UNIVERSITY OF WALES MASTER OF BUSINESS ADMINISTRATION Module: Managing the Human Resource Company Case

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Starbucks’ Human Resource Management Policies and the Growth Challenge

Country: Jamaica Question: In recent years, there has been much interest in
the notion of ‘high commitment’ human resource management (HRM). Considering this premise provide a reasoned and academically underpinned account of the advantages of adopting such an approach and evaluate how closely Starbucks fits with this ‘high commitment’ model.

Student Number: STU26168 Deadline: January 15, 2012 Word Count: 4340 Tutor: Sarah Mollitt

Table of Contents
Table of Contents....................................................................................................... 2 Table of Figures.......................................................................................................2 Background................................................................................................................ 3 What is human resource management (HRM)?..........................................................4 High Commitment HRM..............................................................................................7 Benefits of High Commitment HRM............................................................................9 Arguments against High Commitment HRM..........................................................10 Starbucks and High Commitment HRM.................................................................10 Communication/information sharing.....................................................................10 Training and development.....................................................................................11 Rewards................................................................................................................. 13 Selective staffing or hiring.....................................................................................14 Team work............................................................................................................15 Job security............................................................................................................ 16 Reduction of status/harmonization........................................................................17 Conclusion............................................................................................................. 19 Bibliography.............................................................................................................21

Table of Figures
Figure 1 Devanna et al.’s Matching Model of Strategic HRM......................................6 Figure 2 The Harvard Framework...............................................................................7

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High commitment human resource management (HRM) considers human capital as a resource whose value may be enhanced by increasing the commitment, functional flexibility, and quality of these personnel. Over the past two decades several studies have been conducted around this relatively new form of HRM. High commitment HRM has its beginnings in the Harvard Framework model which spoke to best practices, an aspect which is interchangeable with high commitment HRM. Starbucks realized early that one of their most valuable resources is their employees and as declared in their mission statement, the company provides a great working environment and treats each person with respect and dignity; aligning their human resource management strategy closely with high commitment HRM. This has contributed to Starbucks’ success, the company has been identified as one of the best companies to work for in the United States by Fortune Magazine and has seen loyal customers. Through the company’s approach it is evident that the advantages of high commitment HRM can help drive growth of a company. However, there are evident drawbacks, but through analysis of the model it becomes clear that this model creates benefits for the company which uses it.

Background
In a rapidly changing global economy, with the proliferation of e-commerce, mergers and acquisitions and evolving products and markets, tremendous pressure has been placed on organizations to make changes to the way their workforce is managed to meet the demands of the evolving landscape. Organizations must rapidly adapt and match their everyday business procedures to their long term strategic and operational goals in order to be successful. Managers therefore need to respond to these changes by using available resources to create a competitive advantage. Competitive advantages give a company an edge over its rivals to generate value for
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the organization, in ways its competitors find difficult to match (Kotler and Keller 2009). Scholars have argued that organizations should build sustainable competitive advantage as this is harder for competitors to neutralize. Companies can no longer solely rely on traditional sources of competitive advantage, such as economies of scale to succeed but rather on assets like human resources, which has been widely accepted as an important source of competitive advantage (Pfeffer 1994). The creation of competitive human resources involves the harnessing of each employee’s full potential, producing productive workers, minimizing job dissatisfaction and employee turnover.

What is human resource management (HRM)?
HRM is a distinctive approach to employment management and refers to the policies, practices, and systems that influence employees’ behavior, attitudes, and performance. It seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce using a range of different practices and techniques (Storey 1995). HRM activities are critical to conducting business and the decisions are of strategic importance and not solely the responsibility of human resource personnel. Finding the human capital to provide an organization with a sustained competitive advantage is not just a matter of luck. It depends heavily on the management and human resources practices of the firm. In an attempt to classify HRM approaches Storey (1992) categorizes them as soft and hard. Where the soft variants describe approaches aimed at enhancing the commitment, quality and flexibility of employees, this is now popularly known as high commitment/best practices/high
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performance model. The hard variants of human resources, otherwise known as strategic human resource management, places emphasis on strategies where human resources are deployed to achieve business goals similarly to how businesses use raw material to achieve their goals. Regardless of which method a company chooses there are some consistent activities which are performed during human resource management. These include staffing, training and development, performance appraisal, compensation, selection, recruiting, safety and health and industrial relations. Given the importance of HRM to business success, it is no surprise that a significant amount of research has been conducted as to ways in which organizations can better harness the potential of employees. Early models that were influential in interpreting HRM are the Matching Model of HRM developed by Devanna, Fombrum & Tichy from Michigan Business School and the Harvard Framework from the Harvard School. The Matching Model, as the name suggests, tries to find the best fit personnel for an organization which is in line with its strategy. It asserts that, with the right personnel, everyone will work cohesively towards the same goal. The key areas for developing appropriate human resource policies regarding this model are; selection of the most suitable people to meet organizational objectives, performance in the pursuit of these objectives, rewards for appropriate performance and development of skills and knowledge required to meet the objectives.

