Starbucks Case Study

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Starbucks became the first company to reach 1 million Facebook fans, within months after launching their page.

The final key component of the Starbucks transformation and possibly most important, was the ability of the CEO and leadership to communicate what the vision, mission and goals of the organization were. This is perhaps one of the most challenging components to successfully incorporate in a transformation. The leadership could not transform the company on their own; they needed to create the passion, understanding and willingness for employees at all levels of the company to participate. A transformation can often be a hectic, scary or an all-around nerve-racking environment for people to exist in. Leadership took the situation by the horns and broke the transformation down into clear-cut initiatives. The leadership team was also very open to feedback and consistent with their communication to the company. The way the leadership team handled themselves laid a foundation of trust, which in turn created the path that the company took throughout their transformation. This foundation of trust is now a core part of what Starbucks is today.

Starbucks as it Relates to the Broader Context of Business Turnarounds

In the case of the Starbucks example, there are many areas in which any company can draw from when it comes to the broader context of business turnarounds. When a company that was once successful and begins to see a decline in both customer traffic and revenue, it is very common to take a look at both the internal and external factors that could be influencing the downward turn. Starbucks did just this and identified the external factors, such as its competition gaining more of a market share and also identified the internal factors. Addressing the internal factors can have a larger and long lasting impact to the success of the company because they are more controllable.

Identifying what your company’s competition is doing to take away market share is key to turning the company around and having more financial success. A company can take multiple actions to counteract the negative effects of the competition. Two such actions are through innovation and mergers/acquisitions. Starbucks took both approaches and responded to these outside factors by looking at innovation of their products, cards/rewards program and mobile payments.

The growing success of McDonald’s McCafés and Dunkin’ Donuts came as a surprise to Starbucks. Howard Schultz once stated that “Everything we did more or less worked. And that produced a level of hubris that caused us to overlook what was coming.” (Koehn et al. 7) Starbucks worked on what they called the Starbucks Via Ready Brew to hopefully alleviate the effects of these two competitors. This was “An instant coffee for people who did not drink instant.” (Koehn et al. 16) This was not a readily accepted idea at Starbucks because “Bias against the initiative ran so deep that partners assigned to the project expressed concern their careers would suffer for it.” (Koehn et al. 17) This meant that Starbucks needed a change in culture. When speaking of creating an innovative growth platform and a sustainable economic model, Schultz realized that “Starbucks would have to reorganize operations to support quality, speed and cost management. Though this last Big Move would likely be the most painful, least sexy, and most difficult part of transforming the company.” (Koehn et al. 15) This shows that with innovation, there needs to be a mindset of adaptability and change. This is the case for any company going through this type of transformation.

Starbucks also looked at mergers and acquisitions to combat the influence of their competition. Many companies can take this approach to quickly combat the negative effects of their competition. A company can acquire the competition themselves or acquire new and innovative companies to positively influence its stance in the market and show its investors and partners that they are willing to invest in the future of the company. Starbucks partnered with the Evolution Fresh brand to create a Starbucks specific Greek yogurt product. This would offer a competitive advantage in the market; a service market that was evolving to include competitors that they did not consider competitors in the past and a market that was forcing them to evolve themselves to stay relevant. Starbucks also acquired La Boulange bakery in 2012 to change the perception of the food offerings that the company had. This then shifted the mindset of their customers to realize that Starbucks was not only the place for great coffee but also for great food. In addition, Starbucks acquired Teavana Holdings. This was a way to innovate its product offerings very quickly. Starbucks was now the place to also go for tea, not just coffee.

When it comes to looking internally for opportunities to develop, companies looking to make a turnaround needs to understand what made them successful in the first place, and in the case of Starbucks, it was their core values. Starbucks took this to heart and was the backbone of their transformation. One way in which the company made this publicly known was through the 2011 budget crisis in Congress. Shultz stated, “We today pledge to withhold any further campaign contributions to the President and all members of Congress until a fair, bipartisan deal is reached that sets our nation on stronger long-term fiscal footing.” (Koehn et al. 37) This proved how customer focused the company was. They were sticking up for the “little guy” and defended American citizens. Not only did the company want to improve the experience the customers had in their stores, but also the experience their customers had outside their stores.

Lastly, companies going through a transformation want to ensure that they retain their employees and attract the best talent to help them get through the transformation. Starbucks realized the necessity for this and ensured that their employees or what they called their partners, were taken care of and happy. According to Chapter Two on Motivation, in order to motivate your employees, a company needs to understand their needs and be proactive and transparent when it comes to how the company rewards its employees. (Chapter 2, 25) When a company’s employees feel like they are being paid equitably, fairly and are receiving valued benefits, then they feel like there is an investment on the company’s end. This leads to employee job satisfaction and retention. They will feel motivated to contribute to the success of the company turnaround.

Schultz’s Impact on the Transformation

While the economy had an impact on Starbucks, Schultz was the driving force behind the Starbucks transformation. He observed