Starbucks transformation
In 1982 Howard started working in Starbucks, he then left and started his own coffee company, Il Giornale. In 1987 he bought Starbucks, merged both companies and keep Starbucks name.
In 2008 he returned as CEO
Love
A Beverage of Truth
Pouring espresso is an art, one that requires the barista to care about the quality of the beverage.
Starbucks’ touchstones:
- Respect and dignity.
- Passion and laughter.
- Compassion, community, and responsibility.
- Authenticity.
“Life is a sum of all your choices”, wrote Albert Camus.
A Love Story
Entrepreneurs must love what they do to such a degree that doing it is worth sacrifice and, at times, pain.
Merchants take something ordinary and infuse it with emotion and meaning, and then they tell their story over and over again, often without saying a world.
If home is the primary or “first” place where a person connects with others, and if work is a person’s “second place”, then a public space such as a coffeehouse – such as Starbucks – is what author had always referred to as the “third place”.
Surfacing
The first Starbucks store outside North America was opened in Tokyo in 1996.
In 2002, in partnership with Conservation International, we created our own sourcing guidelines, setting out comprehensive procurement process to ensure that the coffee we bought was ethically grown and responsibly traded. We called our verification program C.A.F.E..
During leadership of Jim Donald Starbucks extend their brand beyond coffee into entertainment, books.
In February 2007, Howard wrote a memo to Jim and leadership team that something has to change. The letter was published publicly.
A well-built brand is the culmination of intangibles that do not directly flow to the revenue or profitability of a company, but contribute to its texture.
What do people do habitually every day? They drink coffee. Same time. Same store. Same beverage.
Nothing Is Confidential
Reply on leaked memo was: we believe that success is not an entitlement and that it has to be earned every day.
That February, Howard’s memo became part of Starbucks’ collective memory.
Balance had always been Starbucks’ challenge. Fiscal responsibility and benevolence. Shareholder value and social conscience. Profit and humanity. Local flavor on a global scale. Now our challenge was to restore proper balance between our desire for growth and the need to preserve our heritage.
Companies pay a price when their leaders ignore things that may be fracturing their foundation.
Magic
We had trapped ourselves in a vicious cycle, one that celebrated the velocity of sales instead of what we were selling. Our strategy was to do more of what had worked in the past.
The breakfast sandwich was something that, with its smell of burnt cheese, was killing the smell of coffee and emotional connection with customer.
A founder perspective is unique. Such a lens has its strengths and weaknesses.
Loyalty
If not checked, success has a way of covering up small failures.
Howard decided that it is time to come back as CEO in 2007. But leading transformation is not something he was used to.
Believe
He spent some time in Hawaii before taking over and there he was doing some sports with Michael Dell. He suggested to prepare the Transformation Agenda. “Transformation” spoke to the scale of change. “Agenda” provided an actionable framework.
Confidence
A Reservoir of Trust
Starbucks history is their reservoir of trust. Howard decided not to dwell on Starbucks’ history and he will not cast blame for past mistakes.
Starbucks had three primary constituencies: partners, customers and shareholders, in that order
Three pillars of strategy of improvement were:
- Improve the current state of US retail business.
- Reignite the emotional attachment with customers.
- Make long-term changes to the foundation of its business.
The only sacred cows for Howard, the two elements that he refused to strip from the company were employee health-care program and the quality of the coffee.
A New Way to See
Jeffrey Sonnefeld from Yale has theory how the returning CEOs can be successful: They come back reluctantly, with no intention to undermine the sitting leader. They are not trying to fulfill some unmet ego need. They recognize that what they built the first time was not a religion. They accept that change is inevitable.
SYPartners was a consultancy company that work with Starbucks on transformation.
- Icons make sense of the tension of the times, offering hope and even mending a culture in turmoil.
- Icons assert a “cultural authority”, helping to frame the way people view the times they live in.
- Icons don’t confuse history with heritage, and always protect and project their values.
- Icons disrupt themselves before others disrupt them.
- Enduring icons are willing to sacrifice near-term popularity for longer-term relevance.
The brand can and should be defined by the quality of its coffee as well as its values. Community. Connection. Respect. Dignity. Humor. Humanity. Accountability.
Without great coffee, Starbucks had no reason to exist.
Playing to Win
Wherever the location, the best beans – the ones with enchantingly complex flavors and compelling characters, known as arabica – grow under some degree of stress, like high altitudes, intense heat, or long dry periods.
