Quality Case Analysis Starbucks
Quality Case Analysis
Recently, the US based coffee company Starbucks is facing great problems affecting not only their financial situation. The company’s price share decreased by more than 40% over the past year and the sales in the US stores opened for more than one year decreased by 1% in the quarter. The consumer spending in US was decreased, thus the company decided to open 425 outlets less than it initially planned. At the beginning of the January, chief executive Jim Donald was sacked because of the company’s problems and consequently was hired chairman and former chief executive Howard Schultz (Smale, 2008). According to the analysts, the problems of Starbucks are much deeper and are affecting also the image and good name of the company.
One of the greatest problems of Starbucks is that the company lost its focus. According to Schultz, the company “got a little soft” after being so long in this kind of business and needs to return to what made it extraordinary (Smale, 2008). As he continuous, he admits that company is literally “cannibalizing” its own sales because the US outlets are opened almost on every corner of biggest cities (Smale, 2008). Thus it seems that Starbucks outlets compete between themselves not with their direct competitors. Such quick and great expansion hurt image of the company since it is no longer considered exclusive and upmarket for what it was popular at the beginning. Furthermore, the expended Starbucks caused a perception about worse quality of the coffee and customer service. In reality, this does not necessarily need to be perception anymore.
As a result of these, the US customers that were once loyal to the Starbucks are moving to their competitors. Small but more fashionable coffee stores are attracting customers and taking them away from Starbucks. White collar customers are now consuming at the more exclusive coffee stores, on the other hand, blue collar customers are using the fast-food chains. For example McDonald or Dunkin’Donuts have recently improved the quality of their coffee which is also cheaper (Smale, 2008).
These facts are pointing to the conclusion that Starbucks have no point of differentiation. Once very original and innovative coffee store with quality service and coffee is now becoming less popular and less recognized. The customers do no longer perceive Starbucks as a special place to go; on the contrary, it is understood as an ordinary coffee store with no soul, no quality service and coffee. With such great expansion, it is very difficult to manage and control the quality of each store.
The first Starbucks coffee shop was opened in Seattle, in 1971 by three academics English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker. They wanted to offer high quality coffee from different parts of the world and educate customers about the value of coffee beans. As the legend says, the name Starbucks comes from the book by Herman Melville, Moby Dick and it was chosen because it evoked romance and tradition of the early coffee traders. At the beginning of 1980, there were opened four stores of Starbucks in Seattle area and the company experienced the leaving of Zev Siegel. Jerry Baldwin was nominated to chief executive officer and took care of day-to-day management. Gordon Bowker remained an owner of Starbucks but put more time and energy to his weekly newspaper and a microbrewery.
In 1981, Howard Schultz, vice president of Hammarplast – producer of kitchen equipment, went to visit Starbucks to Seattle. He was so astonished by the atmosphere and quality service at the coffee store so he suggested an expansion of the coffee shop. Until then, Starbucks depended solely on word-to-mouth advertisement. After Schultz’s visit to Italy, he convinced Baldwin and Bowker for a change to open innovative stores in Seattle in which more kinds of coffee would be offered by baristas (counter workers). The more Italian coffee-bar way of greeting and serving coffee to the customers was the point of differentiation. Schultz retrained employees for friendly service and offered customers brochure about the fine coffees.
Couple of years later, the company opened its stores out of Seattle and even out of the US. In 1988, Starbucks opened 15 new stores, in 1989 20 new stores, until the year 1992, there were altogether opened 161 stores. Nowadays, the company has more than 15,000 stores in around 42 countries with the last quarter profit of $208.1 million (Thompson, 1999).
The company started to cooperate with Marriot Host International and Aramark to operate the Starbucks stores. Host was operating stores at the airports and Aramark at the student campuses, thus Starbucks ensured its operations on the places difficult for them to enter. Also it had signed contract with Barnes & Noble bookstores and some Wells Fargo Bank locations in California to offer coffee.
Nowadays, the company is offering regular or decaffeinated coffee beverages, “coffee of the day,” and great selection of Italian-style espresso drinks. Moreover, the customers can choose from great selection of fresh-roasted whole-bean coffees (which customers can buy and take home), fresh pastries, sandwiches and other kinds of food (sodas, juices, teas) and coffee-related hardware and equipment (for home making coffee). The company has introduced several innovative items, as Starbucks Barista – home espresso machine, Power Frappuccino or Chai Tea Latte. In addition, the company started to sell CDs and books, plush bears, etc. (Thompson, 1999).
