Evaluation of Starbucks’s Organization’s Competitive Structure

Introduction

Starbucks Corporation, a major coffee supplier is located in Seattle, Washington, and well-reputed coffee house in the marketplace. The original Starbucks was launched in Pike Place Market in Seattle, Washington, in 1971 by a joint venture of three entrepreneurs including English teacher Jerry Baldwin, writer Gordon Bowker and history teacher Zev Siegel Starbucks is one of the greatest coffee brands in the world, having 15,012 retailed stores in almost 44 countries.

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Starbucks has been becoming popular for its high-quality drip-brewed coffee, snacks, coffee beans, espresso-based hot drinks, different kinds of hot and cold drinks, etc. Though Starbucks is selling some seasonal or specific products in different locations e.g. music, films, and books, or some ice-creams, etc. the corporation has been developing so rapidly as the biggest international coffee bean roaster and retailer all over the world.

This corporation has been running its business success by using the latest information technology in order to upgrade the standard of the organization. The chain of Starbucks’s stores is supervised by highly qualified staff members of the IT field to get benefits of advanced technology of communications. In this way, Starbucks has a perfect system of management to produce exclusive revenues by implementing the latest techniques of communications with the customers, co-workers, and partners.

Executive summary

Starbucks started to establish a new store in every corner of the world and this progress continued in 1990-2000. Starbucks has been expanding its scope of products in foreign markets with a number of worldwide stores. The first retail store of Starbucks out of the US was established in Canada in the 1990s and now there is a large network of Starbucks stores. According to the latest research, there are approximately 16,226 worldwide stores Starbucks and 11,434 Starbucks stores are located in America.

Starbucks has been serving a variety of beverages according to the tastes of the potential customers e.g. brewed coffee, espresso, hot chocolate, teas, fruit smoothies (Vivanno Nourishing Blends), Ethos water, Horizon Organic Milk, Frappuccinos, Izze soda, and San Pellegrino, etc. all staff members of Starbucks’s worldwide stores has been recruited by the managerial leadership of the corporation and only those employees are appointed who have done Coffee Master courses and may manipulate all workloads of the stores efficiently. In the US and Canada, all Starbucks employees are granted a number of beneficial facilities like health, dental and vision insurance.

The employees can get a box of tea every week free of charge and also enjoy almost %30 discount on all regular sale prices of products. The employees are facilitated to use wiki-fi internet access freely. For the quality of products, best marketing strategies, and expansion of the company’s chain of stores, it was ranked as the 7th best retailer and supplier in the US in 2007 while in 2006; it was graded as 29th and in 2005 it was positioned as 11th ones. Starbucks has exclusive human resource management policies to boost up their corporation’s efficiency and productivity.

The business report of the corporation is presented to compare it with other competitors on the basis of different parameters like financial performance, business segments, business strategies geographical coverage, product offerings & their USPs (unique selling points), etc. You can distinguish and analyze the competitiveness of the company on the specific parameters of this report as mentioned below:

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  • Strategic business planning for greater output and input
  • Targets business opportunities & risks
  • Target potential customers
  • Technical support for competitive intelligence
  • Entrepreneurship and management of the capitalists and investors
  • Role of financial consultants and other industry professionals

An entire overview of the organization, Starbucks covers all features of the basic organizational management and its challenges including segmentation of the industry, trends, forecast, challenges, and opportunities, and ranking of top managerial leaders of the corporate. This report is particularly developed for the first-rate management, business analysts, decision-makers, investors, stakeholders, financial performance, business strategies, and comprehensive perspectives of product sales’ points, etc. (Starbucks Corporation – Competitive Benchmarking Report, 2008).

There is a need for good governance, perfect leadership, and cooperative teamwork to run the business of the corporate on a larger scale. Starbucks has good managerial staff members, an established system of information technology, and highly qualified employees who are working hard to ensure fine-quality services for the customers.

Technology and Management of Starbucks

Starbucks had been a leading corporate due to the first-rate IT technology and management in dealing with all its chain of retail stores in different locations. All networks of retail stores of Starbucks are modernized with a computerized system, controlled by highly qualified IT professionals. But nowadays, Starbucks has been undergoing management upheavals due to the company’s CIO and the appointment of a new technology leader has become a dramatic issue.

The new technology leader was appointed to leverage technology, “to create innovative ways for Starbucks to connect with our customers and build loyalty programs” as the company shows its objectives. Due to the lack of proper management and technology, the company has been facing problematic issues e.g. bad customer experience, hypergrowth strategies, and merchandising growth as a retail analyst, Paula Rosenblum says, Starbucks “lost its focus and quality control” (Wailgum, 2008). Starbucks has developed enterprise software that improves customer services and manages business in the different operational sectors of the firm.

