Starbucks Global Change in Strategy

Abstract

The economy usually operates on cycles and so do the environmental features of businesses thereby demanding managers to be always alert and on the lookout for any changes (Balogun& Hope-Hailey, 2008). Both the external and internal environments are dynamic and hence it is not right to assume that business decisions and management styles will always remain static. This is the main reason why managers are expected to act as heroes and use their skills to move the organization towards the right direction so that business organizations can realize their strategic goals in due time (Burnes, 2009). Change management is thus part of today’s business environment and commercial organizations dedicate a lot of resources in marketing, research and design, employee training, and competitive intelligence activities to be more dynamic and up to date (Collins, 2004).

Introduction

Starbucks is a multinational organization with its presence in over 50 countries including Singapore where it has well over 17,000 stores worldwide with over half of them being in America and over 30 stores in Singapore alone. Today’s business environment is highly dynamic and volatile. How business used to go about business yesterday is not the same as today and neither do we have the luxury to assume that the future will be the same as today (Wheelen& Hunger, 2002). Every day new trends are emerging in the business world which either influences or acts as a force of initiating change in the business community (Burnes, 2009). From that rationale, the creation of value and satisfaction, which consumers demand end up pushing companies to develop strategies that govern their marketing mix and overall business strategy and go a step further to create general corporate strategies that will preside over their whole business processes to make sure they succeed in today’s fickle business surroundings. Trends are not threating but rather frontiers of new business possibilities (Palmer, Dunford & Akin, 2008). This report aims to take a look at how Starbucks which is a global/multinational organization used principles of change management to align its strategy with the changing business environment, especially after the global economic meltdown.

Literature Review

The 2007-2010 Recession hit major global economies and spread its ripple effects all over the world starting from east to west forced managers to move out of their comfort zones and initiate changes on various fronts of business. Managers are charged with the responsibility of managing change internally especially when it comes to organizational culture, organizational behavior to respond to the social, economic, legal, and political environments to come up with feasible strategies and mechanisms that will smoothly manage and embrace change smoothly (Burnes, 2009). Recently, the global economy has witnessed trends that have ended up redefining contemporary changes management techniques used by managers are forced to be more radical and proactive as to how business is done (Collins, 2004). The amount of turbulence and complexity that is present in today’s business environment can destabilize existing business models if not properly managed and this is why companies that did not alter their business models during the recession ended up either shutting down or losing a lot in terms of money and resources. While some managers opt to remain naïve and resist change and think of change as a burden and as a problem, others see it as an opportunity of creating a better enterprise that is more steady and flexible. Emerging business trends bring complexities and may lead to ambiguity, which may be fatal if not well managed(Johnson & Whittington, 2008). The concept of globalization has increased the frequency of trends that businesses must adhere to in case they intend to do well. Managers opt to implement flexible strategic options since rigid organizations usually end up losing customers and face a lot of inefficiencies in their operations thus forcing these businesses to close down or even be acquired by other more competent and change receptive companies(Watson, 2006).

The effects of the recession on Starbucks were very heavy and the organization was forced to change the way the organization did business. The entire organizational culture, human resources system, marketing strategies, management structure, and even product offerings also had to change(Carnall, 2007). Change itself within an organization is not always welcomed because it definitely demands that employees and organizational personnel initiate a culture change and move from their comfort zones to the new unfamiliar territory (Watson, 2006). This is thus the reason why managers come in to ensure that a smooth transition system is put in place to allow employees to gradually and effectively embrace organizational changes and usher in a new era that will assist the organization to achieve its strategic intention unhindered. Contemporary Management theories insist that organizational change is a must and that organizations may find themselves in complex situations that require the organization together with various subsystems within it move away from its present unsuitable circumstances and in the direction of some preferred future condition(s) to increase its efficiency and effectiveness (Collins, 2004). The main aim during this phase is for the organizational change managers to maintain some balance and tranquility that will ultimately progress current operations in such a way to respond most effectively to unpredictable events this is according to the organization adaptation theory (Burnes, 2009). The organizational adaptation theory is a theory that insists that a more better and positive outcome is to come about if an organization gives up being rigid and decides to put in place the necessary framework to usher in change more effectively (Dawson, 2003).

