Posted: May 25th, 2022
Starbucks’ Human Resource Management Policies and the Growth Challenge
In recent years, there has been much interest in the notion of “high commitment” human resource management (HRM). The high commitment HRM is focused on developing self-regulated behavior among employees that is based on mutual trust rather than external sanctions and pressures. Considering this premise, this paper provides a review of the relevant peer-reviewed, scholarly and organizational. literature concerning the advantages of adopting such an approach and an evaluation concerning how closely Starbucks Coffee Company fits the high commitment HRM model. To this end, a brief overview of Starbucks is followed by an overview of the high commitment HRM model which is then applied to the company’s human resource management practices. A summary of the research and important findings are presented in the conclusion.
Review and Analysis
Starbucks’ Corporate History
Founded 40 years ago in 1971, Starbucks Coffee Company (hereinafter alternatively “Starbucks” or “the company”) began its meteoric growth with just one store in Seattle, Washington. By 1987, Starbucks had grown to 17 stores and by late 1996, the company had more than one thousand outlets across the country (Fine & Cronshaw 1999). Today, the company has more than 17,000 retail stores located in over 55 countries, including Argentina, Aruba, Australia, Austria, Bahamas, Bahrain, Belgium, Brazil, Bulgaria, Canada, Chile, China, Cyprus, Czech Republic, Denmark, Egypt, El Salvador, England, France, Germany, Greece, Guatemala, Hong Kong/Macau, Hungary, Indonesia, Ireland, Japan, Jordan, Kuwait, Lebanon, Malaysia, Mexico, New Zealand, Netherlands, Northern Ireland, Oman, Peru, Philippines, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Scotland, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, United Arab Emirates, United States and Wales (Starbucks Company Profile 2012).
At present, Starbucks has tens of thousands of employees in these far-flung locations, and the company hires 200 new employees each day; in addition, Starbucks routinely opens two or three new stores each day as well (Stopper 2004). This rapid rate of growth is cited by Mohrman (2007) who advises, “Many highly successful organizations grow by expanding their business model to more markets. Some, such as Starbucks, have done this with such astounding rapidity that the yearly start-ups of hundreds of stores and branches, with the associated processes of real estate development, facilities planning, new market entry processes, and talent acquisition and development, have become major organizational focuses” (p. 35).
The company’s executive vice president for partner resources, Dave Pace, advises that Starbucks’ corporate guiding principles for sustained growth through enlightened human resource management practices are as set forth in Table 1 below.
Starbucks’ Guiding Corporate Principles
Provide a great work environment and treat each other with respect and dignity.
Starbucks supports a program called the Cup Fund. Partners voluntarily contribute to the fund to help partners in time of need. The needs are normally financial emergencies, but may take other forms of assistance. Being “family” is what attracts partners to the fund.
Embrace diversity as an essential component in the way the company does business.
Starbucks extends domestic partner benefits to the children of the partners. Its workforce is 61-percent female. From a customer image standpoint, the company has strict rules about tattoos and body piercing.
Apply the highest standards of excellence to the purchasing, roasting, and fresh delivery of its coffee.
Starbucks pays above-market rates to sustain coffee farmers to preserve its supply, assure the consistent quality of its coffee, and improve the lives of growers. Through the Chief of Corporate and Social Responsibility, Starbucks gives back to communities that supply coffee through investment in schools, health clinics, roads, and water projects. On the growers’ side, they operate under Starbucks’ preferred supplier purchasing guidelines. The company reports on these community initiatives in its corporate responsibility annual report, and under the banner, “Giving Back,” communicates its efforts to partners in its stores and at home. To assure the freshness of the coffee brewed at its retail stores, Starbucks invests heavily in employee training by area and region. Training is done online now, and approximately 75% of its stores have WiFi capability.
Develop enthusiastically satisfied customers all of the time.
Creating and maintaining the now legendary Starbucks experience with enthusiastic service is difficult, especially from country to country. The desire is to serve the same coffee around the world but there are some local flavors to accommodate differing tastes. A successful international program has been the Coffee Ambassadors and Masters Program. Partners compete as country teams for Star Team status to earn the opportunity to set up and open up new stores in other countries. As an aside, Starbucks does not advertise store openings. It depends on its brand familiarity and reputation as well as word-of-mouth to draw customers to new locations.
Contribute positively to communities and the environment.
Starbucks fosters involvement in the community from corporate to the store. Under a program called “Make Your Mark,” Starbucks donates $10 to a nonprofit organization for each hour partners work in their communities. Some stores have engaged the public in their community activities. A $10,000 donation is not unusual. Additionally, through the Starbucks Foundation, 100 executives serve on community or nonprofit boards. Environmentally, Starbucks enlists partner “green teams” to monitor electrical usage and recycling opportunities, and to suggest improvements.
