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This article is an organizational study of Starbucks based on Burke-Litwin’s model of organizational design and change. In this article, we just try to ascertain the transactional variables that act as throughputs. Here we will conduct a diagnostic study in Starbuck to find the transactional variable and establish the degree of fitment between the different components and how they are related to each other.
Burk and Letwin proposed two organizational dynamics i.e. transactional and transformational. The former is defined as “the everyday interactions and exchanges that more directly create climate conditions” (Burke & Letwin, 1992, p.527). The latter is defined as “areas in which alteration is likely caused by interaction with environmental forces (both within and without) and will require entirely new behavior sets from organizational members.” (p. 529) Overall, the idea that was presented by them is that organizational change occurs due to transformational change which occurs due to external conditions. They believe that this change affects the organizations’ mission and strategy, leadership, and culture directly. This, again, affects the transactional factors, which are, structure, systems, management practices, and climate. Both of them together affect motivation, which, in turn, affects the performance of the organization (p. 523). So our study will be limited in identifying and establishing a relationship between the transactional variables.
The company selected for this analysis is Starbucks, a more than 30-year-old Seattle-based coffee retailer. We will now examine the transactional variables of Starbucks. First, we consider structure. By structure, the authors meant the way a company is organized to demonstrate the functions and people into specific areas and levels of responsibility, decision-making authority, communication (p.532). Starbucks has a functional structure where three distinct functions are, operations, support functions, and partner care and support. Starbucks refers to its employees as partners. The support functions include departments like Store Development, Licensed Stores, Finance, Partner Resources, Marketing, In-Store Experience, Global Supply Chain, Global Communications, and Partner & Asset Protection. (Reuters 2008)
Second, systems refer to the formal procedures and policies of the organizations. They are mainly, reward systems, MIS, performance appraisals, training, etc. Starbucks has several factors to its systems. One of the most important among them is training. Starbucks trains its staff extensively on the intricacies of coffee beans including where they are grown, how they are roasted, how they should be ground, and how they should be filtered to optimize taste. The reward system of Starbucks is highly people-oriented. Each employee is eligible to receive health care. Starbucks’ employees also participate in a 401(k) profit-sharing plan. Further, due to Starbuck’s presence worldwide, it needs to take care of the culture and accordingly regulate its performance appraisal and reward system. For example, United States has an individualistic culture, so individual reward systems are useful and employed. In Asian countries such as China, which have collectivist cultures, individual reward systems would not motivate employees. Rather, group reward systems, and group recognition is coherent with the culture of the country. (Business Wire 2002)
The third is management practices, which may be defined as the factions that managers do in order to utilize the resources which are at their disposal. The style for the organization can be defined as innovative, flexible, collegial, and team-orientated (Schultz p. 29).
The fourth factor is climate. Burke and Litwin defined climate as the employees’ expectations that affect their internal relationships with their colleagues and superiors.
The fourth variable is task requirements and individual skills/abilities, by which the authors meant, the quality and kind of people required in the organization so as to ascertain organizational fitment. Starbucks has high-quality employees since the employee is the direct link to the customer and subsequently embodies the brand. The retention of qualified, trained employees is important. So they provide a flexible work environment:
The fifth variable is individual needs and values. This means the impetus that is provided that motivates employees. The apparently flexible work environment for Starbucks encourages its employees to be innovative, creative, and to take chances. Strong vision: The vision for Starbucks is reinforced throughout the organization. Unlike some firms that have a mission statement framed on a wall at head office, the mission, goals, and vision for Starbucks seem to be reinforced at all levels of the organization. This reinforcement leads to support and buy-in from employees, who are more likely to hold these or similar values as being important. One of Schultz’s key philosophies was to “treat people like family, and they will be loyal and give their all.” Accordingly, Starbucks paid more than the going wage in the restaurant and retail industries, granted stock options to both full and part-time partners in proportion to their level of base pay, and offered health benefits for both full and part-time partners (Scultz 1997 pp. 127-137). In return, Starbucks had a partner turnover rate of 60% compared to the restaurant industry average of 200% (Pendegrast 1999, p.374).
The sixth variable is motivation. Burke and Litwin described “net resultant motivation” which is the outcome of all the other variables working together and in cognition. Through generous benefits packages and comprehensive training, Starbucks can have high-quality employees in a retail environment, while minimizing the challenges facing many other traditional retailers including employee turnover or employee motivation. The corporate environment at Starbucks is very loosely structured, emphasizing the company’s constant need for new ideas and employee input. Starbucks extends to all of its employee’s benefits such as health coverage and stock options.
Starbucks believes creating the value of brand equity occurs through investing in its employees who are the face of the brand rather than in traditional tools like advertising; before a company can expect trust from its customers, it must have the trust of its employees (Stanley 2001).
The sixth variable is an individual and organizational performance which is the overall outcome of the organization’s performance. Starbucks has been performing well in the past few years. In 2007 the performance of Starbucks can be summed as an increase of 22% in consolidated revenue, store sales growth increased by 4%, operating margin improved by 10.2%, earnings per share showed a 40% rise, more than 2500 stores were opened of which 70% were in the US and 30% in international markets, and sales increased by 11.2%. (Business Wire, 2007)
Clearly, the above analysis of the transactional variables shows that there exists fitment in the organizational design of Starbucks. Since Starbucks has a functional structure that is arranged loosely, it is possible to maintain its flexibility of work. The company’s management practice also reinforces the flexible structure which is primarily people-oriented. Hence the role and responsibilities are clear to the employees. From the above analysis, we see that a strong culture was fostered in the organization and the employees felt extremely proud to work for Starbucks. The Company’s cultural values give employees a sense of meaning to their work even if it is just pouring a cup of coffee. Their pride came from working for a very visible and successful company that tried to act in accordance with the values they shared. This clearly showed that there existed coherence in the company’s management practices and the employees, who directly associated with them. Since the management practice was to ensure a people-oriented culture, the system too was aligned in the same direction. This ensured that the fairness of reward existed. Thus, we find an almost perfect fitment of the transactional variables in the case of Starbucks.
Reference
“Starbucks makes organizational changes to enhance customer experience Realignment of U.S. Field Operations and Consolidation of Support Functions to Allow Company to Best Execute Transformation Agenda,” (2008), Reuters, Seattle.
Business & Company Resource Center, (2002). “Starbucks Corp. – Chronology”. Business Wire, Web.
Howard Schultz, Pour Your Heart Into It, Hyperion: New York, 1997, p. 29.
Pendergrast, M. (1999) Uncommon Grounds: The History of Coffee and How it Transformed OurWorld, Basic Books: New York.
Holmes, S. (2001) “Starbucks: Keeping the brew hot”, Business Week.
“Starbucks Reports Strong Fourth Quarter and Record Full Year 2007 Results.” (2007) Business Wire. Web.
Burke, W.W. & Litwin, G.H. (1992). “A Causal Model of Organizational Performance and Change,” Journal of Management Vol. 18. No. 3, pp. 52.1-545.
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