Continuing Case Starbucks

Controlling

Once managers have established goals and plans and organized and structured to pursue those goals, the managers job isnt done. Quite the opposite! Managers must now monitor work activities to make sure theyre being done as planned and correct any significant deviations. At Starbucks, managers control various functions, activities, processes, and procedures to ensure that desired performance standards are achieved at all organizational levels.

Controlling the Coffee Experience

Why has Starbucks been so successful? Although many factors have contributed to its success, one significant factor is its ability to provide customers with a unique product of the highest quality delivered with exceptional service. Everything that each Starbucks partner does, from top level to bottom level, contributes to the companys ability to do that efficiently and effectively. And managers need controls in place to help monitor and evaluate whats being done and how its being done. Starbucks managers use different types of controls to ensure that the company meets its goals. These controls include transactions controls, security controls, employee controls, and organizational performance controls. A legal recruiter stops by Starbucks on her way to her office in downtown Chicago and orders her daily Caff Mocha tall. A construction site supervisor pulls into the drivethrough line at the Starbucks store in Rancho Cucamonga, California, for a cinnamon chip scone and Tazo tea. Its 11 p.m. and, needing a break from studying for her next-days management exam, a student heads to the local Starbucks for a tasty treata Raspberry Pomegranate Starbucks Refresher. Now shes ready again to tackle that chapter material on managerial controls. Every month, an average 75 million customers make purchases at a Starbucks store. The average dollar sale per transaction differs by city, ranging from $6.87 in New York City to $8.76 in Boston. These transactions between partners (employees) and customersthe exchange of products for moneyare the major source of sales revenue for Starbucks. Measuring and evaluating the efficiency and effectiveness of these transactions for both walk-in customers and customers at drive-through windows is important. As Starbucks has been doing walk-in transactions for a number of years, numerous procedures and processes are in place to make those transactions go smoothly. However, as Starbucks adds more drive-through windows, the focus of the transaction is on being fast as well as on quality a different metric than for walk-in transactions. When a customer walks into a store and orders, he can step aside while the order is being prepared; thats not possible in a drivethrough line. Recognizing these limitations, the company is taking steps to improve its drive-through service. For instance, digital timers are placed where employees can easily see them to measure service times; order confirmation screens are used to help keep accuracy rates high; and additional pastry racks have been conveniently located by the drive-through windows. Security is also an important issue for Starbucks. Keeping company assets (such as people, equipment, products, financial information, and so forth) safe and secure requires security controls. The company is committed to providing all partners with a clean, safe, and healthy work environment. All partners share the responsibility to follow all safety rules and practices; to cooperate with officials who enforce those rules and practices; to take necessary steps to protect themselves and other partners; to attend required safety training; and to report immediately all accidents, injuries, and unsafe practices or conditions. When hired, each partner is provided with a manual that covers safety, security, and health standards and is trained on the requirements outlined in the manual. In addition, managers receive ongoing training about these issues and are expected to keep employees trained and up-to-date on any changes. And at any time, any partner can contact the Partner & Asset Protection Department for information and advice. One security area that has been particularly important to Starbucks has been its gift cards, an area in which it does an enormous volume of business. With gift cards, there are lots of opportunities for an unethical employee to steal from the company. The companys director of compliance has said that detecting such fraud can be difficult because its often not apparent from an operations standpoint. However, Starbucks uses transactional data analysis technology to detect multiple card redemptions in a single day and has identified other telltale activities that pinpoint possible fraud. When the companys technology detects transaction activity outside the norm, Starbucks corporate staff is alerted and a panel of company experts reviews the data. Investigators have found individuals at stores who confess to stealing as much as $42,000. When smaller exceptions are noted, the individuals are sent letters asking them to explain whats going on. Employees who have been so notified often quit. Although Starbucks control methods are well thought out, some theft is not easily detected. For instance, a Starbucks partner admitted to stealing a customers credit card number and later using it to rack up purchases amounting to $200 in a grocery store. The customer later returned to the store to confront the employee. Shortly afterwards, Starbucks management terminated the partners employment and a company representative said the following: We value our customers trust and have internally taken immediate steps to address and respond to this issue. Protecting the company and customers from employee theft is a financial security concern. Vulnerabilities have been found with the Starbucks mobile app, creating additional security concerns. For instance, several customers reported large unauthorized charges to their accounts after using the app to make purchases. One victim reported receiving 10 automated e-mails from Starbucks within a five-minute period for transactions that he did not make. Since then, Starbucks has been finding ways to make mobile app transactions more secure. Starbucks part-time and full-time hourly partners are the primaryand most important source of contact between the company and the customer, and exemplary customer service is a top priority at Starbucks. Partners are encouraged to strive to make every customers 38 |40 experience pleasant and fulfilling and to treat customers with respect and dignity. What kinds of employee controls does Starbucks use to ensure that this happens? Partners are trained in and are required to follow all proper procedures relating to the storage, handling, preparation, and service of Starbucks products. In addition, partners are told to notify their managers immediately if they see anything that suggests a product may pose a danger to the health or safety of themselves or of customers. Partners also are taught the warning signs associated with possible workplace violence and how to reduce their vulnerability if faced with a potentially violent situation. In either circumstance where product or partner safety and security are threatened, store managers have been trained as far as the appropriate steps to take if such a situation occurs. Starbucks recognizes that its investments in store partner development do not pay off unless partners attend work on time. The company studied the causes of irregular attendance and tardiness and learned that unreliable public transportation accounted for much of the truancy problem. So Starbucks is experimenting with ways to help get store partners to work on time. It is teaming up with rideshare service Lyft to increase attendance. Its too soon to know whether this initiative will be successful, but it illustrates how Starbucks has taken control by addressing the cause of the problem. The final types of control that are important to Starbucks managers are the organizational performance and financial controls. Starbucks uses the typical financial control measures, but also looks at growth in sales at stores open at least one year as a performance standard. One continual challenge is trying to control store operating costs. Theres a fine balance the company has to achieve between keeping costs low and keeping quality high. However, there are steps the company has taken to control costs. For instance, new, thinner garbage bags will save the company half a million dollars a year. While Starbucks has found ways to effectively control some operating costs, other costs are beyond the companys control (for example, the rising costs of rent and coffee beans). The company manages substantial cost increases by charging higher prices. But, they dont make these decisions lightly. A Starbucks spokesperson said the company evaluates pricing to balance the need to run our business profitably while continuing to provide value to our loyal customers and to attract new customer. In addition to the typical financial measures, corporate governance procedures and guidelines are an important part of Starbucks financial controls, as they are at any public corporation thats covered by Sarbanes-Oxley legislation. The company has identified guidelines for its board of directors with respect to responsibilities, processes, procedures, and expectations.

