Costco: Join the Club

1. What is Costco’s business model? Is the company’s business model appealing? Why or why not?

Organizational culture could almost be considered the roots of a company. The way a company’s employees think, the way the customers feel, and the company’s decisions are made are all based around the culture that the company has laid for itself. An employee’s values, thoughts, and actions should reflect those stated in the company’s mission. Southwest Airlines and American Airlines, while both attempting to create a culture that is comfortable and pleasing to their

In my understanding of the case study one the CEO Jim Sinegal has proven to be an effective CEO. I would give Mr. Sinegal a “B+” in overall strategic Management Process. In developing a strategic vision he has visualized who, what, and how he is going to sell Costco products. The managements vision is to have rapid inventory turn-over, with operating efficiencies by volume purchasing, efficient distribution, reduce handling of merchandise in no-frill, self-service warehouse facilities. This will enable the company to operate at lower price then their rivals and continually offer members lost cost merchandise.

A good culture encompassing strong values, vision, morale’s and beliefs and behaviours expressed by employers and employees of an organisation can be the driver of the overall performance of a company. A good culture can help support the implementation of changes and new initiatives and are likely to be supported by those involved.

Most wholesalers either cut costs such as employee wages or insurance, or increase prices to increase profit. Costco’s strategy involves treating employees well, cultivating consumer loyalty, and not allowing another corporation to undercut its prices-- ensuring a profitable future.

Costco’s prices are not too low…Low prices are what their brand was built on. Their merchants have very strict guidelines on maximum margins on every product line. Brand name merchandise for instance has a cap of 14% compared to 20 – 50% mark ups at other discounters. Jim Sinegal makes mention of other retailers selling a product for $10 and wonders how to sell it for $11, while his buyers are constantly looking for ways to sell that same product for $9. There is another example of where Costco was selling a pair of $50 jeans for $30. In this situation most competitors would be upset with Costco for destroying the street price and eroding the margins for the entire industry, but Costco has stuck to its guns and to its strategy not winning the friendship of any competitors undoubtedly. Even Wall Street was not happy with their low prices and margins and would draw attention to

The organization culture as a leadership concept has been identified as one of the many components that leaders can use to grow a dynamic organization. Leadership in organizations starts the culture formation process by imposing their assumptions and expectations on their followers. Once culture is established and accepted, they become a strong leadership tool to communicate the leader 's beliefs and values to organizational members, and especially new comers. When leaders promote ethical culture, they become successful in maintaining organizational growth, the good services demanded by the society, the ability to address problems before they become disasters and consequently are competitive against rivals. The leader 's success will depend to a large extent, on his knowledge and understanding of the organizational culture. The leader who understands his organizational culture and takes it seriously is capable of predicting the outcome of his decisions in preventing any anticipated consequences. What then is organizational culture? The concept of organizational culture has been defined from many perspectives in the literature. There is no one single definition for organizational culture. The topic of organizational culture has been studied from many perspectives and disciplines, such as anthropology, sociology, organizational behavior, and organizational leadership to name a few. Deal defines organizational culture as values,

Costco has a very unconventional advertising technique, spending $0 in marketing. What they pay in advertising is very little and can be found on their big trucks with a big red, white, and blue Costco logo, yet they are extremely effective at conveying to the public that they exist, and are selling goods to business and non-business consumers at wholesale prices. How do they do it? It’s very commonly known as “word of mouth”, and has effectively made Costco one of the most successful businesses in the world. When asking any common man or woman where someone could purchase goods at wholesale prices, the average answer will likely be “Costco”. There are no commercials, or billboards, or website advertisements, or spam that shows up on search engines. Their greatest advertisements are the enormous stores and parking lots crowded with people trying to do some shopping. Despite the lacking of marketing, Costco is a household name.

A Costco’s manager needs to know different information from the investor for the mere fact that the manager has to plan, direct, and control the entire organization (Edmonds, Olds & Tsay, 2008). The executive is aware of the company’s external affairs but mainly focuses on the information that affects the business internally. The manager deals with issues that pertain to the finances of the firm as well as making sure to disseminate information to employees at all levels. Managers are the heartbeat of the enterprise. Managers are responsible for informing the employees about nonfinancial information such as work schedules, store hours, and customer service policies (Edmonds, Olds & Tsay, 2008).

Therefore, Costco only sells enormous quantity instead of an individual. Similarly, Costco has limited choices of product to minor in order to receive more profits. Moreover, Costco comprehends on the economic situation, which strike customer to bargain it.

“The key elements of Costco strategy are extremely low prices, a limited selection of naturally branded and private label products, a treasure hunt shopping environment, strong emphasis on low operating costs, and ongoing expansion of its geographic network of store locations.” To provide low prices Costco caps its markup on brand merchandise at 14% compared to 20% to 50% at other supermarkets. The equals out to a sales revenue that only equales several million dollars. This number excludes all other operating factors including the membership fees. Another important element of the strategy is that unlike other retailers they don’t offer window displays or any other thrills with in the stores. They know because of the reputation and because of the value that they offer their customers that the items that they sell offer value over all else.

In today’s dynamic business environment leadership must understand the value and importance of their organizations’ culture. While it may never be formally defined, leadership must have a vision of their intended culture and a plan for creating and maintaining it. This vision will serve as the potter’s clay that determines everything from the dress code to the organizational structure. This paper examines two methods organizations can choose to create and maintain a healthy culture.

An organization’s culture governs day to day behavior. This type of power may be seen as a control mechanism, which businesses use to manipulate internal and external perception. Every organization has a set of assumed understandings that must be adopted and implemented by new employees in order for them to be accepted. Conformity to the culture becomes the primary basis for reward by the organization. “The role of culture in influencing employee behavior appears to be increasingly important in today’s workplace, as organizations have widened spans of control, flattened structures, introduced teams, reduced

Organizational culture is a vital aspect of any successful business or organization. A positive culture can help attract and retain loyal and committed employees, which, in turn, can strengthen relationships with customers and other partners. Just like any other asset, organizational culture must be monitored and nurtured to ensure that it reflects the organization and its

Corporate culture is a key component to the success of Starbucks. When looking at the seven dimensions of corporate culture (fn textbook pg 338) Starbucks emphasizes Team and People Orientation along with Innovation and Risk-Taking and pose less emphasis on a competitive environment or an outcome oriented approach. (see appendix c) In order to ensure a strong corporate culture Starbucks utilizes innovative and simple ways to ensure the key values are deeply held and widely shared. (fn) By visiting up to 40 stores weekly by the CEO Richard Schultz, creation of Starbucks Broadcast News to convey company news, or administering an “attitude survey” every 18 months to all employees they ensure the company and its partners (employees) are connected. (fn textbook)