starbucks turnaround case study

"The previous leadership had blamed the economy and the higher cost of dairy products for the slump in business. They had also stated this as a reason to hike prices. However, Schultz took an entirely different view of the situation. He told the employees, "The company shouldn't just blame the economy; Starbucks's heavy spending to accommodate its expansion has created a bureaucracy that masked its problems."

In a departure from conventional strategies like "a redo of the store layout", Starbucks soon embarked on a technology-oriented strategy. An environment where employees could think freely about the organisation and contribute in terms of strategies and ideas was fostered. As a result, a community involvement concept was developed.

In March 2008, "My Starbucks Idea" was rolled out for customers to exchange ideas with each other and directly with the company. As part of this, customers were able to give opinions on everything such as products, services, layout, advertising, corporate social responsibility, in-store music and so on. More than 93,000 ideas were shared by about 1.3 million users on social media, and page views per month rose to 5.5 million.

After the 2007/08 crisis, Starbucks had to rebuild its customer relationships and show the world that it cared for quality and consistency. It also had to give a leg up to the altruistic component of the brand such as community building and care for the environment. Through the "My Starbucks Idea" customers had a direct link with the headquarters and of course Starbucks was listening. Soon Starbucks's ubiquity became an asset as customers from around the world had an opportunity to connect with each other, spawning like-minded communities like the 'free Wi-Fi group', 'soy group', 'comfy chair group' or 'frappuccino lovers'.

Starbucks implemented over 100 ideas. Through this initiative, the coffee retailer built a robust fan base. By giving customers a platform to voice their ideas and views on the brand and by responding to it, it was able to reignite the brand trust.

Starbucks soon realised that it had to project its 'cool' element via social media-based marketing. The organisation must never look desperate or too keen to increase its sales. So the company refrained from pushing too many products, causes or offers to its followers. The focus was more on building and engaging with the community.

One of the accidental tweets from Starbucks was just a smiley face that received a lot of admiration from the community. Tweets such as 'keep calm and make coffee' is in line with its idea of keeping a cool image and building a community. Starbucks's use of social media points to the fine balance it maintained between spontaneous and well-planned posts. The social media platforms have also helped the company swiftly mitigate and manage any information that causes harm to its global identity. In 2009, when rumours of Starbucks's profits being spent on Israel army surfaced, the company used the social media outlets effectively to refute it and restore its image of a peace-loving organisation. MOBILE APPS

The company embraced mobile apps much before its competitors. Very early in the race, Starbucks had linked its social media strategy objectives with technology channels like mobile apps. It was carefully designed to appeal to the masses and specifically to the segment that made up its online community. Through its iPhone app features like store locator, nutrition-based information and rewards programme, it integrated and enhanced its social media community fabric. The head start in technology adoption has helped the company come up with trend-setting ideas.

One of them was the move to help its customers personalise the company's offerings. The initiative, 'MyStarbucksSignature' allowed consumers to develop their own signature drinks (hot or cold coffee), name the drink and share the new flavour with the community. In this way, Starbucks informs the consumer of the wide range of product offering they have at their stores across the world. It also shows the consumer how to order this cup and what it will look like. The only modification a consumer can do in his or her signature drink is in the ingredient mix and quantity. This way the supply network is only slightly disrupted at the retail and service end. Everything else related to ingredients and distribution remains completely untouched.

In 2008, the marketing teams had started a promotion to increase customer visits to stores during breakfast hours. It included a free pastry with a coffee bought before 10:30 a.m. The initiative created traction online and over one million people across the US queued up at Starbucks outlets.

Such social media promotions were much less expensive than the companys promotions at its stores or putting up billboards across cities. The awareness and response was also more than that from promotions through traditional channels like television advertisements.

Employees and baristas too were always an integral part of Starbucks online and social media community. It has a separate page for its employees, which is used to generate and debate ideas.

An example of employees contributing to its success is its Twitter page. The chain's voice on Twitter is 28-year-old Brad Nelson, a former barista. In 2008, when the company was looking for ideas to re-engage with its customers, Nelson suggested that he could begin a Twitter handle for the brand. Today, Starbucks has 775,000 followers.

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Starbucks, reinvented: a seven-year study on schultz, strategy and reinventing a brilliant brand.

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BY JULIA HANNA

Harvard Business School Professor and historian Nancy Koehn has studied Starbucks and its leader, Howard Schultz , for close to 20 years. For her, the company represents much more than a phenomenal success story.

In a recently published case, "Starbucks Coffee Company: Transformation and Renewal," (available soon) Koehn and coauthors Kelly McNamara, Nora Khan, and Elizabeth Legris trace the dramatic arc of the company's past seven-plus years—a period that saw Starbucks teeter on the brink of insolvency, dig deep to renew its sense of purpose and direction, and launch itself in new, untested arenas that define the company as it exists today.

"This case distills 20 years of my thinking about the most important lessons of strategy, leadership, and managing in turbulence in the frame of a very relevant company," says Koehn, the James E. Robison Professor of Business Administration. "As a brand, leadership, and entrepreneurship scholar, I've been dogging Starbucks for a long time."

On a 1995 trip to Seattle, Koehn visited a Starbucks store for the first time and was struck by what she saw and felt. The notion of a "third place" between home and work to relax and enjoy the small, affordable luxury of a special coffee beverage seemed to resonate with the social and economic moment, she recalls. Six months later she met Howard Schultz, an entrepreneur who acquired the company in 1987, and was struck by his seriousness of purpose and the breadth of what he wanted to accomplish.

Starbucks Chairman Howard Schultz (Photo credit: Wikipedia)

The case, Koehn's fourth to focus on Starbucks, opens in February 2007. Schultz, no longer Starbucks' CEO but still its chairman, is worried the company is losing its ability to be true to its values while providing a store experience that conveys a sense of comfort, connection, and respect for its product and the communities Starbucks serves.

So Schultz composed a heartfelt, searching memo to senior leadership. In it, he bemoaned decisions (for which he accepted responsibility) that improved efficiency and increased economies of scale but robbed stores of some of their essential magic, such as the smell of roasting coffee and the sights and sounds of traditional Italian espresso machines and baristas at work.

He also cited the company's rapid expansion and the potential "commoditization" of the Starbucks brand. "[W]e desperately need to look into the mirror and realize it's time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks Experience," Schultz wrote.

The scope and richness of Koehn's case gives it the feel of a page-turning novel; in that sense, Schultz's memo is the inciting action for all that follows.

Remaining True To Core Values

The challenge that had confronted Starbucks in the early- and mid-2000s was one common to many organizations: Could the company continue to grow while preserving its culture and values? In some areas, the drive to expand, egged on by Wall Street, was compromising the company's ability to invest in its partners (Starbucks' term for its employees), deliver personalized customer service, and maintain a close connection to the local community.

In addition, McDonald's and Dunkin' Donuts had emerged as serious competitors, offering their own lines of specialty coffee beverages. Even so, Starbucks' financials for 2007, the year Schultz composed his memo, didn't look so bad. But the entrepreneur became concerned as he dug more deeply into the numbers. Sure, revenues were up almost 21% over the previous year, but had slowed by over a third; transactions per store were up 1%, versus 5% the year before. Same-store sales rose only 5%, the smallest increase in five years.

In January 2008, Schultz returned as Starbucks CEO, replacing Jim Donald, the man he and other senior colleagues had chosen to lead the company.

Starbucks Sails Again

The case chronicles the blizzard of decisions and initiatives that follow what could have been the company's death knell as the financial crisis hit home and consumers cinched their belts.

"Schultz understood that you can't lift your foot off the gas pedal when you're attempting to transform a company," Koehn says. "Severe as its financial needs may be, you also have to figure out what you will invest in. Schultz knew that if he waited until the company was out of the woods to invest in new products, communication channels, and ways of doing business it would be too late—Starbucks would no longer be relevant."

