HRM in Starbucks Corporation in India - Essay Example

Global HRM Strategies Human Resource Management in Starbucks Corporation in India (Joint Venture with Tata Beverages) ID: Submitted to: Submission date: Word count: 4070 words UNIVERSITY Contents Executive summary 2 Main HRM theories and models relevant to economic drivers 7 Differences in approach to HRM globally and regionally 9 Effectiveness of HRM strategies and the reward system management 12 Organisational, national and cultural specific issues that influence the development and implementation of HRM strategy 15 Management skills required in international business to successfully engage and win support from employees at the workplace 16 References 19 Executive summary Human Resource Management is the process of employing and training employees to turn them more desirable for a company. Trainings include aspects like product knowledge and persuasion skills. The reason for writing this report is to investigate the HRM strategy at Starbucks Corporation, an American global coffee brand. The company started their operations in Mumbai, India in 2012. It was a joint venture with Tata Global Beverages. The report looks into the economic drivers that impact the manager’s decisions in India. The report looks into the profile of the company and tries to recognize the critical link between the HRM strategy and the overall business strategy. The report mentions PESTLE analysis, necessary to understand how and why they shape their HRM strategy in India. The report also looks into evaluating the main HRM models that are relevant to the recognized economic drivers for Starbucks. It studies how the interim strategy is benefiting the employees and helping them achieve their career goals. The HRM report also covers an analysis of different approaches of HRM globally and that are actually used at Starbucks and how they can be modified in India. The links identified between the business strategy and the interim strategy are crucial to the differences between international and local policies. The report of Starbucks and corporate also covers the successful impact of HRM policy on overall organizational performance. A section is specifically assigned towards recognizing the employee involvement and participation in how this creates a healthier work environment. The report also looks into the reward system as how Starbucks Corporation encourages their workforce to achieve better results. And finally based on the discussion from the literature and the practical examples of HRM in the Starbucks Corporation suggestions are given that will help improve the HRM strategy for their joint venture in India. Economic drivers influencing the international business environment Starbucks Corporation was established in 1971 Seattle, Washington. It grew to 55 stores in 1989 and today it has over 19,767 stores all over the world (Starbucks Company Profile, 2013). It started its overseas operations in 1996, starting from Tokyo (Bussing-Burks, 2009). The main products sold at the outlets include; ready-made coffee, whole coffee beans, beverages, pastries and other coffee related retail items. Starbucks Corporation belongs to the disposable income industry of food and beverages. Since 1990s the industry has seen tremendous growth, this also brings a lot of competition for Starbucks. Convenience has pushed people out of their homes. Eating out is becoming an essential part of every lifestyle. Starbucks PESTEL Analysis PESTEL stands for political, economic, social, technological, environmental and legal factors. It is considered one of the most effective tools for looking at external factor that directly impact the company. For Starbucks Corporation a brief PESTEL analysis is as follows; Political The political aspects directly impact the business and consequently the HRM practices of the company. Starbucks Corporation is a US brand. The relationship of the USA with other countries directly impact its business. The US has good relations with India, there is not much hostility for American products. Another way of looking at this complex relationship is the companies that produce coffee beans are the sellers for Starbucks’ supply chain, meaning that it can impact their operations in India. If the USA has unfriendly relationships with these countries then Starbucks India will have a difficult time in running their business. Hiring people from hostile nations can also turn into a big problem. Political factors affecting Starbucks also depend upon the level of stability in the countries that produce coffee beans. Any skirmish or terrorist activity in the country of the coffee bean seller means trouble for Starbucks. Coffeehouses throughout the world are being subjected to more stringent ethical policies. In India, Starbucks is doing exceptionally well in terms of growth. However, they have to adhere to high standards of quality. The trade of coffee beans is subjected to high ethical values. ‘Fair Trade’ certification in coffee business is on the rise. There is always pressure on companies and global brands like Starbucks to not let anyone sling mud on their businesses with allegations of exploitation. According to company sources, by 2015 they have plans of buying 100% responsibly grown and ethically traded coffee (Crawley et al., 2013). Tax policies of countries where Starbucks runs its outlets impact the companys business. For instance Hong Kong imposes profit tax of about 16.5%. It is considered one of the lowest in the world. There is also no tax on dividends