Starbucks strategic management process model

Carmen Hendrickson

Southern New Hampshire University

06/26/2019 ( Revision)

Introduction

Operations management has evolved from a period when it was regarded as industrial/factory management to a modern era where new techniques such as JIT gained momentum (Filippini, 1997). In the traditional approach, the aim of operations management was to maximize the productivity of labor. On the other hand, the modern era brought with it technology which necessitated changes in process design. The following paper analyses the forces that have shaped the operations management in Starbucks coffee in the recent history by focusing on; significant forces, key obstacles and important trends.

Starbucks’ Operations management, significant forces and impact

Operations management in Starbucks has evolved over the years. For example, the company introduced the Coffee and Farmer Equity (CAFE) program 20 years ago to enhance sustainability and establish an ethical framework for the selection and prioritization of suppliers (SCS Global Services, n.d.). There are several other areas where changes were experienced. These areas include; the design of goods and services, the location strategy and the process design (Gregory, 2017). The changes in operations management are associated with significant forces that arise from the internal and the external environment.

The internal forces that have shaped Starbucks’ operations management include; organization structure and organization culture and the employees of the company. On the other hand, external factors include; economic policies, competition, government laws and regulations, natural disasters, suppliers and customers.

Internally, employees affect the implementation of operations management since they are tasked with executing the day-to-day operations. By the end of September last year (2018), the company had about 291,000 people employed. Out of these, about 100,000 employees worked in support facilities warehousing and distribution operations. Additionally, approximately 183,000 worked in company-operated stores. The relationships with these employees have affected the operations of Starbucks. As a result, the company resulted to a strategy which regards all employees as partners who share in the success of the company.

When it comes to the organizational culture and management structure, Starbucks HR department found the need to integrate the elements of organizational culture to all the aspects of business. Generally, the company’s culture is entrenched on an employees’ -first attitude which makes sure that the interests of employees are prioritized (Gregory, 2017). The management structure also follows the Starbucks organizational structure with both work teams and functional roles. While Baristas operate in work teams, HR and inventory positions are based on a functional framework. One area of the management structure that seems to cause problems in the future is the overdependence on the Americas operating segment. The financial results of 2018 indicated that more than 68% of revenue was drawn from the Americas segment.

Economic forces have the capability to affect the amount of sales that Starbucks can record in a given year. The dependence of the restaurant industry on the consumers’ discretionary spending implies a high price sensitivity. Economic forces such as increases in interest rates or high taxation limit discretionary spending by customers

Starbucks is not a market leader in all the channels and markets where it operates. The high competition in the restaurant industry has also motivated a number of responses. For example, Starbucks’ resulted to using the layout strategy as a source of competitive advantage. To focus on the premium customer, Starbuck’s layout strategy was designed to prioritize premium customer experience over space utilization (Gregory, 2017). Similarly, Starbucks, cafes were located on urban centers to target the middle class, the upper middle class and the upper class.

Government laws and regulations affect the operations of Starbucks in a number of ways. For example, the implementation of a minimum wage increased the labor costs incurred by Starbucks. Such changes have significant repercussions given that the retail business is usually associated with high labor costs. Secondly, food and safety regulations have the capability to halt the operations of Starbucks. In order to ensure that the company adheres to food quality standards, Starbucks’ management decided to source coffee beans from a defined group of farmers who meet the Starbucks quality standards.

Natural disasters, political instability and terrorism can lead to avoidance of public spaces where Starbucks’ cafes are located. The management has limited control over such abrupt events. However, the location of Starbucks’ cafes considers the security and history of natural disasters to avoid future disasters.

Key Obstacles

For Starbucks, a number of obstacles have faced the company management during the evolution of operations management into the modern era. These obstacles are related to; inventory management, maintenance, scheduling, customer relationship management, employee satisfaction, and privacy and web security. The problems emanate from technological implications, cost implications and the wider restaurant market.

For inventory management, the process of enhancing comprehensive Innovation in Starbucks supply hubs was quite expensive. Similarly, the use of lean processes was difficult to implement due to the company’s goal of enhancing supply adequacy. The need to maintain friendly relations with coffee farmers meant that Starbucks had to purchase the Coffee beans when they were ready regardless of the need to maintain minimal inventories. This means that the cost implications of inventory management in the modern era and the implementation of lean operations were key obstacles in Starbucks’ evolution of OM.

In the context of scheduling, the modern era of OM has compelled Starbucks to streamline processes and enhance flexibility among different management processes. This approach to scheduling has its measure of technological and cost implications. On a similar note, the transformation of maintenance function had its share of obstacles. The company’s human capacity training programs that are aimed at maintain competent employees at every level are very expensive (Gregory, 2017). Once trained, the employees are also guaranteed of a higher compensation.

The use of IT databases and other tools of technology in the modern era has created privacy and web security concerns. This problem has affected both employees and customers. The high prevalence of hacking activities in the modern era threatens customer’s data that’s stored in the company’s database. Similarly, interruptions or failure of technology that supports modern OM are key obstacles. They affect a number of functions that include but not limited to; the use of Starbucks Cards, mobile payments, online delivery services and a couple of other interdependent functions (Starbucks Inc, 2018).

Changes to operations management philosophies and organizational structures in response to the evolving complexity of business operations.

