What was Starbucks’s management strategy after Howard Schultz’s return? Why did the company’s management need to be overhauled?
After returning to Starbucks, one of Schultz’s initial turnaround strategies was to completely overhaul the company’s management. There were three major changes Schultz made to accomplish this strategy: hiring new executives, securing emotional buy-in from executives and managers, and reaffirming key values in Starbucks’ management strategy.
Continue reading to delve into these three major changes.
1. Hiring New Executives
Schultz explains that he hired several new executives during his tenure as CEO, some promoted from within and some brought in from outside organizations. He carefully selected these new hires on the basis that they shared Starbucks values, could provide a much-needed fresh perspective on Starbucks’ problems, and would work tirelessly to find solutions. Schultz also explains that hiring new executives sent an important message to external stakeholders. For example, when the chief financial officer resigned shortly before an important presentation to financial analysts, Schultz promoted the senior vice president of global marketing to take over the position, which he felt communicated that money-making changes were underway.
(Shortform note: In Built to Last, Jim Collins and Jerry Porras argue that it’s best to hire executives from within the company because they’re more likely to have internalized the company’s core philosophy (guiding values). But other experts, like Ben Horowitz (The Hard Thing About Hard Things), disagree because outside hires can bring new knowledge to the table. External hires might be especially prudent when it’s clear that the status quo is no longer working, as was the case when Schultz took over as CEO. If you’re faced with a tough hiring decision, experts recommend focusing on whether your candidates are truly qualified for the job above all else, especially if your company is struggling like Starbucks was.)
2. Securing Emotional Buy-In From Executives and Managers
Schultz explains that under his direction, Starbucks held several important conferences for executives and managers that were intended to secure their emotional buy-in. It was important to Schultz that every Starbucks leader truly believed in the company’s unique value and potential for greatness because feeling connected to their work would inspire peak performance. Many of these conferences were expensive, and Schultz experienced pressure to cancel them due to Starbucks’ financial troubles, but he refused because he believed their potential to inspire was worth the cost.
(Shortform note: In Carrots and Sticks Don’t Work, organizational psychologist Paul Marciano sheds some light on the importance of employees’ emotional buy-in. Marciano explains that when you’re only motivated to work by the prospect of a reward, like your paycheck, you can’t truly commit to and appreciate the work itself. This leads to poorer employee performance and corporate outcomes. In contrast, when you’re engaged in your work, you genuinely believe that what you do has value, so you’re more likely to do your best and contribute meaningfully. Research demonstrates that having engaged employees financially benefits an organization, so it was strategic for Schultz to secure leaders’ emotional buy-in during the Great Recession.)
The most notable conference Schultz mentions was a $30 million managers’ conference held in New Orleans, Louisiana. The conference took place in 2008, three years after the powerful Hurricane Katrina devastated the area, its inhabitants, and its business scene. Schultz says that in his eyes, Starbucks and New Orleans were in similar situations, since both were recovering from major disasters. The conference featured several galleries underscoring Starbucks’ value (for example, one focused on employee-customer connections), and attendees spent a total of 50,000 combined hours volunteering to help serve and rebuild the local community. Schultz also asked his friend, the musician Bono, to introduce Starbucks’ partnership with his nonprofit (RED), which provides AIDS relief in Africa.
(Shortform note: This conference illustrates the benefits and pitfalls of voluntourism (where tourism and volunteer work intersect). Voluntourism is often criticized as self-serving and inefficient, since attention and resources are diverted from local needs to incoming volunteers. Starbucks’ voluntourism generated positive publicity during a time Starbucks lacked that, which could prompt questions about Schultz’s motivations. (In his memoir, Surrender, Bono explains that many have similar doubts about celebrity activism, so it’s integral to amplify the voices of those you’re trying to help.) However, Starbucks collaborated carefully with local nonprofits to ensure volunteering efficiency, and some locals said Starbucks made a positive impact.)
3. Reaffirming Key Values in Starbucks’ Management Strategy
By hiring new executives who shared Schultz’s vision for Starbucks and securing executives’ and managers’ emotional buy-in, Schultz ensured that key players would enact the company’s key values (uplifting humanity by providing unique value to stakeholders). Schultz also reaffirmed these values by containing Starbucks’ scope. For example, he briefly considered a deal with the creators of the video game World of Warcraft to capture the young adult male market. But the feelings the game evoked didn’t align with Starbucks’ core values. Instead, he pursued partnerships with better-aligned creators, whose products Starbucks customers would have exclusive access to when they were inside the company’s stores.
(Shortform note: Although the collaboration with World of Warcraft didn’t pan out, the Starbucks executive who spearheaded that project explains that it did lead to an increasingly gamified Starbucks experience, which is in line with Starbucks’ key values. Gamification occurs when you introduce game mechanics, like points accrual or competition, to a system like retail—and marketing expert Jonah Berger (Contagious) says that since gamification inspires feelings of achievement, companies can use this strategy to boost sales or use of a product or service. Starbucks gamified customers’ experience by developing an app-based loyalty program that enhances consumer engagement—one of Starbucks’ key values.)
