Ethical Strategic Analysis of Starbucks - Case Study Example

Starbucks Impact Any organized human activity, which is done in-group, will be most times constituted into an organization. So, Organization is a structure with a ‘collage’ of workers doing their allocated work under the supervision of a leader, for the benefit of the organization as well as them. The workers will be initially recruited for different jobs according to their education, experience, skill, knowledge etc. After the recruitment and apportionment is over, it is the duty of the organization importantly its leader to provide the employees an optimal working environment. In that environment only, employees will show optimum productivity, with the leader optimizing the employees’ productivity. But, sometimes organizations will not be able to provide a best working environment due to various factors, with leader’s performance failing in those factors. This will surely bring down the motivation level of the employees to bare minimum. With less motivation, the employees will be hard-pressed to use his/hers physical and mental part, to work effectively for the organization. This will lead to a situation when the organizations might commit certain mistakes, affecting its name and productivity. To stop mistakes from happening, improve productivity and importantly change that negative image, the same organizations will come up with certain strategies to correct its name as well as to improve profits. This paper will analyze how Starbucks, US based chain of Coffeehouse shops; fell short in certain ethical related aspects affecting its brand image in 2002, thereby necessitating a strategic change. Also, this paper will critically analyse the traditional kind or style of strategic leadership provided by its Chairman and CEO, Howard Schultz to create a favourable working environment for employees and to integrate the component of ethics into its functioning. Finally, the paper will also discuss how adaptive has Starbucks been during this change episode in terms of developing its resources and core competencies, thereby able to replace that bad image through a series of steps, with Schultz playing the role of a designer, developer of positive brand image, caregiver, holder of ethics and socially aware leader. Background and the part or episode that necessitated changed Starbucks Coffee or Corporation, US based coffee chain was founded by three persons Jerry Baldwin, Zev Siegel and Gordon Bowker in 1971. They started of by selling coffee beans and other coffee related equipments. Howard Schultz joined the Starbucks shop at Seattle. He made a trip to Milan, Italy to study the coffee market there, and coming back to Seattle, he advised the Starbucks management of that time, to sell coffee and espresso drinks along with the beans, seeing the potential to develop a similar coffeehouse culture in Seattle (starbucks.com). But, the management team rejected Schultz’s idea under the pretext that entering the beverage business would sidestep the company and divert from its main focus of coffee beans. On the other hand, Schultz was sure that there is a market for coffee-based beverages, and so he left the Starbucks and started the Il Giornale coffee bar chain in 1985. II Giornale was able to create an impression in the market and was able to attract the customers. This strategic leadership shown by Schultz was rewarded in 1987, when the original Starbucks management team sold its entire Starbucks unit to Schultz and his company. With the acceptance coming from the same persons who rejected his idea and the Starbucks’ unit in his hand, Schultz renamed Il Giornale with the Starbucks name and aggressively marketed the coffee-based beverages also as Starbucks, thereby expanding its market all over U.S. From that beginning, Starbucks has elevated his status to become the world’s largest Coffee shop chain. But, like any other high performing organizations, Starbucks also wants to grow, profit wise, by increasing the number of shops. Apart from this aspiration, Starbucks also wants to establish it as the most recognized and respected brand in the world. To achieve that brand image, Starbucks apart from putting its marketing department to fullest work, wanted to optimize the performance of its employees and also wanted to indulge in charity and society conscious activities. So, as mentioned above the part or section, which Starbucks wanted to change is certain ethical related aspects affecting its brand image. The background for this change or initiative is that, in the early part of 2000, Starbucks came under attack from different types of people for its involvement in controversial and unethical issues like Fair Trade coffee and bovine growth hormone milk. “…changes that management has to respond continuously and which provides part of the major external impulsions for strategic change” (Pettigrew & Whipp 1991). Here also, it had its organizational goals in the mind because by implementing these steps, Starbucks not only wanted to change its bad images but also to achieve its wish of being the most respectable brand. So, these backgrounds of Starbucks only led its leader, Howard Schultz to exhibit a traditional form of strategic leadership, thereby improving its ethics and importantly fulfilling its determination to be the best. Literature Review The first main role of the leader in any organization is to build an academically, technically, practically strong and experienced workforce, who will be able to the assigned work effectively and