Starbucks Motivation Strategy: Case Study
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Published: Mon, 02 Jul 2018
Nowadays, the competition becomes more extreme because rapid globalization in the recent years, especially for the service industry with the similar products. The most vital point for business to success is not only the quality of products they supply, but the atmosphere of cooperating and the amount from yield of teamwork in retail sales. The employees who always touch with customers and can realize what customers really need are first-line staffs. Therefore, it turns to be essential for companies to motivate, reward and train their employees to be the best quality personnel.
In the first stage, the historical background of Starbucks will be introduced. Secondly, an issue about the methods of motivating employees are going to discuss. Next, the strategies, which are used by Starbucks to make their teamwork performance well, will be pointer out. In the end, there is a conclusion about the effect of policies in motivation and teamwork.
Managers are constantly searching for ways to create a motivational environment where associates (employees) to work at their optimal levels to accomplish company objectives. Workplace motivators include both monetary and non-monetary incentives. Monetary incentives can be diverse while having a similar effect on associates. One example of monetary incentives is mutual funds provided through company pension plans or insurance programs. Because it has been suggested that associates, depending on their age, have different needs pertaining to incentives, traditional incentive packages are being replaced with alternatives to attract younger associates. This paper will discuss how monetary and non-monetary incentives are influenced by career stages and the problems associated with monetary and non-monetary incentives.
How the entire total reward and human resources (HR) systems at Starbucks are linked to the business objectives and reinforce the company’s strong culture and values. Working in mutual support of the business, the culture, and values, this integrated HR system has helped shape a powerful success story that didn’t rely on conventional thinking and trends with respect to the treatment of its workforce.
Part 2: Setting the Scene
A Brief History of Starbucks
Starbucks Coffee Company, as we know it today, began in 1987, when Howard Schultz, the current chairman and CEO, acquired the assets from the original founders, whom he had worked with from 1982 to 1985. In 1987, Starbucks had 11 stores. The original business plan, and promise to the investors, was to have 125 stores within five years.
From 1987 to 1992, the company remained private, growing at the astonishing rate of 80% per year to more than 150 stores. In June 1992, the company went public, and it was one of the most successful initial public offerings of the year. Today, Starbucks is the leading retailer, roaster, and brand of specialty coffee in North America. It operates more than 1,800 retail locations in North America, the United Kingdom, and the Pacific Rim and has established joint-venture partnerships with Breyer’s (to produce coffee ice cream) and PepsiCo (to produce Frappuccino, a bottled coffee drink). Sales for fiscal year 1997 were $967 million, an increase of nearly 39% over the previous year, and the company employed more than 25,000 partners (the company’s term for employees). The company goal is to have more than 2,000 locations in North America by the year 2000. The company mission is to “establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow.”
Starbucks’ Culture and Values: The Driver of HR and Reward Systems
Starbucks is a values-driven company, with a firmly established set of principles that are widely shared within the organization. It is also a company that puts its employees first and invests a tremendous amount in them. None of this is by accident. Source: Wilson, Thomas, B., Rewards That Drive High Performance, Amazon, New York, 1999. www.wilsongroup.com 1
It all stems from the values and beliefs of its CEO. Says Schultz, “I wanted to establish the kind of company that gave people a form of equity (ownership) and comprehensive health insurance, and most importantly, give them self-esteem in the workplace. People feel that Starbucks is a place that gives them self-respect and values the contributions they make, regardless of their education or where they are in the company.” The company believes that if it puts partners first, the result will be exceptional customer service, and by extension, if it has highly satisfied customers, the financial returns will follow.
The history of Starbucks
Starbucks began by three friends, Jerry Baldwin, Zev Siegl, and Gordon Bowker, who knew each other in the University of Seattle. In 1971, the first name of their store is “Starbucks Coffee, Tea, and Spice” in Seattle, Washington’s Pike Place Market. They engaged in making profit from selling coffee beans roasted to individual customers and restaurants. Until 1982, they had increased the number of stores to four. During the same period, a sales representative of the house ware business in New York, Hammerplast, visited them. Howard Schultz wanted to know why a small company needs a large number of percolators from Hammerplast. Because of the trade relationship between these two companies, he was acquainted with the three inventors. After he realized the atmosphere and environment of the company, he decided to be a part of Starbucks, then as a director of marketing and retail sales.
In the following year, he had a vocation to Milan, Italy. Though the time, he experienced an entirely different coffee culture from the United States. The culture of Italian café had been one part of people’s daliy life. There were numerous coffee bars around the area and the public usually liked to socialize in a coffee bar. Under those circumstances, Schultz had an idea of a new flavor of café and a stylish environment to communicating with friends.
