THE STRATEGIC THE STRATEGIC MANAGEMENT PROCESSMANAGEMENT PROCESS[How to Analyze a Case][How to Analyze a Case]

Dr. Ellen A. DrostDr. Ellen A. Drost

Mgmt 497Mgmt 497

COSTCOCOSTCOHow to Analyze a CaseHow to Analyze a Case

• MissionMission– Values, goals, business modelValues, goals, business model

• Current StrategyCurrent Strategy– Strategic challenges, critical issues, current Strategic challenges, critical issues, current

situationsituation

• Environmental AnalysisEnvironmental Analysis– External: General and Porter Five Forces ModelExternal: General and Porter Five Forces Model– Internal: Resources and CapabilitiesInternal: Resources and Capabilities

• SWOT AnalysisSWOT Analysis• RecommendationsRecommendations

COSTCOMission and Objectives

• What is Costco’s business?

• What is Costco’s Mission?

• What are Costco’s Goals?– How do we reach our Mission?

•Specific

•Quantifiable

•Time frame

•Consistent

Costco’s Mission•Mission Statement:

–“To continually provide our members with quality goods and services at the lowest possible prices.” C-9)

–So, How is Costco going to accomplish its mission?

Costco’s Business ModelCostco’s Business ModelWhat is Costco’s Business Model?

•Generate high sales volumes

•Rapid inventory turnover by offering low prices

•Limited selection of nationally branded merchandise categories

What are the elements of Costco’s Business Model?

•Operating efficiency

•Volume purchasing

•Efficient distribution

•Self-service warehouse facilities (reduced handling of merchandise)

What is Costco’s Business Philosophy?

•The following five business principles :C-19,-20)

•Obey the law

•Take care of our members

•Take care of our employees

•Respect our suppliers

•Reward our shareholders

Mission & Business Principles

•What do Costco’s mission statement and business principles tell you about the company’s corporate culture?

•What do Costco’s mission statement and business principles tell you about the company’s strategy?

•How does Costco’s corporate culture affect its strategy?

Costco’s Business Principles

• Has Costco followed its guiding principles (to help measure) to run its business?

• Yes, by making Costco a great place to work. Look at some of its HRM practices:

•Selection

•Compensation

•Benefits

• Do the practices match corporate values and business principles?

Costco’s Strategy• What business are we in?

Does Costco offer additional businesses or services to its members? Banking, insurance, loans (3rd parties)

•Business level: single business

• How do we compete in our business? What is Costco’s Strategy?

•Corporate level: multiple businessesWhat businesses are

Costco’s Strategy

•What is Costco’s Business Level Strategy? How should we compete in our business?

•low prices, limited selection, and a treasure-hunt shopping environment.”

•Generic strategy? Low-cost leadership

Elements of Costco’s Strategy• What are the key elements of Costco’s strategy,

or how does Costco implement its strategy?C9-18)

•Pricing

•Product selection

•Treasure-Hunt Merchandising

•Growth Strategy– Increase sales by 5% or more annually– And open new warehouses, nationally and internationally

C-14

Costco’s Strategic Costco’s Strategic ChallengesChallenges

•What are Costco’s Strategic Challenges?

•Sustain growthHow?

Industry AnalysisIndustry Analysis•What industry does Costco compete

in?

•Porter Five Forces Model– Rivalry among competing firms– Power of substitute products– Barriers to entry– Economic power of customers

– Who buys at Costco/ memberships here

– Economic power of suppliers – Warehouse operation, here

Industry Analysis: competitionIndustry Analysis: competitionFive Forces ModelFive Forces Model

SuppliersSuppliers

PotentialEntrants

PotentialEntrants

BuyersBuyers

SubstitutesSubstitutes

RivalryRivalry

Industry AnalysisIndustry Analysis•Porter Five Forces Model

•Rivalry among competing firmsWho are Costco’s major

competitors?How strong is rivalry?Are there many firms competing

with Costco in in the warehouse retail market?

•Power of substitute productsAre their any substitutes for the

Costco experience?•Barriers to entry

What are the barriers to entry?

Industry AnalysisIndustry Analysis•Porter Five Forces Model

•Economic power of customersHow powerful is the customer?Does the customer have many

warehouse retailers to choose from? Brand loyalty?

•Economic power of suppliersHow powerful are the suppliers?

Are there many suppliers that Costco can choose from? How important is Costco to suppliers? Are suppliers interested in building a relationship with Costco?

SWOT AnalysisSWOT AnalysisStrengthsBrand recognitionCorporate CultureMerchandizingOther?

WeaknessesWeaknessesNarrow product lineOther?

OpportunitiesOpportunitiesInternational marketsProduct linesOther?

ThreatsThreatsCompetition

RecommendationsRecommendations

•What would you recommend to Costco’s executives as it relates to Costco’s current position and challenges?