Costco Wholesale Corporation - Competetive Advantage through the Staff - Case Study Example

Human Resource Management Name Student ID Number Module Title Module Tutor’s Name Date The strategic and logical approach to the management of an organization’s most valued assets is Human resource management. It is the people who are working in the organization who are well thought-out to be an organization’s most valued assets because of their individual works that collectively contribute to the accomplishment of the objectives of the organization or business. “Personal management” has been utilized before as a method of keeping an organization in a competitive stand against other organizations, but nowadays, the term “human resource” and “human resource management” to a great extent have replaced the term. The period from the mid-1950’s to the early 1960’s saw the first works by normative management researchers, who propagated a humanistic image of the employee (Pieper 1990). It was in 1965 that a distinction between human relations and human resources has been introduced by Miles. Furthermore, in the Theories of Management, he describes the three management models; traditional, human relations, and human resources. In the traditional model, the manager closely and constantly monitors the subordinate, who is regarded as work-shy and demotivated. In the human relations model, the manager is supposed to give the employee, who seeks acceptance and recognition, a feeling of utility and importance. In the human resource model, the manager draws on all the talents and qualities of employee and promotes skills of self-determination and self-management (Miles 1978). Human resource and human resource management evolves rapidly and is now mainly used, instead of “personal management” in the description of the process and practices involved in managing people in the organization. Human resource management is both an academic theory and a business practice that aims to help the organization in meeting its own strategic goals through attracting and maintaining employees. It also addresses the theoretical and practical techniques of managing a workforce and aims to improve the efficiency of handling or managing employees. As to simply put it, human resource management is used in order to create a fit between the management of employees and the overall strategic direction of the company (Miles 1965). And it is this human resource management that spells out the advantages and success for a business organization if done properly and effectively. Costco Wholesale Corporation, which was established in 1983 as a single store in Seattle, became the biggest membership warehouse club chain the world, employing the so-called “less-is-more” concept. With such concept, Costco Wholesale Corporation also looks upon themselves as the membership warehouse club that has the capability to sell top-quality food, hardlines, softlines, and other goods usually in a large number or bulk quantity at the lowest possible price. Costco now has over 457 stores which are situated in most parts of the United States and is still growing. Their success was generally attributed to their sales volume, good consumer acceptance, generally good services and customer care, and the lowest possible price offered. Furthermore, Costco sells, provides or displays items or products from limited suppliers or from a small number of suppliers. Variety of items is also reduced and this is done to reduce the risk of purchase decision and encourages a consumer to buy such product or service. Another benefit of this is that loyalty on a certain product or service is created or improved. The corporation’s goal is to provide more discounts and cheaper prices to the customers, focusing more on the customers, rather than to the competition. It is able to provide lower cost and greater discounts because the corporation’s marketing style is to reduce overhead cost by reducing fancy outlet designs, taking almost everything to simplicity (Costco Wholesale Japan, Inc. and Costco Wholesale Corporation 2005). Upon looking deeper into Costco Wholesale Corporation, it can be noted that these success and their capabilities and rendering cheaper prices and good customer service is due to the corporation’s efficient and great management of its employees and its human resource management that keeps on evolving. Costco Wholesale Corporation believes that the employees and other human resources are the most important part of the corporation. Costco highly values the people outside and inside the corporation, may it be customers or employees alike. As such, the corporation does its best, especially the human resource management department in giving what’s best and deserved by its employees. Costco pays higher wages on its workers and employees as compared to the other organizations. The employees’ salary which is paid to them by Costco is considered to be the highest wage there is in the corporate world. To demonstrate this, the average hourly wage at Costco Wholesale Corporation is $17 whereas compared to Wal-Mart, their average hourly wage for their employees is only $10. The wages which Costco offer are almost twice as compared to that of its rivals. The simplicity of Costco and its efforts of reducing overhead cost had lead them in giving their employees all the benefits and great amount of salary that keeps them loyal to the corporation. A demonstration or illustration of Costco’s benefits could be observed through the health premiums from or to its customers. Costco’s employees only contributes 10% whereas, its rivals’ employees, more specifically Wal-mart’s employees, need to contribute 33%. Due to this, Costco Wholesale Corporation is able to motivate and maintain its employees fit or in sync with the goals and aims of the corporation. Furthermore, these good salaries and great benefits from Costco in return lead to tremendous low rates of theft and turnovers by its employees. Human resource management based on the academic theory stands on the basic premise that considers human not as machines. This gives emphasis for corporations to interweave or obtain an interdisciplinary assessment or examination of the people in the workplace and consider the employees efforts greatly. The fields of sociology, psychology, industrial relations, and