Introduction
The success of an organization in the contemporary competitive business world is highly influenced by the type of leadership approach that is put in place. Evidence from current empirical organizational studies indicates that most of the firms that survive in the current market use a more flexible leadership strategy. The strategies aim at connecting both the customers and other stakeholders of the organization towards achieving the set goals. Successful organizational leaders utilize the principles and guidelines from various leadership theories. For instance, Costco is one of the most successful organizations in the USA because it embraces appropriate leadership techniques. As such, this retrospect research paper aims at extensively explaining some of the theoretical frameworks that Costco adopts in order to maintain its top position in the market.
The Success of Costco in Terms of Three Performance Determinants in Flexible Leadership Theory
From the case study, it is shown that Costco adopts a leadership strategy that focuses on the flexible leadership theory. Essentially, this theory focuses on achieving organizational performance. The theory takes into account mixed cultures, focuses on the global market, and outperforming the competitors (Yukl, 2013). To achieve this, the theory utilizes three fundamental performance determinants. The first determinant adopted by this theory is efficiency. Efficiency is the extent to which an organization strives to minimize the cost of getting products and services to its customers. In addition, this determinant ensures that an organization does not incur high costs in the production. Apparently, Costco utilizes and adapts this performance determinant to the later. It uses the most affordable means of the production and acquisition of its products while at the same time maintaining high quality (Bertrand & Schoar, 2013). Specifically, the organization leadership ensures that its products are of high quality as compared to its competitors.
The second performance determinant used by the theory of leadership flexibility focuses on adaptation (Yukl, 2013). This determines focuses on how swift an organization adapts to a changing market environment. It utilizes long-term sales increase, market share increase, and customer satisfaction and loyalty. Similarly, the organizational leadership of Costco uses this performance determinant in its operations. The company has stores in 37 states of the USA and other outlets in 18 countries. Additionally, the organization has a large number of loyal customers despite its high rate of subscription fees. Lastly, the company supplies a variety of products, which makes it adapt to the changing market environment.
The last determinant that this theory focuses on that is also adopted by Costco is human capital. This determinant explains the extent to which the organizational stakeholders are motivated and skilled to produce quality products. Correct utilization of this performance determinant determines the success of an organization (Baer & Frese, 2015). In this regard, Costco utilizes this determine because it has employee motivation. Skilled employees are rewarded and this creates a quality competition among the workers. This has made the organization to maintain its top position (Yukl, 2013).
How Costco can Provide High Compensation to its Employees and still be Successful by using a Lower Price Strategy
Theoretically, the financial performance of a firm relies on the quality of human capital that is used. On the other hand, maintaining high quality human capital depends on a motivation strategy that an organization adopts. Apparently, employees of a company are motivated through the type of compensation that is given to them. In addition, the compensation provided determines motivation efficiency that is adopted by the employees (Baer & Frese, 2015). Costco invests a lot of capital in an employee compensation strategy in order to maintain high quality. The higher price compensation strategy also aims at maintaining its top market position and gives its competitors a big performance gap. However, the organization can still adopt a low-price compensation strategy to its employees and still maintain quality and motivated workers. Apparently, the company CEO Mr. Senegal tries to do what is right for the employees but the strategies that he adopts turns out to be more expensive. Consequently, an alternative strategy to motivate the workers while using cheaper means is limiting them on 60-day customer returns on the sold products. This will make the employees become innovative and even work extra harder to maintain the 60-day limit (Bertrand & Schoar, 2013). The strategy will be cost effective and at the same time, the organization will achieve its goals.
Theoretical Analysis of the behavior of Costco CEO and his Influence on the Company
As aforementioned, the success of a company depends on the type of leadership strategy adopted. As evidenced above, Costco is one of the successful companies that utilize effective leadership by its CEO. Jim Senegal is ranked among the top global organizational leaders that utilize leadership theories to ensure customer satisfaction and employee motivation. Analytically, the CEO uses principles of various leadership theories based on behaviors and how he handles situations at the company. The behavioral orientation of this successful CEO can be analyzed based on the following three theories. Firstly, the CEO utilizes the principles of Train Theories (Yukl, 2013). These theories hold that successful leaders have unique traits. Similarly, the CEO of Costco company has unique traits because he knows his employees by sight and incurs extra costs just to motivate the employees. This has made him be very influential in the company.
Secondly, the Costco Company’s CEO personalities can be associated with behavioral theories (Bertrand & Schoar, 2013). This is because he reacts to situations based on the current events. He solves the company issues using the current situations and not history. Thirdly, his behavior utilizes the principles of power and influence theory. This theory holds that a leader does not misuse his power, and he influences the employees to works towards achieving the company goals (Baer & Frese, 2015). In a nutshell, the CEO of Costco Company can be regarded as the most influential leader in the company. This is because he does not abuse his power, and he is always at the disposal of his workers and strives to ensure customer satisfaction. This explains the fact that the company has the high rates of annual subscriptions as compared to its competitors but it still has the high number of loyal customers.
- Baer, M., & Frese, M. (2015). Innovation is not enough: climates for initiative and psychological safety, process innovations, and firm performance. Journal of Organizational Behavior, 24, 45−68
- Bertrand, M., & Schoar, A. (2013). Managing with style: The Effect of Managers on Firm Policies. The Quarterly Journal of Economics, 118(4), 1169−1208.
- Yukl, G. (2013). Leadership in Organizations. Eighth Edition. Management Department, University at Albany, Pearson Education, Inc. Prentice Hall.
