Organizational Structure: Starbucks Re-organizes structure and continues to grow

Hey everyone,

Time for a blog post about something you all may find interesting, organizational structure!

You know how you have some friends that know absolutely useless facts about random stuff like sports?  Maybe what actors starred in a random movie?  Well my guilty obsession is reading about businesses I find interesting and learning as much as I can about them.  Now I can’t tell you why I enjoy learning about this kind of stuff so much, my best guess is that I appreciate seeing innovation and watching companies grow.

This brings me to one of my favourite companies to read about: Starbucks. 

I remember Starbucks from a very early age because I remember watching that one Simpsons episode where they are constantly going to the mall and eventually all the other stores in the mall closed down because a new Starbucks would be opening up in their place.  It was a company that took the world by storm, many doubted the success that Starbucks would have, but through constant innovation and re-organization they’ve been able to beat every odd stacked against them.

Now back to organizational structure and why do I keep raving about Starbucks, as of 1 year ago , Starbucks has split the organization into three separate districts in order to better handle operations and keep their clients happy.  They employ a matrix organizational structure that utilizes communication channels, “the matrix organizational structure is a very effective way to take full advantage of all communication channels. Whether the organization wishes to label the organizational structure or not, the structure is the pivotal point of success in its organizational communication,” (George & Jones, 2005).

They have utilized the matrix organizational structure in their benefit to better serve their customers.  A matrix organizational structure is “an organizational design that groups employees by both function and product. The organizational structure is very flat, and the structure of the matrix is differentiated into whatever functions are needed to accomplish certain goals,” (What is a Matrix Structure, ND).  They have created products that tailor to specific regions and have now created a stronger organizational structure to accommodate the needs of their customers during their expansion.

“Starbucks retail business is currently structured as Starbucks U.S. and Starbucks Coffee International (SCI), which encompasses 54 markets outside the United States. Starbucks will move to a new three-region organizational structure:

  • China and Asia Pacific: All Asia Pacific markets and China
  • Americas: United States, Canada, Mexico and Latin America
  • EMEA: Europe, U.K., Middle East, Russia and Africa”

(Starbucks, 2011).

Since Starbucks has been able to focus on specific regions, they are able to put management in place to oversee each region.  This will prove to be much more effective than expecting a CEO to monitor a manager for each region.  “A president for each region will oversee the company-operated retail business, working closely with both the licensed and joint-venture business partners in each market, (Starbucks, 2011).

Another goal that Starbucks has had is they wanted to expand their company to feature the multiple brands they carry.  One of the biggest brands that everyone may know that Starbucks owns is Seattle’s Best Coffee.  Seattle’s Best Coffee is currently served in every Macs convenience store and Subway in North America.  Another big brand that Starbucks own is Tazo Tea, and as tea is the second most consumed beverage in the world (second to water, not Coca Cola!) it is in their best interest to build both brands through this new structure.

The Starbucks corporation does not ignore their customers, most of their success is based on the fact that their products are tailored to their customers, and not vice versa.  “Starbucks does a great job in using technology, marketing tactics, and their employees to communicate success, goals, and vision to the customer. Examples of this can be seen on the Starbucks website. The website shares the companies guiding principles, vision as a company, social responsibility, and mission statements,” (SeaZone|Yahoo Voice, 2009).

The point I want every one to take from today’s blog isn’t that Starbucks is one of the most powerful corporations in the world (even though it is).  But rather the reason for their incredible success is the ability to operate a dynamic organizational matrix structure to accommodate customer needs and make it work for them.

If RIM in Waterloo would have taken a step back and divided the markets up by region, maybe they may have stood a chance? (too soon?) But really, they had that colossal service outage in the Middle East and have their devices have been in many countries in Asia, could this be because there was no operations manager specifically focusing on that region?  Food for thought.

One final note: I do not intend to bash RIM, I really liked that company, and still do.  I just wish they made better decisions.

Thanks for taking the time to read this everyone, please comment on the RIM question!
References:

Understanding and Managing Organizational Behavior (4th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

http://news.starbucks.com/article_display.cfm?article_id=547

http://www.businessmate.org/Article.php?ArtikelId=186

http://voices.yahoo.com/successful-application-organizational-behavior-2435551.html?cat=3

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10 comments
  1. Great post Prabh! I like how you focused on one company and explained how matrix organizational structure looks like. Starbucks is a great company, they know how to connect with customers and feels like all employees are motivated to be most attentive and provide great customer service. The Starbucks I go to is close by my work and i am there at least ones a day, they know my name and they know what I order, I like that personal touch, even though I pay an arm and a leg for my order. One of the reasons why employees feel motivated at work is because they get stock options, therefore when the company performs well, they do well. And the baristas are called partners, that gives employees a sense of ownership in the business, great Idea!