critical theories are important and play a role in determining an effect human resource management. The results of this are then formulated into corporate strategies and concepts that would be greatly helpful in human resource management. The “Michigan concept” or the corporate strategy deals with the selection, appraisal, rewards and development of the employees and other personnel of the organization. The recruitment plan, performance rating systems, incentive systems, and the personnel development programs are derived from the corporate strategy (Pieper 1990). Costco Wholesale Corporation utilizes this strategy in order to improve its human resource management and be able to have an advantage over the other corporations. In the strategic selection, Costco deliberately plans for the employees and other personnel’s needs and the control of their movements. In the strategic appraisal, Costco Wholesale Corporation orients and shifts its rating criteria in relation to the corporation’s strategic priorities. Costco’s high wage or salary and the other benefits they give to their employees are Costco’s ways of fulfilling or giving strategic rewards. This motivates and remunerates employees for long-term strategic objectives of the corporation. Lastly, Costco employs strategic development such as conception of future-oriented training programs and strategically appropriate career planning. As a whole, Costco Wholesale Corporation is deeply rooted in the classical line of thinking which is implementation and adaptation. Furthermore, it underestimates or overlooks the influence of past personnel policy measures have on the future formulation of strategy. Another concept in the Human Resource Management is the “Harvard concept” which is based on four key HRM policy areas. These areas are employee influence, human resources flow, reward system and work system. This is the concept which most of the other corporations use. These policy areas are affected by the interests of the stakeholders which includes the management, employee groups, unions and community government and situational factors such as work force characteristics, business strategy, management philosophy, labor markets, unions, task technology, laws and societal values. But because of these influences, more often than not, the employees do not receive the highest wages. Sometimes, there is a persistent neglect of employee interests that could lead to corrective legal injunctions or deterioration in a firm’s financial health due to the owners demand to change the HR policy. Through the Michigan concept, the Costco doesn’t hold back when it comes to its employees and receives the most out of it. It persists in paying its workers higher wages than its rivals even if the corporation’s stock fell by 4%. On the other hand, Costco’s rivals persists in maintaining low wages amongst its employees and in increasing its profit because of a variety of outside and inside influences through the Harvard concept of human resource management. This propels Costco above the other when it comes to motivating its employees and improving loyalty amongst its personnel. The corporation’s approach and human resource strategy or concept results to improved productivity from its employees. Furthermore, the corporation ends up having lower labor costs as percentage of sales. The operating income of Costco Wholesale Corporation competitively outbids the other corporation’s annual turnovers. Annually, it grows at an average of 10.1% as compared to the other corporations who at their best obtains only 9.8%. Workflow analysis is part of the human resource management that studies way work moves through an organization. Usually, it begins with an examination of the quantity and quality of the desired and actual outputs such as goods and services. Then, the activities like tasks and jobs that lead to the outputs are evaluated to see if they are achieving the desired outputs. Finally, the inputs which include people, material, information, data and equipments, must be assessed to determine if they make the outputs and activities more efficient and better (Mathis and Jackson 2006). Through the workflow analysis, Costco Wholesale Corporation is able to redesign required redefining tasks, duties and responsibilities of the several jobs found in the corporation. Even the high-ranking employees of Costco experience this and through their high-wages, willingly conform to the changes and improvements of their work. Costco’s employees, even their managers and executive managers, can be seen in stores simply dressed and blends well with the other employees, offering help and other services to customers. Costco’s advantage compared to the other corporations through its workflow analysis is its customer service which higher or better than the other corporations. Over the years, the complains and turnovers which Costco receives from its clients or customers are lower as compared to its rivals. Its customer service also improves constantly and conforms to the needs of the corporation’s customers. Through the workflow analysis, Costco Wholesale Corporation is also able to improve its terms, policies and guarantees to the customers, giving it an advantage over the other corporations. A good guarantee in the corporate world often gives it the advantage above the rest. In the evaluation of a good guarantee, a guarantee is said to be easily invoked by customers if the process that a customer has to take is simple, trouble-free and undemanding. The process of invoking a full return of a good or service should be straightforward and uncomplicated or understandable. This will help customers who are already displeased, to favor or buy again such goods or services by the business establishment. Looking on Costco’s guarantee on this aspect, complains, letters and calls conveyed to the customer service of Costco can be used. How Costco responds to these complaints and the measures they take to help the customers and the process of invoking a refund can also looked into. The process of invoking a refund is easy. There are no forms to be filled or series of questions to be answered. A customer just needs to bring the product to the Costco warehouse. From the statement of the guarantee in Costco’s online store, it was stated that there are a lot of Costco