1.

Executive Summary

Starbucks is dealing with both a decrease in service quality that drives a large number
of customers away and a bad working condition that forces many employees to leave. This is
an alarming problem that needs special care immediately. Our simple and economical
suggestions below can help the firm save $35 million of annual operating expense and
increase $474 million in annual revenue.
After developing a fishbone diagram which provides visual representation of what
causes this problem. We notice that the core reason for this issue does not lie in facilities or
anything materialistic, but in the procedure and the wrong supervision method. That is why
there is no need for spending money for machines or equipment in general.
All our recommendations require no additional capital investment, all they need is
effort and less than 50 hours from the executives. We suggest developing a more effective
supervision procedure. Supervision means everything to a service business, a clever change
can bring about magnificent impact. The more effort Starbuck put into effective management,
the less money they lose to faulty products, accident recovery fees, etc. And the best part
about this amazing change is that it needs no monetary investment.
The second recommendation is to change the training requirements. Service results
can show how companies train employees and in Starbucks' case, it is not a good situation.
Look into existing problems, find the training needs and implement them will help the
company gain great revenue. And just like the one above, this change has a capital cost of
zero.
The last strategic improvement is the new order process. Just as the new supervision,
in order to create a new order process, there is no money involved. All it takes is a little
customer survey, some general research regarding flavour combination. This, also, makes a
huge difference. In fact, this creates a win-win situation for customers and the firm. It is a
great deal for customers in terms of price and it helps Starbucks boost revenue.
In conclusion, these changes can pave the way for the whole new service quality,
better work environment and more revenue for the company while requiring no additional
monetary investment and thus, the best possible solutions for Starbucks.

2. Introduction

Starbucks Corporation (hereinafter referred to as Starbucks together with its

subsidiaries) began its story in 1971 where they were a roaster and retailer of whole bean and
ground coffee, tea spices with a single store in Seattle’s Pike Place Market. Starbucks is the
premier roaster and retailer of specialty coffee in the world. Starbucks offers coffee products
and café services throughout the world. Starbucks is one of the international F&B groups to
enter the Vietnamese market at the latest while other competitors have been present and
successfully doing business in this market.

According to the latest statistics, Starbucks has 151,000 official employees working in
20,519 stores in 65 countries and territories around the world. Among them are more than
13,000 stores in the US, more than 1,900 stores in China, and about 900 stores in Japan. In
fact, some calculations indicate that on average, Starbucks opens two new stores a day.
Starbucks' first store in Washington opened in 1971 (​Naibuzz, 2015​)​. Starbucks is present in
every country, successful in every market. Starbucks Coffee, when entering the Vietnamese
market, will face major competitors such as famous coffee shop chains such as Trung
Nguyen, Highlands and The Coffee House. An overview from these three brands in Vietnam
can be seen as follows. Firstly, about target customers: Highlands currently serving are
middle-class consumers, office workers, young people; The Coffee House's customers are
young people under 35 years old, middle class, office workers. The customer base of Trung
Nguyen is quite rich with all subjects, from young people, traders, freelance, non-job people
to office workers, high-income people, elderly people. Secondly, Coffee drinking habits: The
three main factors that influence the decision to drink coffee in the cafe are the taste, the style
of the cafe and the brand of coffee used (​Nguyen Hoang Tien, 2020​).

From these observations, Starbucks Coffee has a SWOT model as follows. Firstly,
about strengths and weaknesses: Famous coffee brands, style of coffee is affirmed, with
presence in 55 countries, rich coffee taste, business model towards people and the
environment. However, Starbucks Coffee does not accept franchises, only joint ventures,
self-employment, or operating and controlling licenses. The price is not really preferential. It
is one of the weaknesses of this brand. Secondly, about opportunities and challenges: The
majority of young people are ready to absorb new and modern consumption trends. The to go
coffee segment (which is an advantage of Starbucks Coffee) is still empty. However, this
brand has to compete with some famous coffee brands present in Vietnam.

