Costco Organizational Structure

  • 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. 

Read Next: Costco Business Model, Costco SWOT Analysis, Who Owns Costco?

Organizational Structure Case Studies

Airbnb Organizational Structure

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Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.

eBay Organizational Structure

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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.

IBM Organizational Structure

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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.

Sony Organizational Structure

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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.

Facebook Organizational Structure

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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 based on the main corporate functions (like HR, product management, investor relations, and so on).

Google Organizational Structure

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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.

Tesla Organizational Structure

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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.

McDonald’s Organizational Structure

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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.

Walmart Organizational Structure

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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.

Microsoft Organizational Structure

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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.

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