Mr. Schultz with few investors bought Starbucks in the year 1987. In 1992 Starbucks decided to go public to achieve rapid expansion. The results of making the company public were great; it helped raise $25 million and took the growth rate at 40% to 60. Stratbucks had launched around 5000 outlets by year 2000. Averages of three new stores were being opened each day. At this time 20 million customers were being served by Starbucks. As the company had gone public sales and profits climbed at a rate of 45 to 55%.
As the company expanded position of Chairman of board was retained by MR. Schultz while MR. Orin Smith became the CEO. Department of research and development was introduced. Versimo espresso machines and drive troughs were introduced in order to increase operations efficiency. Post of CEO was taken over by Mr. Jim Donald in the year 2005. Immense increase in sales was experienced in his era as the range of products was increased by him. Oven warmed breakfast sandwich, movies and books were added. The characteristics of Starbucks are as follows:
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Characteristics of Starbucks
1: Setting functional goals to achieve strategic objectives
Knowing the distinction between corporate strategy and business strategy is very significant in order to respond to the questions mentioned above.
Issues related to the market in which the market wants to compete or would compete in future are dealt with corporate strategy. The main concern of the strategy is mission, aim and on the whole degree of the organisation.
Strategies associated to making a business prosper in a specific market are known as Business strategy. An alternate name for business strategy can be Competitive strategy. The main objective behind the strategy is to be in a situation where organisation has competitive advantage over its opposition in the market by cost leadership or differentiation.
Integration, Acquisition and Mergers related benefits achieved by Starbucks
Benefits attained by using vertical Integration (backward or forward integration) strategy were:
As a result of direct contact with the targeted market, significant environmental knowledge of market is gathered. This enables to make early adjustments to avoid loss.
Higher profits can achieve as they are being a buyer and supplier. Sp some section of this value can be delivered to customers.
Need for much more capital to enter the market will increase the entry barriers for potential oppositions as a result of vertical integration.
Impact of decentralization, separate profit units on Starbucks
Diversified business units will have less cooperation between each others.
Transaction cost might not be saved as divisional publishing units have to achieve minimum profit % set by corporate management to remain in the Starbucks.
Responsibility of their divisional business is not being taken by higher management willingly.
Tax in result of stock transfer by internet is being saved.
Business and corporate goals would lack alignment.
core competencies cannot increase for different businesses
Available tools and techniques to set team performance objectives
Motivation is most important thing. Motivation can be categorized as a process which develops a desire that people have to work well and achieve the goals. In order to have increased and constant high performance from a worker, it is important to keep the workforce motivated as it is the main aspect of performance. Motivation can be in financial or non financial forms, it is important to apply different theories and figure out which works out the best.
In Abraham Maslow's theory, he has divided human needs into five types. He then further developed it into a heirchy of needs pyramid, in which needs are aligned in order. According to him all the five human desires have to be fulfilled, to uphold or boost stimulus levels.. Following picture shows hierarchy of the needs:
Till year 2000 which was Mr. Schultz era, he managed to attend all the needs lined up in hierarchy. Evidences are provided in the chart below:
Source: (Suhomlinova, 2008)
Maslow's theory was truely adopted by Mr. Schultz in his era. He managed to maintain high levels of job satisfaction level with consistency among the partners. This is proved by 70% staff turnover, which was a result of very satisfied partners. Whereas at the same time other food industries were experiencing 300% staff turnover.