Another school of thought by Lewin, a well known organizational change manager, suggests that an organization undergoes three phases during the change management, and for change to be embraced successfully change managers have no option but to dismantle the current organization to build the organization which they foresee(Carnall, 2007). The term dismantling in this case does not refer to physical destruction but rather the complete overhaul of the currently existing organizational culture (Collins, 2004). According to Koontz, a management guru, most organizations that put in place all the necessary resources and forget the paramount role that organizational culture usually plays in defining successful organizations eventually fail. It hence becomes important that change managers concentrate more on altering and molding the organizational culture of employees especially because a good culture increases the chances of an organization to succeed in change management even if change management takes place in the presence of limited resources (Burnes, 2009). Lewin argues that organizational change managers must move without a glitch to the new organizational culture and attach a time frame to measure the speed change so that overall organizational strategic intentions are achieved in the most desired and plausible deadline (Dawson, 2003). Moreover, there is no need to carry out semi-permanent changes because swinging from one culture and reverting to old practices are more likely to disorient employees and confuse them (Collins, 2004). Systems must be put in place to define the gap that will signify dramatic change between old and new systems within the organization (Kourdi, 2009). Lewin’s arguments state that organizations must approach change carefully through planning because, in the absence of planning, the entire change process is most likely to be defeated.

Neoclassical Organizational Change school of thought explains the organizational change of authoritarian structures. Most of the time when organizations are rigid and not flexible organizational employees usually lack the motivation to initiate and even embrace organizational change (Johnson & Whittington, 2008). In such a case employees will evidently remain in a stagnant mode and operational era that does not share any form of creativity with their organization (Carnall, 2007). This theory insists that employees within the organization are very important and often their needs are a very important aspect of the entire change regime within the organization. Change managers are thus expected to treat organizational personnel with respect and friendliness cater to their needs and create a transitional system that will make it easier for them to embrace change (Tovstiga, 2010). If organizational managers approach this in the right way then higher levels of productivity and individual output are likely to be achieved due to the existence of a positive environment (Dawson, 2003). Consequently, employees should not be manipulated, controlled, or coerced into changing but rather sweet-talked into it. Change managers thus have the task of developing an environment of creativity, value; cohesiveness, and purpose that will enable employees to embrace change intrinsically (Eden, 1992).

The action research model theory of change management suggests that change managers are charged with the responsibility to combine changing individual attitudes and behaviors to implement change within the organization (Steiner, 1997). In this case, managers can be successful in implementing change by initially identifying the need and purpose for change this need is then and accessing the stability of the organization embracing the change. Human resource managers in coordination with other organizational systems can develop training programs to make the entire change process smoother within the organization. Managers need to embrace the fact that Systems theory contributes a lot towards organizational change because all components of an organization are interconnected and interdependent thus requiring change efforts to be holistic for equilibrium to be achieved(Palmer, Dunford& Akin, 2008). It is thus rational that all subsystems within an organization adapt to changes to achieve a new equilibrium. Employees should also embrace the fact that all changes in the environment affect them at an individual and organizational level and that rigidity can only lead to failure and inefficiency in organizations. Managers should thus strive to understand and incorporate all necessary variables that are linked to change this way the most appropriate strategies of welcoming change within an organization will thus be more plausible and more feasible to implement or put in place. The failure to plan appropriately and put measures in place will often lead to a disastrous situation that may force organizational personnel to resist change or even in some instances sabotage the entire change process within the organization (Dawson, 2003).

Methodology

The findings and literature review data of this report were collected using secondary sources. The secondary sources used in this case included information from published books and internet sources. Due to the qualitative nature of the report, secondary sources were trusted by the researcher to provide more in-depth high-quality information that could be linked to a more definite timeline documenting the various hurdles that Starbucks faced and how change management assisted the company to respond to the turbulent environment that came about during the recent recession of 2007-10 (Kotler, 1999). The researcher hence collected information from various sources jolting down important milestones and events which he/she considered important to this report and thus used them in making this document. The other advantage of this technique is that published sources usually report events that actually occurred and can be confirmed by the organization’s website. Most of the data used were actually collected from top managers by reputable news reporters and news agencies and hence since top managers are the main line of communication in Starbucks this increases the authenticity of the data that was used in this report making the findings of this report more trustworthy and unchallengeable (Kotler1999). Additionally, the act of cross-examining and cross comparing data collected from multiple sources assisted the researcher to verify the authenticity and trustworthiness of secondary sources used in this research. Alternatively, if the researcher would have desired to come up with more concrete findings then he/she could have incorporated an interview process whereby the could have used email or telephone correspondence and interacted with the regional manager or the general managers in the corporate headquarters.

