How Change Management Theories can be Utilize when Planning for Incremental Change - Essay Example

Introduction Having an effective manager is the main key towards a successful business. To become a competitive manager, change management has been considered one of the best management skills that each manager should posses. Because of the strong need to meet the business management demands associated with the continuously changing global markets, managers are being challenged to enhance their leadership and management skills when implementing organizational change. Starbucks is one of the world’s biggest and most successful retailers of coffee. Because of the business environmental changes that took place in the United States, Schultz publicly announced the need to implement a massive lay-off back in 2008 (Schultz, 2008). The main purpose of this study is to critically appraise how change management theories can be utilize when planning for incremental change. To give the readers a better idea about organizational change management theories, the literature review will first tackle significant issues concerning the theories of change management followed by identifying the significant organizational change theories that are applicable to the case of Starbucks. After applying, analyzing and reflecting on several commonly use change management theories related to people, culture, and processes, this study will provide evidences that will help us conclude whether or not Starbucks as a whole was able to successfully implement its restructuring plan. Literature Review Starbucks in U.S. It is essential to know about Starbuck’s organizational structure before one can effectively examine how change management theories can be applied in the case of Starbucks when planning for an important incremental change. Since the use of a functional structure could make the company’s response to market and environmental change in a very slow phase (Daft, 2009: 104), Starbucks is using a combined centralized and decentralized form of authority when managing organizational change. Starbucks combined using centralized and decentralized form of authority in the sense that the company’s major decision-making power is highly controlled by Schultz. To ensure the quality service rendered by each of Starbuck’s baristas to its valued customers, a regional manager is usually assigned to manage the company’s store managers who are in-charge of managing the work quality and training of each Barista (Berfield, 2009). (See Appendix I – Starbuck’s Organizational Chart on page ) Because of the slow growth in U.S. economy, sales of traditional coffee beverages and other related equipments were insufficient in maintaining the high operating income the company used to earn back when the U.S. economy was strong. Based on the U.S. market alone, the quarterly profit of Starbucks declined from $310.9 million down to $193.9 million during the 1st and 2nd quarter of 2008 (MSN Money, 2008). (See Appendix II – Summary of Starbucks’ Financial Performance between 2006 to 2008 on page ) Because of the continuous changes in the U.S. market, the CEO of Starbucks – Mr. Schultz exerted extra effort to communicate to the general public about its effort to improve its business performance particularly in the United States where the unemployment rate remains high and demand for retailed coffee is low. In order to win back the trust of its valued customers and maximize the ability of Starbucks to gain more revenues, Schuartz talks about the need to develop and implement new business strategies that could make the company optimize the use of its available resources effectively (Schultz, 2008). In response to the declining coffee demands in the U.S. market, Schultz reported the need to make the company undergo restructuring. Part of this plan was to lay-off a total of 600 baristas all over the United States (Schultz, 2008). Following the massive lay-offs were the closing of some of Starbuck’s underperforming store outlets in the United States (Berfield, 2009; Swain, 2011). As stated by Schultz (2008), “the elimination of existing positions and open headcount, as well as the reduction of our current workforce… …is necessary to strengthen our focus on the customer in our U.S. field operations”. Aside from the need to cut-down the number of Starbuck’s existing business partner, Schultz (2008) also mentioned the need to implement a transition from having only two (2) divisions to four (4) major divisions in the U.S. market: (1) Western/Pacific; (2) Northwest/Mountain; (3) Southwest/Plains; and (4) Northeast/Atlantic. By adding two (2) more divisions in the U.S. market, Schultz (2008) strongly believe that the implementation of the said organizational change could help them “create more capacity for their field teams aside from making the company be able to align their leaders more closer to their customers and business partners”. In general, building a better relationship with Starbuck’s employees, customers and business partners is one way to make the implementation of any organizational change plan successful. With this in mind, it is clear that