I recently finished the book, Onward, by Starbucks’ founder Howard Schultz. Schultz does a great job, not only at explaining where Starbucks was at the time that he retook control of the company (after stepping down as CEO 8 years earlier), but he also created a road map on how he methodically brought Starbucks back from the brink of collapse through strategy, discipline and innovation. I thought I would share some of the key strategic lessons learned throughout the book. As American companies are still struggling to find a way to manage this current sluggish economy, my hope is that this will help provide you with some practical advice – advice from a business that has rediscovered its mission and purpose and returned itself to record growth in 2010.
Getting up to speed: In 2007 Starbucks started to see a downward spiral that was most apparent in its plummeting stock numbers. According to Schultz, Starbucks had become obsessed with growth and took their eyes off operations and their core business. Starbucks was losing some of its signature traits and the internal ailments started to compound with the stock market crash of 2008. By the end of its fiscal 2008, Starbucks’ stock, once seemingly invincible, had declined by over 50 percent. In January 2008, Howard Schultz retook control of the company and began what he called his “Transformation Agenda.”
Transformation Agenda: This document was a one-page road map designed to quickly and efficiently tell what the primary directives for Starbucks were, moving forward. The transformation agenda also took shape in Schultz cleaning-house with his senior leadership team. He understood that he needed to get the right people, in the right seats going in the right direction. To do this he rebuilt his senior leadership team with the necessary skilled and visionary leaders Starbucks required to be successful.
Seven Big Moves (Critical Success Factors): Within his transformation agenda, Schultz laid out the Seven Big Moves Starbucks needed to embrace in order to be successful in the future. This gave clear and concise directives from his SLT to his staff at the retail level. They were:
1) Be the undisputed coffee authority.
2) Engage and inspire partners (staff).
3) Ignite the emotional attachment to customers.
4) Expand global presence while making each store the heart of the local neighborhood.
5) Be the leader in ethical sourcing and environmental impact.
6) Create innovative growth platforms worthy of Starbuck’s coffee.
7) Deliver a sustainable economic model.
With these seven prime directives in mind, here is how Starbucks “fought for its life without losing its soul”:
Implementing Product Enhancement: Walking a fine line between building off its core while pushing the boundaries of it products, Starbucks created a robust and well-suited line of products in the years of 2008-2010. This included Pike Place Roast which was a milder blend of coffee as a result of customer feedback. Also included was the Mastrena which was an enhanced espresso machine that quickened the ability to make espressos while not affecting quality (it was also built shorter so that the baristas could see the faces of their customers and interact with them as they made their espressos). Starbucks also embarked on creating a new style of Starbucks store, called their Mercantile Stores that served beer and wine as well as incorporating new coffee preparation techniques and a grassroots design style of architecture. Finally, most recently, Starbucks launched VIA, their instant blend of coffee, having redefined the category of instant coffee forever. VIA brought in $100 million in 10 months.
Implementing Technology Acuteness: After several years of not upgrading their software or in-store technology, every U.S. manager received laptops loaded with software that automated and accelerated processes like scheduling, hiring and performance reviews. Once the roll out is complete, Starbucks estimates that 700,000 annual hours will be cut off their customers’ wait-in-line time. Starbucks was also one of the first major brands to embrace social media. With more than 27 million fans around the world, Starbucks is currently a top brand on Facebook. Each month Starbucks’ website boasts 12 million visitors. Most interestingly, Schultz, in the book, discusses the personal attention to the customer they have been able to provide with these new conversational tools.
Implementing Lean Techniques: Although leery of Lean philosophies in the service industry, Schultz made a bold move to implement Lean techniques to achieve operational excellence. Used as a way to increase efficiency, while cutting waste, stores across the country work with one another to find better routines, processes and waste reduction techniques. In 2008, only three out of 10 orders were delivered perfectly to Starbucks’ stores from their warehouses. Today, nine out of 10 orders to 16,500 stores are delivered on time, with every item included and no errors. SCO’s safety performance has improved by 90%. In the last two years SCO cumulative savings was over $400 million for Starbucks. In 2009, Starbucks staff named Lean their most valued program of the year.
