Friday, September 5, 2014

Howard Schultz Return, Starbucks Comeback

You have to eradicate the human behavior of relaxing, the human behavior of feeling like we have won.  What I have said in the last two years at Starbucks is, "There's no celebration, there's no victory lap, we haven't done squat."  I feel as if people need to understand that success is not an entitlement, it has to be earned, and earned everyday. 
Howard Schultz sounds like an impassioned football coach, reviewing his philosophy and values on leadership, just after winning the Super Bowl.  He sounds like someone who congratulates his team for their championship effort, lauds the Vince Lombardi Trophy in their possession, and then tells them, "We haven't done squat.  We have to win the Super Bowl again next year."

Every company, I think, must have the ability and the discipline to really be curious and look around the corners, to see things and anticipate things that other people don't see.  But that's not enough.  You must then have the courage to go after those things... the kind of courage that says "We're going to take a big swing." 
In the preceding article, I wrote that CEOs needed to see it, know it, and do it.  In particular, I echoed what Schultz emphasized about seeing things that others don't see or can't see.  It is important to do it, especially when the company is doing very well and when the business landscape is fast evolving.  It is important to read the instrumentation of the Titanic, and pick up oh so faint signals of an iceberg, well before it registers in the eyes of the crew.  RadioShack has been a miserable failure at this, so the Starbucks story offers a kind of salve for observers and students who may feel, even if vicariously, that misery. 

Re-enter, Howard Schultz as President and CEO.

Starbucks Corporation, graphic by Google Finance

When Schultz took a hiatus from Starbucks in 2000, Orin Smith assumed the roles of President and CEO (2001 - 2005) and steadily kept growing the confidence of investors.  However, stock performance peaked in 2006, then slid gradually, under the watch of Jim Donald, who succeeded Smith in 2005 and was asked to step down in 2007.  Donald had a reputation for turning around floundering companies, and clearly wasn't the right man for the top job.
The challenge that had confronted Starbucks in the early- and mid-2000s was one common to many organizations: Could the company continue to grow while preserving its culture and values? In some areas, the drive to expand, egged on by Wall Street, was compromising the company's ability to invest in its partners (Starbucks' term for its employees), deliver personalized customer service, and maintain a close connection to the local community.

In addition, McDonald's and Dunkin' Donuts had emerged as serious competitors, offering their own lines of specialty coffee beverages. Even so, Starbucks' financials for 2007, the year Schultz composed his memo, didn't look so bad. But the entrepreneur became concerned as he dug more deeply into the numbers. Sure, revenues were up almost 21 percent over the previous year, but had slowed by over a third; transactions per store were up 1 percent, versus 5 percent the year before. Same-store sales rose only 5 percent, the smallest increase in five years.

In January 2008, Schultz returned as Starbucks CEO, replacing Jim Donald, the man he and other senior colleagues had chosen to lead the company.
Reference:  Starbucks Reinvented.

Schultz probably didn't need to dig too deeply into the numbers to see that Starbucks was losing the confidence of investors.  There was evidently softening in the financials, but this didn't seem so obscure or hidden either.  I think what he must've picked up on the most was an intangible slippage in the culture and values, maybe aura, that he worked years to build.  He had the privilege of being out of the day-to-day fray of running the company, and clearly saw it, knew it, and did it

There is a saying in the US, which is applicable, it seems, for what Donald must have focused on, in light of Wall Street pressures:  Penny wise, pound foolish.  As Starbucks underwent financial problems, the Board was understandably keen to watch spending carefully, and was therefore disinclined to fork over $30 million to gather 10,000 staffers for a three-day pow-wow in New Orleans in October 2008.  But Schultz was pound smart.  He saw the big picture, and knew that getting the staffers jazzed up and bought into the reinvention was crucial to actually making that reinvention happen. 

You see, since Schultz took over, he not only regained investor confidence, but raised it higher than ever.

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