Costco Wholesale’s Organizational Structure Analysis

Costco Wholesale Corporation organizational structure characteristics advantages disadvantages case study and analysis
A Costco warehouse/store in Neihu, Taiwan. Costco Wholesale Corporation’s organizational structure is mainly based on its corporate business functions. (Photo: Public Domain)

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 organizational 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 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:

  1. Human Resources and Risk Management
  2. Operations
  3. Costco Wholesale Industries & Business Development
  4. Finance
  5. Foods & Sundries Merchandising
  6. Merchandising – Fresh Foods
  7. Construction
  8. Information Systems
  9. Legal
  10. Accounting
  11. E-Commerce and Publishing
  12. 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:

  1. U.S. – Northeast
  2. U.S. – Northwest
  3. U.S. – Southeast
  4. U.S. – Southwest
  5. U.S. – Midwest
  6. U.S. – Northern California
  7. U.S. – Bay Area
  8. U.S. – Los Angeles
  9. U.S. – San Diego
  10. U.S. – Texas
  11. Eastern Canada
  12. Western Canada
  13. United Kingdom
  14. Korea
  15. Mexico
  16. Taiwan
  17. Japan
  18. 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 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 Science24(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 Science23(5), 1298-1310.
  • The Wall Street Journal (2015). Costco Wholesale Corporation – Company Info.
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