Artifact: OL 645

Artifact OL 645: Critical Analysis for Managed Change Within Starbucks Corporation

Laura Inlow

Saint Mary’s University of Minnesota


Artifact OL 645: Critical Analysis for Managed Change Within Starbucks Corporation

A critical change plan analysis entitled “Critical Analysis for Managed Change Within Starbucks Corporation” demonstrates the second program learning outcome, integrating and applying analytical skills to make strategic decisions (“Saint Mary’s University”, 2016); specifically, the ability to utilize systems thinking for the ongoing improvement of an organization (“Saint Mary’s University”, 2016). Course outcomes represented include the abilities to analyze and understand organizational behavior as systems, and compare and manage emergent change approaches (“Saint Mary’s University”, 2016).

The final paper for a course on organizational change and development includes an analysis of the company’s background, as well as its strengths and weaknesses. It describes the company’s hybrid organizational structure, which comprises functional, geographic, and product-based divisions (Meyer, 2015). The organization studied is lauded for its supportive and innovative leadership, as well as its inclusive culture of belonging and diversity (Ferguson, 2015).

The paper details a turning point in the company’s history, in the mid-2000s, during which major change was necessary to put the organization’s success back on track. The strategy employed entailed putting the focus back on the product, and prioritizing customer experience over profit (Kaplan, 2014). Comparisons are made using another company with a similar customer demographic and innovative organizational culture. Systems thinking is demonstrated by a description of a specific change process regarding the use of non-recyclable paper coffee cups. Obstacles to change and ways to measure that change are also discussed, as well as the company’s next steps moving forward.


References

Ferguson, E. (2015, September 13). Starbucks Coffee Company’s organizational culture. Panmore Institute. Retrieved from http://panmore.com/starbucks-coffee-company-organizational-culture

Kaplan, D. (2014, June). Starbucks: The art of endless transformation. Inc. Retrieved from http://ezproxy.smumn.edu.xxproxy.smumn.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=edsgea&AN=edsgcl.370323015&site=eds-live

Meyer, P. (2015, September 13). Starbucks Coffee Company’s organizational structure. Panmore Institute. Retrieved from http://panmore.com/starbucks-coffee-company-organizational-structure

Saint Mary’s University of Minnesota. (2016, September). 2016-2017 catalog & student handbook, Organizational Leadership, M.A. Retrieved from http://catalog.smumn.edu/preview_program.php?catoid=21&poid=2237&returnto=1185



Critical Analysis for Managed Change Within Starbucks Corporation

Laura Inlow

Saint Mary’s University of Minnesota

Schools of Graduate & Professional Programs

OL 645 Organizational Change and Development

Al Watts

December 11, 2016


Critical Analysis for Managed Change Within Starbucks Corporation

Starbucks Corporation has long been known as a leader and trendsetter in the coffee industry, but nearly a decade ago began a troubling downward trend that threatened its relevance. As a result, former CEO Howard Schultz jumped back into the driver’s seat and put in motion a number of organizational changes to restructure the company and get back to its roots. Today, Starbucks and its affiliates are enjoying the fruits of the company’s revitalization, but have the past decade to look to as a reminder to keep moving forward, or risk falling behind.

About Starbucks Corporation

Starbucks’ business goes well beyond selling coffee to providing the entire coffeehouse experience for its customers (MarketLine, 2016). Built upon unique coffee blends, that experience has expanded over time into tea, food items, merchandise, free Wi-Fi and exclusive digital content from publishers like iTunes, New York Times, Spotify and more. A robust app, mobile payment options and a digital My Starbucks Rewards loyalty program add an important mobile component to the company’s already unique offerings (MarketLine, 2016).

Starbucks currently comprises 7,000 company stores, licensed stores, consumer packaged goods and foodservice operations (MarketLine, 2016), and employs upwards of 191,000 people (Lebowitz, 2016). Subsidiaries include Seattle’s Best Coffee, Tazo Tea (Starbucks, 2011) and Teavana (Kaplan, 2014).

Major competitors making headway in the coffee industry include Dunkin Brands, which operates under locally-owned franchises (MarketLine, 2016), and McDonald’s, which competes globally with its more affordably priced McCafe specialty coffees (MarketLine, 2016).

