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In this essay the impacts of Human Resource Management (HRM) policies are evaluated on organizational performance with a thorough study of Starbucks. It provides complete insides into the Human Resource (HR) three dimensional model and its implementation in Starbucks is evaluated.
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The workforce of an organization is considered as a source of competitive edge over the competitors for that organization (Barney, 1991) (Barney, 1991) (Pfeffer, 1998). So due to this the significance of the employees has risen greatly and the need of the organization to develop a better human resource system has become one of the major organizational concerns to ensure the optimum use of human capital to get their maximum productivity. This increasing importance of human capital has raised the interest of the researchers to understand the relationship between high performance and effective human resource management policies and so far many researchers have also confirmed that effective human resource policies have positive effects over the performance of the organization (Huselid, 1995). But still we can see a huge gap in studies that have been conducted to understand the impacts of that positive relationship between organizational performance and effective human resource management system for multinational companies. Most of the previous researches have been conducted to understand the implications of that relationship on Domestic industries of Europe (e.g., Guest and Hoque, 2008); USA and very few studies have been made in Asia.
This essay is focused to understand the HRM policies adopted by big multinational retail service provider Starbucks and critically discusses what type of value they have created by successful implementation of these HRM policies in the form of more committed and motivated workforce.
HRM is an important function of organizations performed internally in order to hire the required workforce, manage them effectively and ensure that they are working in right direction in order to achieve overall organizational goals (Robert L. Mathis,Â John H. Jackson, 2008).
When we compare the planned or expected output of the organization with the actual performance we can get the organizational performance level (Daniel M & Wentland, 2009).
According to Boxal, 1996 the human capital advantage is collection of all specific HR activities that are considered as special features of that firm, although these practices are performed by using formal as well as informal both types of processes.
This essay discusses the effectiveness of HRM policies on the organizational performance of Starbucks. It is one of the some major organizations, dealing in retail sector that offers magnificent benefits to its both full time and part time employees. Starbucks is coffee Stores Company originated in 1917 in Seattle, USA and now it has become a large organization working at world level in 44 countries with 15000 stores. It is one of the leading organizations in retail business and is known for its special coffee brand and as roaster.
The company has implemented five corporate strategies that are; offer best quality products, ensure maximum penetration in market, offering a highly social atmosphere, provide relaxing, develop the best working conditions and increase the profitability of the company by offering high margin products and reducing the costs (Jacqueline L, John L. Colley,Â Doyle,Â Robert D. Hardie, 2004). It has adopted the Laissez Faire management style and above the management at store level it has hour different levels of management in its organizational structure. The skills that give it advantage of its competitors are the ability to make drinks and the skills of employees. At Starbucks employees are considered as partners of the organization and provided with special trainings to develop better understanding of the product and teach them new methods of brewing and techniques of sales. Partners have powers to take decisions when needed and shift supervisors assign them duties. Evaluations and Promotions are used to motivate them. The performance of the company is well observed through the balance sheet of last five years as the assets of the company have been doubled as they were in 2005. Owner’s equity is also raised (SBUX, Balance sheet)
According to most of the HRM specialists the effective human resource management system is very much important to achieve high levels of organizational performance (Delery, 2009; MacDuffie, 1999). According to them the effective Human resource management system is mostly designed to ensure high organizational performance by getting optimum overall output of the company rather than having more focus on individual performance. As Reeves and Dare (2007) describes that we can get high performance from an employee by increasing his motivation and abilities by using any method. In the field of HRM and organizational performance a significant contribution is from Huczynski and Buchanan, 2009. According to them when HRM activities are designed in an organization according to its strategy it increases the productivity level of the organization, reduces its turnover and also enables it to perform well in financial sector (Huczynski & Buchanan, 2009). Their findings proved that when organization succeeded to satisfy its workforce and make them committed it can make its performance in corporate sector much better. The productivity is also very much dependant on the job design (Huczynski & Buchanan, 2009).
According to Huselid and Becker (1995) have critically examined the human resource management system and find out the three major dimensions of it.
Many studies have proved that an effective recruitment and selection process in organization is very much crucial for its success and to achieve high performance goal of the company. The system should be rigorous and should be designed to meet the overall organizational goals according to Reeves ad Dare (2007). The researchers have found that there is a positive relationship between effective recruitment and selection process of the company and overall organizational performance. When organization selects employees who best match its requirements and have enough abilities to contribute to the overall success of the company they can reduce their cost of employee development, they don’t need to invest in employee training programs that costs a lot to the organizations.
