Control Mechanisms of Starbucks

Starbucks Coffee Company™ first opened in 1971 in Seattle’s historic pike place market neighborhood (Starbucks Coffee Company, 2012, p1). Their mission is “to inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time” (Starbucks Coffee Company, 2012, p1). Identifying four control mechanisms, comparing the effectiveness of them, the reaction to the use of these controls, and how they affect the functions of management at a company like Starbucks, it is easy to see why they are so successful. Identify Four Types of Control Mechanisms

Four types of control mechanisms Starbucks uses are bureaucratic, market, financial, and clan control by empowering role of their culture. Bureaucratic controls instill the use of rules and authority to guide employee’s performance (Bateman & Snell, 2009, p575). Financial controls used are in the way to motivate employees by pay. Market control “involves the use of economic forces-and the pricing mechanisms that accompany them-to regulate performance” (Bateman & Snell, 2009, p599). Market controls at the corporate level in large companies like Starbucks are used to regulate independent business units (Bateman & Snell, 2009, p600). The control mechanism at the business unit level uses the method of transfer pricing to reflect market forces for internal business transactions (Bateman & Snell, 2009, p600). At the individual level the market control would be how much employees are to be paid (Bateman & Snell, 2009, p600). Clan control mechanism of empowerment is empowering an organization’s employees to meet performance standards (Bateman & Snell, 2009, p602).

Compare & Contrast Control Mechanisms
Bureaucratic control mechanisms are about rules, regulations, and authority where clan control mechanisms are about shared goals, values, and trust (Bateman & Snell, 2009, p575). Starbucks chooses to use more clan control mechanisms as it is in line with their mission statement about the human spirit. Financial controls are what Starbucks uses to analyze how their employees should be paid, while market controls are what they use to control the quality of the product in the market place. Effectiveness of Control Mechanisms

An example of effectiveness using bureaucratic control, Starbucks firmly believes that there “is an inherent link between quality and price” (Starbucks Coffee Company, 2007, p19). Like any business, coffee farming has to be profitable in order to be sustainable. Starbucks has made a commitment to the farmers to pay top prices for top quality coffee, both of which have proven successful. Thus, farmers are eager to continue to not only grow top quality coffee, but to increase the productions as well. Starbucks provides stakeholders with an annual fiscal report that includes the budgetary information, statistical reports, in addition to performance appraisals.

One of the most important determining factors in the pricing of coffee is quality. In addition, production costs have to be figured in, along with the “prevailing market conditions which vary from country to country and region to region” (Starbucks Coffee Company, 2007, p19). This is where Starbucks uses the market control mechanism. Starbucks continues to work with countries that struggle with economic hardships to produce quality coffees and teas for the company. This partnership has assisted such areas with funding to help rebuild the communities. This is proving to be a win-win situation for both the suppliers and Starbucks.

Something Starbucks feel very strongly about and is an example of how they use the clan control mechanism is how they treat every employee with respect and dignity. The company also believes the employees “are entitled to a fair, safe and humane work environment” (Starbucks Coffee Company, 2007). This is for the employees as well as the employees of their suppliers. The goal of Starbucks is to create a work environment that will attract people and make them want to stay. Starbucks wants each and every employee to feel that Starbucks is the best place to work. This is done through the belief that Starbucks should listen to the opinions of their employees, and value them (Starbucks Coffee Company, 2007).

