Unformatted text preview: Costco Organizational Structure Jonathan Weindel MGT/230 11/24/2014 Stephen Mersereau Costco Organizational Structure Costco Wholesale Corporation, also known as “Costco Wholesale”, is an organization that carries product internationally at lower costs than conventional prices. Categories of products that Costco Wholesale provides includes, but is not limited to “groceries, candy, appliances, television and media, automotive supplies, tires, toys, hardware, sporting goods, jewelry, watches, cameras, books, house wares, apparel, health and beauty aids, tobacco, furniture, office supplies and office equipment” (Costco, 2014, para. 2). Costco employs 189,000 worldwide in 10 countries and profits $112.6 in revenue each year (Costco, 2014, page 1). In order to maintain efficiency and productivity within the organization, management must structure the goals and vision of the members of the board of directors. The company’s board of directors is headed by the co-founder, Jeffrey Brotman, and includes two officers, President/CEO W. Craig Jelinek and CFO Richard A. Galanti. Other inside board members includes James Sinegal (former CEO and co-founder) and Richard Libenson. Nine other board members include Hamilton James, Benjamin Carson, Charles Munger, William Gates, SR., John Meisenbach, Jill Ruckelshaus, Susan Decker, Daniel Evans, and Jeff Raikes (Bloomsberg, n.d.). To see the vision and direction of Costco, an organizational structure must be implemented and understood by all members of the company. Three Organizational Structures These three structures that provide the foundation for organizations to operate are called the organizational structure. The three organizational structures which provide the best infrastructure for Costco to operate are divisional structure, functional structure, and matrix structure. The divisional organizational structure departmentalizes each unit to act independently, but report to one head unit. The functional organizational structure uses different functions of the organization to operate around their specific operation. The matrix organizational structure uses dual reporting managers, one for the department and one from the division, to report to one head supervisor. (Bateman, 2011, pages 287- 292). Costco’s Organizational Structure To best understand Costco’s organizational structure, a look at how decisions made through real estate is used as an example. In an interview from National Real Estate Investor (1997), the real estate structure used by Costco involves the head of the department, Joel Benoliel, whom then reports to the chairman, Jeff Brotman (page 1). In essence, Costco uses the matrix organizational structure to use dual reporting criteria for making managerial decisions. This structure utilizes communication to help process information, help with overloading of knowledge or information, and the utilization of key resources (Bateman, 2011, page 293). The disadvantages of using the matrix structure is management struggle for juggle of power, confusion of management power struggle, ineffective actions because of democratic decision making, and every person must be consulted of decisions and actions needed to be taken (Bateman, 2011, 293). Advantages and Disadvantages of Functional and Divisional Organizational Structures In comparison to the matrix organizational structure, the divisional and functional structures also provide functional divisions control within that defined area. In contrast, the functional organizational structure groups business functions into one defined unit, and there is management for each unit. Advantages of the functional structure include, but are not limited to: realizing economies of scale, effective environment monitoring, better maintained performance standards, better employee development, and clearly defined communication lines. The disadvantages of using the functional organizational structure are employee focus may be on their own agenda, managers may develop their own agendas as well in their own functional unit, conflict, response times with customers may be slow, and product development may lapse with organizational needs. With the functional organizational structure communication and collaboration between functional areas of the company must remain an imperative goal within the organization (Bateman, 2011, pages 287-289). The divisional organizational structure also has advantages and disadvantages that help or hinder the organization from reaching organizational needs. The divisional organizational structure duplicates functional areas across different geographical business units. Each business unit has managers and leaders in each specific functional area. The advantages of the divisional structure are needs more easily managed, better commitment to each functional group need, broader training, and clearly defined tasks. Disadvantages of using the divisional organizational structure are difficulty coordinating product lines and divisions, no in-depth specialists, duplicate process for product lines, and management can lose controls over decisions because of decentralization. Because the organization is decentralized and communication through geographical business units are scattered, collaboration of all business units must remain effectively managed for success in this model (Bateman, 2011, pages 289-291). Organizational Functions Costco is primarily organized geographically; however, there are several divisions of Costco that pertain to how the organization is managed. The mission of Costco is, “To continually provide our members with quality goods and services at the lowest possible prices” (Costco, n.d., page 1). The organization is broken down into three managerial levels, N-1, N-2, and N-3, and every level provides a different function. At the very top of the organization, the CEO is involved in every decision. The next tier, N-2, there are seventeen divisions, usually