Organizational Structure in Starbucks - Case Study Example

ORGANIZATIONAL STRUCTURE: A CASE STUDY ON STARBUCKS Name of Student Course Name of Instructor Name of Institution Location Date Introduction Starbucks is the world’s largest coffeehouse chain. The corporation is aimed at purchasing and roasting whole beans coffees and processing them into high-quality coffee products. Additionally, the company aspires towards processing rich-brewed coffees, blended beverages, Italian-style espresso beverages, premium teas and fresh foods amongst other numerous brands. Since its incorporation in 1971, the organization has worked determinedly and consistently towards inspiring and nurturing the human spirit through efficiently and conveniently producing elevated quality of coffee products, tea products and fresh foods within the United States and internationally. Currently, the organization has extended its operations to more than 80 countries globally summing up to over 24,000 retail stores (Tellijohn, 2012 p10). The achievement of success by Starbucks is attributed by various distinct factors as discussed in the subsequent sections. It is indeed attestable that organizations require determination, persistency and proper corporate strategizing in achievement of corporate goals. Organizational Structure For absolute attainment of corporate goals, organizations require adopting organizational structures that match the expectations of the company, eliminate complexities that might arise and formalize business operations. In ideal manner, organizational structure is perceived to be an organization’s framework and course of actions for managing business operations so as to ensure orderliness in functionality (Nedelko & PotočAn, 2011 p157). On broad basis, centralization and decentralization are the two models applied in structuring organizations. Centralized business structure identifies one senior individual within the enterprise who is obliged with making business decisions and communicating them to the juniors. The decisions made by the senior are beyond question and must be implemented (Chen and Huang 2007 pp. 111). The practicality of centralization remains definite especially in small and medium enterprises. Decentralization however looks into the far-ranging view in management and decision making processes (Nedelko & PotočAn 2011, p. 156). In decentralization numerous individuals are responsible for decision making processes and operation of the organization. Individuals at various levels of management have some autonomy to make decisions on problems affecting their operations. Starbucks for instance, is an intercontinental company with numerous outlets across the globe hence its decentralized to hone management (Meyer n.d). In building its global momentum, Starbucks has adopted four distinct management structures namely Functional Structure, Geographical Divisions, Product-based Divisions and Teams to foster its management and growth pace (Nahm, Vonderembse & Koufteros 2003, p. 302). The functional Structure takes into consideration the various business factions of the corporation which are classified into departments such as Human Resource Department, Marketing Department and Finance Department. Each department is assigned duties with respect to its functionalities and decisions made by one department are independent of the ones made by another. It also dictates the hierarchy of Starbuck’s organizational structure. Geographical Divisions subdivides the market into regions with each region assigned a management team diminishing perplexity in complexity (Sablynski 2012, n.d). Currently, Starbucks Corporation has classified its market into three major regions, with each region headed by senior vice president (Tellijohn, 2012 p.10). Each block is further subdivided into minor subdivisions. All Starbuck managers reports to the regional head and the functional head. The company has various Product-based Divisions consisting of coffee and allied products, baked merchandises and commodities divisions. Such divisions permit the company to easily concentrate on specific product lines thereby enhancing research, innovation and development. Finally, Starbucks uses teams at its low levels especially in Starbuck cafes to ensure perfect interaction with customers (Meyer n.d). Each of the over 24000 outlets has been assigned a team to overlook on the efficient operation of the retails. The decentralized organizational structure model in unison with the four management structures developed by Starbucks Coffee Company has indeed propelled the company towards realization of its eminent goals. Organizations must endeavor formalizing and adopting organization structure models that respond utterly to the organizational needs and expectations and enhance strategic global expansion (Acosta & Febles 2010, p. 44). Characteristics of Starbucks organization structure using Mintzberg Theorem Starbucks Coffee Company adopted decentralized organizational structure because of various distinctive reasons. By 2007, the company began to grow rapidly hence there was need for the company to shift concentration from customer to strategic global expansion. To attain the global expansion goal, the company had to re-strategize on management structure and adopt a wide-range management structure that is not just based in the United States’ headquarter