Always on Time
Marked to Standard
After Mr. Schultz period deviations from Maslow's theory was observed. Orion Smith denied paying for the overtime, he also neglected health and safety as injuries related to work were not paid for. Partner's autonomy was reduced in the operations by the introduction of espresso machines. Job complexity got worse when later Mr. Donald introduction of oven warmed sandwiches resulted in little stimulus and job contentment levels. Latham and Locke's theories about setting goals indicates that if goals are set wisely, it can boost up the motivation levels leading to higher levels of job satisfaction and performance. Set goals must be SMART (specific, measurable, attainable, realistic and time based). Every member of the organisation should agree with the goals set up and should work toward achieving it. Before 2000 under Mr. Schultz leadership organisations aim was to originate a 3rd place if all the partners agreed on it and was acceptable to them. After 2000 with the change of leadership the goals also changed. The goal was to open as many outlets as possible. The partners were not told of the new goals and strategies which were mainly made to boost up the rapid expansion. All the goals and policy making was done at the top and partners were unaware of it. Moving at a rapid growth rate it seemed unrealistic to maintain customer experience. According to expectancy theory of Vroom the work force will put forward extra effort and hard work when they are aware that their hard work will be praised and rewarded. Expectancy theory is most effective when an enormous organizational change is arising e.g. in this case when espresso machines were installed this theory can be applied to get desired results as some people will not feel comfortable to work with machines as they enjoy doing all the steps of coffee making in a relax pace while talking to customers at the same time.
Equity theory tells us that the employees judge the fairness of the distribution of rewards by comparing it to the other co-workers rewards. If the employee making the caparison gets to the conclusion that he is under rewarded, it may result in low motivational and performance levels. Frustration can also arise if the employee is being under rewarded. Increasing number of organisations were understanding the importance of keeping the workforce happy for staff retention and better performance. The job complexity was increasing with the expanding number of stores, sales and products. Due to the increased burden the partners started to feel that the organization is not caring for them, in fact day by day the burden of work was increasing and they had to work very hard to get rewards.
The Value of Team Performance Tools to Measure Future Team Performance
In 1980 Hackman and Oldham defined 5 features of a good job design; they defined the 5 characteristics as skill variant, test identity, task significance, autonomy and feedback. Skill variety was reduced by the installation of espresso machines as the step which involved coffee making, now were different due to machines input. Machines have the massive on the way people perform their jobs, machines bring standardisation and people start depending upon them. The element of people skill was reduced which starbucks was originally hired on with the introduction of espresso machines and growing amount of work load. Socialisation and emotional aspect was missing with the new policies there is no time to speak to customers or colleagues. Usually partners took help from each other, when there was a work load, currently machines can put up with it. Machines do not have any emotions associated to them, people think that they are controlling the machines but in reality they are being controlled by machines as they have to work according to the machines and cope up with its speed. Previously their partners were solely acknowledged by the complimentary feedback from customers as they were involved in the steps of making coffee. Now the appreciation is divided as machine is involved and people think at times that major part of the job is performed by the machine.
All the discussion above is almost contradicting Hackman and Oldman's theory thus, resulting is low job satisfaction
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To make the experience uplifting for the customer's these are the main 3 gears of Starbuck's branding strategy.
Under the leadership of Mr.Dnonald and Mr.Smith clearly all the components mentioned above were losing strength. Reduced personalisation and very little time to communicate and socialise with the customers was the result of espresso machines. The atmosphere standards were being destroyed by the development of drive through as fewer soft chairs and carpeting, as a result of this service is also dropping because 80% of Starbucks coffee is consumed outside stores. In today's market it's very significant to created competitive advantage, this can be achieved then product differliation composed to competitions. This is important as many subsidies are present in market this differentiation will make their product sell over others.
At very early stages Starbucks adopted the relationship marketing approach. Under the leadership of Mr.Schultz. Today under the leadership of Mr.Donald and Mr.Smith Starbuck is practicing the philosophy of early 19th century. The brand is being ruined by this policy as strategy of horizontal diversification is being used for growth. Early 19th century related production concept is being followed when the imagination of organisations was that as they produce quality product's at affordable rates the customers will favour them. in the mid 1920's the selling concept came in, according to which sales targets were to be achieved by aggressive promotion. In the early 1950's the marketing concept also came in. The concept stated to manufacture goods according to the demand and taste of customer. In 1990's the relationship marketing era started. This concept was that apart from producing products according to the. Customers likely and demand, it was also important to maintain long term relation with it's satisfied customer.
The factors discussed above mention that the starbucks was going backward in the world of marketing after 2000.This is shown by the diagram, illustrated above.
