
Costco does not hire business school graduates - chrismealy
http://www.washingtonmonthly.com/political-animal-a/2013_06/the_secret_of_costcos_success045176.php
======
salimmadjd
My first real start-up job was at the end of 1999 and start of 2000. The
company was founded by a few Ivy League MBAs and they hired a bunch more. I
found them intimidating a bit and they made sure the relationship stayed that
way.

We had a lot of meetings with a lot of SATish words thrown back and forth. We
had meetings about how to have meetings and on and on...

Fast forward the Internet bubble burst, we were ruining out of cash fast and
had to downsize. One-by-one the MBAs left and we got more creative, more
nimble. I went from a snobed -out _engineer_ (it had a non-leadership
connotation at that place) to running engineering and then the product team.
We sold the company (not a huge exit but everyone got something) and stayed a
year until got fed-up with the labyrinth of our parent company (ran with bunch
of sales and MBAs).

Here's what I learned from my experience. Many MBAs make good consultants.
They can analyze and write a report for you. They're mostly not creative nor
can creat anything (or they'd be doing that instead of spending $100,000 in
school ). Because they can't creat anything, they have to show their value.
Which means a lot of analysis, meetings and meetings about meetings. Resulting
in slowdown, reduced innovation and increase in politics.

------
yummyfajitas
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...](http://www.thedailybeast.com/articles/2012/11/26/why-can-t-walmart-be-
more-like-costco.html)

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.

~~~
calinet6
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...](https://asq.org/learn-about-quality/total-quality-
management/overview/deming-points.html) \-- 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
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
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.

------
einhverfr
One of the obvious benefits to promoting floor workers which is not covered in
the article is that the former floor workers know the work realities. One of
the biggest sins of hiring MBA's for management is that they don't know the
floor realities and therefore they get an analytical view of the business
which is simplified in the wrong ways.

One solution might be to hire MBA's as floor workers for a minimum of a year
before promoting them to management. However, with student loans being what
they are, that is not feasible today.

~~~
eru
You could send your former floorworkers to get an MBA, instead.

------
jedc
Obligatory post to what I consider the best framing of MBAs: "It's fine to get
an MBA but don't BE an MBA" by Hunter Walk.

[http://www.hunterwalk.com/2011/12/its-fine-to-get-mba-but-
do...](http://www.hunterwalk.com/2011/12/its-fine-to-get-mba-but-dont-be-
mba.html)

------
mattdeboard
You know what Costco _really_ needs? A fucking engineer to design a milk jug
that is efficiently stored in bulk and doesn't spill milk all over the damn
place when I'm trying to make oatmeal.

Source: I Just spilled half the jug all over the damn place.

~~~
goatforce5
Milk bags?

[http://en.wikipedia.org/wiki/Milk_bag](http://en.wikipedia.org/wiki/Milk_bag)

Costco near Toronto (and maybe Canada generally?) sells vast amounts of milk
packaged this way.

~~~
halostatue
It's a Canadian thing.

~~~
serge2k
Eastern Canada.

Well, not DC anyway.

------
sologoub
Looks like a lot of people commenting didn't bother to read the article:

"Costco does not hire business school graduates—thanks to another idiosyncrasy
meant to preserve its distinct company culture. It cultivates employees who
work the floor in its warehouses and sponsors them through graduate school."

Note that they do not recruit from B-Schools, but they are happy to send their
own employees to graduate school.

In the past, working your way up from the bottom in a large company, being
sent for an MBA or MBA/JD combo was a relatively standard thing. Several of my
professors/acquaintances have taken this track in Citi Group (I think they got
renamed) and the like. Amgen, Boeing, Raytheon, Intuit, etc. (I live in
SoCal.) have similar policies and practices where they encourage employees to
get a graduate degree (be it Business or Engineering). This is not very
groundbreaking and is well documented to be a solid strategy for employee
development.

------
victorology
I don't think it's that Costco has a problem with MBA's. I think if you get on
the management track at the company, they will sponsor you through business
school.

"Costco does not hire business school graduates—thanks to another idiosyncrasy
meant to preserve its distinct company culture. It cultivates employees who
work the floor in its warehouses and sponsors them through graduate school."

It seems like they just want people with experience working at its warehouses
so they can get a perspective on how the day to day business operates.

~~~
PakG1
It's not MBAs specifically. It's the business consulting mindset in general
that MBAs are taught. Costco wouldn't want for MBAs to come in and do
consulting on how to improve their operations because those guys wouldn't have
the necessary respect for what Costco finds valuable, which does include their
on-the-ground work and unique culture.

