Enterprise Level Strategy
Costco is a leading American wholesale corporation. It operates as a warehouse club that offers a variety of goods and services to its members. The organization’s mission is to offer high quality goods and services to its members on a continuous basis.
To achieve this objective, the corporation seeks to offer its members a variety of goods and services. The merchandise is nationally branded. The company also stocks a collection of goods supplied by private labels (Stacey, 2011).
Costco has four major classes of stakeholders. They include the shareholders, the management, the employees, and members. The stakeholders work in collaboration to promote the success of the enterprise (Herman, Frost & Kurz, 2009).
Costco’s shareholders are mainly interested in increasing the profitability. They achieve this by encouraging and supporting the formulation of strategies that seek to increase revenue generation. They are also interested in earning high dividends from increased profitability. They seek to see their business rise to be the leading membership warehouse in the world (Stacey, 2011).
At Costco, the vision of the management team is to continually improve the experience of their clientele. The objective is achieved through the provision of quality products at low prices. To achieve this objective, the management has put in place a number of measures aimed at increasing inventory turnover.
The measures are aimed at enhancing the efficiency of the firm. Some of the strategies include volume purchasing from established suppliers. Others include establishing self-service systems within their warehouses. In addition, the management has reduced merchandise handling in the company’s storage facilities to drive down cost of operation.
As such, Costco operates more profitably than most traditional wholesalers, supercenters, and supermarkets (Stacey, 2011). As a result of rapid inventory turnover, Costco receives payment before compensating vendors. As a result, it benefits from the early payment discounts as it settles its obligations to the vendors.
By 2006, Costco had close to 71,000 permanent and 56,000 part-time employees. It is one of the most competent workforces in the industry. The employees are committed to the success of the enterprise. Their commitment can be attributed to the generous compensation and benefits offered by the employer.
The employees care for the corporation’s members. As a result, the company maintains customer loyalty. Consequently, inventory turnover is increased. The workforce also moves large amounts of stock on behalf of its employer. In addition, the employees advise the management on the situation on the ground (Stacey, 2011). As such, future policies address these issues to enhance efficiency.
Costco has a large number of affluent members, who are its customers (Herman et al., 2009). They have an average annual income of close to $75,000. 30 percent of them have an income of over $100,000.
They are highly concerned with the quality and prices of products. They are interested in high quality products and efficient systems. As such, the organization has invested heavily in improving the quality of services. However, it still offers lower prices compared to competitors.
Organizational Culture Type
There are a number of factors that influence an organization’s culture (Pearce & Robinson, 2003). They include the history of the organization, nature of the market, values, visions, and technology.
Costco’s organizational culture is based on five key concepts. One of them is adherence to the law. Others entail safeguarding the wellbeing of members and improving relationships with suppliers. Finally, the organization appreciates its workforce and rewards its owners.
The organization operates in full compliance of the laws and values of surrounding communities. As such, it attracts more members to increase profits. The corporation has membership for business owners and individuals. It offers a variety of merchandise to its members while paying keen attention to quality. At the same time, prices for commodities are kept lower compared to other enterprises in the market.
The corporation also offers competitive compensation for its workforce (Senge, Smith, Kruschwitz, Laur & Schely, 2008). They are also offered an enabling working environment. The organization treats suppliers as partners. It honors its commitments to them. Stockholders are appreciated through dividends. Workers who exhibit exemplary performance are rewarded through promotion and bonuses.
Integrated Concepts from Readings, Evidence, and Implications
Costco’s main goal is to increase its inventory turnover. Stakeholders have come up with strategies geared towards this. There is a significant link between organizational culture and level strategies put in place. A number of concepts can be used to analyze this relationship. They include systems thinking, learning organizations, and double loop learning (Pearce & Robinson, 2003).
Systems thinking helps in understand how things within an organization influence one another. It highlights internal structures. It analyzes the processes that work together for an organization to be healthy or unhealthy. In the case of Costco, enterprise level strategies are connected to its organizational culture.
