Technology Solutions Business Case
Abstract
Starbucks is one of the most famous, if not the most famous, brands not only in the coffee industry but in the worldwide market. Contrary to what a common person may think, Starbucks has been raised and developed as a for-profit organization and it too, just like any other business has to always come up with something to increase the volume of their sales, increase the returns of their every investments, or increase the levels of productivity of their current workforce to maintain their market position and competitive. One of the most challenging aspects of handling a multi-national, multi-million dollar business organization which in this case is Starbucks is the demand for human resources. Human resource problems may include issues such as fill-in times, employee or partner turnover and retention rates, the cost of training and or hiring every new employee, the period by which the trained employees or partners have to stay inside the organization to maximize the resources spent for training them, and other issues from similar backgrounds. This paper proposes a solution to one of Starbucks Corporation’s biggest problems when it comes to human resources—the high turnover rates, particularly of their contractual baristas and even store managers. The proposed solution is the use of an HRIS or Human Resources Information System to create a database of alumni employees which the organization’s HR department can use to contact alumni in the future should new job positions regardless of its nature, be opened. Currently, there are two options that the project team is looking into. The first option involves the purchase and implementation of Oracle’s Taleo Social Sourcing Cloud Service; the second involves the purchase and implementation of a SaaS alumni product either from Avature, Taleo, or Insala to reside in-house within the human resources function and maintained in-house through the IT department. The project team would of course pick and recommend the option which would turn out to be more feasible and have the higher potential ROI. This technological investment is meant to improve the organization’s access to its former employees or its alumni so should an IT-related job position be opened for an alumni member who at the time of his stay in the company was studying for an IT-related course (for example), Starbucks corporation could have a convenient and resources-saving means to contact that alumnus and bring him a job offer. In summary, the project team thinks that this is a very feasible and time and resource-saving proposal to look for a solution to a longstanding HR issue at Starbucks Corp.
Introduction
Company Overview
Starbucks Coffee Company opened its first coffee house in the Seattle Pike Place Market in 1971. Founded by three friends, today Starbucks has grown to become the largest business of its kind. As one of the most globally recognizable brands, Starbucks’ success fuels its market expansion all over the world. Starbucks can be found in approximately 62 countries with more than 20,000 stores worldwide. Its mission is “to inspire and nurture the human spirit-one person, one cup and one neighborhood at a time” (Starbucks Corporate Website, 2013).
Current Approach to Technology
Starbucks early strategy focused on store expansion versus technology and innovation. In a move to bring the company back to its foundational principles and revitalize the “Starbucks experience,” (Wailgum, 2009) Starbucks rehired the executive alumni of its original management team including founder Howard Schultz as CEO. Charged with the company’s turnaround during the recent recession, Schultz realized in the face of increasing competition and recessionary pressures that Starbucks needed to become more technologically innovative.
During its many growth years the company intentionally put off large IT projects because they were seen as a “risk to growth and expansion” (Cit, 2011). In 2008, in a controversial leadership decision, Schultz hired Stephen Gillett as CIO to transform the struggling retailer through technology initiatives which would ultimately bring Starbucks to the forefront of retailers who excel through cutting-edge thought and technological leadership.
Gillett led Starbucks through several recent technology initiatives which have garnered wide recognition among his industry peers. He implemented POS system, CRM, Scheduling,
Finally, “Starbucks taps 7 top tech trends”: (1) Mobile payments were added in 2011 through smart phone applications which are tied to loyalty and payment cards” (Murphy, 2011); (2) “My Starbucks launched in 2008 customers can provide input to ideas and send gift cards using social networks;” (3) Desktop virtualization allowing partners to “choose among computers, tablets, or smartphones; (4) Cloud computing, Microsoft Office 365, email and productivity apps and SaaS platforms to conduct specific business functions. (5) With the success of the executive alumni under the direction of CEO Howard Schultz in executing the recent technological strategies to establish Starbucks as a leader in technology and innovation the project team feels it is fortuitous to take the same principles of social technology and innovation and execute them from a bottom-up strategy through a well-designed and comprehensive corporate alumni program.
