Leading Coffeehouse Company: Starbucks

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Table of Contents

Primary issues leading up to the topic chosen
Company responses to the primary issue
Organizational structure and culture development
Results of the company’s responses
Recommendation to further the operations
Summary
References

Starbucks is a leading coffee and coffeehouse company. It has outlets in more than 55 countries where it operates about 10,000 retail stores; the history of the company relates to the innovations of Jerry Baldwin, Zev Siegl, and Gordon Bowker on March 30, 1971 when the idea of opening a coffee outlet saw the light when they opened the first Starbucks outlet in the United States of America.

With the growth of globalization, the company has been able to diversify in Europe, Asia, and Africa in the look for increased markets for its products; the company’s main products are roasted beans, ready coffee and some snacks, coffee accessories and teas (Starbuck Official Website, 2011).

According to Howard Schultz and Orin Smith letter to shareholders in 1996, the mission of the company is “to assume leadership in the coffee industry in the world by offering memorable experiences to our customers”. Despite the visionary management team lead by the Chairman Howard Schultz, the company is facing some issues brought about by globalisation.

To remain competitive amidst the increased competition in the industry, the company has developed a number of strategic management with the aim of creating leadership in the sector. The main area focuses by the management is organisational behaviour of the company; it ensures that the company has a behaviour that favours competitiveness and efficiency in the sector.

Despite the efforts, there are some challenges that have come up forcing the organisation to restructure as well as devise other methods of business (Schultz, 2011). This paper discusses Starbucks organisational behaviour; it will be guided by subheadings to fulfil the task.

Primary issues leading up to the topic chosen

The issues facing the company can be traced from globalisation where it has created some challenges to the company; the challenges come because there is an increased competition from international companies offering similar services.

This creates more challenge as the main operating base of the company is in the United States that accounts for about 85% of the company’s revenue; when coffee companies get to the United States the company is affected directly; the company main competitors are McDonald’s and Dunkin’ Donuts.

The above challenge can be seen in the nature and style of management adopted; the managers, though the company is international has opted to concentrate on American market at the expense of uniform distribution and diversification.

The management strategy taken by the company was so and concentrated in one region that in 2008, when Howard Schultz replaced Jim Donald as the company’s CEO said, “Starbucks would slow its U.S. growth and close underperforming locations, restructure its management organization and continue to expand globally (msnbc.com, 2008)”.

This was an indication of the challenge that the company was facing because of American regional expansion. In 2008, the company had seen its shares plummet 50 percent over the past year; the decreased profits were resulting from an increased competition and limited expansion plan as adopted by the company (Starbucks case study, 2009).

The company is also facing some internal structure and management issues; though the company is operating well and it is a leader in coffee industry, it has a weakness of having only one area of specialisation (its management has relied on the fast food, coffee or hospitality industry alone).

The company employs people with different cultural background; this brings some issues in managing and blending the staffs together to have a common objective that supports the company. People from diverse backgrounds report differently to issues and they has delayed appropriate decision-makings at times. Diversity management is an issue in current business management; there is need to understand and handle diverse work force needs that call for an additional hassle to the management of Starbucks.

The challenge with diversity can be seen in lower revenues and income per employee as recorded in 2004 were the employees earnings were recorded as 5294 as compared to the industry average of $9500; this shown that there was a challenge managing human capital in the company.

On the other hand, for the last five years, the company’s five year average returns on equity was lower than the industries rate; the company recorded 13.65% while the industrial rate was 15.06; this shows that despite the large presence and leadership in the industry, the cost management and efficiency in the company are wanting.

Change in an organisation is inevitable; however, the nature of human beings is that they resist change. The company has had some problems in implementing strategic changes (Starbuck Official Website, 2011).

Another weakness that the company is facing from its business approach method is how to keep its innovation business strategy; according to the philosophy of the company, it should drive the market through innovation of new brands, tastes and preferences.

However the main challenge as far as this is concerned is for how long the company will keep innovating new products that are relevant and can pull the demands higher; on the other hand, much focus is seen on how to grow the number of flavours and tastes at the expense of creating customer attachments with the brands.

The international branches operated by the company have some issues; they include issues that faced by other internationals however in the case of Starbucks the challenge seems more and harder to swallow; IN 2003, the company was forced to close down six of its outlets in Israel as it was accused of unfair business practices (Theodore, 2007).

Company responses to the primary issue

Despite the issues brought about by global changes and globalisation, Starbucks has come up with strategic policies to address the issues; the following are some of the strategic issues by the company:

Organizational structure and culture development

To remain competitive the company has developed an atmosphere that allows employees to give their contributions to the management on the best strategies they should adopt to remain competitive; the employees are highly motivated and keeps innovating and coming up with new policies and approaches to business.

