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Sam Walton didn't care much for technology. The legendary patriarch of Wal-Mart Stores was well-known for his lack of excitement about "computers," as he called the company's IT systems.

"Truthfully, I never viewed computers as anything more than necessary overhead," he wrote in his 1992 memoir, Made in America. "A computer is not—and will never be—a substitute for getting out in your stores and learning what's going on."

If Walton were alive today (he died the year his book was published), he might be saying, I told you so.

Many still consider Wal-Mart's pioneering, IT-driven supply chain to be the world's most efficient, and the company's technology standards still command respectful attention from its thousands of suppliers. But the $349 billion retailer is stumbling, and IT has played a role in its woes.

Last year, the Bentonville, Ark.-based behemoth sold its stores in South Korea and Germany (incurring a $1 billion loss in Germany alone), reportedly due to its inability to adapt to the local cultures and unseat established players. At home, Wal-Mart twice reduced the number of new U.S. supercenters it planned to open this year—the second time, in June, by 30 percent. In August, the company reported that it had missed second-quarter profit estimates and warned that its profits would be lower than expected for 2007.

Wal-Mart executives blamed this slump on the effect of high energy prices on its low-income core shoppers, as well as the company's failure to move to new high-end apparel and home-decor merchandise. Analysts blame Wal-Mart's inattention to customer service at home, merchandising mistakes and its insensitivity to local markets abroad. Meanwhile, Wal-Mart has struggled online.

Its Web site lags behind competitors like Amazon.com and Target, and recent marketing experiments using social networking technologies have achieved mixed success. The company has even suffered in its sweet spot, with serious setbacks to its deployment of radio-frequency identification (RFID) tags throughout its supply chain. (Wal-Mart declined repeated requests for interviews with CIO Rollin Ford and others.)

The company's performance, said President and CEO Lee Scott in a press release, "is not what we expect of ourselves, and not what our shareholders expect of us." He said management would spend the rest of this year "focused on inventory improvements, delivering quality products at low prices, and store execution at the highest standards."

At the Crossroads

Wal-Mart today is caught between two worlds: Sam Walton's, where a zealous commitment to "everyday low prices" is enforced (despite Walton's skepticism about "computers") by IT-assisted decisions made in Bentonville, and a new global marketplace in which the retailer's sheer size is not as big an advantage as it once was. Competitors such as Target and Tesco can match Wal-Mart in technological sophistication and surpass it by innovating in new retailing segments with higher-margin goods.

"Wal-Mart was making their margins on sourcing and great technology systems, but everyone has got that now," says Patricia Edwards, a portfolio manager and managing director at Wentworth, Hauser and Violich who focuses on retail.

The question for Wal-Mart CIO Ford is how much the legendary IT infrastructure and supply chain systems that turned Wal-Mart into a juggernaut (it has nearly 2 million employees and 6,775 stores worldwide) can help right a listing ship. The command-and-control, technology-enabled culture that allowed Wal-Mart to flourish may not help it to maintain its market dominance.

Greg Buzek, president of IHL Consulting Group, which advises retailers, says that store managers say in key areas where Wal-Mart has tried to grow, such as in apparel sales, the company has relied too much on centralized decision making—for example, letting corporate systems override local input about what items to stock.

Furthermore, analysts say that Wal-Mart's reliance on homegrown IT systems—and its conviction of their superiority—needs to change. Ford and his team, they say, must bring in best-of-breed commercial applications, such as BI and price-optimization tools, that can help it compete with rising retail superstars such as Target, JCPenney and Tesco. "We cannot overestimate how much packaged software can help them right now," says Paula Rosenblum, an analyst and managing partner with Retail Systems Research.

In fact, it does appear that the big ol' dog is learning some new tricks. In 2006 Wal-Mart bought retail applications from HP and Oracle, and quietly contracted with a social networking company, Bazaarvoice. It's clear that just squeezing more pennies out of the supply chain won't cut it anymore.

"For years, Wal-Mart was held up as a shining example of cutting-edge thinking in retail technology," says Edwards. "But today, when I hear about a retailer doing something cutting edge, it's never Wal-Mart being talked about."

The Good Old Days

It's hard to imagine Wal-Mart as a scrappy underdog, but that's what it was in the 1960s and '70s. Sam Walton was often heralded as a modern-day Robin Hood, building his retail discount chain for the cost-conscious masses.

Despite Walton's aversion to technology, he assembled a team that was certain IT could be a game changer—and wasn't afraid to challenge his Luddite views. "[Sam] was smart enough to know we needed technology," recalls Bob Martin, who as CIO from 1984 to 1993 and a member of the Wal-Mart executive committee from 1985 to 1999 gets much of the credit for Wal-Mart's IT innovations. "[But] he made sure the technology never got in the way of keeping our people."

The emphasis on developing top management talent extended to the IT department. Just as GE is known for turning out CEOs, Wal-Mart has produced several of today's top technology leaders.

Randy Mott, who succeeded Martin, was CIO of Dell and now HP; Kevin Turner, who followed Mott, is COO of Microsoft. Rick Dalzell, who as VP of IS developed Wal-Mart's data warehousing systems, is retiring this year as CIO of Amazon.com, where he is credited with creating Amazon's legendary e-commerce engine and CRM system for gathering and analyzing customer and sales data.

"They are the kind of people that flourished in a competitive environment where innovation was a premium, where risk was allowed," Martin says. "We all had one mission: to be number one. We were not caught up in our own egos." Says Turner: "We believed in the power of the team to do extraordinary things."

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