After the trip, he prepared the business plan for his vision. However, the three initiators did not want to transfer their business into restaurant industry. Consequently, in 1985 he chose to establish a new coffee shop, named II Giornale, in Seattle. After the next two years, due to the successful strategy of Schultz, the original three owners of Starbucks decided to sell their corporation to Schultz. Then Schultz gathered other investors and took over the name of II Giornale to Starbucks. He sought to pursue his dream to make everyone taste his coffee, so he focused on the rate of expanding. At that time, he though that the most efficient way to grow the amount of branches is to set up new stores in other places. In I987, Starbucks had the first overseas store in Japan.
In the subsequent years, owing to the rising expenses with the worldwide broadening, there was a deficit in Starbucks for the next three years. In contrast, he firmly believed that not to “sacrifice long-term integrity and values for short-term profit” (Michelli, 2006). In 1991, it turned loss into gain and its sales grew up sharply to 84 percent. Until the end of 2002, Starbucks has developed from 17 stores to 5,688 spreading over 30 countries in by this strategy, it is an over 300 times growing in these ten years! (shown as Exhibit 1) From Fortune magazine, Starbucks was ranked the 11th best company to work for in 2005 in the USA and then risen up in 2006 to 29th. As to 2007, it was ranked as the 16th best. In the same year, Starbucks was also voted as one of the top ten UK workplaces by the Financial Times. (Resource: wikipedia)
Part 3 Literature Review
Definition of Motivation
Motivation is one of the most important aspects of an individualî€€sb eh av io r that determines not only how individual behaves and thinks but also ways in which he / she interacts with others and influences them. Motivation is derived from the word motives. The word motive is derived from Latin word ‘movere’, which means to move or to energize. Thus motivation actives us and directs our behavior to a particular goal.
According to Armstrong (2002 P.56) states that
“People won’t change their behaviour unless it makes a difference to them to do so”
Managers are individuals who achieve their goals through other people. They are constantly searching for ways to motivate their employees to make them work at their optimal level of performance to accomplish the company objective. Various incentives are provided by the managers to their employees for motivation. The incentives that are provided by the mangers to their employees can be broadly classified as monetary incentives and non-monetary incentives.
2.1 Comparison of monetary and non-monetary incentives
The purpose of monetary incentives is to reward associates for excellent job performance through money. Monetary incentives include profit sharing, project bonuses, stock options and warrants, scheduled bonuses (e.g., Christmas and performance-linked), and additional paid vacation time. Traditionally, these have helped maintain a positive motivational environment for associates. Monetary incentives can be diverse while having a similar effect on associates. One example of monetary incentives is mutual funds provided through company pension plans or insurance programs. Because it has been suggested that associates, depending on their age have different needs pertaining to incentives, traditional incentive packages are being replaced with alternatives to attract younger associates. On the other hand, the purpose of non-monetary benefits is to reward excellent job performance through opportunities. Non-monetary incentives include flexible work hours, training, pleasant work environment, and sabbaticals.
2.2 Problems with monetary incentives
“Managements have always looked at man as an animal to be manipulated with a carrot and stick. They found that when a man is lured/hurt, he will move to get the prize/avoid the pain-and they say, ‘We’re motivating the employees.’ Hell you are not motivating them, you are moving them.”*
-Frederick Herzberg, Professor Emeritus
Monetary incentives usually encourage compliance and achievement of difficult targets instead of encouraging creativity, innovation and foresight which are more important in the long run. Thus employees are not able to express their true talent and in the long run lose their creativity. Employers also may use monetary incentives as an extrinsic rather than an intrinsic motivator. In other words, associates are driven to do things just for the monetary reward versus doing something because it is the right thing to do. This can disrupt or terminate good relationships between
employees because they are transformed from co-workers to competitors, which can quickly disrupt the workplace environment. Another problem with monetary incentive is that it is given to circumvent a bigger problem for a short run. Sales employees are given higher monetary incentives to compensate for poor management and poor products, employees are paid more for working in poor work environment. Monetary incentives can even drive the employees to falsely reporting their achievements. Huge monetary incentives given to middle mangers are seen as a hook to retain them which may make them work counterproductively. Though the monetary incentives have a better effect than the monetary incentives in the short run, they fail miserably in the long run and in extreme situations downfall of the company (when employees start anticipating monetary incentives even for routine jobs and in absence of which they start working inefficiently or go on a strike as in the case of some government employees). Also most of the non-monetary incentives are intrinsic in nature. Intrinsic motivation is more effective as the impetus to work is from within. Employees are working because they feel satisfied or fulfilled by the activity they undertake. Under these circumstances the management can be regarded as more of a support than control. So managers should concentrate more on non-monetary incentives after the minimum level of monetary benefits and properly structure them according to their employee’s preference. This will ensure high motivational level of the employees which will get reflected in their better performance at work.