Starbucks Value Chain: From Bean to Cup

The steaming cup of coffee placed in a customers hand at any Starbucks store location starts as coffee beans (berries) plucked from fields of coffee plants. From harvest to storage to roasting to retail to cup, Starbucks understands the important role each participant in its value chain plays. 39 |40 Starbucks offers a selection of coffees from around the world, and its coffee buyers personally travel to the coffee-growing regions of Latin America, Africa/Arabia, and Asia/Pacific in order to select and purchase the highestquality arabica beans. Once the beans arrive at any one of the five roasting facilities in the United States and three global facilities, Starbucks master professional roasters take over. These individuals know coffee and do their magic in creating the companys rich signature roast coffee in a process that brings balance to all of its flavor attributes. There are many potential challenges to transforming the raw material into the quality product and experience that customers have come to expect at Starbucks. Weather, shipping and logistics, technology, political instability, and so forth all could potentially impact what Starbucks is in business to do. One issue of great importance to Starbucks is environmental protection. Starbucks has taken actions throughout its entire supply chain to minimize its environmental footprint. For instance, suppliers are asked to sign a code of conduct that deals with certain expectations in business standards and practices. Even company stores are focused on the environmental impact of their store operations. For instance, partners at stores around the world have found innovative ways to reuse coffee grounds. In Japan, for example, a team of Starbucks partners realized that coffee grounds could be used as an ingredient to make paper. A local printing company uses this paper to print the official Starbucks Japan newsletter. In Bahrain, partners dry coffee grounds in the sun, package them, and give them to customers as fertilizer for house plants.

Analyze Controlling of Starbucks meet these requirements:

Controlling (2,000 words)

Practical activities: Briefly describe the controlling techniques currently adopted by Starbucks

Analysis: Apply management theories and/or frameworks to analyze the pros and cons of such controlling techniques

Recommendations: Based on the analysis, make necessary recommendations