MANAGING COMPANY: CAREER PLANNING AND PREPARATION

CASE 1
STARBUCKS – Introduction

Beginning in 1971 as a coffee shop in Seattle’s Pike’s Place

Market, Starbucks has grown to become the world’s top
specialty coffee retailer with shops in more than 62 countries
and an expanded product line including merchandise, beverages
and fresh food, global consumer products, and a Starbucks card
and consumer rewards program. Starbucks’ first store, shown
here today, retains its original look with signs and other items
bearing the company’s first logo.

Community. Connection. Caring. Committed. Coffee. Five C’s that describe the essence of Starbucks
Corporation—what it stands for and what it wants to be as a business. With more than 31,000 stores
in 70 countries, Starbucks is the world’s number one specialty coffee retailer. The company also owns
Seattle’s Best Coffee, Teavana, Tazo Tea, Starbucks VIA, Starbucks Refreshers, Evolution Fresh, La
Boulange, and Verismo brands. It’s a company that truly epitomizes the challenges facing managers
in today’s globally competitive environment. To help you better understand these challenges, we’re
going to take an in-depth look at Starbucks through these continuing cases, which you’ll find at the
end of every part in the textbook. Each of these six part-ending continuing cases will look at Starbucks
from the perspective of the material presented in that part. Although each case “stands alone,” you’ll
be able to see the progression of the management process as you work through each one.

The Beginning
“We aren’t in the coffee business, serving people. We’re in the people business, serving coffee.” That’s
the philosophy of Howard Schultz, chief executive officer of Starbucks. It’s a philosophy that has
shaped—and continues to shape—the company. The first Starbucks, which opened in Seattle’s famous
Pike Place Market in 1971, was founded by Gordon Bowker, Jerry Baldwin, and Zev Siegl. The company
was named for the coffee-loving first mate in the book Moby Dick, which also influenced the design
of Starbucks’ distinctive two-tailed siren logo. Schultz, a successful New York City businessperson, first
walked into Starbucks in 1981 as a sales representative for a Swedish kitchenware manufacturer. He
was hooked immediately. He knew that he wanted to work for this company, but it took almost a year
before he could persuade the owners to hire him. After all, he was from New York and he hadn’t grown
up with the values of the company. The owners thought Schultz’s style and high energy would clash
with the existing culture. But Schultz was quite persuasive and was able to allay the owners’ fears.
They asked him to join the company as director of retail operations and marketing, which he
enthusiastically did. Schultz’s passion for the coffee business was obvious. Although some of the
company’s employees resented the fact that he was an “outsider,” Schultz had found his niche and he
had lots of ideas for the company. As he says, “I wanted to make a positive impact.”
About a year after joining the company, while on a business trip to Milan, Schultz walked into an
espresso bar and right away knew that this concept could be successful in the United States. He said,
“There was nothing like this in America. It was an extension of people’s front porch. It was an
emotional experience. I believed intuitively we could do it. I felt it in my bones.” Schultz recognized

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that although Starbucks treated coffee as produce, something to be bagged and sent home with the
groceries, the Italian coffee bars were more like an experience—a warm, community experience.
That’s what Schultz wanted to recreate in the United States. However, Starbucks’ owners weren’t
really interested in making Starbucks big and didn’t really want to give the idea a try. So Schultz left
the company in 1985 to start his own small chain of espresso bars in Seattle and Vancouver called Il
Giornale. Two years later when Starbucks’ owners finally wanted to sell, Schultz raised $3.8 million
from local investors to buy them out. That small investment has made him a very wealthy person
indeed!

