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Change and Consensus Management at the Starbucks

Coffee Company

Hira Mariam – M00381089

Brooklyn Bhatia – M00432589
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Contents
Introduction: .................................................................................................................................................................. 3
Overview of Starbucks: ............................................................................................................................................... 3
Crisis of 2007-2008 at Starbucks: ............................................................................................................................. 4
Change Management .................................................................................................................................................. 6
Change Management at Starbucks .......................................................................................................................... 8
The Kotter’s Eight-Stage Process of Creating a Major Change .................................................................. 10
Lewin’sChange Model:

Unfreeze Change Freeze

Create right Reinforce to anchor
Support Change
environement change

.................................................................................................................................................................................... 13
Consensus Management: .......................................................................................................................................... 16
Starbucks Mobile App: ......................................................................................................................................... 17
How Consensus Management could have been handled more accurately by Starbucks: Starbucks
should launch its app worldwide and declare as a global brand, for example in Europe Starbucks ....... 18
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Introduction:

Starbucks is the largest coffee-brand in the world, which is famous among all the age groups particularly

because of its ‘connection’ with the people and experience with which customers remembers it forever.

Like known to everyone that Starbucks provide the best coffee in town, we have proposed a research to

look deeper into the transformation process at Starbucks after the financial crisis of 2007-2008. This

research will show how Starbucks enabled itself to fight the crisis and what change management

approaches it used or could have used to enhance people’s experience. We will also look deeper into

the mobile app introduction by Starbucks and how leaders did the consensus to boost the sales of

coffee.

Overview of Starbucks:

Starbucks always had its unique characteristics. The romance in coffee and making the coffee was all

introduced by Starbucks who made the world, fall in love with what they had to offer. Starbucks started

as a small store in Seattle in 1971 into a worldwide phenomenon now. Today, it covers 65 countries with

21,000 stores (Starbucks, 2015). This fast growth can be attributed to various factors. With an annual

growth rate of 6% and $3.9 billion in sales, Starbucks is an excellent example for turning love for coffee

into flourishing business investment (Forbes, 2014). Their mission is "to inspire and nurture the human

spirit - one person, one cup and one neighborhood at a time (Starbucks Coffee Company, 2015). In 1994,

Starbucks gained the rights to make, sell, and use Frappuccino when they took over George Howell's The
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Coffee Connection cafe (Nanos et al., 2012). In 1996, Starbucks had an annual sales of

Frappuccinos over $52 million (Fenton et al., 2012). All this lead to what Starbucks is today

(Klein, 2009).

Crisis of 2007-2008 at Starbucks:

Understanding the crisis requires understanding the economic crisis and how the market works.

In order to measure market efficiency, a well-balanced model is required (Clement D., 2008).

In February 2007, CEO of Starbucks, Howard Schultz said he saw the crisis coming. He warned

about commoditization of Starbucks in an internal memo to the various senior staff at

Starbucks (The Economist, 2008). Selling CDs, DVDs, books, t-shirts etc. gave Starbucks that

edge over others yet pulled down on its reputation of being Coffee- Lovers. The company,

started replacing Hand-made espresso with Automated Machines. In 2007, Starbucks shares

dropped down by 42% making the worst performers on the stock market. The sub- prime

mortgage crisis brought in many competitors (Clark A., 2008). During the period of 2005- 2007,

many new competitors were arising like Dunkin Donuts, McDonald's etc. because they realized

the potential of selling good coffee (Financial Times, 2008). Many people were worried about

Starbucks's fast growth. Analysts like Howard Penney, stated that Starbucks had to slow their

growth. They have being growing too fast (Clark A., 2008). The prices for food commodities

were increasing, forcing the company to increase its prices also. Customers had already enough
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worry of Oil prices, Food etc., that this had taken its toll on Starbucks. This encouraged

competitors, like Dunkin Donuts, Panera Bread, McDonald's to sell reasonable taste coffee for

cheap making Starbucks look like a brand targeting only Affluent Middle Class Earners (The

Economist, 2008). Starbucks felt the effect of the market earlier by June 2006. But though the

worst period for Starbucks was during October 2008 till March 2009, the Schultz team had

positive evaluations showing the market recognized his efforts (Perera et al., 2012). But the

rapid growth of Starbucks, brought in structural problems like store profitability, drop in

demand etc. The opening of new stores increased these problems because Starbucks had a

frantic growth rate, nearly opening 20000+ stores in various countries in a time period of

20years (Perera et al., 2012).

