Costco has a matrix organizational structure, which can simply be defined as any structure that combines two or more different types. In this case, a predominant functional structure exists with a more secondary divisional structure.
Costco’s geographic divisions reflect its strong presence in the United States combined with its expanding global presence. There are six divisions in the country alone to reflect its standing as the source of most company revenue.
Compared to competitor Walmart, for example, Costco takes more a decentralized approach to management, decision-making, and autonomy. This allows the company’s stores and divisions to more flexibly respond to local market conditions.
Introduction
Costco is an American multinational company that operates a chain of membership-only bulk retail stores. The company was founded by James Sinegal and Jeffrey Brotman to take advantage of the emerging warehouse club industry, with the first Costco store opening in Seattle, Washington in 1983.
As of March 2022, Costco operates 829 stores around the world with a presence in countries such as Australia, Canada, Mexico, Japan, South Korea, the United Kingdom, and Taiwan. So far, the company has a limited presence in Europe.
So how is the company structured?
Costco has a matrix organizational structure, which can simply be defined as any structure that combines two or more different types. In this case, a predominant functional structure exists with a more secondary divisional structure.
Functional groups
Functional groups, as the name suggests, group the important functions that are essential to maintaining business operations. Each group is led by an Executive or Senior Vice President who reports to current CEO W. Craig Jelinek.
Group examples include:
Diversity.
Information Systems.
Ancillary Businesses, Manufacturing and Business Centers.
Information Systems.
Ecommerce.
Real Estate.
Merchandising.
Administration.
Finance.
Accounting.
Human Resources.
Legal & Secretary.
Geographic divisions
Costco’s geographic divisions reflect its strong presence in the United States combined with its expanding global presence.
Geographic divisions in the United States are more numerous since this is the nation where Costco derives most of its revenue. Divisions include:
Northeastern.
Southeastern.
Midwestern.
South-Central.
Northwestern, and
Southwestern.
For international markets, these are Costco’s divisions:
Eastern Canada.
Western Canada.
United Kingdom.
Australian.
Japan.
Taiwan.
Mexico, and
Korea.
It is important to reiterate that geographic divisions are a secondary characteristic of Costco’s organizational structure, with each functional group able to be applied to any division. For example, the Merchandising group can influence any division with a new promotional strategy.
Decentralization
Compared to competitor Walmart, for example, Costco takes more a decentralized approach to management, decision-making, and autonomy. Indeed, the company has looked for ways to reduce bureaucracy and encourage employees at the store level to generate innovative ideas to increase motivation and buy-in.
In addition to increasing staff morale, decentralization means each Costco store can better respond and adapt to local market conditions. Instead of having to run important decisions up the chain, lower-level managers can make decisions quickly and in confidence that they will not be reprimanded for using initiative.
Costco’s strategy can be summarized as a selection of high-quality items sold in bulk sized in warehouses around the US and Canada primarily and with a substantial part of its business focused on selling merchandise at a low-profit margin. Costco also uses a single-step distributionstrategy to sell its inventory before it gets paid to suppliers. Costco generated almost $227 billion in revenue in 2022, of which $5.84B came from 65 million paid members.
Costco is a large American multinational corporation with a focus on low-cost, membership-only retail warehouse clubs. Costco is the 4th largest retail operator in the world, operating 785 warehouses in 10 different countries. Indeed, it has enjoyed rapid success growing from zero to $3 billion in sales within six years.
Costco runs a high-quality, low-priced business model powered by its memberships that draw customers’ loyalty and repeat purchases. Top institutional investors comprise The Vanguard Group, 8.79%, and BlackRock, 6.77%. Top individual shareholders include Craig Jelinek, Chief Executive Officer of Costco, and Charles T. Munger (Warren Buffet partner and co-owner of Berkshire Hathaway).
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
Costco generated almost $227 billion in revenue in 2022, compared to nearly $196 billion in revenue in 2021, and over $166 billion in revenue, in 2020. Costco also generated $5.84 billion in net income in 2022, compared to $5 billion in 2021 and $5 billion in 2020.
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In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.
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Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.
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The Amazon organizational structure is predominantly hierarchical with elements of function-based structure and geographic divisions. While Amazon started as a lean, flat organization in its early years, it transitioned into a hierarchical organization with its jobs and functions clearly defined as it scaled.
The Coca-Cola Company has a somewhat complex matrix organizational structure with geographic divisions, product divisions, business-type units, and functional groups.
Costco has a matrix organizational structure, which can simply be defined as any structure that combines two or more different types. In this case, a predominant functional structure exists with a more secondary divisional structure.
Costco’s geographic divisions reflect its strong presence in the United States combined with its expanding global presence. There are six divisions in the country alone to reflect its standing as the source of most company revenue.
Compared to competitor Walmart, for example, Costco takes more a decentralized approach to management, decision-making, and autonomy. This allows the company’s stores and divisions to more flexibly respond to local market conditions.
Dell has a functional organizational structure with some degree of decentralization. This means functional departments share information, contribute ideas to the success of the organization and have some degree of decision-making power.
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).
Goldman Sachs has a hierarchical structure with a clear chain of command and defined career advancement process. The structure is also underpinned by business-type divisions and function-based groups.
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.
McKinsey & Company has a decentralized organizational structure with mostly self-managing offices, committees, and employees. There are also functional groups and geographic divisions with proprietary names.
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.
Nestlé has a geographical divisional structure with operations segmented into five key regions. For many years, Swiss multinational food and drink company Nestlé had a complex and decentralized matrix organizational structure where its numerous brands and subsidiaries were free to operate autonomously.
Nike has a matrix organizational structure incorporating geographic divisions. Nike’s matrix structure is also present at the regional and sub-regional levels. Managerial responsibility is segmented according to business unit (apparel, footwear, and equipment) and function (human resources, finance, marketing, sales, and operations).
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Samsung has a product-type divisional organizational structure where products determine how resources and business operations are categorized. The main resources around which Samsung’s corporate structure is organized are consumer electronics, IT, and device solutions. In addition, Samsung leadership functions are organized around a few career levels grades, based on experience (assistant, professional, senior professional, and principal professional).
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.
Starbucks follows a matrix organizational structure with a combination of vertical and horizontal structures. It is characterized by multiple, overlapping chains of command and divisions.
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.
Toyota has a divisional organizational structure where business operations are centered around the market, product, and geographic groups. Therefore, Toyota organizes its corporate structure around global hierarchies (most strategic decisions come from Japan’s headquarter), product-based divisions (where the organization is broken down, based on each product line), and geographical divisions (according to the geographical areas under management).
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
