M3A2, M4A2, M5A2 Capstone

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Turnitin Originality Report

Capstone Experience in Integration & Strategy by Jesse Heineken

From Quick Submit (Quick Submit)

Processed on 16-Sep-2013 8:18 PM EDT ID: 352595042 Word Count: 2529

Similarity Index 69% Similarity by Source

Internet Sources: 1%

Publications: 0%

Student Papers: 69%

sources:

39% match (student papers from 04-Sep-2013) Submitted to EDMC on 2013-09-04

21% match (student papers from 03-Jul-2013) Submitted to EDMC on 2013-07-03

9% match (student papers from 23-Jun-2013) Submitted to EDMC on 2013-06-23

paper text: Introduction Costco is a membership warehouse association that aims to give members competitive prices on a wide selection of quality brand merchandise. It has many locations across the globe and offers expediency and exclusive associate member’s services.

2It operates subsidiaries in countries such as U.K, Japan, Canada, Australia

and Mexico. The company aims to keep costs

down and pass the same benefits to members. It achieves this by buying a majority of its merchandise from manufacturers at discounted rates. Shopping can be done through their physical warehouses or online. Items sold include hardware, electronics, and stationary, food, sporting items, automotive supplies, beauty aids, medicine, gas and optical services among others. Its competitors include Target, Amazon, Home depot, Wal-Mart, Staples, Office depot, Kroger among others. The company’s vision is to offer the

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best value to customers. Its strategic value include best value, best price treat all well and act ethically. Value proposition In the current economic conditions, customers are keen to save more money and take advantage of any opportunity that comes around. Costco allows it customers to buy in bulk and obtain quantity discounts and low product prices. The company additionally delivers the bought items to customer’s locations. This model of buying bulk quality items and paying lower prices is the Costco value proposition. Market position The company offers

2itself as a solution to bulk buying. They want to provide convenience, ease

and fast services. The company extends services to potential customers who would usually not be reachable by offering

value (value proposition) and the customer needs.

2This market positioning is unique since it offers an opportunity for

professional relationship between the company and customers. Costco

provides limited products lines and assortments as a way of avoiding being everything and ending up offering poor services. Competitive advantage Costco enjoys a strong reputation for providing better value to customers and other stakeholders. Costco focuses on offering exceptional deals on elegant and sought after sophisticated items at low prices. The company uses its bulk model to lower overheads and offer lower prices. It has ventured into international markets hence able to source from a broad base for skills and other input resources. The human resources are the greatest assets and Costco ensures it has the best in terms of training, motivation and loyalty. Low labor turnover reduces costs and expenses associated with new employee training costs, transition costs, and recruitment costs (Gomez- Mejia et al, 2008). Employees and management are able to plan and implement long- term mutual career programs.

2Costco has a strong loyal customer base and provide exceptional

customer service. All these create a strong reflection of a

responsible corporate citizen. The private label is another competitive aspect for Costco.

2The company reputation has influenced the creation of a strong private

label in the retail industry. The

company has embraced adoption of new technology to keep pace with the changes in the environment. Costco has identified and known its customers well. The small businesses are especially an interesting segment that Costco identified and are currently an important market segment. Costco has maintained minimal markups, which is unusual for discounters. Most discounters use a strategy of low price to attract customers, but they also raise prices of particular popular items to compensate for the lower margins. This strategy ensures that Costco customers continue to enjoy lower prices. Costco is already heavily

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diversified in its range of products that also include home loans, insurance, car loans and considers student loans in the future. It has a strong managerial background. As earlier noted, the company has good employee policies and hence it can manage retain most of its employees who build their careers and rise through the ranks. Presence of a significant number of ‘’home made’’ senior executives are a plus since they are already knowledgeable about the business and this enhances efficiency and effectiveness (Costco, 2013). The company uses less resource on marketing campaigns but instead uses the ever effective word of mouth approach. Applying unique tactics ensures that they are not easy to duplicate by competition and consequently this ensure an advantage (Thompson et al, 2011).