Source: seekingalpha.com
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Change Management

Change is defined as one of the few constants of recorded history (Paton and McCalman). In the

21st century, change has become a critical topic for the organizational leaders, this is why we can

see change everywhere. Its hustle and convolution are growing. In today’s market, inducing

change is a must for organizations for better future and success (Anderson and Ackerman-

Anderson, 2001). Inducing change in any organization is a process of three main steps which

identifies the willingness for a change to happen, applying the change and maintaining the

change (Armenakis & Harris, 2002). Change has the power to affect everyone from top to the

bottom level (Gilley, McMillan, & Gilley, 2009).

However, to some degree, the biggest mistake organizations make when implementing change

is that they climb ahead without forming a sense of resolution among fellow managers and

employees (Kotter, 1996). Managers, mostly the CEOs of the companies fail to communicate

vision and objectives with their employees at the very start of the transformation by overlooking

the fact of how hard it is for the workers to come out of their comfort zones and learn the new

parameters of the business (Kotter, 1996). Other idea is to prevent the lack of a powerful guiding

coalition, major change becomes difficult to implement if the head of the organization is not

supportive and active. (Kotter, 1996). Vision plays a major role in the process of change. It helps

to direct and align activities of the organizations and people and avoids confusion and dissolves

all the unnecessary obstacles that leads the organization to nowhere (Kotter, 1996). Major

changes need involvement of the employees. People are generally reluctant to make sacrifices,
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they may show short-term interest in the change process but unless and until they think that the

process is attractive and holds benefits for them. It is highly important to create a suitable

communication channel for and with the employees to seize their hearts and minds (Kotter,

1996). Some organizations have full support and willingness from their employees but still are

unprivileged to resolve huge barriers in their path. The barriers could be the structure of the

organization itself, where the CEO of an organization might not change his personal behavior and

doesn’t recompense his employees or their vision (Kotter, 1996). Change involves practice and

time, setting long-term goals can be a threat to change. Business can lose momentum without

creating short-term wins. It is recommended by Kotter (1996) for the organizations to stay

realistic and avoid the bigger leaps that employees stop worrying about the short goals.

Celebrating the implementation of the change process is not suggested until change go down to

the root of the organization, a company can take two to three years to grasp the new approach,

it is highly advisable to wait before the change is implemented (Kotter, 1996). Once the change

is implemented, it must be adapted as a ‘way’ to work and process things. This stage involves

decisions and brainstorming of the directors so that they can enable the future directors to follow

the same strategy. New managers must be able to understand the transformation in detail

(Kotter, 1996).
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Change Management at Starbucks

Why Starbucks considered to change its strategy and how did they come back? Or The

Turnaround of Starbucks.

In 2010, Starbucks reported annual sales revenues $2.6 billion (Starbucks Annual Report, 2011),

which was huge turnover from the past 3years during the crisis. U.S sales increased by 8%,

driven by 5% increase in traffic. But the question is how, did this happen?

The first step taken by CEO Howard Schultzas he said in an interview with Harvard Business,

was to accept full responsibility of their own mistakes of the leadership team. Schultz believed

in "owning reality was critical to expediting change" (Harvard Business Review, 2010). He says

that once leaders identify the problem and take responsibility for it, they save time in making

up excuses to cover up goof ups and can take an immediate course of action in turning things

around for their business. Another point, to be considered that helped Starbucks was, that

leaders of the company should be involved at every level to ensure success. Building a

relationship with your employees in the company helps the business prosper, says Bruce and

Pepitone (1999). This is exactly what Starbucks did. They spent $30million during the financial

hardships and took each and every one of their 10,000 store managers to New Orleans for a

conference of the company. Moreover, before the conference, each store in-charge was asked

to do 5 hours of community service to show their commitment to customer service by doing it

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themselves (Starbucks Newsroom, 2015). Starbucks had to rebuild their customer relationships

and the trust the customers had in them before the economic crisis. Starbucks now had to

ensure and show the world, the consistency and quality would be cared for.