Many longtime brewed-coffee drinkers in the US perceived Starbucks’ coffees as “burnt” instead of bold. In November 2007, a team of coffee and roasting experts, led by Andrew Linnemann, buckled down to develop a more well-rounded blend. They named it Pike Place Roast.
Elevating the Core
Two decisions: eliminating the sandwiches and stop reporting the comps, were worth risking public backlash.
Starbucks acquired Clover a company owned by Zander Nosler, that created different coffee machines that brewed coffee in their own way.
Get In the Mud
Ensuring that communication is narrow, clear, and repetitive to set expectations wins people’s trust.
Starbucks lost its attention to the details in 2008. They thought in terms of millions of customers and thousands of stores instead of one customer, one partner, and one cup of coffee at a time.
The word used to communicate the transformation was Onward.
A Reason to Exist
The Transformation Agenda began with a compelling strategic vision. It was called Our Aspiration. It stated: To become an enduring, great company with one of the most recognized and respected brands in the world, known for inspiring and nurturing the human spirit.
Seven big moves to get there:
- Be the undisputed coffee authority.
- Engage and inspire our partners.
- Ignite the emotional attachment with our customers.
- Expand our global presence – while making each store the heart of the local neighborhood.
- Be a leader in ethical sourcing and environmental impact.
- Create innovative growth platforms worthy of our coffee.
- Deliver a sustainable economic model.
The Starbucks’ mission: to inspire and nurture the human spirit one person, one cup, and one neighborhood at a time.
Benevolence
Starbucks’ coffee is exceptional, yes, but emotional connection is our true value proposition.
The biggest financial and logistical bet to date for Starbucks was upgrading their 20.000 espresso machines. They replaced La Marzocco machines with Thermoplan’s the Mastrena.
Beyond the Status Quo
Starcbucks trip to virtual world was supported by Salesforce.com. Howard conversation with Michael Dell about Dell’s initiative called IdeaStorm, were they collected ideas from the customers, was upgraded when Michael called Marc Benioff, who was also in Hawaii at that time and the partnership was created.
Bold Moves
On very important annual meeting in 2008, six transformation initiatives were presented:
- The Masterna.
- Conservation International.
- The Reward Card.
- MyStarbucksIdea.com.
- Pike Place Roast.
- Clover.
Pain
Whirlwind
Starbucks tried to bring Sorbetto to US. They thought it would be their next Frapuccino. 1 billion business with healthy margin. It didn’t work.
The 2008 numbers were difficult to handle.
Howard got an insight from another second-time CEO. Most of the top leaders will be gone or new within a year.
A Lethal Combination
Behind every barista is a story.
Our partners are passionate and want to do the right thing, especially from the values standpoint. But what many of them had in spirit they lacked in business acumen and tools. There was a disconnect between effort and result.
One big problem is old technology.
Growth has been a carcinogen. When it became our primary operating principle, it diverted attention from revenue and cost-saving opportunities.
As consumer cut spending, Starbucks faced a lethal combination – rising costs and sinking sales- which meant that Starbucks’ economic model was no longer viable.
Reverence
Starbucks closed 600 stores. 20 % were new stores. There was some push from customers which showed that customers still found Starbucks relevant.
There is no silver bullet. Not growing store count. Not new coffee blends. Not loyalty or value programs. Not healthier foods and drinks. You need to transform consistently and in different areas.
I Know This to Be True
Starbucks also cut non-store positions and they askes 550 people to leave.
Every brand has inherent nuances that, if compromised, will eat away at its equity regardless of short-term returns.
Howard brought new management in IT and supply chain.
Hope
Truth in Crisis
In September 2008, cutting the fat out of Starbucks’ operations took on a new urgency.
In 2008 the chance of a store getting everything it asked for on time and intact was about 35 percent.
New chief supply chain officer Peter had a strategy to transform SCO and the strategy was three words: service, cost, people. Deliver great services to all who placed an order. Lower the cost. Develop internal talent and recruit specialists in transportation, logistics, engineering, and quality control.
A Galvanizing Moment
Bringing more than 2000 top Starbucks people from all over the World together to New Orleans, was a galvanizing moment.
Nimble
There was new marketing agency cooperation for Starbucks and one of the first campaigns was free coffee for anybody who would vote. You and Starbucks, it’s bigger than coffee.