Company Facts
Starbucks’ main product is coffee—more than 30 blends and single-origin coffees. In addition to fresh-
brewed coffee, here’s a sampling of other products the company also offers:
• Handcrafted beverages: Hot and iced espresso beverages, coffee and noncoffee blended beverages,
Tazo® teas, and smoothies
• Merchandise: Home espresso machines, coffee brewers and grinders, premium chocolates, coffee
mugs and coffee accessories, compact discs, and other assorted items
• Fresh food: Baked pastries, sandwiches, salads, hot breakfast items, and yogurt parfaits
• Global consumer products: Starbucks Frappuccino® coffee drinks, Starbucks Iced Coffee drinks,
Starbucks Liqueurs, and a line of super-premium ice creams
• Starbucks card and My Starbucks Rewards® program: A reloadable stored-value card and a
consumer rewards program
• Brand portfolio: Starbucks Entertainment, Ethos™ Water, Seattle’s Best Coffee, and Tazo® Tea
At the end of 2015, the company had more than 235,000 full- and part-time partners (employees)
around the world. Howard Schultz is the chair, president, and CEO of Starbucks. Some of the other
“interesting” executive positions include chief operating officer; global chief marketing officer; chief
creative officer; executive vice president of partner resources and chief community officer; executive
vice president, global supply chain; executive vice president, global coffee; learning business partner;
and international partner resource coordinator.

Decisions, Decisions
One thing you may not realize is that after running the show for 15 years at Starbucks, Howard Schultz,
at age 46, stepped out of the CEO job in 2000 (he remained as chairman of the company) because he
was “a bit bored.” By stepping down as CEO—which he had planned to do, had prepared for, and had
no intention of returning to—essentially he was saying that he agreed to trust the decisions of others.
At first the company thrived, but then the perils of rapid mass-market expansion began to set in and
customer traffic began to fall for the first time ever. As he watched what was happening, there were
times when he felt the decisions being made were not good ones. Schultz couldn’t shake his gut feeling
that Starbucks had lost its way. In fact, in a memo dubbed the “espresso shot heard round the world,”
he wrote to his top managers explaining in detail how the company’s unprecedented growth had led
to many minor compromises that when added up led to a “watering down of the Starbucks
experience.” Among his complaints: sterile “cookie cutter” store layouts, automatic espresso
machines that robbed the “barista theater” of roasting and brewing a cup of coffee, and flavor-locked
packaging that didn’t allow customers to inhale and savor that distinctive coffee aroma. Starbucks had
lost its “cool” factor, and Schultz’s criticism of the state of the company’s stores was blunt and bold.
There was no longer a focus on coffee but only on making the cash register ring. Within a year of the
memo (and eight years after he left the CEO gig), Schultz was back in charge and working to restore
the Starbucks experience. His goals were to fix the troubled stores, to reawaken the emotional

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attachment with customers, and to make long-term changes like reorganizing the company and
revamping the supply chain. The first thing he did, however, was to apologize to the staff for the
decisions that had brought the company to this point. In fact, his intention to restore quality control
led him to a decision to close all (at that time) 7,100 U.S. stores for one evening to retrain 135,000
baristas on the coffee experience … what it meant, what it was. It was a bold decision, and one that
many “experts” felt would be a public relations and financial disaster. But Schultz felt doing so was
absolutely necessary to revive and reenergize Starbucks. Another controversial decision was to hold a
leadership conference with all store managers (some 8,000 of them) and 2,000 other partners—all at
one time and all in one location. Why? To energize and galvanize these employees around what
Starbucks stands for and what needed to be done for the company to survive and prosper. Schultz
was unsure about how Wall Street would react to the cost, which was around $30 million total (airfare,
meals, hotels, etc.), but again he didn’t care because he felt doing so was absolutely necessary and
critical. And rather than gathering together in Seattle, where Starbucks is headquartered, Schultz
chose New Orleans as the site for the conference. Here was a city still recovering from Hurricane
Katrina, which had totally devastated it five years earlier in 2005. Talk about a logistical nightmare—
and it was. But the decision was a symbolic choice. New Orleans was in the process of rebuilding itself
and succeeding, and Starbucks was in the process of rebuilding itself and could succeed, too. While
there, Starbucks partners volunteered some 50,000 hours of time, reinforcing to Schultz and to all the
managers that despite all the problems, Starbucks had not lost its values. Other decisions, like closing
800 stores and laying off 4,000 partners, were more difficult. Since that transition time, Schultz has
made lots of decisions. Starbucks has again come back even stronger in what it stands for, achieving
in 2015 phenomenal record financial results, and it is on track to continue those record results. So
we’re beginning to see how Starbucks epitomizes the five C’s—community, connection, caring,
committed, and coffee. In this Continuing Case in the Management Practice section at the end of Parts
2–6, you’ll discover more about Starbucks’ unique and successful ways of managing. As you work on
these remaining continuing cases, keep in mind that there may be information included in this
introduction you might want to review.