In 2008, when the company seemed to have diverted its focus from customers and concentrated in international and national enlargement, the management decided to change hands and Howard Schultz took office; he was expected to change and improve the company’s operations by focusing on customers. On the August 1^st 2008, he posted a letter posted in Starbucks website that stated, “”Although necessary, it led to bureaucracy.

We will now shift our emphasis back onto customer-facing initiatives, better aligning our back-end costs with our business model (msnbc.com, 2008)” the above statements shows the focus that the company had taken that did not favour the growth and improved customer relationship (Starbuck Official Website, 2011).

With the change of management, the new manager made of the latest mergers that have seen the company improve its processes and businesses further, it was the merger Il Giornale Acquisition of Starbucks; the strategy saw the company; when the two companies combined efforts. The company was able to have a two-staged company with coffee houses (brought about by Starbucks) and the roaster or the maker of the coffee (brought about by Il Giornale).

The company considers its employees as business partners a method that made it acquire number 16 of Fortune Best Companies to Work; the leadership approach aims at creating a good working environment that can facilitate good working environment; the environment is aggravated further by proper compensation, proper training and good communication.

With the culture and the behaviour, the company has been able to come up with policies and working environment that leads to staffs satisfaction and good customer service. Management listen to views given by their employees and consider proposals they give to the company on the way forward. The refocus on employees were in the areas of ensuring that they are motivated and involved in the company’s decision making processes (Walker & DeBusk, 2008).

The next approach that the company has taken is maintaining of an effective supply chain management, this ensures the company get quality and quantity coffee when it needs them; the department has been supported to have links to international countries that are known to have high quality level coffee. The company supply’s team maintains healthy relations with its suppliers.

Quality is tested at delivery where in every 250 bags, three samples are taken for quality test. The company have good internal processes that ensure that quality coffee is roasted at the right temperature and desired blending is done accordingly. It has embraced research and development to come up with ways to ensure that their coffee is managed in the best way possible.

The company has a well-structured logistics and supplies team. They ensure that the company have a constant delivery of coffee. The supply team is composed of experienced experts who are able to predict demand for coffee and make timely ordering. The system is well integrated with the manufacturing and production department to ensure that there is constant supply.

To maintain an efficient supply chain, the company have developed good relations with its supplies, adopted a just in time delivery system, have a strong value determination policy and pays its supplier without fail and at a higher cost (Reese, 1996).

The company has a strong production and manufacturing team. They are highly trained and have wide experiences on how to produce different tastes. Roasting is an important stage in coffee industry thus quality from production team is crucial. The company has adopted high technology in its processes right from supply management to customer delivery and marketing.

This has enabled the company to produce effectively and market its goods appropriately. The company has adopted unique way of doing business where it works directly with its exporter and goes a step further by providing them with training for better production. This strategy ensures that the company gets quality and quantity coffee beans always.

The company is making strategic alliances in its efforts to remain a market leader. For example it has made alliance with Dreyer Ice cream and Pepsi for ice creams and Frappuccino (ready-made coffee) respectively. The new unique strategies by the company led to a growth of its coffee sales between 1994 and 1999 by 2.5% (Starbuck Official Website, 2011).

Starbucks Corporation has implemented unique strategy called “Being Everywhere Approach”, under the approach, the company ensures that it has estanlished outlets in areas that it can make business; this creates an increased presence of the company; for example in Chicago, the company has over 100 outlets and most of them are placed in the same street.

The approach is seen as advertising costs reduction approach were those outlets in the same area only need a single billboards for the advertisement purposes (Gallaugher & Ransbotham, 2010).

Results of the company’s responses

With the inventions made by Chairman Howard Schultz since 2008, Starbucks has been able to improve its sales and business more particularly in the era that the world was facing global financial crisis. In 2008, the company opened its largest branch in Buenos Aires and managed to have outlets in Argentina, Czech Republic, Bulgaria, and Portugal.

In 2009, the company expanded further to Algeria, Pollard, Sweden and Hungary; with the growing name of the company, Southern Suns Hotel in South Africa accepted to have a business agreement with the company to b brewing the company coffee in the country; this was more particular to enjoy the benefits brought about by World Cup 2010. The expansion trend has come to 2011 where it has already established outlets in Norway, Israel and Egypt.

The company is increasingly being able to build good relations with their customers, they are getting an increased number of people who come to buy the products and remain loyal to the company. Other than in expansion, the company has looked into the products it serves with 2009 seeing the introduction of salads and baked goods without high-fructose corn syrup.