Strengths and Weaknesses

Starbucks’ particular strengths lie in the company’s firm grasp of technology, efforts for innovation, employee-friendly policies and practices, and environmental stewardship. The company has demonstrated its dedication to technology and innovation through the launch of a mobile-based loyalty program and investment and engagement with customers on social media (Hanna, 2014). Employee friendly practices include benefits like health insurance and college reimbursement. All Starbucks employees are referred to as “partners,” which demonstrates their importance to the company. In Augusta, Georgia, the company operates a manufacturing facility that is certified LEED (Leadership in Energy & Environmental Design) Gold by the U.S. Green Building Council, allowing Starbucks a cost effective operation solution that is also environmentally friendly (Labs, 2015).

Because the company employs a differentiated business-level strategy (Jones, 2012), Starbucks maintains a lead over its competitors due to the quality of its product, despite not having the lowest prices, especially when compared to McDonald’s McCafe offerings. However, paying higher prices might not be feasible for some customers, especially during uncertain or difficult financial times, causing many to cut back on their purchases. The company’s other, more recent, struggles and weak areas include a recent increase in product recalls, various litigations, people’s growing concerns over living healthy lifestyles, and competition in global markets (MarketLine, 2016).

Inside Starbucks

As a frontrunner in its market, Starbucks strives to stay on top through adaptations in its structure and business model as needed, with a focus on technology and human resources.

Hybrid Organizational Structure

Starbucks’ unique organizational structure has developed in response to the company’s changing business needs over time (Meyer, 2015). As the company grows, so does its structure, so that it can continue optimizing processes for the product quality it has become known for (Meyer, 2015). The hybrid organizational structure incorporates functional structure, geographic divisions and product-based divisions teams (Meyer, 2015).

Human resources, finance, and marketing functions are utilized company-wide and based at corporate headquarters (Meyer, 2015). Starbucks’ global market comprises divisions for China and Asia-Pacific; Americas (divided further into western, northwest, southeast and northeast divisions); and Europe, Middle East, Russia and Africa, (Meyer, 2015), each with its own vice president. Each store manager has two bosses – a geographic VP and HR manager (Meyer, 2015).

Product-wise, Starbucks also has separate divisions for coffee, baked goods and other merchandise (Meyer, 2015). At the store level, teams are organized around serving the customer (Meyer, 2015), with a focus on positive customer experiences (Meyer, 2015).

Leadership and Human Focus

From a leadership standpoint, Schultz avoids micromanaging by recruiting top performers who challenge his ideas and push for excellence (Lebowitz, 2016). By doing so, he reinforces the strength and diverse opinions of his individual team members, who are skilled and motivated to succeed, and at the same time help the company move forward (Lebowitz, 2016).

Starbucks’ organizational culture of belonging, inclusion and diversity is a distinguishing characteristic (Ferguson, 2015). Its main features are servant leadership, relationships, collaboration and inclusion (Ferguson, 2015).

Former President Howard Behar, 1995-2003, said that early on, the company was focused on the product and not so much the people (Greenleaf, 2015), but leadership knew that people were the key to having a successful business and long lasting organization (Greenleaf, 2015). “Ultimately, I knew that how you treat your people is how they’ll treat your customers,” Behar said in a 2015 interview (Greenleaf, 2015). That culture was built by encouraging employee input through Open Forums where they were invited to speak their minds and contribute (Greenleaf, 2015).

Leaders throughout the company support their employees and encourage growth, both personally and professionally (Ferguson, 2015). Starbucks’ College Achievement Plan program even offers four years of college coursework to help employees graduate college debt free, with no obligation to stay at the company upon graduation (Foroohar, 2016). The company’s goal is to help 25,000 employees earn college degrees by 2025 (Foroohar, 2016). Tuition is only one of the perks employees enjoy, which also include a Spotify Premium subscription, comprehensive healthcare coverage and stock options for even part-time workers (Foroohar, 2016).