1External environmental scan/five forces analysis Current environment The

trending topics include globalization, new and emerging economic powers such as the BRICS countries, a sluggish economic recovery, and regulation of systems across the globe. Others include discerning and value oriented customers, rising competition in all industries and enhanced democratic/political freedom (Farabi, 2012). These settings open new frontier for the retail industry and means that, Costco and others will have to be proactive in response to these developments. Assessment of external factors applying five forces Michael Porter (2008), five forces tool is a simple yet powerful tool to comprehend where power lies in a business situation. It helps to understand current competitive strength and strength of the endeavored position (Porter, 1996). Clarity of strength in a competitive position will help Costco to take advantage of its strength and amend weak points. Supplier power In this, assessment is on the ability of

Costco suppliers to drive up price. This is also called the market of inputs. Abilities of these suppliers to influence Costco will depend on a number of suppliers on key inputs, uniqueness of their products, strength they possess and the sunk or switching cost. The few the supplier options for

Costco and the more it depends on them the more the balance of power lean in favor of suppliers. The number and size of suppliers for Costco is large and provide common goods for mass market. Costco has a wide selection of suppliers where it can source from the global market. The company has the agility, and it can easily switch from one supplier to another and from one brand to another. Its turnover is massive, and this can easily entice any supplier, and it also benefits players due to economies of scale. Its many outlets provide it with an edge in regard with potential partners. Employee unions have lately weakened and this provide the company with an opportunity to manipulate their issues. Despite the weak unions, Costco has remained fairly considerate in regard to employee’s

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welfare. Costco has continued to embrace introduction of private label and this pushes power in its favor. Buyer power It refers to the ease for purchasers to drive prices down. It is also referred to as the market of outputs. Factors influencing this include number of buyers, importance of individual buyers, and cost to switch from Costco to others. Costco deals with many buyers and it has a unique value proposition. Although the price is a key factor for most Costco customers, studies have shown that the clientele base is wealthier compared to other competitors in the industry such as Wal-Mart. Buyers are concentrated, and many as the membership runs into millions hence their single acts or decisions can not significantly influence the power. It is clear from the analysis that the balance of power and competitive edge lies with Costco especially in relation to strategy formulation. Competitive rivalry Consideration is on the numbers and capabilities of competition. Wal-Mart (Sam’s Club), Target, and BJ’s Wholesale club are some of the main competitors for Costco. The competitors offer similarly attractive products and others such as Sam’s Club offer lower prices. This situation means that customers can easily switch if they do not get superior value from Costco. The move to international markets is as a result of intense competition in the domestic arena for the industry. Costco has been received well in foreign markets especially Canada, and this gives the company opportunities for profits and growth. Costco enjoys a strong customer loyalty despite the low degree of product differentiation, and this reduces intensity in competition. Costco has sustained its competitiveness through innovation as a means of reducing prices and increasing efficiency. Threats of substitution There are many other options to shopping including the numerous online platforms, neighborhood retail shops among others. These options provide alternatives for Costco customers. Buyers are flexible and can switch to other options easily without switching cost or inconvenience. The products are not highly differentiated and switching information is easily available. This scenario gives the balance of power in favor of customers and the industry. Threats of new entrants New entrants alter the industry setting and may easily change market share and profit margins. High profits attract new players and consequently affect the profitability. Current players and industry structure can block entry through patents, rights, and capital requirements. The wholesale industry is a high barrier and low exit industry making it favorable for existing players. Costco has a strong brand name

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and enjoys economies of scale. New entrants will face stiff challenges of access to distribution, sunk costs, capital requirements, loyal existing customers, low profit margins, cost disadvantages, and government regulations. The current scenario favors Costco and other existing competitors.

3Strategic Issues Environmental concerns The size and scale of the

company makes it a significant contributor to the pollution of the environment. Waste packaging material, disposal of broken and obsolete items by the company and customers, and selling of products whose origin contributes to destruction of the environment are some of the key issues of

concern.

The

3company needs to devise water tight systems that will ensure disposal of

material conform to the best practices and laid standards.

2More need to be done to ensure harmful energy forms such as fossil fuels

are replaced fully with eco-friendly alternatives. Management of skills and expertise Costco

relies heavily on

2in-house career progression. Employees rise through the ranks to occupy

senior positions in the company. Although this system has worked well, there is a risk of monotony

and lack of challenge to motivate employees to give their maximum potential.

3A balanced and scaled program need to be established to ensure external

recruits inject the much needed alternative approaches and skills that will enhance innovation and sustained competitive advantage.