but is situated in almost all parts of the globe with the goal of internationalizing the company and concurrently increasing the customer base (Tellijohn 2012, n.d). The high competition at the global market compelled Starbucks to devise unique management strategies that are permissible by the market and global standards. The current structure adopted by the company is also attributable to the significant decline in sales in 2007. Therefore, for the company to stabilize there was need to determine loopholes and analyze them accordingly of which the resultant solution was to reengineer management strategies and widen the management scope (Khan 2016, p. 136). The reengineering brought forth the four management structures, that is, functional structure, geographical divisions, product-based divisions and teams as applied in Starbucks. The four management structures are assisting the company a great deal in global expansion of the company as well as increasing the customer base. Henry Mintzberg developed a five part model that is ideal in analyzing and understanding organizational structures. Mintzberg purports that organizations are made up of five major parts consisting of operating core, strategic apex, middle-line managers, techno-structure and support staff. He asserts that the operating core constitutes of individuals whose primary work is directly related to production of commodities. He affirms that strategic apex consists of persons whose obligation is ensuring that the mission of the organization is achieved in the most effective manner and the needs of people owners as well as employees are met appropriately (Lunenburg 2012, p. 1-7). Further, Mintzberg deduces that middle-line managers through formal authorities have the obligation of linking operation core with strategic apex so as to ensure that the decisions made by the apex are directly and completely implicated in the production procedures (Suman 2013, p.124). With reference to Starbucks, it can be presumed that the operating core are the professionals who are directly involved in coffee processing, merchandise manufacturing and food preparing. In Starbucks, strategic apex constitutes of the President, Vice Presidents and senior managers whose responsibility is to make long term centralized strategic decisions that shall push the company to greater heights. Further, middle-line managers can be determined as the junior managers of the company such as sub-regional managers whose responsibility is to balkanize the company products and distribute them to distinct customer points (Roby 2011, n.d). Techno-structures in Starbucks are the supervisors within Starbuck retail points whose duty is to oversee the activities undertaken within the retail and direct accordingly and ensure product and service standardization. Support staffs in Starbuck are the people specializing in activities outside the organization’s work flow such as security officers and sanitary specialists enhancing collaboration within and without the organization (Geereddy 2014, n.d). Mintzberg in his explanation of Mintzberg theorem asserts that there are five generic organizational structures, also known as five-part theory, that an organization can adopt. He identifies simple structure, Machine bureaucracy, professional bureaucracy, divisionalized form and adhocracy as the constituents of the five-part theory. Simple structure is characterized by hardly any techno-structure, few support staff, minimal product differentiation, minimal labor division and lack or minimal formalized planning and training. Machine bureaucracy is typified by high specialization of tasks and routines, operation core with highly formalized procedures, an expanded management hierarchy and higher operating levels amongst other factors (Eisenhardt & Graebner 2007, p.27) Machine bureaucracy is essentially found in mature organizations who value standardization and voluminous production. Professional bureaucracy is exemplified by its standardized skills attached with parameters such as training and indoctrination, highly professional specialized staff and highly and professionally coordinated work (Sitar & Rozman, 2016 p374). The difference between machine bureaucracy and professional bureaucracy is the source of their standards. Machine bureaucracy creates its own standards as professional bureaucracy adopts the standards outside its own structure. Divisionalised form constitutes of semi-autonomous units which when conglomerated together forms a derivative of machine bureaucracy. It assists the organization achieve its mission by segregating duties in smaller portions identified as divisions. A divisionalised form is never an independent structure as it is superimposed on other structures (Tran and Tian 2013, p. 14). Adhocracy is the most highly organic structure. It is characterized by formalized behavior, highly specialized job with formal training, reliance of liaison with other organizations to enhance mutual adjustment. Adhocracy highly utilizes research, innovation and development in ensuring perfect product differentiation and boosting company growth. Starbucks Corporation utilizes machine bureaucracy and divisionalised form in ensuring efficient management of the organization. Organizational Structure vs. Achievement of Corporate Goals The corporate decision made by Starbucks to adopt machine