Academic literature (Leadership and motivation)

The strategic outlines encompass the vision, key factors of motivated leadership, and missionary objectives of the organization which are determined by the leaders or entrepreneurs who take an overview of all strategic viewpoints of the company in order to construct and motivate the morale of the employees. In this way, the employees contribute their efficient workforce which is a powerful tool to enhance the productivity of the organization (Amanor-Boadu, 2008).

The managerial leadership is most significant to develop the business and execute strategies of business marketing by identifying the exact management team. The good governance of the corporate is also the main feature of the organizational structure to control and direct the business rules & regulations, specifying the distribution of the rights and liabilities among the managerial leadership, stakeholders, and employees of the corporation.

The governance of the corporate provides organizational infrastructure, indicating the business strategies, objectives, and supervision of performance of the organization. The common perception of academic literature is to develop innovative organizational structures which relate to the vision, mission, and core values of the corporate (Amanor-Boadu, 2008).

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Organizational analysis

U.S. Field Operations and Consolidation of Support have allowed Starbucks to change its all organizational structure for the best productivity and responsiveness of the customers. Nowadays the company has launched Transformation Agenda in order to bring some organizational changes into the structure of the corporation by focusing on the efforts of the workforce to ensure high-quality customer services. The company’s chief executive claims to reinvigorate and analyze every feature of the company operations for the expansion of business management effectively (Starbucks Makes Organizational Changes, 2008).

The chief organizer of the company says that there is a need to be more strategic and progressive in this challenging environment where the customers and partners have high hopes of Starbucks. These organizational changes may restructure the company with the reduction of a number of positions and shareholders approximately 600 (Starbucks Makes Organizational Changes To Enhance Customer Experience, 2008). Currently, the organization has been focusing on the customers and consolidating the structural setup of our operational headquarters to ensure functional excellence. There should be a flexible infrastructure of the organization which keeps all customers and partners close to each other within our field operational system.

Now the leadership of Starbucks decided that every division of its franchise offices would be led by a senior vice president who is liable to report to the president of headquarter in the US. Within every divisional branch, the partners would coordinate with their corresponding representatives to enhance the store development, marketing resources, and financial reporting on the divisional level. In this way, the entire team works to develop an infrastructure with great effectiveness and global level functional activities which are helpful to envision the business goals of the organization.

The following changes are introduced in reorganizing the structural development of the corporate with the following features:

  • U.S. Store Development
  • U.S. Finance
  • Partner Resources
  • Partner & Asset Protection
  • U.S. Licensed Stores
  • In-Store Experience
  • Global Communications
  • Global Supply Chain (Starbucks Makes Organizational Changes To Enhance Customer Experience, 2008).

The ownership and leadership of this corporate have been trying to evolve its strategic marketing growth with unmatched depth and breadth of business scope for many decades. There is a need for an entire examination of the structure of the organization including partnership and mergers & acquisitions in accordance with the recent developments. The main focus should be on the key products and services, provided by the company to enhance productivity.

If we analyze the historical output of the company, a number of weaknesses of the company and threats would be exposed along with greater potentialities of taking advantage of the opportunities to consolidate the organizational structure. If the managerial and marketing strategies work according to the business and marketing strategies, there would be high brand value and competitive earnings according to the financial indicators. The competitive organizational setup is evaluated in terms of productivity, sales, and stock performance in the comparison with other competitors (Starbucks, 2006).

Starbucks, the coffee shop has a unique feel, and here we’ll focus on how three different elements of organizational behavior have affected the company’s success rate since its inception in 1971. These elements can be viewed as the core values in Starbucks’ plight in building a unique brand name through their unique cultural management.

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All three elements are intertwined, and throughout this paper, will overlap. However, for argument’s sake, the analysis of sub-elements has been broken down into (i) human resource strategy, (ii) organizational culture, and (iii) change management.

Human Resource Strategy

Recruitment and employment policies

Starbucks prides themselves as being a hub of diverse gender and cultures. According to their statistics, over 60% of their employees are women or are of minority origin. Women and minority communities also represent 35% of Starbucks ‘ higher management (vice president and above) (Starbucks, 2001). This is consistent with one of their statements: Honouring Our Origins, Enriched by Our Blends. In fact, two of their mission statements include treating each other with respect and dignity and embracing diversity as a component of business (Starbucks, 2002).

Having a diverse employee pool is enriching for any organization. It builds confidence in people to reach out beyond their own race and culture and interact professionally. Once this becomes a norm, social interaction is easy.

