How Has Starbucks Benefited from the Change in Organizational Structure - Case Study Example

? Business Table of Contents Introduction 3 Methodology 3 Critical Analysis 3 Conclusion 9 Recommendations 9 Reference List 10 Introduction In the recent years rapid globalization has intensified the competition all over the world especially in the service industry for those who are dealing in identical products. Achieving success in the business is not the only factor but co-operating atmosphere, teamwork and delivering products with optimum quality is also important. Starbucks Corporation is a famous retail chain that deals in coffee shop all around the world. Their business benefits mainly from roasting and selling of coffee beans of special quality and various kinds of tea and coffee drinks. The business has originated from United States (US) and has more than 4000 branches all over the world. The most attractive feature of this organization, which brought huge recognition for it, is the customer service, quality of the product it serves and the cosy environment (Businessstudents, n.d.). The study focuses on analyzing the organization structure and the various strategies that they adapted to become successful. Methodology The study deals in critical analysis of the changes in the organizational structure and its impact on the business. In this regards the changes in the organizational structure of Starbucks has been studied and then the impact has been evaluated. The data has been collected from secondary sources and various theoretical concepts have been used while doing the analysis. Critical Analysis Organizational Structure In 2008 Starbucks has made several dramatic changes in its organization structure in order to focus its effort towards enhancing the customer experience. This decision was made after Howard Mark Schultz, joined as the CEO of the firm. The modifications in the organizational structure were done in order to focus more on customers in US and consolidate the support function of the organization. The organization in US will have four divisions such as Northeast/Atlantic, Southeast/Plains, Northwest/Mountains and Western/Pacific (Starbucks Corporation, 2008). The new organization structure not only helped the organization in creating more capacities for the field team but also aligned the leader close to the partners and the customers. The senior vice president working in each division will be directly working under the president. Under each division the employees who are supporting finance, partner resources, marketing and store development will be directly reporting to their respective functions and is accountable for the result of that division. The team created will be centralized to form an infrastructure with effectiveness, capability and global span (Starbucks Corporation, 2008). Again in 2011 the corporate structure of the organization was changed. Three new regional organizational structure was formed namely China and Asia Pacific, Americas and EMEA (Europe, United Kingdom, Middle East and Africa). The presidents who will be responsible for each of these regions will be looking after the business of the company related to the retail business. They worked closely with joint-venture and licensed business partners of each market. In order to build the Starbucks brand and channel in each region, each of the units closely operates with Starbucks Global Consumer Products and Foodservice team (Starbucks Corporation, 2011). Environmental scanning technique Starbucks aims to reduce the impact that they make to the environment through their operations. But doing this they aimed to make sustainability as an integral part of the company’s culture. In 1990 through Guiding Principles, Starbucks embed the value of providing positive contribution towards the environment and the community. Again in the year 1992 Starbucks committed themselves to play the role of environmental leadership in all the aspects of their business through their statement of Environmental Mission. As the organization has integrated the environmental policies in all the areas of their operations, so for all their partners (employees) starting from management till baristas, the commitment towards environment remains same. The director of Environmental Affair Group, Ben Packard incorporates and drives the environmental strategy of the organization that includes tracking of environmental goals. For the execution of any strategy related to environment, Packard is seen to be highly dependent on the Starbucks Environmental Footprint Team, which includes director from all the major areas of the organization. This team is seen to meet in every quarter and reviews the progress that the organization made towards the goal and shares the information related to any environmental issue (Timm, 2005). Analytical technique Positive and negative aspects The two positive aspects of Starbucks Corporation are the expanding operating margin of the organization and the global retail footprint. In the year 2012 the company reported an operating income of $2 billion, which signifies an increase in the operating margin from 14.8 percent in 2011 to 15 percent in 2015, when compared with the operating income of $1.7 billion in the year 2011 (GlobalData, 2013). This radical change in the operating margin took place due to absence of fiscal charges in 2012 related to the closure of Seattle's Best Coffee store and increase in sales. The business of Starbucks deals in roasting, retailing and marketing of specialist coffee in about 60 countries around the world. As on September 2012 the company had total of 18,006 stores distributed among 60 countries, which mainly comprised of 8661 licensed stores and 9405 company operated stores (GlobalData, 2013). In 2012 the company expanded its business by opening 844 licensed stores and 398 company operated stores (GlobalData, 2013). Apart from this, the company has further plans of opening few more stores and refurbishing the existing stores of US, which indicates its keen interest towards growing the market share and expanding business in upcoming years. The negative aspect of the business of Starbucks is overdependence of the operations on the market of US. Starbucks Corporation is seen to sell their products and services through various retail chains operating in the market of Middle East and Africa, Europe, Asia Pacific and America. Though the business is stretched over major parts of the world but the revenue generated by the company is generally seen to come from the market of US. This indicates that the international business has less contribution towards the revenue of the organization. Out of the total sales generated by the company during the year 2012, 76.5 percent was seen to come from the US market and about 23.5 percent came from its operations in other countries (GlobalData, 2013). This shows that Starbucks is highly dependent on the market of US for its revenue generation. Impact Strategic management Until 1998 Starbucks Corporation was not involved