MGMT4020 Team Case Management Guidelines – COSTCO

Description

This assignment has Two Parts.

1) Watch the video below and answer the following questions.



Corning began as a glass company in 1841, then found a place in every American kitchen through the 20

th

century, and now they are on the edge of the optical fiber industry. This video shows how Corning has progressively adapted as the external environments have changed. They have found a way to strengthen their value chain by focusing efforts on the resources, and capabilities that will allow them to excel in the 21st century.

This video shows how Corning is using their resources and capabilities to progress the organization through innovation.

Assignment:

Now that you have watched the video, answer the following questions:

  1. Do you think that products presented in the video support Corning’s overall strategy?
  2. Which products do you think might be cash hogs as they are rolled out to market?

For additional supportive information, you might want to explore the most current annual report for Corning and review the Business Description, and Risk Factors sections.

_____________________________________________________–

2) ASSIGNMENT 2:

All team members need to read the Costco case (Attached in both PDF and Word). Each team member will contribute to each section below by providing information from the perspective of the role s/he is
assuming for this case.

(I AM TO ASSUME THE OPERATIONS AND VALUE CHAIN ROLE (Explanation attached) and respond from this perspective only

). Attached also is an example of one completed with the various roles. My other teammates will do their parts. I have to contribute to the TOWS from this perspective as well..

Additional link to value chain info:

