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Costco Company’s Business Diversity, Ethics, Leadership Essay

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Updated: Jul 22nd, 2021

Introduction

Costco Wholesalers is a corporation that began over 25 years ago when a duo chose the entrepreneurship route as an inspiration to become the top 500 exclusive global retailers. The company rose from a single unit in 1983 to a multicultural and enormously profitable global enterprise it is today. Colleagues and investors would easily dismiss the dreams of co-founders James Sinegal and Jeffrey Brotman for the reason of failing to follow the conventional and counter-intuitive strategies. This paper forms an analysis of Costco Company, particularly business diversity, ethics and leadership styles as some of the aspects of company prosperity.

Background Study

James Sinegal and Jeffrey Brotman chose their venture but critics almost certainly advised the two to think about other options. Today, the determination and commitment of these Iconoclastic entrepreneurs is an outstanding paradigm. It is also a source of envy for many upcoming retailers whose wish is to reach their standards or outperform Costco Wholesale Corporation. The competitors fail to realize that Costco’s success is attributable to the ability and conventional wisdom of the two entrepreneurs.

The company implemented unique strategies, such as availing a narrow range of products to retail at the lowest prices possible. Their aim was to capture most and enjoy enormous but diminutive profit margins from the sales (Simchi-Levi et al, p.143). The firm is also outstanding for its superior ethical standards especially in catering for the employees who receive hefty rewards in terms of wages and healthcare allowances equitable to their input efforts and outcome. Currently, people acknowledge the founders for establishing an excellent membership warehouse club.

Costco Ltd headquarters is in Issaquah, Washington but the firm chain stores exists in over 488 places globally since the co-founders came up with a low-price retail store next to the main store. The outstanding growth projects Costco’s annual sales approximate to $50 billion from its 125, 000 well-compensated members of staff. Currently, the warehouse ranks at fourth largest global retailer (Simchi-Levi et al, p.143). The prosperity of Costco limited is attributable to the pioneering procedures by the co-founders and their exemplary unique style of leadership in this dynamic retail-business world.

One of the outstanding aspects of Costco Ltd is its perfected warehouse club. The business entity came into plan from the 1970’s when a youthful Jim Sinegal learnt the importance of a “High-volume, low-Price” trade secret that was initially a business formula of his mentor, Sol Price’s (initiator of California retailer Price Club). Sinegal would later move out of Price Club to collaborate with Brotman and launch a competitive Costco Ltd.

The two clubs eventually merged in 1993 but Sinegal’s concept of “getting the right product, in the right place for the right price,” incarcerated Price Club (Simchi-Levi et al, p.144). Even though other retail stores like Wal-Mart have almost a similar low prising and clients targeting strategy, the Costco’s retail strategy and price management concept makes the warehouses more admirable and preferred treasure hunt for customers.

Leadership

Most firms today have failed to search and find the right form of leadership. Generally, contemporary prospective companies have abolished the traditional styles of leadership or administration to develop the employees’ trust and participation for better performance. Trust is a pre-requisite leadership aspect that requires leaders to depict concern as well as care for the subordinates, and equally find apprehension for their business thoughts (Heifetz, p.18).

Good leadership also honours commitment to ensure achievement of any pronounced plans. Respect for the subordinate’s opinions is an inevitable aspect of leadership in which case the leader respond to all recommendations and employees’ requests amicably and respectably owing to the fact that differences of opinion is an eminent sign of progress and chance to capture strategies that can enhance business growth. A key management approach utilized by Costco company to mobilize better and faster sales includes ensuring that each of the stores has a flat, fast and flexible managerial style.

This calls for appointment of a chief executive officer and manager for each warehouse. Treating each warehouse as a mini-corporation promotes independence over the merchandising decisions by allowing each branch to focus upon customer’s needs, which might be unique from other locations. This is also an important factor because junior members of staff are able to voice their concerns depending on the mission, consumer demands, sales and inventory distribution information. The company has unique style of management that focuses on empowering, motivating and training its employees instead of the traditional style of ‘command-and-control.’

A successful leader has a set of values that subordinates identify with and clients can easily connect to, such as courageousness, reliability, integrity, competence, honesty, altruism, and fairness. Employees are only able to access these leadership traits through close interaction with their leaders. Being close to the warehouses operations, by spending majority of his time visiting warehouses casually, assists Sinegal to monitor and remain acquitted with the right styles of management to enhance business growth (Simchi-Levi et al, p.144).

Sinegal action is an obvious indication that a prospective leader must be a figurehead and a person who is able to handle disturbances. A sales manager must check on positioning of products, replenishing actions, sales details and more importantly whether the employees share knowledge to solve business difficulties (Daft, p.47). Sinegal’s management style clearly point’s outs the importance of “MBWA” management style, meaning “management-by-walking-around” which enhances trust, strong interactive bond and loyalty between the leaders and subordinates.

According to Bennett (p.383), consumer and employee’s trust are business aspects that act like a pillar running through various aspects of guidance thus ensuring business success. Consistency, commitment, endurance and patience are important values that successful leadership requires, since people often take considerable amount of time to trust and honestly support a unique style of leadership.