2.3 Theories which support intrinsic motivation
Various theories that support the concept that intrinsic motivation which is attained through non-monetary incentives is important and better than extrinsic motivation are as follows:
Maslow’s Hierarchy of needs
This theory states that the needs of social, esteem and self actualisation are higher order needs. The differentiation between the higher order needs and lower order needs is that the higher order needs are satisfied at the individual level whereas the lower order needs are satisfied externally.
Herzberg’s two-factor theory
It supports the emphasis on factors associated with work like promotional opportunities, opportunities for personal growth, recognition, responsibility, and achievement which employees find intrinsically rewarding
McClelland’s Theory of Needs
This theory focuses on three needs: achievement, power and affiliation. They are defined as follows
Need for achievement: The drive to excel, to achieve in relation to a set of standards, to strive to succeed.
Need for power: The need to make others behave in a way that they would not have behaved otherwise
Need for affiliation: The desire for friendly and closely interpersonal relationships.
- Cognitive evaluation theory
This theory states that allocating extrinsic rewards for behaviour that had been rewarding intrinsically leads to decrease in overall level of motivation. Thus it supports the view that it is better to continue intrinsic motivation to boost the morale of employees.
- Goal-Setting theory
This theory supports the idea that specific and difficult goals with feedback lead to higher motivation and performance.
- Self-efficacy theory(Social cognitive theory)
It is the individual’s belief that a task assigned can be done. Higher the self efficacy higher is the confidence of the employee at the workplace.
- Reinforcement theory
This theory states that the behaviour is a function of its consequences. If employees feel that their efforts are duly rewarded then they will work in a more effective manner for the organisation.
- Equity theory
This theory states that individuals compare their job inputs and outcomes with those of others and then respond to eliminate any inequities. If their colleagues are given recognition employees will work towards achieving those rewards. This motivates them to perform them to work better which beneficial to the organisation.
- Expectancy theory
The strength of a tendency to act in a certain way depends on the strength of an expectation that the act will be followed by a outcome and on the attractiveness of that outcome to the individual. Thus when expectations from a employee increases the employee responds with better performance.
From the above theories (however different they may be) it is clear that intrinsic motivation is desired by the employees.
2.4 Intrinsic Motivation by non-monetary incentives
Various non-monetary incentives motivate employees intrinsically which is more efficient than the extrinsic motivation. The intrinsic motivation that these incentives offer is the result of intrinsic rewards of self management.
In employee’s perspective self-management is choosing activities, monitoring competence, committing to purpose and monitoring progress. The intrinsic motivation that energises the work comes directly from the four management events namely activities, purpose, opportunities and rewards. From these four events the employees make a judgement -of the meaningfulness of the task purpose, the degree of choice available in selecting activities, the competence with which the activities are performed, and the amount of progress being made to the task purpose. The judgements from self-management lead to intrinsic rewards which in turn provide the energy for self- management which completes the cycle.
- Sense of meaningfulness
It is the opportunity that makes the employees feel that they are on a path that is worth the energy and time-that they are on a valuable mission that matters in the larger scheme of things.
- Sense of choice
It is the opportunity that the employees feel to select task activities that make sense to them and to perform them in ways that seem appropriate to them. The feeling of choice is the feeling of being free to choose-of being able to use their judgement and act out of their own understanding of task
- Sense of competence
It is the accomplishment that employees feel in skilfully performing task activities that have been chosen by them. The feeling of competence involves the sense that they are doing good, high-quality work on a task.
- Sense of PROGRESS
It is the accomplishment felt in achieving the task purpose. The feeling of progress involves the sense that the task is moving forward, and their activities are really accomplishing something.
It is the accomplishment felt in achieving the task purpose. The feeling of progress involves the sense that the task is moving forward, and their activities are really accomplishing something.
2.5 Non-monetary incentives
The non-monetary incentives desired by employees across generations have gone rapid changes. The following table shows the preferences in non-monetary incentives across generations.