Starbucks’ focus on relationships creates warm interactions between employees and their peers, as well as employees and customers (Ferguson, 2015). Collaboration and communication are key, and openness to ask questions and voice concerns if need be are very much encouraged (Ferguson, 2015). This kind of treatment empowers employees to succeed and strive for the innovation that keeps Starbucks on top (Ferguson, 2015).

Last, but not least, the company’s anti-discrimination policies strongly prohibit discrimination based on gender, race, ethnicity, sexual orientation, etc. (Ferguson, 2015). This is especially important because more than 40 percent of the company’s baristas are minorities (Foroohar, 2016). After the 2014 riots in Ferguson, Missouri, for example, the company held open meetings in five different cities to give employees a chance to voice their individual concerns and share their personal experiences (Foroohar, 2016). Uniquely, these efforts focused on the employees as people, rather than simply as parts of a greater whole.

Changing Back to Basics

Even the best companies can become complacent if change and innovation are not at the heart of what they do. Likewise, growth can sometimes be harmful, if not controlled – and that’s what happened at Starbucks sometime after Schultz stepped down as CEO in 2000. By 2007, it had become obvious the company had taken a wrong turn toward prioritizing profit over the product quality and customer experience Starbucks was built upon (Kaplan, 2014). Over-saturation of the market essentially meant that Starbucks was competing against itself (Geereddy, 2013) and a dip in the economy meant that fewer people were spending their money on high end coffee products (Hanna, 2013). As a result, stock prices plummeted (Kaplan, 2014), and action had to be taken. In 2008, Schultz returned and the company began an important transformation (Kaplan, 2014) to get back on the right path. The change, although looking forward, took Starbucks back to its roots with a focus on serving its customers as well as expanding its markets into China and India (Kaplan, 2014). Some of the company’s focus was also invested in the introduction of new products and services (Kaplan, 2014).

Ultimately, the company shut down 800 stores and laid off 4,000 employees, most of whom were top executives (Kaplan, 2014). Schultz then reinvested in his middle managers, by bringing them together for a morale building retreat in New Orleans, Louisiana. The retreat is now considered having been a turning point for Starbucks’ transformation (Hanna, 2013). Schultz also reinvested in the company’s baristas, shutting down stores for half a day to retrain them in making espresso (Kaplan, 2014). Rather than cutting benefits to employees, including temporary ones, Schultz stayed true to Starbucks’ core principles by continuing to offer health insurance (Kaplan, 2014) and other employee benefits. Together, these efforts went a long way toward reinvigorating the Starbucks workforce – the very people who had an opportunity to turn things back around for the company.

Starbucks’ organizational culture grew over time to embody this human focus (Ferguson, 2015). Today, it is a big part of what makes Starbucks distinct and what gives it a competitive advantage over the company’s competitors (Ferguson, 2015).

Keeping Up with Customers

Starbucks’ darkest times came at a point when stores were virtually on every street corner and its struggles weren’t obvious to the general public. To them, the company was losing its “cool,” while in truth, it was losing its competitive edge. Staying competitive ongoing requires Starbucks to earn and keep customers’ loyalty while finding innovative ways to continue thriving financially. That means the company has to manage bureaucratic and operational costs while maintaining the product quality and customer experience that sets the company ahead of its competition, all the while staying true to its organizational culture, and remaining flexible to the pressures of the market and outside world.

Similarities in Other Markets: Facebook Case Study

One of Starbucks’ issues pre-2008 was not managing its extreme growth properly. Although growth, on the surface, appeared to be a good thing, Schultz noted in a 2007 memo that it had cost the “soul” of the company that made it so successful in the first place (Quelch, 2008). Another company which has experienced rapid growth, has similar concerns, and caters to a similar demographic is Facebook. Although the two companies work in different markets, they can learn from one another when it comes to managing growth and change.

Like Starbucks, Facebook reached a turning point within the last decade and was forced to adjust its business strategies to turn a profit (Fiegerman, 2013) when it announced its IPO in 2012. The company restructured a bit to put more focus on its main source of revenue – advertising (MarketLine, 2016) – without compromising its free services, which allow users to connect with one another and publish their thoughts, ideas and other content on the social networking platform (MarketLine, 2016). In 2008, Facebook took a step in the right direction toward improving its business structure by hiring COO Sheryl Sandberg (Biography.com, 2016), whose claim to fame would later be instituting stronger corporate processes to add stability to the organization, which was previously dominated and run by hackers (Keating, 2012).

