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Comment by yummyfajitas | Hacker News Reader

Yeah, the secret of Costco is that they don't hire MBAs.

If you actually want to go learn Costco's "secrets" of their basic business model, inventory management and staffing, go read Megan Mcardle's article comparing them to walmart:

http://www.thedailybeast.com/articles/2012/11/26/why-can-t-w...

Sadly, the "secret" of $SUCCESSFUL_COMPANY is almost always far more boring than we'd like. I really wish there was a news source that would actually write articles like this which discuss staffing levels, supply chain management and the like.

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That piece seems wildly insincere and misses the point, as does anything that just compares Wal Mart to Costco.

Usually what people compare is Sam's Club to Costco. Sam's Club is the direct Costco competitor that is also owned by the Waltons.

Of course Wal Mart is a different beast than Costco, everybody knows that. But that doesn't mean that Wal Mart couldn't treat its employees better. If anything the facts of McArdle's piece prove that point. (They are making plenty of profit, a lot of which could be reinvested in employees.)

It's not obvious to Matt Yglesias, to whom McArdle was responding.

http://www.slate.com/blogs/moneybox/2012/11/26/walmart_wages...

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... -- I've found this single article which sums up Costco's successful use of it: 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.

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...

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.

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.

I think you miss a big point by concluding that Costco is just looking for a way to save on MBA wages. I see the internal recruitment as a way of ensuring that management is comprised of individuals who deeply understand the mechanics of the company. Someone like that, who then goes on and learns a number analytic techniques/philosophies as an MBA is more likely to apply them with insight to where they break down vs reality.

Personally, I'd be terrified if a new engineering graduate who might have excelled on designing structures in a CAD program, went directly into leading a bridge building project. But, I think that's the track that some MBA's follow - especially from well regarded business schools.

I agree with you. I didn't state it out right, but you are definitely correct. Most MBAs (something like 60+% have substantial business experience prior to applying to B-School. The remaining 40% have substantial experience in unrelated fields to business like engineering. (assuming we are referring to top ranked schools).

I'm not sure whether they save or not on their MBAs, but they likely do.

> I see the internal recruitment as a way of ensuring that management is comprised of individuals who deeply understand the mechanics of the company. Someone like that, who then goes on and learns a number analytic techniques/philosophies as an MBA is more likely to apply them with insight to where they break down vs reality.<

People with direct, on the floor training are definitely valuable to an organization. As are people with outside or diversified experience.

My overall point in the first post was to state that the title was basically wrong and that Costco does value MBAs to a high level. That is proven since they pay for their educations.

I feel as if you meant to respond to someone else. McArdle's post didn't discuss MBAs at all, why or why not they might not be let into the club. The washington monthly article also doesn't discuss TQM.

You might be right about TQM. This may enable Costco to have an effective process. But neither article under discussion, nor the articles you cite, actually provide any useful information on this.

But yes, this is exactly what I'd love to see. A discussion on using statistics to improve transportation efficiency, details of quality control methods, etc. Those "boring" details are how you build a successful business. They just don't give good linkbait titles.

He was using an article to note that the sort of high-level strategy discussion was boring or not useful, and that he wanted to see more low-level details into how to run such a business.

However, thinking to those details, I believe that Walmart and Costco actually do a lot of similar things on that front, managing the supply chain and transportation extremely effectively. I think they've no doubt come to the same conclusions on those points. If you want to know them, you could go to any successful large-scale distributor and look at best practices, and I'm sure Walmart and Costco would also be great sources.

However, where costco differs, and where they are special and highly un-boring, is exactly what the original article is about. This is why I felt that asking for the level of detail McArdle requested was not a valid criticism of the article. I felt I was founded in responding to that point.

That was an interesting article, thank you.

Its a fact packed article and I assume the facts listed are true, although given later comments I do wonder.

However her opinion "But Walmart is not just a poor man's Costco." strikes me as being exactly opposite both in examination and analysis of the facts she provides and personal experience. She then spent most of the rest of the article explaining how reality is the exact opposite. Maybe this is a legendary epic editing mistake and she meant to write "Walmart is just a poor man's Costco." but the editing and/or ad sales team made her change it or perhaps just an honest mistake.

As a market positioning technique all you need do is find the bottom of the barrel, like Walmart, and position yourself as 10% better. Ta Da instant free positive press. You can make a 5000 word article about it, but this TLDR summary is just as good.

I also thought the juxtaposition of the article vs the delivery mechanism was weird. This is a website full of chewing gum for the mind. Linkbait. "Your Tango Finding Nemo: The 10 Most Ridiculous Nicknames For Self-Love". So they're intentionally aiming for the shallow end of the socio-economic pool. And thats perfectly OK. Weekly World News readers and high school dropouts need websites too, the world is big enough that everyone doesn't have to visit HN. However the article author is incredibly condescending to the website's audience and spends a lot of time making fun of their concerns and distancing herself and her twitter feed from what she apparently views as lower class scum, which probably would sound about right in an Economist article (LOL I looked and she does in fact write for the Economist LOL) but why you'd put someone like that on the Daily Beast, which kinda puts the lower in "lower class", mystifies me.

For me, It would have been a better article if it had maintained Sam's Club as a focus, rather than switching to Walmart after comparing shopping club employee wages.

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