In 2004, Starbucks was experiencing phenomenal growth with revenues climbing at about 20% a year. The company’s CEO, Howard Schultz planned to open 1,500 more stores to add to the company’s 7,500 worldwide. (Serwer, 2004)
Fast forward to 2008, and Starbucks hit a rough patch. The company’s shares tumbled 48% that past year, traffic slowed at U.S. stores and McDonalds and Dunkin’ Donuts were becoming fierce competitors. (Andrejczak, 2008)
In a memo sent to employees, Schultz said: “If we take an honest look at Starbucks today, then we know that we are emerging from a period in which we invested in infrastructure ahead of the growth curve. 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. We are fortunate, though, that the challenge we face is one of our own making. Because of this, we know what needs to be done to ensure our long-term future success around the world.” (Schultz, 2008)
Schultz’s memo and the actions of Starbucks to get back on track touches on the classical management theories from the Week 1 readings: Max Weber’s bureaucracy, Frederick Taylor’s scientific management, and Henri Fayol’s principles of management.
Schultz’s plan in 2004 to keep up with its growth was “hiring a new management team, constructing huge coffee-roasting plants, and helping coffee growers improve their crops.” (Serwer, 2004) Bureaucracy, according to Weber was “superior both in intensive efficiency and in the scope of its operation and is formally capable of application to all kinds of administrative tasks.” (Wren & Bedeian, 2009, p. 229) For Starbucks to handle its growth, Schultz wanted to grow its operation and open more stores, which lead to more bureaucracy within its operations. Schultz’s decision to invest more on the company’s infrastructure was a distraction from its mission: “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.” Schultz made the decision to lay off employees and shut down 600 stores. (Kowitt, 2010)
As part of the company’s new plan to help turn the company around, Schultz looked “at ways to align their back-end costs with their business model.” (Schultz, 2008) The focus on efficiency echoed one of the ideas of Taylor’s scientific management theory of “not working harder but working smarter.” (Wren & Bedeian, 2009, p. 128) One of the ways Starbucks looked into being more efficient was streamlining the way its baristas made coffee drinks. “If Starbucks can reduce the time each employee spends making a drink…the company could make more drinks with the same number of workers for have few workers.” (Jargon, 2009) Researching how employees could increase efficiency was also an example of Taylor’s time-study and performance study at work. Some stores experienced a 9% increase in transactions due to this new practice. (Jargon, 2009)
Another way Starbucks tried to recover from this slump was to completely realign the organization and according to Schultz, “live and breathe Starbucks the way our customers do.” (Serwer, 2008)According to Fayol’s principles of management, a “firm’s performance depended more on its leaders managerial ability than technical abilities.” (Wren & Bedeian, 2009, p. 214) Schultz directed the heads of the U.S. and international operations, Launi Skinner and Jim Alling, to focus solely on customers. Previously, Skinner and Alling were also responsible for real estate, marketing, and merchandising and Schultz took over those businesses. This allowed Skinner and Alling to manage their team of partners to “focus on customers at every level – from here at corporate headquarters to our stores.” (Serwer, 2008)
Schultz’s strategies to refocus the company are making headways. It was recently reported that Starbucks was trading at an all-time high and the company was making a stunning comeback. In March 2009 shares were trading below $10 and in April 2012, shares were above $60. (La Monica, 2012)
The themes of the classical management theories of bureaucracy, scientific management and principles of management were identifiable in this example of Starbucks overhaul. As an avid Starbucks drinker, I have a great interest in how the company will continue to handle its success, reach new markets, and keep their regular customers happy and engaged.
Reference List
Andrejczak, M. (2008, January 7). Schultz named to steer Starbucks turnaround. MarketWatch. Retrieved from http:// http://articles.marketwatch.com/2008-01-07/news/30785873_1_jim-donald-starbucks-stock-chairman-howard-schultz
Jargon, J. (2009, August 4). Latest Starbucks Buzzword: Lean Japanese Techniques. Wall Street Journal, p. A.1.
