Subject: Wal-mart drives software industry
From: D Henkel-Wallace <>
Date: Mon, 25 Feb 2002 20:39:17 -0800

 Mon, 25 Feb 2002 20:39:17 -0800
This is a very interesting article from Technology Review (at; if you can stand 
the dreadful script ads you can go there for some of the references).

It says that Wal-mart is really responsible for IT growth -- not just 
because of how much they consume, but how much they drive through their 

Their continuous demand for cost control is an excellent FSB opportunity.  
In the large, the opportunity is probably available only to Red Hat or IBM.
   I/T departments are famously reluctant to buy from new players, except 
when forced to.  But I suspect there's also an opportunity for some 
smaller, niche FSB players.  Perhaps there's an opportunity that can come 
in from the store managers?


Wal-Mart Trumps Moore's Law
By Michael Schrage   March 2002

In terms of sheer economic impact, the single most important, dynamic, 
defining technological innovation in America hasn’t been the silicon 
cliché of Moore’s Law; it’s the relentless promotional promise of 
“everyday low prices.” Sure, Microsoft, Intel, Cisco and Dell may be 
terrific companies, but the true corporate leader driving productivity 
improvement over the past decade has been Wal-Mart. When it comes to 
managing high-impact innovation, there is no contest—Sam Walton still 
matters more than Bill Gates.

The reason is simple. Wal-Mart is by far the commercial world’s most 
influential purchaser and implementer of software and systems. It is the 
800-pound gorilla in a retail jungle of bonobos and howler monkeys. 
Microsoft and Cisco may set technical standards; Wal-Mart sets business 
process standards. When Wal-Mart—which is bigger than Sears, Kmart and J. 
C. Penney combined—wants global suppliers like Procter and Gamble or GE or 
Pfizer to comply with its inventory software and data networks, they do so 
or else. “Everyday low prices” don’t come cheap.

So yes, corporate IT departments may “care” about the latest Windows 
upgrade or a faster microprocessor from Intel. But Wal-Mart’s ongoing 
infrastructure innovation is what inspires their investments, actions and 
fears. The result has been a genuine revolution in economic productivity. 
This revolution also reinforces a profound truth about the economics of 
innovation: implementation matters far more than invention.

The numbers starkly bear this out. A recent McKinsey Global Institute 
report analyzing the spurt in U.S. productivity growth from 1995 to 2000 
proffers provocative statistics that should give champions of “supply-side”
  innovation pause. “By far the most important factor in that is Wal-Mart,”
  reports Robert Solow, the MIT Nobel Prize-winning economics professor 
emeritus who chaired the report’s advisory committee. “That was not 
expected. The technology that went into what Wal-Mart did was not brand 
new and not especially at the technological frontiers, but when it was 
combined with the firm’s managerial and organizational innovations, the 
impact was huge.”

Solow’s comments bear particular notice as he’s notorious in technology 
circles for his tart-tongued observation a few years back that “Computers 
can be found everywhere but in the productivity statistics.” In fact, the 
McKinsey analysis found them—but not exactly where Solow thought.

“Productivity growth accelerated after 1995 because Wal-Mart’s success 
forced competitors to improve their operations,” the report maintains. “In 
1987, Wal-Mart had just nine percent market share but was 40 percent more 
productive than its competitors. By the mid-1990s, its share had grown to 
27 percent while its productivity advantage widened to 48 percent. 
Competitors reacted by adopting many of Wal-Mart’s innovations, including…
economies of scale in warehouse logistics and purchasing, electronic data 
interchange and wireless bar code scanning. From 1995 to 1999, competitors 
increased their productivity by 28 percent, while Wal-Mart raised the bar 
by further increasing its own efficiency another 20 percent.”

The key variables here, says Solow, are the roles of imitation, adaptation 
and organizational innovation that he believes traditional economists 
either minimize or ignore. “Our historical research emphasis focusing on 
measuring R&D spending as a proxy for innovation is probably a mistake,” 
he observes. “I do think that’s a gap—that we don’t look enough at 
organizational innovation as in this Wal-Mart case.”

Consider Wal-Mart’s $4 billion-plus investment in its “Retail Link” supply 
chain system. What’s intriguing is not the multibillion-dollar nature of 
the company’s IT infrastructure initiative, but the fact that it has had 
at least an order-of-magnitude impact on its suppliers’ own supply chain 
innovations. That is, Wal-Mart’s own $4 billion expenditure has likely 
influenced at least $40 billion worth of supplier investments in systems 
and software. Of course, those supply chain innovations are also 
eventually emulated by competitors, further amplifying the multiplier 

This power of procurement facilitates the procurement of power. Suppose 
Wal-Mart decided that it would be economically advantaged by abandoning 
proprietary software formats in favor of “open source” to manage its 
supplier interactions. Imagine the ripple—or rather, tsunami—effect on the 
future of systems design and development in the retail, wholesale and 
consumer goods sectors. What happens to a Microsoft or Oracle in that 
environment? Suppose Wal-Mart determined that it could do a better job of 
offering “everyday low prices” by migrating its best customers to “smart” 
debit cards. Would the innovation be in the “smart card” itself? Or would 
it really be in the way Wal-Mart rolled it out nationwide?

Today’s economic reality is that high-tech decisions made in Arkansas play 
a larger role in boosting America’s productivity than decisions made in 
Silicon Valley or Seattle. If you appreciate clever innovations, spend 
more time with inventors, entrepreneurs and venture capitalists. If you 
want to know which innovations will rewrite the productivity statistics, 
ignore early adopters and identify the Wal-Marts in key vertical markets. 
Moore’s Law is a necessary but not sufficient condition for economic 
growth; Wal-Mart’s motto is what makes Moore’s Law matter.