Organizational Analysis and Development:

Starbucks

Christopher Sparks, Brittany VanDyke, and Laura Russell

Overview• Casual abbreviation of the company itself

• Mission Statement• Organizational Design• Employees and company culture• Leadership Style

• Analysis• Domestic Situation• Making Change• International Situation• Strategic Issues

• Firsthand experience in the form of Interviews

• Closing Comments and Discussion

Quick Facts

• Founded in 1971 in Seattle, WA• Founded by an English Teacher, a History

teacher and a Writer• Named after Captain Ahabs first mate• Initial Public Offering (IPO) in 1982 with

165 locations• Largest Coffee House Company on Earth• 16,120 Locations in 49 countries• 11,000 Locations in the United States

Products- Whole Bean Coffee

- Boxed Tea (Chai + IV= Chai-V)

- Bottled and Canned Beverages and Water

- Baked Goods

- Merchandise

- Frappuccino Beverages

- Smoothies

Quick Numbers

Retail Sales Mix by Product Type: Company Operated StoresFiscal Year Ended

Sept 28, 2008

Sept 30, 2007

Oct 1, 2006

Beverages 76% 75% 77% Food 17% 17% 15%Coffee Making Equipment and Other Merch.

4% 5% 5%

Whole Bean Coffee

3% 3% 3%

Total 100% 100% 100%

Components of 2008 Revenue

Retail 84%Licensing 12%Foodservice and Other 4%

Mission Statement

“To inspire and nurture the human spirit— one person, one cup, and one neighborhood at a time.”Forward looking, assuming, promising, and emotionally laden statements are in BOLD and should be used with caution in international markets for purposes of cultural sensitivity

- “Our Coffee: It has always been, and will always be, about quality. We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them. We care deeply about all of this; our work is never done.”

- “Our Customers: When we are fully engaged, we connect with, laugh with, and uplift the lives of our customers— even if just for a few moments. Sure, it starts with the promise of a perfectly made beverage, but our work goes far beyond that. It’s really about human connection.”

- “Our Shareholders: We know that as we deliver in each of these areas, we enjoy the kind of success that rewards our shareholders. We are fully accountable to get each of these elements right so that Starbucks—and everyone it touches—can endure and thrive.”

Organizational Design of Starbucks Corporate

Starbucks Corporate is in the business of empowering people in the hope that its employees will reflect this on every level, otherwise known as transformational leadership. In addition, Starbucks recognizes the importance of treating its suppliers fairly for both ethical and economic reasons.Starbucks is:- A company as personal with its employees (known as “associates”) as it is with its customers- A company whose grass roots have not been abandoned for a patriarchal and authoritarian system of management.- A company which recognizes the necessity for communication across company strata and communication with customers

As a result, Starbucks has been listed on the Forbes list of 100 best companies to work for and has seen positive returns on the public knowledge that it cares for its farmers and suppliers, which in turn translates into an environment of global responsibility.

Employees and Company Culture

• Employee Support- Benefits for all Corporate employees, including those who only work part time.– Health Insurance after one month of employment– Stock Options for employees– A 1 week barista seminar for all employees

Leadership Style

Chairman Howard Schultz is driven to ensure that “Growth does not dilute the company culture”

- We have some ideas on how he can lead the change that his company will need in the future. We have based our ideas on Kotter’s 8 Steps and current Starbucks management techniques that could benefit. This will be discussed shortly

Marketing and Branding Style“There’s home, there’s work, and then there’s Starbucks”

Starbucks strives to fill the need for an individuals third environment outside of both home and work; a meeting place.

• Following the grass roots coffee house tradition• Study groups, first dates, etc.• Low marketing costs, reliance on word of mouth from satisfied

customers

• Contracts with royalties for institutions Licensing with Aramark at a number of hospital, university locations etc.

Environmental Analysis: Overview by Type

• SWOT Analysis- “Strengths. Weaknesses. Opportunities. Threats”• General

– Economic• Premium brand highly affected in times of recession• Volatility of coffee market

• Operating– International

• Expansion abroad has been advantageous• Especially successful in Japan (50% of int’l sales)

– Customers• Strong loyalty• Customers know that the suppliers are treated well

• Internal– Personnel

• “Associates” not “employees”• Empowering people

SWOT Analysis of Starbucks

• Strengths– Brand recognition– “Highest quality” coffee, depending on who you talk to

• Weaknesses– Over branding + Growth= Diminishes coffee house experience– Little to no marketing; when have you seen a Starbucks commercial?– Depend on word of mouth from customers, which may not be positive– Pace of store openings vs. Customer traffic and economic issues

• Opportunities– New products we will discuss later on– International expansion which will also be discussed later

