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Stockholder Meeting September 10, 2006

Stockholder Meeting September 10, 2006. Grow managers. Coach. Passion. Do something you enjoy. Lead & grow the business. Running the business right & respect motivates people. Stay involved. Mentors. Open-door policy. Lead by example. Teaching is 90%. Rotate positions.

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Stockholder Meeting September 10, 2006

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  1. Stockholder Meeting September 10, 2006

  2. Grow managers Coach Passion Do something you enjoy Lead & grow the business Running the business right & respect motivates people Stay involved Mentors Open-door policy Lead by example Teaching is 90% Rotate positions Success is imperative Work as a team The people running the business are the leaders & they make things happen Hands-on

  3. Who We Are Cleta Smedley Director of Operations Corey Carolina Vice President of Operations Joya Horvath Executive Vice President Shona Koehn Vice President of Finance Roy Nelson Vice President of Marketing

  4. What we will cover today • The history of our company & CEO • Theoretical foundation for why we are successful • How theory affects practice • What it means for you, the stockholder • Question and answer

  5. The Costco way… A history of the company and the man behind it

  6. History of Costco • Founded in 1982 • Seattle, WA 1983 • 487 warehouses – 8/25/06 • 130,000 employees worldwide • 47 million cardholders • Sales $58.9 billion

  7. Mission To continually provide our members with quality goods and services at the lowest possible prices.

  8. Code of Ethics 1. Obey the law 2. Take care of our members 3. Take care of our employees 4. Respect our suppliers 5. Reward our shareholders

  9. What Costco Sells

  10. Jim Sinegal - CEO • Co-founder and CEO • Protégé of Sol Price • Benevolent style of management • Open-door policy • Coach • Only rich on paper • Time Magazine’s 2006 list of The 100 most influential people

  11. Jim Sinegal - CEO "Our attitude is that if you hire good people and pay them a fair wage, then good things will happen for the company."

  12. Why it works… A theoretical foundation

  13. Trait Theory • The great man theory • Oldest approach • Qualities and characteristics which only great men possess • Physical characteristics, personality, and aptitudes

  14. Studies of Leadership Traits & Characteristics Northouse, P. G. (2004). Leadership. Theory and Practice. 3nd Edition. Thousand Oaks, CA: Sage.

  15. The Style Approach • Focuses on what leaders do rather than who leaders are. • Blake & McCanse, 1991; Blake and Mouton, 1964, 1978, 1984 managerial leadership grid. • Jim’s style is Team Management

  16. Transformational Leader • Bass (1985) provided a more expanded and refined version of transformational leaders that was based on, but not fully consistent with, the prior works of Burns (1978) and House (1976) • Bass’ work gave more attention to the followers’ rather than leaders’ needs • Describes transactional and transformational leaders as a single continuum

  17. Jim Is Transformational • Concerned with values, ethics, standards, and long-term goals • Focused on satisfying needs of employees • Employees trust him • Engages creativity and innovation • Employees are confident in achieving goals

  18. Principles of Ethical Leadership Northouse, P. G. (2004). Leadership. Theory and Practice. 3nd Edition. Thousand Oaks, CA: Sage.

  19. The Path-Goal Theory • Evans (1970), House (1971), House and Dessler (1974) and House and Mitchell (1974) • How leaders motivate subordinates to accomplish goals • Emphasizes the relationship between the leader’s style and the characteristics of the subordinates and the work setting • For the leader the challenge is to use the correct leadership style that best meets the subordinates motivational needs

  20. The Path-Goal Theory • Leader Behavior-Directive- “provides guidance”- Supportive- “provides nurturance” • Participative- “provides involvement” • - Achievement oriented- “provides challenges” Obstacles Motivation Path Subordinates Goal(s) / Productivity • Path-Goal Leadership • Defines goals • Clarifies path • Removes obstacles • Provides support Northouse, P. G. (2004). Leadership. Theory and Practice. 3nd Edition. Thousand Oaks, CA: Sage.

  21. Leader-Member Exchange Theory Stranger Acquaintance Partner Roles Influences Exchanges Interests Scripted One-Way Low quality Self Tested Mixed Medium Quality Self/other Negotiated Reciprocal High Quality Group Northouse, P. G. (2004). Leadership. Theory and Practice. 3nd Edition. Thousand Oaks, CA: Sage.

  22. Leader-Member Exchange Theory Leadership Making • Graen & Uhl-Bien (1991) • A prescriptive approach to leadership that emphasizes that a leader should develop high quality exchange with all subordinates • Suggest that leaders should create networks of partnerships throughout the organization

  23. What the numbers say… A comparison to Sam’s Club

  24. Higher Pay = Lower Turnover • Average Costco Wages: • $35,360 per year ($17/hour) • Average Sam’s Club Wages: • $21,028 per year ($10.11/hour) Cascio, W. (2006). Decency Means More than "Always Low Prices": A Comparison of Costco to Wal-Mart's Sam's Club. Academy of Management Perspectives, 20(3), 26-37.

  25. Higher Pay = Lower Turnover • Costco Turnover: • 17%/year • Sam’s Club Turnover: • 44%/year Cascio, W. (2006). Decency Means More than "Always Low Prices": A Comparison of Costco to Wal-Mart's Sam's Club. Academy of Management Perspectives, 20(3), 26-37.

  26. Lower Turnover = Lower Cost • Estimated Costco Turnover Costs: • $21,216 x 11,492 employees = $243.81 million • Estimated Sam’s Club Turnover Costs: • $12,617 x 48,488 employees = $611.77 million Cascio, W. (2006). Decency Means More than "Always Low Prices": A Comparison of Costco to Wal-Mart's Sam's Club. Academy of Management Perspectives, 20(3), 26-37.

  27. Higher Pay = More Productive Employees Cascio, W. (2006). Decency Means More than "Always Low Prices": A Comparison of Costco to Wal-Mart's Sam's Club. Academy of Management Perspectives, 20(3), 26-37.

  28. More Productive Employees = Higher Net Sales Data taken from each company’s 2006 monthly sales reports

  29. What You Really Want to Know Cascio, W. (2006). Decency Means More than "Always Low Prices": A Comparison of Costco to Wal-Mart's Sam's Club. Academy of Management Perspectives, 20(3), 26-37.

  30. Wrapping Up… What does it all mean?

  31. Conclusion • Innovative company built on values • Jim Sinegal the Dynamic Leader • Killing the competition with Kindness • Stock is ripe for the picking

  32. Question & Answer

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