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MGMT 7935 Leadership in Business

Published : 12-Oct,2021  |  Views : 10

Question:

1. Explain the success of Costco in terms of the following three determinants and relate it toliterature:
a. Employee commitment
b. Decision making, and
c. Strategic management
2. Use literature to explain how Costco can provide higher compensation and benefits to its employees and still be competitive with its competitors.
3. Select 1 leadership theory to analyse the behaviour of the CEO and describe his influence on the company

Answer:

Introduction

Costco is a membership warehouse club, it helps in giving to the members the best prices and quality branded merchandise products. Jim Sinegal founder of Costco defined the company’s goals as, giving the customer the best value” in price and product. Costco, has various stores located worldwide, it provides a wide collection of merchandise. It has convenient speciality department which gives exclusive services to members for services such as health, investments, mortgages, travel, automobile, and many more. Costco is thus a retailer with a multi-billion dollar retails located throughout many of the Countries (Flammer, 2015).

Despite Costco’s impressive size, it consistently provides an atmosphere in which employees thrive, and shopping experience exceeds the need of customers.  

Success of Costco in terms of the following determinants and relate it to

  1. Employee Commitment

Costco primary marketing object is to provide its members with a memorable shopping experience. They aim to provide a wide range of quality merchandise at a price that it consistently lower than its competitors – a strategy that will lead to increased membership and revenue.  Costco’s advertising is limited to spending by giving coupons to existing members

The CEO maintains a good lasting relationship with all their employees’ customers and vendors. The vendors have their products stocked at Costco; in large result to the massive number of units Costco is able to sell. (Hill, Jones & Schilling, 2014).  

The employee turnover rate of the employee of the company is very low. The company maintains a low cost and high wages. The organization is focused that the productivity of both the employees and the asst is very crucial and it reduces their operating cost. They have dedicated their efforts to eliminate those which hamper the employee productivity therefore it increases a high level of employee commitment towards he organization and values.

The short duration of working hours that is from 10am in the morning till 8.30 pm at night. Their minimal over- and under-stocks saves labour. In the US, the retail is closed on seven holidays that is on New Year's Day, Easter; Memorial Day, July 4th, Labour Day, Thanks giving day and Christmas which serve as a employee benefit and it makes them sustain and committed towards the organization (Huddleston et al.,2016).

Costco is committed to promoting from within the company. The majority of their current management team members are home grown. It therefore helps the organization for ample opportunities for personal and career growth. 

  1. Strategic Management

Strengths

Pricing: Costco’s greatest strength is its ability to provide quality products low pricing to its members.  This strength direction corresponds to the customer loyalty.  Costco’s product and pricing mix, increases satisfaction, as well as the number of return and new customers. Costco has its gasoline business which draws the members to the warehouses; their gas prices are consistently lower than their competitions.

Brand Loyalty: Costco has constantly offered to its customer’s high-quality merchandise at a low price that attracted loyal customer base. This helps the company to grow in its market share in the thereby helping to increase their customer base throughout the years.

Weakness

Costco’s performance is largely dependent on the sales and revenue in North America.  In 2014, the sales of U.S. and Canada are 87% of Costco’s sales total.  The company is dependent on the sales in California, which is 32% of sales for the United States. As a result, a significant decreased in sales in California could significantly and negatively impact the company’s sales (Brea?Solís, Casadesus?Masanell & Grifell?Tatjé, 2015).

Opportunities

Costco plans to expand domestically and internationally. Costco currently has 671 warehouses.  In the next few years, however, Costco anticipates opening 30-35 new warehouses, with the majority being location internationally. Recently, Costco expanded into Spain; plans to expand into France are underway.

Threats

As previously mentioned, the warehouse industry is very competitive.  They pose a threat to Costco, and force Costco to keep their prices competitive.  Internet retailers like Amazon, while not direct competitors of Costco, offer a wide range of low-cost product and free shipping options that are hard to beat. 

