A Critical Analysis of Starbucks' Human Resource Management Policy - Case Study Example

A CRITICAL ANALYSIS OF STARBUCK’S HRM POLICY The main goal of the work is to understand the HRM policies adopted by big multinational retail service provider Starbucks and critically discuss what type of value they create by successful implementation of these HRM policies in the form of more committed and motivated workforce. This work discusses the effectiveness of HRM policies of Starbucks. HRM is an essential function of an organization performed internally in order to appoint the required workforce, right direction in order to achieve the overall organizational goals. (Robert L. Mathias, John H. Jackson, 2008). Company Information Starbucks is one of the some major organizations, dealing in retail sector that offers magnificent benefits to its both full time and part time employees. Starbucks is a coffee stores company that was founded in 1917 in Seattle, USA and now it has become a large organization working at world level in 44 countries with 15,000 stores. It is one of the leading organizations in retail business and is known for its special coffee brand and as roaster. The company has implemented five corporate strategies which are; offering best quality products, ensuring maximum penetration in market, offering a highly social atmosphere, providing relaxation, develop the best working conditions and increase the profitability of the company by offering high margin products and reducing the costs (Jacqueline L, John L. Colley, Doyle, Robert D. Hardie, 2004). It has adopted the Laissez Faire management style and above the management at store level it has four different levels of management in its organizational structure. The skills that gave it advantage of its competitors are the ability to make drinks and the skills of employees. At Starbucks, employees are considered as partners of the organization and provided with special trainings to develop better understanding of the product and teach them new methods of brewing and techniques of sales. Partners have power to take decisions when it is needed and shift superiors assign them duties. Evaluations and promotions are used to motivate them. The performance of the company is well observed through the balance sheet of last five years as the assets, of the company have been doubled as they were in 2005. Owner’s equity is also raised (SBUX, Balance Sheet). HRM and organizational performance According to most of the HRM specialists, the effective human resource management system is very much important to achieve high levels of organizational performance (Delery, 2009; MacDuffie, 1999). According to them the effective Human resource management system is mostly designed to ensure high organizational performance by getting optimum overall output of the company rather than having more focus on individual performance. As Reeves and Dare (2007) describes that we can get high performance from an employee by increasing motivation and abilities by using any method. In the field of HRM and organizational performance a significant contribution is from Huczynski and Buchanan (2009). According to them, when HRM activities are designed in an organization according to its strategy it increases the productivity level of the organization, reduces its turnover and also enables it to perform well in financial sector (Huczynski and Buchanan, 2009). Their findings proved that when organization succeeded to satisfy its workforce and make them committed it can make its performance incorporate sector much better. The productivity is also very much dependent on the job design (Huczynski & Buchanan, 2009). Starbucks’ Hrm Policies Different companies apply different human resource management strategies. Some companies base their strategies on intensive control over employees’ performance orienting first of all on the outcome. Such type of strategy is not appropriate in the modern world as now employees try to improve there performance in order to be valued and rewarded. Thus, the human resource management strategy of Starbucks is based on satisfying the interests of employees by means of rewards and improving working conditions. Such strategy brings the company competitive advantage and improves employees’ performance. Huselid and Becker (1995) have critically examined the human resource management system and find out the three major dimensions of it. a) recruitment and selection policy Many studies have proved that an effective recruitment and selection process in organization is very much crucial for its success and to achieve high performance goal of the company. The system should be precise and should be designed to meet the overall organizational goals according to Reeves and Dare (2007). The researchers have found that there is a positive relationship between effective recruitment and selection process of the company and overall organizational performance. When organization selects employees who best match its requirement and have enough abilities to contribute to the overall success of the company they can reduce their cost of employee development, they don’t need to invest in employee training programs that costs a lot to the organizations. Starbucks is one of the world biggest organizations and every day it adds few new stores in its large profile and in order to maintain this magnificent growth Starbucks has to hire 200 new employees every day. The process of recruitment in Starbucks includes many tools like interview of the candidates in which they also attend the sessions of coffee tasting The terms and conditions are being developed and provided in written form. By using all these tools, Starbucks get to know the response time of candidates. Starbucks also asks its recruiters to regularly send gift cards of Starbucks to its job applicants, whether they are selected for job or not they must be treated as customers for the company. The process of