professionally. That is, what Schein (2004) said, “... best way to build an organization was to hire very smart, articulate, tough, independent people and then give them lots of responsibility and autonomy”. According to Kotter, (1998) the role of leader is to recruit the right person in the right position. When the apt employees are recruited, it is the duty of the leader of the organization to impose his/hers assumptions, ideas, principles, etc on the employees. Typically, the founders as leaders have strong assumptions about the nature of the world, the role those organizations play in that world(Schein, 1978, 1983). They will, therefore, be quite comfortable in imposing those personal cultures on employees as part of the organizational culture. “Leadership focuses on developing corporate culture and human capability, patiently building trust and emotional commitment to the company through teamwork and communication.” (Beer and Nohria 2000) But, in some organizations, the challenge to this imposition of a new culture will come in the form of experienced workers who will be slugging out in the same job in the same environment, importantly in the same mindset for years and changing them to accept the new effective assumptions and work culture will be difficult. In that case also, the leaders should play an effective and influencing role. “The key to successful leadership today is influence, not authority” (Kenneth Blanchard). After imposing an optimal organizational culture, even incorporating the ethics component, the leaders follow that culture by himself/herself, and should be an example for the employees to follow. “Leadership by example: Behavior from important people that is inconsistent with the vision overwhelms other forms of communication” (Kotler 1996). “Good management consists in showing average people how to do the work of superior people” (Rockefeller). “A leader leads by example not by Force.” (Sun Tzu) The leaders should also involve the workers to play an active part in all the important processes, including the decision making process. “The sheer number of decisions that must be made keeps them occupied with the decision making process, necessitating that intermediaries convey these decisions throughout the company” (Carlzon, 1989). Even while allowing them to contribute their inputs to the process, the leaders should not meddle. “The best executive is the one who has sense enough to pick good men to do what he wants done, and self-restraint to keep from meddling with them while they do it.” (Roosevelt) Then, when the employees impede or obstacle the growth of the organization, the leaders should show their authority and weeds out these individuals and put the organization on the success path. ” They got the right people on the bus, moved the wrong people off, ushered the right people to the right seats - and then they figured out where to drive it” (Collins 2007). Executives owe it to the organization and to their fellow workers not to tolerate non performing individuals in important jobs” (Drucker) Hamel and Prahalad (1990) argue that an organization should be developed around a core of shared competences. Core competencies are mainly built through a continuous process of improvement and enhancement. Then the core competencies should be integrated into the company’s strategy Strategic leadership of Howard Schultz during this period of change From time immemorial, the success or failure of any organization including Starbucks depends on the role, the leaders like Howard Schultz plays. The leader is the one who can lead humans under him/her to ‘heaven’ or ‘hell’. And, if the leader follows a set of traits he/ she can ‘sprinkle’ success on many lives, including the workers in his/her organization. The leadership traits should be visible and should be put to effective use when the leader, as a ‘builder’ builds a group and as a ‘founder’ launches an organization. The leader can build a group, by associating individuals who came from the same ‘stable’ like friends, work mates, family members etc and by recruiting individuals with talent, knowledge and attitude. That is what; Schultz did when he launched Il Giornale in 1985, after his feasible and winning strategy of introducing coffee-based beverages was rejected by the original Starbucks management. With this ‘living’ group, and the material things like capital, machines, infrastructure, etc the founder cum leader embark on an organization. But, in other cases, a leader will normally take over or preside over or manage an existing organization. That is, the building or recruiting of the ‘group’ of workers as well as the installation of infrastructure, set up etc, would have already taken place, with the leader only leading and managing the organization. Howard Schultz played this leadership role as well, as he took over the management of Starbucks from its original owners. This job of taking an existing set up and managing it, brings in set of challenges, which can be taken care and solved by formulating certain strategies or solutions. That is, challenges can be overcome by implementing traditional or radical approach to strategic leadership. Howard Schultz exhibited the traditional style of strategic leadership focusing on incremental, continuous and gradual change in most of the decisions that were taken inside Starbucks, with only few decisions lacking in any strategic leadership. To analyze this point, firstly the strengths of Schultz leadership will be discussed, and then the few weaknesses As part of the