Starbucks is aiming at being able to establish and implement a customer-centric field support structure that could help the company maintain a better brand equity and more business opportunity as compared to its domestic and global competitors (Schultz, 2008). As a result, the company managed to increase its net income by up to 34% as of July 28, 2011 (Skidmore, 2011). Critique on Machiavellian Analysis of Organizational Change After reading the comparison made by McGuire and Hutchings (2006) between Machiavelli’s determinants of an organizational change with the ideas of other philosophers, I find it difficult to agree with the idea that “people are inherently unchanging and essentially similar” (Plamenatz & Wokler, 1992). In fact, each person is totally different from another and that change is the only thing that is constant in this world. For instance: When a manager practices good leadership, it is more likely that he could convince his subordinates to support the implementation of change. If a manager does not have the qualities of a good leader, the implementation of change is more likely to fail. Since people are constantly changing, managers should posses good leadership skill to effectively manage organizational change. Assessing the Application of Change Management Theories in the Case of Starbucks Impact of Organizational Restructuring Towards the Business Growth of Starbucks Restructuring is the term commonly used to refer to the process of business reorganization. It also represents a huge change with regards to the organizational structure of a business organization (Bartol & Martin, 1998: 779). In some cases, restructuring could simply pertain to the act of increasing or decreasing the existing departments or number of employees. According to Cummings and Worley (2009: 315), the process of reorganizing and/or restructuring a company’s functional activities through massive lay-offs can be beneficial on the part of the business organization since downsizing the number of its existing employees could effectively and immediately reduce the company’s daily operational cost. Aside from the need to implement a restructuring plan in response to technological change (Bolman & Deal, 2008), the use of this particular business strategy could also help in removing unproductive employees from the workforce. Several authors revealed that the process of implementing organizational downsizing plan could permanently reduce the number of employees within a business organization (Budros, 1999; McKinley et al., 1995; Mishra & Mishra, 1994). By removing work redundancies in the work place, several authors explained that the company will not only be able to maximize the role and responsibility of its employees but also help in saving a large portion of its unnecessary operational expenses (Koretz, 1997; McKinley et al., 1995; Bryne, 1994). It means that cutting down the operational cost by reducing the size of the workforce could increase the profitability of the company. Contrary to the expected result of implementing a massive lay-off, De Meuse et al. (2006) revealed that the long-term financial performance of Starbucks could worsen right after releasing the news to the employees. Furthermore, other possible long-term negative effects of this strategy includes: slow growth on dividend, reduced profitability, increase in absenteeism, tardiness and employee turnover, decreased in employees’ moral and work satisfaction, and a possible increase in employees’ health problems and stress due to a sudden incerase in employee workloads among others (Bergmann et al., 2004; Mishra & Spreitzer, 1998; Pfeffer, 1998; Reich, 1993; Noer, 1993; Gambola & Tsetsekos, 1992; Worrell et al., 1991). Despite the negative remarks with regards to the implementation of a massive lay-off, Starbucks was able to successfully gain benefit out of the long-term consequences associated with its successful implemention of Schultz’s proposed plan. This was probably due to the company’s ability to develop and keep with the new organizational prior to the implementation of a massive lay-offs. By effectively communicating the strong need to implement the said organizational change, it was easier on the part of Starbucks’ business partners to accept what the company needs to survive. Maintaining a good quality of customer-service is essential part of Starbuck’s business success. It is also undeniable that the company’s organizational structure plays an important role towards the company’s success in the U.S. market. Upon analyzing the proposed change as mentioned by Schultz, it becomes the duty and responsibility of the regional and store managers to work together towards communicating the massive lay-off and restructuring plan to the baristas in such a way that these people will not take the implementation of the said plan personally. In line with this, the Store Managers were assigned not only to look after the quality service but also overall work performance of each barista/partner. On the other hand, it was the Regional Managers who act as an integrator between the top management and Store Managers in each store outlet. According