From the start, Schultz sent the clear, unwavering message that Starbucks' transformation would represent a return to its roots and an uncompromising commitment to core values, such as health care benefits for any partners working at least 20 hours a week.

At a March 2008 gathering of 200 senior-level company leaders, Schultz unveiled a Transformation Agenda that included seven "Big Moves":

• 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 a local neighborhood;
• Be a leader in ethical sourcing and environmental impact;
• Creative innovation growth platforms worthy of our coffee;
• Deliver a sustainable economic model.

The case provides a behind-the-scenes look at how the coffee company moved forward on these goals, including the introduction of the milder Pike Place Roast; the story of its VIA Ready Brew line; the launch of a loyalty program; investment in and engagement with social media; focus on a global expansion strategy; and the extension of social programs. The company closed stores, restructured its manufacturing and supply operations, and, perhaps most significantly, took steps to reengage its partners and store managers. In February 2008, Starbucks closed more than 7,000 of its stores across the country for "Espresso Excellence Training," taking the time to work with approximately 135,000 baristas to ensure they could pour a perfect espresso shot and steam milk properly.

For Schultz, however, that wasn't enough—he wanted to reach the company's store managers, recognizing them as essential to the transformation process.

"I needed an unfiltered venue for expressing my empathy about all that we were asking our partners to do and telling them plainly what was at stake," he wrote in Onward: How Starbucks Fought for Its Life without Losing Its Soul . The answer, in Schultz's mind, was a three-day conference in New Orleans in October 2008, a moment when the global economy happened to be tanking. Starbucks' fourth quarter profits were down 97% from the same time a year earlier; for the fiscal year, net earnings were down 53% to $316 million. The Starbucks board was reluctant to send 10,000 partners to New Orleans at a cost of $30 million, but Schultz stuck to his guns.

In addition to rolling up their sleeves and taking part in community service projects to aid areas of the city still recovering from Hurricane Katrina, partners participated in team-building events that reviewed the company's guiding principles and reminded them of their central role in the customer experience. Schultz also brought in Bono, lead singer of U2, to announce a partnership to channel proceeds from holiday beverage sales to the Global Fund in support of AIDS relief programs in Africa.

The New Orleans conference was a turning point for Starbucks; in the "novel" of Koehn's case, it's the climax.

"Investing in a conference of that size is such an unusual thing to do when faced with a cash crunch," Koehn says. "Schultz understood that what saves and breaks businesses is much more than cash. In the midst of so much turbulence, it's all too easy to pull levers on the low-hanging fruit of cash and logistics. But you don't save a business and turn it around without speaking to, focusing, and calling on the spirit of your people."

Schultz's experience qualifies him for closer study in Koehn's HBS course Power and Glory in Turbulent Times: The History of Leadership from Henry V to Steve Jobs. Not all managers are confronted in their careers with the sort of transformation challenge faced by Starbucks, but Schultz's reflections and actions are instructive for anyone charged with finding sources of strength, innovation, and renewal in today's turbulent business environment, Koehn says.

About the author:  Julia Hanna is associate editor of the HBS Alumni Bulletin .

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Starbucks case study: The day the Starbucks brand almost collapsed

Written by Graham Robertson, founder of Beloved Brands

[email protected]

Cal 416 885 3911

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Starbucks is one of the best customer experience brands, backed by a culture of service values and a team of engaged employees. However, back in 2008, the Starbucks customer experience had become so poor that their most loyal customers were leaving. Without a doubt, the brand was on the verge of collapse, with a plummeting stock price, store closures, and significant layoffs. Over the previous five years, Starbucks had stretched beyond manageable, entering into the recording and movie business. Importantly, our Starbucks case study shows how the collapse was an awakening to re-focus back on coffee. Above all, we will show how Starbucks rebuilt their customer experience to what we see today.

For Starbucks, it's more than the coffee

In some blind taste tests, the Starbucks coffee finishes middle of the pack.  However, there is something about the Starbucks experience that has consumers lined up, and ready to pay twice as much for that average cup of coffee.  

The brand views itself as being in the “moments” business. They stress the importance of the culture with its staff. Employees wear their green aprons with pride. Clearly, Starbucks uses service values to deliver incredible guest experiences. 

Starbucks had tremendous success in growing its brand in the 1980s and 1990s. By 2000, people viewed Starbucks as one of the most modern beloved brands in the marketplace. They had earned a very healthy position, so it began looking for new opportunities to grow beyond coffee. Nonetheless, that healthy position created an ego-driven thought that they could do anything. 

Starbucks Case Study - Table of Contents

Starbucks case study - the collapse, starbucks took their eye off the ball.

For consumers, Starbucks offers the perfect moment of escape between home and work. To spark pleasant moments, they offer a unique combination of Italian coffee names, European pastries, relaxed and friendly staff, comfortable leather seats, and indie music. Overall, they creates a warm atmosphere, all in support of a fabulous experience. Indeed, the amazing consumer experience they create sure makes the coffee taste great.

In 2003, their brand ego got a bit of control. Starbucks created its own music recording company, won eight Grammys, then launched a movie, and started a partnership with William Morris to scout for music, books, and films. Consequently, Starbucks even opened an “entertainment” office in Los Angeles.

Within five years, Starbucks had lost focus of who it was. 

These new businesses had become a significant distraction; their core coffee brand suffered dramatically. Without the inspired leadership on coffee, sales plummeted, and the stock price had fallen from $37 to $7.83. Moreover, the company had to cut 18,000 jobs and close 977 stores. The Starbucks brand was in a complete free fall. Obviously, we started to wonder if this would be yet another trendy brand that would fade off into the sunset?

To illustrate, click on the falling stock performance of Starbucks.

Starbucks was the darling brand with steady growth through the 1990s. New brand fans every day. Around 2003, Starbucks started to lose their focus, and their results started to wobble. By 2008, they were facing a situational crisis. Our Starbucks case study outlines what they did to turn it around.

Starbucks needed to refocus - new brand strategy

Starbucks desperately needed to refocus.

The company exited the entertainment business and rebuilt everything back to the coffee ritual. First, it closed each store location for an entire day to retrain every barista—a symbol of what is most important to consumer experience of the brand. 

Then, Starbucks created sandwiches, snacks, and pastries around the coffee routine to gain more share of requirements and stretch the coffee routine into lunch and dinner. In short, all these efforts were designed to rekindle the consumer experience.

Smart strategic thinking allowed Starbucks to complete its turnaround plan

To illustrate, click to view the Starbucks case study that shows the smart strategic thinking they used.

We can use our strategic thinking tools to map out the strategic thinking by Starbucks. Their vision, strategic investments, focused accelerator, market impacts, and performance results. To illustrate, click on our strategic thinking flywheel to zoom in.

1. Set a vision of what you want

Starbucks wished to become a cherished favorite moment of the day. The question for Starbucks was how to build smartly around the consumer experience to drive significant growth in same-store sales.

2. Invest resources in a strategic program

They needed to regain its strong bond with consumers, to refocus on the consumer experience and build the brand through its culture-led essence, supported by a phenomenal team of employees. Importantly, Starbucks wanted to bring this culture to the forefront of the consumer experience.

3. Focused Accelerator creates an identified opportunity

In 2008, Starbucks refocused to shift the coffee ritual beyond mornings. It wanted to build an all-day gathering place. The company broadened the portfolio around coffee by adding desserts, snacks, and sandwiches. Importantly, they saw an opportunity in its under-utilized retail locations, which remained relatively empty after 11 a.m. Undoubtably, they wanted the broader portfolio to boost lunch and dinner sales, and earn a higher share of the consumer’s wallet and higher same-store sales.