Business Challenges
Problems that are related to human resources management can be particularly hard to explore and even harder to solve because firstly, they are very time consuming and options for experimentation can be very limited since to experiment, the hosting team would have to integrate their proposed approach to the standard processes involved in whatever aspect of business operation they are targeting which can be a significant cause of disruption to the normal business output; secondly, they can be very complicated depending on degree of problem or problem exploration because it has to involve close observations and investigations which again, can cause minor to major business operations disruptions. The problem with the proposed approach of the project team is that they were not able to take into careful consideration the possibility that some parts or aspects of their plans might not work. For example, what if the sponsors want something about their plan to be changed before they invest capital for the commencement of the project? What if it takes a longer than expected time for the future alumni and other project implementation stakeholders to respond to their queries, submission of findings, proposals? How can they integrate the IT process in this proposal to the current HRIS processes that the company uses? Will these involve using two HRIS (the current and the proposed one) processes to establish a clear line of comparison of which offers the higher ROI? These are so far the most significant business challenges that Starbucks Corporation as well as the project team might along the course of the project.
Recommendations
Overview. The project team evaluated three vendors for the proposed corporate alumni technology solution: Oracle Taleo Social Sourcing Cloud Service; Avature for Talent Acquisition and Talent Management; and Insala’s Corporate Alumni Software. All of these systems are web-based Software as a Service (SaaS) and have the option to reside in the Cloud. SaaS systems have many advantages and benefits given the ability to outsource the service and have it easily accessible to the customer and users via the internet. The applications are developed and operated by the vendor; thereby, allowing the organization to subscribe to the services rather than building an IT infrastructure. The success for this approach is to capitalize on Starbucks current infrastructure by integrating this program with its current HR systems. Industry research indicates that SaaS services are becoming a preferred HR solution and trend in technology.
Recommendation. After careful evaluation of the three SaaS products above, the project team is recommending for implementation the Oracle Taleo Social Sourcing Cloud Service. The alternative two products offer nearly the same capabilities as Oracle’s Taleo, although these vendors typically support smaller companies and their products are not as robust as the Oracle Taleo platform.
Overview of Oracle Taleo Social Sourcing Cloud Service. The Oracle Taleo service offers a comprehensive Talent Management system which is used as a referral recruiting tool and can be fully integrated with the company’s current HR solutions. This add-on system with powerful capabilities will assist the Starbucks organization to hire top talent through multiple referral sources including social media. Key benefits include a dashboard, real-time statistics, live activity feed, and rich reporting capabilities. These essential benefits will aid human resources, recruiters, and managers to make better hiring decisions through the use of this technology as well as engage, track, and attract corporate alumni.
The recommended Oracle Taleo Social Sourcing Cloud Service can also be integrated with the existing HRIS, Oracle Taleo applicant tracking, and Success Factors. SaaS technology requires no hardware investment, has ever-expanding mobile capabilities, and can be implemented within a six to eight month period. The project team believes this investment will grow the potential year-after-year to significantly reduce turnover rates and recruitment costs. The outstanding potential for a significant return-on-investment is outlined further in the next section of this business case proposal.
The project team took into consideration a number of interdependent factors before making its final recommendations. Consideration was given to the current technology infrastructure, integration with current systems, customer support, the ability to scale up or reduce services, and costs for implementing, monitoring, and maintaining the service. Additionally, ease of training, training costs, contract renewal costs, and backup and recovery costs were taken into consideration.
Strategic Alignment. The project team also discovered that SaaS programs are becoming more popular with IT staff for non-mission critical programs that include human resources and CRM applications. Therefore, the project team is advising to involve IT in the early stages of the project to ensure they are fully engaged and informed during all phases of the project plan. Typically, the human resources staff does not have the technical expertise necessary to select, purchase, and implement technology. Having IT staff involved early in the planning phase will be an important factor for success. In addition, IT can ensure security issues are addressed and the appropriate level of security is built into the system.
Overall, the research indicates that SaaS offers multiple benefits across-the-board. Organizations will invest 22 billion into SaaS systems in 2015 (REF) as predicted by industry analysts. As the future direction of business technology, business decisions to implement SaaS include: cloud technology; globalization; the reliance upon and necessity of virtual teams by many national and international organizations; the emergence and growth of a technology savvy workforce, and ultimately the customer/client relationship.