strategic initiative by Howard Schultz, the performance of Starbucks’ employees was optimized or accentuated in an incremental not so radical manner by the designing and the adoption of mission statement by the senior executive team led by Schultz, which laid out certain guiding principles. The principles helped its employees (or ‘partners’ as they were known by the Howard Schultz and his management team) to determine their roles in correlation to the company’s goals and also gave them the opportunity to provide their feedbacks about the document of mission statement. So, the Starbucks management led by Schultz did that by introducing a mission statement among the employees particularly the new employees, and forming a final statement after the analysis of the feedback from the employees. “New employees discuss the Starbucks mission statement and do customer-service role-playing.” (Schultz qtd. inc.com). So, the first big idea that was designed by Schultz was the actualization of the ‘customer feedback incorporated company’s mission statement’. As rise and fall of any organization will depend on the role of the employees, they have to be provided the best working environment by the management. So the plan or idea of Starbucks to provide a favourable working environment was implemented through the adoption of a mission statement. And the things Schultz did, to integrate this statement and the principles into the working atmosphere of the employees, can be divided into three stages. In the first stage, the Schultz and the management of the Starbucks distributed a copy of the mission statement and gave comment cards for feedback during the initial orientation of the new employees or “partners”. Then in the second stage, Starbucks related all the decisions that were made inside the organization to the guiding principles. And finally in the third stage, the company formed a “Mission Review” system so that any employee could comment on a decision which was undertaken in relation with the consistency of the six guiding principles. Then based on the comments or feedback given by the employees, Starbuck released a final statement, “people first and profits last”. This emphasis on the human employees and the customers by Schultz showed Starbucks’ ethical values. The other strategy which was implemented by Schultz as part of Corporate Social Responsibility (CSR) is to take care of the ethics issue is providing aid to the environmental initiatives, and this initiative gave him the leadership tag “developer of positive brand image”. That is, the environmental policies got a major boost, when the company’s environmental affairs team under the guidance of Schultz took steps to minimize the company’s “footprint” in environmental problems inside its coffee shop and in other company premises. For that, they implemented recycling and energy conservation by reducing wastes and by educating the ‘partners’ through the company’s “Green Team”. The other CSR based strategy which was successfully implemented by Schultz as part of traditional style of strategic leadership is to build long term productive relationships with farmers who supply the bean for its coffee products. That is, Schultz as a form of caregiver mandated that coffee farmers especially from its major sources in the African countries of Ethiopia, Rwanda, etc, should be paid premium prices, so that it constitutes the concept of Fair Trade and also they have enough money to look after the family, and avoid planting illegal crops. The other big idea which was implemented by Schultz as part of its wish to build a strong, incremental and positive ethical image is the introduction of ethical coffee in 2002, when it began offering Fair Trade coffee. These ethically conscious actions gave Schultz the leadership tag of “holder of ethics” and fulfilled CSR. Also, this crucial decision of Schultz is earning a good image for Starbucks and also helping it to ethically correct itself. Starbuck have embraced Free Trade coffees in a big way creating number of records. “Starbucks is North America’s largest purchaser of Fair Trade Certified TM coffee. Starbucks is the only company licensed to sell Fair Trade coffee.” (starbucks.com). The other main strategy of Starbucks which was initiated by Schultz’s as part of his style of traditional strategic leadership is the implementation of various social development programs, which thereby fulfilled the leadership function of being a “socially aware leader”. The program which involves construction of infrastructure to the needy fulfils ethics issues, because the rich and self-sufficient organizations are expected to do something to the ‘insufficient’ sections. Schultz’s decision to co-operate with CARE has resulted in many beneficial activities to many communities, like construction of many welfare infrastructures including clean-water systems, health and sanitation training and literacy. So, the contribution made by Starbucks helped CARE to implement many society elevating projects, which is still elevating the living condition of the people as well as the company’s image, even receiving an award from CARE. “Schultz was the recipient of the International Humanitarian Award from CARE for his vision and leadership in developing an innovative partnership between Starbucks and CARE to support people in coffee origin countries.” (wpcarey.asu.edu). So, by concentrating on the important partners and aiding them, Schultz did not initiate a discontinuous or radical change and instead focused on changing Starbucks incrementally