Beginning in 2007, Starbucks completed a study on international store employees to determine a pay scale. The success of Starbucks is “shared through incentive and benefit programs” (Starbucks Coffee Company, 2007) for employees, based on the company’s philosophy. This is an example of how Starbucks uses financial control mechanism to motivate their employees. Positive and Negative Reactions to Controls

Each control mechanism has its benefits and designed with a purpose to help enhance the effectiveness of management and the success of the company. With each method comes a reaction from employees either positive or negative. The control mechanism have been designed to fit a specific type of business model and as stated earlier, Starbucks has adopted each one and applied to help them become successful. One of the best functions is the bureaucratic function. This allows management to set standards, measure performance, compare performance against the standards and look for deviations, and finally taking corrective actions to fix the errors (Bateman & Snell, 2009, p576). The pro is that this Control Cycle allows management to find errors or omissions and help correct them so that employees may achieve their company’s goals. The negative reaction can be if these goals are not clearly identified or that the standards are not suitable or obtainable by employees. This would create employees who can find themselves helpless to achieve impossible standards set by the company. Standards need to be set in a way that are high enough for success but also attainable.

Financial controls mechanisms can help motivate people to work to achieve goals and employees can rely on the fact that they will be compensated accordingly. This type of control can help motivate staff and management depending on the incentives that a company creates for their employees. A negative reaction is that pride in work or their products can be lost by the haze of greed. Depending on how a company portrays their goals, employees may do whatever takes to reach it losing the quality of their product. An example would be that all a company cares about is the number of sales; this could lead to employees just producing the product as quickly as possible without attention to detail. This could also lead to the company overlooking how their products are produce and how they get there. Fortunately, Starbucks is apart of the California Transparency in Supply Chains Act of 2010 which helps deter any inappropriate actions involving employees and individuals related to their company (Starbucks Coffee Company, 2012)

How Control Mechanisms Affect Four Functions of Management
The four functions of management affect these control mechanisms because you have to have some type of planning, organizing, leading and control of the company in order to make it successful. Market control on a corporate level deals the top executives that come up with the planning of Starbucks. Starbucks corporate top executive’s plays a major role in decision making and making sure that on the business side of it their objectives and purpose of the business stays in order. On the business level of market control Starbucks has to stay in tuned with prices of their own products as well as their competitors. The four functions of management is the major part of the control mechanism. Within the business part of marketing you have to go with the planning of the company, and then organize the needs of the product and in what the financial and physical needs of the company are.

The leading part comes in because Starbucks has to make sure that they are giving their employees what they need in order to keep high standards with their company. The business level should want to increase the value of the company and make it more successful. The individual level involves controlling what goes on in the company. “Controlling – the management function of monitoring performance and making needed changes” (Bateman & Snell, 2009, p20). Controlling and leading comes in because as a management team Starbucks have to make sure that they employees stay at a higher performance but make sure that they are giving them some kind of incentive and encourage them to want to increase their skills. When it comes to clan control this coincides with individual level because it is important that everyone is on the same page and everyone is held accountable for the own actions. “Clan control involves creating relationships built on mutual respect and encouraging each individual to take responsibility for his or her actions” (Bateman & Snell, 2009, p602).

Conclusion
Starbucks success over the past 41 years is not on accident. Their managers at all levels exercise the four functions of management and they pride themselves of empowering their employees. Bureaucratic, market, clan, and financial controls are a few of the mechanisms they use to execute their strategic goals. There are pros and cons to each of the controls they use however they see a majority of positive reactions while using these controls. The most positive reaction is how they succeed in their mission “to inspire and nurture the human spirit-one person, one cup, and one neighborhood at a time” (Starbucks Coffee Company, 2012, p1).

References

Bateman, T. S., & Snell, S. A. (2009). Management: Leading & Collaborating in a Competitive World (8th ed.). Boston, MA: McGraw-Hill Irwin. Starbucks Coffee Company. (2007, Fall). Corporate Social Responsibility/Fiscal 2006 Annual Report. Retrieved from http://assets.starbucks.com/assets/4dd6216d0fd0400f8689eceba0497e04.pdf Starbucks Coffee Company. (2012, Fall). Our Heritage. Retrieved from http://www.starbucks.com/about-us/our-heritage Starbucks Coffee Company. (2012, Fall). Our Starbucks Mission Statement. Retrieved from http://www.starbucks.com/about-us/company-information/mission-statement