Lean Leadership Lessons from Costco Wholesale

While shopping through the cavernous aisles of my local Costco, my mind started to think about the lean leadership lessons to be had. Costco Wholesale is the third largest retailer in the United States with 2012 sales of $87 billion and a net income of $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.

Costcos Mission Statement

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

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

Costco’s co-founder Jim Sinegal’s management philosophy has been to 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 the industry average.

Lead Leadership at Costco

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 the quality and lower costs
• Good processes bring 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.

Don’t Put Results Ahead of Process

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 in 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 results ahead of the 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.

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