Corporate Change Management – Starbucks Corporate Change Management

Starbucks has undergone previous leadership transitions effectively but none was in a trying moment as the latest. The promotion of Orin Smith to president and CEO in 2000 after Shultz had moved to become Chairman and chief global strategist was for instance during a period when the entity growth was commendable (Starbucks Coffee Company 2010b). Similarly Jim Donald’s ascension to the President and CEO position of the entity was as a result of Orin’s retirement rather than a dismal business performance (Starbucks Coffee Company 2010b). Donald’s replacement with Schultz however occurred at a period when Starbucks’ business faced a break future (Economist 2008). The uniqueness of this transition required an individual with strong leadership skills to avert business failure. This section evaluates how the new leadership managed the challenges they were faced with in transforming the organization.

How Challenges were managed and Outcomes of Change Management

Starbucks Change management was advised on a transformation blueprint recounted in the CEO’s letter to the shareholders in the 2009 annual report. According to the letter, the transformational agenda was to involve (a) business state improvement by offering better training, tools, and products; (b) renewed focus on the economics and efficiency of operations at the store level; (c) rediscovering the emotional attachment with the customers and; (d) realigning the entity to achieve long-term sustainable growth (Starbucks Corporation 2009). Such a change process is in line with the theories advocating for emergent approach to change that realizes the need to develop a vision for change (By 2005). The actions that Starbucks took to manage various challenges presented by the change are considered below.

Challenge of Job Losses

Starbucks first challenge in managing change was dealing with the loss of jobs that would arise following the refocusing of strategy announced by the new CEO. According to the Economist, the entity’s problems were mainly due to its overexpansion in a mature U.S market (2008). To achieve cost efficiency the organization thus had to embark on assessment of its stores and delineate those that would be closed. In January 2009, the entity expressed that it would cut 6,000 jobs with the closure of 300 stores that was planned for the following eight months and a further 700 job losses would be effected in non-store positions (Allison 2009). In 2008 the entity had already began closing 616 underperforming stores in the United States thus leading to potential job losses (Allison 2009). To manage this challenge Starbucks needed to trend carefully to avoid alienating its employees who until then were treated in high regard. The first main event that the new CEO undertook was to announce a renewed attention to customer experience and innovation (Starbucks Coffee Company 2010b). Through such announcement the CEO communicated the new company direction informing various stakeholders of the pending changes thus creating a transformational readiness within the organization (Armenakis & Harris 2002). Secondly on closing the 616 stores the entity showed its moral obligation towards the employees by looking for alternative positions for 70 percent of the workers who had been affected by the closures (Allison 2009).

To achieve a cost saving of $500 million in 2009 as had been announced by the company, more job cuts, in addition to store closures and other cost cutting initiatives were to be implemented (Allison 2009). In the aspect of job cuts, the entity prepared its employees for layoffs through constant communication and role modeling by the leaders. First the entity’s CEO had played a key part as a role model when through his request, the entity’s board cut his Salary to less than $10,000 annually, a drop from the $1.2 million he usually received in preceding years (Allison 2009). Similarly the CEO and other three executives of the entity had not received their 2008 bonuses following the dismal performance of the entity (Allison 2009). Such actions revealed the leaders identification with the harsh uneasy conditions facing the entity’s workforce hence providing a good rating in the aspects of ethic of care; one of the concepts of transformational leadership (Simola, Barling & Turner 2010).