According to many researchers the compensation based on performance is a very successful tool to get high performance level (e.g. Arthur, 1998; Delery and Doty, 2009; Huselid, 1995; MacDuffie, 1999). Doty and Delery (2009) even declare the reward system based on performance as only method of achieving high performance level. Along these many other studies have discussed the positive relationship of performance based reward system with the overall performance of the organization Like in control theory by Snell, 1999, cost theory by Wright and Jones, 1992, and agency theory by Eisenhardt, 1988 and all these studies have found a positive relationship between the overall performance of the organization and the reward system based on performance. According to expectancy theory by Vroom 1964 the high performance level of an individual can be expected if organization meet his expected needs. But most important thing is that the reward system based on performance is dependent on other functions of human resource management. The individual output should not be the only basis of rewards provided by the company; organization should also consider the contributions of that person in the overall organizational performance.
The performance of an organization is very much dependant on the employee’s development policy of the organization. Organizations use a number of practices in order to develop their human capital. First of all the investments made by the organization, to provide non-technical and technical trainings to its workforce, determines the success of organization to increase the knowledge level of its employees. According to many researchers like Huselid and Delaney (1995), McGrath and Koch (1996), Huselid (1995) the organizational performance can be increased greatly by providing proper training to the workforce. They all have developed a positive relationship between overall organizational performance and the employee development policies of the organization. Organizational are now more concerned to develop their employees in order to achieve high performance they invest in their trainings and also try to make it possible to have long-term mutually beneficial relationship with them (Doty and Delery 2009). In order to enable their employees to plan their careers properly they design proper career development programs for them. The companies that have promotion system from within the organization they have usually more committed and motivated employees as they want to work hard in order to get promotion (Snell and Lepak, 1999) and when company adopts internal promotion system it shows the commitment of the organization towards its workforce.
With the increasing globalization trends the importance of skilled human resource have raised greatly, now human resource is considered that if an organization invests its efforts to Develop its human resource as an advantage in result that human capital will contribute to establish overall competitive advantage of the organization (Boxal, 1999).
The committed and motivated employees have great significance in the overall organizational success and Starbucks realize that very early. So Starbucks gave great importance to recruitment process in order to select right people for jobs and develop them and retain them in order to get sustainable high performance of the organization. And effective HRM policies adopted by the company also shows its commitment towards its human resource.
From its start Starbucks has given great importance to its frontline staff and baristas because they give it competitive advantage by providing the customers the experience of the Starbucks. They always remained the center of the company’s attentions. From first day while hiring someone for company, the qualities that are given great importance are dependability, adaptability and ability of the candidate to work as an effective member of a team.
Still, as current HR policy to develop the right people the Starbucks is making huge investments in the development and training processes of the workforce. They are taught the techniques and skills that they will be required to perform their tasks while working at Starbucks and increase their efficiency as well. With these huge investments in human resource the Starbucks can expect to have strong employee satisfaction level (HRM, Starbucks).
The biggest challenge that Starbucks cope with in first decade of 21st century is to maintain the goodwill of the organization while having a high expansion rate and to develop the qualified workforce to support its expansion policy. The analysts were in doubt that with this fast expansion policy whether it would be able to meet the goals to be a positive employer. In early years of 21st century the company claimed that its huge costs on human development have been showing great in the financial position of the organization. In fiscal year 2004 the spending on human resource development was more than its spending on advertising expenses that were $68.3 million. In mid of 2004 in order to meet these heavy costs the company needed to increase the price of its beverages with 11cents these were already premium prices for the Starbucks products. But other hand company was not in position to cut down the incentives that it provides to workforce because that action can lead a major decrease in their morale.
Starbucks still keeps its high expansion policy as every day it is adding 5 new stores in its portfolio with 200 new employees. So the challenges for Starbucks are not changed as they were at the start of 21st century (SBUX, Daily Finance).