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Figure 1 Devanna et al.’s Matching Model of Strategic HRM

The Harvard Framework recognizes the interest of various stakeholders, such as the customers, unions, government and management as indicated in figure 2. The interests of these groups are fused to help develop the organization’s HRM policies and business strategies. This model balances the integration of hard and soft HRM which is called ‘best practice’ HRM. These set of practices are aimed at high performance and high commitment; elements of these best practices are universally acceptable.

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Figure 2 The Harvard Framework

High Commitment HRM

High Commitment HRM, developed from the Harvard Framework model, has found great reception in modern companies because of its focus on unearthing employees who are not only good at what they do but are committed to the organization. High Commitment HRM is assumed to be aimed at eliciting strong commitment to the organization, so that behavior is primarily self-regulated rather than controlled by sanctions and pressures external to the individual (Wood and Albanese 1995, pg 220). It differs from the Harvard Framework model in that it encourages companies to bundle the best practices that suit their organization. Additionally it is distinct from traditional approaches in the self-regulated approach to sanctions. Different studies have utilized several mixes of these HRM
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practices and there is still not a definitive description as to which HRM practices should be included in a “best practice” system. This paper however, will focus on the seven practices identified by Jeffrey Pfeffer that are consistently considered to be strategic in nature. According to Pfeffer, (1998) the best practice or high commitment HRM consists of the following HR practices:  Employment security and internal labour markets  Selective hiring and sophisticated selection  Extensive training, learning and development  Employee involvement, information sharing and worker voice  Self-managed teams  High compensation contingent on performance  Reduction of status differentials/harmonization The aim of these practices is to achieve skilled personnel, who are highly motivated and adopt the organization’s objectives as their own by selecting, training and retaining the right individuals. Starbucks recognized early that motivated and committed employees are their most valuable resource and hence adopted a human resource management style which is closely aligned with High Commitment HRM. The human resource policies of the company are grounded in its mission statement to "Provide a great work environment and treat each other with respect and dignity". This shows their commitment to employees and as a result Starbucks has a high level of
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satisfaction in the workplace. The Starbucks experience is differentiated from competitors and it has allowed the company to grow from strength to strength. High Commitment HRM is grounded in social science principles, that is, by treating persons fairly and with respect this will motivate them to reach their full potential. Over the last two decades, much research has been conducted regarding High Commitment HRM and its link to improved organization performance. A number of researchers have found substantial positive evidence linking these practices to improved firm performance and have related it to a forming a psychological contract. According to Rousseau (1989, pg. 123) a psychological contract emerges when one party gives a contribution and believes that a promise of future benefits have been made. Benefits of High Commitment HRM