Another advantage is the opportunity to expand Starbucks social media network through highly customizable and specialized social recruiting. Starbucks currently uses social media to its advantage in order to bring customers back to its stores. Therefore, the specifications within our proposed alumni program create an added advantage of more opportunities to bring former partners back to the organization and back to its stores. An assumption can be made that most former partners already use social media as a method to connect and communicate. Regularly communicating with alumni through technology and social media sites such as Facebook, Twitter, and LinkedIn, allows for just-in-time communications to reach alumni everyday as if they never left the Starbucks family. Helping alumni link to existing professional and personal networks further expands the value of the program and deepens the alumni relationship.
Alumni are valued key sources of ideas and intellectual capital that can help the Starbucks organization in ways the company, itself, cannot: From helping to better understand competitors, to serving as ambassadors for the company, the reach of alumni extends to influence and shape others’ perceptions to strengthen its brand and reputation globally. The overall benefits of an alumni program to the organization are too significant to overlook and include: critical contributions to cost savings, morale, and turnover; gaining and retaining a distinct competitive advantage; brand management; talent management; targeted recruitment campaigns to alumni, their friends; and ultimately new and strong goodness-of-fit potential partners with the Starbucks corporate culture through alumni referrals.
Assumptions
Partners
The project team has made the following assumptions regarding Starbucks partners: employees are generally open and acceptable to new technologies; the organization prides itself on employee innovation; managers and employee are technically savvy; all managers have laptops and use cloud based collaboration tools; and approximately 200,000 partners are employed world-wide. It is highly likely given these assumptions that managers and employees will be willing and open to learning and using a new robust alumni tool. Additionally, the existing culture to accept technological changes quickly and easily will contribute to the success of implementing new technology. For example managers, recruiters, and partners will be able to use the new technology in talent management efforts and engage alumni via the technology.
Organization
The project team has made the following assumptions made regarding the organization: it’s an organization that inspires change and is committed to bringing people together; it’s an organization committed to investing in employee and manager training; it’s an organization with one of the most recognized brands world-wide; and it was named one of the 100 best companies to work for in the 21st century.
These commitments have defined the company and have set it apart from its competition. An effort to include a strategy to stay connected to former employees and further their commitment to connect with people will build good will and build loyalty.
Technology
The project team has made the following assumptions related to technology: the company presently uses cloud-based SaaS software (i.e. Siebel Customer Relations Management (CRM) system; Oracle Taleo for applicant tracking: Success Factors for performance management: and Insala for career development. It also uses SaaS services for email, instant messaging, and documentation sharing for its internal retail staff.
Additional technologies include Microsoft Office 365, smartphone applications, Starbucks digital networks (unlimited Wi-Fi), and Social Media technology. The organization also has an internal corporate information office (CIO) and technical development department. Overall these technology assumptions demonstrate Starbucks commitment to focus on investing and growing its technology capabilities.
CIO, Steve Gillett, has indicated that the organization is committed to a strategy to employ and invest in new technologies.
ROI Analysis
Overview
The corporate alumni project team has recommended two options for financial analysis: The first, Option A, is the purchase and implementation of Oracle’s Taleo Social Sourcing Cloud Service. Oracle Taleo Social Sourcing Cloud is a full-service product housed and maintained by Oracle. The second, Option B, is the purchase and implementation of a SaaS alumni product through Avature, Taleo or Insala to reside in-house within the human resources function and maintained in-house through the IT department. Numerous sources were consulted to provide the data utilized in the ROI analysis including the 2012 Annual Starbucks Company Report, retail industry reports from Corporate Executive Council, and data cited in industry articles provided by Starbucks, and interviews with vendor sales representatives from Oracle, Avature, and Insala. For accuracy and completeness, the project team consulted a chartered financial analyst (CFA) to review the financial analyses performed (Matson, 2013).