Findings and Interpretations in the case of Starbucks

Starbucks is one of the many companies in the coffee and beverage industry that were adversely affected by the credit crunch and was forced to re-strategize and change their business model to survive in the harsh dynamic environment when the credit crunch struck (Collins, 2004). Change management managers headed by Howard Schultz, the C.E.O of the company, were forced to adopt new strategies and adjust the organizational culture to do business more effectively. Starbucks is a public listed company that is in the industry of restaurants that sell retail coffee and tea, and retail beverages, but Starbucks also has an entertainment division and a music brand and the company has been in the business for decades. Furthermore, the company seasonally markets books, music, and films in specific localities. Starbucks is known to make low-end beverages for the mass market which are fairly priced and Starbucks also makes high-end premium beverages that are highly-priced and appeal to its loyal customers (www.starbucks.com). But the recession massively affected their business models and their quarterly profits were plummeting at a fast rate, the previous business position of an industry leader that the company had was now under thereat and an entire overhaul of organizational culture was now inevitable. In this age, competition is becoming stiffer for companies and businesses. At the same time, consumers are becoming more complex and aware of their rights and end up demanding more and more as was the case for Starbucks. There is therefore only one way that companies can survive in this market and this is by identifying and seizing opportunities as they occur and change managers within Starbucks operated with the mentality that all functional areas offered them new opportunities of doing business in a different way to save funds and resources. With this strategy in mind employees within the various department were got a communication from top management about how the company was to change its operations strategy. Relevant programs were developed by departmental heads and human resource management to ensure that employees were involved in every step of the change. The top management made short-term wins and incentives which assisted employees and managers to become more vigorous and less hostile to the entire change process.

The organizational top management was well aware that multinational companies don’t just decide to pursue a given business strategy but they instead conduct research and put in place the necessary systems to support the new opportunities. Additionally, top leadership in Starbucks accepted the fact that the entire workforce was key to the success of the entire change process and hence effective communication structures were set up in the organization. This is thus why the management opted to prepare entire organizational personnel on the various changes which were expected to take place within the organization this way the organization would then move in the same direction and with the same intentions in mind (Steiner, 1997).

The company’s overall strategy over the years has been quite aggressive and high-end-oriented but the recession forced the company to either change or collapse. Starbucks was forced to change its human resource and organizational structure, business strategy, marketing strategies, and therefore employees had to brace themselves for harsh times even some had to lose jobs while those who remained had to adapt to a new organizational culture that they had never witnessed before. But to make the change toll much easier on the workforce the management arranged for regular employee training and increased the frequency of communication to encourage them to embrace change which was for their own good. After over twenty years of growth and expansion, suddenly Starbucks started experiencing revenue decreases and a sharp fall in profits due to the recession of 2007-10. This was mainly due to reduced sales volumes and thus managers were forced to usher in a new era which meant the organization was to embrace changes. This did not worry the C.E.O and top management because they believed that change managers within the organization were given enough support and resources to the user in new business culture that would be accepted with employees quickly without many tussles.

The unpredictability of predicting when the credit crunch could end meant tight competition meant that for Starbucks to realize and stability it would be forced to search for other opportunities. Therefore, the Starbucks decided to pursue a retrenchment strategy that would in turn have saved them about $ 500 million. This resulted in Starbucks announcing that it would be closing approximately 600 stores by July 2008, most of these stores were around the united states were underperforming which meant that Starbucks was forced to abandon its previous growth strategy. To managers and strategy, heads spent hours behind closed doors to come up with the most appropriate responses (Lisa, 2008). The economic situation at the time was highly unsuitable, volatile, and unpredictable as a result of the credit crunch during the recession and all members of the organization were made aware of this sensitized and expected to the user in a new era and style of doing business which meant the organization was to cut down on expenditure and chop-off less productive stores (Starbucks, 2011).

McDonald’s and other competitors decided to lower their coffee prices and hence Starbucks was forced to retaliate in the same way by lowering the prices of its low-end products and concentrating more on fewer premium products. Supervisors and managers were given instructions within every department and given full authority to communicate and employ the new strategic intentions of the company and make the change process a smooth one. The company even went ahead and developed strategies that would ensure that changes stuck some of these strategies included Reinforce the value of successful change by promoting their new strategy changes saying that they would be good for stabilizing the company’s business model and also bringing in new leaders who shared the same vision with the changes within the organization. The move of bringing in new leaders from other successful organizations ensured that the subordinates would quickly use in new changes individually through associating them with a new leader.

