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1 Organizational Leadership Strategies: The Case of Costco Company Student’s Name Institutional Affiliation Course Professor’s Name Date

2 Organizational Leadership Strategies: The Case of Costco Company Contents Connect Leadership to Strategic Leadership ................................................................................... 3 Introduction to the Company ........................................................................................................... 3 Organization Leadership Overview ................................................................................................. 4 Three Key Challenges and Solutions ........................................................................................... 6 Management Areas That Need Attention ..................................................................................... 9 Proposed Solutions: Supply Chain Management Optimization ................................................. 10 Proposed Solutions: Digital Innovation Reincarnation .............................................................. 11 Timeline and Strategic Measures ............................................................................................... 11 Supply Chain Management Optimization .................................................................................. 11 Digital innovation Reincarnation ............................................................................................... 12 Ethical Challenges and Implications .......................................................................................... 13 Summary ................................................................................................................................ 14 References .............................................................................................................................. 16

3 Connect Leadership to Strategic Leadership Organizational leadership is an integral aspect of overall strategic leadership. According to Northouse (2021), an effective leader showcases traits of effective leadership frameworks, such as influencing and helping followers realize their strategic goals and objectives. It implies that leadership entails working with various people to cultivate a performance culture to achieve common goals. Like leadership, which is concerned with influencing performance, strategic leadership fosters strategic thinking to overcome the prevailing organizational challenges. For example, strategic leadership involves a leader anticipating, envisioning, and flexing all strategies he/she believes can help address organizational challenges. While thinking strategically, a strategic leader envisions working with followers to figure out and implement transitions, ensuring an organization succeeds in their endeavors. Therefore, leadership and strategic leadership are correlated as they foster working with and influencing followers to exude unique performance to enhance organizational success. Introduction to the Company Costco Wholesale is one of the leading supermarket retailers in the United States of America, with its warehouse clubs operating in over eight countries. It was founded in 1984 by the current CEO, Walter Craig Jelinek, in Morena Boulevard, San Diego, the US. The company operates as a membership club, committed to offering its clients high-quality goods and services at relatively low prices (“Costco Wholesale,” 2023). Despite starting as a small entity serving Morena Boulevard’s locals and operating under Price Club, it has grown into one of the largest retail firms globally, serving customers from various countries. It provides its vast customer segments with many goods and services. Its operating philosophy is to keep costs low and pass

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4 the savings to customers. However, to realize this philosophy, the company has often leveraged its large membership base, tremendous purchasing propensity, and never-ending quest for efficiency, offering the best prices in the retail industry. It has shifted its strategies to align with the changing issues in the global retail industry, such as sustainability and competition. Its leadership understands the paradigm shifts in the industry and has aligned its leadership approaches to address emerging issues, such as employee satisfaction, high wages, and a strong company culture. Therefore, it has emerged as one of the companies offering positive work environments, as its leadership fosters alignment with the shifting dynamics in the industry. Besides, although its leadership has demonstrated remarkable progress in adapting to changing dynamics in the global retail landscape, Costco Company still grapples with several challenges. Its core challenges include intensive competition forces in the retail industry, mainly from e- commerce retailers, shifting consumer tastes and preferences, sustainability, and increasing operational costs. Organization Leadership Overview Costco Wholesale's success in the global retail industry correlates to its strategic leadership. As one of the prominent retailers in the US and global retail industry, it is associated with exceptional organizational leadership, including the likes of Craig Jelinek (CEO) and Richard Chaves (Vice President) (“Costco Wholesale,” 2023). Since its inception in the 1980s, the company has operated under the philosophies of obeying the law, taking care of employees and members, respecting suppliers, and rewarding shareholders. Its success in realizing these values to stakeholders is attributed to the current chief executive officer, Craig. Craig is described as a visionary and strategic leader concerned with steering this company to success. Over his tenure, Costco has recorded recommendable success and sustained growth, navigating