The Kirkland’s brand offers a wide variety of products and fiercely competes with top-brands, by offering a comparable product 10- 20% cheaper (Boone & Kurtz, 2013).

Costco receives bulk merchandise directly from the manufacturer before they are required to pay for them.   This factor allows for minimal mark-up in pricing.

  1. Decision Making

The organization follows many strategy and decision making tools to improve and grow in the market. The company provide quality products to their customers at a very low cost. It follows a different decision tools for their members who is divided in two classes that is individual and the business. They make scheme so that they are able to retain the loyal customers therefore they provide membership card benefits (Huang, Huang & Tzeng 2016).

The companies’ innovation, design and packaging for their products are very good and this makes the items very appealing to the customers. The design is environmentally sound and thus it helps in repackaging wrapping their product.

The organization follows the Product Life Cycle which can vary from product to product. A product usually remains in Costco as long as it is profitable and selling at a good rate.

  1. Place

As of December 2014, Costco owned and operated 671 warehouses which is spread in 43 states.

  1. Price

Costco’s aggressively buys from select vendors and sell in volume, which drives the cost down for members (Luo, Kanuri & Andrews, 2014). Costco does not mark up their items more than 14%; although the supermarkets and department stores often mark up their goods by 25% to 50%.

  1. Promotion

Costco’s promotional offers are distributed in the form of coupon mailers, the Costco Connection managing, and emails to members promoting merchandise. 

How Costco can provide higher compensation and benefits to its employees and still be competitive with its competitors.

Employee Compensation plays a major role so as to attract the employee talent in the organization. A compensation strategy is followed by large organization in order to attract the people who are willing to give best services, thus it helps it helps the organization to build a strong team of talented people.

Compensation is a factor which shows that the organization values the employee. Costco maintains a compensation strategy which is updated with the current market data and it is competitive for the employee. Compensation and benefits are one of the main reason for which the employee works in an organization. Employee turnover plays a real threat in the growth of the company. Maintaining a fair compensation strategy plays an important role in retention of the employees in the organization. Due to the bonuses, benefits and incentives and increases in the pay the top performers do not leave the organization (Slocum, Lei & Buller, 2014).

In today World, talent is the top most competitive advantage, thus the compensation structure is vital so as to retain those talent in the organization. Costco updates their data according to the job grades, individual data and therefore plan compensation benefits. As the top tier talent in the market has become very competitive it became vital for Costco to enhance stronger offers to their employees.

The last aspect of Costco’s compensation strategy is to create a long lasting motivated team of loyal workers. Costco does this by offering generous salary packages, time off for holidays, and hours that promote a work-life balance for employee. Additionally, Costco promotes from within, allowing cashiers to advance to managerial positions.

These offerings will increase workplace morale.

  • End executive partnership with American Express:

From nearly 15 years, American Express has been the only credit card accepted at Costco.  Partnering with other credit card provides, such as Visa, Discover, and MasterCard, will give Costco a direct pipeline to a much wider pool of consumers.  As of the end of 2014, there were more than 304 million visa credit are in circulation, far greater than the 55 million American Express cardholders (Bowie, 2017). Utilizing several credit card carriers, will appeal to the impulse buyers; buyer will be able to put items they wish to purchase, but do not necessarily have expendable cash, on credit.  Accepting multiple credit card carriers would likely increase the sales of the company.

  • Expansion

Costco’s U.S. sales are too dependent on California. By expanding, both nationally and internationally, Costco can reduce its dependency on California.  The factors such as demography, economic growth, the political risk, human rights and the sustainability should be analyzed (Osterman,2017).

  • Offer trial passes

Currently, only BJ’s and Sams Club offer trial memberships or one-day shopping passes to prospective memberships.  Costco should institute a similar trial or limited shopping pass to new member.  A driver’s license can be used to track issuance of trials.  Such a marketing measure can be instituted for little to no expense to Costco, since they are already sending targeted mailers to prospective members (Butler et al., 2016).