to Cameron and Green (2009:5), in order to achieve a successful organizational change management, managers should first be able to effectively manage not only the possible emotional barriers that can impede the processes of change implementation but also effectively convince and influence the rest of the company’s stakeholders (i.e. employees, investors, customers) to support the implementation of a proposed organizational change. Specifically the mission statement of Starbucks clearly emphasizes the importance of “providing a great working environment and treat each other with respect and dignity” became an important factor behind the success of Starbucks in the U.S. market (Kembell et al., 2002). Since each of the regional and store managers were trained to build a strong and healthy relationship with each of the barista, it was easier and more effective on the part of these managers to carefully talk with them about Schultz’s major plan back in 2008. Out of respect and dignity wherein Starbucks’ employees were trained to practice, it was less emotional on the part of Starbucks’ baristas to accept their qualifications for a lay-off. Cameron and Green (2009: 65) explained that the secret behind a successful implementation of organizational change is a strong teamwork. Since the process of implementing a significant organizational change requires an effective handling of manpower, several authors strongly suggest the idea that becoming more familiar with the different leadership techniques becomes essential in the study of organizational change management (Cameron & Green, 2009: 82-83; Burke, 2002: 240 - 241). In the case of Starbucks, its potential and existing regional and store managers are given the opportunity to receive proper training on leadership and other related technical skills from a leadership perspective (Starbucks Coffee Company - Ireland, 2011). This explains why Starbucks’ regional and store managers are capable and highly qualified to effectively manage internal conflicts which may arise out of resistance-to-change. In any business organization, anyone can be appointed as a manager. However, it is sad to admit that not all managers can be a good leader. According to Cox (2010), a good leadership skill is the key behind a successful organizational change. In line with this, leaders can easily become effective managers but it is not quite possible for all managers to be good leaders. Since not all managers have good leadership skills, the implementation of a successful organizational change can be at risk of failure. It is a common mistake for some people to stay focus on identifying the best leadership approach when implementing a newly proposed organizational change. Although the use of effective leadership style could enable managers to easily win the trust of other people to support the plan, staying focused on the importance of leadership theory in organizational change does not always promise a 100% successful organizational change. Leadership theories are only one part of the entire organizational change theories. In fact, Kotler clearly stated that “…a successful organizational change is all about 70 – 90% leadership and 10 – 30% management” (Chang & Chan, 2001, p. 616). For this reason, the regional and store managers of Starbucks should also consider the significance of culture and technological and non-technological processes when implementing the proposed organizational change (Cameron & Green, 2009: 259, 196). For instance: Starbucks was able to manage building its corporate culture which makes its local and international managers and baristas believe that they are an important part of the company’s business success (Kempbell et al., 2002). With regards to technological and non-technological processes, the company makes it a point that the top-management is able to invest some money in the trainings programmes given to its employees. Specifically the business success of Starbucks can be noted based on Kotler’s eight (8) steps towards leading a successful organizational change which includes: the need to create urgency, the need to form a powerful coalition, the importance of creating vision for change, communicate the said vision, remove possible obstacles that could hinder the success of implementing a given organizational change, the need to create a short-term wins, significance of building on change, and the need to anchor the proposed organizational change in corporate culture (Naughtin, n.d.). For Starbucks’ business survival back in 2008, Schultz wholeheartedly wrote and published a letter which sincerely expresses the company’s need to immediately implement the said restructuring plan (Schultz, 2008). In order to create a sense of urgency, Schultz has been transparent in publicly reporting its declining profit to the public. Basically, the continuous negative news report about the company’s declining profit served as concrete evidences as to why Starbucks management were left with no other choice but to publicly announce or communicate its plan for an immediate restructuring. In case Starbucks management did not create a sense of urgency