MBA pattern recognition and recommendations would work well (hopefully) when
the situation fits the pattern. Costco is clearly a non-standard retailer, so
the question is how MBAs would respond to such non-standard patterns, and
whether their recommendations would be good for the long term of that
business. Maybe they would offer up excellent advice, maybe not. Costco is
just erring on the side of caution and preferring their "home-grown" MBAs,
rather than "standard" MBAs.

~~~
VLM
I can provide you an interesting analogy that may (or may not) resonate with
HN readers:

It turns out that hiring a guy who's an expert at optimizing I/O systems for
databases, to optimize your massive multimedia streaming farm, doesn't usually
work. Because one is hyper random access and the other is massively
sequential, also typical block size for one is probably measured in K and the
other typical transaction size is probably measured in G. And there's certain
latency consideration. And probably others.

The real question is if costco is successful, why are b-schools charging $100K
to churn out cookie cutters that don't cut it in the real world?

If costco were swirling down the drain, AND simultaneously rejected "MBA
culture" (or HN culture, or 4chan culture, doesn't really matter) then it
wouldn't be much of a story. The question is why MBA schools, despite all the
worship of their holy paper credential, can't graduate people who apparently
know anything about retail, or at least don't know how to be legendarily
successful in retail.

It would be like a med school that charged $100K but simply decided to not
teach their students anything about biochem and then no one seemed to care.
"Eh, blood sugar and electrolyte levels, eh, that stuffs hard, lets skip it
and do some extra anatomy studies". Or in engineering, "Well, I never really
liked finite element analysis and you'll probably not be expected to
successfully do it on the job, so here's a engineering degree anyway and best
of luck to ya". And no one cares other than a successful, yet fringe
industrial company, who doesn't hire eng school grads to do finite element
analysis.

------
kfk
There are 25 theories because each one works on a different set of
assumptions. As economists can't work with lab experiments, they have to go
with lots assumptions using complicated statistical tools.

They can't ask businesses because if you go that deep you can't abstract away
any useful info. You will get very detailed stuff that nobody will care about.
Most of the times people want a petty theory that can be summarized in 10
words (read all the keynesian BS on this).

As for the MBA's. Start ups are picky, very picky. They want you to have a
github profile, to have a phd, to be a god in what you do. This is mainly
resource driven, but that's the fact. Thus, don't come telling me that start
up culture is closer to workers because I will call 100 times BS on this. I
have never seen a start up giving chances to somebody that does not have god
skills, or somebody with a profile that does not involve years of coding or
CS. On the other hand, my company took me straight from business school and is
giving me the chance to grow from almost nothing (as I did not study finance).

Let's not generalize.

~~~
jerf
If it's too hard to gather any data, and it's too hard to do any sort of
experimentation to determine if your theories are correct, it isn't time to
just wildly theorize... it's time to pack it in and go do something else.

Your defense is too powerful. Fortunately, the dismal science isn't actually
_that_ dismal... or at least, it doesn't _have_ to be....

~~~
kfk
Thing is, I am constantly working on concepts to develop a SaaS that could
free me from a paid job. I actually do code and do pretty much everything
(python (flask...), databases, sql, javascript, css, html, the whole package),
because nobody dares to join a "non technical" guy, I have to learn it all.

But you know what's the most difficult thing? The business. Oh yeah. I can
code an app from scratch, but I still have to convince people to use it. I
still have to plan the financials (by the way, how do start up plans look
like? Guess-working?). I still have to market it. I still have to make
profits.

Which brings me to the point. I can't stand this bashing of business people
360 degrees. There are bad business people as there are bad developers. There
is bad culture in start ups ("you non technical piece of ...") as there is in
business. It's all a matter of degrees and looking around.

~~~
jerf
"I can't stand this bashing of business people 360 degrees."

Weird, because you just explained why they can't successfully do anything.

As I said, your defense was too powerful; in defending your position, you blew
it up.

~~~
kfk
Go back reading the middle part where I explain the problem is in the
business, not in the tech.

But hey, I am sure you guys can keep producing consumer apps till you will see
a nice margin drop due to market saturation. Zinga teaches us all.

~~~
jerf
You seem to be ranting against a position I'm not taking.

~~~
kfk
You are right

------
davidw
Interesting; Sol Price is mentioned in quite positive terms in this book (at
least up to the point where I've read):
[http://www.amazon.com/dp/B008ZPG704/?tag=dedasys-20](http://www.amazon.com/dp/B008ZPG704/?tag=dedasys-20)
\- Sam Walton's autobiography.