After the announcement of its IPO, CEO and Co-Founder Mark Zuckerberg pulled a team together to talk strategy moving into its new public status. Not everyone was on board. Just three months after filing the IPO, the company lost its CTO, platforms director, and head of its partnership marketing division (Fiegerman, 2013). Zuckerberg himself even emerged from the transition more polished than he was going in (Fiegerman, 2013).

Although initially, the IPO was widely considered a flop by investors (Safdar, 2013), Facebook’s revenue has steadily increased since. By 2015, mobile ads accounted for 76 percent of the company’s advertising revenue, or $2.9 billion (Fiegerman, 2015). That’s a huge jump from 2012, a year when Facebook brought in almost no revenue from mobile devices (Fiegerman, 2015). As mobile continues to thrive, with expected continued growth in the future, the company continues to follow an upward trajectory.

Facebook’s story is an example of how companies like Starbucks can benefit from monitoring public perception, and remaining flexible enough to offer the right products and customer experiences at the right times. Starbucks already showed its ability to adapt in 2012, when it broke into the health food market with its first Evolution Fresh store in Washington. The move was in response to customers’ increasing interest in pursuing healthier lifestyles (MarketLine, 2016).

Change Strategies

Change strategies to help manage these processes include planning for and managing resistance, education and communication, building trust, and even coercion, if need be (Kotter and Schlesinger, 2008). None of these strategies are one-size fits all solutions, so managers need to consider the change or changes at hand, as well as the likely outcomes of each strategy (Kotter and Schlesinger, 2008).

When Starbucks partners lost their jobs during the company’s 2008 restructuring, Schultz communicated to not only those affected, but also those who remained, through a company-wide email that explained the restructuring process and why it was necessary. Likely, there was some initial resistance from Starbucks partners, both those who lost their jobs and those who were unsure of how the change would affect them.

Other changes, while not necessarily as serious or traumatic as layoffs and store closures, also require unique strategies, customized to the particular situation at hand.

Recyclable Cups & Systems Thinking

Starbucks is currently pursuing a change in one of its products that aligns with the company’s sustainability doctrine and would ultimately reduce the company’s environmental footprint. Paper coffee cups are not easily recycled as some people think, because they are made of cardboard with a thin layer of plastic that helps keep the coffee warm and the cup from getting soggy (Kittasova, 2016). Because of this, “an estimated 60 billion paper cups in the U.S. end up in landfills each year” (Kittasova, 2016). In response, in addition to offering reusable cups for sale in its stores, Starbucks is attempting to change the paper coffee cup game.

In 2009, the company hosted a summit to continue movement toward a recyclable cup solution (Starbucks, 2009). Peter Senge, a Ph.D., senior lecturer at the Massachusetts Institute of Technology and founding chair of the Society for Organizational Learning (SoL), moderated a discussion including representatives from various facets of the paper cup chain, or companies with symbiotic interdependencies (Jones, 2012), with the intention of addressing the issues and forming a plan for moving forward together (Starbucks, 2009). The effort allowed the various companies to feel involved in the process, making it more likely that they will buy into the change rather than resist it (Jick, 1991).

The project’s original deadline was 2012 (Starbucks, 2009). Although Starbucks didn’t meet that deadline, it has since adjusted and readjusted (again in 2015). In 2016, the company signed a “Paper Cup Manifesto,” along with industry peers like McDonald’s and KFC, to continue working toward a better solution (Kittasova, 2016).

Currently, Starbucks is testing a new, fully recyclable kind of coffee cup in the U.K. with British packaging company Frugalpac (Kittasova, 2016). The recyclable cup is built in a way that is similar to the traditional product, except the plastic layer on the cardboard can be more easily removed at the recycling plant so the rest of the cup can move through the recycling process (Kittasova, 2016).

Still, until a mass disposable solution is found, Starbucks is reducing its footprint by encouraging customers to consider reusable options. Customers can currently receive a small discount for using personal tumblers at Starbucks stores (Starbucks, 2009).