High commitment HRM aims at improving the workforce’s capabilities and motivation so that they can outperform rivals and remain committed to the organization. Research has shown that organizations with high commitment HRM practices display greater productivity, an improved bottom line and efficiency, compared to organizations with control-based practices. Pferffer (1998) and other researchers have suggested that these practices can release untapped reserves of human resourcefulness by increasing employees' level of skills, commitment, motivation, participation and involvement. Training and development are central pillars in high commitment HRM this will cultivate welleducated, trained, motivated and committed employees at all levels which will increase productivity. Also with selection criteria and reward systems which aim to attract and retain high performers, it will lead to an effective workforce.
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Arguments against High Commitment HRM
Whilst there is now a considerable amount of evidence to indicate that high commitment HRM has a positive influence on business performance, other researchers have indicated some amount of inadequacies in their research. They believe that there is not sufficient information linking this model to the organization’s performance. Another drawback is the fact that researchers cannot agree on the optimal number of best practices to be used in the model and hence those a company needs to employ in order to get the best results. Starbucks and High Commitment HRM Starbucks utilizes this model and the seven criteria for high commitment HRM, indicated by Pfeffer are evident within this company. They include firstly: Communication/information sharing Communication is one of the easiest and most effective ways to gain employee involvement in the company as it enhances feelings of mutual trust and makes employees feel important to their organizations (Lawler, 1986). Communication is a core management competency and key management responsibility. Regularly top managers of Starbucks would randomly call or visit a store to speak with the manger to say ‘thank you’ to the employees for their exemplary service. A former CEO Jim Donald stated that “If any company doesn’t have the time to talk to the people on the front line, then you might as well close up, because it is not going anywhere’’ (Gretchen 2005). Starbucks maintains a small company atmosphere and promotes open communication with their employees. One communication tool used is conducting regular surveys to monitor employees’
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feedback on the organization and its rewards program. Employee’s response in these surveys have led to changes in the organizations’ polices, for instance in 1994 the company began reimbursing mental health treatments after overwhelming support for it. The company also uses a mission review program which allows employees to comment on decisions believed to be inconsistent with the mission statement, within two weeks of the decision/comment. This can be done either personally or through the company’s monthly report. Approximately 200 Mission Review queries were made every month based on the case. These programs instituted open communication and holistic information sharing within the company creating a more positive work environment in which people feel they are listened to and respected (McElroy 2001). This helps to convey a message to employees that they are trusted. Although the company promotes open communication it comes down hard on any union activities and persons have lost their jobs for forming unions. A union is a complementary vehicle for participative communication as the workers would have the chance to hear their complaint openly and independently. In the early 2000s some employees reported that they enjoyed working for the company but said due to their anti-union stance, it was not as people friendly. Starbucks was able to achieve a level of effective communication with the implementation of feedback processes which increased employee involvement, commitment and trust. However, discouraging the formation of unions hinders a critical voice in the communication process.

Training and development
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Having recruited the right personnel employers need to ensure that these persons remain at the forefront of their field, not only in terms of professional expertise and product knowledge but also in interpersonal relations. Gaertner and Nollen (1989) argued that training and development represent an investment in employee performance, through the creation of an internal labour supply to meet the organization's needs. Starbucks believes in people development and as a result adopted an extensive training and development programme for every employee, which includes product expertise, customer service, and well-developed interpersonal skills. Professional baristas for Starbucks have to complete up to 24 hours of training which is called ‘First Impression’ before entering their assigned store. This training has a standardized curriculum aimed at inculcating employees in the company’s philosophy and train them in service principles. This develops a cadre of employees with organization specific skills which are strongly linked to its core competencies. The employees appreciate the training programme and reported that they feel valued and important when the company invests significantly to prepare them for their jobs. Wright and Gardner (2003) note that training and development is one of the most widely used elements of high commitment HRM. Starbucks understands this concept and hence teaches their employees ‘Star Skills’, which govern the company’s interpersonal relationships. Along with specific skills training Starbucks also holds sessions for management trainees and encourage their employees to attend outside training programs. This not only enables a dynamic workforce but also enables employees to take advantage of future career opportunities. Training and development is one area in which a company can gain and maintain competitive advantage. Starbucks’ HR philosophy is grounded in this, with its extensive training packages

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which shows the company’s concern for its employees, which in turn will increase employees identification with the company and promote the company potential workers.

Rewards According to Rousseau and Greller (1994, p. 397), 'The most visible performance term in the contract, from the employees' point of view, comes from the organization's incentive system and the measurements that support it '. Scholars have yet to agree whether rewards should be performance based or collective rewards based. Some research has shown that employees prefer working for organizations that link pay to performance. Starbucks’ reward system is based on package rather than pay only and this includes health, dental, vision care and stock options for employees who work an average of 20 hours per week for over three months. This comprehensive package is available to part-time workers, who make up majority of the workforce. This instills a sense of commitment in employees, indicative in Starbucks’s employee turnover rate being 120 percent lower than the average quick service restaurant business. (Michelli 2006) Pfeffer (1998) believes that there are two elements to this practice – higher than average compensation and performance-related reward – although both send a signal to employees that they deserve to be rewarded for superior contributions. Although Starbucks has not revealed information about their present wage structure, independent analysts estimated in 2005 that they paid amongst the highest in the industry. This above average salary, cultivates committed employees and provide positive perceptions of being valued.
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This generous reward package and policy by Starbucks, though beneficial to the employees, started to reflect negatively on the company financially. By the early 2000s the company’s human resource costs were more than its advertising costs. This led to an increase in the cost for it beverages by the mid-2000s. Starbucks is well aware of the benefits of having employees that are well rewarded so much so they were willing to ask customers to pay more for their products to support this. Therefore the company must see great need to have such a system to risk losing customers at its expense.

