Starbucks and the Labor Illusion

| About: Starbucks Corporation (SBUX)

by Gad Allon

The Wall Street Journal had an article yesterday on the recent changes in the coffee making process in Starbucks (NASDAQ:SBUX): (“At Starbucks, Baristas Told No More Than Two Drinks“, October 2010)

Starbucks baristas are being told to stop making multiple drinks at the same time and focus instead on no more than two drinks at a time—starting a second one while finishing the first, according to company documents reviewed recently by The Wall Street Journal. Baristas are also supposed to steam milk for each drink rather than steaming an entire pitcher to be used for several beverages. Other instructions include rinsing pitchers after each use; staying at the espresso bar instead of moving around; and using only one espresso machine instead of two, according to the documents.

The baristas are leery of the improvement and claim that these will clearly reduce their throughput, increasing the waiting times, which Starbucks have been trying to improve for a while (see earlier posts):

Tyler Swain, a barista in Omaha, Neb., who is also a member of the union, worries how he will keep up with volume if he can only complete one drink at a time. “While I’m blending a frappuccino, it doesn’t make sense to stand there and wait for the blender to finish running, because I could be making an iced tea at the same time,” he says. His store has yet to adopt the changes.

Starbucks counters:

Starbucks insists the new procedures will eventually hasten the way drinks are made and lead to fresher, hotter drinks. Steaming milk for individual drinks, for example, “ensures the quality of the beverage in taste, temperature and appearance,” the company documents state, while focusing on just two drinks at a time “reduces possibility for errors.”

First, it is refreshing to see the firm associate operational efficiency with quality (and not only cutting cost and time). Yet, some of these changes have really little to do with the actual quality of the product. One explanation to these changes is Starbuck’s attempt to affect the perceived quality and not necessarily the quality itself. It has been long documented that Starbucks is struggling with its identify, hanging between being the “third place” and the lean effort which nudged Starbucks closer to being a glorified Dunkin Donuts. By changing the coffee-making process to a more individualized one (and less industrial one) Starbucks moves back to its position as the intimate place to have coffee.

This is very much related to the term “labor illusion”, coined by Ryan Buell and Michael Norton from Harvard. In a somewhat different setting they show the following:

While conventional wisdom and operations theory suggests that the longer people wait, the less satisfied they become, we demonstrate that when websites engage in operational transparency – signaling the work in which they are engaging – people not only mind the wait less, but actually value the service more.

The next time you go to Starbucks and see the barista twiddling his thumbs watching the blender work – you’ll know why.