Description and "Diagnosis" of the Organizational Problem
Since its creation in 1971, Starbucks had managed to consistently expand to and increase profit, yet in 2008 Starbucks began to report declines in profit and by 2009 net income had dropped 77% (Starbucks, Awaiting Recovery…). Furthermore, the quality of the once admired coffee began to decline as customers noted a charred flavor and while some even ranked the supposedly lower-end McCafes above Starbucks (Consumer Reports). Although, “some industry forecasters foresaw Starbucks’ disappointing performance as an early indicator of a weakening economy”, Starbucks’ own internal research indicated that that this was not the case. ...view middle of the document...
While Starbucks considered both Dunkin Donuts and McDonald’s to be lower end competitors, Panera Bread Company also entered the market offering high-end gourmet style coffees in a pleasant, relaxing atmosphere (Starbucks: Maintaining…). The increased competition created by these companies in addition to Starbucks’ desire to continue expanding pressured Starbucks to make a number of changes throughout the organization.
Many of the changes that Starbucks implemented were successful in increasing profit yet often at the cost of Starbucks’ original founding image. The company’s current chairmen and founder, Howard Schultz, has even said that, “stores no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighbourhood store” (Starbucks – The Growth Trap). Such changes have included automated coffee machines, drive through windows, and diversification of products sold in stores to include CDs, books, and an increased variety of food. The introduction of the automated coffee machines was implemented with the intent to maximize volume of customers by decreasing time to prepare the coffee. However, while these automated coffee machines did increase efficiency, they sacrificed a number of things customers liked about Starbucks. The new machines decreased the time during which customers could chat with baristas and their increased size eliminated eye contact with the baristas making the interaction less personal. Furthermore, customers thought that the coffee tasted burned, leading some to refer to Starbucks as “Charbucks” (Starbucks – The Growth Trap). After testing out and having success with drive-through windows in a few select locations, Starbucks began including them in numerous locations. While “these new additions…w[ere] successful in increasing immediate sales and profits”, Schultz expressed “concerns that Starbucks was weakening its brand image with these ongoing modifications” (Starbucks: Maintaining…). Finally, by beginning to offer an increased variety of food and other products including books and CDs, Starbucks did manage to increase profit yet only by small margins and at the cost of further dilution of the Starbucks image. “Although food products added an average of roughly $35,000 to a store’s sales volumes in 2006, same store sales only rose 7% that year. By comparison, same store sales had grown at a rate of 10% in 2004”, and in the final quarter of 2007 same stores sales had only grown 1% (Starbucks: Maintaining…). It can be seen that while Starbucks managed to increase profit in the short run though certain changes, these changes negatively affected Starbucks’ culture and helped lead to Starbuck’s huge dip before and during the financial crisis.
Analysis of the Organizational Problem
* We don’t have DEFINE quality?
The corporatization of Starbucks’ values, as the goals of profitability and growth came to dominate managerial decision-making, make it clear how a symbolic...