Strategic Management and Leadership Analysis: Costco Case Study

This report provides a detailed analysis of Costco's leadership, strategic management, and competitive advantages. It examines the company's employee commitment, decision-making processes, and cost leadership strategy. The report highlights the importance of employee satisfaction and its impact on customer loyalty and membership renewals. It also explores the charismatic leadership style of former CEO Jim Sinegal, emphasizing his focus on employees, customers, and vendors. The analysis covers Sinegal's leadership qualities, including his communication skills, vision, and ability to inspire employees. Furthermore, the report discusses Costco's approach to job design, emphasizing enrichment and employee development, as well as its focus on maintaining a fully staffed workforce to provide excellent customer service. The report concludes by emphasizing the importance of corporate responsibility and how Costco's high wages and benefits contribute to its competitive advantages and long-term success.

Running head: LEADERSHIP
Strategic management and Leadership analysis: Costco case study
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1LEADERSHIP
Questions
1. a. Employment commitment
Costco is having more than 210,000 employees on a worldwide basis. The company
believes that the path to continue towards growth and success based on the employees. The
attraction for the business of Costco is that the company is successful for the retention and
attraction of the great employees. (Mowday, 2013) ((Costco.com, 2017)
The employees of the Costco believe that the primary factor in the past and future of
business and their employees commitment to the main principles, value, simplicity and fairness
are the main components leading towards the success of the business. The high level of
commitment of employees is due to the intrinsic motivation among the employees of Costco.
The employees are being influenced to suggest ways in order to bring improvements in the
business. The employees are being trained properly so that they can attend the customers in their
store properly. (Noon, 2013)
b. Decision making process
The decision making process of Costco is another important way to determine the
achievement of the business. Firstly, the aim of the business is to attain the highest quality with
the process of reducing costs. The process of the company focuses on efficiency and speed of the
increasing capacity. (Pettigrew, 2014) In its strategic decision, in the area of operation, the main
aim of the company is to manage the effectiveness of the cost. Its wholesale style store has made
its contribution to the objectives. The other decision making process incorporates the selling of
products in the similar stores, the cost of the inventory was reduced. The Products move right
directly from the truck to the sales of the floor (Pettigrew, 2014)
Costco uses the layout of the warhouses for its own stores. The goal of the company in
this particular strategic arena of this management is to decrease the use of extra spaces in the
warehouse.

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c. Strategic management
The strategic management of Costco is the cost leadership. The strategy incorporates
maintaining the possible lowest prices. The retail giants like Walmart uses the same strategy of
cost leadership. The strategy of the Costco combines the warehouse membership in order to
differentiate from the retail firms. ((Costco.com, 2017)
The business of the company is an important factor, which allows Costco to follow its
mission or goals in the long run. In fact, the business aligns with the company’s goals. The study
of the cost leadership under the generic strategy, which is needed to sustain the business model
of Costco. (Hill, 2014)
2. Competitive advantages of Costco
Jim Sinegal, the former CEO of Costco focuses on two important philosophies. The
dearth of the job tittles reflects a philosophy treating the employees equally. He always wanted
both the employees and the customers in the first line of importance. (Barney, 2014) (Wagner III,
2014) The Costco company knows the way not to treat employees harshly by depriving them
from the major benefits. In this regard, it is important to notice that despite the company is
giving high rate of salaries or benefits to the employees, the company managed to retain its
competitive advantages. (Barney, 2014) ((Costco.com, 2017)
The average wage of the employees of Costco is $21 per hour, which is double than the
price of the Walmart company. There are even generous benefits packages for the both part time
and full time employees which incorporate insurance along with the compensation packages. It is
true to be noted that, despite the higher labor costs, the store is performing well and having great
performance of stock. Their compensation strategy follows the concept what you get in the
return for what you pay. (Wagner III, 2014) The concept of paying the employees carries the
meaning that the company able to attract the higher quality workers who are more productive
and loyal than only if their work is replaceable with any minimum retail options of wage. To top
it, positive ambassadors and the employees who are well trained who wants to help the
customers eagerly in order to promote the stores. (Barney, 2014)