ROI Process
A standard cost-benefit matrix was completed for the corporate alumni technology project and accompanying corporate alumni program combined. The cost-benefit matrix is structured to be applicable to both technology options (Option A and Option B). The matrix includes: (1) high and low dollar estimate values; (2) a confidence interval to adjust dollar value estimates; and (3) the method of estimation performed (direct estimate, benchmarking, or internal assessment). It must be stated that due to a lack of access to internal data and metrics for the Starbucks company, the project team was prohibited from performing a discreet ROI analysis as related to the technology solution proposed and its internal impact on the IT and HR departments. Therefore, the ROI analysis performed is a limited analysis conducted on the basis of benefits for which data and metrics are available.
Financial Analysis Process
An excel spreadsheet (Appendix A: HR TECH Starbucks Corporate Alumni Program ROI Analysis) models the cost and benefit cash-flow estimates from both the cost-benefit matrix and budgets compiled for both Option A and Option B. The NPV of cash-flows for Option A (Rows 24-25, Column B in dark purple) and Option B (Rows 58-59, Column B in dark purple) were calculated for a one-year initial period, an estimated four-year project period, and a ten-year (extended) project period.
Cash flows were discounted at the WACC (weighted average cost of capital). The Starbucks Company has relatively low long-term debt, no outstanding preferred stock – according to the 2012 Annual Report – and low Common Stock Equity. The company prefers to maintain high levels of retained earnings from which to finance future projects (Annual Report, 2012). There is not enough information in the 2012 Annual Report to calculate the WACC. An estimated 12% WACC is used within the financial analysis model which may be easily adjusted in Row 108 by the user. The chartered financial analyst consulted for this project estimates a range of 9-12% for the WACC (Matson, 2013).
Benefit Variables
The financial analysis model includes a dynamic input section for benefit variables (see Rows 69-115 in maroon). Four benefit variable scenarios were constructed to conservatively estimate cost-savings and additional or recaptured revenues from the implementation of the alumni program technology and program details.
Scenario A: Alumni Revenue. Starbucks does not currently track the visits or revenue from alumni. With the technology and alumni program implemented this will change to allow the company to analyze this revenue source with better precision. One basic assumption for the ROI analysis is that alumni will purchase at least two Starbucks products as a result of the corporate alumni program and 15% discount offered to alumni. The net revenue benefit (after cost) is approximately $60,000 per year.
Scenario B: Manager Turnover. Costs associated with Starbucks manager turnover are high. With most industry experts estimating costs associated with manager turnover at 1.5 to 2.5 times the annual salary of a manager, our scenario takes an ultra-conservative approach. Focusing on the goal to reduce manager turnover by 1%, or 36 managers per year, this line item looks at the cost savings of 112 hours of training for 36 managers for a one-year period. This narrow measure calculates to approximately $85,589 per year in cost savings. Assumptions Note: The number of managers who are not turned over as a result of the program will vary. In order to keep the financial model simple the financial model keeps this number fixed.
Scenario C: Barista Turnover. As in the manager turnover estimate, the focus of this line item is on the cost reduction of 1% or 860 baristas for 70 hours of initial training in the first month of employment. Assumptions Note: Although turnover is a revolving door of direct and indirect costs and variable costs associated with individual partners, this scenario was kept simple to reflect a conservative approach.
Scenario D. Recaptured Revenue. Recaptured revenue is a calculation of the impact of turnover and lower productivity as the result of turnover. The assumption is that one customer walks away from a purchase every day as the result of turnover. This calculation is the revenue (price of drink minus the costs) multiplied by 18,066 stores, times 360 days (excluding holidays). The result is a cost savings of $24,389,100. Recognizing that the effects of turnover on revenues cannot be fully isolated, this is not to say that it is not important to place a dollar value on this impact. Lost revenues can be recaptured when mitigating steps are taken. In order to cover the fully loaded costs of the technology and program, only 2% of the $24M dollars calculated above is necessary to reach this break-even point. This equates to $490,000 or the equivalent sales of 131,000 drinks. As a percentage of daily beverage profits for one day of business, $490,000 equals 6%.
As previously stated neither the cost-benefit matrix or the financial analysis and ROI include all known cost savings or revenue benefits. The above four scenarios were offered as a conservative exploration of potential benefits against the projected costs. The financial model demonstrates that the costs of the technology and program could be increased significantly and if the projected benefits can be realized, the technology and alumni program will provide a positive ROI to the Starbucks Corporation.
