Balancing Culture and Growth at Starbucks Case Study

March 13, 2011

HRMG 6200
Organizations in the New Economy
Northeastern University












From the time that Starbucks opened its first store, it followed the differentiation strategy of creating a third
place between home and work. The third place, as defined by Shultz, is an experience that offers a cozy,
intimate atmosphere, for customers to purchase authentic and high quality coffee in a place where people feel
comfort, safety, as though they belong
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. Each store facilitated customers to socialize, read, study or enjoy
music while drinking coffee. Starbuck strategically positioned each store with hopes of matching the specific
location, helping to create a unique atmosphere. Shultz stated goal was to create a robust culture that would
prove to be a partnership between employees and customers.

In part, the text defines values as deeply held beliefs concerning such fundamental matters as the nature of
people and relationships, the relative importance of multiple stakeholders. By effectively infusing his values of
the third place into the company, Shultz along with the other leaders in the company shaped the managerial
practices and organizational design of Starbucks. Their shared values fostered patterns of behavior that enabled
Starbucks to create its third place strategy. Schultz stated, Were profitable because of the value system of
our company. American companies have failed to realize that theres tremendous value in inspiring people to
share a common purpose of self esteem, self respect and appreciation
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. Starbucks'value system enabled them
to maintain their third place strategy as it focused on the employees, customers and stockholders. Their value
structures encouraged an atmosphere and culture where the customer experience was paramount on all
sensory levels. While coffee is the vital element, the design of every store is crated to make people more
comfortable and to enjoy their experience. The Starbucks coffee experience can be summed up as great coffee,
in a comfortable surroundings, served by an attentive staff. Starbucks ability to maintain the third place
strategy was its competitive edge, setting it vastly apart from other coffee houses, launching its successful
growth as more and more customers continued to be drawn to the unique and catered experience and
environment a Starbucks culture had to offer them.

Starbucks culture can be defined as robust, where the values are widely and deeply shared and thus bring
cohesiveness and commitment. But it is equally important that the culture be adaptive to remain competitive in
a dynamic environment. Adaptive cultures embrace, encourage and enable change. Seven sets of values are
used to measure the adaptiveness of an organizations culture.

1) Valuing Multiple Shareholders To remain adaptive, a company must avoid emphasizing a single
stakeholder and address perspectives of multiple stakeholders. By valuing customers, a company is
responsive to external markets and consumer demands. By valuing employees, a company is able to recruit
and retain good employees. And by valuing shareholders, a company will strive to maximize shareholder
value. To prevent cannibalization by other coffee chains, Shultz focused heavily on growth to please his
investors and attain a plausible return on investment. This led to efficiencies of scale and the subsequent
commoditization of the Starbucks experience. Inadvertently, Starbucks had emphasized a single
stakeholder, the stockholder. This led to dilution of the "third place" value proposition to customers and
declines in sales and profits.
2) Valuing the Developmental Potential of Employees An organization must motivate its employees to
change. Shultz management supports Theory Y beliefs. He motivates employees to change their
behaviors in order to act on behalf of the organization
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and he looks to unleash creativity, energy, and
drive among employees
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. An egalitarian viewpoint is also evident in their referral to employees as
partners. The pervasive values at Starbucks have created a self-sealing value loop. Starbucks values are
self-reinforcing with managers fostering an environment where employees behave in ways that confirm
those managers beliefs
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.
3) Valuing Outstanding Performance Effective change implementation would require a companys culture to
demand outstanding performance from its employees and support their efforts. By means of its Partner
View survey, Starbucks is able to identify areas that are out of alignment with its culture and consequently
make adjustments. In an effort to get back to their core business, Shultz simultaneously closed all U.S.
stores for a three hour in-store training session. If performance goals are set high, employees will work to
meet and then succeed them.
4) Valuing Employee Participation When employees participate in the identification of a problem as well as
the design of a solution, they will be more motivated to achieve the new goals.
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. Employee participation is
highly valued at Starbucks. During the three hour training session, the employees were invited to influence
decisions surrounding the future of the Starbucks experience. At the meeting, employees talked about
new approaches to improve taste and texture and to improve the customers experience
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. Showing how
much employee participation was valued, one manager stated, Its really inspiring to talk about the quality
of our espresso when were here all in the same room
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. Employees are able to provide this vital
knowledge as they are close to the customers and are directly involved in work processes.
5) Valuing Learning Learning is defined as the process by which individuals receive and analyze data and
then change their thinking and behavior accordingly. Starbucks culture nurtures learning. This was evident
during the three hour training session where employees were encouraged to share new ways of doing
things and better ways to serve the customers.
6) Valuing Diversity When diversity is present in an organization, the opportunities for creativity are
increased as diversity encourages collaboration among people with different perspectives derived from
varied backgrounds and experiences
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. On their website, Starbucks states, As partners, we embrace
diversity to create a place where each of us can be ourselves. And we always treat each other with respect
and dignity
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. By hiring employees of diverse backgrounds and then soliciting their viewpoints on surveys
and during training sessions, Starbucks is valuing different views and perspectives. They position
themselves to take advantage of new approaches and greater effectiveness.
7) Valuing a Global Mindset A global mindset is vital if a company is to compete effectively in the global
marketplace. Shultz followed a very aggressive growth strategy. From 9 stores in 1987 to over 10,000
stores in 30 countries by 2006, Starbucks became the fastest-growing retail story of all time.