https://www.strategicmanagementinsight.com/tools/value-chain-analysis.html

Student names have been removed, however, this work is presented with permission of all
team members: 10/12/2018.
Costco: TOWS Connection
XXX – Operations/Value Chain Role
XXX – Business Strategy Role
XXX – Financial Role
XXX – Organizational Culture and Ethics Role
MGMT 4020 OL1 14329
October 7, 2018
CASE TEAM 5 2
SITUATIONAL ANALYSIS
Operations and Value Chain
Chief Executive Officer, Craig Jelinek has proved over the years that Costco is one of the
world’s biggest and best consumer goods merchandiser. He has led Costco to this title by
standing by Costco’s core values. The first core value is to “Obey the Law” Jelinek says “we
must conduct our business in total compliance with the laws of every community that we do
business in”. (Thompson, Peteraf and Gamble) The second core value that Costco has out into
place is “Take care of our members”. This means providing top quality products to members at
the best prices possible in the current market. The third core value is “Take care of our
employees.” Jelinek says that his employees are the most important asset in his business,
promising a tremendous amount of room to grow within the company. “Respect our suppliers” is
the fourth core value that Costco is holding on to stating “Our suppliers are our partners in
business and for us to prosper as a company they must prosper with us”. Jelinek preaches on the
note that if there is ever a question on to what course of action should be taken on a business
matter that is open to ethical questioning, to always take the high road and do what is right. The
last core value is “Reward our shareholders”. Costco believes that because their stock is being
sold publicly on the NASDAQ stock exchange that they can only be successful is they provide a
good amount of return to the people to invest into their company.
Financial Analysis
Costco Wholesale is one of the world’s biggest and best consumer goods merchandisers. The
financial outlook on the wholesale giant is bright. They have shown strong financial performance
year of year. Costco’s annual revenues grew from $89 billion and 598 membership warehouses
in 2012 to $116 Billion and 686 membership warehouses in 2015. Since 2015 Costco has
CASE TEAM 5 3
continued to show net sales and operating profit year over year. This growth is driven by strong
demand of U.S. and international consumers. Strong business performance has led to continued
increase in overall stock price. Costco’s 5-year dividend per share growth rate is 13.6%. This is
the best in the industry followed by Target. The company is well known for practicing corporate
social responsibility by supporting its suppliers, practicing environmental sustainability efforts,
and providing competitive salary and benefits to its employees, which is evident by extremely
low employee turnover and happy and satisfied customers/members. Costco’s main target is
small business owners. They also use direct mail marketing to attract customers that meet their
customer profile and increase sales to current members. They also rely on positive word-ofmouth of their customers and employees to recruit new members. Gas makes up over 10% of
COST’s total sales, and the company offers some of the lowest average gas prices in the nation.
Business Strategy
Costco follows a membership only business model; showcasing exemplary cost
leadership. Costco’s strategy consists of low prices, quality customer service and upholding a
strict ethical code. This can be seen in Costco’s Mission: “To continually provide our members
with quality goods and services at the lowest possible prices.” Continued… “The company will
continue to pursue its mission of bringing the highest quality goods and services to market at the
lowest possible prices while providing excellent customer service and adhering to a strict code of
ethics that includes taking care of our employees and members, respecting our suppliers,
rewarding our shareholders, and seeking to be responsible corporate citizens and environmental
stewards in our operations around the world” (Young). “The key elements of Costco’s strategy
are ultra-low prices, a limited selection of nationally branded and private-label products, a
‘treasure hunt’ shopping environment, strong emphasis on low operating costs, and an ongoing
CASE TEAM 5 4
expansion of its geographic network of store locations” (Lawrence). Delving into their strategy,
Costco’s external environment has strong force. Whereas, Costco’s internal environment proves
it is a viable business.
Organizational Culture and Ethics
Costco’s organizational culture is based on five characteristics: (1) Common goal of
excellence, (2) Positive attitude, (3) High energy and fast pace, (4) Service orientation, and (5)
Teamwork. Because of this, it has been a huge success for the business by way of employee
morale, satisfaction and performance. (Meyer) The organizational culture at Costco is considered
to be high-maintenance, with many moving parts, compared to other companies like Walmart.
But, because they have one of the best compensation packages in the industry, they are able to
achieve their goals.
Costco’s belief is that good enough is not enough. Costco empowers their employees to
provide the best service to satisfy the customers. This allows them to maintain high moral,
because they feel important in the company. Their positive attitude is reflected in all that they do.
The company believes courteousness and friendliness are extremely important, it brings in the
customers, and drives moral.
Being a high energy and fast pace environment makes the company very efficient. This
encourages the employees to be more productive and helps drive the energy in the way they
satisfy customers. Speed and efficiency of service play key roles in this.
Along with these teamwork plays an important part of the culture. They encourage
teamwork and thus maximizes performance with that synergy. This instills comradery and helps
address variations in customer performance. Costco is also service oriented. This service
emphasis helps keep them in line with the goal of providing effective retail service. They
CASE TEAM 5 5
encourage employees to interact with customers being productive and profitable by promoting
certain products on the sales floor.
EXTERNAL ANALYSIS
Operations and Value Chain
“The most important concept is the value chain an organization has entrenched itself in;
incorporating communication increases cooperation which leads to the productivity process of
connecting groups that create activities toward a value system.” (Value Chain Analysis-Costco
Corporation) Costco’s fifth core value is in regard to “Reward our shareholders”. Costco pledges
that they will operate their company in a way that rewards stockholders for their efforts. The fact
that Costco is so determined to reward their stock holders and uphold their image in the stock
market gives me the sense that they are using a utilitarianism approach which maximizes the
benefits for stakeholders in companies.
Costco’s value chain is derived from Porters five force model. Costco’s fiercest
competitor is Sam’s club and in “2016 Costco held around 59% share of warehouse club sales
across the United States and Canada.” (Thompson, Peteraf and Gamble) Competition between
these clubs is all based on price, quality and selection, location, and member service. Fortunately
for Costco, Suppliers do not have much power because there are so many companies that are
suppliers for Costco giving each individual company less power to impose its demands. Costco’s
most important challenge today as it relates to Porter’s Five Force Model is the threat of
substitutes because there are many substitutes for Costco’s items that will also satisfy customers.
Financial Analysis
Competitive rivalry or competition (strong force)

Large number of rivalry competition (strong force).
CASE TEAM 5 6

High variety of firms (strong force).