and interest incomes. Economic One of the key economic factors that impacts Starbucks’ business strategy is the buying power of consumers. When people have more money they spend more on food and beverages. It means that more money comes in Starbucks when people have more money to buy. Local currency exchange rates directly impact the profits of Starbucks Corporation from the increasing number of franchises all across the globe. Café Coffee Day is a strong competitor for Starbucks in India. Social Eating out and social factors can have an effect on people’s shopping choices. Personal preferences play their roles. Some countries simply drink more coffee than others. India is mainly a tea drinking nation. Café Coffee Day is already present in India, people recognize this brand. The social and cultural influences affect business and human resource strategy. Consumer preferences is another social factor that has the same effect. The change in working patterns and lifestyle of population changes impact the buying behaviours. Market information plays a key role, informed buyers make better shopping choices. Starbucks cannot recognize the whole of India as their target market. People are accustomed to buying black tea at a fraction of the cost they pay at Starbucks. Technological Innovative technology can impact Starbucks’ business strategy. Better technology means better processing of food and beverages. In this regards biotechnological advancements also play a role. Agricultural development is a crucial technological factor. Better crops and coffee beans mean better coffee and improved sales for Starbucks. The product and retail rates they set in their shops depend on the availability and the cost of acquiring coffee beans. With better agricultural development Starbucks can buy beans at more affordable rates. Environment Any business or company is supposed to comply with environmental regulations. The cost of producing a cup of coffee can cost in terms of environmental damage. Even if the company continues to produce such products at the cost of environmental damage informed buyers will be concerned about the planet Earth. They will avoid buying from these outlets. Environmental hazards and climate disturbances in countries that produce coffee beans directly impact Starbucks. Major climate concerns such as natural disasters and global warming can damage agricultural produce around the globe. Any climatic disturbance in coffee growing countries can impact Starbucks’ operations in India. Legal Introducing policies and regulations by health inspectors in India about caffeine consumption can impact the sales of coffee. Strict customs and trade regulation also influence the company’s business. Similarly, licensing regulations required by different industries can also impact the Starbucks. Main HRM theories and models relevant to economic drivers Every company is unique and Starbucks is no exception. It is better to understand how the human resource management strategies are managed at Starbucks before holistically generalizing HRM theories that might work for them in India. Orin Smith took the position of the CEO at Starbucks in 2000. In his 10 years prior to becoming the CEO he held a number of executive positions in the same company. Making an internal hiring shows the benefits the company was looking forward to. An internal hiring brings forward a person that is already incorporated within the culture of the organization and takes takes less time in adjusting compared to importing a chief executive. Orin Smith was the Executive Vice President, CFO, and the chief operating officer for Starbucks before becoming the CEO. In 2005 after the retirement of Smith, Jim Donald became the CEO. Donald was the first executive that was the result of external hiring. This move was a transition for the company indicating a shift in policy from internal to external hiring. Pros and cons exists for every business action. Internal hiring may be easier, the firm knows the employee and vice versa, however, external hiring brings fresh minds to the company people with diverse experiences and new mindset. Undoubtedly external hiring is risky. This risk is reflected in peoples expectations about the companys performance in the stock market. Donald remained the Starbucks’ CEO for six months and the company’s share price dropped significantly. The year 2008 marked the return of Howard Schultz as the CEO for the company. This was a period of desperate actions and the company was under tremendous financial pressure. Schultz had to focus on cost cutting and closing the risky adventures. This translated into closing unprofitable stores and aggressive pursuit of international strategies. Currently the plans are underway for opening more shops across the US and internationally. The human resourcing strategies have been unique for Schultz. He likes creating new jobs; hiring more people help strengthen a growing company. He writes in his book Onward: How Starbucks Fought for its Life without Losing Its Soul (2011) that people come to Starbucks for coffee and for human connection. There is hardly any doubt that their tremendous success in India is the result of following this vision. Their venture in India has the same structure as before. The classification at Starbucks includes shift supervisors, baristas, store managers and their assistants. Starbucks’ baristas get a fixed compensation. A survey suggests wages ranging from six dollars per hour to $13 per hour, with the average wage fluctuating around $8.68 per hour (Rucker & Villayvanh, 2011). Another survey of 286 employees suggest that shift supervisors earn an average of $10.77 an hour. Assistant store managers can earn around $25,000-$40,000 annually, the average salary bouncing around $32,829 (Rucker & Villayvanh, 2011). The average salary for a store manager at Starbucks is around $43,143, their salary ranges from $34,000-$58,000 annually (Rucker & Villayvanh, 2011). Differences in approach to HRM globally and regionally Richard Whittington (1993) wrote a book What Is Strategy and Does It Matter? When a person considers several approaches to HRM including universalistic, contingent and configurational, a confused looking strategy oversees six different perspectives. The question is how effective a strategy is and what part it plays in the success of a business. Starbucks is a service industry, what works for General Motors regarding their human capital cannot be implemented here. A huge amount of literature is present on strategy. Most of which traces it back to the roots of military strategy. Bracker (1980) talks about the Greek word Strategos, meaning a general. The term is closely associated with army and lead (Whittington, 1993, p. 14) in other words a strategy means achieving a fit between environment and organization. This can also be translated as devising a plan of action for achieving organizational goals (Paauwe, 2004). It is only common sense to figure out the fit between the environment and organization based on the economic drivers. For instance when the fit between the environment and organization at Starbucks supported internal hiring they did so in 2000 but when the gap between environmental factors and organization demanded they moved towards external hiring. The strategy for human resource management can be summarized in a classical approach to strategy where emphasis is placed on the confidence and capacity of managers for adopting profit maximizing planning. It is assumed that they will achieve these strategies to rational long-term planning. The need for mentioning the classical approach is to demonstrate how gradually these classic approaches have been modified in the 21st century that serve the companies in changing market environment. The classical HRM strategy include but not limited to; Planning A coherent approach for designing and managing personal systems, the approach is based on manpower strategy and employment policy, normally governed by a philosophy Then the HRM activities are matched with an explicit strategy Organizational force is then seen as a strategic resource so that it can give the company a competitive edge Considering the main economic drivers for Starbucks HRM strategy is shaped towards expanding in a very competitive service industry. Only making better products would not help the company for very long, which is why they are investing significant sums of money in training their workforce. According to the official website Starbucks Corporation do not use the term human resources very often. They prefer to call it partner resources. People who are responsible for staffing, learning and development, total pay, organizational development as well as partner services, are defined as partners and the company has over 500 partners working in groups (Starbucks, 2014). As a social strategy the partners stay connected and meet every month as a group where they enjoy coffee or tea. These meetings hold brainstorming and casual conversations. Considering the factors that shape Starbuck’s business policy, there are certain HRM theories that fit well into the corporate culture. Starbucks has achieved tremendous success through intelligent combination of control, strategy and human resource (DeNisis & Griffin, 2013). The core human resource strategy at Starbucks is to encourage employees to make good decisions on their own (Snell & Bohlander, 2012). Howard Schultz, the chairman at Starbucks admits that in a service business, all roads that lead to success can be traced back to the human side of the business (Jackson et al., 2011). Hence the human resourcing strategy is woven around their partners. There are HRM strategies that centralize the power. More control at the executive level lets the company create a work environment where an employee is specifically told what to do when to do and how to do it. The human resource strategy at Starbucks is different. The forward-looking CEO Howard Schultz fully understands that human resource management through stringent centralized control will not give them the competitive edge they seek. That is why they look forward to encouraging employees in making better decisions on their own. The same strategy is operant in India. One way to look at innovative human resource management tactics is to see how Starbucks has expanded in the United States. One unconventional vehicle recruiting employees was when Starbucks started expanding in Alaska they went to their local coffee shops and established brands. They started handing out their business cards recruiting directly from other coffee shops. Despite being the new entrants day became threatening competitive for other coffee shops (Ireland et al., 2008). They can implement the same tactics in India where they face competition. Effectiveness of HRM strategies and the reward system management The HRM strategies at Starbucks have been very effective because they have customized their human resource. They have been consistently rated among the 100 best places to work in (Nickson, 2013). Their management, strategies and