Based upon the Cost-Benefit Matrix, the Financial and ROI Analysis, in addition to weighing the risks and contingencies with purchasing and implementing either Option A or Option B, the overall conclusion and recommendation emerging out of these processes is to move forward with approving Option A as the most consistent with the strategic goals and objectives of the company, human resources and IT departments.
Risks and Contingencies
Overview
Overall, this project is a low risk high reward endeavor. The current state is that millions of dollars are spent each year on training and development for a large retail workforce. The training provided serves the company well when partners remain with the company for a year or more, however when partners separate from the company after only a few months, the dollars invested in their training goes with them, and in many cases the training helps competitors and other retailers who love to hire Starbucks former employees.
There is a risk investing $567,000 in this HRIS upgrade, and five years from now it is discovered that the financial return on employee turnover is less than the initial investment for the upgrade. However, this risk is completely mitigated if each former alumni partner purchases one additional beverage per month. There is a high confidence level that former partners will be adequately incentivized to use the 15% discount they will receive by registering for the program.
Another reason why this project has minimal risk is due to the contingencies that are built in to the implementation plan. In the implementation section, you’ll see where there are multiple decision points, allowing for the abandonment of the project without wasting a great deal of resources or time.
There are also several soft benefits to the HRIS upgrade, outside of its primary ROI discuss in the previous pages. One benefit is that the company currently has no way of tracking consumer loyalty of former employees. It is assumed that former partners are loyal customers after they leave, but we honestly don’t know if they visit stores once per day as customers, once per week, once per month, or not at all. Being able to track the consumer habits of nearly 100,000 people each year will assist our marketing departing with future campaigns, and has the potentially to significantly increase store traffic and transactions per month.
Another contingency or secondary use for the tool is that it can serve as a mechanism for collecting interesting stories, or learning what former partners are up to post employment with the company. With nearly one million people leaving every ten years, the tool becomes an enormous database for learning which employees have gone on to accomplish newsworthy stories. A former employee that has gone on to become a popular politician, entrepreneur, or celebrity is potentially a great marketing story that could be leveraged by our marketing department or could help with future recruitment campaigns. We will engage our legal department to ensure we remain in compliance, but currently we don’t have a way of knowing who began their career with our company, or worked their way through college while making coffee in our stores. If nothing else, the HRIS upgrade will allow us to track various things we cannot currently track, and in most cases, these contingencies have a measurable return on investment.
Implementation
Month One: January 2014
HR Project Team is formed including an HR Executive Project sponsor: The project will officially launch in January of 2014. The project will be led by a cross-functional team of ten HR professionals. These individuals were selected by their managers as “future leaders” and “high-potential” partners. The Vice President for HR Staffing will serve as the executive sponsor.
The project team has been tasked with implementing an upgrade/add-on to the existing HRIS between January 2014 and July of 2014. This upgrade will allow recruiters to perform targeted talent searches for job openings, using a database made up exclusively of former company employees.
During implementation, the project team will partner with key stakeholders (both internal and external) in order to determine business requirements, feasibility and provide assurance that the project will finish on time, on budget, and meet or exceed leadership’s expectations.
The project team will maintain their day to day responsibilities, so this project is above and beyond their regular statement of work. The project will also have high visibility with the company’s senior leadership and is sponsored by the HR executive team, so members of the project team will have permission to juggle priorities as necessary to ensure project success. Project team members were also selected because of their high potential and their ability to juggle multiple tasks simultaneously.
Project Team outlines Business Requirement (Gap Analysis). Project team collects pertinent employment data, such as employee retention rates, time to fill, cost per hire, training costs per employee, etc.
Project team facilitates conference calls, roundtable discussions, and conducts surveys with recruiters, as well as hiring managers to determine the value added in having the ability to locate and re-hire former talent that has left the organization.
Project Team determines if a business requirement truly exists and identifies what gaps can be resolved by investing in an HRIS upgrade. If a need does not exist, the project will be closed down after month one and additional resources will not be wasted moving forward. If the project team learns that value would be added from the investment of the HRIS upgrade, the team will meet with internal HRIS team and external vendors to determine upgrade feasibility.