Kowitt, B. (2010, June 7). Starbucks CEO: “We spend more on health care than coffee.” CNN Money. Retrieved from http://money.cnn.com/2010/06/07/news/companies/starbucks_schultz_healthcare.fortune/index.htm
La Monica, P.R. (2012, April 12). Starbucks: Venti-sized stock at all-time high. CNN Money. Retrieved from http://money.cnn.com/2012/04/12/markets/thebuzz/index.htm
Schultz, H. (2008, January 7). Howard Schultz's Memo. BusinessWeek. Retrieved from http://www.businessweek.com/stories/2008-01-07/howard-schultzs-memobusinessweek-business-news-stock-market-and-financial-advice
Serwer, A. (2004, January 26). Hot Starbucks to go. CNN Money. Retrieved from http://money.cnn.com/magazines/fortune/fortune_archive/2004/01/26/358850/index.htm
Wren, D.A., & Bedeian, A. G. (2009). The evolution of management thought. Hoboken, New Jersey: John Wiley & Sons, Inc.
Sheila, great job connecting the readings to a contemporary example. Do you see any drawbacks to the changes that Schultz has implemented? Are they equally beneficial for both consumers and employees? For example, you mention the applicability of “working smarter” to the way that baristas make coffee drinks, and the implementation of practices that allow more drinks to be made by fewer employees. Does this new practice benefit the baristas? Why or why not?
ReplyDeleteSheila -- Nice work! I thought you did a great job relating several aspects of the readings to the sitation at Starbucks. I'm always interested to read about how companies shift gears and get back to basics after a period of rapid growth comes to a crawl. (We're experiencing our own business outlook challenges at Lockheed Martin with ever-tighting federal budgets and changing customer priorities). Anyway, it sounds like Starbucks really adopted some of the strategies, tools and techniques developed by Taylor, Fayol and Weber to help re-focus the company on its core mission. Cheers, Steve
ReplyDeleteThanks for your questions, Dr. Neff. One concern I have about the focus on efficiency is that while drinks are being made faster, it might create more of an impersonal customer experience. I go to the same Starbucks every morning before work. There they know my name, my drink order and make me feel special. On the weekends, I go to different Starbucks locations and my experience is not as memorable as it is at my normal Starbucks. I appreciate how “my” Starbucks know who I am and the baristas make an effort to get to know me and at the other locations, it’s more of a grab it and go situation. Too much focus on efficiency may hamper that Starbucks experience – and that would be quite a shame.
ReplyDeleteI do feel though, that creating a streamlined process for making drinks is beneficial to employees. For example, grouping ingredients closer together like the more popular syrups and toppings cuts down on an employee having to bend and reach for a certain item. This eliminates unnecessary movement and makes it easier to whip up a drink faster. Increased transaction times can also contribute to increased profits that Starbucks can use to towards employee benefits like healthcare and education costs.
Hi Sheila, Terrific read. I think this is an excellent example of how these early concepts remain relevant today. I agree with Steve that it's interesting to follow how companies deal with huge changes when the soaring success hits a brick wall. While it's clear that Starbucks adopted strategies that fall right in line with Taylor, Fayol, and Weber, I'll bet Schultz had some metaphor for his return ala the "Images" text!
ReplyDeleteI also agree with Dr. Neff. In fact as I was reading your essay, I wondered about the mutual interest aspect thread. Though Taylor was the primary proponent, each of the scholars held a view along those lines. Starbucks is renowned for its innovative employee practices -- providing health insurance to part-time employees is the one that comes to mind at the moment. I wonder if Starbucks held to those beliefs during the rough patch or how employees were impacted. I was struck by the role motivation plays in time study. If an employer has a "mutually beneficial" mindset, then trying to make job duties more efficient doesn't necessarily mean the employee loses. I wonder how Schultz handled. I'm guessing he stuck to his principles because Starbucks ultimately thrived and work gets around pretty quickly if employees are unhappy! Take care, Cathy