CASE ANALYSIS FOR ORGANISATIONAL

BEHAVIOUR – II
STARBUCKS COFFEE COMPANY: TRANSFORMATION
AND RENEWAL

Table of Contents:

Introduction …… 3
Vision and Mission of Starbucks …… 3
Problems faced by Starbucks …… 4

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Organizational change …… 4
Factors that made transformation successful
 Strategy of Starbucks …… 5
 Restructuring of Starbucks …… 5
 Leadership of Schultz …… 6
 Innovation
Product innovation …… 7
Technological innovation …… 7
Promotional innovation …… 8
 Public initiative …… 8
Lesson Learnt …… 8

Introduction:
Starbucks Corporation is an international coffeehouse chain based in Seattle, Washington, United
States. Starbucks is the largest coffee house company in the world, with 16,120 stores in 49
countries, including around 11,000 in the United States, followed by nearly 1,000 in Canada and
more than 800 in Japan. Starbucks sells drip brewed coffee, espresso-based hot drinks, other hot
and cold drinks, snacks, and items such as mugs and coffee beans. Through the Starbucks
Entertainment division and Hear Music brand, the company also markets books, music, and film.
Many of the company's products are seasonal or specific to the locality of the store. Starbucks-
brand ice cream and coffee are also offered at grocery stores. Starbucks’ Italian style coffee,
espresso beverages, teas, pastries and confections had made Starbucks one of the greatest retailing
stories of recent history and world’s biggest specialty coffee chain. In 2003, Starbucks made the
fortune 500.
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Vision and Mission of Starbucks:
Vision:
“To establish Starbucks as the most recognized and respected brand in
the world and become a national company with values and guiding principles that employee
could be proud of”. The vision statement clearly describes the dream or the future of the company
that is to be the world’s most well-known coffee house.
Mission:
Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining
our uncompromising principles while we grow
Six Principles of Starbucks:
1. Provide a great work environment and treat each other with respect and dignity.
2. Embrace diversity as an essential component in the way we do business.
3. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our
coffee.
4. Develop enthusiastically satisfied customers all of the time.
5. Contribute positively to our communities and our environment.
6. Recognize that profitability is essential to our future success.
Problems faced by Starbucks:
Problem definition:
Deterioration of brand value and loss of core competence and exclusivity in the specialty coffee
industry. Stores have no longer have the experience that it provides to its customer in its early
days.
Causes:
 Customers have no longer human connection to his or her barista.
 Adding to that, expresso machines blocked a customer’s line of sight.
 Cheese from the ovens warming breakfast sandwiches overpowered the smell of coffee, an
integral part of Starbucks experience.
 Stores were running out of ingredients which means there was no proper supply chain in
effect.
 Operational inefficiencies.
 Store’s gross margin took precedence rather than its core values.
 Monotonous store design.

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  In the wake of achieving growth and development, Starbucks series of decisions have led
to watering down of the Starbucks experience.
 Involving the customer in the ritual of buying coffee by telling them layered story has been
compromised.
 Achieving rapid expansion of growth and meeting the growth target have led Starbucks to
choose bad locations, didn’t train the baristas properly.
 Increasing competition.
Organizational Change:
There was an urgent need for some radical changes in Starbucks to restore its original pride in
providing a coffee experience to its external partners. Key areas identified for change are
 Human resources.
 Technological capabilities.
 Organizational capabilities.
Human Resources: Typical change efforts directed at human resources includes Investment in
training and development, Promotion and reward systems, Changing the composition of the top-
management team.
Technological capabilities: Change efforts directed at technological capabilities are intended to
give an organization the capacity to change itself in order to exploit market opportunities. In this,
Schultz has introduced laptops for better governance, launching its own website to gauge customer
feedback etc.
Organizational capabilities: Change efforts directed at organizational capabilities alter
organizational culture and structure, thereby permitting the organization to harness its human and
functional resources to exploit technological opportunities.
Apart from these key areas, Schultz have done expanded Starbucks area of operations to other
countries and to other avenues for revenues.
The case has been analyzed thematically by focusing on key areas like strategy, restructuring,
leadership and innovation to understand how Starbucks addressed the main challenges that lay
ahead of it.

Factors that made transformation successful:

Strategy of Starbucks:
The strategy focused on the following areas:
 Expanding Starbucks in such a way that its retail store would not comprise of fine coffee,
craftsmanship, ritual and develop human connection and intercommunity relationships.
 Identifying the threats faced by the company and communicating these to the senior staffs
of the retailer.

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  Numerous memos written by CEO Schultz to co-workers so as to lay out his general
thoughts on the business, outline his plans for new initiative and articulate his philosophy
as a merchant.
 Company providing its internal partners with generous benefits and wide-ranging career
opportunities. It also provided health care coverage and stock options to its partners.
 Schultz crafted press release and internal communication that lead to the development of
transformational Agenda.
 Innovation and reinvention were the main strategy to be adopted and decided that he would
not blame the company failures on any individual, team or decision.
There were many initiatives taken to improve the operations:
1. U.S Business provided 70% of Starbucks revenues. This will improve operations and it can
only be overcome by leadership which would slow down the rapid fire-pace of store
openings and close underperforming locations.
2. Bringing exciting product innovations to consumers so as to deepen customer emotional
attachment and improving Starbucks experience.
3. Careful scrutiny and subsequent reengineering of Starbucks organizational structure and
for this they need to examine company’s operations, supply chain and its capabilities so as
to cut cost, increase efficiency and improve customer service.
Restructuring of Starbucks:
Restructuring of Starbucks actually began with the rejoining of its founder Mr. Howard Schultz,
who rejoined the organization as the CEO of the company.
Right after rejoining he made various plans that were to be implemented in the near future for long
term survival and growth of the company.
Some of the plans that Schultz initially communicated to the organization: -
 Bringing enthusiasm and motivation by telling that it will be an effort of all not one person.
 Recognition of farmers producing for Starbucks.
 To reignite the traditional and emotional attachment.
 Cost cutting.

