James Walton and Walmart to merge Price

James Carter

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Case
Study for: Costco

 

Synopsis/Executive
Summary

            The purpose of this case study is to analyze the
challenges for Costco going forward, and to suggest solutions to these problems,
primarily revolving around Costco’s commitment to maintaining their company
culture, which is centered on achieving customer satisfaction and profits
through maintaining high employee job satisfaction from the bottom up, and
keeping a commitment to corporate social responsibility in the face

            Costco Wholesale Corporation, is the largest American membership-only
warehouse club.  As of 2015, Costco was
the second largest retailer in the world after Walmart. Costco’s worldwide
headquarters are in Issaquah, Washington, but the company opened its first
warehouse in nearby Seattle in 1983. Through mergers, Costco’s corporate
history dates back to 1976, when its former competitor Price Club was founded
in San Diego, California. As of September 1, 2017, Costco had a total of 741
warehouses; In the United States (514), Canada (97), Mexico (37), United
Kingdom (28), Japan (26), South Korea (13), Taiwan (13), Australia (9), Spain
(2), Iceland (1) and one in France (1). Costco opened its first warehouse in
Seattle, Washington, on September 15, 1983, by James (Jim) Sinegal and Jeffrey
H. Brotman. Sinegal had started in wholesale distribution by working for Sol
Price at FedMart and Brotman, an attorney from an old Seattle retailing family,
had also been involved in retail distribution from an early age. In 1993,
Costco and Price Club agreed to merge operations themselves after Price
declined an offer from Sam Walton and Walmart to merge Price Club with their
warehouse store chain, Sam’s Club. Costco’s business model and size were
similar to those of Price Club, which made the merger more natural for both
companies. The combined company took the name PriceCostco, and memberships
became universal, meaning that a Price Club member could use their membership
to shop at Costco and vice versa. PriceCostco boasted 206 locations generating
$16 billion in annual sales. PriceCostco was initially led by executives from
both companies, but then the Price brothers soon left the company in 1994 to
form Price Enterprises, a warehouse club chain in Central America and the
Caribbean unrelated to the current Costco. In 1997, the company changed its
name to Costco Wholesale Corporation and all remaining Price Club locations
were rebranded as Costco.

            Costco’s reputation for high ethical standards and
self-regulation has come up against myriad problems, ranging from complaints
about a lack of notification for management job openings to persistent
complaints of a glass-ceiling that provides few opportunities for the
advancement of women within the organization. In addition, there are
international issues where opportunities for expansion run up against local
needs, such as in the case of Cuernavaca, Mexico.

            The findings were that moral leadership has come to
characterize Costco and its senior management, with business decisions based on
strictly financial terms taking a back seat to success based on broader
criteria. For the future, the forecast appears positive, but there will always
be questions about what changes might take place now that Sinegal has stepped down
as CEO, such as whether future executives will be willing to maintain Costco’s
relatively flat salary structure, and whether globalization will affect the
corporate culture.           

            The theory that most applies correlates to Chapter 10 of
the Daft textbook: Organizational Culture and Ethical Values, specifically
issues related to internal integration, power relationships, advantages and
disadvantages of maintaining a “clan” variety of corporate culture,
values-based leadership, and corporate social responsibility.

 

Findings

.           The main problems noted in the case include a lack of
notification for management position openings, a glass-ceiling for women, and
adjusting to local concerns regarding international expansion.

            In regards to the domestic/internal/employee related
issues, Costco instituted online job postings, automated recruiting, the use of
an outside vendor for hiring, and a recommitment to equity in promotion.

            As far as applicable theory goes, to start, these changes
were an attempt to change the Costco culture’s internal integration, which is about members of an organization
developing a collective identity and understanding how to work together
effectively. It is also an example of maintaining a commitment to the
established culture regarding power
relationships, which at Costco is very much based on the executives and top
management being responsive to the needs and wants of employees, in this case
specifically regarding the opportunity of those employees to begin to move towards
top management levels themselves. In so doing, Costco is reaffirming their
commitment to a type of company culture that is most accurately categorized,
broadly speaking, as a clan culture,
as they focus on meeting the needs of employees as the route to high
performance. Furthermore, they are an excellent example of values-based leadership. Leaders at Costco believe values of taking
a long-term view and treating people humanely are just good business.

            As far as their international issues go, in regards to
the specific example of Cuernavaca, Mexico, Costco set aside millions of
dollars to preserve landscape, restore murals, and work alongside city planners
and representatives of the Mexican Institute of Fine Arts & Literature in
the building of a state-of-the-art cultural center and museum. This is an
excellent example of corporate social
responsibility. It is also an example of conscious capitalism, by dovetailing the economic success of the
company with advancing the economic and social conditions of the communities in
which they operate, not just in the U.S., but abroad as well.

 

Discussion

            The major problems are: making sure all employees feel
that they have ample opportunities for advancement, particularly women, and
expanding into communities in countries around the world while minimizing
and/or mitigating the amount of disruption in those communities.

            A potential alternate solution to the issue of people
saying that there was not significant notification for management position
openings would be to, in addition to online job postings, make it convenient
and easy for employees to sign up for email alerts, so they can be notified
almost to the moment a new position opens up. If everyone is notified of an
opening immediately, and at the same time as everyone else, far fewer people
will claim to be disadvantaged by the lead-time factor. The only disadvantage
of this would be whatever cost is incurred in setting up and maintaining that
system, which should not be prohibitive.

