Paper on The Organizational Structure of COSTCO Wholesale

Introduction

Globalization has enhanced the industry of business and commerce significantly. The phenomenon has enabled organizations across the world to operate beyond national borders. However, while it has created an avenue for enterprises to grow, the rise of globalization has posed significant challenges to businesses seeking to gain authority on the international platform (Ihan & Durmaz, 2015). These problems include political risk, accounting problems, government regulations, and cultural issues. Therefore, it is essential for a corporation to take into account numerous strategic aspects before and after it commits to international commerce. COSTCO Wholesale is one of the successful multinational companies across the world. The multi-billion dollar global retailer has a presence in eight countries, namely the United States, Canada, UK, Japan, Australia, Korea, Mexico, and Taiwan (COSTCO, 2018). The organization, which operates on a warehouse club membership plan, has achieved tremendous success in the global marketplace. Its profile is complemented by recognition from Washington CEO Magazine as being among the best three organizations to work for in Washington (COSTCO, 2018). The organizational structure of COSTCO is one of the factors that has led to its success in the global business arena. While it has viable expansion approaches the organization can explore alternative growth strategies to fast-track its development.

The Organizational Structure

COSTCO’s management is outstanding. The company’s objective, according to its vision statement, is to provide, “a place where efficient buying and operating practices give members access to unmatched saving” (COSTCO, 2018). In line with this vision, the firm’s management solely focuses on a weak matrix organizational structure that features functional grouping, which is the primary element, and geographical divisions, the secondary element (LinkedIn Corporation, 2018). According to Griffins, (2015), as cited by the LinkedIn Corporation, a functional group is permanent and established by a corporation to accomplish various organizational needs in an unspecified period (2018). COSTCO’s functional groups are determined by their business functions. The biggest functional groups include Human Resources and Task Management, Development, and Operations. These groups aim to deliver efficiency due to the collaboration of the same skilled employees. Other functional groups include Accounting, Legal, Finance, Construction, and Information Systems.

The company capitalizes on geographical divisions to achieve its goals on the international scale. Friend, (2016) as cited by LinkedIn Corporation, states that geographical division is a strategy employed by the management to create a functional system across various geographical locations (2018). COSTCO’s numerous geographic divisions in eight countries give the company an upper hand in dealing with subtle differences in the volatile marketplace. The company is in a good position to adjust to different market conditions in various conditions. For instance, the firm can quickly shift to selling winter gear in cold season in the US Midwest division.

COSTCO has emerged successfully on the international scale by implementing the weak matrix organizational structure. This organizational design, through the functional groups, enables the introduction of new policies at the corporate level that is applied to various geographic divisions (LinkedIn Corporation, 2018). The structure primarily works to manage the chain of command effectively. The firm has established three minimal levels of management to drive efficiency and effectiveness. According to the hierarchy, these stages include the President and Chief Officer, held by Craig Jelinek, vice presidents of different functional groups, and presidents of geographical divisions. These minimal layers of management inspire employee productivity and morale because employees have few managers to report to and can directly contact one manager for answers on specific issues. Mr. Jelinek’s duty is to ensure the company adheres to its mission statement, which, according to Jelinek, encourages members to take care of the employees and in turn reward the stakeholders (LinkedIn Corporation, 2018). Departments like Operations, Accounting, and Human Resources are headed by functional managers while the geographic division managers perform their tasks at their designated locations.

Planning and Strategic Management

The strategic management at COSTCO focuses on operational efficiency, as well as meeting specific customer needs. Planned change is pivotal in business continuation and success. Since the US market is entirely saturated, COSTCO looks to reap the benefits of globalization from its international markets. The enterprise strives to offer clients what they want through a product offering including insurance, mortgages and insurance sales (Thompson, 2017). Low cost is another driving force of success at the multinational corporation. Retailers sell in bulk to offer the desired low prices. According to Berman, in LinkedIn Corporation, (2018), low-cost retailers generally use strategies such as focusing on only one or two market segments, offering one benefit better than the opponent and delivering the basic product. These are strategies that COSTCO employs to lower retailing costs.