The company went ahead in the same month of July 2008 to announce that it would close down about 60 of its 84 stores in Australia. On January 28, 2009, C.E.O Howard Schultz went ahead to announce plans for further downsizing and closure of other 300 stores in line with its turnaround strategy that aimed at reducing costs and increasing efficiencies (Lisa, 2008). This move was to result in the loss of approximately 7000 jobs, in addition, being a good leader who leads from the front the board went ahead to approve the C.E.O’s suggestion of reducing his basic salary from $1.2 million to $ 10,000, all aiming to reduce costs and save the restaurant giant money furthermore In January and February Starbucks shut down 990 stores and an approximated 19,000 barristers and other workers lost their jobs (Lisa, 2008).

During the same period, Starbucks decided to get rid of some of its product lines which did not bring in enough revenue streams. Therefore, products such as decaffeinated coffee which fall under this category had their mass production halted and were only to be produced with the express request by the customer, the production of other products such as sandwiches was also halted. Every individual within the organization was embraced changes for this was the only way that would help the organization change (Hayes, 2010). Special managers were appointed to oversee the entire strategic shift and work for hand in hand with low-mid-top-level employees to help them understand why the organization had opted to take such action. The attitude and behaviors of employees were taken into consideration and factored into the new change system. Additionally, the management put in place the right support systems to assist employees to embrace change more smoothly rather than forcing their hand on them, barristers were enrolled into special training programs that were delivered to them by the human resource department. In these programs, barristers were given a peek at how rival companies which were now favorites in the market were preparing and delivering coffee and they were also given manuals that would assist them to add value to the services of Starbucks without necessarily affecting it their recent change structure.

The outcome of the entire change process within the organization was positive with less negative outcomes because the company was able to emerge out stronger after the change even before the recession officially ended because the company started catching up on sales/revenues in the first quarter 2009 (Lisa, 2009).

This fact proved that change is entirely necessary and good for organizations especially when they are faced with turbulent situations this is because changes within organizations usually give the organization a chance to rejuvenate the organization. Especially when organizations decide to put in place the necessary systems to involve the entire organization and employees, in particular, participatory leadership and management enable better change structure to be adapted and hence organizations come out as stronger and reliable organizations which have even more competent employees who are capable of being flexible to various situations (Koontz & Weihrich, 2009).

Conclusion, recommendations and reflections

Tough times call for tough measures therefore change managers should ensure their companies should prepare adequately for the rough times ahead by involving employees in the process of change management because the process of changing organizational culture is not that simple if it is done without a participatory approach. The success of change requires organization leaders to empower all individuals within the organization and get rid of hurdles by enabling enable productive feedback and support from managers. Changes demand that employees be adequately prepared to usher in new eras that require a change in case organizational cultures are quite rigid and autocratic managers should strive to help organizational members and systems become more flexible by allowing the entire organization participates in the change process. Managers should not concentrate more on other issues that surround the change and forget the most important factors that define the success of absorbing and embracing change within the organization and these are organizational culture and individuals who are expected to embrace change. It would be detrimental to spend exorbitantly and dedicate a lot of resources to the process of changing aspects of the organization and forget these two factors.

The 2007-10 global recession had an adverse impact on local and global businesses especially for Starbucks but it was the effective change management structure that was put in place by change managers and the top leadership that enabled the organization members to deal with change with little or no resistance by creating programs that made accepting change among employees easier. Consequently, organizations should put in place mechanisms to ensure that change in the environment is quickly evaluated and reported to the necessary authorities so that organizational culture can be altered more effectively through collaboration with employees. Once the causes and needs for change are identified then managers should put in place the necessary mechanisms to increase the chances of change being absorbed in the organization. Sensitization of organizational personnel is very important because employees are more likely to respond to change if they are part of the change. Negotiation, collective bargaining, and participation are hence better than forcing and coercing employees to embrace change, Moreover, change managers are required to factor in the needs of the organization and the needs of the employees and merge them so that employees can fuse the right attitudes and behaviors and transfer them into the organization to increase performance output.

In conclusion, the role of change management in commercial organizations is a very important part of handling change within organizations and managers should not ignore the important role that change management plays in ensuring that organizations gradually adapt to the ever-changing business environment. Without management planning and involvement of organizational members, ushering in organizational change organizations are most likely to fail in their efforts to change the organizational culture within their organizations.

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