With more than 500 stores in at least 37 states and eight countries, Costco has continued to dominate the retail industry in America. Northouse (2015) noted that Costco’s competitive advantage in US retail industry can be explained by three key performance determinants in the flexible leadership theory: efficiency, adaptation, as well as human capital. In light of the company’s success in the retail industry, this paper provides a discussion on three key determinants in the flexible leadership theory and give an explanation of how the company can offer higher compensation to its workforce and still show success by using a low price competitive strategy. Lastly, this paper will utilize Michael Porter’s theory of competitive strategy in analyzing the CEO’s behavior and how it influences the company.
The Flexible Leadership Theory
Effective leadership has for the longest time been consider as an essential element to the success of an organization. Contemporary businesses should at all times concentrate on adapting a flexible and adaptive leadership (Northouse, 2015). There is a need for organization leaders to understand that not all leadership style to be the practical situation at all times. However, organizations will become more successful when leaders become flexible in responding to organizational issues for both the long as well as short terms innovation strategies.
As far as efficiency is concerned, Costco has continued to become efficient with the help of its human capital as well as resources (Spencer-McDaniel Sr, & Anthony, 2012). The efficiency of the company is achieved through recruiting and retaining talented personnel by giving them proper incentives, generous pay perks, alongside other benefits such as insurance covers. The employee turnover rate is far much less when compared to the retail industry’s average because of the efficiency at Costco. The company has also attained a competitive advantage in the marketplace due to its ability to adapt to its environment. As stated by Spencer-McDaniel Sr and Anthony (2012), Costco has over the years continued to adapt actively to its external environment through embracing a competitive approach in all its products and services. Despite the fact that the company’s products are expensive when compared to its closest competitor (Walmart), it continues to offer quality that comprises of significantly discounted products, which are sold for a lifetime (Spencer-McDaniel Sr, & Anthony, 2012). Human capital has also helped the company to attain a competitive edge in the retail industry. Costco consistently motivates its workforce through encouraging valuable suggestions in improving its stores through creative content, as well as the product mix at the store. The company’s employees have been trained on various ways they can be friendly and helpful to the company’s customers while providing the needed assistance.
Costco Success Despite the High Employee Compensation and Low Price Competitive Strategy
Over the years, Costco has continued to attract and retain its employees through offering better-than-average compensation. The company has also continued to enhance career development opportunities as well as rapid wedge growth (Spencer-McDaniel Sr, & Anthony, 2012). Costco continues to provide higher compensation to its employees and utilizes a low price competitive strategy, but remains successful due to its strategic business model. The company’s business model is comprised of selling a broad range of low as well as the high-end products at a very low markup. The CEO believes that the company needs high volume to become successful. The company increases its profits through having its returning clients pay membership fees. In their article, Certo (2015) noted that offering the highest quality shopping experience is of great importance in enhancing customer loyalty as well as satisfaction, which the membership model requires. The company’s CEO believes that the quality of its employees played a significant role in attracting and retaining customers because it formed the basis of the company’s accomplishment in guaranteeing high volumes as well as returning customers.
Michael Porter’s Theory of Competitive Strategy
Michael Porter’s Theory of Competitive Strategy is a relevant theory, which applies to the Costco’s CEO leadership behavior. The concept of competitive strategy helps in describing leadership attitudes; which companies utilize to outperform their competitors. According to the theory, there exist two key long-term strategies, which retailers can utilize to attain a competitive edge in the marketplace: differentiation as well as low cost. Over the years, Costco has successfully reduced product choice (which translates into savings due to lower rental costs, increased bargaining power, and faster inventory turnover), and utilized the self-shopping environment. The reduced investment through customer ratings, the absence of physical stores, and drop shipping has helped the low cost retailer attain a competitive edge in the marketplace. Besides, the presence of photographic images in the company’s online shopping website has helped the company to substitute its sales assistants (Chemers, 2014). Traders have also continued to offer success through the aid of a differentiation strategy, which is applied by all the levels of sales representatives, trained and dedicated staff, specialized merchandise in the entertaining and exciting shopping environment.
Conclusion
Since this paper has established that Costco intentionally applies FLT to all its organization’s operations, it validates and justifies the theory. It is, however, unclear on whether the company’s CEO solely implements the presented ideas at his level of management or relies on the emotionally intelligent and innovative managers. On the relevant issues discussed in this paper, it is important to conclude that flexibility at the organization will be more productive only when the available resources are utilized by Cosco’s leadership.
References
Certo, S. (2015). Supervision: Concepts and skill-building. McGraw-Hill Higher Education.
Chemers, M. (2014). An integrative theory of leadership. Psychology Press.
Northouse, P. G. (2015). Leadership: Theory and practice. Sage publications.
Spencer-McDaniel Sr, J. A., & Anthony, P. (2012). Sustainable Solutions Paper: Several Strategic Analyses of Costco Wholesale Corporation.