Traditionally, managers were dominant figures in firms but today there is a huge difference between leadership and management. The differences often befall supremacy of service delivery. A manager value results while leaders value relationships among members. There is high regard over positions in management while this is not evident in leadership as evident in the case of Costco (Simchi-Levi et al, p.145).

The leaders take reputable high risks compared to managers. They are personal, caring and avoid copying the administrative rules especially of competitors (Bennett, p.383). On the other hand, traditional style of management often conform to existing rules and desires to ensure protection of leadership positions by often opposing or challenging change. This makes leaders more innovative and ready to change for the better (Daft, p.47).

A manager can simultaneously be a successful leader. Good leaders are inspiring and motivate co-workers as opposed to functionally analyzing, evaluating and solving problems from personal standpoints. Unless a leader is ready to embrace this kind or governance, then the leadership style cannot deliver anticipated performance levels. The performance of Costco Ltd clearly shows the importance of motivational and benevolent style of leadership in a firm (Simchi-Levi et al, p.144).

The staff also ought to get good remuneration in form of benefits and wages as a measure of ensuring high performance levels and low turnovers. According to Simchi-Levi et al (p.145), Costco has the best productivity and employee loyalty because of the unique qualities such as implementation of strategies that ensure winning in retail business. The management also enhances flexibility in the firm through commendable unique leading, organizing, controlling, planning and innovative styles of administration.

Excellence of a firm depends on ability to have good solid knowledge and approaches to combat and demand differences as well as engage continuous and alternative choices in various countries that steers organization forward in terms of development (Bennett, p.384). Every person or social group has a unique demand and employees ought to be in a position of assisting the leader to read a market situation and come up with the most appropriate leadership strategies to combat a situation. This is the only right and most appropriate procedures for business growth because it enables involved groups to fit the competency level.

Diversification

Leadership styles have a close connection to behavior. In the assessment of a group’s leadership needs, there is need to translate skills as well as communicative behaviors. If a leader finds that a certain group needs strong guidance, it is then wise to suggest different directions and make different assignments. The director must also find, balance and supporting viable member’s thoughts/decisions.

Leaders can enhance diversity through teamwork, motivation, interactive form of communication and acceptance of different personalities. The connection between group members brings about cooperation and unique styles of effectively solving group problem thus making the group to be more effective (Bennett, p.384). A good or efficient group only requires a small, early but strong guidance to become and remain productive.

Today the issue of performance has a strong basis upon organizational policies and procedures as opposed to only the leadership qualities. The nature of firms’ rules or regulations helps in establishing the significance of a task and the importance of ensuring good results. People are naturally opposed to rules that hinder their freedom and policies that are strenuous during performance. The most important element of performance is therefore ability to resolve internal conflicts through diversified leadership styles because disagreements hugely affect team performance. Leaders have the role of facilitating the behavioural change that assists in moulding individual trails into teams, to achieve the set goals.

Beside diversification of governance styles in a firm, advancing business in a diversified manner also requires ability to have a long-term business growth plan. A firm must have strategic plans that enhance lasting ambitions for instance, Costco Ltd was able to utilize delivery of quality goods at lowest prices possible and thus achieve 500 chain warehouses internationally in 25 years. That was an average annual growth of 20 warehouses (Simchi-Levi et al, p.144).

Achievement of goals boosts the morale or aggressiveness to achieve even better targets. A retailer business requires proper enhancement of storefronts in diverse locations, in the aim of increasing revenues and profit margins through attraction of potential clients. Strategic planning for expansion requires a strategized identification of a market niche or attractive site for the new venture, keeping in mind the consumer needs or client’s demands. A best business strategy at one location might be extremely unworthy for another, thus need to perform feasibility study before a venture.

A diversified advancement may also call for prototyping, in which case generation of revenue is not as important as need to find the right future investments demographics. The success of most marketing firms highly depends on designating some investments on a testing lab to find market capabilities (Daft, p.35). New businesses often begin from such prototype warehouses and advance through the expansion plans, for instance the current auxiliary Costco business (Simchi-Levi et al, p.145).

Diversification also allows the managers to note the potential business rivals or outside threats to the firm’s continuity plans. Seeing the kind of diversity one has made over the years motivates and enhances more dynamism for better performances. Creativity has no end because whenever a firm accomplishes the set business goals, new and more creative plans emanate, thus the origin of progressive prosperity.

Ethics

Ethical form of leadership requires governance through considerations of various aspects such as age, gender, performance, experience and energy differences, characterized by emphasis of good relations. An ethical leader is a good listener who is approachable and friendly. Her/his style of governance is open and enlists mental trust among those involved. Business ethics is ability to engage employees’ behaviours that direct performance to financial prosperity and growth through clear definition of goals, structure and style of execution (Heifetz, p.18).

Today innovation brings about enormous challenges and complexity in the entrepreneurship world; therefore, of a manager to succeed, it is crucial to identify the international consumer trends to develop an ethical form of leadership culture and ensure effective and balanced overall management of multiple operational environments. There are diverse and often conflicting demands by consumers, stakeholders, investors and employees that a firm must balance. This means that a good entrepreneur must be in a position to balance all these demands.