STARBUCKS – Basics of Managing in Today’s Workplace

As managers manage in today’s workplace, they must be aware of some specific integrative issues
that can affect the way they plan, organize, lead, and control. The characteristics and nature of these
integrative issues will influence what managers and other employees do and how they do it. And more
importantly, it will affect how efficiently and effectively managers do their job of coordinating and
overseeing the work of other people so that goals—organizational and work-level or work-unit—can
be accomplished. What are these integrative managerial issues, and how does Starbucks
accommodate and respond to them as they manage in today’s workplace?

Culture and Environment

An organization’s culture is a mix of written and unwritten values, beliefs, and codes of behavior that
influence the way work gets done and the way people behave in organizations. And the distinct flavor
of Starbucks’ culture can be traced to the original founders’ philosophies and Howard Schultz’s unique
beliefs about how a company should be run. The three friends (Jerry Baldwin, Gordon Bowker, and
Zev Siegl) who founded Starbucks in 1971 as a store in Seattle’s historic Pike Place Market district did
so for one reason: They loved coffee and tea and wanted Seattle to have access to the best. They had
no intention of building a business empire. Their business philosophy, although never written down,
was simple: “Every company must stand for something; don’t just give customers what they ask for or
what they think they want; and assume that your customers are intelligent and seekers of knowledge.”
The original Starbucks was a company passionately committed to world-class coffee and dedicated to
educating its customers, one-on-one, about what great coffee can be. It was these qualities that

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ignited Howard Schultz’s passion for the coffee business and inspired him to envision what Starbucks
could become. Schultz continues to have that passion for his business—he is the visionary and soul
behind Starbucks. He visits at least 30 to 40 stores a week, talking to partners (employees) and to
customers. His ideas for running a business have been called “unconventional,” but Schultz doesn’t
care. He says, “We can be extremely profitable and competitive, with a highly regarded brand, and
also be respected for treating our people well.” One member of the company’s board of directors says
about him, “Howard is consumed with his vision of Starbucks. That means showing the good that a
corporation can do for its workers, shareholders, and customers.”
The company’s mission and guiding principles (which you can find at www.starbucks.com) are meant
to guide the decisions and actions of company partners from top to bottom. They also have
significantly influenced the organization’s culture. Starbucks’ culture emphasizes keeping employees
motivated and content. One thing that’s been important to Howard Schultz from day one is the
relationship he has with his employees. He treasures those relationships and feels they’re critically
important to the way the company develops its relationships with its customers and the way it is
viewed by the public. He says, “We know that our people are the heart and soul of our success.”
Starbucks’ 235,000-plus employees worldwide serve millions of customers each week. That’s a lot of
opportunities to either satisfy or disappoint the customer. The experiences customers have in the
stores ultimately affect the company’s relationships with its customers. That’s why Starbucks has
created a unique relationship with its employees. Starbucks provides a set of generous employee
benefits, referred to as “Your Special Blend,” to all employees who work more than 20 hours a week:
health care benefits and a compensation plan that includes stock options. Schultz says, “The most
important thing I ever did was give our partners (employees) bean stock (options to buy the company’s
stock). That’s what sets us apart and gives us a higher-quality employee, an employee that cares
more.” In 2015, the company announced that it would pay for most employees (currently, about
140,000 out of 235,000-plus) to earn a bachelor’s degree from Arizona State University’s online course
offerings. The program is called the College Achievement Program. CEO Howard Schultz believes that
“by giving our partners access to four years of full tuition reimbursement, we will provide them a
critical tool for lifelong opportunity.” Also, he believes the company’s educational benefits will enable
more educated workers to participate in the labor force.
It’s clear that Starbucks cares about its employees. For instance, when three Starbucks employees
were murdered in a botched robbery attempt in Washington, D.C., Schultz immediately flew there to
handle the situation. In addition, he decided that all future profits from that store would go to
organizations working for victims’ rights and violence prevention. Another example of the company’s
concern: Starbucks recently announced that it was committed to hiring 10,000 veterans and military
spouses over the next five years.
As a global company with revenues of $19.2 billion, Starbucks’ executives recognize they must be
aware of the impact the environment has on their decisions and actions. Starbucks began lobbying
legislators in Washington, D.C., on issues including lowering trade barriers, health care costs, and tax
breaks. It’s something that Schultz didn’t really want to do, but he recognized that such efforts could
be important to the company’s future.