5 through the challenging retail environment occasioned by fierce competition from online retailers such as Amazon and Alibaba ( Bauner & Wang, 2019). As learned in the course, Craig Jelinek exhibits traits of transformational leadership. According to Northouse (2021), transformational leadership fosters changing individuals and social systems to influence or spur performance. Like a transformational leader, Craig is concerned with sustained growth and success, which he achieves through the incessant creation of long-term values to nature and triggering innovative culture among employees. He has succeeded in cultivating and maintaining a culture of innovation. This trend has enabled Costco to navigate challenges in the global retail industry, including launching its e-commerce segments to rival the likes of Amazon (“Costco Wholesale,” 2023). Besides, he has demonstrated massive success in aligning with the changing customer tastes and preferences in the market through innovation and the integration of sustainability practices within its supply chain frameworks. Hence, under Craig's leadership and management, Costco has sustained its dominance in the industry as it continues to uphold core values and philosophies. Costco Wholesale's leadership has often fostered employee empowerment and engagement, positioning it as one of the leading companies with positive work environments globally. From the top to the bottom leadership, employees' welfare is emphasized by its commitment to cultivating a culture of passion, pride, and integrity and treating human resources respectfully and the right way. Costco uses a decentralized organizational structure, allowing autonomy not only at the top management levels but also at operational levels. According to Junge et al. (2023), a decentralized organizational structure has several operational levels, including middle and lower-level managers making vital business decisions aligning with decisions at the top-level management. It implies that in a decentralized organizational structure,

6 the executive managers hardly engage in decision-making as most roles are assigned to team members. Costco's leadership style is evident as its executive leadership values employees' contribution to the company's success, including engaging them in vital business decision- making. Equally, based on employees' commitment to organizational success, Costco compensates their commitments by offering them competitive remunerations and other fringe benefits, such as health and education insurance. Hence, its employees are some of the most satisfied workforces in the US retail landscape and globally. It also witnesses low employee turnover rates due to effective leadership, attributed to implementing and applying employee- centric strategies. Besides, due to the changing dynamics in the labor markets, Costco's leadership has acknowledged the significance of equity, inclusivity, and diversity among its workforce, establishing a work environment fostering diversity and collaboration. In the next section, the study delves into three key challenges facing this organization. Upon identifying these challenges, the study proposes probable solutions. Three Key Challenges and Solutions This section identifies three key challenges facing Costco Wholesale. As one of the companies operating in the global retail industry, which is highly challenging, this company is grappling with several challenges, including competition and market saturation, employee retention and satisfaction, and sustainability and environmental impacts ( Lim et al., 2021). Unlike in the past, the current retail industry is highly challenging, and Costco struggles to overcome these challenges. Although its leadership has demonstrated a significant commitment to enhancing its sustainability and competitiveness, it is not out of these challenges exclusively. Hence, it must address these challenges comprehensively, enhancing its competitiveness and

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7 sustainability. Hence, in this section, the identified three key challenges are examined and explored explicitly, proposing strategic frameworks to address them conclusively. First, Costco Wholesale is grappling with competition forces in the global retail industry, from conventional brick-and-mortar stores to online retailers. Over the recent past, the global retail industry has witnessed remarkable paradigm shifts, being instigated by technological advancements and disruptive innovation, such as e-commerce platforms like Amazon, Alibaba, and Walmart ( Bauner & Wang, 2019). Despite starting its operations less than two decades ago, Amazon has won significant market shares in the retail industry, claiming a significant portion of Costco, which mainly operates as a brick-and-mortar store. Apart from online retailers, it is also encountering massive competition from firms like Target and Sam's Club, which use the same business models to enhance their competitiveness in the market. Amidst increasing competition in the retail industry, it is also struggling with declining market capacities, leading to slower growth rates and reduced market shares ( Bauner & Wang, 2019). However, the company can address these challenges by leveraging the e-commerce segments to enhance its online presence because the industry favors online retailers over brick-and-mortar stores. The framework is vital because Costco already has a comparative advantage in strategic distribution using the existing physical stores scattered across eight countries ( Kohan, 2023). While leveraging e-commerce, it must invest heavily in online marketing, using platforms like Facebook, Instagram, and Twitter. Secondly, Costco Wholesale is struggling with retaining and satisfying its employees, especially since the cost of living is soaring globally. Brooke (2023) observes that Costco's administrative expenses, such as labor costs, increased by 5.3% to 8.9% in 2023, indicating the mounting pressure to maintain and retain its employees. According to this report, as Costco's administrative expenses increase, its sales decline due to the declining purchasing propensity