Starbucks third place strategy stems from strong organizational vision and leadership that adheres to a
certain value-based culture, coupled with valued employee participation. Starbucks supports its third place
strategy by conducting cultural audits every 18 months. Employees provide feedback to ensure the culture
remains intact, which allows for tangible changes to be addressed as needed to maintain the Starbucks
experience.

As Starbucks grew, tension between their culture and growth strategy developed. The tension and dissonance
emergent between Starbucks culture and its growth strategy is summed up by Schultzs comment, I want to
grow big and stay small at the same time
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. However, when a company experiences such a quick growth,
keeping the original culture and values become extremely difficult. As a result, Starbucks brand experience
began to change. In order to achieve economies of scale in the large numbers of new franchises, store designs
were streamlined and made more homogenous, giving the effect of a chain store rather than the neighborhood
coffee shop. The huge numbers of new stores necessitated enormous quantities of fresh roasted coffee,
leading Starbucks to switch to vapor-lock packaging, ending the practice of employees scooping out fresh beans
in front of customers and depersonalizing the coffee buying experience. The desire to increase speed of service
led the company to abandon the grinding of beans by the barista, switching instead to automatic bean grinders.
This, again, led to the depersonalization of the coffee-buying experience, as well as removing from each shop
the distinctive scent of freshly-ground coffee that had originally attracted Schultz to Starbucks. The height of
new, faster espresso machines blocked sight lines and prevented customers from interacting with the baristas
and viewing the creation of their beverages, removing the romance of the coffee-buying experience and
depersonalizing it even further. Starbucks was morphing into a place to quickly grab a cup of coffee and take it
back to the office. Many Starbucks locations were in the basement of office buildings with sitting areas. This
made Starbucks no different than the nearest Dunkin Donuts. Furthermore, a drive thru concept, closely
resembling McDonalds further diluted the Starbucks experience that the company was built upon. Without a
unique value proposition of being the third place, many customers will begin to question if a Starbuck cup of
coffee is really worth the premium price.

Starbucks' original value proposition of creating a "third place" of unique customer experience where customers
would feel at home and would want to come back often most certainly got diluted by company's goals for
growth, expansion and product diversification. Starbucks lost sight of its clients and customized service
orientation. As organizational focus shifted toward increasing revenue, this led the company to lose its
foundational culture, the "third place" concept that Starbucks was built on. Starbucks lost its differentiation
factors that separated them from other coffee chains. As a result, once the fastest growing retail store of all
time, Starbucks' sales and stock price began to decline. In order to reverse this trend, Starbucks must return to
the core values and organizational structure that made it such a success.


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