Starbucks introduced many ideas like MyStarbucksIdea, which would ensure a direct

relationship with the customer (Thau B., 2015). Starbucks also cut costs, which were

approximately $581 million, by improving efficiency, reducing waste etc. which all led to very

high levels of satisfaction from customers (Prabhakar et al., 2013). But more importantly,

Starbucks main success for their comeback was their need to care for customers and their

satisfaction. Introducing various ideas, like the Free Wi-Fi, carrying out the corporate social

responsibility and advertising helped them "redo the look" of Starbucks. Earning its customers

back, became a necessity and Starbucks wasn't compromising on it. To apply the change

strategy smoothly and resist the traditional mistakes made by most of the organization, John P.

Kotter (1996) at Harvard Business School introduced an eight-stage process while making

change, we will apply Kotter’s model on Starbucks strategy and look how much it has influence

Starbucks as a company:
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The Kotter’s Eight-Stage Process of Creating a Major Change

1- Establishing a sense of urgency

2- Creating the Guiding Coalition

3- Developing the guiding coalition

4- Communicating the Change Vision

5- Empowering Broad-Based Actions

6- Generating short-term wins

7-Consolidating gains and producing more change

8- Anchoring new approaches in the culture

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1- Establishing a sense of urgency:

After the crisis of 2007-2008, Starbucks enabled itself though a clear message by the CEO of the
company Howard Schultz himself who send a letter to all the employees which said that “the
company must go back to its core business and become customer centric again instead of
focusing on bureaucracy”. He made this objective very vibrant that the employees must
connect through emotional attachment with customers (Businesstoday.intoday.in, 2014).

2- Creating the guiding Coalition:

In January 2008, Chairman of Starbucks returned and took over the worse situation as the CEO,
the decisions he had to make were very difficult, according to Schultz it was like making a
confession in front of 180000 employees and their families and feeling responsible. But Schultz
took over he came forward with a technology-oriented strategy and guided the employees to
think freely and contribute their strategies. The idea was to create a community to achieve the
required goals (Businesstoday.intoday.in, 2014).

3- Developing the guiding coalition:

Everyone needs a break from home and from work, and Starbucks saw this and did just this.
They created a zone for comfort and relaxation, mesmerizing the customer with the experience
of a comfy experience. From the furniture, to the paint, Starbucks takes care of every little
detail in this third place or comfort zone that many are looking for in the hustle and bustle,
involving innovation helped Starbucks to review their customers and add technology as a core
business tool to reinvent the chain. Wi-Fi was introduced as part of the shared vision of the
employees (Businessholic, 2011).

4- Communicating the Vision:

Howard Schultz made it very clear to his employees that they won’t be doing only coffee
business, Starbucks vision was to create a space between work and home and giving people an
experience to cherish and comeback again as much as possible. The vision of Starbucks was
revised and more compelling conversations happened at the time of the transformation (Gallo,
2011).
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5- Generating short-term wins:

According to the Starbucks Chief Financial Officer Michael Casey, the company was set to have
short-term goals in order to achieve long-term goals. This was planned by issuing monthly
revenue basis to encourage volatility in the company’s stocks, Casey believes that the company
will continue to follow this pattern and will continue to shot results on a periodical basis
(Investor.starbucks.com, 2015).

6- Consolidating gains and producing change:

Starbucks approach was not just to come out of crisis but also become the hub of the
community service and employees training programs to enable more learning related to
customers. These programs mainly encouraged opportunities among young people and to
enable them to positive learning, get a job and teach several leadership programs (Starbucks
Coffee Company, 2015).

