Sunday, August 21, 2011

Management Theories for Business

Maslow’s Hierarchy of needs groups individuals into five basic categories: physiological, safety, belongingness, esteem and self actualization. 

 Maslow also identified the desire to know and the desire for aesthetic beauty as two innate drives that do not fit within the hierarchy. Maslow was one of the first to bring a theory to test and study human motivation. However, some of the limitations of Maslow’s theory compared with other models are that Maslow suggests that needs priorities shift over a long time. New data has shown that priorities rise and fall more frequently with the situation. A person’s needs for status, food, social interaction and so forth, change daily or weekly, not every few years.

The ERG Theory is similar to Maslow’s theory but only groups them into three categories; existence, relatedness and growth. 

 Both theories help to understand the most basic human needs but they still fail to explain the dynamics of employee needs. This is because most people don’t fit into a single needs hierarchy. Some people place social status at the top of their personal hierarchy others consider personal development and growth an ongoing priority over social relation or status.
The four drive theory is a motivation theory that is based on the innate drives to acquire, bond, learn, and defend. The four drive theory is more practical than the others because it avoids the assumption that everyone has the same needs hierarchy, and it explains why needs vary from one person to the next. The four drive theory provides a much clearer understanding of the role of emotional intelligence in employee motivation and behavior.

Each theory is different but still has a lot of parallels. All theories tell about needs, drives and motivations that are innate and universal and can be found in all individuals. Each encompasses how people are motivated on a whole and what they may strive for in society.

All concepts rally around the same point that drives or needs produce emotions, self concepts and social norms that translate human emotions into goal directed needs. These individual characteristics translate each need into decisions and behavior.

Most well run internet marketing companies today have recognized the needs and drives of employees. To satisfy all employees companies must provide a balanced atmosphere where individuals can continually seek fulfillment for their innate drives or needs. According to these theories a successful company should provide sufficient rewards, learning opportunities and social interaction for all employees. To do this a company could offer bonuses for top performers, pay for advancing educational programs and encourage social interactions through company plan of action meetings held several times a year.

Tuesday, August 9, 2011

Supply and Demand of Starbucks Coffee during Economic Recession

Coffee is the second most traded commodity on worldwide markets next to oil.

 It has gained mass popularity in the last several decades and investors can use Coffee investments to trade stock markets just about anywhere today. Coffee is grown in more than 50 countries in a band around the equator and provides a living for more than 20 million farmers. One of the major corporations today that is trying to control a large portion of the supply of coffee is Starbucks. Starbucks Corporation is one of the leading retailer, roaster and brand of specialty coffee in the world. Starbucks purchases, roasts, and sells whole bean and rich brewed coffees, espresso beverages, cold blended beverages, an assortment of food items, coffee-related accessories and equipment, a selection of quality teas and a line of compact discs. Starbucks has locations in North America, Latin America, Europe, the Middle East and the Pacific Rim. When coffee is considered, Starbucks has developed a worldwide name for itself and has become a huge success.

In the 1990’s the coffee consumption patterns had changed in the United States to about 1.7 cups per day per person. Compared to the two or three cups a day in the 1960’s and 1970’s, 1.7 cups is a significant decrease. However, coffee consumption has been on the rise since the 1990’s. First, consumers adopted a healthier lifestyle that led North Americans to replace alcohol with coffee. Next, coffee bars offered a place where people could meet and specialty coffee became an affordable luxury.

Starbucks built its business as the anti-fast-food joint. 

The economic downturn and growing competition are forcing the coffeehouse giant to see the virtues of behaving more like its streamlined competitors. The Seattle Company is facing heightened competition from McDonald’s and Dunkin Donuts trying to lure customers with new, cheaper specialty-coffee drinks.

The recession has resulted in a new thrift among consumers.

In April 2009 poll of 1,500 people, research company WSL Strategic Retail found 28% said they were putting more money into savings, up from 19% six months earlier (Jargon). Starbucks has had to change up their corporate strategy to weather the recession. The demand for a luxury coffee experience declines in periods of economic downturn. Consumers look to lean down spending habits and get it quickly it periods of economic stress. These two factors has had to make Starbucks readjust their corporate model.

Starbucks’ efficiency quest is an example of how even premium brands have to re-re-engineer how they do business amid economic crisis. Unlike in boom times, offering ever-fancier products and opening new stores is no longer a recipe for growth. After years of broadening its customer base and making forays into entertainment, Starbucks has now made its top priorities to retain its existing patrons and running leaner business models. “The issue at hand… is the cost of losing your core customer,” (Howard Schultz CEO, “It’s very hard to get them back.” Analysts say that Starbucks has seen the most pronounced drops in customers during afternoons and weekends, and that the company’s Frappuccino drinks have been particularly hard hit (Adamy, Wingfield).

The first response Starbucks has had to the loss in revenue is executing leaner business models throughout its 10,000+ stores in the nation. Drink preparation was becoming a bottleneck at Starbuck stores along with other time consuming processes at Starbucks. In an economic downturn consumers tend to have less leisure time to chat and sip coffee among friends. Most consumers work longer during times of economic distress to avoid job loss and also monitor where their money is spent. So Starbucks was losing customers to price inertia and customer satisfaction.

Management at Starbucks began to identify these trends and in the middle of 2008 they implemented a leaner business model by moving all but the most commonly ordered syrup flavors and now store pitchers closer to where the drinks are made. After learning that topping the drinks with whipped cream and chocolate or caramel drizzle at the drink station was slowing down production, they moved those items closer to where drinks are handed to customers. These changes shaved eight seconds off the 45-second process and cut their drive through time to an average of 23 seconds. Starbucks estimates that stores have experienced a 10% increase in transactions between September 2008 and June 2009 just from a leaner business model (Jargon).

The other answer to keeping it’s customers in an economic downturn is obviously, money. Starbucks entered the instant-coffee market with a version called, Via, that the company bills as offering a cup of Starbucks coffee for less than a $1. It has also introduced pairings of breakfast sandwiches and drinks priced at $3.95, or about $1 less than when bought individually. A combo pricing strategy that has been unanimous with McDonald’s and Dunkin Donut’s to stay competitive.

*Sorry, Could not reproduce supply and demand graph on here.*

The two graphs above model the theories described in this paper. Graph 1 depicts the change in the demand curve for luxury coffee in times of economic stress. Supply will stay the same in this scenario and the demand curve will decline. Graph 2 demonstrates the second theory to how Starbucks is going to be able to whether this recession. It is a profit maximizing efficiency output chart showing as Starbucks began to utilize the resources they already had and begun to get more organized and run a leaner business model they were able to increase production and profits without increasing any business costs.

Adamy, Janet. Wingfield, Nick. Starbucks to Present Recession Strategy. 17 March. 2009. Wall Street Journal.

Jargon, Julie. Recession Forces Starbucks to think Lean. 6 August. 2009. Wall Street Journal.