An Internal Value Analysis Essay
Costco operates in one of the most competitive segment in the US economy: the retail industry. The company which started out in Seattle has developed a name in the wholesale retail industry and is arguably the leading wholesaler in the US. Costco’s ability to identify opportunities has never been in doubt for the company became the first in US history to move from practically zero sales to over 3 billion in a space of less than 72 months (Bolman and Deal 113). This is a reflection of an organization that is appreciative of opportunities that exist in its operational environment and has taken steps to harness them. The strategies that it employs are quite different from Sam’s which is its major competitor. This deferential approach has played an important part in the levels of competitive advantage that the company has gained in recent years; it is also a reflection of its ability to deal with threats.
Despite Sam’s having more warehouse than Costco, the later has a large sales volume. This is a reflection of a company that is appreciative of competition and has taken measures or strategies that are different from its competitors to generate value and seek its vision. In 2006, Costco was rated the best company in customer satisfaction index; a true depiction of a company that is concerned about meeting the expectations and needs of its market which is one of the key goals in strategic planning.
Costco’s policy of not carrying multiple brands has played a role in the high sales that the organization records and the low marketing costs involved. This is a low cost strategy to attaining capital funds. It is further important to note that the company has an all in one website that addresses nearly all the information and service needs of customers, members and investors. This is an effective strategy that increases the levels of contact that the organization has with its stakeholder and other citizens. In recent times there has been an increase in awareness on the cost of energy; Costco took steps to develop an internal system that regulates light within their warehouses to reduce on unnecessary power usage (Adamson and Andrew 98). This reflects on Costco’s information awareness and ability to determine areas that it can use to generate value thus gain an edge over its competitors.
In general, the organization has a strong general administration that has been central to the levels of success it has attained and relevance of its strategies to the nature of the operational environment. This is a key strength that the organization will have to harness if it is to continue within the same levels of operational success. It is however worth noting that the approach that the organization employs is quite costly and in need of innovation and highly qualified or experienced personnel that come at a high cost.
Human Resource Management
A notable feature of Costco’s approach to human resource management is that a majority of its staff are non unionized. The system is such that the non-union locations revise their employee agreement after 36 months under union contract ratification which also involve collective bargaining agreements. These are quite similar to union contract for they clearly show employee benefits, wages, paid holidays, seniority, bonuses and even compensations. Costco is tipped to have a health insurance cover for over 85% of its employees a figure that none of their competitors is close to achieving (Ander and Stern 43).
Furthermore, Costco is among the top three best organization to work in based on the cover they provide their employee, benefits and opportunities for personal and professional development that the organization offer to its employees. The training systems are mainly internal and are mostly centered in areas of customer relationship management and ethics; the rewards systems are considered central to the levels of recognition they have attained; though trade unions are non existent, the contracts are developed in a manner that they provide employees with the space required to air their grievances. Costco’s mention in the top three organizations to work for in Washington is a reflection of the levels of motivation and job satisfaction that it offers to its employees. In general, the organization has managed to employ a differential approach that ensures the needs and expectations of its human resource are addressed. This should be built on to develop a reputation that is important in competing in any segment. On the other hand, increase in insurance costs and personal expenses of employees due to the unbecoming economic conditions is more than likely to be reflected in the organization’s operational costs which may increase considerably.
Costco has taken steps to develop an interior system that regulates light within their warehouses to reduce on unnecessary power usage (Costco 2009). Moreover, the warehouse has a fully fledged e-commerce unity that uses a number of internationally recognized debit and credit cards. This is a reflection of timeliness of technology and considerable levels of innovation. Research and development workers are given the same freedoms and benefits that define Costco workers thus the environment is generally innovation friendly. It is important to note that the e-commerce segment has played an important part in increasing the sales of Costco and so has technology; however, the cost that comes with this appreciation especially in ensuring technology and providing training is quite high.