“Starbucks’ holistic approach to solving this global issue has the potential to make a significant impact on not only its company operations, but on the entire foodservice industry,” Senge said in a 2009 press release (Starbucks, 2009). In systems thinking, as a market leader and major player, Starbucks’ efforts have greater consequences on the larger system. In other words, the company’s efforts have the ability to cause a ripple of change not only in the company, but also among its peers and competitors (Starbucks, 2009).

Obstacles to Change

Obstacles to change can range depending on the change at hand, and can include structural or technological issues, communication issues, social issues and managerial issues.

Structural issues, such as organizational silos, can get in the way of change. While horizontal differentiation allows for specialization, it can cause a subunit orientation (Jones, 2012), which can detract from employees’ abilities to see the bigger picture. After all, “change succeeds when an entire organization participates in the effort” (Jick, 1991).

Technological barriers can include a company’s infrastructure and abilities, or inabilities, to keep up, as well as the abilities of a company’s workforce. Starbucks’ dedication to keeping on the forefront of technology and to educating its workforce puts the company in a good position to avoid this barrier.

Ineffective communication, or lack of communication, is also a major change barrier. Effective communication is absolutely critical when it comes to uniting an organization behind a shared vision and direction (Jick, 1991). Communication can also help set the tone for employees’ initial reactions to a change, and help them feel involved and take ownership in its outcome (Jick, 1991), an aspect that Starbucks handles well.

Social and managerial issues can arise when an organization is too hierarchical, which Starbucks addressed early on during its rebirth, when many of the laid off employees were executive-level employees rather than front line workers.

Measuring Change

It’s important that change is monitored and measured for success, although that is often a lofty goal (Prosci, n.d.). Many change measurement processes use employees and project effectiveness to gauge change progress (Prosci, n.d.). Leaders can also consider participation and documented communication efforts in the review process (Prosci, n.d.). In both examples of change at Starbucks, and the one at Facebook, progress toward the desired goal marked successes in the companies’ change strategies. Also in both cases, employee feedback at all levels would have been an effective tool.

Recommendations for Moving Forward

Starbucks appears to be on the right track currently and is once again enjoying success in its market, as well as in new ones. However, it is imperative that the company continue monitoring the employee and customer climate regarding satisfaction, tastes, trends and financial status, so that it can be poised and ready to respond when needed. It also needs to be careful to avoid complacency, by planning ahead rather than always reacting to outside stimuli.

To continue avoiding oversaturation, opening boutiques under different brands (Choi, 2013) is a good strategy, but Starbucks should be careful not to stray too far from its core competencies (Jones, 2012) and know when to pull back if certain efforts aren’t producing results.

Lastly, Starbucks would do well to remember the human focus that continues to keep the company ahead of the game. Moving forward, really relying on the customer-employee relations that have brought the company success in the past will continue to give Starbucks a unique competitive edge that others have yet to replicate.

Final Analysis

Starbucks has found great success in utilizing its greatest resource, humans, for both change efforts and general operations. When the company needed to pay more attention to its customer service efforts and overall customer experiences, it’s not surprising Schultz refocused his efforts on middle managers and frontline workers. These employees are often more in tune with each other’s needs and emotions, as well as those of the customer, than top executives (Huy, 2001). In particular, by making an effort to raise morale among middle managers after major layoffs, Schultz got 10,000 store managers (Kaplan, 2014) on his side, ready and willing to use their social networks to communicate and implement the change at a functional level (Huy, 2001). Their impact cannot be understated and should be considered ongoing.


References

Choi, C. (2013, October 23). Starbucks looks to make tea trendy, with plans to open ‘tea bar’ in New York City. The Canadian Press. Retrieved from http://ezproxy.smumn.edu.xxproxy.smumn.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=pwh&AN=MYO081503433013&site=eds-live

Ferguson, E. (2015, September 13). Starbucks Coffee Company’s organizational culture. Panmore Institute. Retrieved from http://panmore.com/starbucks-coffee-company-organizational-culture

Fiegerman, S. (2013, May 18). How Facebook has changed since going public one year ago. Mashable. Retrieved from http://mashable.com/2013/05/18/facebook-ipo-anniversary/