7- Anchoring new approaches in the culture:

According to Howard Schultz, the company has grown over the years, but still it is busy
anchoring its root to different cultures around the world. The intent to grow and be
remembered forever is still there and the development to do that is underway (AL.com, 2015).
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Lewin’sChange Model:

Unfreeze Change Freeze

Create right Reinforce to anchor
Support Change
environement change

According to the Starbucks position in the market and especially after the crisis, it could be that
assumed that the company could have used this model to relate to change:

If an organization is failing, it become important to accept that a change is desperately needed,

and its tie to do brainstorming among employees to keep up the operations of the company,
everything must be exposed or unfreezed so that the root problem could be tackled
(Mindtools.com, 2015). After knowing all the mistakes and shortcomings within the company, it
is important to start resolve issues look out for new ways and alternatives to do business. This
step is the most difficult part of the model as change is always hard to implement and many
people resist to move in a new direction. The next and the last step of this model is to freeze
everything again and form new principles to set new goals for the business to prosper.

1- Unfreezing at Starbucks:

After Jim Donald was hired as the CEO by Schultz, the quality of the leadership and coffee
started fainting out. Schultz was highly criticized for his ‘unawareness’ regarding the too many
openings of stores around US which ultimately resulted in the low quality of the coffee. Schultz
after brainstorming with the directors at Starbucks came to a conclusion that a lack of a ‘back-
up plan’ regarding the leadership was the reason behind the crisis faced by Starbucks
(Cbsnews.com, 2015).
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2- Change at Starbucks:

The strategy used by Starbucks is worth learning from and remembering considering the crisis
that impacted them and their less-than-year turnaround from the slump. Majorly, driven by
CEO's Howard Schultz perseverance, the company is now making a lot of progress. The history
of Starbucks is worth remembering considering their setbacks and their beautiful recovery. But
how did they achieve this? Well, some of their brilliant strategies were (Larrimore, 2013):

Creating the perfect coffee: Their huge emphasis on creating perfect cup of coffee can be seen
in their mission statement. "One Person, One Cup, One Neighborhood at a time" (Starbucks
Coffee Company, 2015). Throughout the years, their focus has solely been on creating a
romance between the coffee and the customer.

Customer Satisfaction: Starbucks has always put their customers first, and thus creating a
community of happy customers. After their major setback, in 2007, Starbucks left no stone
unturned to start gaining relationships with their customers again.

Innovation: Starbucks has been known to be innovative. From their coffee to their food and
services offerings, Starbucks has always done something new.

Brand Marketing: Their secondary driving factor for success, first being customer satisfaction, is
how they market their Company. Starbucks, spends limited money on advertising their brand.
Their major reason for success is that they let their service, their offerings, their company name
speak for itself. This quality makes it self-inviting and creates interest in potential customers
(Morrison, 2011).

Refreezing at Starbucks:

After the leadership crisis at Starbucks, to revive its global sales, Starbucks plans to become an
international brand and spread its roots globally in giant countries like China and Russia to get
more revenues, this new part is relatable to the geographical strategy of Starbucks. The more
the brand will look less ‘US centric’ the more it will look ‘customer-centric’ and also to go back
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to its core competency of serving not only good coffee but also following strict business
standards to receive customers especially at places like Airports which will represent Starbucks
everywhere (Research, 2015).

How Change Management could have been handled more accurately

by Starbucks:

Our group thinks that a company like Starbucks shouldn’t have gone to the point of financial
crisis which it faced, but still if the company has faced the problems which not only resulted in
the loss of jobs but also the closing down of 600 stores as mentioned earlier in the crisis
section. We think that Starbucks is still focusing its sales in US and is not strongly inclined
towards becoming an international brand. If Starbucks has added a change model and
guidelines to become an international brand in their corporate culture, then it must become
the brand of people all over the world and also launch an online awareness program among
employees or other stakeholders to spread its international performance among a common
man. Just like an organization like Wikipedia has made its value and performance known to a
common man, in times of crisis Starbucks should have enabled programs like those to get the
support and back up from the people when facing a crisis if it claims to be a people’s brand.
Furthermore, the employees which were fired during the times of crisis must have been given a
chance to come back and work for the organization. Too much strictness for a warm drink
might cause stakeholders to hold grudges for a brand. For example the comments like these
from ex-employees and customers could have been avoided:

"The coffee is not always fresh. Often, employees start a new urn on top of the remains of the
cold coffee, so the new stuff mixes with the old. There may not be a freshly done urn all day." -
Kelly, a New York resident who worked at Starbucks for a few years and would like her name
not to be disclosed (AOL jobs, 2010).

