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The Financial Times Guide To Lean

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Questions:

1.  Compare and contrast centralized and decentralized organizations. Is your Project Company (COSTCO WHOLESALE) centralized or decentralized? Why?

2. Describe the culture of an Organization (COSTCO WHOLESALE)in which you have either worked, volunteered, or studied. Which of the four types of organizational culture described in our textbook does the organization illustrate?

3. Company Analysis, Organizational SWOT Analysis ( COSTCO WHOLESALE). Prepare a complete SWOT Analysis that analyzes your project company's current situation and future prospects?

 

Answers:

1. There are two basic kind of decision making process that are used by organizations, namely, centralized and decentralized. When all the big and small decisions are taken by the top management and when the lower level employees needs to get approval from the top management for every small decisions, then the organization is said to be following centralized decision making structure (Kury, 2015). The authority lies with the systematic central points within the organization. In a centralized structure, the all the decision making power lies with the top management who takes strategic decisions while the lower level are supposed to work at the directions of the management to implement such decisions.  

In a decentralized organization structure, the decision making power is distributed equally at all levels of the management. The top management are only responsible for taking strategic decisions and formulating policies while all the other decision making power is delegated to the middle and lower level employees (Petrakos, Maier & Gorzelak, 2000). This structure reduces the burden of the top level executives and allows the middle and lower level employees to take independent decisions regarding their work, which in turn, enhances their skill. This structure enables the management to coordinate the operations of the organization at divisional levels. This improves the morale of the employee and motivates them to perform better and act independently.

Costco Wholesale follows a decentralized decision making structure, because they recruit best and talented people. The company invests in their people by providing them continuous training and they have adopted divisional structure for their operations (Faccio, 2015). Thus, they are able to retain knowledgeable staff by creating loyalty among them. They are loyal to the company as they are allowed to participate in decision making and their suggestions are valued and accepted if feasible. The employees are appropriately rewarded and they are led by example. The CEO of the company would pick up throw the paper into the dustbin in front of middle level employee, thereby setting example for them to follow same behavior. The employees are continuously driven to adopt ethical practices and adopt ethical thinking in their decision making process. The management continuously communicates with the employees to address their problems and to involve them in any decision making process. There is clear communication between all the divisions.  They have created a happy and diversified work environment for the employees and offer them competitive package which has allowed to company to maintain a dedicated workforce. 

 

2. Organization culture can be referred as a system of shared beliefs, standards and moral principles that guide the behavior of the employee within the organization(Argyris, 2012). These values and beliefs strongly influences the way people dress, behave and complete their tasks.

According to Robert E Quinn and Kim S. Cameron, there are four types of organizational culture as follows:

  • Hierarchy or Control: This kind of organization culture is highly controlled and structured and the management focuses on increasing the efficiency and maintaining stability in all their operations by doing things right (Shih, Yu & Yen, 2015). They put significance on improving internal operations and integration.
     
  • Market or Compete: This kind of organizations is result oriented and aims to getting the job done by competing and achieving the desired goals. They value differentiation and focus on internal factors more as the new player emerges in the market.
     
  • Clan or Collaborate: This kind of organizational culture believes in doing things together and put emphasis on mentoring and nurturing the employees and creating a family like bonds and behavior among employees. They inculcate flexibility and discretion within the organizations.
     
  • Adhocracy or Create: These are entrepreneurial and energetic culture that are inclined towards taking risks and harnessing innovation. They are highly conscious towards differentiation and adopt a flexible approach (Brophy, 2013).

Costco Wholesale religiously follows the clan organizational culture. The company highly values its employees and has created a high performing team by encouraging flexibility, teamwork and providing autonomy. They are highly concerned about the growth and well being of their employee and offer them competitive packages and provide them with an exciting and diversified workplace. They have a unique business model where the priority is given to the customers and the employees. They empower their employees to participate in the decision making process and communicates with them directly. They invest in training of their employees so that they are updated with the latest technologies and learn and develop their skills. The company has developed strong loyalty among its employees due to its concern for them. The company is flexible and shares a very easygoing attitude in terms of work environment. They offer great heath benefits to the employees ('ZINO DAVIDOFF SA v. A & G IMPORTS LTD LEVI STRAUSS & CO. AND LEVI STRAUSS (UK) LTD v. TESCO STORES, TESCO PLC AND COSTCO WHOLESALE UK LTD (JOINED CASES C-414/99, C-415/99 AND C-416/99)', 2002). The company firmly follows its four strong values. They are obeying the law, taking care of the customer’s and employees and practice intelligent loss of sales. Therefore the company enjoys high productivity and low employee turnover rate. They are the preferred employers by many of the employees.