by geographic regions, and have some business units mixed in the structure. For instance, on the N-2 level, merchandising, information systems, real estate, legal and administration, business development, human resources and risk management, e-commerce and publishing, global operations are within the mix that provides the next managerial decision making level. The bottom top-level managers, N-3, are below the N-2 level but provide assistant to respective managers above their level. There are some divisions that are headed in this level such as pharmacy, construction, distribution, and international operations (The Official Board, n.d., page 1). As seen in the leveling of the company, the N-3 reports to the N-2 level which the N-2 then reports to the N-1 level. The strategy of the company is mainly competitive in pricing structure and product turnover, but the influence of management operations of marketing, human resources, and merchandising have the most influence on organizational structure. Marketing is not important to the company because treasure-hunting merchandising and low prices keep the reputation of Costco in good standing with customers. Human resources influence Costco because the customer is very employee friendly and takes a very strong stance towards having the right person in the right position. According to Cascio (2006), “ In 2006, the average wage of Costco workers is $17/hour, 82% of employed workers have health insurance benefits, and turnover is quite low at 17% well under the industry average” (page. 1). Merchandising of Costco influences company operations because turnover is a key factor in the success of the company. They have “treasure-hunting” for merchandising that focus on customer retention by drawing in consumers for one-time buys on merchandise that is constantly changing. Conclusion In conclusion, the matrix organizational structure has provided Costco and important managerial infrastructure to help collaborate one of the most successful businesses to date. The organizational design of having three levels of management allows for managers to have different solutions on three different levels. Using the matrix structure also allows different managers to manage conflict, changing markets, and play different roles to make decisions faster and effectively. The geographical locations play a role that determines the use of the matrix as well. Implementation of the matrix structure allows faster communications through the different channels of Costco. The organizational structure has played a key role in organizational design and success of Costco. References Bateman, T. S. (2011). Management: Leading and Collaborating in a Competitive World (9th ed.). Retrieved from The University of Phoenix eBook Collection database. Bloomsberg Business Week. (n.d.). Costco Wholesale Corp (COST:NASDAQ GS). Retrieved from http://investing.businessweek.com/research/stocks/people/board.asp?ticker=COST. Cascio, W. F. (2006, December Day). The High Cost of Low Wages. Harvard Business Review. Retrieved from http://The High Cost of Low Wages. Costco. (2014). Company Profile. Retrieved from http://phx.corporate-ir.net/phoenix.zhtml? c=83830&p=irol-homeprofile. Costco. (n.d.). Our Mission and Code of Ethics. Retrieved from http://file:///C:/Users/Joy %20Weindel/Downloads/Costco%20Mission%20Statement%20and%20Code%20of %20Ethics.pdf. Real Estate is Key to Costco's Growth. (1997). National Real Estate Investor, 39(3), 60. Retrieved from http://search.proquest.com/docview/200429022?accountid=458. The Official Board. (n.d.). Costco Wholesale. Retrieved from http://www.theofficialboard.com/org-chart/costco-wholesale. ...
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Strategic Management and Costco Company Essay
1460 WordsJan 9th, 20136 Pages
Costco Wholesale Corporation Part III Costco Wholesale Corporation is in an industry where there are several of dynamic competition from huge chains such as Wal-Mart or Sam’s Club and Target, and yet it could maintain a competitive and profitable stance. Effective strategic planning is essential part in operating any business in relation toward adapting to organizational and operational adaptation to changing markets. Through inquiries, the influence in the recent economic trends, provide strategies that have use or could use in the adaptation to changes in the market related to issues of economic trends, such as recession and economic downturn. Costco Company’s research paper will further discuss the tactics that has…show more content…
By conducting the analysis, an organization improves its effectiveness through strengthening its status, grabbing opportunities, and reducing weakness, and protecting business from threats. In context of SWOT analysis, key strengths, weakness, opportunities, and threats of Costco Company will enlighten intelligibility about the company’s current position. The company pay close attention to every and has capitalize various strengths that to its success factors, including rapid turnover of the inventory, reduced cost of handling merchandise, organization of an efficient operating structure, and generation of high sales volume at each of its store. The Costco Company has a built powerful continues membership renewals, treasure hunt atmosphere, and extraordinary employees. Best practice in benchmarking analysis to provide transparency, provided with target date benchmarks collected of compliantly execute, and consensus-driven benefit distribution. The statistics congregated in the survey to form the basis is the benchmark glide path, which implemented with inert contact to each asset class. Effective utilization and powerful implications of strategies will result victory in any firm. The human resources management plays an important role in helping the Costco Company achieve its business goals. John C. Matthews is Costco Wholesale Corporation Senior Vice President of human resources and risk manager.