Global Challenges
You could say that Starbucks has been a global business from day one. While on a business trip in 1983
to Milan, Howard Schultz (who worked in marketing for Starbucks’ original founders and is now the
company’s CEO) experienced firsthand Italy’s coffee culture and had an epiphany about how such an
approach might work back home in the United States. Now, almost 40 years later, Starbucks stores
are found in 68 countries, including stores from China and Australia to the Netherlands and
Switzerland. Doing business globally, as Chapter 3 points out, can be challenging. Since much of the
company’s future growth prospects are global, the company has targeted some markets for additional

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global expansion, including China, Brazil, and Vietnam. Schultz is clear about the fact that his company
sees China as the number one growth opportunity for Starbucks. During a visit in late 2011, a
government official informed him that 140 cities in China now have a population exceeding one million
people. That’s a lot of potential coffee drinkers buying cups of Starbucks coffee and other Starbucks
products! But in China and all of its global markets, Starbucks must be cognizant of the economic,
legal–political, and cultural aspects that characterize those markets. For instance, in Europe—the
“birthplace of café and coffeehouse culture”—Starbucks is struggling, even after a decade of doing
business there. Take France, where Starbucks has been since 2004 and has 76 stores. It has never
made a profit. Of course, part of that could be attributed to the debt crisis and sluggish economy. And
rents and labor costs are notoriously high. Yet the biggest challenge for Starbucks may be trying to
appeal to the vast array of European tastes. The company’s chief of Starbucks operations for Europe,
the Middle East, and Africa decided to take an “anthropological tour” to get a better feel for the
varying wants and needs of coffee lovers in Europe. Although it was initially thought that the well-
established coffeehouse culture in places like Paris or Vienna might be what customers wanted, what
was discovered instead was that customers wanted the “Starbucks experience.” But even that means
different things in different markets. For instance, the British drink take-away (to-go) coffee, so
Starbucks is planning for hundreds of drive-through locations there. In the rest of Europe, Starbucks
plans to put many new sites in airports and railway stations on the continent.
In 2016, Starbucks announced that it would open stores in Italy even though some are skeptical about
whether it will be successful. Orlando Chiari, owner of a century-old coffee shop, expressed his
skepticism: “We worship coffee in Italy, while Americans drink coffee on the go in large cups.” Mr.
Chiari elaborated. “It’s two extremely different cultures.” Although the growth potential seems real,
cultural challenges still remain, not only in Europe but in Starbucks’ other markets as well. The
company is recognizing that not every customer wants a standardized experience. So, as Starbucks
continues its global expansion, it’s attempting to be respectful of the cultural differences.

Managing Diversity and Inclusion

Not only does Starbucks attempt to be respectful of global cultural differences, it is committed to
being an organization that embraces and values diversity in how it does business. The company-wide
diversity strategy encompasses four areas: customers, suppliers, partners (employees), and
communities. Starbucks attempts to make the Starbucks experience accessible to all customers and
to respond to each customer’s unique preferences and needs. Starbucks’ supplier diversity program
works to provide opportunities for developing a business relationship to women- and minority-owned
suppliers. As far as its partners, the company is committed to a workplace that values and respects
people from diverse backgrounds. The most current company diversity statistics available show that
33 percent of employees are minorities and 64 percent are women. And Starbucks aims to enable its
partners to do their best work and to be successful in the Starbucks environment. The company does
support partner networks (also called “employee resource groups”). Some of the current ones include
Starbucks Access Alliance, a forum for partners with disabilities; Starbucks Armed Forces Support
Network, which supports veterans and those currently in the armed forces and their families; and the
Starbucks Black Partner Network, which strengthens relationships and connections among partners
of African descent. Finally, Starbucks supports diversity in its local neighborhoods and global
communities through programs and investments that deepen its ties in those areas. Although
Starbucks is committed to practicing and valuing diversity, by no means is it perfect. For instance, an
Americans with Disabilities Act case was filed against a specific Starbucks store by a job applicant who
had short height because of the condition of dwarfism. The store management refused to hire her for
a barista job even though she claimed she could do the job using a step stool. And they did not even
offer to try this accommodation. Starbucks quickly settled the case and agreed to provide training to
managers on proper ADA procedures. The company’s response earned praise from the Equal
Employment Opportunity Commission for its prompt resolution of the issue.

