
From these perspectives, certification seemed to be a rather weak response. Certification just didn’t seem to pack the enforcement power needed to alter harvesting practices around the world.
Given the uniqueness of the product, Peter’s challenge was to discern what it really means to source large fish species in a sustainable manner but without increasing cost to the consumer. So far, the team had failed to catch a break and find the breakthrough answer they were looking for. As the clock kept ticking and his colleagues from other divisions kept producing results, Peter was unsure what his team’s next steps should be. Peter kept coming back to the same questions:
Had they overlooked something fundamental in their benchmarking analysis?
Had they failed to get far enough out of the box in their brainstorming?
Was it possible that the team was looking beyond the mark?
What level of responsibility should Walmart embrace regarding the safeguarding of the world’s fisheries? What does this imply to Peter and his team?
Can Peter help Walmart change fishery practices in a way to both save the oceans’ fish populations and assure sustained profitability? If so, how?
How can Walmart build customer support and loyalty through its sustainable fisheries initiatives?
Imagine you are a member of Peter’s team. Prepare a valid business case to drive sustainable business practice for Walmart’s seafood division. Be prepared to present your recommendation to a Walmart supervisory committee.