OE and cOffEe

Perhaps it was the endless cups I drink to survive my first quarter of grad school, but in reading on organizational ecology, I immediately thought of its applicability organizational field of coffee shops. I spend a great deal of time at Philz Coffee in Palo Alto. I’ve heard countless customers chastised for mistakenly ordering “tall” or “grande” beverages, accidentally using the corporate Starbucks lingo in an establishment that prides itself as the antithesis of mass-produced coffee. But Philz, and many others like, owes a lot to the coffee corporation it so often derides. Starbucks popularized the connection between “third places” and coffee consumption, effectively bringing coffee out of the Folger’s can and into public view. It effectively created the market environment in which Philz is now situated.

Looking at coffee shops through the lens of organizational ecology we are presented with an interesting ecological case. First, we see a mutually legitimating relationship between organizational forms engaged in competition. Second is the problem that, though literature on organizational ecology (OE) makes carrying capacity appear relatively fixed, the growth of the coffee shops across America shows that in some situations carrying capacity can be manipulated. The second problem is that while OE emphasizes the power of internal and external inertia in hindering change, some organizations do change. What I present here is largely speculation, but it’s intended to question the mechanisms by which theories of OE operate.

In the Carroll and Swaminathan (2000) article on microbreweries they show that the consolidation of a few massive brewers created space for small specialty brewers to grow. In response to this microbrewery growth, the generalist firms have attempted to expand outward to consume some of the space occupied by specialists, only to find that this expansion is bounded by their identity, as defined by customers (Hsu and Hannan, 476), and they responded to this limitation by hiding their identity in releasing “craft” beers (e.g. Blue Moon) or buying smaller breweries. The story with coffee shops is a similar phenomenon but the mechanisms may be different. Despite Starbucks’ aesthetic of a homey warm place to sit and drink coffee, it has lost cache among a customer base deterred by its ubiquitous and corporate qualities. When Facebook offers for me to “check in” at Philz, I do. If Starbucks did, I wouldn’t. Local coffee establishments that profess pride in their coffees do as much as possible to differentiate themselves from the perceived corporate feel of Starbucks. The emphasis in local shops tends to be on the craft of coffee making and bean selection, with shops like Philz going to great lengths to demonstrate that each cup of coffee is made individually (even when it takes an extra five minutes). This identity of craft local coffee shops is legitimated in that it is a response to the already legitimated form of Starbucks. Ruef’s suggests that new forms are legitimated in response to social demands (661), in this case, perhaps consumer dissatisfaction with Starbucks. However, these new coffee shop forms seem to have stimulated dissatisfaction with Starbucks. I didn’t struggle with Starbucks until I started to go to better, perhaps snootier coffee shops where I learned a vocabulary for coffee and coffee shops and further why Starbucks was not good based on this vocabulary. Whatever the differences, Starbucks and firms like Philz are symbiotically related. Starbucks popularized the model that Philz has co-opted. Philz legitimates the Starbucks model and the practice of going to a third place to drink coffee and meet. What remains to be studied is the founding rate of local coffee shops in relation to the growth in corporate ones. While Carroll and Swaminathan propose that legitimation occurred between organizations on the same level (748), it appears possible that local coffee shops and corporate chains mutually legitimate each other.

If organizations can increase demand for their product as suggested above, it may also be possible for them to increase the carrying capacity of their organizational field—especially if that carrying capacity is reliant on customer demand. As defined by Ruef, carrying capacity “defines the maximum number of organizations in a population…that can be supported by the social environment at a given point in time” (Ruef, 678). The case of coffee shops seems to show otherwise. Prior to Starbucks, there was effectively no widespread[1] carrying capacity for coffee shops—but Starbucks seems to have established itself regardless, possibly calling upon the latent interests of consumers to have community spaces and creating a need where there was previously little demand.  Going to get coffee or do work at coffee shops is a thing to do. Which coffee shop you patronize then is an expression of identity on how you do that thing.

There are many ways to determine organizational carrying capacity. Geographically, there is a carrying capacity for coffee shops when it comes to spatial proximity (though Starbucks regularly defies this which makes for its own interesting case). It seems however that, in the food services industry, and particularly for coffee shops, holding constant the supply of coffee beans, storefront space, water and employees, the greatest resource affecting carrying capacity is customer demand. The fact that such demand has evidently been driven by the practices and presence of coffee shops—possibly through changes to the cultural meaning of coffee and its consumption in third places—indicates that carrying capacity can be manipulated. The same appears possible in the microbrewery story. The creation of craft beers may have fed the thirst of a small market segment that imbued the product with cultural meaning and distinction spreading the demand for a product that enabled people to identify as sophisticated consumers. In response to Hawley, Hannan and Freeman modify the idea that organizations are isomorphic to the diversity of environments by suggesting that the mechanism for isomorphism with environment must be explained and that organizations are simultaneously situated in multiple environments. To this, I’d add that consideration must be given to the fact that organizations play a role in shaping the environment that imposes constraints on them. If this weren’t true, then I wouldn’t expect marketing to be effective.