    This is an article about stock options at Starbucks.

    http://www.investopedia.com/financial-edge/0609/Starbucks-Stock-Swap-Happy-Baristas-Means-Happy-Investors.aspx#axzz20fQNDBKk

    -Anastasia

    • Thanks for the positive comments Anastasia, that was an interesting read.

      I like all the coffee-isms they used as well

      Starbucks is a company I will follow for a long time, maybe even invest one day

  2. I really like the approach you took with this post as well. Starbucks has always been an interesting company and I have never really understood its success (obviously because I didn’t realize its structure.) Having a President in each region is a brilliant idea, and like you said – if more companies took this approach early on, it would be interesting to see the results. I know people that work there, and not only are they paid well, they have benefits, flexible hours and the company provides a great work life balance. This is a great example of an organic design. It is also clear, that Starbucks has great leadership. I came across this video on YouTube that has the Starbucks CEO talking about his vision and the Leadership that is needed to keep the organization moving.

    • Thanks for the video, Leanne

      The CEO is so damn smart, he never stays “comfortable” he is always looking for what the next option is, it’s like the moment you think you can relax, is the moment one of your competitors will pull the carpet from underneath you. Fast-forward thinking is the way of the future and Starbucks is just going to continue to grow.

  3. Interesting blog post with good focus Prabh. I’m curious to know if they introduced the Matrix structure as a result of them having to close over 600 stores in the US in 2008 or whether they had to close the stores as a result of introducing the new structure. It seems as though the change in structure may have been a rather large change, and although they are still one of the most dominant companies in the world, could they have done anything different to avoid taking a step back? Maybe they got a little over-zealous? Here is an article I found on MSNBC which talks about the major shift that Starbucks went through in 2008:

    http://www.msnbc.msn.com/id/25482250/ns/business-us_business/t/starbucks-close-stores-us/#.UASbXL_U4y4

    I’m curious to see what you think about this.

  4. Like most companies in the US, Starbucks also fell to the economic downturn. Most individuals couldn’t afford to pay their mortgage, let alone a $5 specialty coffee. Starbucks was continuing their growth based on their sales year over year and unfortunately the trends fell short.

    It’s pretty amazing that a company that shut down 600 stores is still doing so well 4 years later. Viva La Starbucks!

    • abby said:

      I think an important thing to remember about this time was the change in leadership – Schultz stepped down in 2000 thinking that they were now established enough he could step back. The two CEO’s that replaced him lost sight of the true purpose of Starbucks and instead focused on growth. Schultz is an incredible leader, and I am almost positive that if he had remained in the CEO position through the economic downturn their losses wouldn’t have been near as great.

      It should also be noted that as soon as Schultz stepped back in as CEO, numbers slowly began to rise. It was a crazy road back to where they were today, but Schultz’s leadership was crucial to their success post-recession.

  5. Great post Prahb. To comment on your Rim question I just think the biggest issue is because there is Apple! I follow Apple’s news a lot but not so much about Rim but I did read a few on their management issues and how their new phones cannot compete with other cell phones. One of the major issues is the user interface. Many switch to touch screen phones such as IPhone because once they have tried Apple products; the old blackberries are just not that convenient anymore. I still remember when Blackberries were one of the top dogs who could compete with IPhones. However, their new products did not innovate and improve like IPhones did. Moreover, the marketing strategies that Apple has are simple better than Rim’s. In previous marketing classes I have taken in Kwantlen, we have always studied how Apple improves its marketing strategies, production process, customer services and so forth. The ways Apple creates its brand image through advertising are just unparalleled with any other companies. Moreover, with a well-known CEO like Steve Jobs, who could sell and attract publicities, made the Apple products much more desirable. Comparatively, Rim does not have that competitive edge.

    • Hey Jason!

      I completely agree with you on your position about RIM. To be fair about the screen size though, although RIM is a little late to the smartphone race. They will be releasing a full touchscreen phone around November of this year. Perhaps even earlier. In addition, they are going to continue the trend with the qwerty keyboard and release 2 models. The qwerty keyboard model is only going to be released based on the fact that so many consumers and RIM advocates complained about not wanting a sole touchscreen phone.

      RIM actually has employees working six days a week in order to finish the newest operating system on time. It’s sink or swim for them at this point. We will see what happens

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