Lean Leadership Lessons from Costco Wholesale


Costco Wholesale is the third largest retailer in the United States with 2012 sales of $87 billion and a net income $1.45 billion. It is the largest membership club retailer in the world. As a member I rely on its supply chain, purchasing practices, quality control, recruiting and customer service practices to feed, clothe and replace my worn out suitcase at fair prices.

Above is a photo of the Costco Wholesale mission statement seen on the wall of one of its local warehouse stores, reading:

“To continually provide our members with quality goods and services at the lowest possible prices. In order to achieve our mission we will conduct our business with the following Code of Ethics in mind:

  1. Obey the law
  2. Take care of our members
  3. Take care of our employees
  4. Respect our vendors
  5. Reward our shareholders

If we do these four things throughout our organization, then we will realize our ultimate goal, which is to reward our shareholders.”

The founder Jim Sinegal’s management philosophy has been to a model the behaviors desired from employees, provide training constantly, develop our own talent always and promote people from within the company. Costco pays the highest wages in the industry with benefits that are very good for any industry. Perhaps as a result, the employee turnover rate is less than half that of industry average.

Read more about the The Six Rights of People and talent retention at Costco. These are not rights as in “rights and privileges” but meaning correct, as in “the right person for the job” or the “the right environment for the person”.

There are a few big lean leadership lessons we can gain from Costco:

  • Put the focus on the customer
  • Respect people and invest in them
  • Value and respect partner firms
  • Raise quality and lower costs
  • Good processes brings good results

There are many Lean buzzwords that attempt to rebrand and repackage what are timeless but often forgotten principles. Buzzwords are an attempt to appeal to today’s reader or manager or student. The principles, methods and techniques behind these buzzwords are by and large all worth studying, if for no other reason than to understand how they are the same, similar or different from yesterday’s good management practices. They are good for capturing our attention.

What is often missing in the discussion of continuous improvement, Lean or any other management buzz-trend is the promotion of basic, proven, workaday or even dull business practices such as the ones found Costco’s Code of Ethics and mission statement: obey the law, take care of customers and employees, and respect vendors.

Even when these are remembered and practiced, we may fail at prioritization, thinking they are a list to be checked off rather than realizing that “good processes bring good results”. Leaders find that their Lean efforts struggle when they put result ahead of process. The word “ultimate”, so often misused colloquially to mean “greatest” is used here by Costco in its original and correct meaning: the last. Good processes bring good results to shareholders, sustainably.

3 Comments

  1. John Hunter

    February 15, 2013 - 9:17 pm

    I really like Costco’s respect for people.
    One thing to note is while “Costco pays the highest wages in the industry with benefits that are very good for any industry.” to “workers” they don’t pay the exorbitant executive pay most of the companies that scrimp on paying non-executives. As I have said before I don’t believe you can take executives seriously on claims they believe in respect for people when they pay themselves like nobles and workers like serfs.
    The difference between real respect for people and just words is evident at places like Costco and Trader Joe’s. Customer’s and owners benefit from organization that truly practice respect for people.

  2. Chris Chan

    February 17, 2013 - 3:19 pm

    This is great post. I particular like Costco’s points 2,3 and 4. I think those points are important for achieving a sustainable business. These items will help facilitate profits, rewarding shareholders, market share etc.
    Do you mind if a re-post this blog in its entirety on my blog?
    Chris

  3. Jon Miller

    February 17, 2013 - 9:45 pm

    Hi Chris.
    I am glad you liked it. Rather than simply re-post it on your blog, why don’t you write your own article recycling some of these ideas for your readers?
    In addition to 2, 3, 4 I’m quite fond of point 1 also.