4. Leverage a breakthrough market impact 

Starbucks closed every store for a day to refocus on its service, then built a broader portfolio around coffee. Importantly, the company successfully reconnected with most loyal brand fans. It was able to turn the morning coffee routine into an all-day life ritual, allowing them to focus on becoming a consumer experience brand, and a gathering place to savor moments with friends and colleagues. 

5. Performance result that pays back

Without a doubt, they were no longer seen as a destination just for morning coffee, but rather an escape at any point in the day, they saw double-digit growth for five straight years. Meanwhile, the stock price increased 10-fold over that period.

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Starbucks Brand Plan

The starbucks brand plan, if you took the strategic thinking model and began to outline a brand plan for starbucks, these would be the core elements:.

Build a cherished meeting place to gather as a favorite moment in consumers’ day.

Increase same-store sales and earn a higher share of requirements among Starbucks loyalists.

Key Issues:

• First, how do we build an overall consumer experience beyond coffee? 
• Second, how do we drive significant growth in same-store sales?

Strategies:

• Rebuild the consumer experience by training all Starbucks baristas to emphasize how our people make the difference to bring brand lovers back to Starbucks. 
• Enhance the Starbucks experience at lunch with innovative sandwiches and snacks, to reinforce the quality difference at Starbucks to successfully enter the lunchtime market.

Focus staff on creating amazing consumer experiences. Importantly, retrain all baristas. Then, launch exotic, refreshing coffee choices, light lunch menu, increase dessert offerings. Clearly, they needed to create shareable experiences to motivate brand lovers to influence others.

Starbucks location strategy

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Starbucks Reinvented

Harvard Business School Professor and historian Nancy Koehn has studied Starbucks and its leader, Howard Schultz, for close to 20 years. For her, the company represents much more than a phenomenal success story.

In a recently published case, "Starbucks Coffee Company: Transformation and Renewal," (available soon) Koehn and coauthors Kelly McNamara, Nora Khan, and Elizabeth Legris trace the dramatic arc of the company's past seven-plus years—a period that saw Starbucks teeter on the brink of insolvency, dig deep to renew its sense of purpose and direction, and launch itself in new, untested arenas that define the company as it exists today.

"This case distills 20 years of my thinking about the most important lessons of strategy, leadership, and managing in turbulence in the frame of a very relevant company," says Koehn, the James E. Robison Professor of Business Administration. "As a brand, leadership, and entrepreneurship scholar, I've been dogging Starbucks for a long time."

On a 1995 trip to Seattle, Koehn visited a Starbucks store for the first time and was struck by what she saw and felt. The notion of a "third place" between home and work to relax and enjoy the small, affordable luxury of a special coffee beverage seemed to resonate with the social and economic moment, she recalls. Six months later she met Howard Schultz, an entrepreneur who acquired the company in 1987, and was struck by his seriousness of purpose and the breadth of what he wanted to accomplish.

The case, Koehn's fourth to focus on Starbucks, opens in February 2007. Schultz, no longer Starbucks' CEO but still its chairman, is worried the company is losing its ability to be true to its values while providing a store experience that conveys a sense of comfort, connection, and respect for its product and the communities Starbucks serves.

So Schultz composed a heartfelt, searching memo to senior leadership. In it, he bemoaned decisions (for which he accepted responsibility) that improved efficiency and increased economies of scale but robbed stores of some of their essential magic, such as the smell of roasting coffee and the sights and sounds of traditional Italian espresso machines and baristas at work.

He also cited the company's rapid expansion and the potential "commoditization" of the Starbucks brand. "[W]e desperately need to look into the mirror and realize it's time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks Experience," Schultz wrote.

The scope and richness of Koehn's case gives it the feel of a page-turning novel; in that sense, Schultz's memo is the inciting action for all that follows.

Remaining True To Core Values

The challenge that had confronted Starbucks in the early- and mid-2000s was one common to many organizations: Could the company continue to grow while preserving its culture and values? In some areas, the drive to expand, egged on by Wall Street, was compromising the company's ability to invest in its partners (Starbucks' term for its employees), deliver personalized customer service, and maintain a close connection to the local community.

In addition, McDonald's and Dunkin' Donuts had emerged as serious competitors, offering their own lines of specialty coffee beverages. Even so, Starbucks' financials for 2007, the year Schultz composed his memo, didn't look so bad. But the entrepreneur became concerned as he dug more deeply into the numbers. Sure, revenues were up almost 21 percent over the previous year, but had slowed by over a third; transactions per store were up 1 percent, versus 5 percent the year before. Same-store sales rose only 5 percent, the smallest increase in five years.

In January 2008, Schultz returned as Starbucks CEO, replacing Jim Donald, the man he and other senior colleagues had chosen to lead the company.

Starbucks Sails Again

The case chronicles the blizzard of decisions and initiatives that follow what could have been the company's death knell as the financial crisis hit home and consumers cinched their belts.

"Schultz understood that you can't lift your foot off the gas pedal when you're attempting to transform a company," Koehn says. "Severe as its financial needs may be, you also have to figure out what you will invest in. Schultz knew that if he waited until the company was out of the woods to invest in new products, communication channels, and ways of doing business it would be too late—Starbucks would no longer be relevant."

From the start, Schultz sent the clear, unwavering message that Starbucks' transformation would represent a return to its roots and an uncompromising commitment to core values, such as health care benefits for any partners working at least 20 hours a week.

At a March 2008 gathering of 200 senior-level company leaders, Schultz unveiled a Transformation Agenda that included seven "Big Moves":

• 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 a local neighborhood;
• Be a leader in ethical sourcing and environmental impact;
• Creative innovation growth platforms worthy of our coffee;
• Deliver a sustainable economic model.

The case provides a behind-the-scenes look at how the coffee company moved forward on these goals, including the introduction of the milder Pike Place Roast; the story of its VIA Ready Brew line; the launch of a loyalty program; investment in and engagement with social media; focus on a global expansion strategy; and the extension of social programs. The company closed stores, restructured its manufacturing and supply operations, and, perhaps most significantly, took steps to reengage its partners and store managers. In February 2008, Starbucks closed more than 7,000 of its stores across the country for "Espresso Excellence Training," taking the time to work with approximately 135,000 baristas to ensure they could pour a perfect espresso shot and steam milk properly.

For Schultz, however, that wasn't enough—he wanted to reach the company's store managers, recognizing them as essential to the transformation process.

"I needed an unfiltered venue for expressing my empathy about all that we were asking our partners to do and telling them plainly what was at stake," he wrote in Onward: How Starbucks Fought for Its Life without Losing Its Soul . The answer, in Schultz's mind, was a three-day conference in New Orleans in October 2008, a moment when the global economy happened to be tanking. Starbucks' fourth quarter profits were down 97 percent from the same time a year earlier; for the fiscal year, net earnings were down 53 percent to $316 million. The Starbucks board was reluctant to send 10,000 partners to New Orleans at a cost of $30 million, but Schultz stuck to his guns.

In addition to rolling up their sleeves and taking part in community service projects to aid areas of the city still recovering from Hurricane Katrina, partners participated in team-building events that reviewed the company's guiding principles and reminded them of their central role in the customer experience. Schultz also brought in Bono, lead singer of U2, to announce a partnership to channel proceeds from holiday beverage sales to the Global Fund in support of AIDS relief programs in Africa.

The New Orleans conference was a turning point for Starbucks; in the "novel" of Koehn's case, it's the climax.

"Investing in a conference of that size is such an unusual thing to do when faced with a cash crunch," Koehn says. "Schultz understood that what saves and breaks businesses is much more than cash. In the midst of so much turbulence, it's all too easy to pull levers on the low-hanging fruit of cash and logistics. But you don't save a business and turn it around without speaking to, focusing, and calling on the spirit of your people."