Costco to motivate and retain their employee

Costco has high level of employee motivation and commitment and therefore they are compensated very well. The employee in the Costco has a very high level of motivation. They are motivated and therefore give suggestion to the organization to improve their stores and product mix so as to increase their creativity. The employees in the organization makes plan with the organization on a regular basis in order to improve their customer service.

The employees in Costco are well trained so that they can be eco friendly and helpful whenever he customers approach them. The employees in the store help the customers to locate the place (Kaufman, 2015). These things help the company to maintain a competitive position in the market and therefore compete with the rest of the competitors such as Wall mart

The company keep a very low and standard cost for the products and it concentrates on serving quality products to their customers. The CEO of the company is very humble and he gave more importance on the credit of his employee who he thinks played a major role in contributing to the success of the organization. The most important thing is that he understands the value of talented people working in the organization and he offers various benefits and incentives to retain them (Valente, Dredge & Lohmann, 2015).

The leadership theory which is used to analyse the behaviour of CEO and to describe how he influence the company 

Leadership Theories applied in an organization are as follows:

  1. Trait Theory

This type of theory is based on the characteristics and behaviour of the individual. The behaviours of the leader reflect their intellect and they are open to changes, extraversion and have attention to detail and sincerity.

  1. Transactional Theory

As per the theory the leaders have set goals for the individual in the organization so that they are able to assess the performances and reward or punish them according to their performance (Adams, 2013).

  1. Transformational Theory

 In this type of theory the leaders are able to look upon their actual goal so that they are able to motivate their followers so that they are able to achieve their vision.

  1. Contingency Theory

This theory tells that the leader shall change their theory according to the scenario. Thus there is no such concept of a fixed theory that could be applied when there is a need for a particular situation arise (Adebanwi & Obadare, 2016).

The leadership theory of Servant leadership is used to explain the work of the CEO and its influence over the company

Listening

It is a very effective part of communication. Any person who is not a good listener would not be able to communicate effectively. For being a good communicator it is important to listen what the other person is trying to articulate. As we mention listening it also includes things such as gesture, voice, expression. This non-verbal gestures or signs are something which is very important details that is needed to be understood while communicating with a person. When we mention listening it also includes this gestures or signs (Erakovic et al., 2015). As a person communicates he does not only communicate with only voice but also with his gesture and signals. It is very needed to be understood in order to understand what the person is trying to convey. A good listener has a habit of understanding these tiny details so that they can understand what the other person is trying to communicate and thereby reply accordingly

Empathy

Empathy is one of the most important characteristic amongst several other characteristics that a good communicator posses. When we mention that someone is empathetic, we mean that the person understands the situation of the other person. To understand a person fully or what the person is trying to convey, it is very important to put yourself in the situation of that person, to understand the point of view of the person. Communication is a tricky thing and something which may be conveyed by Mr. X can be inappropriate for Mr. Y where Mr. X thinks it to be appropriate. So it is very important to understand the point of view of a person or the situation through which a person is communicating. A empathetic person understands the problem and situation and tries to put himself or herself in the situation of the other person and then judge or communicate with the person. This makes the communication more effective and makes the person a better communicator (Renz, 2016).

Healing

A leader should understands the difficulties and problems that other are facing and support them accordingly so that it helps them to heal. A supportive leader is been seek by all and it is one of the rarest characteristics that a person posses and this characteristic differentiate the normal person from a leader. Each and every person seeks someone who can offer support and comfort so that it make a situation easier for the followers. It is one of the characteristic of leader to create an environment which is supportive and healing in nature (McVeigh et al., 2016).

Awareness

It is the duty of a leader to understand the details of their follower. They understand what a person is capable of doing or achieve and what kind of values that a person has and according support that person so that the goals can be achieved (Popescu & Predescu, 2016).

Persuasion

A leader carries the characteristic of persuasive in nature. There power to convince and influence is one of the most important characteristics that differentiate them from a general person. They have an assertiveness in their voice and there nature that they can easily persuade and convince people (Reich & Gregory, 2014).

