“Balancing Culture and Growth at Starbucks” Case Study
March 13, 2011
HRMG 6200 Organizations in the New Economy Northeastern Northeastern University
From the time that Starbucks opened its first store, it followed the differentiation strategy of creating a “third place” between place” between home and work. The “third place”, as defined by Shultz, is an experience that offers a cozy, intimate atmosphere, for customers to purchase authentic and high quality coffee in a place where “people feel 2 comfort, safety, safety, as though they belong” . Each store facilitated customers to socialize, read, study or enjoy music while drinking coffee. Starbuck strategically positioned each store with hopes of matching the specific location, helping to create a unique atmosphere. Shultz stated goal was to create a robust culture that would prove to be a partnership between employees and customers.
In part, the text defines values as “deeply held beliefs concerning such fundamental matters as the nature of people and relationships, the relative importance of multiple stakeholders”. By effectively infusing his values of the “third place” into the company, Shultz along with the other leaders in the company shaped the managerial practices and organizational design of Starbucks. Their shared values fostered patterns of behavior that enabled Starbucks to create its “third place” strategy. Schultz stated, “We’re profitable because of the value system of our company. American companies have failed to realize that there’s tremendous value in inspiring people to 2 share a common purpose of self esteem, self respect and appreciation” . Starbucks'value system enabled them to maintain their “third place” strategy as it focused on the employees, customers and stockholders. Their value structures encouraged an atmosphere and c ulture where the customer experience was paramount on all sensory levels. While coffee is the vital element, the design of every store is crated to make people more comfortable and to enjoy their experience. The Starbucks coffee experience can be summed up as great coffee, in a comfortable surroundings, served by an attentive staff. Starbucks’ ability to maintain the “third place” strategy was its competitive edge, setting it vastly apart from other coffee houses, launching its successful growth as more and more customers continued to be drawn to the unique and cate red experience and environment a Starbucks culture had to offe r them. Starbuck’s culture can be defined as robust, where the values are widely and deeply shared and thus bring cohesiveness and commitment. But it is equally important that the culture be adaptive to remain competitive in a dynamic environment. Adaptive cultures embrace, encourage and enable change. Seven sets of values are used to measure the adaptiveness of an organization’s culture. 1) Valuing Multiple Shareholders – To remain adaptive, a company must avoid emphasizing a single stakeholder and address perspectives of multiple stakeholders. By valuing customers, a company is responsive to external markets and consumer demands. By valuing employees, a company is able to recruit and retain good employees. And by valuing shareholders, a company will strive to maximize shareholder value. To prevent cannibalization by other coffee chains, Shultz focused heavily on growth to please his investors and attain a plausible return on investment. This led to efficiencies of scale and the subsequent commoditization of the Starbucks experience. Inadvertently, Starbucks had emphasized a single stakeholder, the stockholder. This led to dilution of the "third place" value proposition to customers and declines in sales and profits. 2) Valuing the Developmental Potential of Employees – An organization must motivate its employees to change. Shultz’ management supports Theory Y beliefs. He motivates employees “to change their 1 behaviors in order to act on behalf of the organization” and he looks to “unleash creativity, energy, and 1 drive among employees” . An egalitarian viewpoint is also evident in their referral to employees as partners. The pervasive values at Starbucks have created a self-sealing value loop. Starbucks values are self-reinforcing with managers fostering “an environment where employees behave in ways that confirm 1 those managers’ beliefs” . 3) Valuing Outstanding Performance – Effective change implementation would require a company’s culture to demand outstanding performance from its employees and support their efforts. By means of its Partner View survey, Starbucks is able to identify areas that are out of alignment with its culture and consequently make adjustments. In an effort to get back to their core business, Shultz simultaneously closed all U.S. stores for a three hour in-store training session. If performance goals are set high, employees will work to meet and then succeed them. 4) Valuing Employee Participation – “When employees participate in the identification of a problem as well as 1 the design of a solution, they will be more motivated to achieve the new goals.” . Employee participation is highly valued at Starbucks. During the three hour training session, the employees were invited to influence decisions surrounding the future of the Starbucks experience. At the meeting, employees “talked about 2 new approaches to improve taste and texture and to improve the customer’s experience” . Showing how much employee participation was valued, one manager stated, “It’s really inspiring to talk about the quality
