The Divisional and Matrix Organizational Culture of Starbucks - Case Study Example

Starbucks Corporation Starbucks Corporation, headquartered in USA, specializes in production of coffee beverages and in processing of coffee beans, which are then sold across US and global markets. Innovation is what makes it unique and is evident in their positioning as they not just sell highly differentiated products but an experience which results in an atmosphere that could entice potential customers towards Starbucks’ retail and specialty outlets, ultimately translating into its brand recognition and better consumer awareness. Its organizational culture is also in-line to its uniqueness as can be seen from the transformation process which it had undergone since 2008 which has made it a truly competitive and distinctive seller of coffee products (Financial Report, 2009). By 2010, the number of stores have reached around 6,700 - 6800, while employees head count is nearly 125,000. The company consists of three major operating business segments viz., United States (US - 73% share), International (19% share) and Global Consumer Products Group (CPG - 8% share) (Financial Report, 2009). The strategic planners have developed organizational design after analyzing the ways to control these operating segments simultaneously, for which they have adopted a divisional structure to control and manage business operations in various regions. According to CEO Howard Schultz disclosures in 2008, the company is transforming towards matrix organizational structure (Financial Report, 2008). The change is being implemented to ensure increase in internal communication, coordination and learning, which would translate in to enhanced customer satisfaction and hence the profitability. Starbucks has divided US market into four divisions namely “Western/Pacific, Northwest/Mountain, Southeast/Plains and Northeast/Atlantic” so that transformation is successfully implemented. In addition, the company’s major functions endorse the strategies of US divisions and strive to accomplish its desired objectives. This is due to the fact that Starbucks is heavily dependent upon the survival, growth and sustainability of US segment (Hitt, 2008). The employees are trained in such a way that they could not only actively participate in decision-making and problem solving but also provide recommendations to top management. The workers (at stores, company’s regional offices and headquarters) could freely interact and build relationships among each other, which nurtures an environment of openness and fosters the creativity and innovation in the jobs they do. Ultimately, it also makes it relatively easier to understand other employees across Starbucks through inter-organizational communication channels. However, the company maintains discipline and control, which ensures the decorum and stability across all major segments worldwide. Some of the core competences of Star Bucks which gives it a competitive edge over its rivals in the same industry are as under: Premium Quality Products offered under globally recognized brand name: The first core competence of Starbucks Corporation is that it always focuses on offering optimal & consistent quality food plus coffee products to its customers at all retail outlets. The quality standard has to be strictly followed by independent distributors because violation may lead to immediate termination of agreement. In this way, Starbucks not only enhances its brand recognition, market goodwill and reputation but also maximizes its bottom line profitability. Internal Management – Matrix Structure: The global coffee retailer has also moved to adopt matrix organizational structure that facilitates information sharing among employees and allow them to improve relationships with bosses. Furthermore, the structure enhances participation in company’s affairs that, in turn, leads to accomplishment of assigned targets. Moreover, Starbucks has an excellent track record that it values its personnel and motivates them via rewards on optimal performance though it needs much improvement. The managerial structure also helps in responsibility and accountability that definitely ensures proper management and control. In other words, Starbucks strongly convicts that happy and satisfied employees go extra miles to exceed business targets by adding towards customers delight (Financial Report, 2008 & 2009). Focus on Emerging Markets: Starbucks has realized that growth in its US operations has slowed; hence it felt dire need to diversify in markets other than US. Therefore, they have quickly expanded its operations across top two emerging Asian markets namely India and China. Its ideas and products got nationwide acceptance due to its localization and adaptation strategies in aforementioned markets. In short, sales have increased substantially over past few years, which provide Starbucks a competitive advantage over industry rivals in terms of profitability. The strategists of the company seem to be well aware of new workplace requirements and challenges and thus they focus heavily to meet contemporary design challenges. Undoubtedly, the planners have chosen matrix structure for better communication and subsequent greater participation by workers in business operations. Starbucks has various departments and functional units in all subsidiaries established across different geographical regions and nations. The company maintained relatively decentralized structure as revealed from extensive research on Starbucks. Although, the top management is responsible for making key decisions, yet middle and lower management employees also do contribute in highlighting pros and cons of certain policies and their contribution is valued (Thompson and Gamble, n.d). In other words, the divisional heads appreciate recommendations of their subordinates and communicate to directors of parent company after which policies are finalized for implementation. Starbucks extols the idea of teamwork and work groups so that workers could learn from experiences of other members from diverse backgrounds. Delegation of jobs at middle and lower managerial levels boosts employee’s morale, trust, self-esteem and commitment, and feel them empowered (Financial Report, 2009). There is Joint Specialization across Starbucks and employees do coordinate with each other in groups and teams. Decisions are taken with mutual consent as participatory internal organizational culture is there. Next, the company is relatively decentralized as employees at the bottom (first line) of hierarchy consult with their seniors at middle management level, who then forward the recommendations and concerns to top management. Third, the top management assigns tasks into departments where middle management with first – line managerial staff, pursue to achieve defined objectives and targets. Hence, information flows in both directions i.e. from top-to-bottom and bottom-to-top. In short, the matrix structure enhances open communication, teamwork and mutual adjustments so that employees build healthy and cordial relationships resulting in a peaceful, congenial and discrimination free inter-organizational culture with shared values. The main benefits obtained from implementation of this structure are fewer employee-employees and employee-employers conflicts, increased productivity and performance. In a nutshell, Starbucks Corporation has adopted both divisional and matrix organizational cultures to administer and control 6,800 retail and specialty stores. Further, the company needs to improve its employee retentions by enhancing its reward system and recognition procedures over employees’ performance as it is facing high employee turnover rates. This would lead to reduction of recruiting, selecting and training costs which is affected due to problems in employee retention. Currently, there is need to improve compensation through increment in incentives and additional rewards (periodic bonuses, commissions and promotions), because only pay-increase facility will not be viable for workers’ retention and minimization of costs. References: Hitt, Jaimelynn “The Organizational Structure of Starbucks, Unilever, and Wal-Mart” Associated Content May 28, 2008 [Online] Available at http://www.associatedcontent.com/article/782963/the_organizational_structure_of_starbucks.html?cat=3 Arthur A. Thompson and John Gamble “Starbucks Corporation”, The University of Alabama, n.d [Online] Available at http://www.mhhe.com/business/management/thompson/11e/case/starbucks-2.html Glowa, Tim “Examining Starbucks utilizing the 7s method and less than perfect information” Glowa.ca September 15, 2001 [Online] Available at http://www.glowa.ca/Starbucks_7s_Method.pdf No author “Starbucks Corporation” New York Times, May 25, 2010 [Online] Available at http://topics.nytimes.com/top/news/business/companies/starbucks_corporation/index.html Starbucks Corporation “Annual Report 2009” Starbucks [Online] Available at http://media.corporate-ir.net/media_files/irol/99/99518/SBUX_AR.pdf Starbucks Corporation “Annual Report 2008” Starbucks Investor Relations Read More