Since 2008, the company has embarked on relationship management where they ensure they are in good terms with their customers; the approach ensures that when they are dealing with customers, they create an environment that can create a good relationship with the customer. The above was attained after the staffs were taken number of customer-management training courses.

In 2010, the company was able to make an operating profit of US$ 1.42 billion that was from sales of US$ 10.71 billion, the above statistics are better than what it recorded in 2009 (Davis, 2008).

Recommendation to further the operations

It is a high time that the company invests in diversification of its products. The company is doing well in the coffee industry, it has trademarked some of its products however it should recognise that at an ideal situation customer have an accompaniment with coffee. Whether they are simple biscuits or cakes, they affect the experience that the customer gets from Starbucks coffee joints.

The company should establish which snack they will make and trade mark to be taken with their branded coffee. Currently the company has seen franchising not an important business process, the management has described the method of management as however when the method is well managed, it can be an effective way of improving the company’s sales and outlets, however when decentralizing the management should consider the following:

The ability and the potential that the franchised company has
Countries of franchised companies have good international trade that can assist the company open the world economy.
Ensure that it continually improve its service to remain competitive in the world markets: since the company operates in different countries, then it should ensure that it understands every market with its needs.
Set standards that should be met by a franchisee and devise measure to maintain these standards (Argenti, 2004).

A number of benefits are likely to be derived from decentralization; they include decentralization of decision-making: this will assisted the company tap a pool of managers who can drive the organization to the next higher level. Potentials will be recognized and rewards; the aim of having a marketing campaign is to have an increased awareness of a company’s products and by so doing have an increased profits. This will happen when the company has an increased market.

Franchising helps a company established a strong brand name that is a tool of advertising; through franchising, the company will be able to operate in areas that it had barriers to entry. This will assist in tapping potentials of that country (Howard Schultz, on Getting a Second Shot, 2011).

Although the management can be applauded for its efforts to improve customer relations, the company should be strategic and have customer-relationship management approach: CRM is a management strategy where a company operates with the customer in mind; under the policy, the customer is the most important stakeholder and all systems and approaches are made to suit his demands.

When such policies are made, the service offered should be in the forefront and managers should ensure that alongside improving the products, as the policy requires, there should be an improvement of the services offered. When this is affected, then the company will have an improved customer relation, retention, and eventually lead to customer loyalty (Argenti, 2004).

Summary

Starbucks is an international coffee company that has been a leader in the industry; however, recent changes in global business environments have made the company concentrate on development of strategic decisions that can maintain its competitiveness. The main challenge facing the company is increased competition and non-customer based management strategies.

Before the management from Jim Donald to Howard Schultz, the company was more interested with opening of more branches than the degree of satisfaction that customers derived from the services and products by the company. However, Schultz came with the idea that the main focus should be on the quality of service they are giving to their customer other than expansion; the new approach has seen the company manage the struggles of global financial strategies, increased the number of branches as well manage to make strategic allowances with other reputable companies in the same industry.

The strength of the company’s brand name is getting stronger by day leading to customer satisfaction and facilitation of brand extension projects. Despite the successful strategies adopted by the company, it can improve its performance further if it considers having the following strategies franchising, use of customer relationship-management approach, the use of total quality management tools, use of business intelligence mechanisms as well as using data mining methods when making decisions.

References

Argenti, P. A. (2004). Collaborating with Activists: How starbucks works with ngos. California Management Review, 47(1), 91-116.

Davis, R. (2008). The people vs Starbucks. New Internationalist, (410), 21.

Gallaugher, J., & Ransbotham, S. (2010). Social media and customer dialog management at starbucks. MIS Quarterly Executive, 9(4), 197-212.

Howard Schultz, on Getting a Second Shot. (2011). Inc, 33(3), 52. Retrieved from EBSCOhost.

msnbc.com.(2008). Starbucks chairman Schultz returning as CEO. Web.

Reese, J. (1996). Starbucks. Fortune, 134(11), 190-200.

Schultz, H. (2011). How Starbucks Got Its Mojo Back. Newsweek, 157(12), 50.

Starbucks case study. (2009). Starbucks Case Study: Utilizing Brand Assets & Capturing Consumer Trends in the Japanese RTD Coffee Market, 1-14.

Starbuck Official Website. (2011). Starbuck.

Theodore, S. (2007). Starbucks brews new coffee concepts. (cover story). Beverage Industry, 98(11), 30.

Walker, A., & DeBusk, J. (2008). Lessons from Starbucks: Contingent Employment, Work Discipline and Corporate Culture. Conference Papers — American Sociological Association, 1.

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