The restructuring of Starbucks was a long-term process and was made possible by taking a number
of actions, some of the actions taken for the restructuring of Starbucks are: -
 Bringing new leaders into senior management ranks.
 He brought the bests from across the globe to handle important managerial designations.
 He prepared and communicated the seven major goals or the big moves of the organization.
 He introduced high quality, complimentary offerings such as tea, cold beverages.
 Innovation:
 Mastrena: - espresso maker to increase the interaction between the baristas and external
partners and also to offer high customization.
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  Clover: - design to alleviate the quality of brewed coffee
 Pike pace: - It represented Starbucks’ response to customer feedback
 Closing multiple stores and asking number employees to leave the organization which
eventually reduced the operating capital requirement.
 Bringing high accountability into the supply chain section, reducing its inefficiencies and
ensuring prompt and accurate supply to stores.
 Introduction of instant coffee to deal with the increasing competition.
 Opening doors for suggestions by external partners by creating My Starbucks Idea.
 Launching rewards for Starbucks card holders and launching Starbucks payments through
mobile.
 Social Media: Starbucks created its page on Facebook which got the highest number of
followers on Facebook, also promoted on other social media platforms such as Instagram
and Twitter.

Leadership of Schultz:
Upon his return as CEO, Schultz analysed the leadership team and also adhered to the board’s
recommendation so as to put in place new leaders in the senior management ranks. He wanted to
have individuals with ‘rich brand building and operational track records at large organisations.’
This he felt would also establish that he will make significant changes at all levels of the
organisation without any hesitation whatsoever. Even at this uncertain juncture, the leadership
team was encouraged to be creative and dynamic. They were taking new, potentially important
risks.
Schultz created an open environment at Starbucks and emphasized on transparency and honesty.
He increased his visibility in the company and encouraged feedback from all partners. He also
made a tradition of holding town halls in the Starbucks headquarters in Seattle. This was a platform
for sharing ideas about Starbucks’ direction and challenges ahead.
He encouraged transparency in top leaders especially, for which he held multiple meetings with
executives in supply chain, operations etc. to discuss the company’s health. These meetings would
discuss all relevant questions related to the core of the business. Solving them was a challenge he
had to address as a CEO.
All in all, it is fair to say that he followed a transformational style of leadership which is a mix of
autocratic and democratic leadership. It is autocratic because everyone in the team is driven by the
same goal but democratic as everyone is allowed to give opinions and speak out on important
issues.
Innovation at Starbucks:
The innovation carried out by Starbucks can be classified largely into three major categories of
product, technological and promotional innovations. These are described in detail below.

Product Innovation:
In order to improve speed and efficiency on its products. Starbucks came up with 3 major consumer
responsive strategic innovations:

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  The Mastrena TM espresso maker.
 Clover Brewing system.
 Pike place roast coffee.

 Because the machine ground each espresso shot to order, baristas could offer customers a
higher level of customization than automatic espresso makers allowed and it encouraged
eye and conversation. The clover was an innovative coffee machine designed to elevate the
quality of standard brewed coffee to French pressed.
 Going forward Starbucks introduced Frappuccino beverages and later one of the most
important innovations was the September 2009 launch of Starbucks VIA Ready Brew
instant coffee. It was the most successful product introduction ever, indicating Starbucks
willingness to invest in innovation and take risks that will expand to reach and keep it
relevant across consumer markets.
 Identifying consumer specific needs, Starbucks introduced its own single cup coffee
machine, the Verismo system, which used a proprietary milk pod to make lattes in addition
to espresso beverages and brewed coffee. Additionally, Starbucks expanded its product
mix by horizontal integration:
 It set out to develop a line of ready to eat Greek yogurt products
 Trying to attract tea drinkers Starbucks introduced Tazo Tea, Acquired Teavana Tea with
different range of tea such as Starbucks Chai Latte
 By acquiring a Boulogne bakery, Starbucks extended its product mix to food offering.
Technological Innovation:
 Laptops for each store.
 A new point of sale system in all company operated stores in the US and Canada.
 Mobile devices for district managers.
 A new web-based labor scheduling tool.
 Mobile App.

Promotional Innovation:
 Starbucks started a community website, my Starbucks idea, designed to collect.
suggestions from customers. The company also placed cards on store counters reading,
“Have an idea for us?”
 Starbucks reward, the program’s benefits included free beverages, refills and custom extras
such as soymilk and flavored syrups.
 Starbucks also rolled out it’s in store digital network in late 2010. The company
collaborated with Yahoo as well as publishers, music companies and news providers

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 including the wall street journal and New York Times to grant customers free access to
premium content via Starbucks Wi-Fi.
 Starbucks introduced cards, aiming its valued customers to promote its products. Reward
programs and mobile payments.
 Starbucks expanded its social media presence beyond Facebook and Twitter to include
Instagram, Pinterest and Google+.
Public Initiative:
 Helping to rebuild New Orleans to demonstrate Starbucks mission and values.
 Contribution towards Global fund which supported AIDS relief program.
 Starbucks started an initiative called create jobs for USA.
Lessons Learnt:
 Innovation is key to every organization.
 Never forget your core competency and culture.
 There should be continuous motivational programs for the employees.
 Transparency to its stakeholders.
 Organization should be aware of its external environment.
 High connectivity with customers.
 Organization should embrace technology in its workforce.
 Organization should be always be open to suggestion.
 Balance profit motives with social conscience.
 Work from grassroot level.

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