warehouses where the customer can return or exchange the product, though a list of these warehouses were not given. Some reported complaints were about growing membership bills even if a customer had already left the list of Costco’s members. Also, there were some complains regarding Costco’s customer service or how Costco deals with complains or requests from customers. With regards to these complaints, Costco creates ways of helping these customers in other ways or that, in most cases, the managers send letters of apologies to unsatisfied customers. There was an incident that a customer was asking for the tires he bought to be installed in the front of his minivan (“Consumer complaints about Costco – tires”). Costco did not respond to this request and kept a firm stand that these new set of tires should be installed in the rears. Costco states that it is best for the tires to be installed in the rears, even if the vehicle was a front wheel drive. They offered a video and articles stating or defending their claim regarding the installation of tires on the rears. Major sales representative Chris Biggers, sent a letter in response to the complaint regarding the installation of tires on the rears and stated that Costco aims or looks on the safety of both its employees and members (the consumers). In the further evaluation of its guarantee, there were complains filed against Costco, stating that their refunds or certain products were not being received by the customers or that Costco is unable to give the necessary benefit or compensation for a poor service or low-quality product. If a refund was promised, the problem was that no certain dates of such reimbursement were given by the customer service, oftentimes resulting to unclaimed refunds. In terms of the refunds, Costco is at the losing end. Costco provides the cheapest price as much as possible, by keeping a mark up that is not higher than 14 percent for unbranded products or items and mark up not higher than 15 percent for non-private-labeled items, unlike its competitors who has mark ups up to 25 percent, or even 50 percent. Suppliers also exert pressure on Costco regarding product returns. Through the workflow analysis, customer service hotlines or more customer service centers that becomes accessible and improved for the benefit of the consumers and for easier management of complaints and quick response to customer needs. Also, the policy regarding the guarantee they provide is further developed, but taking importance not to render the guarantee impractical for both the company and its consumers. As a whole, through the workflow analysis and the human resource management of Costco Wholesale Corporation, they were able to improve the quantity and quality of the desired and actual outputs such as goods and services that they render to customers. The improvements within Costco Corporation, the services and the goods rendered to the client that was made possible by Costco and gave great results due to their personnel, workers, and manager’s efficient teamwork and effective individual activities or tasks. Costco’s human resource management works from the lowest employee up to the highest. The commitment of its employees and the motivations within the corporation emanate from the area of organizational behavior and this is felt by the customers (Silva, 1998). Reports from surveys and customer feedbacks state that the atmosphere inside Costco Wholesale Corporation’s is customer-friendly. They could freely roam Costco’s supermarkets, shop for the things they want and receive help without any hassles or difficulties. Furthermore, the happiness of the employees and other personnel inside Costco is felt by the employees, resulting to more loyal customers. After shopping once, most of the customers come back at Costco. This can be demonstrated through the corporation’s income with over $53 billion in revenues in the year 2005. Most of Costco’s supermarkets and stores average about 50% more annual sales as compared to its rivals such as Wal-Mart’s sam’s Club stores. Furthermore, the loyalty of the customers could be evaluated through the number of members and the frequent or rate of membership renewals they receive each year. If a mother was loyal to Costco, her parents and kids becomes loyal to Costco as well. According to Kramer, “they (Costco) have a loyal customer base, starting with me and my mother and extending to everyone I have ever known” (2006). Hilary Kramer is a finance editor and a frequent public speaker in the field of financial planning and trends in global market. In addition to this, she is a columnist for the New York post. She is also considered as a major contributor at the Wall Street Journal and the Fox News Channel website. The policies which Costo has on its employees, especially its high wages, are also felt by the customers in the environment. As Kramer puts it “happy employees make for a happier shopping experience- which can be found at Costco” (2006). The effectiveness of Costco Wholesale Corporation’s human resource management can be observed from its resistance to the effect of the downward economy. Furthermore, their competitive advantage could also be demonstrated through their capabilities to maintain providing goods and services without so much negative changes and at its best. A lot of retailers in the year 2006 were greatly affected by the downward turn in the economy. Costco on the other hand, facing the fact that it is not immune, only had a slightly lowered quarter earnings as compared to the other corporations. Their sales by the month of August which increased by 7% is greater than that of his rivals during the downward turn in the economy. In order for a corporation to exhibit its competitive advantage through human resource management, it must be able to create value for customers in a way that it is not being implemented by its competitors. On the other hand, a sustained competitive advantage only exists when other firms are incapable of duplicating the benefits of a competitive advantage. Resources-based views of the firm underlie these distinctions and respective analyses (Poole, 1999: xxvi). Resources comprise physical, human and organizational capital. Human capital includes “the experience, judgment and intelligence of individual members of the