Low switching costs (strong force) – low switching costs are an external factor that
makes it easy for consumers to transfer from Costco to other firms.
Bargaining power of buyers or customers (strong force)

Low switching costs (strong force).

High availability of substitutes (strong force) – There is a wide range of substitutes. The
top substitutes are wholesalers like Sam’s Club and BJ’s, but people can also switch to
Walmart and regular grocery stores.

High quality of information (strong force) – The availability of pricing on the internet
allows consumers to easily access pricing and promotions of all competing retailers. This
makes it easy for them to switch from chain to chain based on price and value. These
external factors indicate that the bargaining power of buyers is a strong force.
Bargaining power of suppliers (weak force)

Large population of suppliers (weak force) – There is a large number of suppliers in the
industry. This makes it difficult for them to give pricing demands to their firms.

High overall supply (weak force) – There is so many other options for supplies which
means a single supplier will find it difficult to have a substantial impact on Costco.

Low forward integration (weak force) – Most of the suppliers have limited control of
distribution so this further limits their force. Overall these external factors make the
bargaining power of suppliers a weak force.
Threat of substitutes or substitution (strong force)

Low switching costs (strong force) – There is no additional cost to transferring to another
wholesale competitor. Customers can easily transfer with low added cost.
CASE TEAM 5 7

High availability of substitutes (strong force) – Substitutes are widely available at no
added cost.

High performance-to-price ratio of substitutes (strong force) – There are many substitutes.
The other competitors are known to have the same price and quality to satisfy the
expectation of Costco consumers. This is one of Costco’s biggest challenges, so they
need to always be prepared to combat it.
Threat of new entrants or new entry (moderate force)

Low switching costs (strong force) – This is an attractive attribute people looking to enter
the market. Since switching cost are low it’s easier for them to be successful.

Moderate cost of doing business (moderate force) – This could help Costco. The overall
cost to entry could be a deterrent of new competition.