8 among consumers globally. For example, its average ticket size has declined to 3.9% from 4.5% across the United States. Hence, raising the necessary revenues to continue offering employee- centric strategies has become a significant challenge. As pressure mounts on this firm to continue enhancing its employees' well-being, it must leverage various strategies to achieve this goal, including shifting from monetary-based to non-monetary motivations. For example, while Costco continues offering competitive salaries, it can consider scaling down other monetary benefits and introducing strategies like enhancing employee benefits, training, and career development programs. The framework will ensure that it motivates its employees and furnishes their skills and knowledge to tackle emerging challenges in the retail industry. Likewise, while administering these programs, its human resource managers and relevant management must coordinate with employees to understand emerging needs and grievances. For example, the company should establish a feedback mechanism that captures and incorporates all employee issues within the organizational strategies. Some of the issues that have emerged in the current retail landscape are diversity, inclusivity, and equity. Therefore, training programs adopted should incorporate these issues, helping this company cultivate a culture fostering the establishment of a positive work culture. Finally, Costco is grappling with environmental and sustainability concerns due to its carbon footprint, which contributes to climate change. According to Ken (2023), Costco's emission from Scope 3 is about 141 million metric tons. He asserts that Scope 3 emissions account for 98% of the company’s global CO2e. Therefore, there is an immediate need to address this company's footprint, reducing the increasing consequences of climate change. Besides, consumers are becoming environmentally savvy amidst increasing sustainability challenges. Ken (2023) observes that Costco sources its products across countries globally, indicating that it

9 works with various suppliers. Since Costco works with various suppliers, it hardly identifies their commitments to sustainability practices. It implies that as its customers demand sustainable products, some of the materials used in manufacturing its products cannot meet the expected sustainability standards. Therefore, as pressure to address sustainability challenges within its multi-connected supply chains increases, it is important to adopt various strategies that could help it reduce its carbon footprint. For example, the company must start working with sustainable suppliers and incorporate sustainability practices within its supply chain networks. It can adopt strategies like eco-friendly packing, replace fossil fuel with solar and electric energies, and source from sustainable suppliers exclusively. Equally, it must leverage technology in addressing its carbon footprints, such as enhancing traceability to reduce scope 3 footprints. Management Areas That Need Attention The two management areas addressed in this section include supply chain management and digital innovation. Costco Wholesale's success and sustainability in the current competitive retail industry depend on its supply chain management practices and disruptive innovation. Jason (2020) observes that since the coronavirus pandemic, Costco’s supply chain practices have witnessed remarkable challenges and must navigate the evolving landscape to enhance its competitiveness and sustainability during the coronavirus pandemic. Besides, Costco sources its products across various countries, a trend that exposes its supply chain management frameworks to various disruptions (Wang et al., 2020). Sustainability concerns among environmentally-savvy customers are also a significant challenge, necessitating streamlining its supply chain practices to adapt to the changing dynamics in the retail industry. Addressing these management challenges will ensure that Costco successfully mitigates the increasingly global supply chain disruptions to improve its inventory management and enhance cost efficiency. Likewise, digital innovation has