Implementing Social and Community Standards: Always part of their core philosophy and values, Starbucks was created on the foundation of “social consciousness.” Instead of leaving those values behind as the stocks began to fall, Starbucks pushed forward with bold plans to increase social and community engagement. One way Schultz did this when he returned was to have their annual “partners” conference in New Orleans to help rebuild the city despite feedback from investors and senior leadership to scratch the conference in order to save money. Starbucks held their conference to re-engage their employees, but more importantly, Starbucks committed time throughout the week dedicated to community service. Over 10,000 Starbucks employees worked alongside New Orleans and helped rebuild the city by raising houses, planting trees, reseeding grass, painting steps, and the list goes on. Starbucks volunteered approximately 50,000 hours of time in New Orleans, and this doesn’t account for the economic impact of bringing 10,000 people to the city for a week of lodging, eating and shopping.
Starbucks also continues to work with the Fair Trade organization reaffirming their commitment to ethical sourcing by vowing to ethically source 100% of Starbucks’ coffee by 2015. Starbucks committed themselves to having each and every one of their stores be LEED (Leadership in Energy and Environmental Design) certified by the end of this year.
Implementing Staff Development: The first thing Schultz did when he regained control of Starbucks was to shut down every single store in the U.S. for one day in order to “perfect their espresso making ability.” That day the company lost $6 million, but Schultz replied, “How could it be wrong to invest in our people?” This day-long training of perfecting the perfect pour kicked off a commitment to the training of staff at Starbucks. Starbucks has also continually offered full health-care benefits to part-time and full-time workers and equity in the form of stock options for every employee. Through the darkest days of Starbucks and with pleas from all around him, from friends to senior staff to stakeholders, to end the program, Schultz did not take away either option. In 2009, providing health coverage for staff accounted for $250 million of costs. Still, Schultz believed if he couldn’t invest in his people, they wouldn’t invest in him or Starbucks. Today, those same options are guaranteed to every Starbucks employee.
Implementing Quality Customer Service and Engagement: Always the core reason Starbucks exists, the SLT and the Transformation Agenda refocused their efforts on quality customer service. This included new store designs that work with regional materials and local crafters to give each store a unique and über-local feel that allows customers in every culture to feel at home in their neighborhood. Starbucks also created a new website called MyStarbucksIdea.com where customers can go to suggest improvements, product enhancements, write reviews and interact with Starbucks. Since the launch, the site has over 250,000 registered members submitting 100,000 ideas. Starbucks has launched 100 of the ideas including enabling a customer to remotely buy someone a drink, selling reusable cup sleeves, and bringing back salted caramel hot chocolate. Starbucks also started a customer loyalty program. Rolling out a Rewards Card and a Gold Card, Starbucks has seen $1.5 billion loaded onto these cards for customers to use. Customers also cite these cards as a main reason they are visiting stores more frequently
Today, through the efforts put forth by Schultz and his team, Starbucks has reclaimed its position as a profitable company and one of the world’s most adored companies. Starbucks has more than $10 billion in annual revenue and serves nearly 60 million visitors a week in 16,000 stores in 54 countries. More than 200,000 people represent the staff of Starbucks. This is in large part due to the shrewd focus and discipline of the company and its leader. This is a good illustration of how the plans created and the execution to achieve those plans not only brought about the transformation that Starbucks needed, but also solidified their ability to pursue the type of sustainability, profitable growth they envision for the future.
Again, my hope is that this has recommitted you to the pursuit of excellence (even in midst of the storm). Starbucks and Schultz had two choices essentially. They could have rolled over and died due to the economic crisis, or they could have said, “We cannot control the outside elements, but we can fight for our lives to make sure that what we do on the inside is in every way performing to its maximum potential.” Thankfully, they decided on the later. And with it, saved the life of Starbucks.
A question for you: what would be your Seven Big Moves to advance your company or organization? We’ve adapted Schultz’s Transformation Agenda, the Seven Big Moves and the strategies he applied into a one page road map.