Monday, April 11, 2011

Making Harsh Decisions Brought Starbucks Back from the Brink of Disaster

On 7 April 2011, I attended a lunch event at which Howard Schultz (CEO of Starbucks Coffee Company) discussed his new book, Onward: How Starbucks Fought for Its Life Without Losing Its Soul. For those of you who don't recall, Starbucks found itself with an identity crisis in 2007. It's passion for coffee and customer experience had gotten lost behind a subconcious appeasement of Wall Street. By focusing on P/E ratios and stock price, Starbucks was losing its soul.


Schultz had stepped down from the helm of the company, but he still served as chairman of the board. "I should have been paying attention," he said when commenting on the company losing its way. Schultz re-took the helm and worked hard to steer the company back in the right direction. That meant making tough decisions. Starbucks retooled its business model to focus heavily on the customer experience. In fact, the company spent $7 million to close all of its North American stores for a day to retrain its employees. The move drew harsh criticism and sank their share price to an all time low of just above $6. They closed store locations and laid off employees for the first time in its history. This was hard-hitting for Schultz, who grew up in the projects in Brooklyn. He watched his father take a major blow to his career when he lost his job, worker's comp, and health insurance. He did not want to do the same to his own employees, but found he was faced with no choice. Making these tough decisions saved Starbucks and put them on a path to recovery.


Making tough choices can be painful and emotional. Many of the company leaders and entrepreneurs who read this blog don't have to turn a battleship the size of Starbucks. But making significant changes in times of challenge and struggle require significant investment. Your entire team has to be on board. And if they aren't, then it's time to get rid of them. Schultz knew that with the changes they were making, they needed people who not only had the skills and shared the company values, but also believed in the change. Nine of 11 of its leadership did not, and as a result, they are no longer with the company. It's only when leaders can make tough decisions like these in times of challenge that good companies can grow to become truly great -- and in a case like Starbucks, recapture its former glory.


Mr. Schultz also made it clear that in today's marketplace, principles and values matter the most. If companies "wash" their marketing with green or social claims that aren't true, consumers will go elsewhere and not purchase from you. Tracy A. Corley & Associates works with company to capture their vision, mission, values, and position so that they have a clear framework for articulating and communicating their souls. I asked Mr Schultz how growing companies could do a better job of creating consistency in their cultures. He was direct in stating that human resources must have a seat at the big table (ie. not just be relegated to subordinate role in the organization), otherwise the message would not be embedded throughout the culture.


If you have experienced a setback like Starbucks in recent years and would like to recapture your market position while retaining your soul, it's not too late. Though painful and emotional, I can turn your ship around and help you make the tough decisions like the ones that brought Starbucks back from the brink of disaster. Call me at 206.782.4040 to capture your strategic framework, create a strategic plan, map your business model, and assess your organization for efficiency and growth.  


Information on how to capture the values and principles that drive your organization can also be found in my book, The Strategy String: An Organizational Primer for Tying Strategy to Performance.

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