Together, they work as a system, contributing to the success of the organization. For example, the strategy to provide high quality products is in line with the culture of caring for members. The strategy by employees to increase volume of stock is in tandem with the culture of rewarding shareholders.
There is also the concept of learning in entities. Businesses in competitive markets should continually evolve to edge out rivals (Meadows, 2008). Costco has evolved rapidly to increase sales volume. Initially, it only sold goods to affluent customers with a given social status.
However, this has changed. The entity has come up with different classes of members. The classes include executive members, who are mainly individuals. There are also business and gold star classes. The strategy has enabled the organization to increase its inventory turnover without changing its status as a club warehouse (Meadows, 2008).
The concept of double-loop learning entails identifying and solving problems at the organizational level. It can result in the emergence of other problems (Meadows, 2008). In Costco, the need to increase inventory turnover may adversely affect its structure.
The corporation is seen to change from a club warehouse to a retail outlet. Increasing profitability can also result in rise in prices. Offering membership to less affluent members may upset the status-quo, leading to the loss of the initial customer base.
General Force Analysis: External – Remote Environment
In Costco, there are forces in the external environment that affect players in the membership club retail and wholesale enterprises.
General Force Matrix Analysis
The most common trend in the industry is cutbacks in consumer spending on home based products. It is a threat. Its timeframe is immediate. It is paramount to put in place the necessary measures sooner than later (Epstein, 2008).
Many organizations have invested heavily in technology. Most of these technologies are aimed at reducing the cost of lighting. Two of the major energy technologies associated with lighting that have in recent times been used extensively include light meters and skylights.
The meters measure intensity of light and determine whether additional lighting is required or not. The energy technologies help organizations to cut down on their cost of operations (Demars, 2007).
Demographics, social, and culture
Another major trend in the industry is a rapid rise in the world’s middle-class population. Currently, the size of the middle class population across the world is at 2 billion persons. It is expected to grow to over 3.2 billion by 2020. By 2030 it will be approximately 4.9 billion (Stacey, 2011). The trend means that the purchasing power of people will significantly increase. Enterprises operating in the industry will be able to grow their inventory turnover.
Government, legal, and military
Increased government regulations are important to the industry (Demars, 2007). In some cases, governments come up with strict regulations on the sale of some commodities, such as alcohol. The increased regulations pose a threat to enterprises operating in the industry as it hinders business.
Increasing urbanization means that enterprises in the industry mainly serve the urban population. The reason why they are situated in urban centers is that these regions provide the customer base required for growth (Fisher, 2009). Urbanization will continue to grow in the coming years. It is estimated that 64 percent and 86 percent of the world population in developing and developed countries, respectively, will be residing in urban centers by 2050.
Implications, Threats, and Opportunities of GFA
Porter’s Five Forces Industry Analysis: External– Industry Environment
The forces have a profound effect on the performance of the organizations working within the industry (Alange & Steiber, 2009). In the case of the industry where Costco operates, there are a variety of opportunities and threats.
One opportunity includes the presence of energy technologies associated with lighting. The technology reduces operating costs. It reduces the manpower required to control lighting. The opportunity ranked second is the rise of the world’s middle-class population. It increases the purchasing power of the population, helping firms to be more profitable (Fiksel, 2009).
The major threat is cutbacks in consumer spending on home based products. The trend is economics related. It reduces profitability (Glenn & Gordon, 2009). Inventory turnover also tends to reduce, negatively impacting on their success. The second threat is increased government regulations. It is a government related force. It hinders entry into the industry.
Five Forces Matrix Analysis
The framework is based on the economics of industrial organizations (IO) through the analysis of its micro environment (Fisher, 2009). It comprises of three forces arising as a result of horizontal competition (Epstein, 2008).
The remaining two are as a result of vertical competition. The former include threat of substitutes, threat of entry of new players, and threat of established competitors. Forces arising from vertical competition include the bargaining power of customers and suppliers.
Barriers to entry
The main barrier is economies of scale. It is a threat to new entrants. Firms must sell in large volumes to remain profitable (Epstein, 2008). The barrier is an opportunity for Costco since it is already well established with many stores around the world.