Starbucks has adapted organizational processes, vision, mission and a strategic plan to fit the complex nature of modern business operations. For instance, the organizational structure has evolved to matrix format that combines Functional hierarchy, Geographic divisions, Product-based divisions and Teams (Meyer, 2019). In typical Starbucks’ cafes the company maintains work teams of baristas which are blended with functional positions in HRM and inventory management. This organizational structure enhances the coordination and create balance with the organization. For instance, the functional structure enhances functional specialization where employees can become experts in their specific fields. On the other hand, geographical divisions enable the company to manage the various operating segments that are operated. Product based divisions and teams enable the company to create a cohesive culture where teamwork is encouraged.

Starbucks’ vision is “to establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow” (Gregory, 2019). The mission is supported by the company’s initiatives aimed at offering quality coffee. In particular, the approach in which Starbucks seeks quality Arabica coffee from farmers who meet the expected standards is directed towards achieving the company’s mission. Starbucks’ premier design of goods and services was enhanced by introducing servant leadership and a warm friendly culture that ensured that customers got quality services.

On the other hand, Starbucks’ mission statement is “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time” (Gregory, 2019). This mission statement prioritizes customers and the people who work for Starbucks. The layout design of Starbucks’ cafes for instance is used to maximize customer satisfaction over space utilization. The company also invests a lot of resources in training employees. These employees are treated with dignity to ensure that they can stay in the organization.

Starbucks 2018 strategic plan had three pillars. These were; the need to accelerate market growth in the united states and China, using the global coffee alliance to expand the global reach of the brand and making productive steps towards increasing the shareholders returns (Starbucks, 2018). The three pillars communicated the need for Starbucks to increase the scope of its business operations.

The measures of productivity are; average order filling duration, the amount of coffee beans that are processed per unit time and the amount of time it takes to repair equipment (Gregory, 2017). The three measures focus on the productivity of cafes, the roasting plant and maintenance respectively. By improving operations in all the three areas, Starbucks has a higher chance of increasing productivity. On the other hand, Profitability is measured by the company’s return to shareholders in the form of share buybacks and dividends. This can only be achieved if the company receives higher revenues and incurs only a few expenses.

Key trends

The two most important trends that have impacted business operations in the retail coffee industry and the wider restaurant industry are the needs for automation and the desire to keep up with the dynamic technology. On one hand, the need for automation is driven by managerial requirements for better control of the production and improved functionality of the production tools (Sisinni & Tramarin, 2016). On the other hand, modern technology is desired to improve the experience of customers by enhancing information sharing to tailor the goods and services to the needs of customers

In a bid to improve the traditional method of producing soluble coffees, Starbucks launched a modern facility which was fitted with customized process controls and a packaging system. The key motivation for investing in this automated system was to meet the delivery schedules of customers. The company therefore ended its reliance on three co-manufacturers located in Europe, South America and Asia by utilizing a modern production plant that combined the previous functionalities (Labs, 2015). The new facility was located in Augusta, GA where it produced great tasting coffee.

Starbucks has also tried to keep up with changes in technology. For instance, it was one of the first companies to start offering free WIFI to its customers back in 2002 (Foster, 2018). Currently, business decisions, sales and marketing in Starbucks are guided by big data and artificial intelligence (Marr, 2018). For example, in marketing, a targeted and personalized approach is enhanced by the application of management information systems. Starbucks sends personalized offers to customers such as special birthday discounts. Similarly, customers receive customized emails when they haven’t visited Starbucks cafes for a long time to re-engage them. These are built from the customers database that shows their purchase history (Marr, 2018).

The company also introduced a mobile app (Starbucks mobile app) through which customers can engage a virtual barista. Customers can do this by following My Starbucks Barista on the app. Artificial intelligence algorithms enable the customer to place orders using a voice command or messaging via the mobile app (Marr, 2018).

Impact of the trends

Automation of the production process greatly increased the output of Starbuck’s roasting plants. The Augusta facility enabled the company to tap into new technologies that created an automated process. After launching the modern production facility in Georgia at approximately $172 million, Starbucks could produce and package 4,000 metric tons per year of ready-to-brew, water-soluble coffee (Labs, 2015). The facility was later expanded to facilitate the production of more 2000 tons. Secondly, the new facility helped Starbucks to change from instant coffees that were quite old fashioned to produce soluble coffees that changed the way customers felt about instants. The new facility also resulted in the creation of 144 job positions that required technical know-how (Labs, 2015). Starbucks could therefore implement lean processes more easily by combining automation with human touch

On the other hand, the use of artificial intelligence and big data improved the customer experience. In particular, the mobile app and mobile payment options were attributed to 11 percent increase in sales (Foster, 2018). The personalized approach makes customers feel valued by the company which in turn boosts customers’ loyalty. It gives Starbucks a competitive advantage over its competitors who are yet to implement such systems. Secondly, the use of big data and artificial intelligence has enhanced easier coordination of business functions. Artificial intelligence aids automation in roasting plants by maintaining ideal temperatures via intelligent heating. In future, Starbucks should combine artificial intelligence with RFID and cloud technology to enhance easier tracking of inventory (Eukhost, 2018).

References

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Starbucks. (2018). Starbucks Announces Strategic Priorities to Accelerate Growth and Create Long-Term Shareholder Value. Retrieved from https://stories.starbucks.com/press/2018/starbucks-announces-strategic-priorities/