Training plans

Training and education skills are also taught as part of the Starbucks experience. Education on coffee, leadership skills as well as business and communications are available along Starbucks’ career path (Starbucks website).

Having employees well-educated about the products they serve not only provides a rewarding experience for the consumer but employees, especially the baristas, are made to feel like part of the team. Retail-level employees receive a minimum of 24 hours of training during their first two to four weeks on the job – they are equipped with customer service skills, coffee knowledge, and beverage-making techniques (Lewis, 1997). Accordingly, training plans such as these help build confidence in employees when delivering their services – this represents a strong organizational structure.

Commitment to people-centric strategy

Starbucks takes its human resource strategy further by creating a no-level hierarchy within its human resources system. All employees are referred to as “partners,” regardless of their job descriptions (Kim, 2002). This is how a strong cultural belonging is insinuated into a company. Further to that, all chains provide medical, dental, and vision coverage to all of their employees, including part-timers (Kim, 2002). Starbucks believes that their company is in the “people business” as much as it is in the coffee business (Filiczak, 1995).

There have been criticisms however on how Starbucks weighs heavy emphasis upon the people-centric policy rather than taking a look at their products’ performance. Worldwide, 44 million customers visit Starbucks every week for a cup of coffee (Moore, 2007). With so many cups being sold a week, Starbucks must remain consistent in delivering high-end coffee within the realm of their people or partner-centric policies.

Perhaps in this instance, it would be possible for Starbucks to continuously update their partners with product knowledge or even have baristas involved in certain business strategy brainstorms (in addition to the initial training). After all, they are the ones who face the consumer, consistently, week after week.

Taking care of suppliers

In the 1990s, Starbucks faced several legal predicaments regarding the sourcing of their coffee beans. Certification Institutions for the Protection of the Environment commenced picketing schemes across Starbucks coffee houses in protest of the underpaid wages of Guatemalan coffee pickers (Garcia-Johnson, 2001). After several rounds of dispute and negotiation, Starbucks announced its intention to develop a code of conduct to treat work-wages, conditions, and rights to organize, in 1995 (Garcia-Johnson, 2001). This code of conduct established a principle that companies were to take responsibility for their suppliers whether at home or abroad.

Starbucks’ human resources strategies have paid off. They have been featured as Fortune’s 10 Best Places to Work. The Reno-Gazette Journal reported that Starbucks ranked as the best employer in the region (of Nevada) in 2005. An interview with an employee indicated that happy partners easily translated into happy customers and that was vital for the company’s well-being. She was also pleased with the perks that Starbucks had to offer (Driscoll, 2005).

Organisational Culture

With such an amicable perception of the human resources strategies adopted by Starbucks, it is sufficient to say that the company harbors a strong organizational culture. There are several aspects of their culture that stand out.

Focus on community and surroundings

Part of Starbucks’ culture is to ensure that they serve the community and environment well. One of their goals as a company is to involve all partners as decision-makers, volunteers, and leaders in the initiatives they support.

Unlike other corporations, Starbucks does not splurge on advertising of any kind. A generous segment of their “marketing” comes through charitable resources. This is unique to the community they serve (Kim, 2001). This would inspire those inside and outside their employment structure (Lorenzini, 1993).

Besides the community-specific charities, Starbucks also supports the African Wildlife Fund, Save the Children, and Mercycorps.

100 Best Corporate Citizens list developed by Business Ethics Magazine, listed Starbucks as number nine on their list in 2007. The list judges corporations on several different criteria:

  • Environmental responsibility
  • Corporate governance and ethics
  • Fairness towards employees
  • Accountability to local communities
  • Providing responsible products and services to customers
  • Maintaining a healthy rate of return for investors

It is fair to say that these traits are well-embodied within the organizational culture of Starbucks and the formal recognition of their values is applauded. Along with Starbucks, Timberland Co., Dell, Johnson & Johnson, and Google Inc were all listed as the few of the 100 Best Corporate Citizens in 2007.

Care of the environment and local communities speaks volumes to the consumers and those who frequent Starbucks do feel they are part of a bigger picture. Knowing that the money they spend on coffee through Starbucks is not being laundered to unethical use, will provide a strong basis for customer retention. This has been proven to be effective. The average coffee drinker, the client of Starbucks, visits the coffee house on an average of eighteen times a month. This customer spends USD3.50 per visit. Such customer retention has been reflected positively in its financial reports. Profits have soared over 50% annually throughout the 1990s (Keller, 1999).