            Some possible alternate solutions for the glass-ceiling
problem include: updating evaluation criteria to eliminate bias and encouraging
mentoring relationships. These, as with many issues involving the glass
ceiling, are complicated and nuanced. It has been suggested that a system for
promotions that is predicated on seeking out the most qualified and offering
the position, as opposed to choosing only from those who are actively seeking
it, in light of our current understanding of how gender roles affect people’s
behavior, would result in women in the future getting a higher percentage of
promotions, particularly to upper management, then they are currently
receiving. The potential disadvantage of this would be that those in position
to promote people to upper management positions would likely find this a major
adjustment, and would initially have a more difficult time in feeling confident
that they have chosen the best candidate.

 

Conclusion

            In summary, Costco’s commitment to maintaining the
company culture that got them this far presents them with many challenges.
Those challenges are largely based off of our expanding collective
understanding of what meeting the needs of employees and local communities, in
addition to customers and shareholders, really means in a comprehensive fashion.
Internally, this has manifested most recently with employees generally, and
women specifically, expressing the feeling that seeking opportunities for
advancement have not been nearly as straightforward as they had originally
believed when they first started working for Costco. Internationally, there is
concern in many communities that Costco’s expansion there may threaten to,
intentional on the part of Costco or not, essentially erase a portion of their
local history or culture. Their response to the internal issues has been to
take efforts to ensures that their promotion opportunities are widely known and
presented in a format that is easily accessible to all, and they have taken
efforts to do eliminate bias in the process of how someone climbs the corporate
ladder, particularly any gender bias that may be effecting decisions regarding
upper management.

 

Recommendations

            As far as all of the possible solutions for the problem
of notification of management openings, I believe that posting them online in a
way that is easy and convenient for all to access is a good first step,
although I also believe that email notifications should also be sent out as
soon as there is an opening. I think of the emails I get from the College of
Business Administration about upcoming internship opportunities, and I am
certain that I have been made aware of more openings than I would have if had
simply been informed of where to go to look for them, as I always check any new
emails any time I am on any device, but I only go looking for information that
I am already thinking of.

            With respect to the issue of the glass ceiling, as I said
before, this is a bit more complicated, as this is far from just a Costco
issue. In fact, it seems to be an “everybody” problem. The solution, as much as
one is possible, seems to lie in having structures and systems in place within
the organization that combat the biases that all people come to a company with,
deeply ingrained by their upbringing and the culture around them. As I
mentioned before, it has been suggested that the guidelines used by most
companies for evaluating who gets a raise and who gets promoted need to be
rethought in light of the fact that they may be inherently biased towards what
has been traditionally viewed as “masculine” behaviors. Combatting this
requires virtually everyone to completely rethink the “squeaky wheel gets the
grease” aspect of both raises and promotions, so that neither comes about as a
result of aggressive negotiation. Encouraging mentorship, particularly emphasizing
the mentoring of subordinates who are female, is another way to mitigate the
“glass ceiling” effect, as recommendations for future promotion to upper
management come from those who are the current upper management, and
familiarity or lack thereof with the particular candidates plays a major role.
Involving third party companies with these decisions could further mitigate the
familiarity effect.

            In regards to the multitude of local issues that are
arising in their various areas of global expansion, exemplified by the case of
Cuernavaca, Mexico, I think their approach to corporate social responsibility
is very much on-point. Using Cuernavaca as an example, it may have saved them
some money in the long run to invest in more research ahead of time on local
public sentiment regarding the specific location of interest, but I am not
certain that a different conclusion would have been reached, as the investment
in preserving local art, history, and culture seems to be the exact right way
to attempt to maintain a high level of corporate social responsibility and
practice conscious capitalism.

 

Implementation

            Costco should implement a system where any new job
opening, for any level, is emailed to all employees, connected directly to the
site page on the website where the openings are posted for anyone to look up.
This should be overseen by Paul Moulton, Chief Information Officer &
Executive VP, as well as Franz Lazarus, Executive VP – Administration &
Human Resources, and implemented as soon as possible.

 They should also work to completely revamp
their guidelines and processes for fostering and encouraging employee
advancement, especially in regards to how it is that people are able to advance
to the highest levels, focusing on making sure that female employees are
included in the kinds of informal mentoring that helps shepherd subordinates up
through the ranks, and deemphasizing those “aggressive negotiation” and
“squeaky wheel” aspects of who gets consideration for promotion. This is such a
deep-seated problem in American corporate culture, it likely requires some
serious level of involvement from many of the top executives, beginning with
CEO Walter Jelinek, CFO Richard Galanti, Senior VP & General Counsel John
Sullivan, but most likely primarily overseen by HR Executive VP Franz. Much
more so than the first issue, this needs to be addressed in a “yesterday, if
not sooner,” fashion.  

Going
forward dealing with expanding and opening new locations globally, their
strategy of making sure to invest in preservation of local art, history, and
culture, is a good strategy, and one they might want to expand on, overseen by
Senior Vice President of International Operations Roger Campbell. The timetable
for this is, as I understand it, already ongoing.

 

 

 

 

 

 

 

 

 

References

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“COSTCO WHOLESALE CORPORATION Company
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Chesley, Frank (June 6, 2007).
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20, 2012.

Sol Price; John Helyar; Ann Harrington
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“Costco, Form SC 13E4, Filing Date
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“PriceCostco Company History”.
FundingUniverse

Fishman, M. (2011, August 04). 6 Ways To
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