In terms of the financial condition of Starbucks, the only foreign brand in Vietnam’s
top five coffee chains, has been established in the country for seven years, the number of
outlets in four localities remains small compared to main competitors. A report from
Euromonitor in 4/2018 showed that the five largest coffee chains in Vietnam account for 15.3
percent of the market, with Highlands holding 7.2 percent. Meanwhile, Starbucks is second in
revenue thanks to opening new stores that pushed its market share to nearly 3 percent.
Previously, data from Vietnam Industry Research and Consultancy (VIRAC) showed that
Starbucks Vietnam's revenue in 2018 was VND593 billion ($25.78 million), equal to about
one-third of Highlands Coffee. Meanwhile, The Coffee House came before Starbucks, for the
first time, to stand in the second position in revenue with VND669 billion ($29.1 million).
However, the return on sales (ROS) of Starbucks was nearly equivalent to Highlands Coffee
(VND27 billion – $1.17 million) in 2018, whereas, The Coffee House only collected VND2
billion ($86,960). The middle class is rising in Vietnam, and the market value for coffee and
tea retailers in Vietnam is greater than $1 billion, according to Euromonitor Worldwide.
Despite recording growth last year, American coffee chain Starbucks remained in third place
in revenues behind two local competitors (Highlands Coffee and The Coffee House). Its 2019
revenue of VND780 billion ($33.6 million), up 32 percent year-on-year, was behind market
leader Highlands Coffee at VND2.2 trillion and The Coffee House at VND863 billion.
(​VietNamNet News, 2020)​

Starbucks Coffee Company’s business is linked to the proper application of the

decisions of operations management. These decisions refer to the different areas of
operations, operations management through different approaches and policies such as: Design
of Goods and Services, Quality Management, Process and Capacity Design, Location
Strategy, Layout Design and Strategy, Job Design and Human Resources, Supply Chain
Management, Inventory Management, Scheduling and Maintenance.

3. Ishikawa Cause and Effect Diagram

On the official websites, Starbucks stated their mission ​to be: “to inspire and nurture
the human spirit – one person, one cup, and one neighborhood at a time.” They encouraged
customers to “expect more than coffee” because as they claimed, they are “not just passionate
purveyors of coffee, but everything else that goes with a full and rewarding coffeehouse
experience” and they are “so much more than what we brew” (​Starbucks official website,
2020​).

As we can easily see, Starbucks has an ambition to bring customers a whole unique
coffee experience, not just simply the flavour and the smell of coffee. It is even safe to say,
Starbuck is “a lifestyle”. For many people, their latte is an indispensable part of their day. Or
perhaps their espresso, cappuccino, macchiato, frappuccino or whatever the case may be.
“It’s ​not about the coffee, the latte or anything else for that matter. It’s ​about the ambiance. A
temporary haven to duck out of the grind of a ​hectic morning/afternoon and relax over a
coffee, tea etc.” ​(​Kevin Stirtz​, 2020​).
Unfortunately, there are an increasing number of recalls for bad service coming from
Starbucks customers recently. For example, this is a complaint about Starbucks service from
a loyal customer: “What really bothers me the most about this is they willfully chose to
ignore my service encounter two days earlier when I politely pointed out their error and gave
them the opportunity to ​take action to recover​. I could care less about paying an additional 30
cents for the muffin, but I do care a lot about the principles of charging what you advertise
and responding to loyal customers. I ​always complain about bad service​. I spent over $10 for
lunch at a different Starbucks that same day and got fabulous service. I will continue to be a
fan of Starbucks and continue to spend money with them; however, it will be a long time
before I return to the location at Keystone and 7th street.” (​Bret L. Simmons, 2013​)​.

Customer turnover is a huge problem, even for just one store, it can lead to the loss of
money for the brand.

This begs a question of how Starbucks is going to fix this problem as soon as
possible. As we know, before jumping into any conclusion or making any sudden decision, it
is better to analyze the root cause of problems and then develop solutions based on these
causes.
Here is the cause and effect diagram for Starbucks' bad service problem. This problem
may result in an annual loss of $541 million for Starbucks.
 As we can see from the diagram, there are 4 main factors holding responsibilities for
bad service at Starbucks including: Method, Environment, People and Faulty products.

Regarding method, wrong procedure when taking orders or delivery or even a small mistake
of order noting can lead to mistakes in the actual coffee cup and obviously decrease
customers satisfaction while enjoying their coffee or pastry. Wrong procedure is a severe
mistake in any way and should not be underestimated. This even gives rise to waste of time
and other resources since customers may recall and ask for the precise order. Another method
problem is the lack of supervision. Supervision is super crucial for employees, especially the
new one. Supervisor’s responsibilities are to keep workers motivated, focus and on track. As
a result, lack of supervision can be harmful for productivity and of course, affect the service.

