Question

In: Operations Management

In the social discussion of minimum wage labeling in the United States, many commentators regard Costco...

In the social discussion of minimum wage labeling in the United States, many commentators regard Costco as an example of how high wages can make companies more successful, and often take Costco's competitors such as Walmart and target as counterexamples, believing that these examples are not enough to provide employees with corresponding benefits. Other commentators think Costco's model is difficult to apply to different types of enterprises, and they think that salary is only one of the many factors to be considered for the company's success. Costco pays about 40% more to its employees than Wal Mart and target, and provides more comprehensive medical and retirement benefits, which saves a lot of employee turnover costs. Costco refuses to lay off staff, invest in staff training and give them full autonomy to solve problems. "The extraordinary loyalty [of employees] to [Costco co co-founder Jim sinegal] is due to his firm rejection of the view that 'I either care for my shareholders or my workers," said Thomas Perez, the US Labor Secretary. "It's a wrong choice," he said
While few disagree with the benefits of fair treatment of employees, some commentators attribute Costco's success to its broader business model, which promotes productivity rather than employee satisfaction. Megan McArdle, a columnist and economist, explains: "a typical Costco store has about 4000 SKUs (inventory units), most of which are stacked on pallets so that store employees can act as cargo managers themselves. Wal Mart has 140000 SKUs, which have to be sorted, replaced, reordered, delivered and so on. People tend to underestimate the cost of complexity because management problems don't simply add up, they multiply. " In addition, McArdle pointed out that Costco mainly targeted grocery stores rather than department stores, and catered to the needs of the general affluent customer base in the suburbs.

Question 1: Wal Mart, Costco's rival, pays its employees much less. When Costco pays employees 40% more than its direct competitors, how to maintain its operation and profitability? Why do some people say it's realistic, and others say it's unrealistic?

Question 2: Do you think Costco's other business practices contribute more to success than to improving employee pay and satisfaction? Can these two strategies be implemented?

Question 3: Is a company that does not follow Costco's compensation model an "unfair employee agency"? Should all companies treat their employees like Costco? This is discussed from the perspective of result theory and fundamental rights.

Solutions

Expert Solution

Question 1

Costco maintains its profitability compared to its competitors even upon paying more salaries. The company is able to do so as it saves costs on recruitment and hit. Its workers remain loyal to the company with have more productivity and responsibility towards their customers.

Some people say it is realistic and some people say it is unrealistic because it is generally not practiced in the wholesale retail business and neither Costco is the leader in the wholesale retail business. But it gives lot of importance to the satisfaction of its employees and customers. So it has taken steps to maximize their productivity and motivate employees for offering high levels of customer service.

Question 2. Yes, Costco's other business practices contribute more to success than to improve employee pay and satisfaction. Costco has a wide range of services that it has developed with vertical integration and horizontal integration. It provides its customers with lot of solutions together and maintain profitability of the business. The customer satisfaction is an important factor in Costco's operations. It is possible to implement these two strategies.

Question 3. No, a company that does not follow Costco's compensation model " an unfair employee agency " . It is not necessary that all companies should treat their employees like Costco. Since Costco's business operations are different from its competitors, its structure and type of products vary, its customer membership and other policies are also not practiced by other competitors, hence, it is the choice and fundamental rights of its competitors to pay and treat their customers and employees in their own way.


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