Being on the market for so long, it is hard for the coffee company to sustain its success. With increased number of competitors offering almost the same selection – coffee, beverages, cakes, sandwiches, it is very hard to differentiate, even for Starbucks. Although Starbucks was innovator and founder of Italian way of serving quality coffee in the US, this was not very hard idea to copy. Many coffee shops, fore example Coffee&Co or Coffee Heaven placed here in Bratislava started to imitate Starbucks and its operations. Most of the coffee shops provide higher quality coffees with additional items such as food. With increased competition, Starbucks wanted to offer something more and therefore it introduced CDs, books, and even plush bears for selling. CDs and books are selling very well and are very popular among the customers. Otherwise, the bear and additional small advertisement products were not successful.
Many customers have moved to other coffee stores because they do not perceive Starbucks as special place to visit. With being so expanded, many customers think that the quality of service and coffee is not that high. I personally was at Starbucks in Oman, and I did not find anything attractive at the place or coffee. The store was quite shabby with uncomfortable chairs and coffee tasted as any other coffee at any place; just this one was more expensive. I visited Starbucks at the airports and think they have more soul in them than this one store at Oman. Also, as I heard, the new store in Prague is not very popular because the service is very bad and employees are behaving badly to the customers. Therefore, Starbucks should really control their operations overseas to ensure the high quality they claim.
Application of the Deming’s 14 Points
1. Create consistency of purpose
This is very important point because every company should make continuous improvement in order to be competitive, be in the business and offer jobs. Product or service need to be constantly improved for long-term success. During the past, Starbucks had been continuously improved. It encouraged the creation of the new products and always tried to offer special kind of service. Till now, consistency of purpose had been seen within Starbucks operations. This point had been very well followed in the past but nowadays the situation has changed. I think that with such great success, the company forgot a bit about the continuous improvement. It allowed competitors to take away its customers and have no competitive advantage over them. The company needs to come up with new ways of bringing the old customers and attracting the new ones. The company should improve the quality of their coffees and service worldwide because the problems in the US might later affect all the stores. The company should constantly improve the taste of its coffee, bring new types and sustain the store ambience.
2. Lead to promote change
Since competition is increasing, company needs to eliminate delays, defective products, poor quality materials or processing. Company needs to implement new philosophy into its operation. Starbucks is not afraid of changes; I would say that it handles changes very well and often turns them into its success. As it was mentioned above, the quality of the coffee and the service is decreasing thus the customer spending in the US is decreasing as well. Those lacks in quality need to be eliminated and Starbucks has to ensure high quality in each store which needs to be well controlled. If company was perceived as lucrative and upmarket at the beginning, it is not at the present. Starbucks should change its philosophy of having many stores closely located with each other. I would eliminate great number of stores according to the location and performance and keep only the sufficient number of stores.
I would eliminate production and sale of everything not really connected with the coffee, as plush bears. Although books and CDs are not really connected with the coffee, they are quite popular among the customers. Starbucks need to understand that just because it can sell almost anything; it does not necessarily mean that it should. It needs to understand that over-extended brand may hurt its image.
3. Build quality into the product, stop depending on inspections to catch problems
Company should build quality into the product at first place and not waste money and time on inspection. Quality should be designed into the product at all the production phases. This point might be also seen as that Starbucks too late realization of the move of its customers to the competitors. Only when the financial data were released, the company noticed some problems and this was too late. The quality at Starbucks needs to be designed with every new store opened and every coffee prepared.
4. Build long-term relationship based on performance instead of awarding business on the basis of price
The main idea of this point is to decrease total costs by minimizing variations. That means, company should decrease the number of suppliers for one item according to the price. Instead, it should build its relationships with suppliers according to the price and quality of their performance. I think that Starbucks is fully following this point. From the beginning, the company tried to cooperate with the best suppliers of the coffee beans worldwide. Because the coffee is one of the most traded commodities on the market, the price depends on many factors and is fluctuating. Therefore, Starbucks needed to create good relationships with its suppliers to agree on fixed price purchase commitments.
5. Continuously improve product, quality, and service
This point is closely related to the first point of continuous improvement. Planning, production and service need to be improved for ever in order to decrease costs. Innovation should be incorporated in all fields and management needs to continually improve design, production, maintenance, training, retraining, and control. As it was mentioned above, the continuous improvement was promoted at Starbucks for long time. The company was doing great job to become global but still exclusive. Recently, the company is stagnating and as Schultz agreed it “needs some new innovations to reconnect with customers” (Smale, 2008). With such great number of stores, it is very difficult to control the quality. Therefore, Starbucks should create a committee of inspectors who would visit the stores and make a report. That report would clearly shows missing parts and defective stores, so the management can accordingly act. As Starbucks states, the company was doing “mystery shopping” to evaluate each store. I did not find any information if company is still doing it but certainly that would be very effective step in this situation.