firm” (Snell, et. al., 1996: 64) Human resources are widely understood to be an important competitive asset for the firm. But they are also keys to sustained competitive advantage that is based on resources being: valuable, rare, inimitable and non-sustainable. For it is particularly the human resource of the corporation that meet these specific criteria of sustained competitive advantage (Poole, 1999: xxvi). Costco Wholesale Corporation is able to meet or exhibit an advantage through human resource management by creating memberships for its customers. The memberships that Costco Wholesale Corporation offers its customers give the customer more buying power and abilities to participate in more sales and discounts. Costco is known for its cheap prices and sales in large or bulk quantities, it had created policies, just like other competing membership warehouse clubs, regarding merchandise returns and exchanges. But, with the combination of memberships and more discounts to its customers, the prices become cheaper and the other competing corporations who fancy their stores could no longer afford to reduce their prices. The number of members and customers which Costco receives through the membership and their cheapest prices on goods and services gives them a sustainable competitive advantage. Costco was able to arrive at such advantage because it was able to maximize its resources, physical, human and organizational capital. The experiences, judgments and intelligence of the individual members of Costco Wholesale Corporation increased the number of memberships and loyal customers. In addition to these, creating strategies and plans giving value to the customers were made possible and provided remarkable outputs. From the general point of view of human resource management, the increase of individuals with higher expectations and the continuous presence of well-educated workforces had lead to the incorporation of human resource management in the corporation. Furthermore, the advances and changes in the current technology and the demand for a greater number of flexible jobs also add up to the reasons why human resource management should be included in central management policies of corporations (Silva, 1998). The human resource management department at Costco Wholesale Corporation is aware of the importance of human resource management in their policies and in their corporation. As such, it is always the welfare of the customers and their employees which are always catered by the central management. Costco Wholesale Corporation is competitive against the other corporations in the sense that they conduct continuous and up-to-date trainings, seminars and lectures to their employees. They brief their personnel from time to time as to adopt with the current situation that the company is in and to cope-up with the changes in the environment and economy of the corporation. They value and give high regards to the employees and other personnel that budget are allotted by Costco in the welfare and re-education of their employees. Furthermore, their method of selecting employees includes preference on applicants with good educational backgrounds. In one way or the other, trainings conducted at Costco are comparable to the other corporations. Being competitive on the education of the employees is not enough and is simply not the reason why Costco Wholesale Corporation continues to increase in size and in its demand. The department at Costco placed in charge of the human resource management sees to it that their employees are not only academically taught but also morally upright, in the sense that they give the most care and respect to their customers. This is achieved by Costco by giving respect to their employees. Employees receive respect from the individuals higher than them in the corporation, therefore, they also give respect to those under them. In addition to this, since Costco is cost-competitive in terms of their wages and doesn’t hold the budgets of their employees tightly, these employees then to work harder and cater to customers more (Pfeffer 1995: 36). From the start, Costco Wholesale Corporations already aims to provide what’s best for the most valued asset that they have. They have created policies, regulations and their management caters to the needs of both customers and employees. In such sense, giving more means receiving more. By simply walking into a supermarket or store under Costco Wholesale Corporation, an individual, more specifically a consumer, would immediately understand and learn the effectiveness of Costco’s human resource management. From the selection of their employees, to the maintenance of their loyalties and up to long term plans with their employees and other personnel, Costco definitely has the competitive advantage when compared to the other corporations. Attaining the mission and vision of Costco Wholesale Corporation is easier as compared to the other corporation because it values people more than the machines or the profit. Costco pays respect to the small individuals rather than to the big profit, income return or sales. More than the figures and the results of Costco’s growth which supports how effective their human resource management is, is the people experiences outside and inside Costco Wholesale Corporation. Bibliography (2004) "Consumer Complaints About Costco - Tires. ConsumerAffairs.Com Inc. (2005) "What is Costco?" Japan, Costco Wholesale Japan, Inc. and Costco Wholesale Corporation. KRAMER, H. (September 10, 2006) Costcom the Best Club in Town. California, Seeking Alpha. MATHIS, R. L. & JACKSON, J. H. (2006) Human Resource Management, USA, South-Western. MILES, R. E. (1978) Theories of Management, New York. PFEFFER, J. (1995) Competetive Advantage Through People: Unleashing the Power of the Work Force, USA, Harvard Business School. PIEPER, R. (1990) Human Resource Management: An International Comparison, Berlin, Walter de Gruyter. POOLE, M. (1999) Human Resoure Management, New York, Routledge. SILVA, S. R. D. (1998) Human Resource Management, Industrial Relations and Achieving Management Objectives. ACT/EMP Publications. International Labour Organization. SNELL, S. A., YOUNDT, M. A. & WRIGHT, P. M. (1996) Establishing a framework of strategic international human resource management, Greenich Conn, JAI Press. Read More