What did Starbucks ever do for Business Performance? – Book Revew: Onward by Howard Schultz

Howard Schultz, whilst not technically the founder of Starbucks, is the father of the global brand that we all know today.  After overseeing phenomenal growth and expansion, Shcultz believed he had done all he could he handed over the CEO role in 2000 to take a more ‘hands-off’ role of Chairman.  After a steady few years under new leadership, the magic of Starbucks seemed to lose its shine and profits halved in 2008.  Schultz looked on with some dismay on what was a slow decline in performance and direction.  After some soul searching he decided to step back into the CEO role.  He commits his journey to a book – Onward which charts the highs and lows of his return to CEO and Starbucks painful return to a premium coffee seller. 

Starbucks experienced astronomical expansion during the go-go '90s, going public in 1992 and growing at a rate of 25 percent to 30 percent a year. The company has some 17,000 stores in 50 countries.   

Signs of expansion over quality started to show in 2007 when for the first time a decline in profits was registered.  Philosophically Schultz reflects:  “No single bad decision or tactic or person was to blame.  The damage was slow, quiet and incremental..”

Two and a half years after returning as CEO, the company was making record profits, had launched the fastest-growing consumer product in US with its instant coffee brand Via and stock price had increased by 400%.  The recovery was hailed by analysts as ‘nothing short of remarkable’.

Asked the secret of his success, Schultz recounts four principles: "Don't be threatened by people smarter than you. Compromise anything but your core values. Seek to renew yourself even when you are hitting home runs. And everything matters."

He focuses on many areas that in classic turnarounds are often overlooked.  He chooses to slow-down the growth, re-kindle the artisian experience in store and re-invest heavily in his people.  Often the focus is on stripping out costs and driving up efficiency.  But for Schultz, it was about being true to a brand experience that was about the mystery and theatre of coffee, even if that would initially cost money.  He also refused to yield to pressure to cut health-care benefits for US employees (partners), despite it being one of the biggest and growing costs areas for the business.  Given that these decisions were being made at the height of the global downturn is nothing less than courageous.  And yet, 3 years since taking up this challenge, Schultz has returned Starbucks to its position as the world’s largest & most profitable premium coffee company. 

 

Some take aways from his book Onward include:

• Passion is essential to a healthy business – he talks about this, well, passionately.  It comes across very strongly that you have to love what you do.  But it is not just his personal passion that matters, but igniting that passion in everyone involved in Starbucks.  It was the germ of the idea that he got from Italy, where he could see real passion for coffee.  It was not just about serving a hot beverage, but a work of art.  A perfect espresso every time for every customer.  It does not matter what your business is, if you have passion for what you do, it will come through to your customers. 
• Ethical Sourcing – Being values-led is clearly important to Shcultz.  For him it was about ensuring that coffee, some of it sourced from the most impoverished and ravished communities of the world, should be done ethically and with consideration for the farmers needs, not just the consumer.  Price could not be the only consideration.  Caring for the environment, the producers and the community that coffee is grown in, was equally so.  It is another sign of courageous leadership during tough times, when pressure mounts to simply cut costs, regardless of consequences further down the line.
• Innovation & Creativity – Knowing that the answers do not lie with the chosen few senior leaders, but with every partner in every store, Shcultz encouraged innovation everywhere, including the development of two concept stores in Seattle as test beds.  Partners were quick to pick up on the opportunities and many new sales techniques, store formats and special events were created as a result of this encouragement, leading to a much more engaging experience for customers.
• Drive efficiency – Costs were not ignored as part of the turnaround and indeed the $400million of annual savings that were promised to investors were delivered, together with a further $180million.  It was done by creating Lean teams, stripping out inefficiencies in the supply chain and addressing quality issues.  The savings are permanent and helped to contribute to the outstanding performance.  But not at the cost of quality, customer experience or employee investment. 

So whether you are a fan of Starbucks or you find its ubiquitiousness less endearing, we all can learn something from the success of this turnaround and from the leadership qualities that Schultz brings.