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2Strategic alliances The industry is quite competitive and to be able to

cope, some methods such as mergers and alliances will help face challenges of competition. Costco is the leader in warehouse retailing concept and acquisitions of smaller companies may be of critical importance in sustainability of its low price high volume approach. Costco relies heavily on independent supplier and this may pose a strategic risk. Controlled vertical integration may provide the necessary stability to ensure consistency in the supply and quality controls. Focus on private label

should be taken a step further and ensure the

percentage level is higher. Private labels foster corporate image and loyalty for an organization (Garretson et al, 2002).

3Competitive advantage These are distinctive capabilities which are not

easy to replicate (Williams, 1992). At Costco, they include strong brand name,

leadership in innovation, implicit knowledge & skills,

teamwork, partnerships, and distinct

3business processes. A synergetic combination of distinct and the easy to

replicate capabilities (technology, funds and marketing) provide the much

needed sustainable competitive advantage and attainment of Economic Value

Added (Akbar, 2012). The

recent move in acquisition

3is a move towards enhancing EVA. Costco addresses competitive advantage

through competencies and

capabilities, dynamism, innovation, customer focus and distinct processes and organization. Capabilities This refers to the

3ability of the available resources to perform a task.

The continued use of

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3certain processes in set manner ensures perfection, and it becomes difficult

for others to imitate (Barney, 1991). The

3systems and processes at Costco encourage and motivate both individual

and group activities.

They are easy to learn and use by the staff, and at the same time they are complicated to copy by outsiders. The retail industry is saturated with systems that are quite clear. Despite the trends in the industry, Costco chose systems that are unique and ideal for the company. An outsider will not quickly comprehend the systems, yet they are highly simple for the staff. At Costco, features that depict essential elements of capabilities include leaders, groups & teams, empowered workers, organization knowledge unique to Costco, distinct business processes, well defined organizational structure, systems and technology and resources.

2Resources The resources are sourced from a broad range of suppliers both

at local and international markets. The company has a pool of qualified, trained and loyal employees who are highly motivated to achieve set targets. The technology used in the company is continually upgraded to

incorporate the emerging needs for its customers. The financial statements reflect a healthy financial status with optimal liquidity, assets and capital to manage its operations. The financial resources are sufficient to handle any significant investments or shocks in the industry. The widely recognized and acknowledged name and image are an asset that the company uses and

can use in the future to aid in marketing and sales activities mainly in new

market or when sourcing for new partners. The entrenched structure provides a significant competitive advantage for the firm as it adapts in diverse overseas markets. Recommendations Promotion The analysis reveals that the company uses minimal promotions and depends on word of mouth. It is essential to keep costs and expenses low especially in activities that can be done through other methods. Despite this, the expected stiff competition in the future should compel Costco to think of other promotional activities such as advertising.

3Grow portfolio and diversification Diversification into other areas of

business will provide the necessary leverage for the next growth phase.

Innovations will play a critical part in enhancing competitive advantage in

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future.

2Improve e-commerce The Costco direct the start and the company need to

improve the services in terms of reach for deliveries, online platform design and promotions. Strategy Costco has applied several strategies that together work to enhance its competitiveness. They include enterprise, corporate, business, operational, group and individual strategies. The integration of the strategies offer optimal results if well balanced. International expansion Increase international presence since the company is not yet in strategic economies such as larger Europe, China, India and Africa. Costco can achieve international presence through acquisitions, partnerships and direct investments.

1Legal issues and diversity Costco should streamline systems and

practices to ensure adherence to policies and regulations. Regulation measures in the online market segment is increasingly attracting serious challenges such as account hackers, credit card infringements or fraud and access to and use of personal information of individual customers. Enhance gender and disadvantaged segments diversity at the workplace. It should also apply in supply partners in order to sustain competitive front. Economic and societal factors and trends The economic condition is a challenge to many families and consumers are increasingly seeing optimal value proposition (Jackson et al, 2003). Consumers are looking for supply sources that can assure them maximum value. The society is increasingly resulting to e-commerce for supplies to convenience, variety, and cost advantage. The time availability for shopping is limited with a tight work-life balance. This sets a firm basis for enhancing online commerce and one-

stop-shopping or convenience shopping. Technological factors and trends The retail industry is changing at a fast rate due to technological advancement. Technology has considerably improved efficiency and effectiveness (Peterson et al, 2010). Many organizations are using technology as a source of competitive advantage. Technology is affecting critical areas of inventory, logistics, control, monitoring, security and other operational aspects.

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