Costco Wholesale Corporation’s organizational structure is based on the company’s current operations and locations. A firm’s organizational structure is the configuration used to interconnect different organizational components to address business needs. Costco’s organizational structure reflects the company’s current market presence. This corporate structure enables Costco’s effective management of operations in different markets. As the biggest membership warehouse club chain in America, Costco Wholesale has designed its structure to ensure successful management of its business in the U.S. and overseas. However, Costco must change its organizational structure over time to suit its expanding global operations.

Costco Wholesale moved ahead of Google to earn the title of America’s best large employer this year. To determine America’s best employer each year, Statista and Forbes survey 30,000 workers at U.S. Organizations, asking them questions about their work experience. Costco has consistently appeared in the top three. Costco’s buyers are constantly on the lookout for new and interesting items to bring into the store – and they’re always a great deal. Products as diverse as cars, wedding rings, custom pet portraits and an exclusive limited edition bottle of Johnny Walk 1805 Blue Label (price: $20,000) 7.

Costco Wholesale Corporation’s organizational structure is based on its operational presence in the U.S. and other markets. However, global expansion of warehouses/stores leads to changes in the firm’s organizational structure.

Features of Costco Wholesale’s Organizational Structure

Costco Wholesale Corporation primarily has a weak matrix organizational structure. This type of organizational structure involves a strong functional structure and a secondary divisional structure. Through the functional organizational structure, Costco groups employees according to business functions, such as marketing and accounting. On the other hand, through the divisional organizational structure, Costco groups business components according to location or market. Thus, the following are the main characteristics of Costco’s organizational structure:

Functional grouping (primary feature)
Geographic divisions (secondary feature)

The functional characteristic of Costco’s organizational structure presents the basic functions to maintain the retail business. These functions are carried out starting at the corporate level and affect the entire organization. The main functional groups at Costco are as follows:

Human Resources and Risk Management
Operations
Costco Wholesale Industries & Business Development
Finance
Foods & Sundries Merchandising
Merchandising – Fresh Foods
Construction
Information Systems
Legal
Accounting
E-Commerce and Publishing
Depot Operations

Geographic divisions are a feature of Costco Wholesale’s organizational structure that relate to the strategic locations of its operations. At present, the following are the main geographic divisions used in Costco’s business:

U.S. – Northeast
U.S. – Northwest
U.S. – Southeast
U.S. – Southwest
U.S. – Midwest
U.S. – Northern California
U.S. – Bay Area
U.S. – Los Angeles
U.S. – San Diego
U.S. – Texas
Eastern Canada
Western Canada
United Kingdom
Korea
Mexico
Taiwan
Japan
Australia

The functional characteristic of Costco Wholesale Corporation’s organizational structure applies to all the geographic divisions. For example, the Finance group affects all the geographic divisions of Costco worldwide. Also, there are more geographic divisions in the U.S. than in other markets because the company derives most of its revenues from the American market.

Costco Wholesale’s Organizational Structure: Advantages & Disadvantages

The main advantage of Costco Wholesale Corporation’s organizational structure is that the functional grouping characteristic supports organization-wide control. The company can easily implement new policies and strategies to take effect in all geographic divisions. Also, the geographic divisions are a characteristic of Costco’s organizational structure that presents the advantage of flexibility to adjust to regional market conditions. However, a disadvantage of this organizational structure is that it offers limited flexibility, considering the corporate and organization-wide effects of the functional groups headed at Costco’s headquarters.

References

Costco Management Training Programs

Costco Wholesale Corporation Form 10-K, 2015.
Csaszar, F. A. (2013). An efficient frontier in organization design: Organizational structure as a determinant of exploration and exploitation. Organization Science, 24(4), 1083-1101.
Damanpour, F., & Aravind, D. (2012). Organizational structure and innovation revisited: From organic to ambidextrous structure. Handbook of Organizational Creativity, 502-503.
Marengo, L., & Pasquali, C. (2012). How to get what you want when you do not know what you want: A model of incentives, organizational structure, and learning. Organization Science, 23(5), 1298-1310.
The Wall Street Journal (2015). Costco Wholesale Corporation – Company Info.

Understanding how to motivate employees is an important part of performance management. To stimulate productivity, many companies actively reward exceptional employees for their work. Instead of having a conventional employee reward system, Costco’s business model embraces a reward system that motivates employees in an unorthodox way.

The White House praised Costco’s business model, stating that “increased productivity, better morale and lower turnover rates” was attributed to the company’s commitment to its employees. Image from http://www.usatoday.com/story/money/business/2014/01/29/costco-wages-walmart-federal-minimum-wage-obama/5029211/

Costco Management Training Program Job

Unlike other companies, Costco does not provide incentives to employees after a given period of time. Alternatively, all Costco employees receive competitive wages, a benefits plan and other bonuses. This essentially removes the limitations of reward systems we are accustomed to seeing. In Steven Kerr’s article, “On the folly of rewarding A, while hoping for B,” Kerr states that many reward systems are poorly conceived because they actually reward undesired behavior. Employees are able to find and exploit shortcuts to earn rewards, which can actually prevent company-wide goals from being achieved in an effective and timely manner.

By rewarding employees before, rather than after, Costco employees are immediately more engaged, or committed to the company they are working for. I believe this particular type of reward system makes it easier for Costco to successfully set expectations for its entire workforce. Costco’s employees are more likely to embrace the company’s core values and make a contribution that benefits the organization as a whole, since they know that their role in the company is valued. Additionally, the above average wages that Costco employees are paid sets a benchmark that encourages stronger performance, which justifies Costco’s decision to spend more on its workforce.

Costco Employee Training And Development

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