(born between 1946-63)
(born between 1964-81)
(born after 1982)
Table 2: Preferences in non-monetary incentives across generations
Thus it is obvious that the demands of the current generation of employees are ever increasing and in current scenario where there is low loyalty to the companies, high attrition rate these demands have to be met reasonably well to attract prospective employees who can perform really well and to retain the employees.
3. PRACTICES IN ORGANISATIONS
Various non-monetary incentives in Table 1 are affected by career stage and proximity to retirement. The older the associate, the more the focus is placed on retirement or supplementing retirement income with part-time or temporary jobs. The younger the associate, the more the focus is placed on job satisfaction and the work environment.
Types of non-monetary incentives
Various types of non-monetary incentives are as follows:
- Professional development
- Tangible rewards
- Work environment
- Attentive employers
- Redesigning of jobs
- Retirement planning and others.
Flextime refers to several arrangements that allow the employee to work a non-traditional schedule. The employee and the manager agree in advance on the hours of work. Flextime is a popular option for good reason–it lends balance to busy lives. Fortunately, flextime also benefits the manager too. Allowing employees to work schedules that best suit their lives results in more productive workers. The most common flextime arrangements include:
- Compressed workweek
This arrangement allows the employees to work a full, 40-hour schedule in 4 days by extending the hours they work each day. The compressed week can also be scheduled over 2 workweeks, during which they work 9 longer days and have the tenth off. In any case, the compressed workweek maintains the same overall number of hours, just divided up differently. The workload, benefits, and pay are not affected by the arrangement.
- Adjusted lunch
Working an adjusted lunch schedule doesn’t actually allow any additional days off. Instead, he employees can take a longer lunch each day, making up the hours at the beginning or end of the day. For example, he manager may allow the employee to take your lunch from 11-1 so that the latter can run errands, go to a doctor’s appointment, or work out, but in exchange the employee works that additional hour at the beginning or end of your day. This sort of arrangement may be an unofficial privilege of every worker, especially if it’s used only occasionally.
- Core hours
Next to the compressed workweek, this is the most popular scheduling strategy because of the flexibility it offers. With this schedule, an employee can work certain hours every day, and as long as the schedule is built around the work time specified. For instance, if the core hours are 10-3, the employee must work 10-3 every day, but the starting and ending times can vary. The employee may choose to work 10-6, or 7-3, or any other combination as long as those core hours are covered. If the employee maintains the same total number of hours, your workload, benefits, and pay remain the same.
6 A.M 9 A.M
Figure 2: Example of a Flextime schedule
The only problem with flextime is that it can’t be extended to employees involved in production as the work time also depends on the machines which have to be run continuously for a certain period of time. Problems may arise if flextime is offered to employees of other departments and not to those of production department. So it is better not to introduce flextime in organisations where it can’t be extended to all the departments.
3.2 Professional development
In a broad sense professional development may include formal types of vocational education, typically post-secondaryor polytechnic training leading to qualification or acredentia l required to get or retain employment. Informal or individualized programs of professional development may also include the concept of personalcoaching. Professional development on the job may develop or enhance process skills, sometimes referred to as leadership skills, as well as task skills. Some examples for process skills are ‘effectiveness skills’, ‘team functioning skills’, and ‘systems thinking skills’. Some examples of task skills are computer software applications, customer service skills and safety training. Examples of skills relevant to a currentoccupation are leadership training for managers and training for specific techniques or equipment for educators,technicians, metal workers,medical practitionersand engineers. For some occupations there is a provision for accreditation tied to “continuing professional education” and proving competence regulated by a professional body.
People don’t quit organisations, they quit bosses. This can be extended to colleagues too. Improper communication, negative relationship, backbiting etc can lead to inefficiency and counter productivity. To overcome this, organisations are adopting feedback culture. It is the culture wherein all the employees are taught the skills of effectively receiving and giving feedback which is the degree to which carrying out the work activities required by the job results in the employee obtaining direct and clear information about the effectiveness in their job performance. This includes telling each other frankly, honestly and effectively what they think about their behaviour, job performance, ideas etc. Employees prefer being told what others think about them directly instead of in the round about way and they like being given feedback to self evaluate their performance. They also would like to frankly tell their bosses the various problems and issues faced by them. Feedback is of two types positive and negative. Positive feedback improves the morale of the receiver and negative feedback improves the performance of the receiver. Poor feedback can reduce morale, the ability to do the job, confidence of employees and can even lead to conflicts between the management and the employees. Hence great care has to be taken while giving and receiving feedback. So when both the managers and the employees acquire these skills of giving and receiving feedback the feedback culture works out well for the company. The following factors are to be considered while giving feedback:
- Make feedback specific
Ambiguity and vagueness will make feedback ineffective as the receiver might miss out the whole point. It should be made sure that there is no personality clash between the giver and receiver. Both of them should be comfortable with the way the feedback is being given and neither of them should feel attacked or offended. To do away with these problems the feedback has to be specific.