6. Start training
With continuous improvement of product and service, employees need to be trained and retrained to gain new skills. New methods should be used in order to train the employees effectively. I think that Starbucks employees at the US are very well trained but I doubt about the overseas personnel.
Every new employee at Starbucks has 24 hours training during the first two to four weeks. This training educates employees about the coffee history, its preparation, coffee knowledge and customer service, selling skills and finally the employees visit a workshop “Brewing the Perfect Cup” (Thompson, 1999). The baristas are trained in detail about the coffee bags (how to properly open them), coffee preparation (grinding the beans, steaming milk, etc.), then they have to memorize all the ingredients and prepare coffee to the customer specifications. Baristas need to know and explain the Italian names to the customers, be able to sell home coffee machines, make eye contact and relationship with the customers. Employees have to memorize rules as “milk must be steamed to at least 150 degrees Fahrenheit but never more than 170 degrees; every espresso shot not pulled within 23 seconds must be tossed; customers who order one pound of beans must be given exactly that—not .995 pounds or 1.1 pounds; never let coffee sit in the pot more than 20 minutes; always compensate dissatisfied customers with a Starbucks coupon that entitles them to a free drink” (Thompson, 1999).
Management is trained for longer time, from 8 to 12 weeks covering all the information about the coffee plus the company’s operations, rules, and systems. The trainees are long-time store and district managers of Starbucks who teach about the company’s principles, values, and culture. I’m not really sure, if that deep training is still performed. With such quick expansion, I think that there is no long time to educate people about the coffee preparation.
7. Emphasize leadership
Good leadership needs to be instituted at the company in order to guide and help employees. Mangers and supervisors need to be responsible for the improvement of quality, which will increase the improvement of productivity. In case of received report about any defects, management needs to take full responsibility and provide instant action. In the case of Starbucks, the company sacked its chief executive Jim Donald who was replaced by the former chief executive Schultz. Evidently, Donald was accused of the recent company’s problems. The company hopes that Schultz will help and come up with the best solution. From the past, Schultz proved to be very innovative and not afraid of any changes and challenges. He was the one that recreated the company and developed global coffee store, known worldwide. He is very good leader and manager, he proved to be very honest in admitting all the company’s problems. In the interview for the press, he admits, ”We have to get back to what made this company great, and that is to have the courage and curiosity, and commitment, to do things that have not been done before” (Smale, 2008). I think that Schultz will help the company with new and innovative ideas.
8. Drive out fear
Nobody at the company should sense any fear, therefore company needs to use effective two way communication. In friendly and pleasant working environment, employees will work more productively. I think that Starbucks promote pleasant working environment and this point is not really relevant for the company. Of course, some employees may have personal issues but generally, it can be concluded that company promotes good relationship with its employees.
9. Break down barriers between departments
People from all departments need to cooperate and behave as one big team. Only with cooperation between departments can company deal with problems regarding the product or service. Regarding the Starbucks coffee stores there are no departments and therefore, this point is not relevant. Since at each store there are around 5-10 people who work as a team, company is breaking the barriers and creating one cooperative team. I’m not sure how this point works at the headquarters but from all the sources I’ve read, I would say that company is promoting cooperation between the departments. Starbucks understands that only when the different departments cooperate, company can bring innovative ideas and successfully apply then into the operations. In this situation, Schultz will put the whole company together and try to come up with the best solution.
10. Stop haranguing workers
Company should not use any slogans or posters that dictate high productivity or zero defects for the employees without providing methods. Such exhortations only build hostile environment and bad communication. I’m not a company insider but I think that this point is again not relevant for Starbucks. Firstly, company trains in detail its employees so they know the methods and understand the operations. Starbucks understands that only two way communication can create pleasant environment and increase productivity.
11. Support, help, and improve
Company should not promote numerical quotas for the employees and numerical goals for the management. Instead, it should provide support and help to its employees. I think that these numerical goals and quotas should be used as a proof of company’s performance and shown to the employees of the company. Of course, they should not be the base and instead company should support its employees. Starbucks numerical goal – opening 1,175 stores was influenced by the current situation and company is opening fewer stores than it initially planned. I think that Starbucks is supporting its employees and providing them best training and working environment. Since there are thousands of stores opened, it is hard to control and manage each of them. At the beginning, when Starbucks had opened couple of stores, support and improvement was much easier performed. Now, the company has to make a great effort in supporting all the employees and providing them help.
12. Remove barriers to pride in work
Company needs to eliminate any barriers that rob employees of pride in work. For example, individual performance reviews are barriers to pride of accomplishment. Annual merit ratings and management by objective need to be eliminated. I think that this point is not relevant for Starbucks, since the company has no barriers to pride in work. Generally, employees are proud to work in Starbucks. The company cares about their employees. Top management people are very well experienced people who can add valuable perspectives to the company. Each employee is well trained and educated about the system and methods of the company’s operations.