~~~
paul_f
Minor nit. Sol Price was not a founder of Costco, he was the founder of Price
Club. Which was acquired by Costco.

~~~
gojomo
Bigger nit: that's not the whole story, either.

The entity now called Costco was called PriceCostco after the 1993 merger.
That they ultimately chose the Costco name doesn't change the dual heritage;
founders of either have a fair claim to being founders of the combined entity.

But even further: key founder of pre-merger Costco James Sinegal got started
in retail working at Sol Price's San Diego-based FedMart and Price Club. He
then copied the PriceClub membership/bulk/employee-development model starting
from Seattle. (A friend working for pre-merger Costco at the time described it
as an almost-friendly rivalry, with each racing to expand the shared model
from their home cities into the rest of the US.)

So the PriceCostco merger "got the band back together", Price Club was the
older and model-foundation entity, but clearly both teams contributed enough
to be credited as "founders" of the current behemoth.

------
cicloid
Even in Mexico, there is a stark contrast between the feeling in the stores
and employees treatment from a Costco vs Sam's Club. Also the quality of
products sold is very noticeable

------
jmduke
Show HN: Look, I found an article that disparages MBAs!

~~~
IAmAI343
It is revenge of the nerds. I don't know if it is a good thing, bad thing, or
it doesn't matter but it sure makes a lot of people feel better. And to be
honest, the MBAs do have a lot of it coming to themselves, not all of it, but
a lot.

------
sergiosgc
An MBA is a powerful tool. It gives you an analytical view on business,
coupled with at least introductory understanding of the full range of business
activities.

However, as with many things in life, a little knowledge is more dangerous
than no knowledge. Couple little knowledge with the feeling of self
entitlement and you get a recipe for disaster.

My main message: Don't go discarding all MBAs just yet. Many are excellent
people and magnificent professionals.

~~~
raverbashing
Yes, exactly, it's a tool!

Like a drill, like a sledgehammer, like a multimeter.

But if you learn to use a drill without an objective and without knowing what
you'll want to achieve you'll just drill holes everywhere.

------
eli_gottlieb
Actually, if I had to guess, I'd say it's domain expertise. A lack of MBAs is
good, because MBAs turn your company away from getting good at what it
actually does/sells and towards generic "being a good company" stuff.

~~~
VLM
Away from producing good products and toward producing good numbers?

~~~
eli_gottlieb
Bingo. What management thinks is important is its internal metrics. What
actually matters in the end is customer demand and cost of production.

------
tokenadult
I liked the Business Week article that this article link-spammed from even
better.

[http://www.businessweek.com/printer/articles/123492-costco-c...](http://www.businessweek.com/printer/articles/123492-costco-
ceo-craig-jelinek-leads-the-cheapest-happiest-company-in-the-world)

"This week, I’m writing about Costco again because of this wonderful article
about the company, on the cover of Bloomberg Businessweek. There’s tons of
fascinating info packed inside, even stuff that I, who consider myself to be
something of a Costco nerd, didn’t know."

------
sethammons
I'm not informed on customer demographic differences between Costco and
Walmart, but I'd think that a poor economy will disproportionately affect
Walmart due to economically disadvantaged people won't be shopping at Costco
in the first place and they tend to be the ones hurt the most in economic
downturns. So "better" customers could be leading to better financials on the
part of Costco, not just some anti MBA culture that resonates with the HN
crowd.

------
fleaflicker
The referenced article:
[http://www.businessweek.com/articles/2013-06-06/costco-
ceo-c...](http://www.businessweek.com/articles/2013-06-06/costco-ceo-craig-
jelinek-leads-the-cheapest-happiest-company-in-the-world)

------
thehme
I heard about the good pay and benefits for workers, and thought it would be
great to join as a costumer and cancel my other membership. Just waiting for
one to open close by to do this and support these sort of business models.

------
codeonfire
I highly doubt anyone is trying to earn an MBA because they can't wait to get
into retail ops and work in a warehouse.

~~~
VLM
Its an epic marketing fail for the MBA.

"We're America's holy frat boy paladins of corrupt crony capitalism inherently
and forever above the lower class proles, entitled to adsorb the profit of all
as our feudal reward." Um, well, OK then, nice to meet you too.

In the real world, turns out they need about a page of car TV ad style small
print at the end, like "Not including $100K delivery fee. Not valid for retail
sales companies; other exclusions may apply. Offer only valid for well
qualified sociopaths. See your local student loan pusher and/or parole officer
for further details"

------
seivan
Love this. I have nothing but utter hate for MBA's.

~~~
crapshoot101
because gross generalizations are fun!