Blue Ocean Strategy – more than a cup of coffee

Starbucks took coffee to the next level with the embodiment of its unique organizational culture. Branding is an integral process in delivering the end product to the expecting consumer. Effective marketing cannot be achieved with a strong mindset and the mindset’s roots are implanted in the organizational culture of a company.

In 1983, fifteen years ago, Starbucks was just another coffee house next door. Howard Schultz (Starbucks chairman) decided that the cup of purchased coffee was just going to be part and parcel of the whole Starbucks experience. This stemmed from a holiday in Italy (Keller, 1999). Schultz was inspired by the romance and general ambiance of Italy that incorporating such a culture and environment for Starbucks was the ideal step to take.

“Starbucks sold great coffee beans, but we did not sell coffee by the cup. We treated coffee as produce, something to be bagged and sent home with groceries. We stayed one big step away from what the heart and soul of coffee have meant throughout centuries.” (Pour Your Heart into It, Schultz & Yang, 1997).

To say that Starbucks took coffee to a higher level would just be a metaphor for “Starbucks took coffee to the blue ocean.” By moving forward and discovering the history of coffee, Starbucks managed to deter its way out of the red ocean where competition existed. Bloody red ocean indicates the cut-throat nature of competing companies.

Starbucks decided that they were no longer just interested in producing coffee and satisfying a demand for the basic beverage. Starbucks’ organizational culture made it possible for the corporation as a whole to move to the bluer ocean, where competition ceased to exist and to create new demand for a new product.

This demand is now known as the Starbucks experience. Starbucks began focusing on building a coffee bar culture, like the ones seen in Italy (Keller, 1999). The Starbucks experience, both for the consumer and to the satisfaction of the “partners” of the corporation includes the aroma of the coffee, delicious grounded beans, artwork, and contemporary design, relaxing music in the background, and the unique fixtures and fittings.

In designing Starbucks blue ocean strategy, they have even developed a unique form of marketing that takes the Starbucks experience beyond the walls of their coffee house. In the past 10 years, Starbucks began operating its own music label, satellite radio and hybrid coffee / music stores. Sales of music CDs and other entertainment possibilities not only led to an increase in sales but an increase in consumer traffic (Moore, 2007).

Branding is very much a product of a strong culture. Especially when Starbucks believes in involving their partners in decision making, providing clients with that extra ambience has proven that the Starbucks experience is defined by more than just coffee!

Conclusions

Starbucks is one of the leading corporations, having a network of thousands retail stores in multiple locations in the world. The managerial performance and excellence is helpful to enhance the productivity of the corporation. Starbucks has been undergoing the process of innovation and modification by using the latest technology of IT industry. All its divisional offices are interconnected with each other to report all business performance via modern technical and managerial system and efforts of its IT experts and all directors, presidents and vice-president can communicate with their customers directly and respond quickly.

There is a coherent network of communication between all managers, directors, employees and customers of Starbucks by having advanced database of information technology and it is not difficult to have quick contact with the customers.

References

Amanor-Boadu, Vincent. Strategic Overview, Department of Agricultural Economics Kansas State University. Web.

Filipczak, B. Trained by Starbucks and Born to be Wired, Training Magazine, (1995).

Garcia-Johnson, R. Certifications Institutions in the Protection of the Environment:Exploring the Implications for Governance, 23 rd Annual Research of the Association of Public Policy, Analysis & Management , Washington DC, (2001).

Jacovitz, R, Starbucks Works Hard to Remain on Top, Management Turnover as Change – managementaschangeagent. (2007).

Keller, K.L. The Brand Report Card, Harvard Business Review, (2000).

Kim, S-M. Starbucks Coffee Corporations, College of Business Administration, University of Hawaii, Manoa, (2002).

Lorenzini, B. Grounds for Success, Restaurants & Institutions, (1993).

Moore, J & Starbucks BOD, What Starbucks Should Do, Online Manifesto, (2007).

O’Driscoll, B. Starbucks: Best Employer in Region, Reno-Gazette Journal, (2005).

Starbucks Corporation – Competitive Benchmarking Report. Web.

Starbucks Corporation. Corporate Social Responsibility / Fiscal 2006 Annual Report, (2007).

Starbucks Makes Organizational Changes To Enhance Customer Experience, Seattle, 2008. Web.

Starbucks Makes Organizational Changes, 2008. Web.

Starbucks, Daedal Research, 2006, Pages: 25. Web.

Starbucks. Web.

Thecro. Web.

Wailgum, Thomas. (2008) How IT Systems Can Help Starbucks Fix Itself, by Thomas Wailgum. Web.

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