13. Institute a vigorous program of education and self-improvement
Every company needs not only good employees but also educated, thus it should promote education and constant self-improvement program. Starbucks is very effectively following this point. It trains its new employees about the coffee knowledge and preparation of high quality coffee. Training of overseas employees is questionable but in the US, the employees are very well trained. Employees gain valuable knowledge about the coffee history, preparation of different types of coffees, handling the coffee beans in the bags…etc. They learn to communicate wit the customers and prepare them coffee according to their perceptions. Top management receives much deeper knowledge about the company’s operations, system and basic of managing people. With every new product or service incorporated, employees are trained on how to use and provide them effectively.
14. Put everybody in the company to work on the transformation
Top management and all the employees need to be committed to improve quality and productivity by incorporating those 13 points mentioned above. Commitment is not enough; everybody at the company needs to know what they are committed to. In this point, support is insufficient but action is required. Starbucks in order to be successful again needs to come up with interesting and innovative products and reconnect with its customers. For certain, the company needs to work on its transformation plan and Schultz needs to put the whole company together. The company should act as soon as possible, so its image will not be hurt and good reputation will be renewed. Schultz needs to come up with innovative ways to attract the new and bring the old customers back into the stores. The company should focus on its main purpose and create consistency of the high-quality service and products. Eventhough Starbucks effectively follows some of the Deming’s points, certainly it needs to focus on continuous improvement of its products and services and promote change.
Since Starbucks is dealing with many problems as decreasing sales, increasing competition, lost focus, hurt image of exclusive and upmarket coffee store, deterioration of the quality coffee and service, it needs to implement transformation plan to get back to what made it so popular at the first place.
First of all, Schultz and the whole team should come up with the transformation plan. The transformation plan should remind the main purpose of the company and include the ideas for change, focus on customers and quality coffee and service in the US and overseas stores as well. Secondly, one of the transformation plan’s points should be to identify which stores are worth to keep running because as it was mentioned earlier, there are too many stores placed too close to each other. The group of investigators should be put together and each store should be examined, according to the number of visitors, geographical location and some other conditions that would be in the transformation plan. According to the results, the company should decide which stores close or keep. Also overseas, the company needs to better manage its stores and control them more effectively, not only at the opening. Starbucks needs to control the stores regularly and evaluate the quality of service and products provided by employees. Thirdly, the company should focus on selling the coffee and offering high quality service altogether with additional items such as books or CDs, coffee mugs and tumblers. For sure, Starbucks should eliminate the production of barista bears, finger puppets, and pedal cars. Finally, the company needs to work on its continuous improvement by bringing new products, offering new services, and inclusion of the quality into all phases.
The development of the transformation plan should be done as soon as possible in order to have clear vision about the change. After the development of transformation plan, the process of continuous improvement should be immediately implemented. If company stars to work on transformation plan now, it should be finished within maximum of one month. Then, the committee of investigators should be put together and sent to examine each store. Because the number of stores is quite great, this phase would take most of the time. I suggest that examination and processing of reports of the US stores would take around 5-6 months. The examination and control of overseas stores will take approximately 3-4 months, since the number of them is much smaller.
To conclude, if company will successfully implement the transformation plan into its operations, most of the problems will be solved. By eliminating the sale of items not related to the coffee and by closing some of the stores, the company will save the money and its image. Less number of stores and more focused Starbucks will be perceived as that company is focusing more on the quality than on the quantity. Therefore, the company can recreate its image as upmarket and exclusive coffee store. The company has no problems with its suppliers and higher standard relations will be preserved. On the other hand, the transformation plan should increase the customer satisfaction. Recently, the customers are not satisfied with the quality of the coffee and service in the coffee stores. With eliminated number of stores, the company can more effectively control the quality. It can bring new innovative products and introduce new services. The company’s emphasis on the quality rather than quantity will increase the customers’ satisfaction. From top management to bottom level employees, the company should demonstrate its willingness for change, commitment, and courage. Starbucks should clearly express its transformation back to the exclusive and upmarket coffee store. With the emphasis on the quality, the productivity will be increased.
Smale, Will (February 1, 2008). Why Starbucks sales have gone cold. BBC News. Retrieved on February 3, 2008 from http://news.bbc.co.uk/2/hi/business/7219458.stm
Thompson, A.A & Gamble, J.E. (1999). Starbucks Corporation. McGraw-Hill companies. Retrieved on February 7, 2008, from http://www.mhhe.com/business/ management/thompson/11e/case/starbucks.html