People are the center of the serving system. This is, no doubt, the core part of the
problem. The service is not good if the serve speed is too slow and customers have to wait in
line forever. Lack of technical skills is detrimental for service quality as well. For example, if
the coffee is not made properly (in case of coffee, even the smallest change in the process can
lead to sour taste, bad smell etc), customers may not have what they actually want. Another
problem is about poor improvising skills, if any unwanted events happen in the store and are
not handled well, it may drain customer fulfillment. Poor communication skills and
inappropriate attitude can trigger anger, aggressiveness, disappointment in customers.

Environment is another problem worth considering as well. If there are any safety
concerns, customers can easily avoid that store for the sake of their well being. If the sitting
space is not comfortable, who ever wants to sit there or even go there to grab a cup of coffee
in the morning? Sitting area is not allowed, ever, to be dirty, or narrow, etc.

One of the most important things is product quality. If there is any mistake with the
product: wrong size, bad taste, bad smell, etc, it can lower customer satisfaction.

Recommendations

There is a clear reason why the cause and effect diagram is used widely: it not only
demonstrates in a visual way the roots of the problem, it also hints at the way for us to fix it.
Following are our recommendations for the existing problem based on the Fishbone diagram.
But first, it is worth mentioning our rule for recommendation: the least time-wasting and
money-consuming solution is prioritized. That is the ultimate goal for operational
management: to make positive change without having to consume any kind of capital or
resource, or consume as least as we can. Improving customer service is the key to successful
business because: “If this isn’t a priority for your business you are at major risk of losing
your clients to competitors who do prioritize customer satisfaction” (​Aimee Laurence, 2020​ )
In fact, there are, out there, a lot of coffee brands with more reasonable price range which
deliver better coffee experience for customers such as: The Coffee Bean and Tea Leaf, Dutch
Bros. Coffee, Peet’s Coffee & Tea, Caribou Coffee (​Lindsey Gaterman, 2015​).
The first solution we suggest is relating to humans. It costs nothing to be faster, more
positive and enthusiastic. It cost nothing to be better in communicating with customers. It
costs nothing to put on a more friendly face when serving. All of these things start with the
attitude towards work of employees. Therefore, encouragement from the supervisor is free,
but can make the whole change. Before and during the shift, supervisors are not supposed to
micro-manage, but to stimulate staff to work better and be more friendly. Also, if supervisors
can create a less stressful working environment, the tension in staff faces can disappear and
they would be more relaxed and “approachable”.
As we can see from the fishbone, lack of technical skills, wrong procedure and faulty
products leads to bad customer experience. In fact, these three have a close relationship with
others. Poor technical skills sometimes lead to wrong procedure and therefore, result in bad
products. To improve this, recipes should be presented in the coffee making section so that
barista can reach out to them any time they need. Annual training programs would need
adjustments as well. There is no need for a whole “revolution” or additional capital costs, just
changing the methods of training and delivering a clear SOP should be enough, the only cost
would be 20 to 40 hours of discussion and decision making from the executives.
Regarding the environment, to make sure the store is always clean and
well-decorated, stiffening disciplines with cleaning staff is important. Once again, the role of
supervision is super important. Better supervision means better serving quality.
Constant constructive feedback from customers should be encouraged, too. That is the
easiest way to get what Starbucks has done wrong and find a way to fix the problem.
Maintaining a close relationship with customers through apps and social media is a “have to”.
Getting customer feedback is absolutely crucial to improve not just your customer service,
but also your business as a whole. “Find new ways to get feedback from your clients, such as
sending surveys to them by email or text.” (​Aimee Laurence, 2020)​. Feedback from
employees themselves should be listened carefully as well. Listen to them to make sure their
needs are taken care of as well. When employees are happy, they work more enthusiastically.
Of course a make over of facilities or machines can pave the way for better employee
performance but in this particular case of Starbucks, more focused supervision can make a
huge difference.

4. Standard Operating Procedure

a) Original
The flowchart mentioned below is reflecting the current ordering process of
Starbucks. ​This flowchart demonstrates the complete process of taking orders from customers
of Starbucks staff.

