Starbucks' Human Resource Management Policies and the Growth Challenge

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Case Details:

Case Code : HROB068
Case Length : 12 Pages
Period : 1987 - 2005
Pub Date : 2005
Teaching Note : Available
Organization : Starbucks
Industry : Coffee Retailing
Countries : USA

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"The relationship we have with our people and the culture of our company is our most sustainable competitive advantage."

-Howard Schultz, chairman and chief global strategist of Starbucks, in 2002.1

"My biggest fear isn't the competition, although I respect it. It's having a robust pipeline of people to open and manage the stores who will also be able to take their next steps with the company."

-Jim Donald, president, Starbucks North America in 2005.2


In January 2005, when Starbucks Coffee Company (Starbucks) was placed second among large companies in the Fortune "Best Companies to Work For" survey, it was no surprise to those familiar with the company's human resources management policies and work culture.

In general, the retail industry is notorious for its indifferent attitude towards employees. Despite the fact that employees, especially those on the frontline, are critical to the success of retail businesses, most companies do not have a strong relationship with their employees, and consequently suffer from a high rate of employee turnover (In the early 2000s, employee turnover in the retail industry was around 200 percent).

In this scenario, Starbucks stood out for its employee-friendly policies and supportive work culture. The company was especially noted for the extension of its benefits program to part-time workers - something that not many other companies offered. As a result, Starbucks employees were among the most productive in the industry and the company had a relatively low employee turnover.

Though it was popular as an employer, Starbucks' main challenge in the early 2000s was whether it would be able to continue to attract and retain the right kind of employees in the right numbers, to man its rapid expansion program. Although it experienced slow growth in the initial years the company expanded rapidly after its Initial Public Offer (IPO) in 1992 and grew at an average rate of around 20 percent per annum.

Analysts said that, in the light of its ambitious expansion program, Starbucks' generous human resource policies made sound strategic sense, as they kept the turnover low and provided a ready pool of experienced employees to support expansion.

However, by the early 2000s, three possible problems had to be considered - would the company be able to support its staff with the same level of benefits in the future, given the large increase in the number of employees; would the company be able to retain employees if it made any move to lower its human resource costs by cutting down on benefits; and would Starbucks be able to maintain its small company culture, an important element in its past growth.

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1] "The Culture Connection,", June 2002.

2] Gretchen Weber, "Preserving the Starbucks' Counter Culture," Workforce Management, February 2005.


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