Schultz's experience qualifies him for closer study in Koehn's HBS course Power and Glory in Turbulent Times: The History of Leadership from Henry V to Steve Jobs. Not all managers are confronted in their careers with the sort of transformation challenge faced by Starbucks, but Schultz's reflections and actions are instructive for anyone charged with finding sources of strength, innovation, and renewal in today's turbulent business environment, Koehn says.

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Home » Management Case Studies » Case Study: Starbucks Resilient Turnaround Under Howard Schultz in 2008

Case Study: Starbucks Resilient Turnaround Under Howard Schultz in 2008

Founded in 1971 in Seattle, Starbucks had grown to become a respected global brand , present in 50 states in the US and 43 countries. However, its premium pricing was a considerable disadvantage during the economic slowdown. By March 2008, Starbucks had to close 600 underperforming stores, and its profit had plummeted by 28% compared to the same period in 2007. The following year saw another 300 store closures and 6,700 employees laid off. On January 8, 2008, Howard D. Schultz returned as CEO, taking over from Jim Donald. Schultz, who had been with Starbucks since 1982 and previously served as CEO from 1987 to 2000, found that rapid expansion had diverted the company’s focus from creating inviting cafes and developing new products .

In 2007, several factors stood behind Starbucks’ decline , among which one might note a loss of human connection. Howard Schultz observed that the company steadily lost its connection with customers, as fewer and fewer baristas remembered clients’ names, and massive coffee machines hid the very process of coffee making. For Schultz, the mentioned process was of great significance, as it lay at the core of the company’s success . Furthermore, the entrepreneur wanted each store to tell the story of Starbucks, with a wealth of emotional connections . Also, the redesign of outlets led to a dilution that was expressed in the loss of a friendly neighborhood atmosphere. In other words, it decreased the customers’ loyalty and pinpointed Starbucks’s weakness among competitors .

Also, the company was insufficiently equipped within the framework of the newly emerged digital world . Stores were deprived of the opportunity to express their passion for high-quality coffee and service all over the world. In particular, the online space was not presented as a part of the company’s arsenal. In this regard, plenty of localized outlets, as well as coffee farmers, could not take part in the online discussion that arose after the memo written by Schultz about the company’s weaknesses was posted on the Internet. The above fact illustrated the need to join the global online community to remain successful.

Another factor faced by Starbucks was an overexposure that was seemingly the right course to pursue. However, there was a risk that the company might lose its uniqueness and become just another one of the usual coffee retailers. Although the company’s revenue growth was conspicuous, it became difficult to establish appropriate relationships with new partners and stores, as well as to manage the latter.

Finally, increased competition occurred, due to growing demand and Starbucks’ success . The most notable competitors were Caribou Coffee and Peet’s Coffee & Tea chains. This situation also caused a proliferation of non-coffee companies, when food and beverage retailers began entering the coffee market. For instance, Dunkin’ Donuts announced a set of distinctive drinks that included the Mocha, Coolata, and others.

During the crisis, Starbucks also faced competition from McDonald’s and other fast-food giants. Customers did not understand why they should buy more expensive coffee. Consequently, Starbucks’ assets fell significantly, as both Dunkin’ Donuts and McDonald’s offered cheaper alternatives. As per the discussed article, the majority of factors were detected in 2007.

In 2008, Schultz noted that the company offered plenty of food. He did not like that the coffee stores sold a lot of food, as the smell of sandwiches interrupted the coffee aroma. The entrepreneur realized that coffee was what made Starbucks different from the fast-food chains, and thought about how to improve the technology of preparation. At the same time, too many products created a loss of value and confusion in customers. Also, financial metrics sounded alarm bells: The growth in the number of comp-store sales increased by only five percent, and the stock price decreased in 2008.

Speaking of the less obvious factors, it is essential to mention that overexposure was one of them. In the context of increasing revenues, it was difficult to notice the problem. Nevertheless, being an experienced entrepreneur, Schultz detected that something had gone wrong.

Thus, the stated factors impacting the decline of Starbucks showed an urgent need for transformation.

The Most Important Aspects of Starbucks Transformation

In his memo, Schultz pinpointed that the company needed to get back to its roots. Since its beginning in the 1970s, Starbucks has positioned itself as the third place, after home and work, where people can pleasurably spend their time. The smell of freshly ground coffee fills the brightly lit stores, where visitors can charge their laptops and phones from conveniently located sockets. In the majority of Starbucks coffee shops in the United States, and several other countries, there is the possibility of wireless Internet access. However, the desire to return to the roots, to some extent, contradicts the stated goal of opening 40,000 coffee stores all over the world.

In this connection, Schultz introduced some vital transformation strategies , including supporting customers’ loyalty to the brand, increasing the company’s competitive advantage in the United States, and enhancing internal issues, such as healthcare benefits and ethical sourcing. Innovation and reinvention became the two central goals to emerge from the basis of transformation aimed at long-term changes.

The first initiative was devoted to the current state of the company in the United States, as the revenues from this part of the business were large. Consequently, Starbucks’ leadership was tasked to slow the quick pace of operations and close all underperforming stores.

Second, to revitalize intimacy with customers, Schultz tried to enhance the Starbucks Experience at the core of the company’s performance . However, the mentioned goal was abstract to some extent. It consisted of baristas’ attentive relationships with customers , seasonal offerings, and an excellent coffee aroma. Schultz emphasized that Starbucks’ competitive advantage was in the fact that it amazingly combined standardization, comprised of process, service, location, and branding, with an individual and attractive design. Coming to any coffee store, a person can see recognizable details and compelling solutions adapted for a definite location, while by contrast, the majority of competitors look too standardized.

It should be noted that almost all advertisements concerning Starbucks and presented on social media tend to focus on emotions. Bringing people together, seeking inspiration for new and positive changes, gathering new experiences with old friends, and traveling—all this draws people closer to Starbucks. At the same time, the brand engages completely different people, from entrepreneurs drinking espresso on the go to young couples stretching the pleasure of coffee. At Starbucks, there are also active freelancers and bloggers writing their new posts, as the atmosphere of the coffee shops attracts people with laptops.

Third, the organizational structure should be reorganized. For instance, while walking through New York City’s Chelsea neighborhood, Schultz saw a Clover coffee machine. According to Schultz, this was the best coffee he had tasted in 25 years of working for Starbucks. In 2008, Starbucks bought the manufacturer of that brand of coffee machines and began to set Clover in some of its coffee outlets. Also, IT capabilities, supply chain , and other organizational aspects should be reconsidered and adjusted to current requirements.

Trying to win among the new players in the market, Schultz firmly closed non-core divisions that had turned into a kind of flea market. Also, he revised the menu, removing the notorious sandwich with egg, and returned to Mastrena espresso machines that allowed customers to observe the process of coffee making. Schultz organized machines per serving, making the aroma of coffee stronger. The results were impressive. Customers rushed to Starbucks, and the stock rose. Not only trusting customers but also cautious investors believed that the spirit of transparency and open environment reigned at Starbucks for a long time. Thus, Starbucks confidently solved two key challenges: financial stability and understanding its customers.

To save Starbucks, Schultz had to implement several tough decisions. To optimize costs, the company closed 600 stores in 2008, and another 300 in 2009. Schultz aimed all the company’s efforts at overcoming the consequences of the crisis and improving service. In 2008, Starbucks launched an interesting project on the Internet, a site that focused on ideas for Starbucks, called ideastorm.com. Any person, whether he is an employee of the company or a client, can share his or her ideas about improving a particular store, or the company in general. It was and still is, expected that each idea would be considered, and some might even be implemented. It should be noted that before the ideas reach the company, registered users can vote for each idea.