bureaucracy and divisionalised form in its hierarchical management was indeed an immense and remarkable step towards globalization of the company and ensuring customer satisfaction (Geereddy 2014, n.d). The company structure has undeniably influenced management, communication and leadership amongst other factors that are ideal to business success. Starbucks Corporation has evolved to become one of the worlds beverage company that solemnly address consumer needs and thereby matching the contemporary business needs (Meyer n.d). Starbuck Corporations is indeed susceptible to success since its organizational structure grows with the business enhancing chances of optimization of products quality and concentrate in its end focus mission. The organization structure has assisted the company to formally organize its workforce enhancing specialization. With specialization, employees are assigned duties which they are highly skilled at and are interested to perform to the best of their abilities (Lee, Kozlenkova & Palmatier 2015, p.87). As a result, the products such as cold coffee, merchandise and other foods are usually of high quality as rated by customers. The coffee company persists to conquer coffee industry in the global market thanks to divisionalised form as the means. By creating the three major geographical market sections, Starbucks have been in a position to supply products and distribute their services to the most remote areas that other coffee companies have not penetrated in. The structure has in addition assisted the organization guaranteeing formalized communication in which employees can easily and efficiently communicate with their fellows on various operations undertaken within the business (Auer & AntončIč 2011, p.598). The company’s move to create multiple websites on the internet has as well assisted in formal communication between the enterprise and the customers. With such websites, information reaches the intended clients in a most efficient manner eliminating barriers and ensuring clients’ feedback as well. Finally, the company has a well-defined chain of command courtesy of its organizational structure which assists the company a great deal in decision making processes and problem resolution (Burkitt 2010, n.d). The chain of command assigns the employees authority and stipulates clearly the channel for reporting and who to report to with respect to the authority of the reporting person. The structure ensures that the juniors report to their respective seniors hence ensuring coordinated work. The chain of command also assists in responding to problems and conflicts whenever they arise ensuring a healthy and harmonized working environment (Acosta & Febles 2010, p.61). Four Approaches to Organizational Effectiveness It is undisputedly healthy for organizations to occasionally appraise themselves so as to determine the effectiveness of its operation and legibility to remain in business at an arm’s length. Organizational effectiveness can be perfectly analyzed using the four approaches to organizational effectiveness model. Effective evaluation shall assist the company determine SWOT abilities and hindrances and adjust proportionately towards deriving solutions to corporate problems and challenges (Nahm, Vonderembse & Koufteros 2003, p.183). The four approaches to organizational effectiveness consist of goal attainment approach, system resource approach, internal processing approach and strategic constituencies approach (Chen & Huang 2007, p.107). Goal attainment approach as a mechanistic view of organizations assumes that organizations are well planned, logical and result oriented entities and that organizations work industriously towards achievement of pre-determined goal. It only takes into consideration the output side of an organization as input side remains blurred. It assumes that the expected output is already known and organizations are always aimed towards achieving them hence profit maximization and efficiency amplification forms the primary part of the approach (Tran & Tian 2013, n.d). Starbucks Corporations utilizes this approach in boosting their annual sales. With respect to the sales of previous year, the organization ever endeavors to ensure that the sales of the current year are aloof. System resource approach perceives an organization as an entity made of sub systems which form one whole. It asserts that an organization require to acquire materials as input, transform them through processing to produce a complete product as an output to be utilized by consumers. This approach emphasizes that the quality of the raw materials used in the production process must be taken into consideration for quality output to be realized. Each and every part of the system must function efficiently for the good of the whole system (Sablynski 2012, n.d). Dysfunction of one sub-system shall completely impinge on the whole system, this is why Starbuck emphasizes of job specialization so that each unit of the production process is perfected so as to gain the anticipated outcome. Internal-process approach looks at the internal factors of the organization. It emphasizes that organizations can only be considered effective if only internal factors such as employees’ commitment, coordination and staff commitment are looked into. Strategies constituencies approach asserts that effective organization