Future of Business: Walmart’s CEO on AI, Jobs, and Managing Rapid Change

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0:32I'm Adi Ignatius, and this is the HBR IdeaCast.

0:43For the next several weeks, we're bringing you a view from the C-suite, interviews with leading CEOs across industries and geographies recorded during our recent Future of Business event. Today, we're getting inside the mind of Walmart CEO Doug McMillan, who just announced that he'll be stepping down in a couple of months as the head of the retail giant. Walmart is the world's largest company by revenue, its biggest private employer, and boasts 255 million customer visits per week. As goes Walmart, so goes the economy. For his part, Doug started working in Walmart as an hourly associate in 1984, becoming its CEO in 2014.

1:26We spoke with him before he announced his retirement, focusing on how Walmart built its digital business to stay competitive, how it has dealt with issues of tariffs, talent, and worker pay, and the ways it has adapted its supply chain to appeal not just to shareholders, but to all of its stakeholders. Here's our conversation. Doug, thank you very much for joining us. Hey, Adi. Great to see you. So let's just jump right in. And it's never easy running a big company, you know, with AI poised to disrupt, with recurring waves of geopolitical uncertainty. What does it take to lead consistently in an environment like this?

2:04I think remembering who you are is important, but also being open to change. And when I think about what AI presents, the first thing that goes through my mind is the growth opportunity. I think, you know, right after generative AI captured everyone's attention, we were pretty balanced in terms of our mindset between offense and defense. And I think that shifted over time to being offensive in our orientation and growth oriented. We'll talk, I'm sure, at some point about agentic AI, but there's a great opportunity for us to change how people shop and be able to save them even more time, things like that.

2:38So we're excited about the opportunity that AI presents. And as it relates to geopolitical issues and things like that, there's been turbulence now for quite a few years. And I think we've just learned how to operate in that environment. Well, let's talk about AI. I mean, how do you think about it? I mean, one is tempted to think, all right, so AI offers these tremendous efficiencies, possibly at the expense of human employment. I mean, how do you, what is the core kind of AI thinking at Walmart at this point? Well, again, growth is the first thing that I think of. And the e-commerce experience hasn't changed that much since it really started back in the 90s with a search bar and a laundry list.

3:19And now we have an opportunity to create an e-commerce experience that's multimedia, more personalized, contextual, really change the digital side of the equation. And we're really focused on that. As it relates to changes to employment, I really do think that every job we've got is going to change in some way, whether it's getting the shopping carts off the parking lot or it's the way our technologists work or certainly the way leadership roles change. I can imagine how AI will change every one of those jobs and it will create new jobs. We're starting to see some of that. All of those new jobs we've seen already are AI oriented in some way.

3:59It will eliminate some tasks and eliminate some roles. And what we want to do is equip everybody to be able to make the most of the new tools that are available, learn, adapt, add value, drive growth, and still be a really large employer years from now. That's the goal that we're working towards. So we've done things like give everybody a Chad GPT license and give everyone other tools so that they can learn and grow and go through this process with us as a company. You're heading a company that, from its founding, has always been very purpose-driven, the founding family, and And you've articulated that as well since you've taken over CEO.

4:41That must evolve, though, right? Has the core purpose or maybe the auxiliary purposes kind of shifted over time and since you've become CEO? When Sam Walton accepted the Presidential Medal of Freedom shortly before he passed away back in 1992, he articulated a purpose for the company. as far as I know the first time that he had articulated it. And it was basically, we'll show people what it's like around the world to save money and have a better life, to live a better lifestyle. And so those words have become save money, live better. We wake up every day trying to create value for all of our customers and members, but that live better part of the equation, to your point, has changed over time.

5:24You look at what happened in the mid-2000s with the work we did led by Lee Scott to become a more sustainable company as just one example of how the mandate broadened. These days, we obviously think about not only saving people money, but saving people time, strengthening communities, strengthening the planet, playing a role in healthcare. I think the part that has changed is a more specific view of what Live Better means and how we can work as associates to improve lives. Yeah. And I always find it interesting to think about a very purpose-driven company with very intense profit pressures. And you must feel, I mean, I'm sure you'd love the answer to be, we maximize both, but there must be a push and pull.

6:09How difficult is it to keep purpose front and center when you have these short-term and longer-term profit pressures? How do you handle that balance? It's probably important to remind everyone that that now a little over 10 years ago, we made a number of investments that were really sizable all pretty much at the same time. We invested in higher wages. Eventually, that became investments in free education and things beyond just the wage rate. But we invested in our people, billions of dollars. We invested in lower prices, billions of dollars. We invested in e-commerce, billions of dollars. And we also invested to modernize our tech stack.

