Organizational Structure And Change
1) Summaries of the Articles
Starbucks Corp., one of the largest restaurants and coffee giants in the world, headquartered in Seattle, was facing profit slip and plummeting sales. A memo by Chief Executive Officer Kevin Johnson revealed that the company was encountering winter and stated the necessity to take actions to please the apprehensive investors as well as customers (Bloomberg, 2018). He emphasized that “as we continue evolving our core areas of marketing, creative, product, technology and store development, we are making some significant changes to these areas, as well as other functions across our global business” (Bloomberg, 2018).
Starbucks once had very few real challengers. A study by Harvard University showed that Starbucks used to dominate the U.S. market with a share of 36.7%, followed by Dunkin Brands with 24.6% (Geereddy). It is even the case in other parts of the world such as China, where up to 58.6% market share is taken by Starbucks (Geereddy). However, recently, by taking the advantage of cheap and convenient delivery service in China, new market entrants like Luckin coffee, who sells at a lower price and provides online order service, are quickly taking up the market and are popular in the global financial market, forcing Starbucks to make significant change in order to maintain its position in the industry. Competitors in other places are also emerging and growing.
Organizational change was unavoidable if Starbucks wanted to survive in the competition. By reducing the size of employment in the back offices as well as leaderships, it could save more resources for innovation and become more client-oriented. “Starbucks employed about 10,000 in U.S. support facilities, store development, and roasting, manufacturing, warehousing and distribution operations, as of Oct. 1, 2017” (Patton, 2018). The layoff would impact all levels of employees, from senior administrative roles to store assistants, starting in September until November (Patton, 2018). There would also be employee shifts between departments, cutting corporate positions and putting more in the front desks.
In the past, Starbucks had a considerably high store growth rate as it opened stores in new places or increased the density of stores in one area. However, slumping sales made it harder to keep a high growth rate. It was going to scale back and close around 150 underperforming stores by 2019, rather than 50 as usual (Whitten, 2018). “The company also plans to reduce the number of new licensed stores in 2019 by about 100 stores” (Whitten, 2018).
To attract new customers and maintain loyalty of patrons, Starbucks “added a strawberry Frappuccino and chorizo sous vide egg bites to its permanent menu” (Patton, 2018). It was trying new business areas such as delivery, partnering with UberEats in Miami and Alibaba in China (Patton, 2018).
Changing the organizational structure must be a challenging task for Starbucks, but the CEO said he had faith and confidence because “[its] culture and [its] legacy [were] built on continuing to challenge the status quo” (Whitten, 2018). This event would help us understand organizational structure and its change better.
2) Summary of the Main Findings of the Research
A summary of the main findings from two scientific articles Causes and Effects of Employee Downsizing: A Review and Synthesis and Innovation and Creativity in Organizations: A State-of-the-Science Review, Prospective Commentary, and Guiding Framework would be analyzed and how to connect them with the chosen event would be demonstrated as well.
The Datta et al. (2009) research indicates that the past year has witnessed significant employee layoff, which has become common for an organization, and the researchers especially stressed the United States.
According to the researchers, there are two categories of factors that cause employee downsizing. The first stream is environmental factors. Frankly speaking, it is the demand declines that lead to the employee downsizing. Starbucks has been through a remarkable reduction in sale, and they had to close a few stores. (Lalley, 2018) Therefore, the organizational structure must be adjusted as major strategy. In other words, the declines of the demand of Starbucks caused the decision of the company manager to carry on the corporate layoffs. By linking several studies, the research also found that declining industry environment have a positive relationship with employee downsizing, and during the industry deregulation, employee downsizing happened more frequently than usual. Some other researches agreed with this stream also believe that the tendency to scale down and the extent of downsizing are affected by industry conditions. Organizational factors are the second stream that lead to employee downsizing. It basically depends on how the companies behave, the strategies made, the structure of the organization and the quality of the employees. This stream of the causes of employee downsizing mentioned in the article is also practicable in the case of Starbucks. A smaller and smarter team could be created to face this fast-changing environment more effectively.