• Threats– Competition with Dunkin Donuts and McCafe– Saturation of domestic market, weakening the Starbucks authenticity

Economic Analysis

• US Domestic Issues: Rough Economy has a major negative impact on premium brands like Starbucks.– 5% Reduction of US Domestic Sales– This is a result of growth outpacing a dwindling

demand for premium coffee in a bad economyWe need a comprehensive solution that adapts both

our public image and our management to both the changing market and what Starbucks has become

Innovation

Strategic Innovation

• Research and Development data reflects the increasing need to change not only product and process issues, but organizational development issues

• These Numbers Reflect:– Growth– More importantly an effort to fix issues that are

growing in proportion to the company and its market presence. These attempts achieve short term support for organizational change.

2006 6.5 Million

2007 7.0 Million

2008 7.2 Million

Growth Outpacing DemandStock Price Fluctuation Comparison

1/1/99 1/1/00 1/1/01 1/1/02 1/1/03 1/1/040

50

100

150

200

250

Starbucks CorpS&P 500NASDAQ CompositeS&P Consumer Directory

Growth Outpacing DemandAddition of New Stores

Growth Outpacing Demand DomesticallyPotential Solutions

The opening of stores has become careless and growth policies must be re-examined:

- Starbucks needs to re-focus on coffee and the home environment it touts as its mission

- Store design and potential de-branding;Removal of logoLive music and drinksMake these locations more authentic

- Sub-standard store performance and closing certain locations;Re-ignite our focus on retail performance rather than store volumeFewer stores makes those performing well more unique to customersWe must accept that the novelty of Starbucks may be wearing offClosed 600 locations on July 1, 2008

- Re-examine contracts with licensed locations and limit the number of contracts in the hope that authenticity is placed back into the hands of corporate. After all, only 12% of Starbucks annual revenue is drawn from licensing. This will be

Dunkin vs. Starbucks

Starbucks Response

• Starbucks corporate has resorted to competitor emulation in ways such as drive thru service.– While in some areas this may work, most loyal

customers may initially see the convenience of a drive thru positively. This, however, creates a serious rift between the customer and the Starbucks mission statement. We feel that measures such as these reflect poorly on corporate and should be avoided at all costs.• Note: Drive Thru locations were introduced by the previous

CEO Orin C. Smith who was asked to step down in 2005.

Leading Organizational Change

After recognizing the problem and exploring the solutions, we suggest that Chairman Schultz garner support from his associates by:

Based on Kotter’s 8 steps- Expressing the need for rapid “restoration of the Starbucks experience”- Identify like-minded associates and convey the plan for change in an

understandable fashion.- Use certain stores as examples of why, for example, de-branding works. Ex.

specific Seattle locations which have been successful- Use the input provided by the communication available in the Starbucks

environment, listen to everyone.- Think long term rather than spontaneously. How can we ensure this system

lasts

Operating: International Problems

• Increasing dependence on International Operations

– Problems• International regions will have different economic situations at different

times– Adding enormous complexity to international management

• Differing tastes by region may hinder international progress• Disposable income in developing and developed countries• Difficulties with staffing

– Cultural concerns » Adapting Starbucks culture to culturally different regions» Success in Japan is a result of their culture becoming westernized, which is often

met with resistance in other cultures.– Language barriers

» Conveying essential information correctly. Ex. websites– Product quality consistency

International Solutions

A major investment of R&D is necessary for international expansion:

- Outside socioeconomic consultation for various issues that require cultural sensitivity

- Pilot locations equipped with paid survey specialists to increase market understanding- Seinfeld as a social commentary

- International marketing firms

Strategic Issues• Technology is a major concern for Starbucks efficiency• Espresso machines were done away with but human error

still impacts sales. • Fewer than 60% of stores manage to hit their goal of serving

their beverages in three minutes or less– Millions in potential profit lost– A 2008 solution to this problem was a customer feedback system

which gave discerning customers the opportunity to create an account and submit criticisms for the company via the Internet

Solutions:– VIA Express Coffee “I just want a cup of coffee”– Strictly Drip Line A suggested solution for the casual consumer,

a better idea than VIA.

Strategic Issues• Incorporate a new emphasis on customer and associate relationships in

the hope that this will decrease delivery time. If Carl walks in and associate Becky knows that because Carl is dressed to power walk, he prefers a hot mocha latte over an iced venti chai, which is his power lunch preference when he is dressed for business.

• Reduction of complaints:– According to one interviewee, the mayhem behind the counter

during peak hours tends to send a message of disorganization to the customer, resulting in a higher chance that he or she will complain. By providing a form of distraction or entertainment while waiting, less attention will be directed towards the mayhem.• Flat screens with the news• Acknowledgements of customers from behind the counter conveys a

message of “hey, thanks for coming, I know we look disorganized but its just because were busy”

• An associate cleaning the store could act as an incognito greeter, killing the customer with kindness.