The described transformation was crucial for Starbucks to survive in the context of a rapidly changing environment. Otherwise, the company could have lost its position in the U.S. market and turned into a typical coffee shop. Schultz used to say that if the barista was just repeating memorized actions without worrying about the taste of the beverage, it meant that Starbucks had lost the purpose for which it was created 40 years ago—inspiring people. The company’s mission is not to fill stomachs but to fill souls. Here it is, the secret of Starbucks’ success .

Speaking of the generalization of these ideas, it should be stressed that each country has its peculiarities that should be taken into account during the expansion. As an example, one might consider China’s coffee market. It was necessary to save the brand and satisfy the local community, as well. Therefore, the company supported the development of Arabica coffee in the Yunnan Province of China, for example. However, the Chinese needed the kind of place where they could meet with friends and family and have a great time.

This aspect promoted the expansion of Starbucks, as several Chinese partners invested in the company. As a result, Starbucks created the coffeehouse culture in China , due to acquiring and deepening the local customers’ loyalty. Today, Starbucks’ mission is not limited to the position of being the leader in the United States. From its beginnings on a national scale, the company is expanding throughout the world and aims at strengthening its position as a major supplier of coffee with the highest level of product quality.

Starbucks is “Redefining the Role of a For-Profit Company”

Schultz stated that Starbucks was “redefining the role of a for-profit company”. This statement meant that he wanted to integrate profit stimulus with social consciousness. In other words, the leadership strategy addressed plenty of issues, beginning with the appropriate healthcare services for those employees who worked more than 20 hours per week, up to investment in environmental sustainability.

From the very beginning of his work for Starbucks, Schultz devoted much attention to personnel. There are two things on which he did not scrimp: the quality of coffee, and health insurance for employees. This rule was valid even in times of crisis when the company needed to cut its costs. As in most chain retailers, most of the coffee shop workers are young people, such as students and those who are saving money to continue their education.

Especially for the latter, in 2014, Starbucks formed an association with the University of Arizona so that employees can earn credits from an online college. At the same time, the company will fully cover the costs of those students who have already studied weaned for two years. According to the calculations of The New York Times , this is about 30,000 dollars per student. Any of the 135,000 U.S. Starbucks employees who are working at least 20 hours a week might take part in the program. It should slow down the burnout of employees, increase their productivity, and attract new staff.

As one might note from the above example, Starbucks is seizing a plethora of opportunities in the framework of corporate responsibility . Furthermore, Starbucks pursues a policy of social responsibility in all aspects of its business . This applies to the selection of suppliers of coffee and includes compliance with human rights and labor standards.

For instance, Starbucks supports the Conservation International organization, encouraging sustainable technologies in agriculture and protection of biodiversity through innovative approaches to the production of coffee. The results of the program showed an increase in revenues and the number of coffee plantations located in an area of tropical forests, without damaging biodiversity. Additionally, the coffee chain sells only “fair trade” coffee. This means that the products sold were made without the use of child labor, and comply with social and health standards.

The bottom line of this is the social protection of employees, partners, and the environment. Thus, the principles formed within the company take into account the product, relationships with employees and customers , the company’s interaction with public organizations, participation in the protection of the environment, and profits. The coordination of the two main aspects, in particular, the commitment to high standards and high-scale inner values of the company, contributes to strengthening the position of the brand and corresponds to corporate responsibility.

The company has always believed that Starbucks should and can have a positive impact on society. Therefore, the operation of the company keeps a continuing focus on corporate social responsibility :

• Starbucks works with non-profit organizations to assist them in achieving objectives focused on the improvement of education, health, housing, security, and employment;
• Starbucks allocates grants for young professionals, attracting thousands of people per year, and considering these investments a significant contribution toward changing the world for the better— the creation of a successful business , as well as social non-profit organizations investing in skills and promoting the improvement of the world’s economy;
• Starbucks supports social projects aimed at the development of communities that produce coffee, tea, and cocoa. Projects include improvement of access to education and agricultural training, development and preservation of biodiversity, and enhancement of the level of health standards, health care, food, and water.

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Will restructuring help Starbucks Turnaround?

January 8, 2010

Case Study Contents

• Introduction
• Exhibit I: Stock performance graph of Starbucks for past five years
• The Starbucks Story
• Starbucks – Early Days and Background Note
• Building of the Starbucks Brand
• Entry into International Markets
• Starbucks – Quick facts
• Starbucks – Timeline
• The Restructuring Moves
• Reorganization
• No warm breakfast sandwiches but new beverages
• Transforming the in-store experience
• Renewed customer rewards program and a social network, my starbucksidea.com
• Retraining Employees – The Baristas
• Slowing down expansion in the U.S.
• Reorganizing the Entertainment Unit
• Questions for discussion
• Exhibit II: Selected Financial Data

“Fiscal 2008 is a transitional year for Starbucks and, while our financial results are clearly being impacted by reduced frequency to our U.S. stores, we believe that as we continue to execute on the initiatives generated by our transformation agenda, we will reinvigorate the Starbucks Experience for our customers.”

– Howard Schultz, Chairman, President and Chief Executive, Starbucks.

Starbucks, the leading retailer, roaster and brand of specialty coffee in the world, has been struggling amidst a faltering economy, its own rapid growth (international expansion and growing presence in 44 countries) and increased competition from cheaper rivals. In the first three months of 2008 its net income fell to $108.7m (£54.7m) down 28% from the same period of 2007. Starbucks wants to turnaround its business by providing customers with the distinctive ‘Starbucks Experience’ and building on Starbucks legacy of innovation. As Starbucks shares have tumbled over the last year, (see exhibit I) a very important question is: Is Starbucks still the romantic coffee shop it used to be?

Starbucks has struggled to maintain its differentiation in the face of growing competition. The company had 125 stores when it went public in 1992, now has over 15,000 stores in 44 countries. Customers are simply not visiting Starbucks stores at the rate they once did. In recent times, Starbuck’s has suffered the effects of the crisis in the housing market, which has put a pinch on sales. Starbucks has also suffered from rising costs of storefront space and wholesale prices for coffee and dairy products. In the second half of last year, Starbucks’s same-store sales — a significant number watched by Wall Street — declined for the first time.

Howard Schultz (Schultz) returned in early January as Chairman and Chief Executive and announced a series of changes as part of Starbucks’s Turnaround plan. …. This management case study highlights Starbucks strategy to turnaround its business by providing customers with the distinctive ‘Starbucks Experience’ and building on the Starbucks legacy of innovation

Keywords: Starbucks, Turnaround Strategies, Corporate Restructuring, Coffee Retailing, Specialty Eateries, Howard Schultz, Baristas, retraining employees, mystarbucksidea.com, customer rewards program

Case updates/snippets.

• Starbucks “Via” the instant coffee market – In September 2009, Starbucks unveiled a brand of instant coffee called “Via” across all U.S. locations made with 100% natural roasted arabica coffee. The company believes the “ready brew” coffee will change the way people drink coffee. The global instant coffeee business is valued at $21 billion and instant coffee constitutes 40% of overall global coffee sales.
• Starbucks CSR – Starbucks buys 40% of its coffee beans through fair trade. As its commitment to Corporate Social Responsibility, the company pays a price well above the market rate to poor and small growers.
• Coffee Drinking Trends – The National Coffee Association’s 2009 study of drinking trends revealed that a majority, more than 80% of coffee drinkers get their coffee at home and only 18% drink at work. Just 5% of respondents drink their coffee at restaurants and 10% take a cup with them during their commute.
• Great business turnarounds – In the final three months of 2009, Starbucks posted a 4% growth in total sales and a 200% rise in profits, to $353m. In what is being seen as the one of the great turnarounds of the decade, earnings of Starbucks have jumped to 241.5 million US dollars (£149 million) in the quarter – more than three times the 64.3 million dollars (£39.7 million) seen a year earlier. In 2008, Schultz’s decision to resume the roles of CEO and President, has certainly helped the turnaround. Schultz had relinqu­ished the position in 2005.
• In one day, Starbucks sells 8.2 million paper cups of coffee on average. Around 20 percent of Starbucks’ revenues are from International markets.(as per news reports in September 2011)

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• Starbucks – Storm in an instant coffee cup
• Too many Starbucks stores for U.S. coffee Drinkers?
• Starbucks for a dollar, Storm in a coffee cup?