Secondly Starbucks ability to deal with layoff was through extensive communication to potential employees who would become subject to such layoffs. On announcing the planned lay-offs, the CEO of the company in an internal memo reproduced by a Seattle Times article for instance laid down the way the layouts would proceed (Allison 2009). After pointing out the challenges that were facing the company the memo for instance acknowledged the employees for the important role they had played in ensuring the entity returned back to profitability but argued for the importance of continued measures towards cost reduction which would partially be affected through additional layoffs (Allison 2009). The memo gives detailed information into the number of employees and departments to be affected and also proposes a way through which the entity intended to settle those workers who would be affected by the layoffs (Allison 2009). The memo comprised various components that are argued to be vital for change message effectiveness. For instance by giving the factors that had lead to the need for the change; the memo addressed the aspect of discrepancy noting how the organization was not proceeding towards the desired future (Armenakis & Harris 2002). Similarly by elucidating the way employees who were to be laid off were to be treated; the memo satisfied the aspect of personal valence, one of the components of an effective change message (Armenakis & Harris 2002). Finally, the change message for Starbucks had principal support with the CEO and other members of the leadership team being proactive in its implementation. Such principal support is also important for aligning the members towards the desired transformation thus reduce the level of resistance to change (Armenakis & Harris 2002).

The management of job losses by the company in an effective way has led to the transformation of the organization without major adverse incidences. The entity has for instance been able to close 474 stores in the U.S., a market where the company had been noted to have over expanded, without significant conflicts with employee unions and other labor organizations (Starbucks Corporation 2009). The effective management of cost reduction activities for the entity has enabled it save up to $580 million and established a desired long-term cost structure that would ensure the entity’s future growth (Starbucks Corporation 2009). These positive outcomes would not have been achieved were the organization to be faced with conflicts such as with labor unions that would not only lead to the entity incurring huge legal costs but also loss of its image as an ethical employer.

Challenge of Customer Re-acquisition and Retention

A second challenge facing Starbucks was in regard to its customers. According to the Economist customers had opted for cheaper reasonable products from the competitors when the experience they derived from Starbucks was altered (2008). Additionally the competition in the market was becoming more complex with competitors such as McDonalds altering their business strategy to offer services in a similar fashion a Starbucks did (Economist 2008). This competitor change of strategy had eliminated any competitive advantage that Starbucks enjoyed due to differences in service models. With the successful past, the entity’s management had also become complacent limiting the innovation required for maintaining Starbucks as a profitable venture (Starbucks Corporation 2009). The CEO’s letter to the shareholders in the 2009 fiscal year identifies these issues enlightening on the challenges that the transformation process of Starbucks faced (Starbucks Corporation 2009). Earlier, in a letter to the entity’s board; the current CEO Howard Schultz – then as the chairman of the board – had noted that while trying to generate substantial growth and economies of scale they had made “a series of decisions that, in retrospect,… led to the watering down of the Starbucks experience, and what some might call the commoditization of our brand’’ (cited in Pretorius 2009, p. 40). Such aspects meant that the transformation process of bringing back the customers to the entity faced an uphill task requiring improved customer awareness and sustained innovation; core aspects identified by the transformation blueprint developed by the entity (Starbucks Corporation 2009).

With the announcement of renewed focus on customer experience, various actions were undertaken to bring back the appeal and loyalty of the entity’s products. First of these was an improved customer awareness process with the entity’s go-to-market engine that effectuated the marketing activities (Starbucks Corporation 2009). Customer acquisition were further extended to a commitment to constantly improve beverage quality, store condition and the service offered in the entity’s stores (Starbucks Corporation 2009). Higher coffee quality was for instance ensured by the entity’s revamping of its sourcing, roasting and blending procedures; and renewed commitment to espresso excellence thus making sure that customized beverages made at the stores were brewed to meet the taste of individual customers (Starbucks Corporation 2009). Further, to align with the changing consumer trends, Starbucks also had to diversify its products. The demand for healthier food options for instance led to simplification of recipes and elimination of unhealthy additives such as artificial trans fat, artificial flavors and dyes, and high-fructose corn syrup from its products (Starbucks Corporation 2009). From these product quality-enhancing activities; the entity’s customer satisfaction rating was raised by 10 percentage points indicating a better future for the entity (Starbucks Corporation 2009). Further such renewed attention to quality has enabled the entity generate the highest sales of Starbucks® Anniversary Blend coffee in 2009 than any other year in history (Starbucks Corporation 2009).

