Starbucks and Psychological Contract Essay

Table of Contents Introduction 3 Company Background 3 The Case 4 Literature Review 5 Change Theories 5 Leadership 5 Psychological Contract & Motivation 5 Critical Analysis 6 Recommendations 6 References 7

Introduction
Changes have never been as fast-paced as in the modern world, driven by technological advancements, consumerism, easy information sharing, and knowledge intensity. Businesses have to be constantly aware of their external environment and of the potential changes in this environment, as well as they have to be prepared to make changes internally in response.

But is a reaction to an external change sufficient for sustaining the competitive advantage of a firm? Modern business tendencies show that more than just a reaction is required, as the internal changes have to be predicted, planned, and implemented regularly throughout an organization in anticipation of upcoming changes. The purpose of regular changes is to ensure that the organization changes along with the environment or drives the change in this environment, which in turn would increase the organization’s chance of sustaining its competitive advantage.

In theory, the more flexible an organization is in terms of change, the more resistant it is to external threats. However, a very flexible and adaptive organization would appear as one lacking job security and stability, which can be an extremely demotivating factor for its employees.

The essay will be managed in three parts – company background and the case as a first part, literature review as the second part, and finally critical analysis of the company case.
Company Background

Starbucks started in 1971 as a coffee roaster and coffee retail company in Seattle, Washington. It was founded by three partners – Jerry Baldwin, Zev Siegl, and Gordon Bowker, and named after the chief mate on the Pequod, a whaling boat in Moby-Dick story. Back then the company sold only roasted coffee and did not brew drinks for sale.

Howard Schultz, Starbucks present CEO, joined the company as a marketing director in 1982 and, after a successful café concept piloting, tried to convince Starbucks management to expand the company and open coffee-cafés across the US, however his idea did not get support from the owners. In 1895, Howard Schultz started-up his own coffee-café company, Il Giornale, which two years later bought Starbucks retail unit for 3.8m $. Schultz used Starbucks brand to start expanding coffee-cafés chain across the US and in the first year the number of coffee-houses reached 17. Starbucks business model back then was based on the company owned coffee houses and the franchising idea was refused.

Figure 1. ‘What Is Schultz Trying to Fix?’, Harvard Business Review, 2011
By 2000, the number of Starbucks stores reached 3,500 in more than 15 countries. Howard Schultz moved to Chief Global Strategist position and gave his place to Orin Smith, who had become Starbucks CEO for 5 years. Jim Donald took over the CEO role in 2005 till 2008, when Howard Schultz returned as a CEO. The company realized the need to focus on its core competencies, i.e. roasting and selling coffee as opposed to selling furniture or books, and continue expansion of the company-owned stores, primarily outside the US (Starbucks Annual Report, 2011), as well as realize the potential of franchise and licensing. These decisions were made based on the financial performance of the company, which declined significantly in 2008 after many years of steady growth.

Figure 2, Company-operated and Licensed Stores, Starbucks Annual Report, 2011
The Case

Since its foundation the company grew significantly and was transformed few times. These changes affected company’s leadership style, which is especially evident within the period between 2000 and 2012. The changes in the leadership style, in turn, should have had an impact on the psychological contract between the company and its employees. But has the company

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