Starbucks unique and rich culture is the reason behind its success. A lot of respect is given to its employees calling them "partners" and using ceo as a substitute of CEO. The achievements of the partner is appreciated by the organisation in the form of norms "Warm regard", "Mug", "Bravo" and "sprit of starbucks". To achieve customer satisfaction Starbucks feel that it is important to satisfying their staff .Work force variety create environment for a lot of fresh ideas and culture of different sort together, which makes starbucks a desirable place to work. Apart from satisfying its staff and customers sratbucks also serve the community. This is done through their corporate social responsibility group which donated $36.1 Million cash and product's sratbucks also volunteered 383,000 hours to help out the community .The unique culture of starbucks helped them to maintain the satisfaction of employees which resulted in low staff turnover and the contentment of a staff were transferred to the customers.
By the early year 2000 the rules and strategies of starbucks started to change as it was believed the starbucks amazing culture is onerous instead of competitive advantage. as stated in the case study the company had stopped paying for the overtime, less care for the staff and injuries related to work were not being paid for .After Mr.Schultz leadership partners were not consulted about the new strategic decision like, drive through, offering sandwiches' or the design changes made to accommodate more customers. Reduced empowerment and lack of entrepreneurial spirit was the result of these policies of the partners.
Partners make labour union was fired by the Starbucks. This indicates that the starbucks partners can't get to the upper level management. They need union because of the unhappiness.Making more stores and achieving higher sales become the aim of the higher management .The partners had a feeling that it was not starbucks who was giving up the benefits, but the case was that they had to work very hard to get them .Starbucks faced problems like lower customer satisfaction, less staff satisfaction, reduction in sales and share value as a result of deviation from their culture.
2: Team performance targets towards objectives.
To achieve objective a few targets are recommended of the evaluation of the organization:
It analysed that after Mr.Schultz era which ended at the start of 2000 the focus of the organization deviated from people to other issues .Starbucks preferred products, increase in efficiency through machines and growth of the organization over the people.
Transformational leadership is required to solve the issues mentioned above in the analysis. Importance of leadership should be recognised by Starbucks and the fact that management is not the replacement for leadership. From the above study we can conclude that Starbucks is totally unaware with the advantages of transformational leadership. A good example can be Mr.Schultz. starbuks needs to get in leadership training programmes. They could use their own leadership story for a better understanding. As their story mentions different impacts, under different leaderships.
The culture of Starbucks is very rich but after 2000 their dimensions, strategies, aims changed. According to market research report 53% to 61% believes that Starbucks is all about making money. While 48% to 55% people have thinking that Starbucks is all about opening new stores. Its partners also feel that the employees are not being cared for. All the negative thoughts about Starbucks need to be changed.
Starbuks needs to motivate its workforce. As from the study above we have noticed that employees do not have any say. They should be made part of the decision making process., their work shall be appreciated by verbal means as well as financially at times. A new job design needs to be in place which involves less use of machines. Boost in entrepreneurship spirit and empowerment can be achieved if supported and participated leadership is introduced.
Product and Competitive Advantage, Vision, Atmosphere and People
Creating product differentiation on actual product is very difficult. Competitive avantages can be created through the way to concentrate on service and environment. Environment can be improved by making seating more comfortable by installation of music systems, roper lighting, carpets, heating systems and comfortable seats. Job satisfaction is very important to maintain, as a satisfied workforce will make customers satisfied. This can be achieved by thinking of new ways to reduce job stress. One way can be by reducing the use of espresso machines.
3: Monitoring of actions and activities to uplift team performance
Dividing the task into groups or departments and developing coordination between these departments of the organization to achieve organizational goals is called Organizational structure. A good structure sets clearly defined authorities and duties. It also develops and increases coordination. As a result it eases monitoring of different activities of the organisation. Enhanced effectiveness and effectiveness in operations of the organization is a result of this.