Apart from improved activities within the store environment, the entity also introduced various innovations to boost customer loyalty and enhance customer feedback for product development purposes. A loyalty card program was for instance introduced with the progression of the global economic crisis to provide better value offerings and innovative food pairings as a reward to loyal customers (Starbucks Corporation 2009). The loyalty card program continues to be a method through which customers are rewarded with free drinks and other rewards in addition to easing the customer’s payment process for the entity’s services hence reducing delays (Starbucks Corporation 2010b).

Changes with regard to improving the entity’s communication with customers and enhancing the entity’s ethical and environmental responsibility have also been used to win back clientele. In improving the customer communication process, the entity launched in 2008 that gives its customers the opportunity to share what they would want to get from the entity, view what other customers would also want and view the ideas that are currently being implemented (Starbucks Corporation 2010a). Through such an approach, the entity has seen its customer response increase with its brand being ranked as the most engaged brand not only through My Starbucks Idea website but also in social networking sites such as Facebook and Twitter (Wetpaint & Altimeter 2009). Other technological innovations the entity has established to improve its customer experience are iPhone applications that help the customers to locate the entity’s stores, establish the nutrition information of various products and reload their Starbucks cards (Starbucks Corporation 2009). This approach is important to ensuring a sustainable future for the entity because such technological approaches help the entity to connect with its customers outside the store environment thus could be vital for enhancing its network marketing activities (Gronroos 2004).

In ethical and environmental aspects the entity has also made various leaps. The entity for instance became the leading buyer of fair Trade CertifiedTM coffee enhancing its ethical rating (Starbucks Coffee Company 2010b). Such ethical sourcing by the entity has been one of the strong points of its corporate responsibility approach. Similarly the entity’s partnership with REDTM an organization fighting AIDS in Africa has helped it save many lives thus improving its image in areas that form some of its important suppliers of coffee (Starbucks Coffee Company 2010b). In environmental aspects, Starbucks has also enhanced its environmental responsibility rating with the most latest innovation being development of a new store design that will make their company operated stores being constructed in various parts of the world LEED®-certified thus reducing the entity’s adverse impacts on the environment (Starbucks Corporation 2009). Such changes also help better the ethical rating of the entity based on environmental aspects; a factor that has previously been of concern and attracted media attention (Leroux 2008).

Aspects Complicating the Challenge Management and How they Were Overcome

Challenges towards change management are pronounced by a number of liabilities associated with change in leadership team. An incoming leader could for instance liabilities such as those of legitimacy, prior knowledge, data access and integrity and failure to share the vision in their quest to transform the organization (Pretorious 2009). Other liabilities would be that of critical mass, feedback control and conflicting cultures (Pretorious 2009). Irrespective of the leader being introduced being an insider or outsider, one would face almost the same liabilities of change management though to a varying extent. An outsider for instance has to face a complex learning curve of the organization processes and culture in order to achieve better outcomes (Pretorious 2009). Conversely an insider would be hard pressed on the legitimacy aspect especially when he was responsible for the crisis that faced the entity (Pretorious 2009). Though Schultz is the founder and previous CEO of Starbucks, such liabilities were relevant in his second return to save the company from continued decline (Pretorious 2009). The aspects that enabled the new leadership overcome these liabilities are considered.

Probably the most significant liability that Schultz faced in his transformation attempts of Starbucks was one of legitimacy. Having been around as the chairman and chief global strategist as the entity lost its direction, a liability of legitimacy could have accrued if he was perceived as part of the people who had led the organization astray (Pretorious 2009). Schultz ability to overcome this liability may have been aided by his acknowledgement of the role they had played and his commitment to the change. In the letter to the board as the chairman, Schultz had for instance acknowledged that their decisions in the previous years had watered down the customer experience and adversely affected the entity’s brand image (cited in Pretorius 2009, p. 40). Such acknowledgement of the role that  he had played in the problem could have enhanced his legitimacy as a suitable candidate to deal with the situation thus gain the support of other stakeholders (Pretorious 2009).