Foroohar, R. (2016, February 16). Starbucks for America. Time Magazine. Retrieved from http://ezproxy.smumn.edu.xxproxy.smumn.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=f5h&AN=100812944&site=eds-live

Geereddy, N. (2013). Strategic analysis of Starbucks Corporation. Retrieved from http://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf

Greenleaf (2015, May 2). How Starbucks built a servant leadership culture: Q&A with Howard Behar. Retrieved from https://www.greenleaf.org/how-starbucks-built-a-servant-leadership-culture-qa-with-howard-behar/

Hanna, J. (2014, August 24). Starbucks, reinvented: A seven-year study on Schultz, strategy and reinventing a brilliant brand. Harvard Business Review. Retrieved from http://www.forbes.com/sites/hbsworkingknowledge/2014/08/25/starbucks-reinvented/#74c8da66751b

Jick, T. (1991, April 22). Implementing change. Boston, MA: Harvard Business School Publishing.

Jones, G. R. (2012). Organizational theory, design, and change. Upper Saddle River, NJ: Prentice Hall.

Kaplan, D. (2014, June). Starbucks: The art of endless transformation. Inc. Retrieved from http://ezproxy.smumn.edu.xxproxy.smumn.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=edsgea&AN=edsgcl.370323015&site=eds-live

Kittasova, I. (2016, July 21). Starbucks cups aren’t recyclable. Here’s the solution. CNN Money. Retrieved from  http://money.cnn.com/2016/07/21/news/starbucks-recyclable-cups/

Labs, W. (2015, December). Starbucks brews up advanced technologies. Food Engineering Magazine, 87(12), p. 35-45. Retrieved from http://ezproxy.smumn.edu.xxproxy.smumn.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=edsgea&AN=edsgcl.446637537&site=eds-live

Lebowitz, S. (2016, March 3). Two brilliant management strategies Howard Schultz used to build the Starbucks coffee empire. Business Insider. Retrieved from http://www.businessinsider.com/management-strategies-of-starbucks-ceo-howard-schultz-2016-3

MarketLine. (2016, August 4). Company profile: Starbucks Corporation. Retrieved from http://ezproxy.smumn.edu.xxproxy.smumn.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=117930747&site=eds-live

Marketline. (2016, August 5). Company profile Facebook, Inc. Retrieved from http://ezproxy.smumn.edu.xxproxy.smumn.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=118290266&site=eds-live

Meyer, P. (2015, September 13). Starbucks Coffee Company’s organizational structure. Panmore Institute. Retrieved from http://panmore.com/starbucks-coffee-company-organizational-structure

Moss, D. (2016, March). Brewing a better business. HR Magazine. Retrieved from http://ezproxy.smumn.edu.xxproxy.smumn.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=keh&AN=113488978&site=eds-live

Prosci (n.d.). Change management measurement and metrics. Retrieved from https://www.prosci.com/change-management/thought-leadership-library/measuring-change-management-effectiveness-with-metrics

Quelch, J. (2008, July 2). How Starbucks’ growth destroyed brand value. Harvard Business Review. Retrieved from https://hbr.org/2008/07/how-starbucks-growth-destroyed

Quy Nguyen Huy. (2001, September). In praise of middle managers. Harvard Business Review. Retrieved from https://hbr.org/2001/09/in-praise-of-middle-managers.

Safdar, K. (2013, May 20). Facebook, one year later: What really happened in the biggest IPO flop ever. The Atlantic. Retrieved from http://www.theatlantic.com/business/archive/2013/05/facebook-one-year-later-what-really-happened-in-the-biggest-ipo-flop-ever/275987/

Starbucks. (2009, May 10). Starbucks brings thought leaders together to develop a comprehensive recyclable cup solution. Retrieved from https://news.starbucks.com/news/starbucks-brings-thought-leaders-together-to-develop-a-comprehensive-recycl

Starbucks. (2011, July 11). Starbucks announces new leadership structure to accelerate global growth. Retrieved from http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-newsArticle&ID=158400

Starbucks. (n.d.) Goals and progress: Cup recycling. Retrieved from https://www.starbucks.com/responsibility/global-report/environmental-stewardship/cup-recycling

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