How and Why Starbucks Is Affected By both Internal and External Challenges - Essay Example

Starbucks Corporation Introduction Increased globalization and trade liberalization of markets have resulted in facilitated growth of international business. However, together with opportunities of increased revenues and new markets’ potential, many firms have faced with a challenge of managing organizational behavior in different environments. Organizations, especially those that operate in multiple regions or continents are continuously exposed to divergent legal, political and socio-cultural environments (Marques, 2008). One of great examples of such organisations is Starbucks Corporation. Starbucks is a leading multinational corporation operating in specialist coffee retailing sector. Its values share in the world coffee shops category has reached 0.7% in 2013. While the company’s largest business unity is in the US (63% of sales), it has managed to establish a substantial international presence (Euromonitor International, 2014). The company pursues a strategy of global business expansion. As the company operates in numerous international markets it faces with various external factors that influence the company’s strategy and operations. In order to overcome all these challenges and other difficulties it is vital for a business organization to have efficient and appropriate organizational structure. This paper aims to analyze how Starbucks manages in today’s complex highly competitive business environment with a focus made on its organizational structure, leadership approach, motivation and decision making processes. Organizational Structure The company has implemented a functional organizational structure and combined it with divisional approach, whereas organizational structure is comprised of various departments and divisions that are responsible for performing different functions. After Howard Shultz, the founder of the Starbucks, returned to the organisation as the CEO in 2008, he has introduced some transformational changes to the organisational structure. The company has decreased the number of partners and the number of existing positions, and also reduced its workforce (Schultz, 2008). Furthermore, in 2012, the company has redefined its organisational structure of retail business focusing on geographic principle and identifying three-region structures: Americas (US, Latin America and Canada), China/Asia Pacific, and Europe, Middle East and Africa (Starbucks Annual Report, 2014). Thus, the company has supplemented its structure with geographically based divisional structure design. Each department is lead by senior vice president, who is responsible for direct reporting to the U.S. President. The major aim of these organisational changes was to get managers closely to its partners (employees) and customers. By introducing this change to organisational design, the company has improved decision-making process in specific geographic areas, increased flexibility and empowered each division to be more responsive to the needs of its customers. Obviously, these changes to organisational design were undertaken because of the company’s international growth and necessity to make span of control more efficient. Decision-making process in Starbucks is centralized on a division level. Employees from different functional divisions (Store Development, Partner Resources, Marketing, and Finance) have to report directly “to their respective functions, while still being accountable for results at the divisional level” (Schultz, 2008: n.p.). This centralized approach was introduced in order to create an infrastructure with global capability, span and effectiveness (Schultz, 2008). Thus, the company also has adjusted its decision-making process to new business strategy of aggressive international expansion. Leadership style, Management and decision-making Starbucks was founded by Howard Schultz, who was a leader of organisation for long period of time. However, there was a period in the history of the company when he has left his executive role and delegated his authorities to another manager. When Howard Schultz stepped back from its role as President of the company, the company’s performance has declined and the company was facing a threat of losing its brand image and positioning (Seaford et al., 2012; Ignatius, 2010). This period was very challenging for the company, as the company failed to maintain integrity of its values, culture, guiding principles, and trust with the people (Schultz, cited in Ignatius, 2010). Once Howard Schultz again became a CEO of the company, the company’s performance has been gradually improved. This experience illustrates the importance of leadership of one individual who has absolutely clear vision on the company’s future and absolute commitment to the overall company’s success. Based on the Max Weber’s theory on leadership, Starbucks employs charismatic type of leadership, whereas Shultz is definitely a charismatic leader who continuously inspires the whole company. The company’s mission sounds as “To inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time” (Starbucks, 2015:n.p.). This mission statement perfectly illustrates the company is first of all focused on people (human spirit), and then on production (coffee). It also illustrates that Schultz’s’ management style is participative, whereas he encourages employees to be team-oriented, to cooperate and to communicate. As the company operates in different international markets with varying political, economic, social, legal and environmental factors, Starbucks has adopted more flexible international organisational strategy as well. Managers in local stores are empowered to make decisions that fit local external environment. Thus, the company empowers its employees as well, establishing cross-functional teams. These cross-functional teams are used by Starbucks in order to