Starbucks was being squeezed from the bottom by fast-food brands like McDonald’s and Dunkin’ Donuts, and from the top by high-end independent coffee shops.
The election campaign was a turning point, with Starbucks discovering powerful ways to drive traffic and positively engage with customers at a low cost that was still in keeping with the brand.
Plan B
When management prepared cost cutting plan for 400 million USD, that was presented to a board as Plan B. Board pushed to move it to Plan A.
Boards of directors do not exist to manage companies, but rather to make sure companies are managed well.
Stay the Course
Analyst conference at the end of 2008 was hard. There were some new management people in the team and this was important. Choosing right people was crucial for transformation.
Every company was feeling pain. But Starbucks had a good story to tell. An authentic story.
One of the parts of that story was Customer cards. Starbucks was building a rich database that it could use to better understand its customers’ behaviors and reward them accordingly.
Expansion areas were international and innovation beyond retail footprint.
Courage
Innovate
A new idea’s execution had to be as good as the idea itself.
Don Valencia was working on developing the best instant coffee on the market. Howard brought him in Starbucks. He worked on this with Urano “Uri” Robinson. Side product of this trying was Frappuccino extract. It boosted profitability and reduce prep time.
It took almost 20 years until 2007 when Starbucks finally broke a code of instant coffee.
Conviction
With VIA Starbucks instant coffee they have built a billion-dollar business on instant coffee. Globally, the instant coffee market is worth more than 20 billion USD.
The positioning. The packaging. The name. Starbucks coffee, in an instant.
Good leaders have two abilities: to see where their company is heading and ability to bring people along.
Connecting Dots
Creating a Starbucks digital network that served as a private channel for our customers could further bridge the virtual world of the Internet and the physical world of stores as well as the neighborhoods where we do business.
Balance
At the very heart of being a merchant is a desire to tell a story by making sensory, emotional connections.
That Shop in Via Montenapoleone by Aldo Lorenzi was a book that gave a lot of inspiration to Howard.
Old is beautiful, but not if it is neglected.
Starbucks renovated some of their stores.
Sustainability. Green. Organic. Recycled. Repurposed. Local. Community. And, of course, coffee. These became the creative watchword for Starbucks’ new store designs.
Scott Heydon was responsible for bringing Lean to Starbucks.
Conscience
For Starbucks to pay a premium price to a coffee farmer, we have to have a premium product that our customers are also willing to pay a premium for.
Winning
The third quarter of 2009 was the first sign that transformation is working.
Ni Hao
China was the next step. Howard went there in 2009 in September. In the near future China will be Starbucks’ largest market outside US.
Chian homes are small and Starbucks clean and spacious facilities could serve as second home.
Making Starbucks locally relevant without diluting the brand is the key.
Leadership style that Howard is practicing is influenced by collective memory of Starbucks:
Grow with discipline. Balance intuition with rigor. Innovate around the core. Don’t embrace the status quo. Find new ways to see. Never expect a silver bullet. Get your hands dirty. Listen with empathy and overcommunicate with transparency. Tell your story, refusing to let others define you. Use authentic experiences to inspire. Stick to your values, they are your foundation. Hold people accountable but give them the tools to succeed. Make the tough choices; it’s how you execute that counts. Be decisive in times of crisis. Be nimble. Find truth in trials and lessons in mistakes. Be responsible for what you see, hear, and do. Believe.
Balance between the emotional and the disciplined. Between instinct and information. Between global and local. The personal and the professional, and of course, between profit and humanity.
Tribute
Starbucks is the only company that can operate huge global network of retail stores, distribute its products on grocery shelves and have an extraordinary emotional connection with its customers, at scale.
The transformation was about:
- Being the undisputed coffee authority
- Pike Place Roast
- The Mastrena
- Clover
- Ignite the emotional attachment with its customers
- Starbucks’ Loyalty Program
- MyStarbucksIdea.com
- Social Media
- Digital Ventures
- Lean Techniques
- Expanding its global presence – while making each store the heart of local neighborhoods
- Starbucks Coffee International
- Expansion in China
- New Store Designs and Concepts
- Mercantile Stores
- Being a leader in ethical coffee sourcing and sustainability
- Sourcing
- Serving Our Communities
- Delivering a sustainable economic model
- Cost Reductions
- Supply Chain
- Store Technology
- Building Its Senior Leadership Team
- Biennial Analyst Conference