In contrast to coffee shops, other organizational fields may struggle with manipulating carrying capacity depending on how carrying capacity is determined. In the field of electric utilities for example, government sanction and physical space (for power lines or otherwise) create less manipulable restraints. The legal field may find itself in a middle ground. The state sanctions who can practice law, but attorneys can drive interest in litigiousness and hence create a demand for services that may expand the legal field’s carrying capacity.  All this is to say that the determinants of carrying capacity must be given a more prominent place in analysis because not all organization populations are exposed to similarly determined carrying capacities.

In the coffee shop field there are a few major players: Starbucks, Dunkin Donuts, McDonald’s. Only Starbucks began as a coffee-focused organization but the others have adopted coffee sales and, to varying degrees, third place qualities into their models. Hannan and Freeman say: “Failing churches don’t become retail stores” (957), but do challenged fast food restaurants become coffee shops? Both Dunkin and McDonald’s have reoriented in ways I presume to be responses to a demand established by Starbucks. Over half of Dunkin’s sales are coffee, many of its commercials poke fun at the pretentiousness of Starbucks coffee lingo, and in 2007 the slogan was changed to “America Runs on Dunkin” owing Dunkin claim to the coffee of the proletariat in contrast the perceived elitism of Starbucks. Dunkin appears to have entrenched its identity as no-frills coffee. McDonald’s, instead of playing up a populist appeal like Dunkin, has reformulated (or attempted to reformulate) its image as cosmopolitan with McCafe (which was created during the initial Starbucks growth spurt and saw a resurgence around 2005-2010). It seems Starbucks presented a challenge to Dunkin and McDonald’s, both of which were forced to contend with this shifting environment and new demand. One affirmed its identity, one reformulated its identity. As mentioned earlier, which coffee shop you decide to patronize can be seen as an identity expression. When I go to Philz, I see other people interested in being seen as going to Philz—and the coffee is pretty good. I doubt it’s the other way around.

Starbucks too has had to manipulate its identity when competing with local coffee shops. Many of these shops have greater legitimacy and authenticity in claims of “local” and “artisan” than Starbucks. In response, we have seen recent attempts for Starbucks to achieve the aesthetic of authenticity through the purchase of LaBoulange bakery through which a local and artisan appeals are made. While this may not win resolute anti-Starbucks coffee consumers, it may pull in customers from the margins as some major brewing companies were able to do with their new artisan labels (Carroll and Swaminathan). If Hsu and Hannan’s claim that organizational consolidation should affect the persistence of identities (476), we would expect something of a backlash for these companies making these changes. But it appears these changes in identity appeals have been carefully calculated and no real backlash has been observed. In sum, while Hannan and Freeman’s view that it is hard for organizations to adapt due to internal and external inertia, more needs to be understood about the conditions enabling some firms to adapt and change identities while others struggle.

In 1967, Stinchcombe argued that the social structure of society impacts the foundation, survival and character of organizations. Organizational ecology is one extension on this. However, it is limited in its ability to explain organizations and organization populations, capturing a great deal of phenomena without capturing much of the mechanisms by which phenomena occur. What I have tried to demonstrate through discussion of coffee shops in competition is that organizations and organization populations are not as rigid as presented in the organizational ecology literature. They are not merely environmental takers responding to the limits of an ecological system and inflexible in regard to identity and niche. It appears through this example that, deliberately or not, they play a role in shaping the environment on whose resources they depend. If we account for this possibility and moreover consider the circumstances in which organizations and organization populations may be able to influence their ecological constraints, the theories contributed from OE can become more useful analytical tools through which to view organizations in competition under environmental constraints.

I wrote this in a Starbucks. I ordered a medium coffee. The barista scoffed: “Grande.”

 

Stinchcombe, Arthur.  1965.  “Social Structure and Organizations.”  Pp. 142-169 in Handbook of Organizations, ed. by J.G. March, McGraw-Hill.

 

Hannan, Michael T. and John Freeman. 1977. “The population ecology of organizations.” AJS 82: 929-64.

 

Carroll, Glenn and Anand Swaminathan.  2000.  “Why the Microbrewery Movement?  Organizational Dynamics of Resource Partitioning in the U.S. Brewing Industry.”  AJS 106(3): 715-762.

 

Hsu, Greta and Michael T. Hannan.  2005.  “Identities, Genres, and Organizational Forms.”  Organization Science 16(5): 474-90.

 

Ruef, Martin.  2000.  “The emergence of organizational forms: A community ecology approach.”  AJS 106: 658-714.

 

Freeman, John and Pino Audia. 2006. “Community Ecology and the Sociology of Organizations.”  Annual Review of Sociology 32: 145-69


[1] For simplicity I am ignoring the pockets of coffee culture (e.g Seattle), that existed in the US at the time Starbucks came to the forefront

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