improve communication between the employers and functional teams (Takeda et al., n.d.). For example, one department responsible for developing marketing strategy for the company works together with those working in the field, those who actually work with the final product and communicated with customers. This approach allows the company not only to achieve more comprehensive approach and encourage collaboration and innovation within the organisation but also to address internal challenges such as miscommunication, tensions among various departments and to mitigate the risks of divisions’ isolation from the rest of the organisation. Motivation The company strongly reinforces the role of human resources in the overall success of the company. That is why the company treats its employees in very different way, whereas employees are partners of the company. By entitling employees as partners the company combines corporate goals of the company with personal goals of each employee, focusing on mutually beneficial results. In order to motivate its staff, the company offers various benefits, including: tuition reimbursement, healthcare benefits, a wellness program, career development opportunities, partner benefits, etc. (Marques, 2008). In addition to extrinsic motivation which implies motivation through tangible rewards, the company successfully implements strategies of intrinsic motivation. People are treated as partners of the company, their efforts are recognised and appreciated. While analysing Starbucks’s approach from theoretical point of view, it is possible to claim that the company pursues Theory Y, developed by Douglas McGregor (Castle, 2014). The employees of the company are treated as partners and are encouraged to share their views and opinions. Thus, people tend to exercise self-control and self-direction in their work. They gain opportunities for self-actualisation and are committed to this organisation (Castle, 2014). Applying the Maslow’s theory of motivation to Starbucks case, it is possible to say that the company satisfies all five major needs of individuals, including psychological, safety, social, esteem, and self-actualisation (Castle, 2014). The company pays salary to its employees (psychological need), offers safe working environment and ensures job security (safety need), promotes and encourages development of good relationships with both customers and colleagues (social need), recognises and appreciates employee’s efforts and commitment (esteem need), offers opportunities for training, education, self-development and career promotion (self-actualisation) (Starbucks Coffee Company, 2015; Castle, 2014). By satisfying all these needs, the company addresses major internal challenges associated with human resource issues, such as: conflict management, change management, internal competition, cooperation, etc.). Also, the company reduces the risks of high employee turnover, and thus retains good employees within an organisation. In the days of fierce competition on the human capital market it is especially important. CSR The concept of Corporate Social Responsibility has been tightly integrate in corporate governance of many large organizations. Increased consumers’ awareness of global climate warming, environmental concerns, public information on the negative impact of large corporations on local communities and general societies – all have encouraged firms to adjust their organizational structures. Starbucks Corporation is one of such examples. As the leader of the Company has explained during the recent presentation of its five-year plan to investors, “The rules of engagement for a public company have changed. Companies now must do more for their people and the communities they serve” (Schultz, cited in Starbucks Newsroom, 2014: n.p.).The company’s management recognized increasing social pressure and adjusted its organizational structure. The company has introduced a department dealing with good sourcing, communicating its CSR responsibilities and achievements, environmental initiatives and community involvement issues. Conclusion The Starbucks Corporation is one of the international companies that faces every day with various internal and external challenges. In order to manage these challenges and turn them into opportunities the company has developed effective organizational structure. As the company expands to international markets and its business scope grows, the management also introduces changes to the structure modifying it and making it suitable for a given business context. The case of Starbucks illustrates the company’s overall success and brand identity heavily depends on its founder and its leader, Howard Schultz. Strong charismatic leadership combined with effective motivation and decision making strategy enabled Starbucks to achieve substantial growth during the past decades. References: Castle, A. (2014), The Classical View of “Organising and Business”, Motivation, Decision Making, Groups and Teams, 119SAM [Lecture notes] Organising for Business. Ignatius, A. (2010). The HBR Interview: “We Had to Own the Mistakes”. [online] Harvard Business Review. Available at: https://hbr.org/2010/07/the-hbr-interview-we-had-to-own-the-mistakes [Accessed 29 Jun. 2015]. Euromonitor International (2014). “Starbucks Corp in Consumer Foodservice (World) [online] Retrieved from www.warc.com Marques, J.F. (2008), "Spiritual performance from an organizational perspective: the Starbucks way", Corporate Governance: The international journal of business in society, vol. 8, no. 3, pp. 248-257. Seaford, B. C., Culp, R. C., & Brooks, B. W. (2012). Starbucks: Maintaining a clear position. Journal of International Academy for Case studies, 18 (3), 40-57. Schultz, H. (2008). Starbucks makes organisational changes to enhance customer experience, Starbucks Newsroom. [Online] Starbucks Newsroom. 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