Selective staffing or hiring

Recruiting and hiring the right people provides the added competitive edge for an organization, Starbucks took great care in selecting the right people and made the effort to retain them consequently building its human capital advantage. The company recruitment motto is “to have the right people hiring the right people”. Increasingly, companies are looking for applicants who possess a range of social, interpersonal, adaptability, dependability, trainability and team working skills in addition to technical ability to form the core of their organization. Starbucks is no different as they often express interest in these qualities in job postings. This allows prospective employees to quickly eliminate themselves from the process if necessary. This selective hiring practice sends a clear message to employees that people matter. Studies have shown a positive relationship between the use of selective practices and organizational profitability.

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Selective hiring can also affect the recruiting process negatively, as it focuses on how well new recruits might fit the organizational culture. This can lead to some groups being excluded from the employment process. Selective hiring can eventually lead to homogenous employees, which can potentially be problematic if the organization demands initiative and diversity, and counterproductive if the business needs and markets change. This is a potential drawback for Starbucks.

Team work Team work is an essential feature of modern HR practices and one of the key attributes that companies look for when selecting employees. Studies have shown that employees who work in teams generally report higher levels of satisfaction than their counterparts working under more ‘traditional’ regimes. Working in teams has shown to also empower workers, enrich their lives, and make a major contribution to the success of the company. Starbucks formed self managed teams in the early 2000s in an effort to bring about more empowerment to their workers, as the team members were encouraged to take over daily management of the team. The implementation of these mutually created decisions, will have a motivational effect on the team and consequently a positive effect on the organization. Starbucks encourages and empowers employees to offer ideas and become involved in teamwork. This is essential for the company as an increase in employees’ involvement in the company give them access to information and decrease ambiguity, which will in turn provides commitment and motivational benefits and increase the company’s performance (Healy and

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McKay 2000). Some of the company’s most successful innovations were ideas from the employees. One of the most popular Starbucks employee innovations is the Frappuccino drink. Some researchers posit a less optimistic perspective on self-managed teams. They have suggested that these teams are intrusive and difficult to implement in practice, and that they serve to focus on the strengths of the organization rather than improving on the weak areas. According to Pfeffer (1998) team work is seen as a route to better decision making and the achievement of more creative solutions. This was evident in Starbucks’ HR policies as they regularly empowered their employees to form self managed teams and create innovation which contribute to the development of the company.

Job security Job security is a corner stone of high commitment HRM practice, though scholars have yet to define the measurement of it. It refers to a psychological state where the workers expect future job continuity within an organization. They are limits to this however, as it does not mean that you will stay in the job for life nor does it prevent the dismissal of employees who fail to perform at the required standard. What it does mean is that job reductions will be avoided wherever possible. Pfeffer (1998) maintained that it is unrealistic to ask employees to offer their ideas, hard work and commitment without some expectation of employment security and concern for their future careers. Pfeffer (1998, p183) believes that compulsory lay-offs and downsizing undermine employment security, and sees the following as alternatives: (1) proportionately reducing work hours to
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‘spread the pain’ of reduced employment costs across the entire workforce; (2) reducing wages to reduce the labour costs; (3) freezing recruitment to prevent overstaffing; and (4) putting production workers into sales to build up demand. Starbucks does not explicitly guarantee job security but the structure and design of the organization gives their employees’ piece of mind that lay-offs are the last option. Since most of Starbucks’ staff are part-time employees, rather than downsizing, it is easier for Starbucks to reduce working hours. Their benefits and HR programme are rooted in the company’s former CEO Howard Schultz’s philosophy, which is “treat people like family and they will be loyal and give their all”. Starbucks offers an excellent work/life balance programme that proposes flexibility between work tasks and personal endeavors. The company’s health costs are now low, as the workforce is young and relatively healthy. It is apparent however, that the longer the employees stay with the company health costs will increase, putting an additional strain on the company’s enormous human resource budget. Rewards practices in High commitment HRM asserts that employees will remain committed if their future employment is secure. Although a company cannot guaranteed job security, especially in economically turbulent times, Starbucks has designed systems that will make employees comfortable about working at the company.

