Do it again
23 October, 2011
by Peter Martin
The need for entrepreneurial creative thinking is more important than ever before. Those that don’t think differently will be left behind
Having stepped in to take charge and restore confidence in his own company, does Starbucks boss Howard Schultz now have the blueprint for reviving failing businesses? Peter Martin heard him set out his vision for good business
Howard Schultz is feted these days not just as the creator of Starbucks, one of the world’s most recognised brands, but as the architect of its turnaround too.
Schultz famously stepped back into the chief executive’s role when he felt the global coffee chain was losing its direction. Although, the UK outpost of the brand may still be struggling for profitability, the consensus is that Schultz has successfully steered the worldwide corporation back to commercial well-being.
He spoke to a gathering of restaurant professionals in Zurich in September at the European Foodservice Summit about his decision to go back, the steps he took to right the business and his thoughts on the future. He was also giving away copies of his latest book, Onward, which maps out the whole episode – and carries the slightly more dramatic subtitle, “How Starbucks fought for its life without losing its soul”.
Feelings are mixed about Schultz, as have been reviews of the book – ‘self-serving’ being one of the more negative appraisals. Many of us were hooked on his first book, Pour your heart into it: how Starbucks built a company one cup at a time – the story of how it all began and possibly the best book about creating a business to come out of this market, well-written, passionate, idealistic and inspirational. It came out in 1999 just before he stepped down from his initial stint as CEO.
Others find Onward more reward- ing, perhaps because there is more “how-to-do-it” narrative to it - and recovering from potential disaster is a more everyday worry for most than starting up from scratch. It might also depend on which end of the business spectrum you have grown up in – corporate or seat-of-the-pants (I mean entrepreneurial).
Nonetheless Schultz received a rousing reception at the Zurich forum. He remains after all one of this industry’s real-life heroes. While there were those that felt Schultz, now 58, had lost some of his early passion and originality, others felt there was plenty to inspire - and relevance for the new social media driven world of consumerism.
Those that decide to read Onward will no doubt make up their own minds about the man.
But the position he and Starbucks found themselves in is relevant to all in an executive position, as is his account of how he got out of that particular hole. The background was that after years of expansion and financial growth, by 2007 Starbucks’ sales had started to slide and the stock price was falling.
Schultz’s judgement was: “Obsessed with growth, we took our eye off operations and became distracted from the core of our business.” No single decision, tactic or person was to blame, he says, but it was the cumulative effect of a lot of small things that was the problem.
“Starbucks was losing some of the signature traits it had been founded on.” Worse, he believed, its self-induced problems were being compounded by external circumstances – the credit crunch, customers holding business to higher ethical standards, the digital revolution and new competitors among them.
Schultz’s first dilemma was, having decided to take a back-seat at the corporation he had fashioned, when and how to take action to put right what he saw was going wrong with the business. It became messy, not least because a now infamous internal memo he wrote on what he perceived was the “Commoditization of the Star- bucks Experience” went public. That in itself is a valuable lesson that in the age of the internet nothing is private.
The memo set out a list of practical problems. New automated espresso machines had been installed in stores to increase efficiency, but they were too tall so customers couldn’t see or talk to the baristas and vice versa. The increase in speed and service had also been at the expense of romance and theatre.
He complained too that the new store designs may have brought efficiencies of scale, but were cookie- cutter and lacked the warmth and coziness of a neighbourhood gathering place.
The aroma of fresh coffee was also missing from stores, partly down to the way Starbucks changed how it shipped and stored roasted coffee
– “once again stripping the store of tradition and heritage,” he remembers. In the morning there was also often the distinct smell of burnt cheese from the hot breakfast sandwiches that were now on the menu. “That was my quintessential example of how we were losing our way,” he says. Out went the sandwich – the lost profit something Schultz was prepared to sacrifice.
“We were measuring and rewarding the wrong things, ” he adds.
That analysis of the situation, of what a brand is all about, what it stands for and what its core values are, is perhaps Schultz’s most powerful message. It has added relevance here in the UK, as we are currently seeing a number of high street names, from Pizza Hut to Café Rouge to La Tasca, stripping back to their fundamentals.
Then there’s the bravery, which perhaps only someone as self-assured as Howard Schultz can pull off, in deciding to close all 7,100 stores for an afternoon as the first step to getting the whole company back on board.
Starbucks is all about coffee (although Schultz believed it had lost that focus), so the note on all the shop doors read: “We’re taking time to perfect our espresso. Great espresso requires practice. That’s why we’re dedicating ourselves to honing our craft.”
“Starbucks had lost the essence of what we set out to do 40 years ago. Starbucks has always been about so much more than coffee. But without great coffee, we have no reason to exist.
“We had to figure out how we could, in short order, retrain 135,000 baristas to pour the perfect shot of espresso,” remembers Schultz. That was the way – all at once. That decision cost $10m, but Schultz needed team buy-in. Tougher still was the subsequent call to cut 6,700 jobs and close 800 stores.
Despite the lay-offs, people are central to his approach. “I apologised to the team because I had ignored some basic signals,” he recalls. “We need to be transparent and have open discussion within the company. There needs to be a common vision that people can understand and see what’s in it for them.” Your competitive advantage is your relationship with people, he says.
That also extends to customers, of course, and understanding their relationship with the brand. “We were then witnessing a seismic change in consumer attitudes,” he says, recognis- ing the growth in social media and the need to use it to build emotional connection and trust rather than try to sell stuff. Starbucks now claims to be the number one consumer brand on Facebook, Twitter and FourSquare.
Social responsibility remains at the heart of the Schultz philosophy: “We should recognise that we have a collec- tive responsibility to invest back into the communities we serve. “There must be a willingness to embrace authenticity and responsibil- ity,” he adds.
Schultz saw his role as restoring pride in the experience, and he believes the brand’s best days are in front of it. Global growth is still going strong with India and Vietnam next on the map.
The challenge of survival had been good, he says: “No-one wants to go through it, but the process has made us stronger. Success only comes to people happy to get their hands dirty. We had to get back into the mud.”
Does he believe the job is done? Possibly, possibly not – but he is undoubt- edly turning his interests elsewhere, most notably to US politics.
Shultz, a registered Democrat, is on a campaign to restore confidence in America and the American economy. He has called on fellow business lead- ers to boycott all political donations. He wants to end contributions to politicians until they again put citizenship above partisanship. Schultz is also encouraging hundreds of CEOs to pledge to invest in jobs and hiring.
So don’t be surprised if Howard Schultz’s next challenge is on the political stage – and if he stays out of love with the mainstream parties, is a “Coffee Party” movement out of the question?
“The need for entrepreneurial creative thinking is more important than ever before. Those that don’t think differently will be left behind,” he concludes – and for Schultz that applies to all walks of life.