Recognize that profitability is essential to the company’s future.
Starbucks is approaching the $4 billion revenue mark and its stock has done extremely well in the market. Same-store sales in stores open at least a year have increased monthly for over 140 months. Some diversification has taken place with Tazo tea and music. Starbucks is in the Fortune 500 for the first time.
Source: Stopper 2005, p. 22
Currently, Starbucks’ partners deliver 25 million-plus transactions with customers each week (Stopper 2005). Given the enormity of its global operations and the importance of the human resource function in supporting it, it is little wonder that the company has placed such a high priority on sustaining its brand, beginning with the types of people it hires. In this regard, Stopper adds that, “As the connection to customers, partners (employees) are the key to success. Brand equity has to be built from within and starts with the hiring process. The trick is to find people who fit the Starbucks culture, who have an interest in coffee and want to learn about it, and, most importantly, who can connect with customers and the community” (p. 22). Taken together, it is apparent that Starbucks has invested a great deal in the process as well as its partners over the years in ways that are reflective of the high commitment human resource management model discussed further below.
Overview of the High Commitment Human Resource Management Model
In an increasingly globalized and competitive marketplace, a growing number of organizations have attempted to improve their performance through innovative human resource practices (Pfeffer 1997). For example, Dunn (2005) reports that, “As organizations have struggled in an increasingly competitive economy, superior human resources are increasingly seen as a competitive advantage. This has culminated in substantial interest in developing high-commitment work systems that will attract, motivate, and retain superior employees” (2006, p. 70). The research concerning high commitment human resource management to date suggests that:
1. There are substantial differences in performance between the most and least effective firms or plants;
2. Some significant portion of that difference can be shown to be from differences in the management of the employment relationship;
3. There is fairly consistent agreement on what constitutes high-performance work practices;
4. There is conflicting evidence about whether what constitutes best practice is or is not contingent on the firm’s strategy and whether or not the practices interact in producing their effects (i.e., it is important that they all be present at some level); and
5. There is evidence that the diffusion of these so-called high-commitment work practices and their persistence once they are implemented is not as great as would be expected given their apparent effectiveness (Pfeffer 1997, p. 169).
In reality, many companies fail to realize all of the benefits that can be attained through high commitment HRM due to an inability to align their human resources function with corporate goals, including the need to eliminate waste and add value at every opportunity (Pfeffer 1997). In this regard, a growing number of organizations have sought to reduce their unplanned employee turnover rates in recent years by inculcating a sense of commitment and loyalty on the part of their employees (Droege & Hoobler 2003). According to Finnegan and Taylor (2004), “Unplanned, voluntary turnover is most often associated with high labor costs, defeat of skills and company knowledge, low morale, poor customer satisfaction, and financial losses” (p. 12). Companies such as Southwest Airlines, for example, employ a high commitment HRM model that is based on mutual trust between management and line employee to sustain a competitive advantage (Avolio & Bass, 2002). In fact, an increasing number of human resource practitioners have supported high commitment work systems to foster sustainable competitive advantage and reduce unplanned employee turnover (Burke & Cooper 2005). The high commitment approach to human resource management seeks to “elicit a commitment so that behaviour is primarily self-regulated rather than controlled by sanctions and pressures external to the individual and relations within the organization are based on high levels of trust” (Gratton, Hailey, Stiles & Truss 1999, p. 41).
Although pay and benefits remain among the most important motivational factors in the workplace, the high commitment HRM model recognizes that there are other factors involved that play a role in individual motivation as well that must be taken into account. In this regard, Chonko and Roberts (1996) report that, “Of all the many properties that characterize work in formal organizations, pay is one of the most important. Pay has been found to influence significant organizational behavior variables, including turnover” (p. 154). This is an important issue for Starbucks because the company has historically experienced an 80% turnover in its stores (Stopper 2004).
Even the most well-paid employees, though, may lack a sense of identification with their employers, the high commitment HRM model seeks to firmly internalize a sense of commitment. For instance, Fink (1999) reports that, “While intrinsic rewards generate identification with work and social rewards help broaden that identification to the team level, internalized values are the principal source of identification with the organization” (p. 19). Based on his analysis of various high commitment organizations, Fink concludes that:
1. To the extent that commitment to the work is desired, it is necessary (but not sufficient) to provide general and individual rewards, but intrinsic rewards are both necessary and sufficient.
2. To the extent that commitment to co-workers is desired, it is necessary (but not sufficient) to provide social rewards and general rewards; it may be important to de-emphasize individual rewards; it may be necessary to emphasize task interdependence as part of intrinsic satisfaction; whether it is necessary to generate internalization of organizational values depends upon the degree of sub-unit interdependence that exists.