Month Two: February 2014
Project team meets with executive sponsor and HRIS leader to present feasibility findings. It is critical to gain support from the executive sponsor to ensure the project team and sponsor are on the same page. It is also critical to gain support from the HRIS senior leader and ensure they will provide necessary IT resources and make members of HRIS team available throughout the project.
Month Three: March 2014
Project team sends RFPs (Request for Proposal) to vendors who have the ability to support business requirements.
Based on results of returned RFPs, the project team will meet with Project’s Executive Sponsor to discuss all submitted proposals and recommend a vendor who can best facilitate what the HRIS upgrade needs to accomplish.
During month three, the project team and executive sponsor will present the HRIS Upgrade Project Plan and Cost Benefit Analysis to the company’s Senior Leadership team, with the goal gaining project approval and necessary budget dollars to complete the project.
Assuming project approval, the project team proceeds with the selection of a vendor who can satisfy the business requirements within the budget allocated by leadership. If budget is not approved by leadership, the project can be halted or postponed without substantial loss of resources or time.
Month Four: April 2014
Assuming budget is approved by senior leadership, the Project Team will schedule a formal kick-off meeting with all key stakeholders, including representatives from the legal department, finance team, IT, and the external vendor selected for the upgrade.
Members of the Project Team would establish a series of meetings, and include key stakeholders to ensure all requirements are being met. These meetings will last the duration of the project. Examples of the meetings include a weekly progress meeting with HRIS Team, a bi-weekly status update meeting with the executive sponsor.
The vendor would begin building the portal in partnership with internal HRIS resources, with oversight by members of HRIS upgrade project team.
Month Five: May 2014
System Integration takes place during month five, but due to the nature of the SaaS upgrade, the integration will not require a disruption to the existing HRIS. System integration will consist of ensuring recruiters and internal end-users can access the new portal. Part of the integration is also ensuring that firewalls are effective, and that the portal is safe and secure.
Month Six: June 2014
During month six, software and hardware testing will continue to ensure everything is working properly.
Project team will host a project celebration to thank those who contributed to the success of the implementation.
In partnership with the Communications Team and HR leadership, the functionality of the portal and new HRIS tool is explained to the broader HR team and other potential end-users.
Training sessions are established to help potential end-users.
Month Seven: July 2014
The final month of the project implementation will be used for rolling-out the tool to end-users.
Initially the database will not have many users, as it will only capture users (former employees who register after July 1st, 2014. The portal is not intended to capture employees who left the company prior to its implementation in July 2014. However, any employee who leaves the company after the implementation will receive information about the portal enclosed in their final paycheck and during their exit interviews. While close to 100,000 employees separate from the company each year, the project team only expects a fraction of users to register in the initial years following the program launch. The project team also expects a gap of two to three years before a substantial number of former employees will become viable candidates to return for employment with the company. The project team anticipates that the tool will begin paying greater dividends following year’s two to three, once former employees gain more work experience and have created profiles on the portal. Having two to three years to build the database is perfect and aligns with the strategy, as it will provide time to bring recruiters and internal end-users up to speed with using the tool.
The Project Team will also use month seven to document all key lessons learned during the implementation. This will help future Project Teams; tasks with similar projects avoid potential challenges and pitfalls.
High Level Timeline
Conclusion
In conclusion, the project, being time-framed and divided into a total of seven phases (within seven months) and all, is a feasible one, provided that all of the assumptions made in the proposal’s body would be converted into reality (e.g. the investors, sponsors, and vendors and all stakeholders’ approval for project kick-off). One good characteristic of this project proposal is that it features a step-by-step approach modeled in such a way that when one aspect becomes problematic, all further steps would be automatically canceled, leading to great savings in terms of both time and resources. Basically, the seven-phase project is divided into two halves. The first half focuses on the approval of papers and meeting with key people; the second half focuses on the implementation of the project and pilot testing, evaluation and summary, and closing out. In summary, this proposed project specifically targets the HR issue that the project team tries to solve—whether it would be feasible to establish a Starbucks Alumni Corporate Program and whether it would really benefit the organization.
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