Two categories of effect of employee downsizing were also summarized in the article by analyzing different studies outcomes. On one hand, it has great effect on individuals. The possibility of being trimmed motivated the employees to embark on innovation and have good performance on their jobs. One the other hand, the organizational outcomes are also what the companies concern about. By trimming the employees, they increase efficiency and productivity as a consequence of the high quality but small quantity of the employees. Starbucks’ purpose of doing this is to reduce expenses and increase productivity. Moreover, their action motivates the employees to be loyal and efficient.
In conclusion, environmental and organizational factors lead to the employee downsizing, which has effects on both individual and the organization. The main goal of employee downsizing is to use human resources more effectively.
The second article talks about the reviews and discussions of innovation and creativity in organizations, it analyzes several theories and corresponding researches of innovation in different levels to find the characteristics of the researches. I will summarize the findings of the article and analyze the reasons and influence of innovative actions that Starbucks has taken.
In this journal, authors emphasize the importance of organizational change and innovation, as innovation is one of the forms of the organizational changes and is a key factor for an organization to achieve success and sustainable development. What’s more, a table S1 from the journal called “Growth in published papers in the wider field of creativity and innovation” shows the number of creativity and innovation articles published in recent years. (Neil, Kristina& Jing, 2014) From the table we can see that there is an increasing number of the innovation and creativity articles from 1970 to 2011 in general, which demonstrates more people have realized the importance of innovation for organizations and started to research. They also mention the complexity of innovation and creativity, which needs leaders who has experience and skills to achieve the best improvement of work. In addition, the article reviews six theories and researches about innovation and concludes that these theories and researches improved people’s understanding of the status of innovation at different levels of the organization but still have some problems. There is still lacking the integrative studies, which will provide a broader horizon for people, and people can better understand innovation in the organization if we address the problem (Neil, Kristina& Jing, 2014).
Obviously, with the increasing number of competitors and the fact that sales of Frappuccino have decreased, Starbucks became aware of the importance of innovation and started to make some changes in organization to increase sales. First, Starbucks added some new products in the menu, because as a coffee shop, regular update of menu is one of the most useful way to attract the customers quickly. Second, Starbucks tried to explore the delivery, as it is the trend of service industry. Through these innovation actions, the sales of Starbucks increased 1% in the second quarter in 2018, which grew slowly with the investors expect (Bloomberg, 2018). In relation to the summary of the journal, I think there are two reasons why Starbucks’ innovation actions did not seem to have much effect. The first reason is the leader might not have enough experience and skills to respond the market immediately and did not take the best actions to improve the sales. As innovation is quite complex in the market, which has so many uncertain factors, it is hard for a normal leader to take effective actions. For the second reason, if leaders can see the problem from an integrative view, for example: international relations, new technology, not just address the low sales problem from the market or organization itself will be better.
To conclude, this essay includes the summary of the journal which emphasizes the importance of the organizational change and innovation and provides some advice for us to get better understanding of innovation. Then, it relates to the Starbucks to explain the reason why it needs to have some organizational change and make some recommendations to the Starbucks to achieve better performance.
3) Multi-cultural perspectives
Can reshuffling and product innovation work in the United Kingdom?
From UK’s perspective, a report done by Oxford Economics (2013) showed that the first Starbucks opened in the UK 14 years ago and it now has 738 outlets nationwide by the end of 2012, including all the main centers of population. Since the open of the first store, Starbucks has contributed a lot to UK’s economy, labor market and coffee culture.
In terms of employment, Starbucks has a very young working force, with 46% of workers under the age of 24. In 2009, just above 30% of employees in retailing were 24 in the UK, far below the Starbucks rate with 46% by comparison. ONS data in 2012 showed that the unemployment rate was 20% for 16 to 24 years-old, with relative to 8% for all age in working market. Thus, the working group in Starbucks is the one who is facing the large unemployment rate currently in UK. In addition, the layoff policy is quite loose in UK. The employer can ask the employee to leave if there is not enough work to do and there is no limit for how long the employee can be laid off. Overall, when it comes to the layoff decision made by Starbucks last year, it will certainly influence the UK’s job market. Layoff is likely to increase the rate of unemployment and stress pressure to the labor market and society consequently. However, the employed people mostly work in sales and customer sales occupations (89%) within the structure. During this transformational period Starbucks can focus more on menu innovation, customer service, technical issues or even consider developing its delivery service to the UK in order to maintain original customers and attract new customers, as the service is not currently available in the UK.
Can reshuffling and product innovation work in mainland China?