3. To the extent that commitment to the organization is desired, it is necessary (but not sufficient) to provide general, individual, social, and intrinsic rewards, but it is most necessary, and usually sufficient, to foster internalization of organizational values. Rule compliance can be a contributing factor, but it also can result in behavior that is mistaken for true commitment (1999, p. 20).
In sum, then, the high commitment human resource management model focuses on promoting a sense of commitment and loyalty among all employees through various programs and initiatives that are all based on an enhanced sense of mutual trust. An application of these aspects of the high commitment HRM model to Starbucks human resource management is provided below.
Evaluation of How Closely Starbucks Matches the High Commitment Model
Some major corporations such as Walmart attempt to communicate a sense of teamwork by calling their employees “Associates” (note the capital “A”); likewise, Starbucks calls its employees “partners” (lowercased “p”) (Starbucks Corporate Profile 2012). According to Sparrow, Brewster and Harris (2004), “In Starbucks, the HR function is called Partner Resources rather than Human Resources that plays a central role. It attempts to develop values based on being ‘a great work environment,’ ’embracing diversity’ and ‘pleasing customers’” (p. 115). Consistent with the tenets of the high commitment HRM model, the company places a high priority on career development and has clearly outlined the steps that are involved in career progression so that all of its partners have the opportunity to pursue career goals of their choosing (Working at Starbucks 2012). This focus on career development and training is highly congruent with Gratton et al.’s observation that, “Investment in self-development and career opportunities is seen as a cornerstone of the high-commitment contract, since it implies people are worthy of training and development” (1999, p. 207).
This sense of being “worthy of training and development” is made abundantly clear to up-and-coming executives at Starbucks where the company has a so-called “developing local talent” initiative in place wherein “young managers are in-patriated to Seattle. Developing talent is important to it because a typical store manager is aged 21 to 23 and runs a $1 million business. It develops a strong sense of its values through a 2-month immersion process where managers work in-store learning every part of the business” (Sparrow et al. 2004, p. 115). According to the company’s promotional literature, Starbucks also engenders a sense of commitment to the organization by ensuring that all of its employees, even part-timers, receive healthcare insurance and are allowed to participate in a profit-sharing plan. In this regard, Starbucks emphasizes that, “We believe in treating our partners with respect and dignity. We are proud to offer two landmark programs for our partners: comprehensive health coverage for eligible full- and part-time partners and equity in the company through Bean Stock” (Starbucks Corporate Profile 2012, p. 3).
In fact, Starbucks was the first major company in the United States to provide its part-time employees which account for almost two-thirds (65%) of its workforce) with full health care benefits and stock options (Fine & Cronshaw 1999). The provision of such incentive plans is highly congruent with the high commitment human resource model. For instance, Pfeffer (1997) notes that, “When profit-sharing is taken seriously, it is likely to be in conjunction with high-commitment management” (p. 107). In addition, the company has been in the vanguard of Fortune 500 companies that provide health care benefits for same-sex mates of its partners. For example, Weinstein (2007) reports that, “For the first time ever, a majority of Fortune 500 companies offered domestic-partner benefits to their employees, and 86% explicitly included sexual orientation in their nondiscrimination policy, a record high. Now a group of those companies, led by Starbucks, are helping workplace equality evolve by developing a set of corporate guidelines concerning LGBT employees’ treatment” (p. 68).
In fact, the company views its role as being an industry leader in the development of best human resource practices for LGBT partners. In this regard, Andy Fouche, Starbucks’s corporate responsibility representative, emphasizes that, “We have executive support at all levels to push policy” (quoted in Weinstein 2007, p. 69). Likewise, Starbucks’ senior vice president for finance, Matt Sikes, is gay and has been assigned responsibilities for the executive sponsorship of the company’s LGBT group in which “he facilitates communication between employees and senior management on a range of issues, including corporate policy, event sponsorship, and even transgender employee rights” (Weinstein 2007, p. 70).
In order to keep the other lines of communications open throughout the organization, Starbucks also conducts regular so-called “Open Forum events” that are designed to answer employee questions rather than allow the rumor mill to run rampant (Starbucks Corporate Profile 2012). In addition, Stopper (2004) reports that “Starbucks executives meet regularly with partner groups, communicate via voice mail and videos, and make store visits. Mission reviews are held and partners may challenge actions they believe to be counter to Starbucks’ values. Over 300 cards a month are received from partners voicing a variety of concerns. All receive an answer within 14 days. An anonymous compliance hotline is also in operation” (p. 22).