The process is shown in this flowchart in which individual steps are depicted as
blocks of various shapes interconnected by lines indicating the direction of the sequence. The
oval, or terminator, is used to represent the start and end of a process. Whereas, a rectangle
represents one step in the process. It represents any step in the process and is the workhorse
of the flowchart diagram. ​The diamond symbolizes that a decision is required to move
forward. It indicates a decision point between two or more paths in a flowchart. The
predefined process is shown in a subroutine symbol. In addition, the flowchart also uses the
arrows to guide the viewer along the flowcharting (​Gliffy, 2019)​.

Start is always the first step which is in an oval. The next step is greeting which is a
predefined process. It is not in the company’s policy but always exists in any ordering
process. Customers will feel really happy when they receive an intimate greeting every time
they enter the store. Then Starbuck employees will take the coffee order from customers
which is one of the most crucial steps of the whole process. If the customer has the drink they
want to order, the order will be processed. In case they want to change orders such as
increasing the size of the drink or adding something, employees will go back to the take
coffee order step. Nevertheless, if the customer does not know what to choose, the staff will
give suggestions. After confirming the order, the next step is writing the cup order. In this
step, the staff will write the name of the customer on their drink and the order will pass to the
bar.

Once the drinks are ordered, the staff will ask if customers would like to have extra
cake. If the customer refuses, the transaction will finish. On the contrary, if customers want to
take the pastry order, they will move to the next step. In case they want to change orders, they
will go back to the pastry order step. The suggestions from the staff will be very helpful when
you do not know what to choose. After confirming the pastry order, the order will be passed
to the pastry station and the transaction will finish. Then to end the ordering cycle is a
farewell greeting from the staff.

The original flowchart is the basic order process, but it still has some untouched
potential. The flowchart down below is the improved one.

b) Improved

While the original is fairly efficient​, there can be improvements. This is the
revenue-boosting order process flowchart and it will show how to sell more products and to
increase the profit. The answer to this is selling products in combo. Specifically, ​combo
meals are ​a great way to attract customers, something that consumers like the most. As per
the research, consumers find easy to order combo meals and value for the money (​Modern
Technolab, 2017)​. ​Having combos will not only help attract customers but is also a great way
to club high profit yet low selling items with the low-profit and top-selling dishes (​The
Restaurant Times, 2019​). After passing the coffee order to the bar, the staff recommend the
combo. If the customer says “Yes” and then chooses one, the staff will confirm and pass the
order to the bar to start making it. In the case that the customer does not want the combo, the
pastry order is repeated. At last, the remaining steps are the same and end the process with
“Finish”.

5. Executive Dashboard

6. Gantt Chart

In order to implement the changes, plans and actions are required. The gantt chart
below shows all the activities required, their duration and the working order.

Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9

New
supervision
procedure
New skills
requirements
Combo
research
Execute and
supervise

The first activity is making a new supervision procedure. It would require the top
people to gather, discuss and recommend on changes to how supervision is being performed.
Specifically, how frequent should it be, what KPIs should be used and how store owners
should deal with employee feedback. This would be done mostly through looking back at
reports and filling the gaps, thus should require no money and only take a small amount of
time of around 15 hours.

The second is having new skill requirements. Similarly, it asks for the executives to
discuss and decide on changes needed for the employees to perform better and improve the
service. There are two ways this can be done. Firstly, reexamine customer feedback to find
out what they see as bad service to decide which are priorities and can be improved upon.
And secondly, examine work reports to find mistakes made by employees and find their root
cause. Through careful discussions and considerations, they shall reach the final decision.
This activity shall be taken simultaneously with supervision changes and discussed in the
same meetings, but its impact is much bigger in comparison so more careful decisions are
required and thus, more meetings and more time, around 20-40 hours. However, it also
requires no monetary investment.

The third is combo research. This will demand not only changes to the already large
menu that Starbucks offers, but also finding combinations that the customers will likely pay
for. One possible way is by using surveys and getting ideas straight from their customers for
consideration with zero capital cost. This activity would start the same as the skill
requirements and supervision changes. However, while each combo idea should take little
meeting time to find, this research should be carried out continuously in order to maximize
sales potential. With enough ideas, they can be grouped into a plan that can be brought into
the same meetings above for consideration and changes. If Starbucks has a total of 4 combo
addition plans a year, it should cost the executives around 25 hours.