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Starbucks Coffee Company: Transformation and Renewal

• Format: Print
• | Language: English
• | Pages: 71

Starbucks Coffee Company: Transformation and Renewal analyzes the turnaround and reconstruction of Starbucks Coffee Company from 2008 to 2014 as led by CEO and co-founder Howard Schultz. The case offers executives and students an opportunity to examine in depth how Schultz and his team saved Starbucks from near-collapse, by both executing a deep, comprehensive return to its core values and, at the same time, investing in a range of new products, customer experiences and organizational capabilities designed to make the company fit for enduring success in a turbulent global economy. Set against the backdrop of the Great Recession, the case also considers the impact of unprecedented important shifts in consumer spending and confidence as well as new competitive forces on Starbucks' transformation. The case concludes by examining Schultz's own leadership journey, the lessons he learned personally during Starbucks transformation, and how he is using these lessons—within Starbucks and on the national stage—to redefine the roles and responsibilities of a public corporation in the 21st century.

Based on extensive interviews conducted with Schultz and other Starbucks executives from 2011 to 2014, the case offers a range of vital lessons on leadership, organizational transformation, restructuring, strategy, innovation, entrepreneurial vision, and customer service.

About The Author

Nancy F. Koehn

Related work.

• June 2014 (Revised March 2016)
• Faculty Research
• Starbucks Coffee Company: Transformation and Renewal  By: Nancy F. Koehn

19 Amazing Ways CEO Howard Schultz Saved Starbucks

On January 8, 2008, the second day Howard Schultz was the newly-reinstated CEO of Starbucks Corp., its stock jumped 8 percent.

A few days later, Schultz read a MarketWatch article about turnaround CEOs. Its author advised that Schultz follow the lead of CEOs like Steve Jobs and Charles Schwab, who led successful turnarounds and "recognize what they had built isn't a religion."

During his eight year hiatus -- when Schultz served as chairman -- the company grew from approximately 5,000 stores to 15,000. But it was all too fast. In 2007, Starbucks' stock dropped 42 percent. 

"The damage was slow and quiet, incremental, like a single loose thread that unravels a sweater inch by inch," Schultz says in his book, Onward .

In early 2007, Schultz wrote a memo to then-CEO Jim Donald about the company's slow demise, which was later leaked to the media. A few months later, the board ousted Donald and brought Schultz back in.

Beginning in the depths of the recession, the turnaround took two years. Today, Starbucks has more than $10 billion in revenue and employs 150,000.

In February 2008, Starbucks closed 7,100 U.S. stores for 3 1/2 hours to retrain its baristas on how to make the perfect espresso

All major news outlets covered the closings: CNN, ABC, NBC, CBS, Fox News. Stephen Colbert even covered it during his show. Starbucks lost $6 million that day.

Upon taking the post, Schultz invited people to email him directly -- no sooner did he receive 5,000 emails

 He also made personal phone calls to stores across the nation to see how things were going.

For the first time in company history, Schultz looked to outside consultants for ideas on how to revive the company

Also for the first time ever, Starbucks invested in a major national advertising campaign, employing BBDO

This commercial aired during SNL in the heat of the fall 2008 presidential election season. It got 70 million media impressions.

He appointed a chief technology officer, Chris Bruzzo from Amazon.com

Bruzzo updated Starbucks' website and improved its overall social media presence.

Starbucks introduced Pike Place roast to show it was serious about coffee

The company also decided to only deliver whole-bean coffee to its stores, and required baristas to grind the beans in the stores. Any coffee that had been sitting more than 30 minutes was to be tossed.

Schultz made the executive decision to nix heated breakfast sandwiches from the menu

He decided the aroma from the sandwiches was overpowering the smell of coffee in stores. A few months later, after the company improved the sandwiches with healthier ingredients, Schultz restocked the stores with the heated sandwiches.

The company replaced all of its outdated cash registers and computers

Up until then, stores operated on an old Microsoft-DOS platform that even Microsoft had stopped supporting in the mid-1990s. The company estimates the new system is saving 700,000 wait-in-line hours. 

In January 2009, Starbucks closed 600 stores -- or 7 percent of its global workforce -- cutting $850 million in costs

And 70 percent of these stores had been opened within the previous three years.

Starbucks replaced all of its espresso machines with the Mastrena, a sophisticated Swiss-made machine

Schultz also completely reorganized supply chain operations -- getting products to stores more efficiently and improving inventory

In 2008, only three out of every 10 orders were delivered perfectly to stores. Today, it's nine out of 10 orders. 

Costco's CEO once said that losing customers in a down economy is much more expensive than investing in them. Taking this advice, Schultz created a customer rewards card

By July 2008, customers had loaded $150 million onto the cards.

Starbucks overhauled the entertainment division, scaling back on all the CDs and books that had started to overpower the stores

Schultz decided to continue offering health insurance to his employees -- in order to stay aligned with the company's guiding principles

In 2009, this cost $250 million -- which was up nearly 50% more per partner compared to 2000.

Starbucks was the first U.S. company to offer comprehensive healthcare coverage and equity in the form of stock to the part-time worker. 

Schultz shook up senior management, and later added members of tech companies to its board of directors, including Google's COO Sheryl Sandberg

Starbucks rolled out a new design for all of its stores

Schultz re-hired Arthur Rubinfeld to redesign its stores and "recapture the coffeehouse feel." After firing nearly all of Starbucks' design staff, Rubinfeld designed stores with softer colors, more exposed architecture, unique lighting and more strategically-placed furniture.

In June 2009, Schultz announced that he would increase partners' salaries according to merit

Schultz took a chance on instant coffee with VIA. It turned out to be a hit and got tons of media attention

The company committed to doubling its annual purchase of fair-trade certified coffee to 40 million pounds in 2009

Howard Schultz studied other corporate turnarounds in order to pull off his own

Click here to see how Mickey Drexler turned around Ann Taylor, Gap and J. Crew >

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Starbucks case study: The day the Starbucks brand was on the verge of going bankrupt

Starbucks has a culture of service principles and a team of committed people, making it one of the top customer experience companies around.

However, by 2008, Starbucks' customer service had deteriorated to the point that its most devoted consumers were abandoning the company. With a falling stock price, retail closures, and major layoffs, the company was on the edge of bankruptcy.

Starbucks had become too big. So much so that decision making and customer experience were no longer in control as it kept branching out into the recording and film industries. This Starbucks case study demonstrates how the company's bankruptcy served as a wake-up call for them to refocus on coffee and rebuild their customer experience to what it is now.

INTRODUCTION

Starbucks coffee is ranked in the middle of the pack in blind tasting testing. However, there's something about the Starbucks experience that attracts customers who are willing to pay twice as much for a cup of coffee.

The company considers itself to be a "moment" company. They place a high value on the company's culture among its employees, with each one of them adorning a green apron. Starbucks prides itself on providing exceptional customer service.

During the 1980s and 1990s, Starbucks had a lot of success expanding its brand. Starbucks has become one of the most well-known and popular brands in the industry by the year 2000. They'd established a comfortable position, so they started exploring fresh ways to expand beyond coffee.

Starbucks' attention was diverted

Away from the task at hand.

Starbucks is known for providing its customers with the ideal break from their daily routines. With delicacies consisting of a unique blend of Italian coffee names, European pastries, calm and helpful personnel, luxurious leather seats, and indie music to create happy times. Overall, they create a welcoming environment that contributes to a memorable encounter.