recruitment in Starbucks is specifically designed for the job that is needed to be filled. The mission of the Starbucks is to expect the diversity and provide the employees with the opportunity to develop themselves. After passing the interview Starbucks train its employees before final selection (Starbucks, ICMR India). b) reward policy According to many researchers the compensation based on performance is a very successful tool to get high performance level (e.g. Arthur, 1998; Delery and Doty, 2009; Huselid, 1995; MacDuffie, 1999). Doty and Delery (2009) even declare the reward system based on performance as only method of achieving high performance level. Along these many other studies have discussed the positive relationship of performance based reward system with the overall performance of the organization like in control theory by Snell (1999), cost theory by Wright and Jones (1992), and agency theory by Eisenhardt (1988) and all these studies have found a positive relationship between the overall performance of the organization and the reward system based on performance. According to expectancy theory by Vroom (1964), the high performance level of an individual can be expected if organization meet his expected needs. But most important thing is that the reward system based on performance is dependent on other functions of human resource management. The individual output should not be the only basis of rewards provided by the company; organization should also consider the contributions of that person in the overall organizational performance. The company always pays more attention to its people than products, in a store staff it has 16 partners, one manager and one assistant manager. The incentives that Starbucks provide its workforce with are free health care that also includes vision and dental care facilities. It offers stock options as well in form of extra benefits and along this the employees who work average 20 hours a week for the company and continue it for three months company provides them shift drinks free and free proud of tea or coffee in every week. The rise in salaries of employees is based on performance evaluations that are conducted semi annually and these raises can be from 0% to 5%. Company does not offer any monetary bonuses but provide many non monetary rewards like it offers about 30% discounts to the employees on all goods that they buy (Starbucks, ICMR India). The contribution of partners in overall organizational performance is recognized by several different kinds of programs. Just like company has implemented a program of Green Apron, that is an evidence of Starbucks commitment towards environmental issues and its brand behavior. Green Apron book is provided to every partner that contains the values of the company and desired behaviors and peer recognition cards. Team contributions are also recognized to evaluate their performance. c) employee’s development policy The performance of the organization is very much dependant on the employee’s development policy of the organization. Organizations use a number of practices in order to develop their human capital. First of all the investments made by the organization, to provide non-technical and technical trainings to its workforce, determines the success of organization to increase the knowledge level of its employees. According to many researchers like Huselid and Delaney (1995), McGrath and Koch (1996), Huselid (1995) the organizational performance can be increased greatly by providing proper training to the workforce. They all have developed a positive relationship between overall organisation. Organizations are now more concerned to develop their employees in order to achieve high performance they invest in their trainings and also try to make it possible to have long-term mutually beneficial relationship with them (Doty and Delery 2009). In order to enable their employees to plan their careers properly they design proper career development programs for them. The companies that have promotion system from within the organization they have usually more committed and motivated employees as they want to work hard in order to get promotion (Snell and Lepak, 1999) and when company adopts internal promotion system it shows the commitment of the organization towards its workforce. In employee development policy Starbucks has designed training programs and learning sessions for new as well as existing employees. The employees are provided refresher courses in order to align their skills with industry customer demands. In training programs that Starbucks offers to its employees include; customer dealing techniques, coffee making workshops, customer care programs. Human resource flow Many companies practice frequent change of personnel as it helps not to invest into the development of personnel and allows to pay lower salaries. Starbucks is against such strategy and prefers to create friendly atmosphere and pay high salaries in order to keep 80-90% of personnel on their working places. Current and Past Hrm Policies In Starbucks The motivated employees have great significance in the overall organizational success and Starbucks realizes this. Thus, Starbucks pays much attention to recruitment process in order to select right people for jobs and develop them and retain them in order to get sustainable adopted by the company also shows its commitment towards its human resource. From its start, Starbucks has paid much attention to its frontline staff and baristas because they provide competitive advantage by providing the customers with the experience of the Starbucks. They always remained the center of the company’s attentions. From the first day while hiring someone for company, the qualities that are given great importance are dependability, adaptability and ability of the candidate to work as an effective member of a team. Still, as current HR policy to develop the right people the Starbucks is making huge