Costco engages in multiple areas of operations and this has played an important part in multiplicity of suppliers that it displays. Moreover, the organization appears to be affiliated with some of the best suppliers and base its supplying needs on quality as seen in the quality that its repackaged Kirkland products offer. According to the executive manager, most supply deals are medium and long term depending on the relationship between Costco and the suppliers (Costco 2009). Most decisions are either based on the quality that the suppliers can offer and the reputation that the supplier has in the segment they operate in. It is evident that Costco is aware of the need to develop good relationship with the suppliers and the effect of quality of suppliers on perceived and attained quality of its products. This is important in developing good relationship though the measures that it employs in determining suppliers may reduce the number of suppliers they can seeks or even have access to.
Each and every unit has a warehouse where repackaging is done. It is important to note that as much as the products are sold in bulk, they have to be stored and repackaged. The warehouses employ numerous high technology systems to ensure that the quality of the supplies and even inventory is maintained. The approach is quite costly in ensuring proper management and provision of required infrastructure though it plays a role in ensuring that quality is retained.
Compared to Sam’s, Costco employs almost similar equipment and automation of processes. This is mainly due to the freeness of technology and players’ appreciation of the role automation plays in ensuring efficiency and reducing operational costs (Spector 45). However, there is a key difference between he production control systems and efficiency of the work flow design. In general the work flow systems is designed in a manner that leads to reduced costs of operations and is central to the low prices that Costco offers to its market. Read also IFE matrix of Coca-Cola
Most supplies are repackaged in smaller bags and presented to customers via retail store outlets or private delivery trucks. Others are however repackaged and rebranded before being presented to the markets. The delivery trucks can reach every home or organization address within US in a time that depends on the nearest outlet from the customer (Spector 99). The trucks are quite efficient considering the good infrastructure in the nations Costco operates in thought the same cannot be said in delivering perishables and sensitive products. Moreover, members have the option of coming into an outlet and seeking the products or services; some services are even open to non-members. Finished products are housed within the same efficient warehousing facilities as supplies. Explicit use of trucks in delivery reduces the flexibility of Costco though it increases availability of their services across the US, Canada and UK.
Marketing and Sales
Costco’s policy of not carrying multiple brands has played a role in the high sales that the organization records and the low marketing costs involved in its operations. An area that has been cited as having played an important part in the high sales that Costco reports is the relatively low prices of its products (Adamson and Andrew 65). This is a reflection of a through understanding of the market segment that it operates in that is only possible with proper research. The food court approach to offering foods is an alternate distribution channel that is reflective of the levels of innovation that Costco is capable of. The mention of the organizations among the ones with high levels of customer satisfaction and the best to work for are a result of well developed and implemented strategies that sought to develop a reputation of quality. The formulation of Kirkland as a brand name sought to develop a clear differentiation of Costco’s brand which has also played an important part in increasing its sales (Spector 73). The marketing and sales approaches are appreciative of strategic management principles and are thus effective in ensuring high levels of performance though this comes at a cost that is not permissive of failure in the undertakings.
This is one of the key areas that Costco has established itself as a market leader. Costco offers guarantees for nearly all their products with full refund if the products are returned. It also offer customers with free information on use of products to minimize the risk of products being returned due to ignorance on use; moreover, the company does not accept food stamps and deals in other convenience services like foods, liquor and pharmacy services that are also open for nonmembers. Costco services especially those relating to customer relationship management are its strong point and have been perfected with time; it is however worth noting that as much as the effective customer relationship management approaches have played a part in the levels of competitive advantage that the organization has attained, the cost involved is quite high.
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In general, Costco’s internal systems which have been developed with a keen eye on the nature of the operational environment, trends in the industry, nature of markets and available technology have been central to the levels of success that it has attained. It is noteworthy that the complexity of the internal systems and their need for efficiency has made its operations quite costly which reduces returns in operations. Costco should continue operating within the same systems while seeking approaches that would reduce its costs of operations through innovation and creativity.