"Some of my coworkers were more demanding than others. Most were nice and welcoming.
And there were office politics. On more than one occasion I walked into the break room to see
someone crying, or talking about other coworkers. I mostly avoided this, until what would be
my last week on the job." _ Aimee Groth, ex-employee of Starbucks (Aimee Groth, 2011).
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Consensus Management:

Along with the process of change comes the consensus management also known as the
decision making process. Making decisions together is an important part of a family or
organization so that they can connect and come to common conclusion to achieve their goals.
The ability to handle the unusual situation rests upon the organization’s managers to make
decision well. The main aim of conducting consensus is to reach an agreement which is
favorable for everyone.

Aims of a Consensus:

Reaching to an agreement: It is difficult to decide when there are a lot of interests involved
among the people looking for the same thing, hence it becomes important to do voting or a
deal to minimize disagreement as much as possible.

Bringing all the members together: Consensus is also a chance to analyze what everyone thinks
about a certain idea and what is their perspective in regards to the future. This phase concerns
the thinking of the members.

Participation: The more the participation by the members, the better the needs will
brainstormed regarding the suggestions.

Broad-View: Not all the company executives but all the rest of the stakeholders must take part
in the consensus process.
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Starbucks Mobile App:

In 2012, Starbucks launched its mobile app in 16 stores, the app success led it go viral in US and
then later it allowed customers to pay for their coffee wherever there was a bar scan point
available. The genius behind letting coffee sales happen through an app was Benjamin Vigier.
The idea was to innovate the coffee experience and boost the sales among customers which
were not able to reach the stores by themselves, so they could order it for someone or
themselves and can drink later in any Starbucks outlet. The app also offers loyalty schemes for
the customers which helps them gain and redeems points to buy coffee and other goods by
Starbucks (Warman, 2012).

How Mobile App was launched (Consensus Management Approach):

The leadership at Starbucks believed that it is important for the company to improve the
customer experience by making it convenient for the customers to purchase coffee. To apply
the core coffee business and add value to the current trends happening globally, Starbucks
decided to tighten its bond by introducing a smart phone app to sell coffee. This customization
of was done to match the needs of the customers not just within the store but also outside the
store. The company took a survey on social media and saw a tremendous change in the world
of technology, the rapid switching of people to mobile phones helped them revision their
customer centric approach by aligning technology. To encourage relationships through
technology, Starbucks made itself more productive and applied the CRM strategy to its app.
This decision helped Starbucks to take a competitive advantage from other brands like
McDonalds and Dunkin Donuts (Anon, 2015). It is possible due to this decision that the app has
currently 12 million users which use the phone to pay for their coffee. Out of 1.6 billion dollars
spent by Americans through their smart phone, 90 percent goes to Starbucks, which is a
tremendous boost (Shah, 2015).
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How Consensus Management could have been handled more

accurately by Starbucks:

Starbucks should launch its app worldwide and declare as a global brand, for example in Europe
Starbucks start a trend of its mobile app because people in Europe still lack the technology
advantage, so Starbucks should start an innovative idea from a place where the technology is
unpopular so that they can not only cover a country but also the whole continent.

Conclusion:

Doing the research regarding Starbucks was tough as it’s an international brand with a lot of
public value to it. But doing research didn’t only enable us to look into the company itself but
also allowed us to do learning regarding how big companies fail and rise again. Most of the
report focuses on the assumptions which could have been made by Starbucks in the process of
change, we made sure that the model used are relevant to the nature of the transformation of
the company. We gave different suggestions based on our knowledge and experience to make
Starbucks a better company.

At last, we think that Starbucks still has its challenges and a lot of grey areas are left to refine its
brand. Still, Starbucks is applying Change and Consensus management approach in their day
today business which is adding more value to them and is helping them to solve riddles to
understand customers in a better way.
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