policies given them a competitive edge. For instance they have changed the title of an employee to partners. They call their employees partners because they think it is in the companys interest to provide them positive workplace. Changing the title of the worker is not sufficient which is why their compensations are generous. Even the part-time employees can get these benefits which is why Starbucks lists in the top hundred companies employees would like to work for. If a worker works a minimum of 20 hours per week they become eligible for their benefits. The benefits hold 64% of American workforce. The most popular and affordable plan is only $6.25 per week. These benefits include (but not limited to) income protection, health coverage, and many other plan. Health insurance is provided for both the salaried and hourly workers. The insurance coverage includes dental, visionary and medical insurance. Medical insurance covers hospital bills, office visits, net test, prescription drugs, emergency services, chemical dependency and psychological issues. Dental insurance covers both basic and major services including preventative. Partners even pay less when they receive services from recommended providers. Premera Blue Cross administers their health and dental insurance. The visionary insurance plan at Starbucks includes; lenses, eye examination, contact lenses and frames. VSP administers this visionary insurance. Starbucks takes care of their partners regarding disability coverage, disbursement insurance, fatality, counselling, financial aid and adoption. They have changed the title of counselling services at Starbucks to ‘Employee Assistance Program’ that covers stress and emotional issues at workplace. Starbucks employees that choose to adopt children get a compensation of up to $4000. Online resources and library research material give an idea how the recruitment process is undertaken at Starbucks. According to a survey Starbucks’ organizational chart puts the category directors (product directors), interns and developers in both the ‘Consumer and Food’ service as well as in ‘Marketing Category’. These vacancies are also considered Professional Services Careers on Starbucks’ career Centre page. The interns at the company are usually hired for the summer season. Category specialist interns manage the whole product side of the business, from A-Z. This strategy is helpful because it partner or an employee remains highly engaged with the job. For instance an intern would be given three projects during the course of internship. Starbucks iced coffee analysis, Clover brew analysis and holding meetings for their online platform. Evaluate the theory and evidence about the relationship between HRM and organisational performance Starbucks started its operations in India back in October 2012. Their loans in Mumbai, India was a joint venture with Tata Global Beverages. Within only 17 months of starting their operations they have reduced the total of 14 stores. This expansion in business has been unprecedented in the history of Starbucks. The joint venture started from Mumbai and has now spread to other cities in India. The venture has proved successful however there are certain conditions that can be made regarding human resource management of the company. Certain things need to be considered in devising the human resource policies for Starbucks India. For instance people who come to these shops spend money thinking they are buying an American brand. They want to have an American experience. However, India is one of the biggest key consumer in the world and Starbucks is primarily known for their coffee. Training employees at outlets where they can make the customers feel comfortable in purchasing other beverages than coffee, then it would reflect as a growth strategy. It might not be very feasible in the short term but in the long run Starbucks India will be known as the biggest key beverage franchise in India. It is very hard to change the taste of customers from coffee to tea but Starbucks can change their mainstream products in India from coffee to tea. One major concern regarding a joint venture is when there comes a conflict between the organizational culture at Starbucks and at Tata beverages. Starbucks is a huge success because they have one of the friendliest working environment and the reward their employees generously. If company like Google and Starbucks stop investing in their human capital and stop rewarding their employees probably they would not have seen the success they have (Phillips & Gully, 2013). The way companies like Starbucks pay their employees shows a common element across the world. Companies like Starbucks have international integration and subsidiaries have little room for changing their HRM policies (Lucio, 2013). The matter of concern with Tata Beverage is that it is an equal business venture, which can impact the HRM practices of Starbucks. Consumer and food service division at Starbucks has two additional categories; global coffee and their subsidiaries (coffee divisions). In global coffee innovation division which is iced coffee divisions, brewed coffee divisions, reserve Clover brew division and a packaged coffee divisions. And in turn at the reserve Clover brew program would probably be responsible for reporting to Clover brew director. The dead actors are usually keen on including interns into the system very quickly. For a typical product developer at Starbucks the job includes planning and implementing projects for developing food and beverage products. Market