6:49As we did all of those things, we took the profitability of the company down. Our operating income percentage peaked somewhere north of 8%. Sam Walton once famously danced the who on Wall Street because the management team back then hit a target of 8 % or higher on operating income. And when I moved into this role, the operating income percentage was about 6%. With all those investments that I just mentioned, we went all the way down to just a little north of 4%. So, a pretty dramatic investment that our shareholders paid for so that we could change the company and get positioned for the future.

7:25It was really pretty cool to watch the Walton family and our board of directors work through those decisions with the management team to lay out those choices and to make them and to reduce the profitability of the company so that we could position the company for the future and fulfill our purpose at the same time. We didn't ask our customers to pay for it. We didn't ask anybody else to pay for it. Of course, it's really been the shareholders that paid for it. And then if you look at what's happened as of late, because our business model has changed, e-commerce led to membership opportunity and advertising opportunity, other forms of income, we've been able to turn that operating income percentage back up while keeping prices low and continuing to invest in wages.

8:07So that played out over a period of quite a few years, and I think has caused us to be able to live our purpose and at the same time transform the company. If anything in this conversation inspires you to do a hula, feel free. That won't happen. We'll see. We'll see. Sam can start through that part. You've been through a number of shocks recently, right? We all have been. And the COVID pandemic is one of them and resulting in supply chain shocks. I think we're all looking to companies like Walmart that import a lot. to what extent are tariffs changing your business either overtly or not so overtly.

8:46Maybe talk about, since the tariffs thing is still kind of ongoing, start with, what lesson did you take guiding Walmart through kind of pandemic supply chain shocks before? What did you learn from that experience that's maybe relevant now going forward? The thing that comes to the top of the list for me is just how capable our associates were. That includes our store associates, supply chain associates, Sam's Club associates. It also includes our leaders. And what I experienced is just how good their judgment was and how fast they could make decisions. Before the pandemic, I thought we were moving quicker.

9:26We want to move with speed, never really satisfied as it relates to that. But during the pandemic, everything just sped up so much. And there were so many decisions to make about how to keep people safe, how to manage the supply chain, everything during that period of time, how to help with COVID testing, how to eventually help with immunizations. And we picked up the cadence of the company. And as we were all operating on Zoom, my leadership team and I were too. And we went from what was a weekly, monthly cadence to a daily, weekly cadence. And we were together every morning surfacing choices that needed to be made.

10:04And, you know, we didn't know, as others in the world didn't, all the answers to those questions immediately, of course. And so we just were forced to delegate more. Hand this choice to this person or someone else in the company. Tomorrow, tell us what you decided and why you made that decision, but don't wait to act. And wow, they made a lot of really good decisions quickly. And then if I look at this most recent circumstances, it relates to tariffs. Yet again, the team is showing that they can manage these quantity decisions, change the country of origin, move production where they should, make really good choices about timing and flow.

10:42And our inventory has been really well managed during the course of this year, which is so important as a retailer. If you get over-inventoried, you end up with all these additional costs, markdowns, and many other costs. If you have two little goods, you end up missing sales opportunities. and the way they've managed through this whole ever-changing, complex situation, too, has been impressive, just like it was during the pandemic. Here in the U.S., a little more than two-thirds of what we sell is made or grown here. Today, we operate in 19 countries, but the biggest part of our business, I should say, is in Walmart U.S., and that more than two-thirds number helps, but that other third that comes from around the world, including countries like China, Mexico, Canada, Vietnam, and some others, more than 100 countries, by the time we get through with it all, that fluid decision-making related to where those goods come from has been really well managed.

11:33And so I've just learned to trust people even more than I did on the front side of it. Yeah. Well, I want to talk a little more about that because you have, you know, so sometimes the tariffs are set and it's clear it's 10%, it's 50%, it's a hundred percent, whatever it is, you know what it is and you have to eat that cost and pass it on or not. But, but that is the huge uncertainty and, And it's hard to tell, at least in Washington, are these negotiation tactics? Are these real? It feels like the level of uncertainty that must be so profound for you, right? Sourcing so much from all over the world.

12:05How do you handle that level of acute uncertainty in your planning? Because it's uncertain, but then it's going to get locked in down the road before long. Yeah, well, let's use the example of seasonal merchandise. Go take yourself back to the spring and pretend that you're the Halloween costume buyer for Walmart. How many costumes do you buy? Where do they come from? What price points do you think they'll be at? Because by the time you receive them, which is when the tariff is assigned, it could be a different tariff number. So we run what ifs. If the tariff is this amount, here's what would probably happen with pricing.