Store Manager Interview *Confidentiality: NO Names, NO Locations. This Individual works at a licensed Starbucks, not an official Starbucks corporate

location. He/ She was promoted to Manager of a licensed location after two years of being a barista.

On Happiness:- Customer interactions matter more than job content.

*On Corporate: At licensed, non Starbucks Corporate locations the benefits are marginal

“… Legalized slave labor”“Employees are overworked and underpaid.”“Non-existent employee benefits and laughable health care.”

On Company Quality: - Customer satisfaction is paramount to creating the feel of a natural home environment. This depends on a combination of customer expectations and barista delivery.- Personal belief: Customer satisfaction allows for the inflated price Starbucks puts on its sub-standard coffee.

“Without the focus on customer service people would go elsewhere for their drinks”

Manager Interview Contd.On Store Continuity:

- Concept of “The Sirens Eye” (the twin tailed siren being their iconic mascot) is stressed by management. This familiarity translates into comfort for a traveler who is familiar with a Starbucks in Chicago and has expectations for one of 10 locations in Rancho Cucamonga, CA.

This is “…the Starbucks code of conduct.”

On Customer Complaints:“It’s a bit degrading to be told you have to accept being treated like shit [by corporate]

sometimes and just smile and say thank you afterwards.” - Price changes are the most common complaint that occurs right before customers hand over their credit card.

“They complain to us as if we had any say in the matter and often get hostile with the cashier, I'm sorry but this is a business and no one is forcing them to pay for it.”

Manager Interview Contd.

“Most of the customizations that we "forgot" to add tend to cost extra money so they complain saying that it was our fault it wasn't marked and then we have to redo the drink. This plays right into the complaint about cost and I understand it but don't think for a second that we don't pick up on it. We do, we just don't care enough, just don't be rude about it when you know full well you're stealing from us.”

“…the obvious resolution for these problems is for people to stop complaining and quit buying from Starbucks.”

Manager Interview Contd.

On Employee Sustainability:“Honestly if I worked at a corporate store I wouldn't mind

moving up from within the company. but since I work for [a licensed store] I plan on leaving as soon as I can and getting as far away from it as possible.”

Conclusion: Working for Starbucks is preferable to working at licensed locations. Though these licensed locations train employees with the same values, many of the ideas listed in the mission statement are a challenge to maintain in this environment due to employee dissatisfaction.

Interpretation of Manager Interview

For licensed locations and contracts:- Reexamine standards for contracts/ licensing rights.- Closer monitoring of licensed umbrella companies like Aramark and Sodexho to increase cohesiveness with corporate. This avoids a superficial business relationship that uses only the Starbucks name in the wrong way. - Necessary for avoidance of crises involving ethical issues that if publicized “could bite the Starbucks image in the ass”.- For example: If a licensed umbrella company is accused of discrimination and the media publicizes it, Starbucks will suffer more than the umbrella company who will most likely be mentioned only briefly. The average consumer will not know the dynamics of the business relationship and will associate words like “discrimination” with “Starbucks” and not with the responsible party “ACME” who is only briefly mentioned.

Corporate Associate “barista” Interview

This individual is treated as an “associate” rather than an employee, effectively making her a shareholder in the company. She has been employed for six months and loves the upbeat and encouraging environment.

On Training: Two three day weekends in Tampa to learn the Starbucks philosophy and how to translate it to the customer. “It was a great experience.”

On Benefits: She specifically chose to work for Starbucks Corporate for the part-time health benefits.

On Corporate Adaptability: “Adaptability to the changing market, innovation, and a willingness to try new things to create a better atmosphere

On Complaints: “Return customers are easier to serve, but tend towards frustration when non-familiars struggle with their orders”

On Solutions: Keep them busy and maintain dialogue with returning customers. This could also help display the home feeling to new customers.

On Associate Feedback: “[We have] off the record discussions and associate meetings in order to come up with creative ideas.”

On Employment Sustainability: She has already been offered a management position and “…wouldn’t think twice about continuing with them if retail management was part of [her] career goals.”

Closing Comments

Organizational Change- “Leadership is mobilizing yourself and others to meet adaptive challenges”

For Starbucks to continue its dominating market presence it must :

- Recapture the average coffee drinker as well as the connoisseur for their expert power and influence over public opinion.

- Recommit themselves to the original mission statement by using corporate qualities already present slightly modified by implementing knowledge from external consultants. Get back to its roots.

- Evaluate the International market and thoroughly educate itself on its complexities to ensure a smooth transition.