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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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Starbucks was founded in 1971, by three coffee lovers, Gordon Bowker (Bowker), Jerry Baldwin (Baldwin), and Zev Siegl (Siegl). Baldwin and Bowker were fond of Peet's coffee, which they drank when they were at college in San Francisco. Even after they moved to Seattle, they continued ordering Peet's coffee by mail.

On one such occasion, Bowker got the idea of opening a coffee shop in Seattle to supply world-class coffee to Seattle residents. He talked it over with Baldwin and his neighbor Siegl, and together, the trio set up the first Starbucks store in Seattle. (Starbucks originally sold only whole bean coffee. The coffee bar concept evolved much later).

Human Resource and Organization Behavior | Case Study in Management, Operations, Strategies, Human Resource and Organization Behavior, Case Studies

Starbucks grew at a slow pace initially and at the end of its first decade (1981), there were four Starbucks stores. The partners also opened a roasting plant in Seattle. In 1981, Howard Schultz (Schultz), a housewares company executive from New York, became interested in Starbucks.

He went to Seattle to meet the partners and learn more about the business. What he saw of Starbucks interested Schultz immensely, and he soon convinced the partners to hire him in a marketing position at the company.

Schultz saw the potential of serving ready-to-drink coffee by the mug, and suggested introducing the concept in the US. The partners however, were reluctant to extend their brand into espresso drinks, and it took Schultz a year to convince them of the potential of the idea.

Eventually, Starbucks started serving espresso coffee in 1985, when it opened its sixth store in downtown Seattle. The concept was an immense success and within two months, the store was serving over 800 customers a day (espresso sales were much higher than sales of the best selling whole bean coffee).

Schultz was keen on extending this concept to the other stores as well, but Baldwin believed that selling beverages distracted the company from the core business of selling top quality, whole bean coffee.

Eventually, in 1985, Schultz left Starbucks and started his own coffee bar called Il Giornale. Bowker and Baldwin, along with a few private investors provided financial backing for this venture, and Starbucks supplied the coffee beans.

Schultz had opened Giornale in partnership with Dave Olsen (Olsen), who was previously the owner of Café Allegro, a coffee bar. Olsen and Schultz had a strong partnership as Schultz took care of the external aspects of the business, while Olsen brought his experience to the making and serving of coffee.

In 1987, Baldwin, Bowker and Siegl decided to sell Starbucks, with its six retail stores, roasting plant, and the corporate name. Schultz, along with a group of local investors bought Starbucks for $3.7 million. Eventually, he changed Giornale's name to Starbucks Coffee Company, and merged the two businesses.

Starbucks grew rapidly under Schultz's leadership. During the late 1980s, the company expanded into Chicago, Vancouver and Portland, and Schultz promised investors that Starbucks would have 125 locations by the early 1990s...

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