Case Study Description of Costco Wholesale Corp. Financial Statement Analysis (B)
An investor is called on to make a forecast and valuation for Costco. Provides information about the history of Costco as an investment, industry growth drivers, and forecasting models.
Swot Analysis of "Costco Wholesale Corp. Financial Statement Analysis (B)" written by Maureen McNichols, Brian Tayan includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Costco Wholesale facing as an external strategic factors. Some of the topics covered in Costco Wholesale Corp. Financial Statement Analysis (B) case study are - Strategic Management Strategies, Financial analysis, Forecasting and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Costco Wholesale Corp. Financial Statement Analysis (B) casestudy better are - – digital marketing is dominated by two big players Facebook and Google, increasing inequality as vast percentage of new income is going to the top 1%, increasing household debt because of falling income levels, increasing government debt because of Covid-19 spendings, increasing energy prices, supply chains are disrupted by pandemic , geopolitical disruptions,
there is backlash against globalization, central banks are concerned over increasing inflation, etc
Introduction to SWOT Analysis of Costco Wholesale Corp. Financial Statement Analysis (B)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Costco Wholesale Corp. Financial Statement Analysis (B) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Costco Wholesale, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Costco Wholesale operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Costco Wholesale Corp. Financial Statement Analysis (B) can be done for the following purposes –
1. Strategic planning using facts provided in Costco Wholesale Corp. Financial Statement Analysis (B) case study
2. Improving business portfolio management of Costco Wholesale
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Costco Wholesale
Strengths Costco Wholesale Corp. Financial Statement Analysis (B) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Costco Wholesale in Costco Wholesale Corp. Financial Statement Analysis (B) Harvard Business Review case study are -
High brand equity
– Costco Wholesale has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Costco Wholesale to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Sustainable margins compare to other players in Finance & Accounting industry
– Costco Wholesale Corp. Financial Statement Analysis (B) firm has clearly differentiated products in the market place. This has enabled Costco Wholesale to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Costco Wholesale to invest into research and development (R&D) and innovation.
Operational resilience
– The operational resilience strategy in the Costco Wholesale Corp. Financial Statement Analysis (B) Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Ability to recruit top talent
– Costco Wholesale is one of the leading recruiters in the industry. Managers in the Costco Wholesale Corp. Financial Statement Analysis (B) are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Organizational Resilience of Costco Wholesale
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Costco Wholesale does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Costco Wholesale digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Costco Wholesale has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Innovation driven organization
– Costco Wholesale is one of the most innovative firm in sector. Manager in Costco Wholesale Corp. Financial Statement Analysis (B) Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
High switching costs
– The high switching costs that Costco Wholesale has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Highly skilled collaborators
– Costco Wholesale has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Costco Wholesale Corp. Financial Statement Analysis (B) HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Superior customer experience
– The customer experience strategy of Costco Wholesale in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Learning organization
- Costco Wholesale is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Costco Wholesale is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Costco Wholesale Corp. Financial Statement Analysis (B) Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Training and development
– Costco Wholesale has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Costco Wholesale Corp. Financial Statement Analysis (B) Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Weaknesses Costco Wholesale Corp. Financial Statement Analysis (B) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Costco Wholesale Corp. Financial Statement Analysis (B) are -
Skills based hiring
– The stress on hiring functional specialists at Costco Wholesale has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Costco Wholesale Corp. Financial Statement Analysis (B) HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Costco Wholesale has relatively successful track record of launching new products.
Increasing silos among functional specialists
– The organizational structure of Costco Wholesale is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Costco Wholesale needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Costco Wholesale to focus more on services rather than just following the product oriented approach.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Costco Wholesale Corp. Financial Statement Analysis (B), is just above the industry average. Costco Wholesale needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
High cash cycle compare to competitors
Costco Wholesale has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Interest costs
– Compare to the competition, Costco Wholesale has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
No frontier risks strategy
– After analyzing the HBR case study Costco Wholesale Corp. Financial Statement Analysis (B), it seems that company is thinking about the frontier risks that can impact Finance & Accounting strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Products dominated business model
– Even though Costco Wholesale has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Costco Wholesale Corp. Financial Statement Analysis (B) should strive to include more intangible value offerings along with its core products and services.
Lack of clear differentiation of Costco Wholesale products
– To increase the profitability and margins on the products, Costco Wholesale needs to provide more differentiated products than what it is currently offering in the marketplace.
Need for greater diversity
– Costco Wholesale has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Slow decision making process
– As mentioned earlier in the report, Costco Wholesale has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Costco Wholesale even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Opportunities Costco Wholesale Corp. Financial Statement Analysis (B) | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Costco Wholesale Corp. Financial Statement Analysis (B) are -
Redefining models of collaboration and team work
– As explained in the weaknesses section, Costco Wholesale is facing challenges because of the dominance of functional experts in the organization. Costco Wholesale Corp. Financial Statement Analysis (B) case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Costco Wholesale can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Building a culture of innovation
– managers at Costco Wholesale can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Costco Wholesale can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Costco Wholesale can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Creating value in data economy
– The success of analytics program of Costco Wholesale has opened avenues for new revenue streams for the organization in the industry. This can help Costco Wholesale to build a more holistic ecosystem as suggested in the Costco Wholesale Corp. Financial Statement Analysis (B) case study. Costco Wholesale can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Costco Wholesale can use these opportunities to build new business models that can help the communities that Costco Wholesale operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Low interest rates
– Even though inflation is raising its head in most developed economies, Costco Wholesale can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Costco Wholesale can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Costco Wholesale Corp. Financial Statement Analysis (B), to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Developing new processes and practices
– Costco Wholesale can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Costco Wholesale in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Finance & Accounting segment, and it will provide faster access to the consumers.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Costco Wholesale in the consumer business. Now Costco Wholesale can target international markets with far fewer capital restrictions requirements than the existing system.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Costco Wholesale to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Costco Wholesale to hire the very best people irrespective of their geographical location.
Learning at scale
– Online learning technologies has now opened space for Costco Wholesale to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Threats Costco Wholesale Corp. Financial Statement Analysis (B) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Costco Wholesale Corp. Financial Statement Analysis (B) are -
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Costco Wholesale will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Costco Wholesale.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Costco Wholesale Corp. Financial Statement Analysis (B), Costco Wholesale may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Stagnating economy with rate increase
– Costco Wholesale can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Increasing wage structure of Costco Wholesale
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Costco Wholesale.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Costco Wholesale in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Costco Wholesale needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Costco Wholesale in the Finance & Accounting sector and impact the bottomline of the organization.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Costco Wholesale with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Costco Wholesale can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Costco Wholesale can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Costco Wholesale Corp. Financial Statement Analysis (B) .
Weighted SWOT Analysis of Costco Wholesale Corp. Financial Statement Analysis (B) Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Costco Wholesale Corp. Financial Statement Analysis (B) needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Costco Wholesale Corp. Financial Statement Analysis (B) is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Costco Wholesale Corp. Financial Statement Analysis (B) is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Costco Wholesale Corp. Financial Statement Analysis (B) is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Costco Wholesale needs to make to build a sustainable competitive advantage.
