2009 October «

I‘ve been paying a lot of attention to Starbucks as of late. What began as an assignment for my MBA coursework has grown into an addiction. For those of you keeping score at home, this is my third SBUX-related addiction.

Sadly, I’m not hooked on the tasty goodness of the Pumpkin Spice Latte or those delicious Cranberry Bliss Bars. Instead, I’m a spectator witnessing an iconic institution … hmmm, how to phrase this? … over-roast itself.

A few weeks back, I described what makes for an excellent organization. I was thinking about SBUX, as well as many other companies. Don’t get me wrong, I’m not reversing the engines or changing course. I’m not fickle. Well, not that fickle.

But even excellent organizations don’t get “it” right 100% of the time.

You’re a coffee house, SBUX. People COME TO YOU for coffee. At HOME, people use your whole bean or pre-ground coffee. So why-oh-why then would you willing associate yourself with the lowest common denominator in your industry’s product lineup?

I’m speaking of Via, which I blogged as being an 8oz. flavorless mistake with a coffee-like aroma. The bigger questions regarding Via is: Why? What was the need, SBUX; was Folgers crystals posing a hostile takeover threat? Are you testing the market’s perimeter; seeing if perhaps McDoanld’s will follow you here as well? Or are you trying to create a monopoly so that you can become the Wal-Mart of coffee and thereby destroy your brand identity?

Up Close and Blurry is a high-level investigation into . . .

ORGANIZATIONAL EXCELLENCE (?) – STARBUCKS

Introduction & Background

For all intents and purposes, there are effectively two Starbucks’: The first is the well-known, revered and reviled, coffee franchise that existed from 1971 through July 2008 Starbucks. The second is the post-July 2008 Starbucks.

More is known about the former, as there is nearly 37 years of evidence to review. The latter is the hopeful Phoenix, trying to be reborn from, and rebranded after its financial conflagration of July 2008.

That firestorm was the result of Starbucks’ pursuit of rapid and widespread (read: unsustainable) and overzealous (read: reckless) expansion. While the flames may have subsided, the ashes had not settled. In July 2008, Starbucks began closing 600 stores and terminating 12,000 full- and part-time employees (Starbucks.com). That was the announcement in July 2008; by January 2009, however, the company announced that the number of store closings would be increased to 900 (Flynn, 2009).

To their credit, Starbucks earned praise in the public relations realm for how they handled the closings. They first notified employees, rather than announce to the media. In addition, Starbucks leadership placed the responsibility for the need downsize on their own shoulders, as well as the poor global economy (Schade, 2008, p. 10).

Little is known about the new Starbucks, other than what it is reporting to its stakeholders. Regardless, for both Starbucks’, organizational excellence in all business areas is a seemingly paramount core value. They strive to optimize, expedite, streamline and manage costs, all without sacrificing quality or injuring the mythical Starbucks experience. Nevertheless, while the majority of their initiatives are spot on, others make one wonder what Starbucks was thinking.

Below, I break out a few areas of the Starbucks Corporation to detail their pursuit of organizational excellence.

Corporation to Consumer Interface

Understanding that its products, services, and overall experience are what customers purchase, Starbucks has invested heavily in Business Process Management (BPM). While the true dollar figures are unknown, the extent of their efforts can be witnessed in the accounts below.

First: The Customer.

Starbucks conducts extensive research regarding its customers’ wants and needs. This focuses heavily upon flavor, and there’s an entire team of coffee testers at the company’s Seattle headquarters (The science, 2009). It also focuses on selection. For example, the sale of espresso, which did not begin until 1982 when Howard Schultz, now CEO of Starbucks, experiences the drinks popularity in Italy and pushes the company to follow suit (A brief history, 2009).

Starbucks fumbled when it deviated from its core business, which it describes as “all things coffee” (Starbucks.com, 2009). The introduction of foods beyond simple baked goods proved to be a debacle, one from which the company did not learn as they have launched, canceled and re-launched the initiative numerous times. And while the average consumer did not notice, the company’s skeptics and shareholders did.

What stands out about this blunder is that, in my opinion, it demonstrates Starbucks’ misunderstanding of its market, meaning it is confused about whom it is serving (the customer) and with whom it is competing with (its competitors). A company cannot have an achievable long-term strategy if these two inputs are shifting or unknown.

Second: The Store.