Most substitutes are offered by the organization’s main competitors, Sam’s Club and BJ’s Wholesale Club. They are both membership clubs.
They offer their products at flexible prices. For example, membership for BJ’s Wholesale Club costs $50 compared to $55 at Costco. Sam’s Club stocks goods that are similar to those at Costco. Substitutes are a threat (Epstein, 2008).
Bargaining power of suppliers
It is another important element. It is low. It is an opportunity to Costco. They are required to sell at low prices. It allows the enterprises operating in the industry to also sell at low prices and remain profitable (Stacey, 2011). Enterprises also buy in bulk from the suppliers, enabling them to get huge discounts.
Bargaining power of buyers
It is medium. It is both a threat and an opportunity. Businesses sell at considerably lower prices compared to other wholesalers and retailers (Fiksel, 2009). However, there is stiff competition between players, which leads to further reduction of prices and profits.
Sam’s Club and BJ’s Wholesale Club are Costco’s major rivals. They are both top Club stalls in the country. Both have experienced rapid growth in the recent past. Their business concepts are similar to Costco’s (Epstein, 2008).
Implications, Threats, and Opportunities of Porter’s Five Forces
There are two major opportunities for Costco. Economies of scale are one (Demars, 2007). Since the organization operates on a large-scale, it is able to remain profitable even after lowering prices. Other smaller enterprises are also locked out of the industry. The bargaining capabilities of supplying agents are reduced. It is a key opportunity. Threats include substitutes and competition.
Detailed Value Chain Analysis: Internal Environment
Customized Value Chain of Activities in Table Form
Value Chain Analysis
|Business Process||Costco||Sam’s Club||BJ’s Wholesale Club|
|Management||Highly effective and efficient||Strength||Strength|
|R&D||Constantly adding value to brand through R&D||Strength||Strength|
|HR||Good care for workers and numerous benefits||Strength||Strength|
|Procurement||Procures a wide variety of merchandise that are nationally branded or from selected private labels||Strength||Strength|
|Inbound logistics||Minimal handling of supplies to lower operational costs.||Strength||Strength|
|Operations||Costco is large, which makes coordination of operations difficult||Weakness||Weakness|
|Outbound logistics||High inventory turn-over||Strength||Strength|
|Sales||Is the leading Club wholesaler in the US, its main market||Strength||Strength|
|Service||One of Costco’s major cultures is care for members.||Strength||Strength|
Implications of Competitive Analysis
With regards to management, the organization is highly effective and efficient. It is also strong in terms of procurement. It procures a wide variety of merchandise that are nationally branded or from selected private labels. In terms of sales, it is the leading Club wholesaler in the US, its main market. Human resource matters are also handled seriously (Meadows, 2008).
The main weakness is in terms of its operations. Costco is large, making coordination of operations difficult.
In terms of service, one of Costco’s major cultures is care for members. There is also research and development in relation to skills. The organization is constantly adding value to its brand through research and development (Epstein, 2008).
Costco is good at both inbound and outbound logistics. It is associated with minimal handling of supplies to lower operational costs (Epstein, 2008). Costco is also associated with high inventory turn-over.
Detailed SWOT Analysis
SWOT Factor Matrix
The Pair-wise framework is used to match the various elements of the analysis.
Highly effective and efficient management will help formulate strategies to take advantage of the rise of the world’s middle-class population (Epstein, 2008). Costco procures a wide variety of merchandise that is nationally branded or from selected private labels. As such, it can easily acquire the energy technology associated with lighting to drive down cost of operation.
Costco procures a wide variety of merchandise that is nationally branded or from selected private labels. As such, it is able to deal with the threat of cutbacks in consumer spending through diversification. The organization also takes good care of workers. As such, it is able to deal with the increased government regulations in the industry, especially those associated with labor laws (Fiksel, 2009).
Costco is large, which makes coordination of operations difficult. However, technologies, such as light indicators and skylights, will help the organization ease its operations.