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10 emerged as a competitive advantage, which has disrupted the global retail industry. Unlike its rivals like Amazon, Walmart, and Alibaba, Costco's digital innovation is relatively below the industry standards, implying that its management has not leveraged shifting marketing parameters to align with the changing consumer behaviors. Hence, it must embrace digital innovation alongside brick-and-mortar stores to improve its online presence and capitalize on increasing customer segments. Proposed Solutions: Supply Chain Management Optimization While Costco's supply chain management practices face challenges, optimizing them would help it overcome the prevailing challenges. For example, through supply chain optimizations, it will leverage technologies like data analytics and real-time tracking, ensuring it identifies and works with sustainable suppliers, aligning with the increasing demand for sustainable products among environmentally-savvy customers. Equally, it should diversify its sourcing options, ensuring it works with various sustainable suppliers globally, limiting disruptions and enhancing the sustainable flow of goods and services to clients. The metric of this proposed solution is to help the company record a 25% reduction in its supply chain lead time within the next two years. Upon implementing these strategies, it will witness a 15% increase in the overall supply chain efficiency within the next two years. Proposed Solutions: Digital Innovation Reincarnation Like optimizing supply chain management frameworks, Costco must also reincarnate its digital innovation, enhancing its sustainable long-term profitability. For instance, the company must realign its e-commerce platforms, leveraging artificial intelligence and data analytics tools to offer target clients a seamless online experience. The framework will ensure that this company

11 uses AI-driven personalized content to market its goods and services through social media platforms like Facebook, Twitter, and Instagram. The key metric of reincarnating digital innovation is to increase Costco's online sales by 25% within one year. Upon implementing this strategy, the company will realize a 10% increase in customer engagement through core social media like Facebook, Twitter, and Instagram within six months. Timeline and Strategic Measures Supply Chain Management Optimization Timeline (months) Activity Strategic metric and rationale 1-6 - Comprehensive analysis of the current supply chain challenges. 7-12 - Optimizing supply chain management practices, adopting technologies like data analytics, backup channels, and real-time tracking systems 13-24 - Full implementation of supply chain processes based on analytics and real-time data. - Record a 25% reduction in supply chain lead times within two years. Achieving this metric indicates a significant milestone made by the company in enhancing its supply chain efficiency, such as reduced delays and enhanced responsiveness (Wichmann et al.,

12 2021). - Record a 15% increase in supply within two years. Realizing this goal indicates the company's ability to address supply chain- related challenges, such as reduced wastages, enhanced cost efficiency, and optimal resource utilization (Wichmann et al., 2021). Digital innovation Reincarnation Timeline (months) Activity Strategic metric and rationale 1-6 - Conducting intensive market research to identify the existing gaps in digital marketing. 7-12 - Launch advanced mobile applications barked with AI- driven data analytics. 13-24 - Launch the mobile apps alongside intensive social media marketing. - Record a 25% increase in online sales within two years. Realizing this metric indicates that the company has optimized its digital marketing campaigns, attracting more clients from digital platforms (Wichmann et al., 2021).

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13 - record a 10% increase in customer engagement across its digital platforms within two years. Achieving this goal implies that it has targeted and reached potential customer segments (Wichmann et al., 2021). Ethical Challenges and Implications Costco struggles with ethical challenges, such as fair labor practices and sustainability. According to Alexa (2022), Costco faces huge labor-related problems, especially wage policies, and work treatments, challenges that have emerged with the shifting dynamics in the retail industry. While it has often positioned itself as an employee-centric entity, it has encountered massive challenges to continue offering benefits aligning with this philosophy due to declining revenue volumes. Amidst increasing climate change consequences, Costco struggles to reduce its Scope 3 emission, one of the leading carbon emitters (Ken, 2023). It wants to work with sustainable suppliers, but the vastness of its supply chain management networks is making it unattainable. Therefore, it is at a crossroads, concerned with enhancing its sustainability practices, while some suppliers are curtailing all efforts implemented. Addressing these ethical challenges has significant positive implications for the company, including enhanced reputation, improved relationships, and improved regulatory compliance. For example, offering competitive remunerations to employees and meeting its sustainability goals will enhance its reputation among stakeholders, including customers, investors, and regulators. Likewise, failure to address these ethical challenges could have negative implications for the company, including disrupting its image, declining market share, and exacerbating the consequences of climate change.