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Starbucks has often extended its reach to embrace diversity in local communities. With good
intentions, the CEO launched the “Race Together” campaign to encourage discussion and
understanding of longstanding societal racial and ethnic divides. Following Schultz’s instructions,
Starbucks’ workers wrote “race together” on beverage cups. Widespread negative sentiment flooded
social media. Some posts expressed that it wasn’t Starbucks’ place to foster this complex and deeply
emotion-laden discussion. Shortly thereafter, Starbucks terminated this campaign.

Social Responsibility and Ethics

Doing good coffee is important to Starbucks, but so is doing good. Starbucks takes its social
responsibility and ethical commitments seriously. In 2001, the company began issuing an annual
corporate social responsibility report, which addresses the company’s decisions and actions in relation
to its products, society, the environment, and the workplace. These reports aren’t simply a way for
Starbucks to brag about its socially responsible actions, but are intended to stress the importance of
doing business in a responsible way and to hold employees and managers accountable for their
actions.
Starbucks focuses its corporate responsibility efforts on three main areas: ethical sourcing (buying),
environmental stewardship, and community involvement. Starbucks approaches ethical sourcing from
the perspective of helping the farmers and suppliers who grow and produce their products use
responsible growing methods and helping them be successful, thus promoting long-term sustainability
of the supply of quality coffee. It’s a win-win situation. The farmers have a better (and more secure)
future and Starbucks is helping create a long-term supply of a commodity they depend on.
Environmental stewardship has been one of the more challenging undertakings for Starbucks,
especially when you think about the number of disposable containers generated by the more than
three billion customers served annually. And front-of-the-store waste is only half the battle. Behind-
the-counter waste is also generated in the form of cardboard boxes, milk jugs, syrup bottles, and, not
surprisingly, coffee grounds. Even with recycling bins provided, one wrong item in a recycle bin can
make the whole thing unrecyclable to a hauler. Despite this, the company has made significant strides
in recycling. In a 2010 test program, 100,000 paper coffee cups were made into new ones. The
company’s goal by 2015 was to recycle all four-billion-plus cups sold annually. An ambitious goal, for
sure. It wasn’t able to meet that goal, as customer recycling is available at only 39 percent of its
company-operated stores. However, the company has made progress possible only through a
cooperative effort with other companies in the materials value chain (even competitors) to find
recycling solutions that work. Starbucks is totally committed to being a good environmental steward.
Finally, Starbucks has always strived to be a good neighbor by providing a place for people to come
together and by committing to supporting financially and in other ways the communities where its
stores are located. Partners (and customers, for that matter) are encouraged to get involved in
volunteering in their communities. In addition, the Starbucks Foundation, which started in 1997 with
funding for literacy programs in the United States and Canada, now makes grants to a wide variety of
community projects and service programs.
Starbucks is also very serious about doing business ethically. In fact, it was named to the 2016 list of
World’s Most Ethical Companies, as it has been for the last 10 years. From the executive level to the
store level, individuals are expected and empowered to protect Starbucks’ reputation through how
they conduct business and how they treat others. And individuals are guided by the Standards of
Business Conduct, a resource created for employees in doing business ethically, with integrity and
honesty. These business conduct standards cover the workplace environment, business practices,
intellectual property and proprietary information, and community involvement. A flow-chart model
included in the standards document is used to illustrate an ethical decision-making framework for
partners. Despite the thorough information in the standards, if partners face a situation where they’re
unsure how to respond or where they want to voice concerns, they’re encouraged to seek out
guidance from their manager, their partner resources representative, or even the corporate office of

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business ethics and compliance. The company also strongly states that it does not tolerate any
retaliation against or victimization of any partner who raises concerns or questions.