Reduction of status/harmonization

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This is a symbolic manifestation of social equalities in HR practices. It conveys a message to workers of lower grade that they are a valuable asset to the company and deserve to be treated in a similar way to the senior managers. This practice is widely seen as a way to encourage employees to offer ideas and participate in decision making and encourages and supports team work and flexibility. It exists in the form of employee share schemes, welfare facilities/fringe benefits, a family-friendly policy or an all-employee share ownership. Starbucks’ HR polices employ this strategy. The company is guided by several values and principles to include equality this is evident in their policy where all employers are referred to as ‘partners’. This indicates that they contribute equally to the progress of the company. Starbucks also does not capitalize job titles in an effort to indicate that no one person within the company is more important that the other. The company also has family friendly policies such as the ‘working solution’ which addresses the personal needs of employees by providing the required assistance as the need arises. Extending employee share ownership to the workforce as a whole is a further way in which status differences can be reduced. Pfeffer (1998, p38) argues that ‘employee ownership, effectively implemented, can align the interests of employees with those of shareholders by making employees shareholders too’. Starbucks started the ‘Bean Stock’ Plan in 1991 where stock options were given to all categories of workers, including part-time workers. It is intended in investing in employees and creating ownership across the company which is aimed at creating vested interest in the company. This programme was seen as key to Starbuck’s success in retaining workers and building loyalty.

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Reduction of status/harmonization are symbolic gestures by the organization that allow the employees to be treated in a similar manner. This is a core part of Starbucks’ HR policy which allows the company to recruit, retain and build loyalty throughout the work force. The company refers to all employees as partners along with this, they have a family friendly working environment and also an employee share ownership programme.

Conclusion Given the enormous changes occurring in today's highly competitive business world, human resource management must zone in to attract, motivate and retain employees. This is a critical task for all managers as human resources has been shown as a source of competitive advantage for an organization. It is therefore, important for all organizations to find ways to understand their employees’ values, attitude and behavior while maintaining a positive working environment. Two distinct approaches of HRM would arise; hard/strategic which calls for matching HRM polices to the goals and objectives of an organization and soft/high commitment which speaks to employees being treated as a valuable resource whose value may be enhanced by increasing their commitment and functional flexibility. High commitment HRM is a specific bundle of HR policies and practices that are grounded in social science and convey to employees that the organization is committed to them, cares about their well-being and trust them. This creates a psychological contract fulfillment and consequently they respond with an increase in emotional attachment to the organization. It has shown to enhance effectiveness in organizations and to retain talented employees. Starbucks understand that human resources is a fundamental cog in their business; and investing in them is
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critical to its success. They practice high commitment HRM which are grounded in their guiding principles of “providing a great working environment” and “treat each other with respect and dignity”. Starbucks attracts and retains their employees due to the high level of satisfaction they receive on the job. With a well designed work/life balance the employees are motivated and remain committed for a longer-than-normal period of time. To increase employees’ passion they offer an extensive level of training to deliver high levels of customer service. There is an open communication process between the mangers and the employees who are all given a chance to contribute to and influence decisions that affect their working lives. All employees were given shares in the company and are referred to as partners which are expected to work together to meet the demands of the customers. The organizations’ reward policy is extensive and contains both monetary and non monetary benefits which signal to the employees that they deserved to compensated for their contribution. David Pace, an executive vice president at the company said “we’re not giving these benefits to our employees because we are a successful company. We are successful because we are giving to our people” (Gretchen 2005). This epitomizes the company’s HR policy and they have created a competitive advantage by cultivating a workforce that is knowledgeable and passionate. However, as we have also seen, digging beneath the surface, implies that some of these ‘best practices’ may have negative repercussions on the company. By early the 2000s the high human resource cost was negatively affecting the company’s financials. This led to an increase in the cost of its beverages. The company also has a no union policy and this silences one of the greatest voice of independent communication for employees.

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According to Guest (1987) an effective HRM strategy facilitates the development of a workforce that meets the requirements of a competitive business strategy by more fully harnessing employee potential to achieve organizational goals and missions. Starbucks has achieved this successfully with their high commitment model with only a few minor drawbacks.

Bibliography
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