Mr. Coffee--Not

Seb Agapite doesn't fancy himself a barista, nor is he looking to hire one. But inside Dunkin' Donuts' product-development center in Braintree, Mass., Agapite stands before a high-tech machine that will let his stores sell high-margin espressos and cappuccinos. Behold the Shaerer Ambiente, an $11,800 "super-automated" espresso machine that Dunkin' Donuts has begun installing in every one of its stores. To demonstrate its magic, Agapite pushes some buttons and 45 seconds later hands NEWSWEEK a latte. "I waited in line eight minutes at Starbucks for a similar product," Agapite boasts.

For managers in all kinds of businesses, it's among the hardest decisions: what's the right mix of labor and technology? Whether it's an automobile plant deciding on the mix of million-dollar robots and unionized labor, or a bank deciding whether to replace more tellers with ATMs, finding the balance requires a clear understanding of the costs, quality and customer- satisfaction trade-offs of man versus machine. Going too far in either direction can be risky: remember the automated baggage-delivery system that wreaked havoc at Denver International?

Dunkin's reliance on a pricey high-tech machine to get into the espresso game is less risky, but it's still a departure from Starbucks' strategy. The Seattle company puts new hires through a full-scale coffee school, training them to hold forth on the difference between Ethiopian and Sumatran beans while simultaneously crafting half-caf, sugar-free, vanilla nonfat lattes. By keeping its investment bolted to the counter, Dunkin' can worry less about turnover.

The device at the center of the Dunkin' strategy is far different than the $49 Krups sitting in your kitchen. It starts with two raw materials: whole-bean espresso and water. When a human presses a button, the machine takes over, grinding, measuring and compacting the espresso, forcing steam through to extract the dark liquid, then disposing of the grounds. Dunkin' worked with Shaerer to do further idiotproofing, including an easy system for measuring steamed milk (no judgment required) to use in latte or cappuccino.

Then Dunkin' spent months trying out the machines in test markets. The key concern was speed. Even if a store sells lots of espresso drinks, adding them to the menu could still hurt the overall bottom line if they cause lines to slow. That would increase the number of "balks," the industry's term for impatient folks who leave the store without buying anything.

Once the machines are up and running, Dunkin' Donuts is betting that some of the customers currently paying $1.29 for a coffee will trade up to a $1.79 latte. But can the machine-made product match up? George Howell, who's been selling high-end java for 30 years, is skeptical. Even so, he says, the chain could still succeed. "Dunkin' Donuts isn't claiming to sell top-of-the-line. The whole point is to get something acceptably consistent." May the best cup win.