Describe The Internal Environment of Starbucks Using the COSO ERM Framework model

On a corporate level, Starbucks was willing to accept a variety of risks associated with a strategy focused on local and international expansion, as aligned with their mission. Starbucks was willing to face cultural barriers in tea-drinking nations such as Japan, China and Britain as they believed in the potential for growth in the absent luxury coffee market there. Despite initial resistance and losses, Starbucks was willing to adapt its practices and store image so as to merge into the local community. However, Starbucks was unwilling to compromise on its brand name. Starbucks eventually withdrew from the Forbidden City when forced to sell coffee under the palace museum brand name in order to maintain operations there .

For growth, Starbucks leaders were willing to have multiple business operation models, thus accepting the risk of weak corporate cultures in non-company-operated stores. By 2002, 85% of Starbucks’ revenue came from company-operated retail stores and the remainder from licensed stores, key partnerships and specialty operations such as foodservice accounts and mail-order catalogue sales. To provide a comprehensive Starbucks Experience, Starbucks was willing to accept risks related to product dilution as they introduced new products such as Starbucks VIA® Ready Brew, music compilations and licensed merchandise. 

Riding on its belief in innovation, Starbucks accepted risks from not conducting market research or sufficient advertising, choosing to rely on market testing and purely-word of mouth to develop its products. In fact, up till 1996, Starbucks had spent a total of only $10 million on advertising. Eventually, Starbucks failed to take appropriate risk mitigation processes and faced decreasing incomes in 2008.  In order to stay competitive, Starbucks redefined its strategy and changed its risk appetite. Starbucks cut costs of at least $500 million, closed 800 stores in the U.S. and laid off more than 4,000 employees. Starbucks also conducted more customer research, offered discounts, advertised.

Board of Directors’ attitude

Starbucks’ Board of Directors consists of 11 experienced individuals from various backgrounds. The management maintained a transparent and close working relationship with the directors, keeping them informed of all news about Starbucks.  As such, the directors were able to offer informed advice frequently and providing suggestions for improvement. This was evident in 2008, where the various directors worked closely with Howard Schultz, sharing their experience and offering insights on the Transformation Agenda.

Integrity & Ethical Values

To preserve their corporate culture and reputation, Starbucks has a Business Ethics and Compliance program that adheres to its mission by providing resources that help partners make ethical decisions at work. Starbucks’ Standards of Business Conduct, distributed to all partners, provides clear and concise directives on how partners are expected to conduct their business and make appropriate decisions at work. It covers conduct in the working environment, acceptable business practices and persuades active involvement in the community. In events of uncertainty, the Ethical Decision-Making Framework provided partners additional guidance. Moreover, channels such as the toll-free 24h Business Conduct Helpline and the Business Conduct Webline provides avenues for partners to seek guidance and raise concerns without fear of retaliation from management. Partners are assured confidentiality and anonymity. Given the close proximity to their managers, partners are also encouraged to seek their managers for help. Easy access to resources for help and a collaborative working environment supports the strengthening of integrity and ethical values.

With multiple ethical awards to its name, Starbucks proves that it consistently conducts itself in an ethical manner, fulfilling its responsibilities of ethical sourcing, environmental stewardship and community involvement. Starbucks purchases coffee from C.A.F.E Practices approved suppliers despite the higher prices and also began purchasing Fair Trade Certified™, fuelling market demand for such coffee in the U.S. Through their actions, Starbucks encourages environmental sustainability and hopes to help small-scale farmers develop the business skills necessary to compete in the global marketplace while practicing sustainable farming.  Starbucks has also shown continuous involvement in the community by supporting projects such as the Ethos® Water Fund and establishing the Starbucks Foundation to spearhead additional philanthropic projects.  In 2008, Starbucks was accused of  “greenwashing” following a tabloid investigation on wasteful water practices. Within 24 hours, Starbucks began actively investigating alternatives to its practice of leaving taps running all day in its stores, further proving their commitment to environmentally friendly practices. With an ethical corporate culture upheld by the management, partners in the whole company will naturally be encouraged to behave ethically as well.

Commitment to competence

Be Knowledgeable is one of the “Five Ways of Being” and Starbucks believes in providing partners with the necessary skills and knowledge to perform. The Coffee Passport programme trains partners to develop knowledge of coffee to better understand the nature of their business and to educate customers on Starbucks’ quality coffee. All partners including non-baristas such support staff, are encouraged to participate. Baristas who have passion to become coffee experts are encouraged to explore the possibility of becoming Coffee Masters. Starbucks also ensures that all in-house architects and designers start their careers in Starbucks by working behind the counters. Starbucks believes that knowing how the store design interfaces with the needs of the customers and baristas allows these partners to develop workspaces that are both aesthetic and functional. As proof of their commitment to excellence, Starbucks closed 7,100 stores nationwide in 2008 for three hours to retrain about 135,000 partners in a bid to refocus their strategy and ensure that partners remain competent. 

Starbucks management continually perfects training resources, not only at the product knowledge and operational levels, but also in areas that help partners take ownership in the business. One such tool, Conversations and Connections, utilizes real-life scenarios to train partners to embody the “Five Ways of Being” in a realistic setting. Managers are consequently trained to anticipate situations that their staff will encounter and sharpen their problem-solving skills. Learning is made fun whilst being effective and hence, partners are able to develop the necessary skill sets to provide the “Starbucks Experience”.        

Organisational structure

Starbucks organizes its operations by geographical regions with district managers and regional offices overseeing operations in separate areas or countries. Besides that, Starbucks also has separate departments to focus on different functions needed in the organization. This includes functions in areas marketing, coffee procurement, and corporate and social responsibility. Within each store, there are store managers to oversee the operations.

Assignment of responsibility and authority

All partners within Starbucks are empowered to deliver great customer experiences. Hence, responsibility is placed on every partner to create that unique Starbucks Experience in every way they can. For decisions that require capital, authority is sought from store managers or managers higher up in the hierarchy. In the event that the CEO recognizes a great opportunity to further Starbucks’ mission, permission is granted directly to the partner to execute the plan with provision of resources. As mentioned earlier, communication channels are also provided for partners to express their suggestions. Starbucks encourages its partners to be innovative and take ownership for creating excellent customer experiences.

Human resource standards

In the U.S., Starbucks stands out by having comprehensive health coverage and equity in the company through Bean Stock for eligible full‐ and part‐time partners. Through such practices, Starbucks turns its employees into partners, thereby offering them a stake in the company. Thus, partners can feel a direct link between their effort and the success of Starbucks. Starbucks also has a culture of giving due recognition to deserving employees. Management nurtures a playful, positive culture by opening up formal and spontaneous avenues to acknowledge and praise partners. For instance, partners who have performed Green Apron Book-type interactions are openly praised during monthly meetings. Personally written recognition cards are also given to employees in recognition of their efforts when credit is due. Even the CEO embodies the spirit by starting each day with personal recognition calls  to partners throughout the world.

Conclusion

Starbucks has successfully established a strong internal environment. With effective communication, Starbucks was able to ensure that every partner understood the guiding philosophies of their corporation. Starbucks might have faltered in 2008 due to its huge corporate risk appetite but was able to make a quick comeback due to its strong internal environment and clear understanding of its guiding philosophies. All in all, Starbucks can be certain that its successes will continue if their strong internal environment is preserved.

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