research for generating ideas is essential in this job. The other factors that are critical for this job are product design, product research, quality safety testing and market testing. Product director receives reports for these jobs and supervises that technicians working under both temporary and permanent jobs. This might seem an easy task but in fact it is complex and therefore is compensated through a key project lies in between teams. Before each project and effective metrics and timeline is created so that the plan is executed in an efficient manner. Product developers also estimate the cost of packaging, regulations compliance, labelling and the basic costs of goods. Product developers are also responsible for identifying potential suppliers and managing their ingredients. Theyre also responsible for maintaining proper documentations which includes the basic file for the project, a technical manual and most importantly archiving the intellectual property. Organisational, national and cultural specific issues that influence the development and implementation of HRM strategy Starbucks is an international brand and competes with several other coffee brands. This is a factor that has pushed the company for investing a lot of money in employee training. The employees are the face of an organization. The first thing that the customers see even before buying Starbucks coffee is the person selling the coffee. This person saying hello to a customer or even addressing him or her by their name is priceless and translates into better brand loyalty. This is an effective use of the human resource at Starbucks. In the words off the CEO Howard Schultz, the friendly behaviour and reading by the employees makes the customer want to come back to the place. The customers want to be treated in a friendlier and welcoming way. The better the employees make them feel the more frequent they would like to visit a place. This strategy or even an external market pressure due to competitive forces the company pursues an extensive internal training program for its employees. It helps develop and nurture their personality and skills. By investing in employee training the company is making them more productive, it also reduces the chances of errors and bad behaviours. A 24-hour paid training program called first impressions is provided for every employee which is if tendered curriculum taught by the store managers. Primary focus is to train the employee for creating a welcoming friendlier customer experience. Management skills required in international business to successfully engage and win support from employees at the workplace There are a few things that Starbucks can work on so that both the company and employees benefit for their joint venture in India; 1. Motivating employees 2. better communication and teamwork 3. maintaining friend relationships with customers and employees Motivation is the key pushing employees for achieving better results that translate into success for both them and for the company. Motivation must be on continuous basis. If Starbucks remain successful in continuous motivation of its employees it would benefit the organization in more than one ways. Motivated employees create a better working environment. Then interns will spend some time in a work environment which can later turn into their permanent job. By providing a healthier motivated work environment for interns Dave will be encouraged to choose Starbucks Corporation or other companies and brands for their jobs after college and university. Teamwork is essential for the companys progress. Nowadays almost all companies have assigned different team for several task. It generates a healthy competition. However when the teams engage in to cutthroat behaviour due to pressures of competition it affects negatively on the work environment. Continuous teamwork and communication with the employees can help improve this situation. The appropriate channels of communications with their employees can be very helpful. The managers at Starbucks work with individuals and groups. They train both to work in teams (Nahavandi & Malekzadeh, 1999). On a similar note maintaining excellent relationships with the customers and employees can create brand loyalty as well as reducing the turnover ratio for Starbucks Corporation. Relationships are created when there is trust. When the company can learn to trust the team leaders and supervisors about their jobs in return employees put trust in the companys policies and procedures. The same trust is also reflected into the customers choice for purchasing. Maintaining relationship with employees creates better brand loyalty which reflects both in increased sales and an exceptional performance in the stock market. References 1. Bussing-Burks, M. 2009. Starbucks. Santa Barbara: Greenwood Publishing. 2. Crawley, E., Swailes, S. & Walsh, D. 2013. Introduction to international human resource management. Oxford University Press. 3. DeNisi, A. & Griffin, R. 2013. HR2. 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Retrieved [online] 25 Mar. 14 http://www.scribd.com/doc/76167366/Starbucks-Recruiting-Compensation-And-Benefits 12. Schultz, H. 2011. Onward: How Starbucks fought for its life without losing its soul. NY: Rodale. 13. Snell, S. & Bohlander, G. 2012. Managing Human Resources. Mason: Cengage Learning. 14. Whittington, R. 1993. What is strategy and does it matter? Cengage Learning. 15. Starbucks. 2014. Starbucks Coffee. Retrieved 25 Mar. 14. [online] http://www.starbucks.com/ Read More