But this was not always the case. Their brand ego had begun to take over in 2003. Starbucks founded its own record label, won eight Grammy Awards, then released a film and partnered with William Morris to scout for music, books, and films. In Los Angeles, Starbucks even established an "entertainment" branch.

The company had lost sight of who it was after only five years. These additional enterprises had become a major distraction, and their primary coffee brand had suffered greatly as a result. Sales collapsed without the visionary leadership on coffee, and the stock price dropped from $37 to $7.83. The corporation had to lay off 18,000 employees and close 977 locations. Starbucks' reputation had plummeted to new lows.

There was one question that everyone, from the customers to the stakeholders to leaders of other big corporations had on their minds.

Will it be just another hot brand that fades into obscurity?

Starbucks was in serious need of a refocus

After seeing the disaster that was created, the decision-makers started coming to their senses and pulling up their socks. The corporation got out of the entertainment sector and refocused on the coffee habit. It shut down every shop location for a full day to retrain every barista—a sign of what matters most to the brand's consumer experience.

Starbucks designed sandwiches, snacks, and pastries around the coffee ritual in order to capture a larger percentage of the market share and extend the coffee ritual into lunch and supper. All of these attempts were made to reignite consumer interest.

Starbucks was able to finish its turnaround strategy due to strategic thinking

There are several lessons to be learned from this case study, but one of the most essential is to constantly concentrate on improving what you're known for rather than branching out so much that you lose sight of what you stand for.

When Starbucks began to lose sight of why it was founded in the first place and began extending out into regions where it couldn't build a distinct and unique character, the effects began to backfire.

Here are some of the takeaways from the case study, as well as how Starbucks was able to get back on its feet and become one of the most desirable businesses in its field.

1. Create a vision of your desired outcome

Starbucks aspired to be a much-loved daily ritual. The coffee maker's challenge was to figure out how to build strategies around the customer experience in order to boost same-store sales significantly.

2. Put money into a long-term strategy

They wanted to re-establish a strong link with customers, focusing on the customer experience, and develop the brand via its culture-led essence, all while working with an incredible team of people. Starbucks sought to put its culture front and centre in the customer's mind.

3 . Concentrate your efforts on a single opportunity that has been discovered

Starbucks shifted their strategy in 2008 to expand the coffee experience beyond the morning. It aspired to create a space where people may congregate throughout the day. Desserts, snacks, and sandwiches have been added to the company's coffee-centric repertoire.

They spotted an opportunity in the company's under-utilized retail sites, which remained mostly empty after 11 a.m. The firm hoped that by diversifying its portfolio, it would be able to increase lunch and supper sales, as well as get a larger portion of the consumer's wallet and same-store sales.

4. Take advantage of a market-changing opportunity

Starbucks shut down all of its locations for a day to focus on customer service before expanding its coffee assortment. Starbucks was able to re-engage the majority of its long-time customers. It was able to transform the morning coffee ritual into an all-day living habit, allowing them to focus on being a consumer experience brand and a meeting spot for friends and coworkers to relish moments.

5. A remuneration-paying performance outcome

They witnessed double-digit growth for five years in a row, no longer considered merely a place to go for morning coffee, but a place to escape at any time of day. During that time, the stock price grew tenfold.

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Publication Date: June 02, 2014

Industry: Retail and consumer goods

Source: Harvard Business School

Starbucks Coffee Company: Transformation and Renewal analyzes the turnaround and reconstruction of Starbucks Coffee Company from 2008 to 2014 as led by CEO and co-founder Howard Schultz. The case offers executives and students an opportunity to examine in depth how Schultz and his team saved Starbucks from near-collapse, by both executing a deep, comprehensive return to its core values and, at the same time, investing in a range of new products, customer experiences and organizational capabilities designed to make the company fit for enduring success in a turbulent global economy. Set against the backdrop of the Great Recession, the case also considers the impact of unprecedented important shifts in consumer spending and confidence as well as new competitive forces on Starbucks' transformation. The case concludes by examining Schultz's own leadership journey, the lessons he learned personally during Starbucks transformation, and how he is using these lessons-within Starbucks and on the national stage-to redefine the roles and responsibilities of a public corporation in the 21st century. Based on extensive interviews conducted with Schultz and other Starbucks executives conducted from 2011 to 2014, the case offers a range of vital lessons on leadership, organizational transformation, restructuring, strategy, innovation, entrepreneurial vision, and customer service.

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Need a Turnaround? Make a Comeback the Starbucks Way

By Herb Schaffner

Updated on: April 12, 2011 / 1:07 PM EDT / MoneyWatch

Yes, it has been criticized. Samantha Ettus , a branding blogger at Forbes , called the book misguided and ill-timed, "a marketing exercise which is using the hallowed Starbucks brand as a sacrificial lamb." But I have no clue what book she and other critics are reading. Schultz's book is far too transparent, detailed, and honest to be considered a marketing document. Schultz recounts in thorough detail the meetings, memos, consultants, studies, and personal experiences that drove the Starbucks reboot through the end of 2010.

In 2008, Schultz returned as CEO of the company and his agenda was simple: to bring the company back on track after it had badly stumbled, pursuing a high growth strategy. Rather than sacrificing the Starbucks brand, Schultz reveals himself to be consumed by the appeal of Starbucks' connection to consumers and on a quest to restore every inch of its aura. As Schultz writes:

"outsiders failed to appreciate the nuances of invigorating a service-based business, especially a brand as emotionally charged as ours. Starbucks is not a coffee company that serves people. It is a people company that serves coffee, and human behavior is much more challenging to change than any muffin recipe or marketing strategy."

Never forget the basics . Schultz knew the appeal of Starbucks' coffee was essential--and that the race for growth had undercut quality. Schultz and his team closed every Starbucks store for one day to train baristas in making the best espresso. They upgraded espresso machines to the Mastrena worldwide and improved training. Schultz and other executives visited restaurants and coffee houses, investigating high end food selling techniques. In fact, Schultz was drinking coffee in Seattle's Ballard neighborhood, when he discovered the Clover, the french press single serving coffee marker, sought out its maker and put it in stores worldwide.

Be willing to listen and work with consultants, but know your North Star . Schultz brought a few management consultants into his trust and credits them heavily in the book. He also listened to friends such as Jim Sinegal, cofounder and CEO of Costco, who reminded Schultz to "protect and perserve your core customers" during a downturn. When the product lunch for Starbucks instant coffee hit a design snag, he turned to his most trusted design consultant. In each case, however, Schultz had to be convinced outsiders understood and shared the values and iconic power of the brand.

If you need to reduce operations to become leaner, make sure you cut enough . For Schultz, Starbucks' commitment to workers, to health care benefits, and to the role of stores in local communities are hugely important. Burdened by too many stores as the recession dragged on, Schultz and his team knew they needed to close hundreds of doors and reduce the workforce. This was painful--but, after the initial analysis, Starbucks closed more stores and laid off more people than they'd originally planned. They needed to ensure that they would not have to go back and cut again.

Give customers a voice in your redirection . Schultz embraced social media and the idea sharing website, mystarbucksidea.com, which has over 250,000 registered members who have submitted 100,000 ideas since launch in 2008. A retail company that invites customers to cocreate their own drinks and use stores as a second living room must actively engage their ideas.

Communicate heavily--and communicate some more . Schultz' capacity for hands-on communication is impressive. He blitzed each core constituency--senior managers, store managers, customers, media, analysts, shareholders, and employees--with various communications concisely presenting the case for change or a particular decision. He wrote a stream of internal memos, staged interactive presentations and multimedia displays at Starbucks conventions, made careful pitches to analysts, and invested time and energy in his corporate communications strategy.