12:42Then how many units would we sell if we had that price? Where else could we source them from? What will people buy? if they're under inflationary pressure. We've learned as we've gone through different things over the years, for example, that families prioritize their children and their pets before they prioritize the parents. And a mom usually puts herself last. And so these trade-offs happen throughout the family. So we were confident there would be trick-or-treating and children's costumes would sell, but we might not sell as many adult costumes, for example. So we just kind of all talk through those independent decisions and hold hands, pick a number and make a decision.

13:20And as I mentioned earlier, so far, everyone's done a really good job of generally getting things right. So I feel like we're all, all of us who are leading businesses in a, in a period where transformation is perpetual. You know, it's not like, okay, we figure out the technology, we adapt it and there you are. How do you think about that? You know, trying to make sure that transformation isn't just kind of lurching from project to project, but is kind of an evolving and sustainable capability. Yeah, you have to be willing to change so many things. I'm remembering as you asked the question what it was like to move into this role almost 12 years ago.

13:58We were running negative comps in our U.S. Supercenter business. We didn't have much of an e-commerce business to speak of. We had some challenges in international where I had been, and there were a lot of questions about strategy and transformation. And what the leadership team and I decided to do fairly early on was to explain to everyone what wouldn't change because the list of things that needed to change was really long. And if you started talking through all that, it'd feel pretty overwhelming. So what we said to everyone was, we believe in this timeless purpose that our founder, Sam Walton, gave us.

14:34We will stay committed to helping people, helping people save money and live a better life. We believe we've got the right four core values, and we want our culture, our behaviors to match those four values. So the Walmart that you joined in terms of how people are treated and how we want you to lead, that's going to stay consistent. By the way, part of those values include striving for excellence. So the bar is high, expectations are high, but we respect the individual. We act with integrity. We serve the customer. Those values are going to be consistent. Everything else is open for change. If customers don't want stores in the future, we won't have stores.

15:11So we started out really trying to play catch up on e-commerce and building e-commerce business. And that led to understanding, largely informed by spending time with startups and digital companies and other e-commerce companies, that we had to literally change the way we worked. We needed design as a capability. We needed product management. We needed some roles that technology companies had and have that we didn't have in the company. And we'd grown up running the business with operations, our store leadership team, and our merchants making a lot of the big decisions when really we needed to change the way we thought and worked to put the customer and member in charge and work backwards to build the right tech.

15:52And that caused more organizational change than what I anticipated in the beginning. So it kind of put a punchline on your question. One of the things you have to do as a big company is to set yourself up to change all the time and not just once. So that means constant learning, constant mindset shifts, changes to structure, new capabilities, just a faster pace of organizational change so that you don't fall behind again. You know, before we started this event today, we asked our audience what issues they wanted to hear most about. It was interesting. AI was, you know, you wonder, is AI overhyped?

16:28Do people, are they tired of hearing any answers? No, they really want insight. So I'm going to actually go to a couple of audience questions, if it's okay, that relate to AI. And one of them, and it picks up, you had said that you're making AI large language models available to your employees. But there's a question from Lior Aroussi, not sure from where. Like, whose responsibility is it to kind of adapt the new technology? Is it about, you know, in your case, Walmart, you know, investing in change management, you know, kind of making it happen, forcing it to happen? or is it up to the employees to kind of stay current and relevant?

17:04Do they have to kind of show that spark of interest in the new technology? Yeah, great question. It's obviously both. If you've been inside Walmart, maybe just at the beginning of this year, for example, we were all learning a lot. One of the great things about being here is you have access to all the leaders that are responsible for building the frontier of artificial intelligence. So you get access to ask questions and learn. And we were all doing that, my direct reports and I. And when we got to the springtime, we realized we needed some additional resource. We knew top down what we wanted to do.

17:39We wanted to reinvent how e-commerce works and how shopping works for customers. We wanted to equip our associates. We wanted to drive productivity, of course. We want to manage inventory better. We had these big objectives that we could click down on and explain. But so many of us were doing these things on top of all the other things we'd been doing before this wave of change came our way. So we decided to create a new role that reports directly to me that we announced just maybe a couple of months ago. And that role is one filled by Daniel Danker, who came to us from Instacart and had worked at Uber and Facebook before then.

18:17He's a product management leader. He's a really good thinker. He's a problem solver. He's native AI, lives in the Bay Area. and his responsibility includes speeding up our AI transformation. While we're not a company that should be investing to build all this compute and invent the frontier, we do need to be the best in the world at application. And so Daniel's taking on that responsibility for how we turn this into an AI organization. Product management, design, tech prioritization, and the change management related to AI fit within his responsibility. So what we might have done years ago where we had all these tech stacks that we'd picked up by buying companies around the world, Suresh Kumar and the team, the technologist, had done a great job in recent years of modernizing that tech stack, getting us on the road to have platforms that work everywhere.