 

3: Company Analysis

Introduction to Costco Wholesale

Costco is an international warehouse club chain for its only American members. They seek to bring quality products at lowest price than its competitors to its customers. They have around 700 warehouses around the world and in the second largest retailer in the world. It follows a unique business model. It was established in 1976 as a Price Club in San Diego, California. They provide a wide selection of convenience products and merchandise to its customer (Costco.com, 2015). They have solid technical potential and connected with its customers through online shopping sites and social media platforms. They have come up with innovative technologies such as predicting the sale and making suggestions to the consumer by using the Smartphone’s data. They have always worked towards providing utmost convenience to its customers and taking care of all their queries.

SWOT Analysis of Costco Wholesale

Strengths:

  • Ability to provide low cost products to the customers as bulk buying reduces the expenditures of the company (Chang, 2012). Costco have always aimed at providing its customers the optimum quality products at highly competitive prices. The company tries to gain profit in the long run by creating a perception among consumers that they are “the best quality at lowest price” sellers, this has in turn created a strong and large base of loyal consumers for Costco. For this they have foregone the short term profit and offer the lowest price of the products than its competitors. This perception of “low price” motivates them consumer to make a repurchase with Costco as they believe that they are getting best prices for a wide variety for products to choose from.
     
  • Since Costco continuously strive to provide best quality at lowest prices, they enjoy strong brand loyalty among its customers. This has enabled Costco to increase its consumer base while improving its market share in the long run.
     
  • Costco has maintained the loyal and dedicated workforce and they have a high retention rate of knowledgeable employees. The employees at Costco are highly satisfied with their jobs and take pride in working for them as the company takes good care of them. The employee of Costco receives high salaries and company also provides many fringe benefits such as best medical insurance etc.This is one reason that they have the lowest turnover rate in the industry.
     
  • They have diversified the portfolio of products and services, offering private labels at lower prices than competitors, easy and swift return policy for customers which attracts and retains the customers.
     
  • Their unique business model, good technical and innovative capabilities, strong management and ethical practices and efficient interiors reduces costs
 

Weakness:

  • Huge network of setups across various regions which hinders the smooth implementation of any change in the process. Also since they make use of participative style of decision making and the managers very meticulously evaluate all the alternatives, this becomes a long process. This tedious process hinders the ability of the company to take instant decision in case on occurrence of sudden change or uncertain events.
     
  • Little marketing efforts have restricted the company to completely reach out to all its potential customers.
     
  • Costco is highly dependent on its North American consumer base and businesses. 87% of the total sales of Costco came from Canada and US in 2014. Costco is highly dependent on the markets of California which alone represented 32% of its sales in 2013. Therefore, if there is any uncertain occurrence of events in these regions which could lead to decline in demand, significantly affects the sales and profitability of the company.
     
  • Another major weakness for Costco was the consumer base of the company is skewed towards the older baby boomers.Therefore, as they age their spending pattern changes and mostly they begin to spend less. Thus the company should focus on attracting young customers who are tech savvy and frequently shop online.

Opportunities:

  • They can enter into new emerging markets to increase their market share by strategically acquiring small business and further develop its distribution channel and increase its efficiency.
     
  • They can also undertake aggressive marketing strategy to increase their visibility by investing into advertising their products and services (Hanna, 2013). Increased visibility will fetch them more consumers which again in turn increase their market share and boost their sales and revenue in the long run.
     
  • They have started attracting younger crowd generally who falls in the age group of 19-34. Since they tend to spend more and try to buy products at lowest price, they have the potential to become a long term consumers for the company. Costco has also started Google Express and InstaCart which has, made shopping easier for the younger crowd as they generally do online shopping due to time constraints. They offers better quality products and private label brands in the apparel segment. They have started using promotion tools to increase its visibility. Since this age group is highly conscious about their health, Costco have started offering organic food range to appeal to this consumer base.
     
  • Costco has been planning for expansion in both domestic and international market. They are currently operating with 670 warehouses and plans to expand their operations to 1200 warehouses in the long run. They have already started expanding its operation is Spain and planning to further open new outlets in France too. They are also targeting at the emerging economies like China as it has huge untapped potential and Costco take advantage of this huge opportunity to increase its market share and consumer base.

