Tutorial exercise: Leading Change

Case study of Starbucks

Read the case study of Starbucks and use Hayes (2018) key leadership tasks
framework (presented below) to analyse how leading change was demonstrated in
Starbucks. You should complete the pro-format of Hayes (2018) leadership tasks for
leading change in Appendix 1).
 MGT2019 Leading for Change
Case study of leadership and management in Starbucks.
The rise of Starbucks from a single Seattle coffee store to one of the world’s biggest
suppliers of coffee drinks can be largely attributed to its guiding genius, Howard
Schultz. After visiting a Starbucks store Schultz persuaded the founders to hire him
as Head of Marketing. On a trip to Milan he discovered that drinking coffee was more
than experiencing the taste of good coffee: it was the ambience of the coffee bar, the
social interactions it housed and the art of the barista in preparing the coffee. His
ideas for recreating Starbucks failed to impress the owners and so Schultz left to
open his own Italian-styled coffee bar. In 1987 he acquired the Starbucks chain of 6
stores and merged them with his 3 coffee shops and adopted the Starbucks name
for the 9 stores.
Starbuck’s strategy was grounded in its mission “to inspire and nurture the human
spirit – one person one cup and one neighbourhood at a time”. To pursue this
mission Schultz not only served excellent coffee but also engaged his customers at
an emotional level reflecting that “we’re not in the coffee business serving people,
we’re in the people business serving coffee”. Central to Starbuck’s strategy was the
Schultz’s concept of “The Starbuck’s experience” which centred on the creation of “a
third place” – somewhere other than home and work where people could engage
socially while enjoying the shared experience of drinking good coffee. The
Starbuck’s experience combined several elements:
1. Coffee Beans: Are of a consistent high quality. Starbucks ensures careful
management of the supply chain and associated activities to ensure coffee beans
are transformed into the best expresso coffee.: “we are passionate about ethically
sourcing the finest coffee beans, roasting them with great care, improving the lives of
people who grow them”.
2. Employee involvement: The counter staff or baristas at Starbucks play a central
role in creating and sustaining the Starbucks experience. Their role is not only to
brew and serve coffee but also to engage customers in the unique ambience of the
Starbucks coffee shop. Starbuck’s human resource practices were based on a
distinctive view of the company’s relationship with its employees. They required
employees who were committed and enthusiastic communicators of the principles
and values of Starbucks. This in turn required Starbucks to regard its employees as
business partners. Starbucks recruited employees whose attitudes and personalities
were consistent with the culture of the company. Employees were required to foster
trust, loyalty and a sense of belonging which would facilitate their engagement with
the Starbucks experience. Management in Starbucks selected employees with care
and rigor, placing a heavy emphasis on adaptability, dependability, capacity for
team-work, and willingness to further Starbuck’s principles and mission. It’s training
programme extended particular emphasis on educating employees about coffee as
well as basic operational and customer service skills.
3. Community relations and social purpose: Schultz viewed Starbucks as part of a
broader vision of common humanity: “I wanted to build the kind of company my
father never had the chance to work for, where you would be valued and respected
wherever you came from, whatever the colour of your skin, whatever your level of
education. Schultz wanted to build a company that linked shareholder value to
cultural values that Starbucks wanted to create with its people. Schultz’s vision was
of a company that would earn good profits but would also do good in the world. This
began at the local level: “Every store is part of a community, and we take our
responsibility seriously. We want to be invited in wherever we do business. “We can
be a force for positive action – bringing together our partners, customers, and
community to contribute everyday”, “we have the opportunity to be a different type of
global company. One that makes a profit but at the same time demonstrates a social
conscience”.
4. The layout and design of the Starbucks stores: were a critical element of the
experience. Starbuck’s has a store design team responsible for the design of
furniture, fittings, and layout of the Starbucks stores. The store design is subject to
meticulous analysis and planning following Schultz’s dictum that “retail is detail”.
While every Starbucks stores is adapted to reflect the unique neighbourhood, there
is a unifying theme to all the stores that ties into the company’s history and mission:
“back to nature”. The design of the Starbuck’s store is intended to provide both
unhurried sociability and efficiency on-the-run.
Diversification in Starbucks was partly enabled through broadening the product
range in response to customer demand. The head of Starbuck’s entertainment
reflects that “the overall strategy is to build Starbuck’s into a destination”. This
involved adding music, food, books, and videos. Schultz reflects that he had to get
talked into Starbucks being a music publisher and retailer of CDs but then he
realised that customers looked to Starbucks as a firm they could trust to help them
choose.
Starbucks also diversified it’s business model into other ownership formats including:
- Licensed coffee shops and kiosks in the interests of reaching customers in a variety
of locations, beyond it’s own outlets. It established licencing agreements with
Safeway and Barnes and Noble to open Starbucks coffee shops in their stores.
- Distribution of Starbucks retail packs of coffee through supermarkets and other
retailers
- Licencing of the Starbucks brand to PepsiCo and Unilever for the supply of
Starbucks bottled drinks
- Starbucks involvement in financial services began with its prepaid store card which
was later combined with a visa card, allowing entry to Starbucks reward programme
offering free drinks and other benefits to regular customers.
Further to a period of rapid growth, Starbuck’s experienced a downturn with share-
prices falling by 75% over a 2 year period (2006-2008). Schultz prepared to get
Starbucks back on track through a turnaround strategy with 2 major thrusts. First
was retrenchment. He announced a sharp cutback in planned US new store
openings and revised operational practices to improve cost efficiency. He announced
the closure of 600 US stores and the majority of its store in Australia. Store closure
resulted in almost 6000 job losses. Schultz also cut his own salary from $1.2m to
$10,000 and put 2 of the 3 Starbucks corporate jets up for sale. This reduced
operating costs by $500m in 2009. The second thrust was the reaffirmation of the
Starbuck’s values and business principles, including revitalising the “Starbuck’s
experience” and reconnection with its customers. Through revising Starbuck’s
mission, a stronger commitment to Corporate Social Responsibility was enabled.
Starbuck’s 2008 annual leadership meeting was held in New Orleans where 10,000
Starbuck’s employees participated in a variety of community projects for clean-up
and restoration in the aftermath of hurricane Katrina. Other initiatives included the
launch of Starbucks Shared Planet: an environmental sustainability and community
service programme.
Schultz reviewed operating practices to examine their consistency with the
Starbuck’s experience and image. One change was to speed up coffee making by
investing in automatic machines that required Baristas to merely press a button. He
also reviewed Starbuck’s food menu and withdrew toasted sandwiches whose
aromas masked that of the coffee. Reconnecting with customers involved extensive
use of social media. In collaboration with Square Inc., it pioneered the use of mobile
phone payments through its Starbucks card. Most of all Schultz travelled the
Starbuck’s locations to meet employees to reinforce the Starbuck’s values and
reignite their drive and enthusiasm. He emphasised the “humanity of Starbucks” and
the role that managers played in creating and experience that “values and respects
customers”. Additionally, Schultz challenged Store Managers with the severity of the
current situation and to return to the special values that made Starbucks a special
place and the efforts required to lift Starbuck’s performance.
By early 2011, Starbucks was able to articulate a strategy for expansion known as its
“Blueprint for profitable growth”. Starbuck’s core values and business principles
represented the foundation of this strategy.

Appendix 1
Leading change: Key Evidence drawn from Starbucks case study
leadership tasks
1. Sense making
2. Visioning

3. Sense giving

4. Aligning

5. Enabling

6. Supporting

7. Maintaining
momentum and
sustaining the change