Secondly, a liability of prior knowledge exists for any person appointed to lead the transformation of the organization (Pretorious 2009). Prior knowledge is critical in understanding the processes that are needed to be changed to redirect the organization to a growth path (Pretorious 2009). Schultz advantage with regard to this liability was not only that he was in possession of such prior knowledge but had successfully led the organization in an earlier time. From this in-depth knowledge of the organization and the industry Schultz appointed many of the leadership team he would be working with thus ensuring a functional teamwork approach to the organization’s transformation (Pretorious 2009). A related liability that the appointed CEO would face in ones transformation attempts is that of data access and integrity (Pretorious 2009). Schultz previous role in the entity and his continued stay at the board ensured this liability was alleviated leading to quick recovery of the entity as noted by the improved performance reported in the latest financial statement (Pretorious 2009; Starbucks Corporation 2009).

The liability of failure to share the vision would also be a challenge experienced irrespective of whether the new leader is an outsider or an insider (Pretorious 2009).. Such liability would be aggravated for those individuals whose legitimacy has not been established by the stakeholders (Pretorious 2009). Schultz legitimacy and a good track record with employees made the rallying of the employees to share his vision easier (Pretorious 2009). With respect to feedback control liability, the entity needed to engage customers and employees in the right manner before embarking on a process of closing some of the stores. Schultz credibility with regard to tackling this aspect can be evident from the actions that followed his appointment. First was his announcement of refocus on customer experience and innovation which in his earlier communiqué to the board were noted to be compromised by overexpansion (Starbucks Coffee Company 2010b; Starbucks Corporation 2009). Such announcement prepared the customers for improved service and possible closure of some of the stores thus preventing massive loss of customers were the stores to close abruptly. Further to engage the customers in the transformation process a website – – was launched the same year to enhance customer feedback and communication (Starbucks Corporation 2010; Starbucks Coffee Company 2010b). In the case of employees the memo captured in the Seattle Times article reinforces the commitment of the CEO to high regard for employees (Allison 2009).

Schultz appropriateness to lead Starbucks to its turnaround extended to managing the liability of culture. According to Schultz the most important resource of the entity had been its employees who had helped create the magic and experience associated with a visit to Starbucks (cited in Mosley 2007, p.127). Through such concern of the employee Starbucks established an organization culture that regarded the employee as a partner making them a core function of the business (Starbucks Corporation 2009). The appointment of an individual who has led the entity to profitability while maintaining the existing culture on a previous occasion thus provided a chance for a new strategy to be implemented without much resistance (Pretorious 2009). From the analysis of the liabilities that face newly appointed managers in driving organization change, the choice made by the board to appoint Schultz as the person to lead the transformation seems to have been well informed and has been proven by short-term improved performance of the company following the change.

Alternative Approach to Change Management

Alternative approaches for change management at Starbucks can be derived from various change management theories. Theories based on how the change comes about for instance provide an alternative to the change management process at Starbucks. The Planned approach for instance proposes to bring about change that ensures a new behavior is successfully adopted, the previous behavior has to be completely discarded (By 2005). With such a suggestion, Starbucks appointment of Schultz may be ineffective in the long run though it has worked in the short term. Schultz strategy for instance seems to be pegged on bringing back Starbucks to its original culture before the successful path was lost. Such a strategy may however be inadequate in recent times as new challenges that were in-existent then crop up. For instance in the Economist, Starbucks is indicated to not only face competition from the outlets offering cheaper products, but also from competitors with a high capital control such as McDonalds (2008).

Such new challenges suggest that Starbucks approach towards a return to old ways of doing things could affect its long term growth. By appointing Schultz to lead the Starbucks recovery from the front line, the entity’s successes may also become individualized thus affect future transitions of the entity. Starbucks alternative approach would thus be the use of a fresh individual to bring about transformation with oversight from the board thus provide confidence for investors even at later stages of transition. Go to conclusion here.

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