Threats:

  • Intense competition in the discount warehouse industry is one the major threat faced by Costco. There are many other operators who provide the warehouse services to the consumers of Canada and US. They compete on quality, product range, and price. The major competitor for Costco is BJ’s Wholesale Club and Sam’s Club. Since Costco operates internationally, it faces competition from at the global, regional and national level from different retailers and wholesalers. Other super markets, departmental stores, specialty stores, super centers, gas stations and internet giants are other sources from where the company faces direct competition. A major competitor is Wal-Mart who doesn’t require a membership and another one is Target who competes in the apparel category.
     
  • The surge in internet retailers like Amazon is also posing substantial threat for Costco as they too offer quality product at low prices and their supply chain is unbeatable. Therefore the company needs a solid strategy to be able to cope with this cut throat competitors in order to enjoy the benefits in the long run.
     
  • political instability in various countries leads to changing of labor laws which makes it even more difficult for the company to source talented and skilled employee
     
  • High dependence on availability of quality suppliers is a major threat to the company. They have a network of domestic and international suppliers and they seek to provide quality products to the consumer, any delay from supplier side can ruin their image
 

External Factors impacting decision

There many external factors like labor laws, political and economic conditions of a country, availability of quality supplier, intense competition (Brunner, 2013), rapid technological development and availability of skilled workforce impact the decision making process of Costco Wholesale.

Possible future scenario for Costco Wholesale

The company has the potential to inflate its market share by engaging into marketing efforts (Kim & Choi, 2007). There is a possibility if increasing their margins and grow through online sales and expand its stores through acquisitions and enter into new markets.

Recommendations

  • They can enhance their e-commerce sites and address the security issues faced by the consumers. They can also update its technologies. To increase their consumer base they can offer free deliveries and other promotional offers to them
     
  • They should invest in advertisement and engage in other marketing efforts to increase their visibility and reach its full potential

Conclusion

It can be concluded that overall the company is doing well with its optimum management policies and loyal employee and customer base. They are continuously striving to offer wide range of quality products at lowest prices to the customers. However, they have opportunities to expand their operations and increase their revenues by engaging in marketing efforts. The company follows ethical practices across the board and thus the future of the company is bright.

 

Reference List

Argyris, C. (2012). Organizational traps. Oxford: Oxford University Press.

Brophy, A. (2013). The Financial Times guide to lean. Harlow, England: Pearson.

Brunner, M. (2013). Wholesale price discrimination with interdependent retailers. OR Spectrum, 35(4), 1009-1037. doi:10.1007/s00291-013-0326-7

Chang, B. (2012). Channel strategies, product types, and performance in the US retail industry.International Journal Of Electronic Marketing And Retailing, 5(2), 110. doi:10.1504/ijemr.2012.051030

Costco.com, 2. (2015). Welcome to Costco Wholesale. Costco.com. Retrieved 17 July 2015, from https://www.costco.com

Faccio, M. (2015). Service spare parts versus production parts: a centralised or decentralised warehouse?. International Journal Of Logistics Systems And Management, 20(4), 516. doi:10.1504/ijlsm.2015.068491

Hanna, J. (2013). Real-world application of MedsCheck opportunities: The Costco pharmacists intervention trial for reduction of cardiovascular risk. Canadian Pharmacists Journal / Revue Des Pharmaciens Du Canada, 146(6), 325-328. doi:10.1177/1715163513506831

Kim, S., & Choi, S. (2007). The role of warehouse club membership fee in retail competition. Journal Of Retailing, 83(2), 171-181. doi:10.1016/j.jretai.2006.04.001

Kury, T. (2015). The impact of coordination on wholesale market participation: The case of the U.S. electricity industry. Utilities Policy, 32, 38-44. doi:10.1016/j.jup.2014.12.005

Petrakos, G., Maier, G., & Gorzelak, G. (2000). Integration and transition in Europe. New York: Routledge.

Shih, S., Yu, S., & Yen, F. (2015). How Does Costco Win Customer Satisfaction: A Case Study of the South of Taiwan. JOEBM, 3(3), 360-363. doi:10.7763/joebm.2015.v3.210

ZINO DAVIDOFF SA v. A & G IMPORTS LTD LEVI STRAUSS & CO. AND LEVI STRAUSS (UK) LTD v. TESCO STORES, TESCO PLC AND COSTCO WHOLESALE UK LTD (JOINED CASES C-414/99, C-415/99 AND C-416/99). (2002). Reports Of Patent, Design And Trade Mark Cases, 119(10), 403-418. doi:10.1093/rpc/2002rpc20

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