Each location is designed to be welcoming. This is a sensory experience, with sights, sounds, smells, and tastes recognized as playing critical roles. Employees are told that Starbucks stores should be the customers’ “third place” – third to home and work, that is. In fact, on their website’s jobs page, they describes the store as providing “a sense of belonging,” likening it to “a haven,” which provides escapism from “the worries outside, a place [to] meet with friends. It’s about enjoyment at the speed of life—sometimes slow and savored, sometimes faster. Always full of humanity” (Starbucks, 2009).

A portion of that humanity was lost, however, when Starbucks optimized the store-building process utilizing a so-called kit of parts approach. Opening six locations per day, the cookie-cutter was necessary, but it ultimately robbed the stores of their uniqueness, leaving customers with the feeling that Starbucks had no soul (Moore, J., & Williams, P., 2007). As a result, Starbucks is now redesigning many of its locations based upon customer inputs and the corporation’s own research (Introducing a new store design, 2008). New stores will feature local flavor, a more relaxed atmosphere, and new names.

Starbucks is renaming stores and removing the company’s name, logo and moniker, all in an effort to appear less corporate, more local, and more inviting (Allison, 2009). This constitutes the third brand in the company’s line up, as they already own Seattle’s Best. In my opinion, Starbucks is quickly venturing into brand-dilution territory.

Third: The Employee.

The Starbucks experience relies upon properly trained employees with positive attitudes serving quality products quickly. Starbucks has gone to great lengths to remove the variables from the customer service process. This includes extensive foundational training for all employees, from baristas to corporate leaders (Weber, 2005). Additionally, it means adopting kaizen principles, ensuring that continuous improvement makes the entire process –for customers and employees alike– as efficient and positive as possible (Glover, 2008).

However, quite often the process does not always work, and the reason is simple: Starbucks’ process for churning out smiles and lattes did not grow with the company. As Inc. Magazine’s Joel Spolsky (2009) discovered during a horrible Starbucks experience, Starbucks achieved its status by conducting operations research. However, with the company’s rapid expansion, HR theory and store realities are divergent. On an unofficial Starbucks site called Starbucks Gossip, employees and customers alike lament just how out of touch corporate seems to be from the front lines.

The Corporation and the Community

Starbucks operates within the framework of an extremely diverse Corporate Social Responsibility program. Under the CSR umbrella is everything from Starbucks’ social agenda, to employee healthcare, to environmentalism.

First: The Employee.

Employees who work more than 20 hours per week are eligible for healthcare. The company picks up 75% of the cost. In a 2004 interview with BusinessWeek, Schultz reported that the company would spend more on employee healthcare costs than on its source product: coffee beans. The rationale was simple: it’s the right thing to do. But the reasoning is also personal, as Schultz reported that it is linked to his impoverished childhood, a childhood which he recounted bearing witness to his father’s “fractured American dream” due, in part, to a lack of healthcare (O’Connell, 2004).

Second: Society.

Starbucks’ social agenda includes rights for domestic partnership, universal healthcare, support of supplier and workplace diversity, and voting. Its employee benefits include the standard fare, but they are available to same-sex or domestic partnership relationships (Starbucks.com, 2009). It’s been involved for many years lobbying for universal healthcare, to include involving Sen. Bill Bradley in the effort, though Starbucks insists they are not involved in political activism (O’Connell, 2004).

Their CSR efforts include Starbucks RED, an effort to combat AIDS in Africa; Starbucks V2V, an online community action forum; and Starbucks Shared Planet. The latter includes numerous CSR activities, including ethical sourcing/supplier programs, environmental stewardship, and community service (Starbucks, 2009). The company’s efforts extend as far away as Rwanda, where the company has established a partnership with coffee producers to provide certified-100% Fair Trade coffee (Starbucks.com, 2009).

The “All Things to All People Business” Model

Starbucks relentlessly pursues providing consumers with the highest quality products, services, and experience. If nothing else, Starbucks is an innovative tactician. However, as with the previous areas, many of their business choices seem to be in contradiction with their espoused overarching strategy. For this reason, it is obvious that Starbucks has embraced the notion that failure is a learning opportunity, not a point of contention. Though, they may want to rethink the scope of their failure allowance, as it seems entirely too permissive.