Reshuffling in mainland China
Since 1999, when the first Starbucks landed in mainland China, Starbucks has opened more than 3,600 stores in more than 150 cities in China and has nearly 50,000 Starbucks partners. China has become Starbucks’ fastest-growing and largest overseas market, and Starbucks is still expanding in China. “In 2018, Starbucks opened 585 new stores in 17 new cities. In Q4 2018 alone, Starbucks opened 139 new stores in 5 new cities” (Li, 2019). However, the revenue situation is not good recently. According to Li, “in Q3 2018, Starbucks’ revenue decreased by 2% in the 1st-, 2nd-tier cities, for the first time in the past 9 years” (Li, 2019). The decrease indicates a more competitive market due to the emergence of more competitors and the loopholes of the current management structure. If Starbucks cannot prevent rivals from joining the market, it is best to start with a change in the management structure. The change needs to adapts to the current trend of China’s economic development because it is based on two vital features of the Chinese market. The first is that Chinese consumers are omnichannel consumers. The second is China’s technological and industrial environment is quite good based on the Internet. The good news is that Starbucks China has already figured out a solution, which is, the entire existing business of Starbucks in China will be reorganized into two business units, ‘Starbucks retail’ and ‘digital innovation’ (Starbucks China, 2019). The change of structure implies Starbucks China will mainly focus on new retail mode and digital improvement from now on. The new organizational structure allows Starbucks to more flexibly mobilize and allocate resources to achieve a balance between short-term business needs and long-term strategic development. Therefore, the adjusted structure can work very well in mainland China.
Product innovation in mainland China
China provides a wonderful environment for product innovation. First, China has an extremely large population, which means there is a huge number of consumers and potential consumers in the beverage market. Meanwhile, these customers have a wide range of tastes, which means that there is enough room for product innovation. Second, the market in mainland China is a highly developed Internet-based market. Through the Internet, advertising can be convenient and widespread. At the same time, making advertisement on the Internet is much less costly than in traditional ways. Starbucks can significantly cut its advertising expenses. Hence, product innovation is feasible in mainland China, and it is a necessary approach to keep Starbucks competitive.
Can reshuffling and product innovation work in Hong Kong?
In Hong Kong, this practice launched in Seattle, US will be likely to occur. An increase in variety of products as well as new products are essential for a company to survive in an ever-changing world. For example, Starbucks Hong Kong has opened a 55,00 sq. ft. store in Causeway Bay, one of the most popular spots for teens. It specially features an expanded alcoholic drinks menu, like coffee-infused craft beer and cocktails. Besides, although being a coffee behemoth in Hong Kong as well as other countries, which owns 174 out of 250 independent coffee shops in Hong Kong, new substitutes are threatening the revenue of Starbucks. For example, The Coffee Academics, a Hong Kong-born mini coffee chain which features “coffee culture” and specialty coffee, has 9 stores in some of the trendiest locations, including Repulse Bay, Lan Kwai Fong, etc. It also expands out its business to Mainland and Singapore, which will highly affect the dominating position of Starbucks (Shen, 2018). Also, Starbucks Hong Kong embrace a client-oriented culture which respects and value diversity of different customer. Their strategy focuses on customers in which they “recognize and respond to their unique preferences and needs”. They also ensure “an exceptional customer experience by connecting with our customers in a culturally relevant way” (Starbucks Hong Kong, 2019). Since millennials, which made up nearly a quarter of the generation, are consuming more specialty coffee than previous generation, a shift in marketing focus on the Generation Y is inevitable for coffee brand like Starbucks in order to sustain its marketing position (Ward, 2015). From the above, we can easily see that a change in client-oriented attitude and high-end innovation is a must for Starbuck Hong Kong to sustain its market share. Apart from the above, a try in delivery is possible in Hong Kong. Food delivery apps like Deliveroo, Food Panda, UberEATS are prevalent in Hong Kong. All of them features various well-known restaurants, for example, Food Panda offers food from over 500 restaurants, including Pizza Hut, McDonald, Subway, etc. Deliveroo even has a connection with Starbucks already. These apps act as an agent to foster direct delivering of food to the customer from the restaurants. Due to the high rent in Hong Kong as well as a continuous increase in the minimum wage, downsizing of a company is the trend. It is more cost-effective for a shop to team up with the delivery website and laid off staffs like waiting staff or dishwashers. As a result, a downsized company and shifted focus on delivery service are viable in Hong Kong.