The size of the organization makes it hard to coordinate operations. Coupled with the threat of increased government regulations and cutbacks in consumer spending, the organization effective and efficient management has to develop strategies to steer the enterprise to success (Meadows, 2008).
Key Success Factor Analysis
Costco’s success lies in its skills and capabilities. One of its major cultures is care for its members, which increases customer loyalty and inventory turn-over (Herman et al. 2009). The organization constantly adds value to its brand through research and development. It has devised strategies that have helped it to be good at inbound and outbound logistics. It also engages in minimal handling of supplies to lower operational costs.
Analyzing the Company Strategy Type
Costco is currently pursuing a low-cost strategy. The strategy is in line with its mission ‘to constantly provide members with high quality goods and services at considerably lower prices’. Low prices have helped the company edge out competitors from the industry (Stacey, 2011).
Action Plan Analysis
Costco should increase its capacity to procure a wide variety of merchandise that is nationally branded or from selected private labels to create diversity for the growing middle-class population (Herman et al., 2009). The organization is also good at both inbound and outbound logistics. As such, it can acquire and operate energy technology associated with lighting.
Costco must seek for separation strategies to avoid overcrowding in the industry. It can achieve this through diversification. Its alignment strategy should place it at the top of the industry, probably through increased inventory turn-over. Its cohesion strategy should keep it in line with competitors.
Industry Evolution Modeling
The organization should streamline operations (Stacey, 2011). Costco is a large organization, a situation that has made it difficult to coordinate activities.
Life Cycle Assessment
Costco’s activities help in environmental conservation. Customers are expected to come up with their own packaging materials, which encourages recycling.
Sustainable Value Framework Analysis
The framework uses the four quadrant analysis to analyze sustainability.
Detailed Analysis of All Four Quadrants
Sustainable value framework
|External||Strategy: bargain for discounts with suppliers to lower cost of supplies. |
Payoff: Increased profitability.
|Strategy: Acquire suppliers to cut down on costs |
Payoff: increased profitability.
|Internal||Strategy: Improving coordination between various enterprises run by Costco. |
Payoff: Ease of operations.
|Strategy: Restructuring the organization’s management framework. |
Payoff: Improved performance following better coordination of activities.
Costco is an American wholesale corporation that sells its products to members. It is operated as a members’ only club. Its success today lies in its strengths and opportunities.
As a result of its large size, it is able to buy supplies in bulk and sell at lower prices compared to competitors. The organization also has an effective and efficient management framework that helps in the making of sound policies. Its workforce is also committed to providing care for customers.
Alange, S., & Steiber, A. (2009). The board’s role in sustaining major organizational change: An empirical analysis of three change programs. International Journal of Quality and Service Sciences, 1, 280-293.
Demars, C. (2007). Organizational change theories: A synthesis. Thousand Oaks, CA: Sage.
Epstein, M. (2008). Making sustainability work: Best practices in managing and measuring corporate social, environmental, and economic impacts. San Francisco, CA: Berrett-Koehler.
Fiksel, J. (2009). Design for environment: A guide to sustainable product development (2nd ed.). New York, NY: McGraw-Hill.
Fisher, L. (2009). The perfect swarm: The science of complexity in everyday life. New York, NY: Perseus.
Glenn, J., & Gordon, T. (2009). 2009 State of the future. Washington, DC: The Millennium Project.
Herman, M., Frost, M., & Kurz, R. (2009). Wargaming for leaders: Strategic decision making from the battlefield to the boardroom. New York, NY: McGraw-Hill.
Meadows, D. (2008). Thinking in systems: A primer. White River Junction, VT: Chelsea Green Publishing Company.
Pearce, J., & Robinson, R. (2003). Strategic management: Formulation, implementation, and control. Boston, MA: McGraw-Hill.
Senge, P., Smith, B., Kruschwitz, N., Laur, J., & Schely, S. (2008). The necessary revolution: How individuals and organizations are working together to create a sustainable world. New York, NY: Doubleday.
Stacey, R. (2011). Strategic management and organizational dynamics: The challenge of complexity. London: FT Prentice-Hall.
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