Reinvigorate corporate responsibility and production practices. Starbucks' hard times were not an excuse for the company to be less responsible, but an opportunity to do more. Schultz expanded partnerships with Fairtrade and Conservation International, reduced store environmental impact, and expanded local community service.

The next time you're asked to turnaround a project, a team, a product or a division, get a cup of good coffee, a copy of Onward and make some notes. In the meantime, commenters: have you tried a turn around? What worked, or didn't work, for you?

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Herb Schaffner is the president of Schaffner Media Partners, which develops business book and media projects. He is the former Publisher of Business and Finance at McGraw-Hill Professional, and Senior Editor at HarperCollins/HarperBusiness. Books that Schaffner edited, developed, and supervised during his years in publishing won best book awards from The Economist, 800-CEO Read, BusinessWeek, The Financial Times/Goldman Sachs, Strategy+Business Magazine, and the Toronto Globe & Mail. He has acquired and edited dozens of bestselling books including Secrets of the Millionaire Mind, Always On, Make or Break, Freedom from Oil, and many others. During his career Schaffner also worked as director of speechwriting and public affairs to a governor, as a communications director at two universities, and for the highly influential Center on Budget and Policy Priorities in Washington, DC. He also coauthored leading reference works on labor and the workforce.

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• Quarterly, Issue 3

Case studies: Three successful turnarounds

quarterly issue 3

Author: ICAEW Insights

Published: 13 Sep 2020

VineyardsDirect.com

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Joe McGrath on how online drinks retailer Vineyards.com, automotive giant Ford and coffee chain Starbucks turned business around after COVID-19 hit

With the enforced closure of pubs and restaurants as a result of COVID-19, orders into online drinks retailers soared. Alcohol sales for home consumption for the 17 weeks to 11 July 2020 were up £1.9bn compared with the previous year, according to US data company Nielsen.

One of the companies well-placed to benefit was FromVineyardsDirect.com, a wine distributor which had found itself in administration just 18 months earlier.

ICAEW members Lee De’ath and Richard Toone of CVR Global – Partner and Managing Partner respectively – oversaw a pre-pack sale of the company in September 2019 after the business had got into financial difficulty.

De’ath explains that the company, which specialises in selling hand-selected wines to the retail and wine merchant markets, had previously seen severely restricted cash flow.

“The company had fluctuating profitability from inception, which impacted working capital, ultimately resulting in the decision to seek the protection of an administration.”

However, by entering a formal administration process, it allowed the business to be sold to a new parent in The Wine Company Limited. The new owners have continued to operate the website and have invested heavily in growing the brand through a marketing programme which has set the business up for the busy period.

Tony Harrison, director of Harrisons, says the key to successfully saving a business through a formal insolvency process is to approach a licensed practitioner at the earliest opportunity, in order to weigh up all the options, including avoiding a formal insolvency.

“Get hold of an insolvency practitioner as soon as you can,” he says. “The reason for that is cash flow. When a business gets into difficulty, it enters a period of stress because the cash flow has gone. If you take advice at an earlier stage, you may be able to avoid a formal insolvency altogether.”

It’s really important to work out if you are legally allowed to continue to trade, says transformation consultant Hannah Keartland, and business owners may need to get third-party advice on this. “When making tough decisions it’s important to be clear on the overarching vision for the organisation — why does it exist, what is its purpose?

“Being really clear on that helps with making difficult judgement calls where there’s no clear answer. It may be that the route to delivering that purpose is not through continuing the activities or operations as before COVID-19 — eg a transformation, takeover, merger or asset sale may be the best route forward.”

Alcohol sales for home consumption were up £1.9bn for the 17 weeks to 11 July 2020 compared with the previous year.

The need for a change in corporate direction doesn’t always come with an immediate deadline. For Ford, one of the world’s largest car makers, it has invoked a transformation programme to strengthen long-term viability in an increasingly competitive market with changing customer priorities.

Unveiled in 2017, the company’s Creating Tomorrow, Together strategy is designed to reinvent the business as a leaner, efficient and futureproof organisation. Specifically, it has committed to scaling up its activities in electric vehicles and self-driving cars and to increase its focus on sustainable transport networks.

“We are moving with a renewed sense of urgency to improve the fitness of the business and improve our launches, while at the same time modernising Ford in a way that plays to our strengths,” CEO Jim Hackett explained in a company statement in April 2020.

The strategy includes a commitment to incorporate the UN’s sustainable development goals into the organisation’s thinking, particularly those on promoting well-being, innovation in industry, taking action on climate change and supporting the transition to sustainable cities and communities. Its commitment to the latter includes plans to help customers work in cities in a sustainable way, through the use of smaller mobility vehicles and measured reporting of its progress.

This focus on sustainability is certainly not unique to Ford. In fact, it has instigated transformations across multiple sectors in recent years as management teams recognise that customers and investors are demanding companies consider how environmental, social and governance issues will affect corporate viability in the long term. 

“There is a growing body of evidence that organisations which have strong purpose, and look at more than just financial outcomes, are more successful in the long run,” says transformation consultant Hannah Keartland.

This trend was justified still further last year when the Harvard Law School Forum on Corporate Governance published a paper that showed that companies that are working to improve their scores on environmental, social and governance metrics outperform companies that are not.

Accountants and chartered practitioners who are keen to improve their skills in sustainable business transformation may want to visit The Finance Innovation Lab , which was originally set up as a joint venture between the World Wildlife Fund and the ICAEW. In 2015, it became fully independent but continues to offer a range of resources for those who are seeking more information about creating sustainable business models.

Ford is currently planning to increase its focus on electric and self-driving cars and sustainable transport networks.

The coronavirus pandemic has been unkind to many businesses with a large high-street presence, and coffee retailers are no different. But despite a significant drop in sales, Starbucks can take some comfort in the fact that its most recent major transformation started during the last global financial crisis, when the previous CEO Howard Shultz closed hundreds of stores, laid off hundreds of middle managers and employees and embarked on a major acquisition trail of smaller drinks businesses.

When Shultz began the 2008 transformation, he started by slashing more than $500m in costs throughout the business. He used some of this money to reinvest into the workforce through training and enhanced employee benefits.

Key to the changes was encouraging a new corporate culture which, he said at the time, would be felt by customers in stores. The company’s leadership was told to focus more on developing its diversity and inclusion programme and encourage transparent engagement, communication and collaboration.

In July 2020, the Thinking Ahead Institute published a study looking at the importance of corporate culture in successful businesses. It concluded that, to be successful, transformational leadership involves “writing wide-scale change and motivating the organisation to do more than happens incrementally”.

Marisa Hall, Co-Head of the Thinking Ahead Institute, distils the best corporate cultures into three categories. According to Hall: “The goals of organisations should focus on sympathetically combining three things: building a diverse array of people that make up the organisation, recognising identity, and treating people with decency.”

In the Thinking Ahead Institute report, it concludes that achieving a change in culture, however, means challenging prior assumptions and beliefs, which requires innovative thinking. So, while the benefits of a strong and collaborative corporate culture are many, achieving a change can be tough for leadership teams to achieve.

“It has to come right from the top,” says transformation consultant Hannah Keartland. “It has to be something they believe deep in their bones. They may have to go through personal change and that’s hard.

“It involves being humble and recognising the leader they were before is not necessarily who they need to be now. It means working differently and it needs to feel like they’re working differently.”

Starbucks is building its corporate culture around transparent engagement, communication and collaboration.

These case studies are accompanied by this feature on successful business transformation and strategy amid COVID-19.

• Adapting to COVID-19: the Jacobs story
• Cyprus’ financial response to COVID-19
• COVID-19 is changing the way global supply chains work
• The UK’s financial response to COVID-19
• Adapting to COVID-19: the Tesco story

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