Innovation, Innovation
Starbucks has always thought “outside the box.” From the beginning, it took the concept of the corner
coffee shop and totally revamped the coffee experience. And the company has always had the ability
to roll out new products relatively quickly. Starbucks invests heavily in R&D (research and
development). It received the 2014 Outstanding Corporate Innovator (OCI) Award; honorees were
chosen for corporate commitment to innovation as a strategy to grow their businesses. Starbucks’
System to Accelerate Results (STAR) process has enabled the company to test and measure new
products and measure customer interest. In 2015, Starbucks was recognized by Forbes magazine as
one of the 100 most innovative companies in the world.
A glimpse of Starbucks’ innovation process can be seen in how it approaches the all-important
Christmas season, since “Starbucks has Christmas down to a science.” It takes many months of
meetings and tastings before rolling out the flavors and aromas. For the 2011 season, the process
started in October 2010, when customers had the opportunity to fill out in-store and online surveys
used to gauge their “mindset.” In mid-December 2010, Schultz—who has final approval on all new
products and themes—reviewed the 2011 theme. And things better be “Christmas-perfect.” In March
2011, the 2011 theme (Let’s Merry) was approved. By mid-March, the “core holiday team” started to
meet weekly. On June 1, production cranked up on the company’s seasonal red cups (which were
introduced in 1997 and remain very popular). By the end of June, the holiday team had assembled a
mock-up of a Starbucks café for Schultz to review and approve. By mid-August, all of the in-store signs,
menu boards, and window decals were on their way to the printer. All of these pieces came together
for the full holiday rollout on November 15, 2011. It’s important to get everything right for this season.
Want proof? The company had revenues of almost $3 billion during the holiday quarter. That’s a lot
of Christmas cheer!
The company’s product innovation process must be doing something right, as many of its Christmas
products have been popular for years. For instance, the company’s Christmas Blend debuted in 1985.
The Gingerbread Latte was a Christmas 2000 innovation. The Caramel Brulée Latte came out during
the 2009 holiday season. During the Christmas 2011 season, customers got their first taste of the
Skinny Peppermint Mocha—a nod to the trend of healthier, but still tasty, products—and the line of
petite desserts, which were introduced to commemorate the company’s 40th birthday. But obviously,
given Starbucks’ outcomes, it’s not only the Christmas products that have been successful. One of
Starbucks’ creations was a line of light-roasted coffee beans and brews. And the popularity of energy
drinks led the company to create a line of “natural” energy drinks called Refreshers. The new fruity,
carbonated drink that’s high in antioxidants will get its energy boost from unroasted green coffee
extract. Schultz told shareholders that the company is continuing to create lots of Starbucks products
that “live outside of our stores.” Starbucks Refreshers are sold at 160,000 grocery stores and made-
to-order versions are sold in Starbucks stores.

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Below are the discussion questions that you can refer to for your presentation. You may enrich further.

1) What are current trends and issues facing managers and explain how Starbucks might be
impacted.
2) Look at Howard Schultz’s philosophy of Starbucks. How will this affect the way the company is
managed?
3) Go to the company’s website, www.starbucks.com, and find the list of senior officers. Pick one of
those positions and describe what you think that job might involve. Try to envision what types of
planning, organizing, leading, and controlling this person would have to do.
4) Look up the company’s mission and guiding principles at the company’s website. What do you
think of the mission and guiding principles? Describe how these would influence how a barista at
a local Starbucks store does his or her job. Describe how these would influence how one of the
company’s top executives does his or her job.
5) What types of global economic and legal-political issues might Starbucks face as it does business
globally?
6) How does Starbucks manage diversity? With more than 235,000 partners worldwide, what
challenges would Starbucks face in making sure its diversity values are practiced and adhered to?
7) Starbucks defines diversity on its website in the form of an equation:
Diversity = Inclusion + Equity + Accessibility
Explain what this means. What is your opinion about this definition of diversity?
8) Go to the company’s website, www.starbucks.com, and find the latest corporate social
responsibility report. Choose one of the key areas in the report. Describe and evaluate what the
company has done in this key area.
9) What do you think of Starbucks’ goal to recycle all four billion cups sold annually by 2015? What
challenges did it face in meeting that goal?
10) Review the company’s mission and guiding principles (at www.starbucks.com). Explain how these
might affect the following: managing its external environment and its organizational culture,
global efforts, diversity efforts, social responsibility and ethics issues, and change and innovation
issues.

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