14 Therefore, the company must address these challenges as they align with its strategic goals of being employee-centric and environmentally savvy. Summary Generally, the study has analyzed and explored Costco Wholesale's leadership and management environments, identifying core challenges it grapples with within the global retail industry. While its leadership has demonstrated remarkable commitments to enhancing its success and sustainability, it still faces several challenges, including intensive competition, employee satisfaction, and sustainability and environmental responsibility. It also grapples with ethical challenges like fair labor practices and sustainability challenges. The management areas requiring immediate solutions include supply chain management and digital innovation. Based on these issues, the study has proposed several interventions, including supply chain management optimization and digital innovation reincarnation. Equally, it must address ethical challenges by continuing to be an employee-centric and environmentally-savvy entity, enhancing its reputation and regulatory compliance, and improving its relationships with stakeholders. Therefore, Costco must address these challenges to grow and thrive in the increasingly competitive retail sector.

15 References Alexa B. (2022). Costco may have a huge worker problem. The Streets . https://www.thestreet.com/investing/costco-may-have-a-huge-workers- problem#:~:text=Costco%20Employees%20Demand%20Change&text=This%20fight %20has%20been%20continuous,so%20far%20are%20looking%20stark . Bauner, C., & Wang, E. (2019). The effect of competition on pricing and product positioning: Evidence from wholesale club entry. International Journal of Industrial Organization , 67 , 1-42. https://doi.org/10.1016/j.ijindorg.2019.102525 Brooke D. (2023). Costco earnings: Wage inflation 'a continued issue' for the retailer, analyst says. Yahoo Finance . https://finance.yahoo.com/news/costco-earnings-wage-inflation-a-

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16 continued-issue-for-the-retailer-analyst-says-181229362.html#:~:text=In%20Q4%2C %20selling%2C%20general%2C,ticket%20items%20and%20discretionary %20purchases . Costco Wholesale. (2023). Company profile . https://investor.costco.com/company- profile/default.aspx Jason G. (2020). The impact Of COVID-19 on US brands and retailers. Forbes. https://www.forbes.com/sites/jasongoldberg/2020/03/29/the-impact-of-covid-19-on-us- brands-and-retailers/?sh=6f557f6e1452 Junge, S., Luger, J., & Mammen, J. (2023). The role of organizational structure in senior managers' selective information processing. Journal of Management Studies , 60(5), 1178- 1204. https://doi.org/10.1111/joms.12918 Ken S. (2023). Costco is cutting its CO2 footprint by greening its energy supply and using energy efficiency. Environment and Energy Leaders . https://www.environmentenergyleader.com/2023/02/costco-is-cutting-its-co2-footprint- by-greening-its-energy-supply-and-using-energy-efficiency/#:~:text=It%20estimates %20that%20its%20Scope,reduce%20its%20Scope%203%20footprint . Kohan S., L. (2023). Costco members' loyalty seems immune to changes in leadership and price. Forbes . https://www.forbes.com/sites/shelleykohan/2023/10/24/costco-members-loyalty- seems-immune-to-changes-in-leadership-and-price/?sh=403556e17f88 Lim, S. F. W., Rabinovich, E., Park, S., & Hwang, M. (2021). Shopping activity at warehouse club stores and its competitive and network density implications. Production and Operations Management , 30 (1), 28–46. https://doi.org/10.1111/poms.13226

17 Northouse, P. G. (2021). Leadership: Theory and practice (9 th Edition). Sage Publications. Wang, Y., Xu, R., Schwartz, M., Ghosh, D., & Chen, X. (2020). COVID-19 and retail grocery management: Insights from a broad-based consumer survey. IEEE Engineering Management Review , 48 (3), 202-211. https://doi.org/10.1109/EMR.2020.3011054 Wichmann, J. R., Uppal, A., Sharma, A., & Dekimpe, M. G. (2022). A global perspective on the marketing mix across time and space. International Journal of Research in Marketing , 39 (2), 502-521. https://doi.org/10.1016/j.ijresmar.2021.09.001

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