High economies of scale (weak force) – The external factor of high economies of scale
makes it a little difficult for new competition to enter the market and directly impact
Costco.
Business Strategy
Costco’s Five Forces analysis shows that the forces reign strong. Competitive rivalry,
bargaining power of buyers/customers and threat of substitutes are strong forces; The threat of
new entrants is a moderate force; and the bargaining power of suppliers is the weak link.
With such a likeable business model and strategy, Costco’s competition is prevalent. The
large number of companies, extensive variety in companies and the low switching cost constitute
the force of competition, making it a strong one.
CASE TEAM 5 8
Consumer bargaining power attains its strength from the low cost to switch, the substitute
availability and prevalence of information. There isn’t much of a roadblock in terms of switching
to say, Sam’s club, further emphasizing the importance of this force.
The plethora of suppliers for Costco allows for bargaining power of suppliers to be a
week force.
As mentioned with consumer bargaining power, the threat of substitutes is a strong force,
if not the strongest. Low switching cost and the high availability of substitutes allows for the
ease of switching. It doesn’t pose a challenge for a customer to switch to a like firm, proving the
importance in Costco’s core values as a firm, and their implementation of their business strategy.
Feeding off the trend for low switching costs, the threat of new entrants can be seen as a
moderately strong force for the same reasons. The only thing dampening this force is the
moderate cost of doing business.
Porter’s Five Forces analysis deduces that the forces are strong in Costco’s external
environment, and they ought to be kept at the forefront when
developing/modifying/implementing business strategies.
Organizational Culture and Ethics
Costco is well known for resisting the pressures of Wall Street to drive more profitability.
They have an impressive Corporate social responsibility track record. They extended managerial
ethics and reference managements obligation to make choices in order for the organization to
contribute to the betterment of the stakeholders which include employees, customers,
shareholders, the community and society.
Costco has led the business world when it comes to moral leadership and has done so
since it was founded. Being a success in the long-term means relying on social capital. That is,
CASE TEAM 5 9
they must build a reputation for honesty, fairness, integrity, doing the right thing for all of their
stakeholders.
INTERNAL ANALYSIS
Operations and Value Chain
“The key elements of Costco’s strategy are ultra-low prices, a limited selection of
nationally branded and private-label products, a treasure hunt shopping environment, strong
emphasis on low operating cost, and ongoing expansion of its geographic of store locations”
(Thompson, Peteraf and Gamble) This is what Costco’s operations are based on. Pricing is a
huge strategy for Costco by lowering prices and shocking customers keeping them coming back
leading to high sales volume for Costco. Another focus is Product Selection where Costco only
offers around 3,700 items at a time because they are so focused on pricing. Of these products
“85% were quality brand-name products and 15% carried the company’s private-label Kirkland
Signature Brand.” (Thompson, Peteraf and Gamble)
Treasure hunt merchandising allows for customers to always stay on their toes with
around 20% of items frequently changing. The major player were big ticket items such as TV’s,
sofa’s, and jewelry often costing around $1,000-$4,000 in most retailers they would be marked
down for example a leather sofa to $800 and they would fly off the shelf. The strategy Costco
was playing was to keep customers coming back to see these irresistible deals instead of just
coming to “stock up”. Customers soon learned that if it was a good deal, they should just go
ahead and buy it because it most likely wouldn’t be available on their next shopping trip,
allowing for huge profits for the company. The last business strategy that Costco focuses hard on
is their growth strategy. Costco wanted to increase sales by 5% or more annually in their stores
CASE TEAM 5 10
and open warehouses nationally, and internationally. Costco was able to do this, in 2011 the
growth of opening stores was around 10% and the sales were growing around 10% as well.
Financial Analysis
Although the key elements of Costco’s strategy were ultra-low prices with a limited
selection of nationally branded and private-labeled products. They have a strong emphasis on
low operating cost and ongoing expansion of its geographic network of store locations. For many
years a key element of Costco’s pricing strategy was to cap name brand products at 14%
compared to 20-50% markups at other discounters. Markups on Costco private label brand was
only 15%. As a result of these low markups, Costco’s profits barely broke even. Without
revenues from membership fees Costco’s net income would be minuscule because of its low
pricing strategy and the decision to cap margins on branded goods. The former CEO Jim Sinegal
thought this strategy was a great way to drive value and cause a riot with consumers. The type of
riot that kept them coming back. Unfortunately, it led to low overall profits. Sinegal was widely
criticized by Wall Street for its ultra-low pricing strategy. Since Craig Jelinek has taken over the
company in 2012, he has kept the low-cost strategy however he has found ways to improve
profits by removing caps from mark ups. This allows them to remain competitive but still offer
value. Under his leadership he has cemented the company’s standing as one of the world’s
biggest and best consumer goods merchandisers with revenues of $116 billion reported in 2016.
Business Strategy
As previously noted, Costco’s mission essentially lays out its business model and strategy
for success. Low-cost and high quality.
Elaborating on the business model, it is a membership-only warehouse club. The upsides
to this include, but are not limited to the annual membership charges, in turn allowing for even
CASE TEAM 5 11
lower costs, and the quality attained from a member only shopping environment. The downsides
to this are the members only, so some of the potential customer base is lost out on before it even
sees the upsides to the model.
With a strategy of cost leadership, it is crucial for Costco to maintain the lowest prices,
otherwise the external environment kicks in and Costco loses its edge. This brings to light the
extreme importance of sticking to the strategy at hand. The strategy and business model feed into
each other which are both a derivative of Costco’s mission.
The strength in Costco knowing who they are and what they want to do allows for the
utmost effect in strategy implementation, but if not careful can be strayed from and all credibility
could be lost.
Capitalization on Costco’s internal strengths is what proves to give them an edge. Again,
low cost strategy comes into play. With their low-cost strategy, Costco achieves a high turnover
rate. A solid number of sales contributes to higher revenues, thus the low cost in fact does not
hinder, but enhances, showcasing the strengths of Costco’s internal forces.
Given the strength of Costco’s strategy and model, there is ample room for opportunity,
should Costco keep in mind the external forces. The business model and strategy is not only
viable, but it is attractive.
Organizational Culture and Ethics
Costco’s internal focus is on employee satisfaction, collaboration, training and growth,
low pressure related to productivity and performance, creating a learning environment that
provides the best opportunities for learning and growth, and customer services and satisfaction.
(Pratap)
CASE TEAM 5 12
Because of Costco’s dedication to the organization’s culture and ethics, Costco has been
listed on Glassdoor’s list of best employers of 2017. Costco strives to train their employees to do
what is in the best interest of the customer. Making them an integral part of customer
satisfaction. Customer satisfaction is a large part of why customer return to Costco, and why
Costco was listed as the third largest retailer in the world in 2016.
Part-time employees enjoy the same benefits as full-time employees. This extends
medical, dental, 401(k), and stock options to employees after only one year of working for them.
Ethically, you cannot treat your part-time employees any differently than your full-time
employees to reach this high standard of employee satisfaction. The company takes care of the
mental, physical, emotional and spiritual needs of all of their employees. Who could ask for
anything more?
TOWS Matrix
SWOT Analysis
Strengths