The company’s product line goes far beyond drinks. Starbucks has become as well known for their music as their odd array of names for drink sizes. The drink size names, by the way, led to a hugely successful YouTube video wherein a customer enters into a Suess-ian tongue twister (Small is tall, 2008). Later, Dunkin Donuts used the popularity of the original video to introduce its coffee to the market, as well as itself as the common person’s Starbucks. This is quite similar to the McDonald’s coffee campaign that simply stated, “four bucks is dumb. now serving espresso,” (Ankarcrona, 2008). The point being, Starbucks’ popularity and unpopularity has invited competition and given them a soapbox from which they can preach . . . while selling their own coffee.

The company has its own XM Radio channel, free iTune downloads on Tuesdays, and a line of CDs sold through their stores. However, none of these are fairing well for the coffee purveyor. It was reported that the average Starbucks was selling two CDs per week, though corporate disputes this and claims the music units sells 4 millions CDs per year (Sandoval, 2009). Regardless, Starbucks announced that in-store CDs would be scaled back to four selections per-store, as the company “refocuses on [its] core business” (Sandoval, 2009).

Perhaps Starbucks has cleared away the “too big to fail” haze. Whereas the company heretofore employed a top-down, command and control approach to business decision, they’ve now opened the forum to the consumer and employee. Since March 2008, Starbucks has been using a blog called “My Starbucks Idea,” to solicit ideas concerning their products, environment, and social involvement. The site is active, with many employees, and even Howard Schultz himself, weighing in with ideas. Still, the company is behind the power curve, as a site called Starbucks Gossip has been actively doing the same thing since August 2004. Except, this site is not as polite with their comments as the company’s site (Romenesko, 2009).

Conclusion

Starbucks routinely receives industry and activist accolades; among them: “Best 100 Companies to Work For,” “Most Ethical Companies” “Most Admired Corporations” “100 Best Corporate Citizens” “Best LGBT Places to Work” and more. The list of honors, available on their website, is quite impressive and stretches back to the mid-1990’s (Starbucks.com, 2009).

Admittedly, the company does many things well and, to use a subjective term, correctly. For example, as defined by Dessler (2009), Starbucks’ hiring practices are designed to ensure a candidate is suited to help the organization achieve its desired end goal. The mandatory 24 hours of training within the first few weeks reinforces this. And the company’s investment in more efficient processes, equipment, and policies all lend themselves to an environment that is supposed to enhance the Starbucks experience (Dessler, 2009, p. 11-13. Kinicki & Kreitner, 2009, p. 36-41).

According to Kinicki and Kreitner (2009), Starbucks is conducting its HR business correctly. They have established Total Quality Management (TQM) principles, and reinforced them with policies and training (p. 11). Nevertheless, one must question the choice to purchase an $11,000 espresso machine for every Starbucks location in the midst of closing 900 stores. This is precisely what Schultz did after drinking an espresso made with a Clover espresso maker. In fact, he thought the cup of espresso was so good that he bought the Clover company (Hanon, 2008). Meanwhile, 12,000+ employees are being terminated.

Additionally, as noted earlier, the corporate HR office in Seattle has become divorced from the realities of the front lines. Operations processes should be focused on creating value, improving efficiencies, and enhancing the Starbucks experience, instead they appear to lack focus. They obviously have a grasp on the big picture, as Kinicki and Kreitner (2009) explained, Starbucks has cultivated plenty of Human and Social Capital (p. 15). Nevertheless, they are misspending that resource by neglecting the details.

That is a true statement of Starbucks by and large. While the organization provides for its employees hierarchy of needs (a la Maslow), it fails to provide for its own. The inability to remain focused on its core business has led to failure repeatedly, and these repeated failures have been within the same arena: The company’s brand identity. Is Starbucks a music store? A café? A coffee bar? The MarComm professional and Life Cycle Manager in me fears that even Starbucks executives do not know.

Starbucks does many things very well. They have built a successful empire with a loyal following, and they have set the standard for quality. They have also illustrated that, minus the recent meltdown, a company can be extremely successful while financing 75% of their employees’ healthcare, respecting the environment, and upholding high standards of product quality, staff performance, and meeting the mythical Starbucks experience. These attributes make them an excellent organization.

Where they appear to be falling short is in their focus on the core business, growing their organizational structure and procedures to reflect their current size, and delegating managerial authority to the correct levels. These three areas: 1) Business strategy and planning, 2) business process management, and 3) operational management are the company’s vulnerabilities. Push on any one of these too hard, and the organizational becomes a house of cards.

Organizational excellence rating: C+