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The interesting feature of the website of Costco in website lists the exciting opportunities,
career and personal growth, supportive and friendly environment and the company as well
focuses on the ethics, obeying the corporate laws and offering greater benefits to the employees.
It is evident from here that opportunities, development and growth are the important elements of
the management of workforce. In the arena of the job design, this set an example to set a focus
on the enrichment of the job and also at the same time, attracting customers to their stores.
Assigning or enriching new roles and responsibilities are the ways t challenge the employees so
that they can develop new ways, which would become a principle for the firm to adopt. The
enrichment, which comes through the significance of the task as every employee at every stage,
is highly respected and valued. (Hollensen, 2015). The company as well promotes
communication and feedback between the management and staff. This task significance has to be
high as through this mode of task significance, the ability of the employees to make changes and
suggestions which are based on the contact with the customers to the store. Simply the
enlargement of the job or adding the employees to the current duties is nothing in front of the
enrichment of the job. The company Costco is always determined to keep its stored fully staffed
with workers so that the workers are not overburdened with work and it makes sure that the
customers can receive the helpful and immediate services whenever it is needed.
There are certain degree of specialization in the daily activities. Many employees
function within their particular department: Administration, Deli, Food court, Bakery,
Maintenance, Marketing, Merchandising, Membership and so forth. However, the enrichment
can be realized at the long term by adding variety of the activities of work through utilizing the
different sets of skills in order to complete tasks. (Stead, 2014) The management of the company
states that Costco is being a dynamic company, the employee who is working in an area which is
non food related today, tomorrow he gets promotion and start managing the area of food. The
food certification and safety training enables the employees to gain knowledge and the
employees are needed to be successful enough to into the different departments while the
employees are pursuing their career. The other retail industry faces problems in terms of
employee retention as they start focusing only on the profit of the company instead of looking
into the matters of benefits of the employees. This results to the dissatisfaction of the employees
and start affecting their attitude towards customers. Hence, they start reducing their competitive
advantages in the market area. Costco is only being exception in this field. ((Costco.com, 2017)

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The retail industry in general is having the problem of motivation, which they cannot
provide to their employees. However, over here the Costco stands out to be different. The high
pay, opportunities and respect in terms of advancement combine to build a highly influencing
environment of work. Costco is always dedicated to give recognition and giving rewards to
employees for their loyalty and hard work to their company. Costco is rewarded in return by the
loyal employees’ turnover rate is only 5%. (Hollensen, 2015) (Avolio, 2013) The current CEO
also stated the fact that it is a lot more profitable in the long term of business in order to enhance
the productivity of the employee, loyalty and commitment. Working with the other employees
who are satisfied with the company contributes to a lot more culture build by motivation.
All of these link with the strategy of Costco. The satisfaction of the employees as well
proportionally increases the satisfaction of the customers. The customers who are satisfied start
renewing their membership at a rate of 90% and this membership as a result yields or gets
translated into gains within the business model of Costco. The company has made its
commitment to its philosophy that if the wages are higher, then it increases profit as it is being
exemplified by the surprising tactic of raising the wages during the recession, which took place
in the year 2009. The references of Leadership states about the larger idea of having the
corporate responsibility by stating about the higher pay, if money is put more into the realm of
economy, this in return would create a healthier country. (Dalavagas, 2015) This is quite simple
and this further states about the corporate values of the organization, which forms the part of
their philosophy. In compare to this, the retail stores do not believe in paying their employees
high wages and this resulted to the less retention power of the company. That is why the Costco
rose to the level of competitive advantages and gained in attracting customers to their stores.
Therefore, in this way the company retained its competitive advantages over time. ((Costco.com,
2017)
3. Jim Sinegal and his Charismatic leadership skills
Sinegal, CEO of Costco, shows a strong concern for the employees working under him
and he is considered to be as the dedicated, hardworking and caring. The rules and regulations
that the company followed under him, through this, the firm gained more advantages in the

