Defend & Extend managers love to believe that by sticking to the Success Formula they produce the best results at lowest risk.  But, Lock-in is not free.  It has costs related to lost opportunities, as well as direct costs.  Take for example Wal-Mart (see chart here) which has offered investors no gain for over 5 years.

As detailed in previous blogs, Wal-Mart is horribly Locked-in.  It’s efforts to grow internationally have failed miserably, because the company tries to extend its Success Formula into other markets where it simply doesn’t work with clients.  Now we’re seeing that Wal-Mart is struggling to extend that model even in the USA (see article here).  Everyone knows how Wal-Mart started in the rural markets, then went to mid-size cities and eventually into the suburbs.  Each step Wal-Mart merely did what had previously done better, faster and cheaper.  Wal-Mart did not develop the capability to adapt, but merely to further optimize. 

Now Wal-Mart is hoping to grow in the U.S. by entering major cities.  But in each city, such as New York, they are being shut out.  In 2006 they targeted Chicago.  Almost shut-out, they obtained permission for 1 store via the first ever veto of Chicago’s Mayor Daly.  But now, growth has stalled and there are no new stores opening any time soon.  As the first page of the Chicago Tribune headlined "Wal-Mart Strategy Stumbles."  So as America becomes more urban, Wal-Mart is losing the opportunity to enter its last remaining domestic marketplace.

Most people are aware that part of Wal-Mart’s Lock-in is to never allow unionized employees.  And Wal-Mart is merciless when controlling employee time.  In Philadelphia Wal-Mart’s Success Formula cost the company $62.3million, on top of a previous award of $78.5million, as a judge ordered the company to pay workers for its labor practices (see article here).  Wal-Mart might like to brag about its ability to be low cost, but when that capability starts being judged in courtrooms, and judges order large fines, it is clear that Lock-in is standing in the way of progress rather than aiding it.

Lock-in is not free.  Companies that succeed long term learn how to update their Success Formulas by overcoming Lock-in.  Unless Wal-Mart Disrupts soon, its shareholders, vendors and employees can’t expect much of a return.