As a whole operation, Costco is focused on low-cost pricing which they have this system
down in their stores.

Strong history of net sales and profit

High quality/low cost consumer perception

Strong Brand Loyalty/Members

Wide selection of suppliers

Low price

High inventory turnover allowed by the low prices and high sales

High revenues due to inventory turnover
CASE TEAM 5 13

Operating efficiency of the low-cost model
Weaknesses

Member-based shopping (Excludes everyone without a membership)

Membership only shopping

Limited selection of products

87% of sales come from the U.S.

Low profit margins

Membership only

Goods available because of membership only
Opportunities

Costco only offers around 3,700 products but they have the opportunity to widen their
selection and offer more for all types of consumers

Improve E-Commerce site

Explore New Markets (Asia)

Improve Advertising

Expansion (ie: entrance into Asia)

Increase variety

Online retail
Threats

Other retail firms have aggressive marketing techniques distracting customers from
Costco

Substitutes are easy for customers because there is no price loss if a customer decided to
go to Sam’s Club or Walmart instead.
CASE TEAM 5 14

Aggressive marketing from competitors

Entry of New competitors

Online competition

New entry

Aggressive Market
TOWS Matrix
Strength/Opportunity


With more products being offered
If Costco had certain days in the
month that non-membership holders
profits and lower prices even further
could shop they would have a wider
Improve website to include specific
customer base therefore needing to
promotions based on previous
stock different items

Allow open access to the public once
per quarter.
Utilizing the low cost, high turnover,
and operating efficiency of Costco’s


Costco could potentially gain more
shopping behavior.

Weakness/Opportunity

Utilizing the opportunity of expansive
business model, as well as the ease of
online retail to a greater degree,
strategy implementation, Costco ought
Costco can capitalize on the weakness
to seize the opportunity of expansion
of membership only and expand the
in Asia.
availability of goods provided, further
Continue to focus on stakeholder
increasing the emphasis of quality in
satisfaction by widening the program
their strategy.
to non-members.

Offering a day of shopping for nonmembers could increase membership.
CASE TEAM 5 15
Strength/Threat

There is no price loss for customers to
Weakness/Threat

choose other substitutes therefore
where non-members could shop
Costco could give out coupons that
allowing for a larger audience and
reduced prices even further for
better marketing for the company.
customers so there would be a price

loss if they shopped elsewhere.


Expand advertising and use price
Advertise Costco’s great ethics and
values to attract and retain consumers.