- Concentrate on behaviour and results
Feedback should concentrate on behaviour, results and future prospective and not on personality and attitudes so that the receiver gets the desired message in the desired manner.
- Take responsibility
The manager/employee should take the initiative of giving feedback rather than putting the blame on others saying that it is not their job. Most often it is due to lack of skills and unwillingness to give feedback. Employees should also be encouraged to take responsibility as there is lot of emphasis on teamwork and empowerment in present day’s organisations which are becoming flat.
- Balanced feedback
Feedback has to be balanced and accurate. Overstating or understating results will lead to ineffectiveness of feedback.
- Feedback on periodic basis
Feedback has to be on a periodic basis preferably on weekly basis. Delay in giving feedback will render it ineffective.
Similarly while receiving feedback the receiver has to listen attentively to all what is said, analyse the feedback and take remedial action.
Though difficult to establish, feedback culture promotes teamwork, job satisfaction, employee empowerment, improvement in job performance and so is preferred by most of the employees.
3.4 Tangible rewards
It is important to understand how different groups of employees perceive the total reward package offered by the organisation, particularly if the marketing adage ‘Perception is Reality’ were to be recalled. If the employee doesn’t understand the total reward package, how can employee value it? And how can it motivate he employee to perform?
Therefore, there is a need to gain an understanding of how managers and employees perceive reward, and, in the case of the Senior Management Team, where they think reward should focus? Perception of reward can be researched using the following tool:
- Senior Management Team Brainstorm
It is always important to involve the Senior Management Team (SMT) in Total Reward policy development. It is best to involve them from the outset to ensure that they understand and contribute to what you are doing. The key reason for conducting management interviews or focus groups is to gain buy-in from those who will be accountable for implementing the strategy. Interviews can help identify the information that managers will find useful, and begin to develop an action plan. This should focus on the ‘big picture’ and on priorities, not on detail. Top teams (or other senior groups) are likely to be unenthusiastic about detailed level definitions. The specific organisation and style of the debate will depend on the make-up of the team and the nature of the facilitator’s relationship with it. The focus will be on discovering either ‘what really matters to people who work here?’ or ‘based on the kind of people you want to work here, what do you think would really matter to them?’ The focus in each case will be on discovering either ‘what really matters to people who work here?’ or ‘based on the kind of people you want to work here, what do you think would really matter to them?’
- Cash vs. Tangible Rewards
Why Do Merchandise and other Tangible Rewards Motivate Better Than Cash?
Perks programs feature custom-designed rewards catalogues with highly desirable and attainable merchandise as rewards. Our reward items are memorable and reinforce the relationship between the reward earner and the reward provider. They keep on giving each time a merchandise reward is viewed or noticed: recipients relive the special recognition and appreciate the organization that honoured them.
Cash rewards on the other hand, often have fleeting impact and more often than not, leave the recipient’s mind as soon as they are spent. Cash – unfortunately for those companies that attempt to motivate with it – is the least lasting type of reward, because it’s typically confused with other compensation and therefore forgotten. Additional reasons to use tangible rewards rather than cash are summarized below.
Comparison between cash and tangible rewards.
Cash or Any Cash Equivalent
- Purely an extrinsic motivator with little emotional involvement; does not provide lasting satisfaction and long-term performance stimulation
- Creates expectations, leads to entitlement and consequently looses its motivating value
- A dollar is a dollar; participant attaches no greater emotional or inspirational value to cash. Lacks emotional impact of tangible rewards; thus quickly spent and forgotten
- No “trophy” value to be a constant reminder and continue to motivate. It is difficult to show off; thus limits the lasting impact of the reward
- Difficult to target a particular behaviour because of the lacking association with a particular achievement
- Recipients often can’t recall what they purchased with cash reward which further diminished its impact
- Minimal association with Sponsor Company due to minimal trophy value of reward which minimizes the potential of goodwill toward the company
- Not cost-effective; requires three times the incentive investment compared to non-cash, on average
- Usually spent on necessities thus lacking a positive association with the targeted accomplishment or behaviour
- Participant feels guilty for not spending a cash award on necessities which taints the reward with unpleasant feelings
- Tangible Rewards
1. Carry a significant “trophy value” thus continue to reinforce
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