Costco Value Chain Analysis

Introduction

The aim of the SSP is to identify a firm in a competitive industry, and propose solutions to the problems it faces.  The paper covers corporate strategic thinking, complexity analysis, systems thinking, and sustainability analysis. The major problem addressed in the paper is Costco’s ability to develop a suitable value chain, which can increases profitability and maximize shareholder’s value.  Costco is one of the leading global retailers, specialized in selling a wide range of merchandise, ranging from local to international brands.

The tools presented in this paper provides Costco with an opportunity for transforming its business activities relative to the industry rivals, with the aim of creating profits and raising the company’s value.

Executive Summary

The paper has two major parts. The first part applies traditional strategic thinking, which includes applying the complexity analysis of key issues affecting Costco and a sustainability analysis. These tools address the challenges surrounding Costco’s business operations and profitability.  The first part includes stakeholder identification and value analysis, general forces analysis, value chain analysis, SWOT analysis, key factors to success analysis and Porter’s five forces analysis.

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The second part is a complexity analysis of Costco, which includes industry evolution modeling, action plan analysis, Boid analysis, Life Cycle Assessment and Sustainable Framework Analysis.

Analyzing the Company Strategy Type

Action Plan Analysis

Costco’s current strategy originates from its mission and vision. The company pursues three of the four generic strategies, which are low cost leadership, customer relationship and differentiation. These three exposes the company’s strategic intent thinking to achieve global leadership.

  A keen Alignment and Goals analysis shows that employees at Costco support the company’s strategy. However, the employees have the required skills to make the strategy work, and on top of this, they are well paid and motivated. Costco’s action plan analysis can increase profit margin to 18 percent and operating profit margin to 10 percent by 2017 (Farfan, 2010).

Boid Analysis

Industry Evolution Modeling

The Boid analysis reveals three major rules governing the retail industry, which Costco values. The first one is to have a customer driven focus through adding value to the product mix. The second one is to maintain a flexible pricing strategy, and offering promotion services to customers. The third one is to adopt global cultural changes through adapting to clients preferences changes. This means delivering specific services and products to a particular culture or country.

The Industry Evolution Modeling analysis reveals Costco’s determination to advance and match with the new ways of doing business. The company can improve its industrial positioning by coming up with premier membership requirement. It is clear that Costco forgo short-term profits for long-term stability and viability and increasing shareholders’ wealth.  In addition to this, Costco slowly adopts new technology that draws customer attention and can expand development initiatives and research (Bloomberg, 2011).

Life Cycle Assessment

Sustainable Value Framework Analysis

The Life Cycle Assessment for Costco shows that Costco understands the environmental risks which originate from warehouse operations.  Costco tries to mitigate the risks associated with the environment such as loss of reputation caused by not obeying environmental rules. Costco monitors the reports on four major greenhouse gases which are carbon dioxide, nitrous oxide, hydro fluorocarbons and methane.

The Sustainable Value Framework provides an internal and external focus for what is happening today and what might happen tomorrow. This roadmaps a given strategy and drives success and is associated with a given payoff. Costco’s internal sustainability for today is to prevent pollution, minimize material consumption, and reduce waste. The payoff is reducing business costs and risks. For tomorrow, Costco’s internal strategy must reduce carbon footprint, create a cleaner technology, and avoid environmental disruption. The payoffs for this are competitive repositioning and further innovation (McKinsey, 2012).

The external sustainable for today focuses on transparency, connectivity and drawing attention of the civil society. The pay offs are social legitimacy and increased brand reputation. For tomorrow, the external strategy ought to address depletion of resources, poverty and climate change, and the payoffs would be trajectory for permanent growth.

Detailed Analysis of All Quadrants

The information presented above reveals that Costco can improve its profitability by focusing on the four quadrants. To achieve permanent growth, the company must participate in campaigns that are aimed at preventing resource depletion and climate change. This way, Costco’s brand image will become popular among the members of the public, which can increase its customer base and hence profitability.

Table 2: Sustainable Value Framework

Conclusions

Costco tries to operate in accordance with its mission and vision in order to meet performance goals. The company strives for sustainable future. It does this by coming up with programs that can cut costs and reduce pollution. Costco’s expansion to global markets seems limited. In addition the company has a strict Code of ethics when establishing partnerships. Costco continuously offer discount services to its buyers. From the above analysis, it is clear that Costco aims at long-term growth other than short-term profitability. This explains why it short-term profits margins are smaller compared to that of its competitors, Wal-Mart and Target Corporation.

References

Bloomberg Business Daily (2011, November 24). Costco Wholesale Corp. Retrieved from http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=COST

Farfan, B. (2010, September 10). 2012 Retail Store Closings Roundup: U.S. Retailers Closing or Liquidating Stores: Complete list of U.S. Retail Chains Downsizing or Going out of Business in 2012. About.com. Retrieved from http://retailindustry.about.com/od/storeclosingsandopenings/a/2012-Store-Closings-US-Retail-Industry-Liquidations-Roundup-Chains-Going-Out-Business.htm

McKinsey & Company. (2012). The value proposition in multichannel retailing. Retrieved from https://www.mckinseyquarterly.com/The_value_proposition_in_multichannel_retailing_2800