4) Positive/Negative Effects and Improvement
Starbucks is in a critical transition period. It is vital for it to adopt the new managerial ideologies and get used to the adjusted organizational structure as soon as possible to keep its position in the market and surge its profits.
Starbucks’ organizational structure change centers at reducing employment size as well as optimizing internal employee deployment. It had cut many senior roles and put more resources and employees in front of clients. At the same time, it was trying slow down the expansion and pay more attention to the selection of location for stores.
It would result in many predictable positive effects. By reducing the employment size, it can significantly reduce the cost of human resources, therefore it can save a huge amount of money for product innovation and other areas that require monetary input. A flatter and skinny structure could shorten the time of making decisions and executing them, thus efficiency could be improved. Also, it was a good chance for the company to reexamine its working force and weed out people who did not fit for the job. By being more client-oriented and focusing on menu update, Starbucks could increase the customer experience as well as competitively attract young people.
But still, there is a negative effect of reshuffling. It takes time for employees to adapt to new positions, which could lead to low efficiency for a certain period time after reconstruction. One solution could be to break up the reorganization into steps. When a department is under reorganization, departments that have little relevance temporarily functions normally to ensure the daily operation of the company. The layoffs are part of the restructuring of Starbucks, so the move could also lead to the unemployment problem. Unemployment is not directly related to corporate interests. However, as a large enterprise with social responsibility, Starbucks should tackle the unemployment problem. For instance, Starbuck can use its extensive supply network to help unemployed employees find jobs. This kind of considerate action can increase the loyalty of surviving employees and improve the social image of Starbucks.
- Bloomberg (2018) Starbucks Is Laying Off 350 Corporate Employees[online]. Available from: https://fortune.com/2018/11/13/starbucks-layoffs-2018/ (Accessed 10 July 2019).
- Datta, D., Guthrie, J., Basuil, D. and Pandey, A. (2009). Causes and Effects of Employee Downsizing: A Review and Synthesis. Journal of Management, 36(1), pp.281-348.
- Geereddy, N. (n.d.) Strategic Analysis of Starbucks Corporation. Strategic Analysis of Starbucks Corporation
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- Neil, A., Kristina, P. & Jing, Z. (2014). Innovation and Creativity in Organizations: A State-of-the-Science Review, Prospective Commentary, and Guiding Framework. Journal of Management. 40(5), pp.1297- 1333.
- Office for National Statistics (2013) Graduates in the UK labor market 2013 Available at https://webarchive.nationalarchives.gov.uk/20160106222643/http://www.ons.gov.uk/ons/dcp171776_337841.pdf (Accessed on 21st July 2019)
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- Patton, L. (2018) Starbucks Plans ‘Significant Changes’ to Company’s Structure[online]. Available from: https://www.bloomberg.com/news/articles/2018-09-24/starbucks-plans-significant-changes-to-company-s-structure (Accessed 11 July 2019).
- Sarah Whitten, K. R. (2018) Starbucks to cut corporate staff as it shakes up its organization[online]. Available from: https://www.cnbc.com/2018/09/24/starbucks-to-cut-corporate-staff-as-it-shakes-up-its-organization.html (Accessed 11 July 2019).
- Shen A. (2018) Fears of underage drinking as flagship Hong Kong Starbucks that sells beer and cocktails opens in Causeway Bay[online]. Available from: https://www.scmp.com/news/hong-kong/hong-kong-economy/article/2151896/fears-underage-drinking-starbucks-opens-hong-kong (Accessed 13 July 2019).
- Starbucks China (2019). Forward-looking layout planning for the future into a new stage of development Starbucks announced a restructuring of its China management team. [online] Starbucks China. Available at: https://www.starbucks.com.cn/about/news/organization/
- Starbucks Hong Kong (2019) Diversity at Starbucks [online]. Starbucks Hong Kong. Available at: http://www.starbucks.com.hk/about-us/company-information/diversity-starbucks (Accessed 19 July 2019)
- Ward H. (2015) The Millennial Marketplace: Shifting Values [online]. Available at https://scanews.coffee/2015/04/06/the-millennial-marketplace-shifting-values/ (Accessed 19 July 2019)