investments in the development and training processes of the workforce. They are taught the techniques and skills that they will be required to perform their tasks while working at Starbucks and increase their efficiency as well. With these huge investments in human resource the Starbucks can expect to have strong employee satisfaction level (HRM, Starbucks). Past and Current Hrm Challenges In Starbucks The gigantic challenge that Starbucks tries to cope with in first decade of 21st century is to maintain the good will of the organization while having a high expansion rate and to develop the qualified workforce to support its expansion policy. The analysts were in doubt that with this fast expansion policy whether it would be able to meet the goals to be a positive employer. In early years of 21st century the company claimed that its huge costs on human development have been showing great in the financial position of the organization. In fiscal year 2004, the spending on human resource development was more than its spending on advertising expenses that were $68.3 million. The expenses on employee’s training and high salaries also negatively influence the income of the company as, according to experts, the increase of salary can result in higher employees’ performance but only n shot-tern perspective. Thus, it is essential for the company to look for another methods to stimulate and keep personnel. In mid of 2014 in order to meet these heavy costs the company needed to increase the price of its beverages with 11 cents these were already premium prices for Starbucks products. But on the other hand company was not in position to cut down the incentives that it provides to workforce because that action can lead a major decrease in their morale. Starbucks still keeps its high expansion policy as everyday it is adding 5 new stores in its portfolio with 200 new employees. So the challenges for Starbucks are not changed as they were at the start of 21st century (SBUX, Daily Finance) Comparison Between Starbucks And Tunnel Restaurant & Coffee Shop I will make the comparison of Starbucks with an Iran based coffee provider named Tunnel Restaurants & Coffee Shop. This is a big chain of Coffee shops and restaurants with 15,000 employees in Iran. The chain network of the company is spread across Iran with 724 stores. If we compare the three HR dimensional model of this restaurant with Starbucks; the reward system in Tunnel restaurant is not based on performance of the workers they have fixed reward system and annual bonuses that are aligned with religious festivals. While Starbucks has performance based reward system discussed above. They lack the business knowledge due to the non existence of capital based business. Employee development also not that much efficient as they still based on traditional views and take human resource as business costs. Employee selection process is much better and we can say too much extant same like Starbucks they have policy to hire the people from the area where they operate their store (ChefMoz Dining Guide, Tunnel Restaurant & Coffee Shop, 2009). Issues Identified In Starbucks Policies Most of the workforce of Starbucks is below the 20 years of age and the incentives that Starbucks is providing are more focused on health facilities that include medical, vision and dental care facilities and also Stock options for employees. The numbers of monetary awards that are being offered to employees are very few include semi-annual raises and wage rates based on per hour working. Although the focus of the Starbucks is more on providing the third place atmosphere but still the turnover rate of employees is very high and one of the big reasons behind it is the exchange of managers in store whenever upper management wants so it has very bad impacts on the partners. Another issue that company is facing in this area is that although the focus of the company is equal on direct labors and high margin products but the performance of some stores is not satisfactory in this segment. Recommendation Although Starbucks is one of those few multinationals corporations that have strong commitment towards their people but after this analysis, we can make many recommendations to the company to do in near future in order to increase their performance; while designing the incentive package for the employees company should also consider the age factor of them and offer benefits according to their needs. The number of monetary awards should also be increased with non-monetary benefits as it is argued that monetary benefits motivate faster and have long term effects on employees. Increasing salaries do not bring long-term positive results and negatively influence company’s revenue. Thus, the human resource management politics of the company should be more flexible. The exchange of managing level staff should not be frequent and the audit should be done carefully. Conclusion Starbucks is one of the biggest multinational coffee companies in the world, it has a large employee base and the tactic, which is managing its employees, is very appreciable, notwithstanding that the need for more work in some areas always remains even in perfect systems. BIBLIOGRAPHY Barnery, Jay B 2004, Sustained competitive advantage and resources of firm. Management jornal, pp 99-120 Boxall, P 1998, ‘‘Achieving competitive advantage through human resource strategy: towards a theory of industry dynamics’’, Human Resource Management Review, pp. 265-288. ChefMoz Dining Guide 2009, Tunnel Restaurant & Coffee Shop Delany and Huselid 1995, HRM impact on organizational performance perceptions. Journal of Management, pp949-969 Delery, Harold Doty 2009, Models of theorizing in strategic human resource management, Academy of Management Journal, pp 802-835. Dyer, Lee &Todd Reeves 2007, Human resource strategies and firm performance, The International Journal of HRM, pp 656-670. 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