To help ensure that each Starbucks “partner” feels like an important part of the organization and to build mutual trust, the company’s human resource package is referred to as “Your Special Blend” because “it’s just for you” (Starbucks Corporate Profile 2012, p. 4). A typical “Special Blend” pay and benefit package at Starbucks may include and/or all of the following:
Insurance: medical, prescription drug, dental, vision, life, disability
Paid time off
Retirement savings plan
Equity in the form of Starbucks stock and discounted stock purchase plan
Domestic partner benefits
Emergency financial aid
Referral and support resources for child and eldercare
A free pound of coffee each week (Working at Starbucks 2012).
This approach is congruent with the high commitment HRM model because it individualizes pay and benefits packages in ways that are intended to foster loyalty and commitment to the organization based on mutual trust. In this regard, Fink (1999) emphasizes that, “To the extent that a high commitment system is important to management, organizational leadership must pay attention to the full range of rewards, but especially to whatever it takes to link employees’ goals and values to those of the organization as a whole” (p. 19).
Beyond the pay and benefits packages for both part- and full-time “partners” at Starbucks, the company also sponsors more than 50 partner clubs and networks that are designed to help employees share interests and improve their work/life balance (Working at Starbucks 2012). The partner clubs and networks sponsored by Starbucks include the following:
Recreational athletic leagues
Foreign language clubs
Thrive Wellness Program
Elite Athlete Assistance Program
Internal recognition programs
Discounted merchandise at Starbucks and other retailers (Working at Starbucks 2012, p. 4).
The provision of partner clubs and networks is also congruent with the high commitment HRM model. In this regard, Phillips (2005) reports that, “With a support system, employees perceive a sincere investment in employee concerns on the part of the executives. Without a support network, employees perceive an organization that has no concern about the individuals who contribute to its success. Consequently they may leave” (p. 37). The provision of partner networks by Starbucks is also congruent with high commitment human resource management because they “provide individuals with the feeling that they are making choices. This perception of choice increases commitment to the organization and to the decisions made” (Pfeffer 1997, p. 125).
Not surprisingly, these human resource management policies have been widely lauded by industry observers and analysts, and Starbucks has garnered an impressive array of awards over the years, including the following:
Human Rights Campaign’s (HRC) Corporate Equality Index rating — Starbucks Coffee Company earned a 100% rating for the 4th consecutive year
Black Enterprise magazine has ranked Starbucks among the “40 Best Companies for Diversity” in the country, “15 Best in Senior Management Diversity” and “15 Best in Corporate Board Diversity.”
The Disability Rights Legal Center has honored the company for nurturing an environment of respect and sensitivity to people with disabilities (Working at Starbucks 2012, p. 5).
According to Fink (1999), “Employees in a high commitment organization not only perceive their value to the system, but also need to perceive the value of the organization in its environment” (p. 19). In this regard, the company’s Partner Network Program provides a forum for partners to engage in the work of diversity, inclusion and accessibility; Starbucks’ current Partner Networks include the following:
Starbucks Access Alliance provides a forum for partners with disabilities and allies to engage in the work of diversity, specifically accessibility, for mutual benefits to the partners and the business.
Starbucks Black Partner Network strengthens community connections and aids professional development for partners of African descent.
Starbucks Emerging Workforce Network provides the organization with flexible workplace solutions that will enable our partners to drive business results while fulfilling their personal commitments. Flexible solutions are one element in the body of work often referred to as “work/life effectiveness.”
Starbucks Hora del Cafe is dedicated to creating an environment where partners can develop professionally, build cultural awareness, and celebrate Hispanic culture while affecting the community in a positive way.
Starbucks Pride Alliance provides an equitable, dynamic and supportive environment for lesbian, gay, bisexual and transgender (LGBT) partners.
Starbucks Armed Forces Support Network supports veterans, current service members and their families.
Starbucks Women’s Development Network enhances the personal, professional and leadership opportunities for its members through education, community involvement and relationship building (Partner Networks 2012, p. 1).
The research showed that Starbucks Coffee Company was founded in 1971 with a single store in Seattle and has since grown to more than 17,000 retail outlets in 55 countries around the world. With tens of thousands of employees and an annual turnover rate of about 80%, the need for a high commitment human resource management approach was apparent at Starbucks, and to its credit, the company has taken a number of steps to align its human resource function with the high commitment model. Indeed, in many cases, it would appear that the human resource managers at Starbucks wrote the book on high commitment practices, with many of their initiatives being cited by various authorities as prime examples of how the high commitment human resource management model operates. Across the board, the company was shown to subscribe to a human resource management philosophy that places a high value on its employees and demonstrates this commitment in substantive ways that are individualized tailored to each employee.
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