in any type of advertisement through television. Their advertising budget consisted of only 4% of the total cost incurred. Again in 1987 the research and development activities initiated by the organization comprised of only conducting trial and errors in the stores within the company. But in the year 2013, they expanded $70 million comprehensive ethical sourcing by launching new farming research and development centre in Costa Rica (Starbucks Corporation, 2013a). Starbucks is well known within the coffee industry for providing quality product and having knowledgeable staff. They target customers who are mostly educated and wealthy coffee drinkers, who prefer quality customer service. It is well known for its creative flair and quality. Hence it can be concluded that they are following the strategy of focus differentiation (Larson, 2008). Organizational development The increase in the operating margin indicates the increase in sales which helped the organization in mitigating higher cost of commodity especially coffee. Furthermore, it also indicated strong pricing strategy and efficient cost management in the organization. Such rise in the operating margins despite of the controlled spending by the customer reflected the focus of the organization towards increasing the profitability. Apart from this, the company looks for not only expanding their business by opening new stores but also renovating the existing stores and giving them a new look. Integration of functional strategies In order to enhance the experience of the customers the company has done modifications in the organizational structure so that the focus is more on customers of US and consolidation of the support function of the organization. Thus, the strategy is seen to spread in all the functional units of the organization. Moreover, the heads of these units will be responsible for the result of that particular unit. Corporate Culture Starbucks supports the culture of respecting and valuing inclusion and diversity. The company aims to be the leader in inclusion and diversity starting from partners engaged in field to senior team of management. In order to achieve this target the company has gone for making it act as their core for leadership competencies. The organization leverages diverse view points, capabilities and talents. The cultures of the organization “work and think across teams, functions and businesses; across markets, channels and organizations; across cultures and communities; across physical and digital spaces” (Starbucks Corporation, 2013b). Challenges The major challenge for this organization is that it is too much dependent on the market of US for its revenue generation. Though the company has large number of international operations but high dependence on US operations makes it vulnerable to adverse economic changes. Therefore, a reduction in the revenue can lead to lowering of cash return for the shareholders and decrease in the cash flow funding towards the international market. Apart from this low discretionary income, fast expansion and increased competition are also challenging for the organization. Due to economic crisis the discretionary income of the customers can reduce and this lead to lowering down of customer’s spending, which in turn leads to a decrease in the customer. Too fast expansion may lead to saturation among the customers. The competition of Starbucks is seen to increase rapidly. Dunkin’ Donuts and McDonalds are the major competitors of the firm. Though the organization started selling in sandwiches but it did not work out (Gambardella, 2009). Strategies used to achieve competitive advantage The competitive advantages of Starbucks are the customer service, quality of the product it serves and the cosy environment. In this regards the company used its three major resources like company-owned stores, specialty staff and store staff. The specialty staffs extend their assistance in non-store activities processing coffee at the coffee plant or dealing with licensed store. Apart from this, the company does the following to enhance their competitive advantage. The company also increases its focus on customer service and new products. Slowing down the store opening in US and closing the underperforming stores. Restructuring the organizational structure (Sosland, 2013) Conclusion Starbucks Corporation has brought about radical changes in the taste of the customers related to coffee. This has gained huge global attention. Today Starbucks is not only the fast growing and leading organization but also sets an example of exceptional business model that has high profit performance and low turnover rate of the employees. The above analysis shows that the business has benefited from the change in organizational structure. But to overcome the negative impact related to the change recommendations have been made. Recommendations The company should shift its focus from the business of US, towards other markets where it has substantial presence. It needs to design strategies for making its business in other countries more strong so that the company can get significant amount of revenue from those market. This is done so that the company does not suffer heavily during the economic or any other crisis occurring in US. Reference List Businessstudents, n.d. Starbucks Corporation: Case Study in Motivation and Teamwork [pdf] Available at < http://businessstudents.weebly.com/uploads/6/3/6/5/6365205/teamwork_case_study_-_starbucks.pdf> [Accessed 27 July 2013]. Gambardella, P.J., 2009. Application of Strategy Dynamics: Starbucks Corporation [pdf] Available at < http://www.systemdynamics.org/conferences/2009/proceed/papers/P1169.pdf> [Accessed 7 August 2013]. GlobalData, 2013. Starbucks Corporation - Financial and Strategic Analysis Review [pdf] Available at [Accessed 7 August 2013]. Larson, R.C., 2008. Starbucks a Strategic Analysis: Past Decisions and Future Options [pdf] Available at < http://coe.brown.edu/documents/StarbucksaStrategicAnalysis_R.Larson_honors_2008.pdf> [Accessed 7 August 2013]. Sosland, J., 2013. Starbucks is Seeking More Success [online] Available at < http://www.foodbusinessnews.net/articles/news_home/Site_News/2013/04/Starbucks_is_seeking_more_succ.aspx?ID=%7B30EBB66F-B5F6-459D-B968-1A8515E73098%7D&cck=1> [Accessed 7 August 2013]. Starbucks Corporation, 2008. Starbucks Makes Organizational Changes to Enhance Customer Experience [online] Available at < http://news.starbucks.com/article_display.cfm?article_id=66> [Accessed 7 August 2013]. Starbucks Corporation, 2011. Starbucks Announces New Leadership Structure to Accelerate Global Growth [online] Available at < http://news.starbucks.com/article_display.cfm?article_id=547> [Accessed 7 August 2013]. Starbucks Corporation, 2013a. Starbucks Expands $70 Million Ethical Sourcing Program with New Global Agronomy Centre [online] Available at < http://news.starbucks.com/article_display.cfm?article_id=762> [Accessed 7 August 2013]. Starbucks Corporation, 2013b. 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