Organizational structure can be made in three ways; by grouping different activities of the organization:
Functional Structure (grouping by task)
Divisional Structure (grouping by output)
Matrix Structure(grouping by task and output simultaneously )
Starbucks has some functional departments but apart from that it does not have any formal organizational structure as there is no data written in the case study nor on the website. These departments are finance, sales, corporate social responsibility, production, research and development and human resources.
The organisation structure shows lack of connection, sequence and coordination between different departments which is observed in the case study. From this kind of functional grouping Starbucks achieved in-depth functional knowledge as it is stated in the case study "We tend to be great on measuring things, at collecting market data" (Suhomlinova, 2008) but overall organizational goal is suffering due to lack of coordination and accountability. Starbucks grouping also hindering the effective decision making process of the organization as it is stated that "we are not very disciplined when it comes to using this data to drive decision making" (Suhomlinova, 2008). Poor accountability no clear responsibly is also observed as market research noticed that Starbucks is losing product differentiation and customers satisfaction rates are declining through their decisions like creating convenience by increasing no of stores and drive-throughs but no one was looking at the "big picture" and previous executives were blaming soft economy for poor performance (Suhomlinova, 2008). During rapid expansion they followed Max Weber Classical approach which led to bureaucracy. They moved their focus from people to mechanistic organization as Mr. Schultz said that he want to shift Starbucks focus from bureaucracy to people by giving them more training and tools to launch new products and introduce new concepts in store designs (Suhomlinova, 2008). All of the above circumstances are creating problems like critical customers satisfaction results reduction in staff morale and cannibalization of existing stores.
In respect to Starbuck bureaucracy means function department are performing their tasks without coordination, espresso machines increased standardisation which made partners job boring, formalization and centralized authority to make decision. In general bureaucracy result in higher performance for large size organizations but in Starbucks bureaucracy became a factor or low performance because bureaucracy is effective in standardised operational activities and Starbucks customers want personalized coffee with non-standardized emotional greeting.
Value Chain and coordination with drawing activity map
Activities related to production are divided into secondary and primary activities by Michael E. Porter value chain. Making and delivering the products is associated with primary activities. Supporting and service activities are related to support the primary actives to produce product or services effectively and efficiently (Johnson, 2008: p.110).
Starbucks diversified product portfolio and geographical distances are creating hurdles to fully utilize the essence of vale chain. Mr. Middelhoff asked the whole group to increase and share communication and resources for synergy without drawing an activity map that where the coordination is required. Michael E. Porter's value chain is shown in the following diagram.
4. Apply influencing and persuading skills to the active and politics of personal relations.
Starbucks needs to develop a marketing department as it has expanded to such a large scale. To develop a marketing department integration of its 3 existing department market research group, category group and marketing group is needed which is show in the picture and adopt relationship marketing approach.
Organizational Chart for Starbucks
In order to overcome the difficulties mentioned in the analysis an organization chart is shown above. In designing Starbucks structure all types of grouping methods are considered to maximise synergies. To increase communication horizontal and vertical structures are used at different levels. Horizontal structure is used at bottom level management, which includes country manager, area manager, Store Manager and then sales. Vertical communication is used in functional departments. To comprehend customers, enhance efficiency and effectiveness marketing decisions, through internal integration of three existing groups marketing department is brought in to shape. As all the departments will be at head office, it will improve coordination and communication between functional departments. In result this will improve and foster strategic decision making process. Implementing the above recommended chat will result in decentralised and clear responsibilities at all management levels. This will help the organisation reduce bureaucracy.
The study has tried to explore Starbucks within four learning outcomes as specified above and has found that Starbucks has a unique spiritual culture created by a transformational leader Mr. Schultz. This case tells us that how leaders and organizations can change commodity into culture by having strong belief on people and by creating ethical culture. Power and devotion of people can change a simple product and small company to huge multinational company. Critical analysis of different theories in organization behaviour module not only helps in understanding the organization but also provide a basis to improve them in different environments. Most of the companies now days are trying to increase performance of the organizations by embracing technology but this case study give us a different point of view a more natural approach to solve different problems of the organizations. Different theories developed with the passage of time but to understand organization performance its best to understand and apply all to get multiple view of the organization behaviour.