Managing Human Resource

COSTCO has a unique way of managing its employees. Since its inception, the organization has demonstrated an undying commitment to treat its workforce well. For instance, its staff enjoys health insurance and 410k retirement plan (COSTCO, 2018). The human resources are only required to pay 8% of their premium cost, which satisfies employees and promotes their retention in the process. Human resource has played a major role in crystallizing COSTCO’s brand name on the global scale. The company pays its workers better compared to other companies in the same field, which helps it to attract diverse talents that equally commit to achieving the goal of the company.

Operation Productivity and Quality

Operational productivity is basically the ability of managers to convert resources into sales. High productivity is a reflection of high operational efficiency, which is COSTCO’s trademark. For instance, performing ground level operations in an unfinished warehouse reduces expenses without altering customer appeal.

Social Responsibility

Social responsibility involves organizational operations that aim at benefiting the community in which a company operates. COSTCO is committed to the welfare of communities in which it operates. Firstly, the firm provides a living wage for its employees and offers services such as healthcare insurance. It also actively participates in community initiatives by donating funds to charities. Lastly, it demonstrates its commitment to the society by engaging in activities that help to minimize environmental issues, including pollution, climate change, and global warming (Thompson, 2017). The company ensures that its processes do not emit too much carbon and it has innovative measures such as the new packaging of cashews, which reduced 600 outbound trucks annually, therefore, reduce emission.

Alternative International Expansion Strategies for COSTCO

Market Penetration

Market penetration is a process that involves marketing of existing products in the same market segment (Tiemin & Jie, 2008). The process increases market share. COSTCO can apply market penetration by lowering the prices of the products that have minimal differentiation. This strategy is convenient because it will enable the enterprise to invest fewer resources in the marketing of the said products.

Market Expansion

The market expansion growth strategy, also called market development, involves selling the existing products in new markets. For instance, when competition is too high in a given market segment, a company may consider expanding into a new market to achieve growth. COSTCO can introduce its insurance product offering to a new market segment to increase sales and consequently, profits. Moving to new markets will not only deliver sales growth but also grant COSTCO the opportunity to access a new talent pool hence organizational growth.

Diversification Strategies

Essentially, the diversification strategies involve the sale of fresh products and services in novel markets. The approaches feature horizontal diversification, which is the sale of new products to previously explored markets; vertical diversification, in which a company sells new products to a section of its suppliers; and concentric diversion, which is the establishment of new products or services that have similar technological or commercial features to existing ones (Tiemin & Jie, 2008). COSTCO can develop an assembling factory since it already sells automobile accessories. Doing so will expand its market; therefore, increase sales and profits. Diversification is a very risky strategy because it involves new products and markets of which an organization has little or no knowledge. Consequently, it is essential to conduct marketing research to determine the buying power of the new target consumers. The tactic will provide COSTCO with a competitive advantage over its opponents. Indeed, developing new products that are different from the opponents’ provides the enterprise with a first-mover advantage that gives it room to establish strong brand awareness.

 

 

 

 

References

Ilhan, A. & Durmaz, Y. (2015, Nov 10). Growth Strategies in Businesses and a Theoretical Approach. International Journal of Business and Management. (10)4. pp.210-14. Retrieved from https://www.researchgate.net/publication/283644997_Growth_Strategies_in_Businesses_and_A_Theoretical_Approach

Tiemin, W. & Zhou, J. (2008, March). Strategic Choices of Firms in Expanding Overseas Business. Frontiers of Business Research in China. (2)1. pp. 67-97. Retrieved from https://link.springer.com/article/10.1007/s11782-008-0005-8

COSTCO. (2018). COSTCO wholesale. About Us. Retrieved from https://www.costco.com/about.html

LinkedIn Corporation. (2018). Organizational structure of COSTCO wholesale. LinkedIn. Retrieved from https://www.slideshare.net/DrewChristensen2/costco-67732372

Thompson, A. (2017, Feb 6). COSTCO wholesale’s organizational structure analysis. Panmore Institute, Business, Management. Retrieved from http://panmore.com/costco-wholesale-organizational-structure-analysis