When both changes in supervision and skill requirements are made while combo
offers are decided, the final activity is taken and it is execution and supervision. First, they
would need to find ways to perform all three changes with great efficiency. The most suitable
one would be making changes to instructions and training that simultaneously aim at new
skills required and changes needed to the working process for the combos idea to succeed,
while at the same time demand more supervision from store owners to both keep track with
changes implementations above but also carry out their new requirements. Once again, this
has no monetary cost and more so, can be carried out immediately as the plans above have
been agreed upon and communicated to stores worldwide while requiring zero additional
time investment. And just like the combo research continues on, executing and supervising
those changes does the same.

7. Financials

For the supervision procedure, there is no capital cost. Those at the top only need to
decide on supervision requirements and how store owners should deal with employee
feedback, then pass order down to each and every store. This can be done fairly quickly with
the only cost being around 10 hours of time investment from executives.

As for the new training requirements implementation, it also has no monetary cost.
There will be discussions and decisions on new standards for employees, instructions and just
let the store owners do the job. This will have very little cost for the tractions of changing
requirements, while the cost for training employees will be included in the existing one and
no further spending is required.

And for the new order process, some parts will cost, others will not. One, the new
procedure can be implemented by simply including it in the training and no need for
increases in spending. And two, the combos are relatively easy to come up with and demand
only little time and effort. Since Starbucks pastry profit margin is large, around 60-85%
(​Derek May, 2017)​, a slight decrease in price for each pastry to make a combo is suggested as
to attract more buyers. Our proposal is selling pastries at 85% their original prices as combos
with the aim to gain 18% more requests.
 With these changes, costs can be reduced and revenue can be boosted. With
supervision changes and feedback taken more seriously, Starbucks can lower its turnover rate
from 65% (​Jane Harkness, 2018​) to the average 50% for other jobs with the same average
wage (​Matthew Castillon, 2019​)​. This will reduce the need to recruit more and more
employees, saving around $35 million in training expense.

Next, for the changes in training, the aim is to improve quality of service. While
revenue loss due to service can never reach zero, improvements can help reduce as much as
70% (​Zarema Plaksij, 2020​)​, which equates to $379 million for Starbucks.

And last, Starbucks pastries take up 18% of the revenue, which equates to around
$4772 million. Changes in working procedure and introducing combos can boost it up to
$4867 million, a $95 million increase.

In total, these suggestions can help Starbucks save $35 million in annual operating
expenses and increase its annual revenue by $474 million.

8. Conclusion

Thanks to Mr. Ishikawa’s invention of the fishbone diagram, we can apply it to

Starbucks’ situation to clearly show 4 main factors that caused the coffee company’s bad
service and a loss of $541 million per year. As we also recommended previously, the priority
is to focus on solving less capital-consuming problems first. But do not be too much of a
cheapskate, less money does not mean none, a promise of rewarding your employees is a
huge encouragement ( approximately 2% of total wage and salary expenses). You can still
minimize cost by creating smart motivations for your employees: create a friendly work
environment, acknowledge employees‘ achievements, positive communication, encourage
friendly competition, set a goal, create a career path, be a leader worth following,etc.

Also insist on R&D investment to develop an effective ordering app, in this case
mobile order, this method promises to reduce customer traffic since it dramatically shrinks
down the lengthy ordinary order process. This is a profitable investment because of its
potential to improve customers’ satisfaction which links to a leap of revenue.

Following our fixed ordering process recommendation, which consist of the

development of a more effective supervision procedure, new training requirements and new
order process, the outcomes would result in a higher number of customers each day,
especially during peak hours at some of Starbucks’ most popular locations. This also avoids
creating bottlenecks, encouraging walk-in customers from entering stores, contributing to an
up sale since it shortens each customer’s total waiting time in the system. Moreover, our
beverage servers are less busy than normal, giving them some room to relax during rush
hours.

In addition, along with the suggestion of beneficial combos for the consumers, tiny
‘sneaky’ tricks really help improve total revenue, like when the customers are unsure about
the cup sizing or do not specify size​, and recommend them with venti. Or if they order just
one thing, ask if they want the second to get the discount, they almost always say yes. In
hungry meal time, suggest them with delicious and filling foods or even just small and
reasonable price snacks, the coins add up at the end of the day honestly.

Overall, the practice of cross selling their customers, and managing to sell extra
products where typically one is sufficient, well affected the company’s profit in a way
nobody would imagine: save $414 million of annual loss and increase $95 million in annual
revenue.

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