and gradually. But, even with all these successful strategic initiatives, Howard Schultz fell short in certain aspects, which turned out to be his few weaknesses. The weakness mainly exhibited in one ethics based decision. The main decision of Howard, which shows Starbucks lack of ethics and disregard to human health, is its practice of using bovine growth hormone (BGH) treated milk, which is dangerous to human health. That is, if the cow is injected with BGH or rBGH, it will produce higher quantity of milk. But, coffees prepared with BGH treated milk contains substantially higher amounts of a potent cancer tumor promoter called IGF-1, and also contains higher levels of pus, bacteria, and antibiotic, leading to health problems (shirleys-wellness-cafe.com). Despite these alarming harmful effects on human and animal health, Schultz did not take any initiative based on his traditional style of leadership to correct this problem, as Starbucks needed high quantity milk for its shops. As diary farmers provided high quantity by using BGH, they received it, without thinking about the defects. So, Schultz used BGH, even breaking his promise, as outlined in a letter sent to OCA in 2001, to offer hormone free milk upon request in all company owned stores by 2002. So, Starbucks practice of continuing BGH milk, even after a promise exposes Howard Schultz lack of any strategic leadership. “The Organic Consumers Association (OCA) is deeply disappointed that Starbucks continues to drag its heels on a five-year-old commitment to offer consumers an alternative to milk and dairy products derived from cows injected with Monsantos controversial recombinant Bovine Growth Hormone (rBGH).” (OCA) So, after analyzing all these initiatives of Howard Schultz, it is clear that Schultz indeed exhibited strategic leadership mainly bordering on the traditional style, while managing Starbuck. Schultz catered, took care and also optimized all the stakeholders of Starbuck. That is, he provided the farmers from African countries, who were the suppliers of the vital coffee beans, many benefits including good prices. He also productively involved the employees by making them give their feedback to the mission statement. He also cared for the environment and indulged in other social activities as part of the continuous and gradual change. Even though, his failure to keep his promise regarding rBGH treated milk can be regarded a weaknesses, he has exhibited many strengths and effective strategic leadership in many aspects, making Starbucks one of the successful companies of the world. ‘Adaptivity’ of Starbucks to this strategy and the outcomes Starbucks under the traditional style of strategic leadership of Howard Schultz implemented all the above mentioned plans expecting great results both profit wise, image wise and importantly ethic wise. The first plan of integrating the workers into the management and getting their feedback to formulate a statement yielded good response from the from the workers side. That is, as the employees themselves played a role in the formulation of the guiding principles and the statement, they become more adaptive and interested to follow it. So, when they followed it and worked effectively to reach the strategies formulated in the statement, Starbucks witnessed a good increase in the customer flow, with the services being provided also reaching good levels. So, the main core competences of Starbucks is the responsive employees, as they are involving themselves and are acting optimally to help Starbucks reach its target of good brand image. Also with the effective contribution of the workers only, Starbucks was able to fulfil the ethics component of managing an organization. As employees are the life and the blood of an organization, their role was made adaptive to fulfil the ethics element. Thus Starbucks have been able to fulfil ethical issues and have made it into one of its core competences, which can be made part of its long term strategy. In 2006, Starbucks was ranked seventeenth in the Business Ethics “100 Best Corporate Citizens” and has been on the Fortune “100 Best companies to work for” list for eight years. As no other coffee shops or competitors of Starbucks were able to achieve or imitate this distinction, it has developed into a core competence (Prahalad and Hamel). Then the other ideas and decisions taken by Starbucks from the society, environment and importantly image point of view also had good contribution from the employees and also farmers. When the farmers were treated like ‘partners’ or employees, their reaction was on the positive side. That is, the farmers for their part produced good, high quality coffee beans instead of illegal and faulty crops, thereby being adaptive and helping in the increase of the coffee output in the shops. Conclusion The leader of any organization should learn new levels of perception and acquire lot of insights for running an organization. As discussed in this paper and like Schultz, they should play an important role in integrating the ethics component in the management of a company. Then, by getting involved in all the processes, and exhibiting a traditional or radical form of strategic leadership, the leader should motivate the employees working under him/her, to follow and activate all the processes. So, Unison of humans with an urge to usher an organization into a successful endeavour will actualize, if the leader of the organization show undaunted and effective conduct. 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