References

Adams, C. (2013). The role of leadership and governance in transformational change towards sustainability. Global Responsibility, (9).

Adebanwi, W., & Obadare, E. (2016). Governance and the Unending Search for Leadership in African Politics. Governance and the Crisis of Rule in Contemporary Africa: Leadership in Transformation, 1.

Boone, L. E., & Kurtz, D. L. (2013). Contemporary marketing. Cengage learning.

Bowie, N. E. (2017). Business ethics: A Kantian perspective. Cambridge University Press.

Brea?Solís, H., Casadesus?Masanell, R., & Grifell?Tatjé, E. (2015). Business model evaluation: quantifying Walmart's sources of advantage. Strategic Entrepreneurship Journal, 9(1), 12-33.

Butler, T. D., Armstrong, C., Ellinger, A., & Franke, G. (2016). Employer trustworthiness, worker pride, and camaraderie as a source of competitive advantage: Evidence from great places to work. Journal of Strategy and Management, 9(3), 322-343.

Erakovic, L., Erakovic, L., Jackson, B., Noonan, C., & Watson, S. (2015). Board leadership and governance for clear-sighted CEO succession at Air New Zealand.

Flammer, C. (2015). Does product market competition foster corporate social responsibility? Evidence from trade liberalization. Strategic Management Journal, 36(10), 1469-1485.

Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated approach. Cengage Learning.

Huddleston, P., Sung, E. C., Minahan, S., & Bianchi, C. (2016). American and Australian Women’s Antecedents to Trust, Commitment and Loyalty to Costco. In Looking Forward, Looking Back: Drawing on the Past to Shape the Future of Marketing (pp. 810-813). Springer, Cham.

Huang, K. W., Huang, J. H., & Tzeng, G. H. (2016). New hybrid multiple attribute decision-making model for improving competence sets: Enhancing a company’s core competitiveness. Sustainability, 8(2), 175.

Kaufman, B. E. (2015). Market competition, HRM, and firm performance: The conventional paradigm critiqued and reformulated. Human Resource Management Review, 25(1), 107-125.

Kaufman, B. E. (2015). Theorising determinants of employee voice: An integrative model across disciplines and levels of analysis. Human Resource Management Journal, 25(1), 19-40.

Luo, X., Kanuri, V. K., & Andrews, M. (2014). How does CEO tenure matter? The mediating role of firm?employee and firm?customer relationships. Strategic Management Journal, 35(4), 492-511.

McVeigh, J., MacLachlan, M., Gilmore, B., McClean, C., Eide, A. H., Mannan, H., & Sprunt, B. (2016). Promoting good policy for leadership and governance of health related rehabilitation: a realist synthesis. Globalization and health, 12(1), 49.

Osterman, P. (2017). In Search of the High Road: Meaning and Evidence. ILR Review, 0019793917738757.

Popescu, G. H., & Predescu, V. (2016). The role of leadership in public health. American Journal of Medical Research, 3(1), 273-273.

Reich, N., & Gregory, L. D. (2014). Direct marketing, as an avenue for fundraising, provides nonprofit organizations with the ability to fulfill their missions and donors the opportunity to support a worthy cause. There are concerns, however, when sophisticated marketing practices target potentially at-risk consumers. Demographic studies clearly show that the percentage of elderly Americans, aged 65 and over, is rising with a corollary... Journal of Consumer Policy, 37(1), 143-145.

Renz, D. O. (2016). The Jossey-Bass handbook of nonprofit leadership and management. John Wiley & Sons.

Slocum, J., Lei, D., & Buller, P. (2014). Executing business strategies through human resource management practices. Organizational Dynamics, 43(2), 73-87.

Valente, F., Dredge, D., & Lohmann, G. (2015). Leadership and governance in regional tourism. Journal of Destination Marketing & Management, 4(2), 127-136.

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