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market. Therefore, in this context, the charismatic theory would be applicable in order to
describe the characteristics of the leader. (Avolio, 2013) (Mumford, 2013)
The charismatic leadership focuses on the persuasiveness and charm of the power holder
or leader. The leaders are being motivated by the convictions and commitments of their causes.
The leaders are also known as transformational leader as they share various similarities. The
main difference exists is the audience and focus. The charismatic leaders always look forward to
transform organizations into the vision of leader. For example, Dr.Martin Luther King junior was
a charismatic leader who is having strong oratory power and the leader is committed to positive
changes in the lives of the million people. (Mumford, 2013) The charismatic leader are
essentially communicators who are highly skilled and they can able to communicate verbally and
also have the ability to communicate the followers on a deep emotional level. They are the
people who are being identified during the times of crisis and they exhibit their devotion in their
respective fields. The leaders are having clear vision in the business field and have the ability to
engage with a larger audience. Similarly, Sinegal, the former CEO of Costco tries to do what is
best for the customers, vendors and employees. He is as well like a charismatic leader is intended
to not to discourage the buyers of his product once they take risks on the new products.
Employees are always encouraged to think more deeply and out of the box, so that they can
come up with innovative ideas for the company. (Mumford, 2013) (Zehir, 2014)
Sinegal like a Charismatic leader focused on the sensitivity to the company’s
environment and the demands of the needs of the employees and employers, the leader is a
visionary person and always inclined him to take personal risk and believe in using
unconventional behavior. As a charismatic leader, Sinegal gave inspiration to people to do their
work for the common cause. (Parry, 2014) He made the organizations to get committed in the
main mission. Sinegal to make the company famous always made the management to give
priority to learn from the mistakes, which is an effort to succeed in their mission. This
charismatic lead the companies to become cohesive which have made the workers having a clear
purpose. The leader is having the extreme communication skills, which help to encourage the
employees to do their work, and also render help to them stay down to earth when things are
going good for them. The leaders are comfortable while waging communication in a group
setting or one to one. (Zehir, 2014) (Parry, 2014)

6LEADERSHIP
Sinegal in order to make the company stand, despite having a powerful personality a
charismatic leader also have character and maturity. They do not believe in exhibiting empty
showmanship, however Sinegal draws on their wisdom and knowledge which they have gathered
over many years in the experience of life and business. In all occasions, he believes in mature
and responsible. As a charismatic leader, it has also been reported that he even has a sense of
humility. He places a lot of value on each of the employees and he even carries the ability to
listen truly to the concerns of the employees. (Parry, 2014) That is why, it has been made sure in
the company that no employees must suffer from the overburden of work and the leader show
them how the contributions made by them influence the strategic interests of the company. They
express a greater loyalty to the leader as a result through their work. He being a leader Sinegal in
him has compassion, honesty, integration; these are the important qualities that as a charismatic
leader exhibit. Therefore, it can be stated that he is a charismatic leader who is truly confident
about himself and he is comfortable with who he is. He has the capacity of being a good listener
and while listening he do not feel even distracted. He as a leader, always listens to the employees
and take interest. They are being engaged in the act of conversation with the empathy. (Avolio,
2013)
The influence of Jim Segal, is huge on the success of the company. He is a person who is
down to earth and never tried to misuse his power as a CEO. He carries out operations without
any frills and he is the leader who inspires and influences the workers under him. He tends to
visit every store of the Costco. ((Costco.com, 2017)By taking a small amount of salary, he passes
the benefits to his employees who all have received from the company almost 50% of the wages
than their arrivals. When he comes to the employees, the employees take interest and approach
him, which signifies that everybody likes him without any biasness. There is no space for
playing games and fear mongering as people work hard as they loved him, which is rare.
((Costco.com, 2017)
Sinegal founded the company Costco and expanded the company in the year 1990. In the
year 2003, Costco did not raise its premiums in health care to the employees for at least 9 years.
Sinegal who was initially against the increasing premium, finally the CEO relented. In the
coming nears, the employees were paid more. In compare to this, most of the CEO might have
welcomed the savings of cost and pocketing the differences. However, Sinegal handed over each

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employee a bit of stock in their 401 (k)s in the year 2008. Sinegal was successful in installing
these types of sensibilities in the mind of his executives , with whom most of them worked for
decades. ((Costco.com, 2017)
The attiude as a charismatic leader influences the company more. Sinegal has won the
employees’ love and adoration and even in the mouth of the employees of Costco, it has been
stated that Costco is best for everything which includes the president as well as the board of
directors. Sinegal as mentioned before always tried to approach the employees and make them
feel and they belong to this company. Under his charismatic administration, the company did a
lot better and it is continuing to do so.

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