19:11And now we can infuse that with AI in a way that causes more speed. So from a top-down point of view, we know what our priorities are, and we're resourcing that change, and we're driving it. And it's what we spend most of our time talking about. At the same time, we have 2.1 million associates around the world, and we are giving them all the tools that we can give them and being transparent about what we expect from them as it relates to their learning journey so that we do this together. And I expect that we'll get some goodness from just great ideas. I was just reading a note this morning about an idea that one of our associates in the Sam's Club has here in the U.S.

19:45that she would like to see us implement in our app. That kind of stuff will happen, and those top-down initiatives will be driven because we've resourced it differently. But again, it causes the company to have to work in a different way than we would have before. It's just constant change. So here's another audience question. This is from Gavin Dia, and it really follows up on what you were talking about. So to what extent does Walmart plan to go beyond access to tools, some of these investments, bringing in some of these high-level people, to a kind of structured upskilling programs to prepare the workforce for this AI-integrated future?

20:21Yeah, we have something called Walmart Academies, where we teach curriculum to all of our associates. We'll be using those academies to create, some kids already have, create specific programs so that people can learn and understand what capabilities that they need to be building. We also provide something called Live Better You, where we pay for college tuition and books so that people can go get a degree if they want to get a degree. And we've had some people move into technology roles. I've been running into people in the field that want to work in cybersecurity. security. We have been creating a lot of technicians in the company to fix all the equipment that we're running, whether that's the automated storage and retrieval systems that we are deploying in our distribution centers or the HVAC equipment we've got in stores.

21:06There's more talent needed in the world to do that kind of work. And so we've been teaching people and certifying them on how to do that. And in some cases have started to sell those services outside the company and have what may grow into a profit center. This is another question from an audience member, Ginger Tave, who notes that in the current issue of Harvard Business View, we have an article about hands-on leadership. And as CEO of one of the largest corporations, I think it's interesting that you have the Walmart employee tag on right now. What percent of time do you spend really on the front line and how valuable is that?

21:39How relevant is that from your position? Yeah, it's vital. I mean, if you know anything about our history, you know that Sam Walton was in the stores all the time and became a pilot to move around faster. And we've now, you know, we've got airplanes and we're flying out of Arkansas, if I use the U.S. as an example, all the time to go visit stores and clubs on a surprise basis. On social media, you'll see some of those visits and you'll hear people say things to me like, you should come see the real world. 99 % of the time, nobody knows we're coming, including me. We just show up in a market. We show up in the first store, Sam's Club.

22:15How are things going? Go straight to our associates that are either helping people check out or picking orders for an e-commerce order or whatever. I love that part of the job. I've just lately been in Mexico, Canada, and China. And the conversations always lead to something. I always leave one of those visits with a list of to-dos that's longer than the list that I leave, if anything, because the things I learned we can use to help the whole company. I would say Walmart gets praised for pursuing its environmental and social goals. It gets criticized for pursuing its environmental and social goals, depending on who's commenting.

22:53We're in a somewhat different environment in terms of the expectations of how companies think about engagement in, again, environmental and social issues. How do you navigate this? You're going to get criticism from all sides. And I know you want to stick to your purpose, but the ground is shifting. How do you navigate this, Raj? It hasn't been that difficult because it's just all super practical. The work we were doing before was good for the P &L. It's been good for the company and it still is. So when this whole conversation started back in the early 2000s, I would say we were going through a maturation process.

23:35Just like any startup does, you focus on your customers and you focused on your associates, your employees. And we were like that too. And we'd grown into this big size opening one store at a time, but we still acted in some ways like an inexperienced company. And then Lee Scott and Rob Walton and others caused us to start thinking about the fact that we had this big footprint and there were things we could be doing that would make our business better and also strengthen the planet and strengthening communities. And I tell this story all the time, but I remember leading Sam's Club at the time.

24:09And I'm embarrassed to tell you, we were paying people to hard to haul off the corrugate behind our Sam's Clubs as brown boxes came to the back of the club and we bailed them up. And as we were going through this learning journey and going to visit landfills and reading books and getting more informed about what we could do given the size of the company, we started realizing how much value there was in that Corrigan. And we went from paying somebody to take it to charging them to take it away because it was worth so much. My P &L benefited about$50 million in one year just because we learned something.

24:44We had spots like that, but that was 20 years ago that we've continued to kind of uncover and learn as we've grown. So whether I'm talking to a member of the media or I'm talking to someone that works in government, If we're getting criticized for something, I just get really practical. Wouldn't you expect Walmart to be eliminating its waste? Yes. It helps us save money so that we can lower prices. It's a good business choice. So all of this work that we're doing, that lens of how does this strengthen the business and how does it help the customer or associates, that all matters. And sometimes it just boils down to time perspective.