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This is bullshit disguised as economics. It's an MBA's analysis of why they're not allowed in the club, and it's because "it's not cool enough for us." Costco

This is bullshit disguised as economics. It's an MBA's analysis of why they're not allowed in the club, and it's because "it's not cool enough for us." Costco follows TQM: their business model is integrative and process-based, and takes into account the quality of their product, market, shopper experience, employee experience, and management. This is key. It cannot be ignored or glossed-over or simplified, and any doing so is indicative of an ignorance of the process. There isn't a lot available about Costco's internal process (that I can find with some cursory googling), but TQM is based on W. Edwards Deming's theories about factory quality, applied in Japan to bring back their entire economy after WWII: https://asq.org/learn-about-quality/total-quality-management/overview/deming-points.html https://asq.org/learn-about-quality/total-quality-management... -- I've found this single article which sums up Costco's successful use of it: http://costcoteam3.blogspot.com/2009/06/quality-control.html http://costcoteam3.blogspot.com/2009/06/quality-control.html From the article: "The true definition of quality control is the stabilization and maintenance of a process to produce consistent output. The key to Costco's ability to maintain their low prices and quality is because of good wages and benefits." This is an astute recognition of the importance of the workforce in the quality control process. This is, quite simply, the truth. The blog post also goes into other use of TQM and process control, including statistical analysis of transportation, use of data on a large scale, and using product quality control methods to ensure good final consumer satisfaction. This is all essential to quality, which is essential to their business model. You can look into details of all aspects of their business, but they will always be secondary to their overarching TQM model—everything is inherited from that. Asking for details about this is like asking what type of screws were used on the Space Shuttle and claiming that's why it actually got to space. This is not simply a coincidence of market position and product segmentation. It is all a deliberate, controlled process that is repeatable. Most importantly, other businesses can use all of these concepts to also get a repeatable, predictable process-controlled output. To me, this is not boring or trivial at all. It is paramount to the success of the organization, and an important paradigm shift for all American business. This is something you need to pay attention to. TQM, and more fundamentally Deming are things you should look into and understand, because they are more correct and provable than your standard run-of-the-mill boring old business theory. Even software companies can reap the rewards in process theory and management theory. The secret of this successful company is actually different, and it's on a high level. You can't just reduce it because you don't like the high level part. Pay attention.

VLM 13y ago
I liked your post. "Asking for details about this is like asking what type of screws were used on the Space Shuttle and claiming that's why it actually got to space." One interesting interpretation is if you focus on failure, you'll focus on how the shuttle failed to get into space one time because the elastomer in a solid booster joint was required for political reasons because the segments needed to be shippable, and the specific elastomer had acceptable to excellent high temperature performance but epic failure at cool outside temperatures. So if you fixate on failure, the way you "fix" Walmart, or America in general, is by copying one or a couple small details, like the painting scheme at Costco or the peculiarities of their payroll system or something. If on the other hand you fixate on success, then an analysis looks a heck of a lot like your post, more or less. Or more generally, you fail because of details, but you succeed because of bigger issues, like using TQM Deming or other paradigms. Flailing about for better numbers works in a sea of incompetence, but usually doesn't work if your competitors actually know what they're doing...
- calinet6 13y ago
  Ah, I see what you're saying. The point of TQM, or Deming, is not to focus on failure or success, in fact, but on process. The process is supposed to account for all the details. The reason the Space Shuttle didn't fall apart at every single joint was due to engineering and construction process-based quality control. This is the same, but extended to business. The point is to fixate on the process, not the success or failure, and not to do it piecemeal. Implement process at all levels. Another example: the reason Japanese cars are such high quality (especially when compared to US manufacturers a few decades ago) is not due to just parts or engineering, but also fundamentally management style. Few US CEOs would reach this conclusion. This was Deming's fundamental point: the workforce is part of the process; every part is important to the end result.
wtvanhest 13y ago
After reading the article I found the most important information of all: Quote from Costco: "It cultivates employees who work the floor in its warehouses and sponsors them through graduate school." So, the article could change the title to: Secret to Costco's success, hint, it doesn't pay market wages for MBAs by recruiting employees internally and paying for their education. I honestly have no idea which strategy is more cost effective. I deeply respect companies who promote within over pulling from outside but it is clear that they value graduate business education or they wouldn't be paying for their employees to go to graduate school. [Added] And, maybe they are sending their students to CS graduate programs, but I think we can all agree that likely they meant business school when they said graduate program and the author of the article seems to just gloss over that huge detail while bashing a curriculum they don't understand.

VLM 13y ago

I liked your post. "Asking for details about this is like asking what type of screws were used on the Space Shuttle and claiming that's why it actually got to space." One interesting interpretation is if you focus on failure, you'll focus on how the shuttle failed to get into space one time because the elastomer in a solid booster joint was required for political reasons because the segments needed to be shippable, and the specific elastomer had acceptable to excellent high temperature performance but epic failure at cool outside temperatures. So if you fixate on failure, the way you "fix" Walmart, or America in general, is by copying one or a couple small details, like the painting scheme at Costco or the peculiarities of their payroll system or something. If on the other hand you fixate on success, then an analysis looks a heck of a lot like your post, more or less. Or more generally, you fail because of details, but you succeed because of bigger issues, like using TQM Deming or other paradigms. Flailing about for better numbers works in a sea of incompetence, but usually doesn't work if your competitors actually know what they're doing...

calinet6 13y ago
Ah, I see what you're saying. The point of TQM, or Deming, is not to focus on failure or success, in fact, but on process. The process is supposed to account for all the details. The reason the Space Shuttle didn't fall apart at every single joint was due to engineering and construction process-based quality control. This is the same, but extended to business. The point is to fixate on the process, not the success or failure, and not to do it piecemeal. Implement process at all levels. Another example: the reason Japanese cars are such high quality (especially when compared to US manufacturers a few decades ago) is not due to just parts or engineering, but also fundamentally management style. Few US CEOs would reach this conclusion. This was Deming's fundamental point: the workforce is part of the process; every part is important to the end result.

wtvanhest 13y ago

After reading the article I found the most important information of all: Quote from Costco: "It cultivates employees who work the floor in its warehouses and sponsors them through graduate school." So, the article could change the title to: Secret to Costco's success, hint, it doesn't pay market wages for MBAs by recruiting employees internally and paying for their education. I honestly have no idea which strategy is more cost effective. I deeply respect companies who promote within over pulling from outside but it is clear that they value graduate business education or they wouldn't be paying for their employees to go to graduate school. [Added] And, maybe they are sending their students to CS graduate programs, but I think we can all agree that likely they meant business school when they said graduate program and the author of the article seems to just gloss over that huge detail while bashing a curriculum they don't understand.