Starbucks' organizational change and return to core identity

Starbucks is the established leader of the coffee and coffee-based beverages across the entire world. The company helped create business history through the innovative ideas of Howard Schultz and it became established as an epitome of business success.

Recently however, the company had been facing increasing competition and added internal problems. As a result, it conducted an internal process of change and hoped that it would reconsolidate its position. At this level, it is useful to assess this situation through four distinctive lenses, as follows:

The need for change and the process of the change

The benefits of the change process

The risks of the structural change, and last

The financial analysis before and after the change.

The need for change and the process of the change

The change implemented by Starbucks was fueled predominantly by the realization that the firm had been losing its identity. Specifically, throughout the past recent years, the executives at Starbucks had developed and implemented a series of business oriented decisions. These revolved around the generation of operational efficiency and the generation of superior returns on investments. Some examples in this sense include the elimination of grounding machines from the stores and the choice of pre-grounded coffee, the opening of drive-throughs or the addition of sandwiches in the Starbucks menus. While these decisions had been business wise at the time they were taken, they now furthered the company from its initial feel and ambiance.

The challenges for Starbucks increased once McDonald's launched its operations into the coffee industry as well. The fast food chain integrated coffee machines in most of its stores worldwide and this posed direct competition for Starbucks. The fast food giant argued that its decision to sell coffee was not a direct attack at Starbucks, but a strategy of adapting to the changing needs of their customer base. For instance, as children come to celebrate their birthday parties at the stores or to play in the mini parks, parents can enjoy a cup of coffee.

Still, regardless of the motivation behind McDonald's decision to sell coffee and coffee-based beverages, fact remains that this posed a serious competition for Starbucks. In order to overcome this competition and restore its position within the industry and the market, Starbucks had decided upon a change process. This change processes commenced with the replacement of the Starbucks chief executive officer in 2008. The position was offered to founder and former CEO Howard Schultz, who assumed it and argued that he would strive to return the company to its initial focus. Upon accepting the job, he stated:

"We must address the challenges we face and we know what has to be done. Put simply, we are recommitting ourselves to what has made Starbucks and the Starbucks Experience so unique: ethically sourcing and roasting the highest quality coffee in the world; the relentless focus on the customer; the trust we have built with our people, and the entrepreneurial risk-taking, innovation and creativity that are the hallmarks of our success" (case).

At a more detailed level, the change agenda was focused on four distinctive directions, as follows:

Improving the state of the business in the United States by focusing on the customer experience, the store design, and employee training

Decreasing the rate at which new stores are being opened in the United States and closing down stores which are underperforming

Reigniting the relationship between Starbucks and its customers, and last

Reshaping the business model to be better focused on customer satisfaction and the managerial model to be more focused on key drivers of value (case).

2. The benefits of the change process

The changes implemented were necessary in order to restore the company to its position within the industry, through the enforcement of a superior relationship with the customers. The benefits of implementing such a decision include:

Higher levels of customer satisfaction

The improvement of the relationship between the company and its customers

4. The financial analysis before and after the change

All in all, when it implemented the change process in 2008, Starbucks hoped to revive its position. At this stage, this ability would be tested through the lenses of the financial results. The table below reveals some financial highlights of the company in 2007, comparative to 2010.

2007

2010

Total assets

5,343.88 million

14,928.10 million

Total liabilities

3,059.76 million

2,369.95 million

Stockholder's equity

2,284.88 million

12,558.12 million

Total revenue

9,411.50 million

6,324.65 million

Net income

672.64 million

1,231,66 million

Profit margin

21.04%

Return on assets

13.47%

Return on equity

28.81%

Current ratio

These figures indicate that the company has restructured its assets and liabilities and it has invested its new resources into organizational stability. The final result is a positive one, revealing an impressive increase in the company's revenues, but more so, in its net income. These earnings are now better consolidated and if the company decides to develop new change processes and strategies, it now possesses the financial support for them.

From the standpoint of the financial ratios, these are indicative of both increases as well as decreases. Specifically, the company has come to generate a decreased return on its assets and equity, but this could be explained by a decrease in the investments made towards growth and development, and the focus on stability. Also, the company has registered an increase in its profitability and ability to repay its debts.

References:

Craig, J.C., Sadler, P., 2003, Strategic management, 2nd edition, Kogan Page Publishers

2012, Yahoo Finance, http://finance.yahoo.com/q/ks?s=YHOO+Key+Statistics last accessed on February 23, 2012

2012, Investopedia, http://investopedia.com / last accessed on February 23, 2012

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