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of our espresso when we’re here all in the same room” . Employees are able to provide this vital knowledge as they are close to the customers and are directly involved in work proce sses. 5) Valuing Learning – Learning is defined as the process by which individuals receive and analyze data and then change their thinking and behavior accordingly. Starbucks’ culture nurtures learning. This was evident during the three hour training session where employees were encouraged to share new ways of doing things and better ways to serve the customers. 6) Valuing Diversity – When diversity is present in an organization, the o pportunities for creativity are increased as diversity encourages “collaboration among people with different perspectives derived from 1 varied backgrounds and experiences” . On their website, Starbucks states, “ As partners, we embrace diversity to create a place where each of us can be ourselves. And we always treat each other with respect 3 and dignity” . By hiring employees of diverse backgrounds and then soliciting their viewpoints on surveys and during training sessions, Starbucks is valuing different views and perspectives. They position themselves to take advantage of new approaches and greater effectiveness. 7) Valuing a Global Mindset – A global mindset is vital if a company is to compete effectively in the global marketplace. Shultz followed a very aggressive growth strategy. From 9 stores in 1987 to over 10,000 stores in 30 countries by 2006, Starbucks became the “fastest -growing retail story of all time” . Starbucks’ “third place” strategy stems from strong organizational vision and leadership that adheres to a certain value-based culture, coupled with valued employee participation. Starbucks supports its “third place” strategy by conducting cultural audits every 18 months. Employees provide feedback to ensure the culture remains intact, which allows for tangible changes to be addressed as needed to maintain the Starbuck’s experience. As Starbucks grew, tension between their culture and growth strategy developed. The tension and dissonance emergent between Starbucks’ culture and its growth strategy is summed up by Schultz’s comment, “I want to 2 grow big and stay small at the same time” . However, when a company experiences such a quick growth, keeping the original culture and values become extremely difficult. As a result, Starbucks brand experience began to change. In order to achieve economies of scale in the large numbers of new franchises, store designs were streamlined and made more homogenous, giving the effect of a chain store rat her than the neighborhood coffee shop. The huge numbers of new stores necessitated enormous quantities of fresh roasted coffee, leading Starbucks to switch to vapor-lock packaging, ending the practice of employees scooping out fresh beans in front of customers and depersonalizing the coffee buying experience. The desire to increase speed of service led the company to abandon the grinding of beans by the barista, switching instead to automatic bean grinders. This, again, led to the depersonalization of the coffee-buying experience, as well as removing from e ach shop the distinctive scent of freshly-ground coffee that had originally attracted Schultz to Starbucks. The height of new, faster espresso machines blocked sight lines and prevented customers from interacting with the baristas and viewing the creation of their beverages, removing the “romance” of the coffee -buying experience and depersonalizing it even further. Starbucks was morphing into a place to quickly grab a cup of coffee and take it back to the office. Many Starbucks locations were in the basement of office buildings with sitting areas. This made Starbucks no different than the nearest Dunkin Donuts. Furthermore, a drive thru concept, closely resembling McDonalds further diluted the Starbucks experience that the company was built upon. Without a unique value proposition of being the “third place”, many customers will begin to question if a Starbuck cup of coffee is really worth the premium price. Starbucks' original value proposition of creating a "third place" of unique customer experience where customers would feel at home and would want to come back often most certa inly got diluted by company's goals for growth, expansion and product diversification. Starbucks lost sight of its clients and customized service orientation. As organizational focus shifted toward increasing revenue, this led the company to lose its foundational culture, the "third place" concept that Starbucks was built on. Starbucks lost its differentiation factors that separated them from other coffee chains. As a result, once the fastest growing retail store of all
time, Starbucks' sales and stock price began to decline. In order to reverse this trend, Starbucks must return to the core values and organizational structure that made it such a success.
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