Starbucks is one of the world biggest organizations and having each day addition of five new stores in its large profile and in order to maintain this magnificent growth Starbucks has to hire 200 new employees every day. The process of recruitment in Starbucks includes many tools like interview of the candidates in which they also attend the sessions of coffee tasting and the terms and conditions are being developed and they are emphasized to provide with notes that are handwritten rather than response letters also the use to phone calls if appreciated. By using all these tools Starbucks get to know the response time of candidates. Starbucks also asks its recruiters to regularly send gift cards of Starbucks to its job applicants whether they are selected or not for job they must be treated as customers for the company. The process of recruitment in Starbucks is specifically designed for the job that is needed to be filled. The mission of the Starbucks is to expect the diversity and provide the employees the opportunity to develop themselves. After passing the interview Starbucks first train its employees before final selection (Starbucks, ICMR India).
Starbucks always give more importance to its people than products, in a store staff it has 16 partners and one manager and one assistant manager on them. The incentives that Starbucks provide to its workforce are free health care that also includes vision and dental care facilities. It offers Stock options as well in the form of extra benefits and along this the employees who work average 20 hours a week for the company and continue it for three months company provides them shift drinks free and free pound of tea or coffee in every week. The rise in salaries of employees is based on performance evaluations that are conducted semi annually and these raises can be from 0% to 5%. Company does not offer any monetary bonuses but provide many non monetary awards like it offers about 30% discounts to the employees on all goods that they buy (Starbucks, ICMR India). The contribution of partners in overall organizational performance is recognized by several different kinds of programs. Just like company has implemented a program of Green Apron, that is an evidence of Starbucks commitment towards environmental issues and its brand behavior. Green Apron book is provided to every partner that contains the values of the company and desired behaviors and peer recognition cards. Team contributions are also recognized to evaluate their performance.
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In employee development policy Starbucks has designed training programs and learning sessions for new as well as existing employees. The employees are provided refresher courses in order to align their skills with industry customer demands. In training programs that Starbucks offers to its employees include; customer dealing techniques, coffee making workshops, customer care programs.
I will make the comparison of Starbucks with an IRAN based coffee provider named Tunnel Restaurant & Coffee Shop. This is a big chain of Coffee shops and restaurants with 15000 employees in IRAN. The chain network of the company is spread in whole IRAN with 724 stores. If we compare the three HR dimensional model of this restaurant with Starbucks;
The reward system in Tunnel restaurant is not based on performance of the workers they have fixed reward system and annual bonuses that are aligned with religious festivals. While Starbucks ha performance based reward system discussed above. They lack the business knowledge due to the nonexistence of capital based business. Employee development also not that much efficient as they still based on traditional views and take human resource as business costs. Employee selection process is much better and we can say too much extant same like Starbucks they have policy to hire the people from the area where they operate their store (ChefMoz Dining Guide, Tunnel Restaurant & Coffee Shop, 2009).
The application of three HR dimensional model for performance of Starbucks has helped me a lot to develop understanding about how to identify the organizational needs and designing systems according to those specific areas where need occurs and to cover the deficiencies. These three dimensions are very much crucial for the organizations as they help to develop the business to create most precious asset that is human capital.
Most of the workforce of Starbucks is below the 20 years of age and the incentives that Starbucks is providing are more focused on health facilities that include medical, vision and dental care facilities and also Stock options for employees.
The numbers of monetary awards that are being offered to employees are very few include semi-annual raises and wage rates based on per hour working. Although the focus of the Starbucks is more on providing the third place atmosphere but still the turnover rate of employees is very high and one of the big reasons behind it is the exchange of managers in store whenever upper management wants so it has very bad impacts on the partners.
One more issue that company is facing in this area is that although the focus of the company is equal on direct labors and high margin products but the performance of some stores is not satisfactory in this segment.
Although Starbucks is one of those few multinationals that have strong commitment towards their people but after this study we can make many recommendations to the company to do in near future in order to increase their performance;
- While designing the incentive package for the employees company should also consider the age factor of them and offer benefits according to their needs.
- The number of monetary awards should also be increased with non monetary benefits as it is argued that monetary benefits motivate faster and have long term effects on employees.
- The exchange of managing level staff should not be frequent.
- The audit should be done carefully and the stores that are not performing well they should be closed as they cause extra costs to the company.
Starbucks is one of the big organizations of the globe it has a large employee base and the way through which it is managing its employees is very appreciable although the need for more work in some areas is always remain even in perfect systems.
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