about the need to implement a massive lay-off, it could have been more difficult on the part of Schultz to control not only the unnecessary operational expenses which has triggered them out of its continuous business expansion since the early 1990s. Furthermore, in the absence of Schultz’s decision to expand its two (2) main divisions into four (4) major divisions in the U.S. market, it could be more difficult on the part of its top management to control and immediately act upon violent reactions which may arise out of its laid-off employees. In general, the main purpose of developing a clear vision is to allow Starbucks’ regional and store manager to have a unified sense of direction as to where implementing the said restructuring plan should lead them. In line with this, the vision behind Schultz’s proposed organizational change was to cut down on unnecessary daily operational costs which definitely include some of its underperforming stores and employees within the vicinity of the U.S. market (Berfield, 2009). Since the company’s regional and store managers were made clear that the new organizational vision was to protect the profitability of the company by removing all underperforming store outlets in the U.S. market, these people are somehow being made responsible to search for new strategies on how they can further improve the daily operational performances of each store outlet. Furthermore, the use of this new vision could also help the regional and store managers motivate Starbuck’s baristas to deliver a better service quality to its customers. Because of the significant decline in the business profitability of Starbucks within the U.S. market back in 2008, the company decided to come up with new products that can help the company earn more profit during its off-peak hours. In line with this, the company started promoting the importance of maintaining and living a healthy lifestyle by offering its valued customers a light lunch option which includes organic-made foods like fresh salad and parfaits among others (Lang, 2008; Harris, 2007; The Queens Gazette, 2007). By training Starbucks’ baristas on how to prepare and preserve the freshness of these organic foods, the company was able to sell these food items at a premium price. The target markets of Starbucks for its light lunch option are its existing and loyal customers who are capable of spending a premium price for a healthy food. Through the use of Starbucks’ well-established network throughout the entire U.S. market, it was easier on the part of its regional managers, store managers, and baristas to work together towards the implementation of the said project plan. Upon reflecting on the case of Starbucks, it makes sense that Schultz was somehow able to develop an effective and self-motivating strategy to could push its employees within each of the store level to perform better. Instead of focusing on obstacles that may impede the success rate of its organizational change, determination of Starbucks’ regional managers, store managers, and baristas to support the change resulted to a positive change in the company’s profitability. Conclusion Although the implementation of a massive lay-off could often result to the worsening of a company’s profitability, this study confirms that Starbucks has been successful in implementing Schultz’s decision to implement an immediate restructuring back in 2008. Through the use of the change management theories, it is clear that Starbuck’s success in dealing with resistance-to-change is not solely dependent on having a strong and effective leadership skill. As from the importance of two-way communication between the top-down management, it is equally important on the part of Schultz to develop a new vision that could direct and lead its regional and store managers to work with the baristas toward a single organizational goal. In general, there is no fix rule when it comes to the implementation of an organizational change. Therefore, business leaders should closely monitor the potential sources of long-term business problems. By immediately developing new business strategies in response to internal and/or external threats, organizational leaders and managers will be able to work together towards a single organizational goal. *** End *** Appendix I – Starbuck’s Organizational Chart Appendix II – Summary of Starbucks’ Financial Performance between 2006 to 2008 2008 2007 2006 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr Number of Total Stores in U.S. 11,434 11,168 10,684 10,295 9,814 9.401 8,896 8,402 Number of Newly Opened Stores in U.S. 266 484 389 481 413 505 494 398 Operating Expenses 1.74 B 1.81 B 1.63 B 1.58 B 1.52 B 1.53 B 1.39 B 1.33 B U.S. Total Net Revenue 1.63 B 1.72 B 1.79 B 1.64 B 1.78 B 1.85 B 1.62 B 1.38 B Foodservice & Other Revenue 95.7 M 98.0 M 89.5 M 83.8 M 89.3 M 86.3 M 78.2 M 78.9 M Operating Income 193.9 M 210.9 M 224.5 M 253.2 M 267.6 M 325.1 M 246.4 M 225.3 M Net Earnings per Share $0.15 $0.28 $0.21 $0.21 $0.19 $0.26 $0.15 $0.18 Source: Starbucks – Financial Releases, 2008 References Bartol, K., & Martin, D. 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