is one that satisfies the needs and demands of people within and around its environment from whom it needs support for survival (Khan 2016, p.143). They might include the employees as well as the external community. A well organized institution like Starbucks considers these approaches primary in ensuring effectiveness. Challenges at Starbucks and Recommendations An organization is just but a conglomeration of persistent problems that require critical analysis and long term problem solution strategies. Starbuck Corporation cannot manage to deviate from this definition. The current major challenge to Starbuck is dealing with its engulfing financial crisis which threatens to have some of its outlets closed down. Additionally, Starbuck is under the challenge of stiff competition. Numerous coffee companies such as are Dunkin Donuts, McDonald's and Nestle are emanating which is resulting into dwindling performance of Starbucks products in the global market (Eisenhardt & Graebner 2007,p.27). Further, the pricing of coffee products at Starbuck has remained a challenge as the products are overpriced in comparison with their competitors’ prices. They purchase high quality coffee beans which replicate to premium prices of their products. Moreover, in determining the current situation at Starbucks, it is prudent to carry out a number of analyses. In Using PESTLE criterion, it can be perceived that under political environment, Starbucks is adversely affected by tax policies and international trade regulations and trade tariffs (Roby 2011, n.d). High taxes are levied on Coffee products and the company spends much in exporting their products. In result, the products become highly priced making it difficult to penetrate the market. Factors such as interest rates and economic growth greatly affect the Company’s economic status. High interests would mean that the company has to shun away from expansion and globalization strategies as negative economic growth would lower the number of customers resulting into low financial returns at Starbucks (Lee, Kozlenkova & Palmatier 2015, p.76). Geographical demography in indeed a vital factor to consider in social environment as it dictates the size of the population that the company is targeting. The company should thereafter undertake product advertisements and campaigns in the determined areas (Tellijohn 2012,p.3). Technologically, the company is not worse off since it considers IT development and mechanized production as its first priority. The company’s first website was designed in 1998 and thereafter it has managed to create numerous of them. Starbucks have done much to ensure that their products are environmental friendly. However, it has been noted that Starbucks’ customers dispose of the waste inappropriately resulting into pollution. The company should look into materials used in making coffee cups (Geereddy 2014, n.d). Finally, it is notable that Starbucks is mostly affected by the trade laws of the countries in which it does business. Each country has unique legal laws which govern businesses activities which at times are adverse to Starbucks (Roby 2011, n.d). As a response to these emanating challenges, Starbucks should widen the scope of its marketing strategy by investing in advertisements and availing the products in supermarkets and retail shops to ensure product accessibility. Additionally, the organization should focus on its ideal values that made it great and shun away from excessive globalization obsessions. The company should consider reducing the span of its management outlay by closing down some branches and repatriate the non-performing staff (Sitar & Rozman 2016, p.374-377). Conclusion Business organizational structure is indeed a prime factor that determines an organization’s ability to coexist in the world of stiff competition. Organizations must always endeavor determining and implementing organizational structures that best fit their underlying situations. The size of the organization should dictate the type of structure to adopt whether centralized structure or decentralized structure. Small enterprises should remain centralized as medium and large organizations adopt decentralized structures. Further, organizations must ever perform occasional analysis to determine whether the adopted structure fits the organization using Mintzberg’s five part model. Furthermore, it is worth evaluating the effectiveness of an organization which is best analyzed using four approaches to organizational effectiveness model. Having understood an organization’s structure and its effectiveness, it becomes easier realizing the challenges, weaknesses and threats affecting it and responding to them effectively. References Acosta, Z., & Febles, J. (2010). The Organizacional Management as Instrument to Overcome the Resistance to the Innovative Process: An Application in the Canary Company. International Journal of Human Capital and Information Technology Professionals. 1, 49-64. Auer, J., & AntončIč, B. (2011). Employee satisfaction, intrapreneurship and firm growth: a model. Industrial Management + Data Systems. 111, 589-607. Burkitt, L., 2010. Starbucks to Open China Coffee Farm, Securing Global Supply-WSJ. com. Business News & Financial News-The Wall Street Journal-WSJ. com, 10. Chen, C.J. and Huang, J.W., 2007. 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