In line with Simchi-Levi et al (p.145), transformation of a firm from the start-up point to the multinational level requires patience, clear vision, energetic drive and perseverance of the entrepreneur. Costco Wholesalers Ltd is a perfect example of a firm with entrepreneurial impetus and a leader guided by set ethical principles as well as priorities. Costco has a five-point form/code of ethics indicating that for the company to achieve the goals of presenting customers with quality goods and services at the least prices possible as per the demand, Costco must first ensure obedience of the law. They must then be obliged to caring and respecting customers, employees and suppliers.

According to the firm’s code of ethics, observing the four critical points assists in accomplishing the fifth and overall code namely ensuring appropriate reward for employees and shareholders. Clear business values, culture and believe must accompany ethical codes of management and performance. One of the most outstanding ethical management codes of Costco Ltd is its liberal yet comparative form of compensation. Happiness of the workers emanates from the rewards they receive for their hard work. Happy workers are able to deliver work that is more productive.

A major ethical responsibility for entrepreneurs is ensuring that employees have a pro-work wage policy that enhances business good sense. Good remunerations attract quality workers who often remain in the firm for longer, it is a long-term investment and thus a benefit to the firm. Ethically justifiable form of payment is also very important. Ability to attract and retain better, more productive and loyal employees depends on how well a business is able to cultivate human resources. Most current firms have neglected this critical aspect of finding lifetime personnel to enhancing long-term business growth. On analysis of Costco firm, one of their stronghold and most innovative business strategy lies on their ability to develop an empowered and loyal labour force in their retailing business.

They ensure employee quality by having interviews and hiring process from a team of the executives made of regional and local managers, instead of the human resource department or outsourced recruiters. They then assign mentors to the newly hired personnel to ensure clear orientation of firm’s ethics, policies and culture. The whole recruitment process therefore occurs on a tight budget as per the firm’s operability philosophy. Good investment on human labour is not altruism but business intelligence to find best productivity. How would it feel to have few workers who are producing more than competing rival firms and are willing to work longer? It all depends on the remuneration packages. Ability to retain employees is also a way of saving due to minimized auxiliary expenditures such as recruitment expenses.

Contrary, Costco’s high-ranking employees in the hierarchical table are not the highly paid; in fact, statistics indicates that they are among the lowest paid executives (Simchi-Levi et al, p.145). The mangers ensure that their payment policies have a justifiable distribution of resources and lacks disparities. Ethically most firms have unfair form and wrong form of payment where some subordinates make up to 300 times lower than the managers they ought to work with as teammates.

The best and most ethical form of governance involves egalitarianism where the culture of all-inclusiveness and proportionality is vital. The welcoming format of management at Costco Ltd is a good example indicating that ethically, the manager must enhance a welcoming atmosphere for employees’ point of view. The most important and crucial and valuable assets of a firm are its employees. Business ethics faces various challenges such as accusations of lapses such as promotion strategies, cultural and environmental insensitivity but comprehensible business ethics enables the leaders to clear accusations easily.

As an ethical measure of ensuring quality leadership, most of Costco managers rise up the hierarchical ladder within the firm. The appointment to a managerial post depends on performance achievements, knowledge, and talent. One must also have smart skills of merchandising, extra efforts, experience and love for entrepreneurship. Diversity on the managerial post is equally important. Low prices of products should not compromise on the employees’ wages, the managers must cut cost elsewhere to compensate product pricing and ensure high sales volume for ample revenues.

Conclusion

Ethical leaderships call for principled responsibilities and reactions. In Mexico, when Costco faced accusations of ignoring the cultural heritage and nature during its expansion plans, the management spent extra resources to provide a museum and cultural centre. This was a measure of supporting the natural resources as well as building better relationship with the clients (Simchi-Levi et al, p.145). This clearly shows that it is not wise to measure business endeavours by analysis of monetary achievements only. It is important to analyze creation of better values for the customer, efficiency and relevance of transactions.

Costco enjoys the top retailer positions along with Wal-Mart, Home Depot and Target among others, due to its whole selling strategy, enhancing brand names for merchandise and delivery of high quality products at the lowest prices possible. In its effort of being the top warehouse club, Costco implements the one-stop-shop where customers can access various services and products for instance gas, furniture, pharmaceutical products, drive through car wash services and a variety of other products or services among others, which contribute approximately 12% of its annual sales (Simchi-Levi et al, p.145). They are also able to incorporate private brands along the national brands such as the Kirkland signature products to assists their growth. With the right strategies, the company is able to offer something extra that other competitors may be lacking.

Works Cited

Bennett, Anthony. The Big Book of Marketing. New York: McGraw-Hill Publisher, 2009. Print.

Daft, Mike. Management. Kentucky: Cengage Learning South-Western, 2010. Print.

Heifetz, Ronald. Leadership without Easy Answers. London: Harvard University Press, 2004. Print.

Simchi-Levi, David. Kaminsky Philip and Simchi-Levi Edith. Designing and managing the supply chain: concepts, strategies, and case studies. New York: McGraw-Hill Publisher, 2003. Print.

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