Last resort, to avoid demise, Costco
comparisons to drive awareness, trips,
ought to lose the membership only
and loyalty.
business model they have going and
Sticking true to their strategy, Costco
maintain the low-cost high-quality
needs to maintain and further enhance
strategy to try and overcome the threat
the customer care quality provided
of new entry in such an aggressive
whilst maintaining the low-cost
market.
business model to avoid threat of new

Costco would market these days

Open more businesses across the
entry in their ever so aggressive
country to make sure they keep a large
market.
stake in the marketshare.
Offer more training in customer
service, and show empowerment
techniques.
MGMT4020 TEAM CASE ASSIGNMENT GUIDELINES – COSTCO
Team Case Assignment: TOWS Connection through the Costco Case
Objective: To work as a team to apply content learned throughout your program by conducting multiple analyses, and
developing a strong TOWS Matrix
Instructions: Each team will work together to develop a report based on the criteria outlined below.
All team members need to read the Costco case. All cases are located in the second part of the textbook. Please see the
textbook Table of Contents for the exact page number.
Each team member will contribute to each section below by providing information from the perspective of the role s/he is
assuming for this case. However, while each team member contributes to each section, the finished product
should flow seamlessly as if it is the work of one cohesive unit.
In addition to the case, it is usually a good idea to incorporate information from other sources to strengthen your
perspective.
Formatting – Reports should:
• Be presented in a professional manner– points will be deducted for poor formatting, & grammar
o Single or Double-spacing is acceptable – page suggestions are based on double-spacing
• Include a cover page with all team member names (first and last), and role
• All additional sources should be cited (in-text and works cited)
• REMEMBER: The Organizational Culture and Ethics Role is responsible for the consolidation and submission of
all team materials.
Length Guidelines: Please refer to each separate section – overall approximately 12 pages, but each team
member should be contributing approximately 2.5 pages + his/her information for the TOWS
(10 pts) Situation Analysis – Brief overview of the company/brand, and external environments (2 pages – .5p/role)
• Company Overview
• Major Events and Decisions (presented in the case or other sources)
• Core Values
• General Environmental Analysis
(30 pts) External Analysis – In-depth external analysis (4 pages – 1 p/role)
Using Porter’s Competitive Forces Model (and any other relevant models) each team member will identify and
analyze, from the perspective of his/her role, the critical external factors contributing to the situation presented in
the case.
(30 pts) Internal Analysis – In-depth internal (4 pages – 1 p/role)
Each team member will analyze, from the perspective of his/her role, the internal environment presented in the
case. Each role should also acknowledge how their perspective is integrated with factors from other aspects of
the company as well. Internal analysis should include, but is not limited to:






Business Strategy
Financials
Products
Resource Capability
Operations
Organizational Culture
(30 pts) TOWS Matrix – Strengths, Weaknesses, Opportunities, and Threats accompanied by strategy points
(TOWS Matrix format: 1 page)
The main deliverable for this section is a combined or comprehensive TOWS Matrix. A helpful way to complete
this section is to have each team member conduct a SWOT analysis from the perspective of his/her role. SWOT
should be substantiated through research which highlights the relevant and critical factors from the Situational,
External, and Internal Analyses. Then each team member should develop one (1) strategy point for each TOWS
section. Final information, along with strategies, should be presented in one TOWS Matrix.
Role introduction
When assuming any of the roles, you should be reading the case through the lens of a person who is
responsible for those areas. This means that you will be particularly tuned-in to information that has to do with
the role’s perspective, and/or how general information presented in the case affects or is affected by your area.
The solutions that you develop for issues presented in the case should be developed from the role’s
perspective as well. You will also want to consider how each perspective is affected by and affects the external
environments.
Internal Roles and Perspectives:
Operations/Value Chain Role: This role analyzes situations from a perspective that takes into account the
overall operations of the organization and the organization’s value chain. The value chain should be
considered when developing potential solutions.

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