The Starbucks Corporation redefined drinking coffee in the US. Prior to their entrance into the market, coffee shop experiences were localized and there were not a lot of coffee shops throughout the country. Additionally, going to a coffee shop had a small following, but little attention outside the “coffee house’ following. Most Americans were content either making coffee at home to drink on the way to work, getting coffee from the break room at work, and/or drinking a cup of gas station coffee, which cost no more than $.99. Starbucks redefined drinking coffee by creating the mainstream coffee house culture. They successfully convinced consumers to pay significantly more for coffee in exchange for a specialized drink, a relaxed atmosphere, and a place to comfortable meet friends. People all over the country, who had no prior knowledge of the espressos, lattes, or cappuccinos, were suddenly able to try a range of different things and customize them to their specific taste. Starbucks created value in the experience, in addition to brewing great coffee.
The first Starbucks coffee shop opened in 1971 in Pike Place Market in Seattle. Starbucks becomes a successful and thriving small business. The company works to create their brand and to sell people on the Starbucks’ experience. In 1982, Howard Schultz becomes the director of retail operations and marketing. Under Schultz’s leadership, Starbucks coffee starts being sold at high end restaurants and espresso bars (“Forty years young: A history of Starbucks”, 2011). At this point, the growth of Starbucks is still slow. In 1987, they become Starbucks Corporation; they had 17 stores (“Forty years young: A history of Starbucks”, 2011). After becoming a corporation, Starbucks begins opening new locations more rapidly; including baristas inside airports. In 1992, with 165 locations, Starbucks Corporation goes public on the Nasdaq National Market (“Forty years young: A history of Starbucks”, 2011). Not long after doing public, Starbucks started opening baristas all over the world. In just 10 years, they went from 165 locations to 5,886 locations (“Forty years young: A history of Starbucks”, 2011). However, with the rapid growth, Starbucks started experiencing some significant problems.
They were opening new stores so quickly that employees were not being properly trained, and they were losing their original brand of offering an experience; not just expensive coffee. In 2008, Schultz, who had moved on to the board of directors, took back the position of CEO and refocuses the company branding efforts on the customer experience (“Forty years young: A history of Starbucks”, 2011). With his years of experience behind him, he asserts that the key to achieving a consistently perfect customer experience is by focusing on the employees. Happy and well-trained employees are more inclined to do their job correctly and to promote the company towards a common goal. As of January 2011, Starbucks operated 17,009 locations globally, and in 2012, they were named one of the top 100 companies to work for by Fortune Magazine (“Forty years young: A history of Starbucks”, 2011; “100 Best Companies to Work For”, 2012). In its effort to maintain a happy and motivated workforce, Starbucks has created a high employee retention record, which is unique within the retail and food industry.
The issues Starbucks were facing were multifaceted, but all connected. Starbucks was successful because of the unique brand they created. Due to their success, the company started growing rapidly; opening new locations as quickly as they could. The rapid and massive growth led to a decline in ensuring the Starbucks culture that they created their brand around. Without the Starbucks experience, they were just another store selling expensive coffee. Schultz recognized the cycle the company was following and recognized the need to fix it before it was too late to save the company (McDonnell, 2011). With the US economy struggling and unemployment rising, Starbucks became the poster child of unneeded expenses. Articles, books, news segments, and more offering advice on how to cut expenses and save money recommended people stop getting their coffee from Starbucks (McDonnell, 2011). Schultz had to take drastic measures to recover the Starbucks experience; customers needed a reason to go to Starbucks that justified spending the money.
Schultz recognized the need to retrain their employees to ensure they were all offering the same consistent customer service that Starbucks wanted to be known for. On February 23, 2008, Schultz closed all their stores in order to retrain their 115,000 people (McDonnell, 2011). In response to the media frenzy that ensued, Schultz released the statement; “It was honest, it was authentic, and it was necessary” (McDonnell, 2011). Schultz also decided to organize a leadership conference for all 11,000 managers to attend (McDonnell, 2011). The goal of the leadership conference was to reconnect with the managers, explain company and employee expectations, offer tips on organizational coaching, and to unveil all the resources and training the corporation would provide managers to ensure consistent training. As a team-building activity, the leadership conference included a community service component. The conference was held in New Orleans, and the entire conference spent time helping to rebuild things in the 9th Ward, which was devastated by Hurricane Katrina (McDonald, 2011). The week-long conference included roundtable discussions, forums, interactive presentations, motivational lectures and more, and every aspect of the conference was centered around the company’s mission statement; “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time” (Moyer, 2012). The conference was determined to be highly successful in achieving its intended goals. “After that conference, Starbucks turned shares that ‘had lost 42% of their value the year before’ into 11 consecutive quarters of record earnings, revenue or both” (Moyer, 2012). Refocusing on the experience, which provided Starbucks with its differentiation, successfully got the company back on track despite the slow economy.
In the last year, Starbucks decided to host a Leadership Lab open to all store managers. The goal of this leadership lab was “to mobilize [Starbucks] employees to be brand evangelists” (Moyer, 2012). Although things have gone well for the company since the 2008 conference, the Leadership Lab was intended to keep things moving in a positive direction. The company spent $35 million preparing the Leadership Lab conference and exhibition (Moyer, 2012). Similarly to the prior event, this event resulted in great success for the goal of the event, as well as the goals of the company. These events helped to make each manager feel like they were part of the larger mission. They were not isolated or on their own to figure things out. These events have successfully increased employee retention by making employees feel like they are valuable parts of the corporation. Additionally, the managers that went back to their stores energized, spread their excitement and energy to their employees.
Another factor that has enabled Starbucks to maintain a high employee retention rate is that they treat each individual employee well. Every employee, whether part time or full time, is eligible for health benefits (“100 Best Companies to Work For”, 2012). With the high rates of unemployment and underemployment, and the high number of people living with no insurance or inadequate insurance, a job with medical benefits is highly valued. Additionally, being able to get health benefits while only working part-time is not common throughout this country. Businesses are unwilling to take on additional health insurance costs for part-time employees. For many, medical benefits are more vital than the actual wage.
Starbucks was facing several major issues when Schultz stepped back into the position of CEO, which was affecting the company’s profitability and employee retention. These issues included lack of training, lack of branding, and lack of connection with the company’s mission. Schultz addressed these issues by offering company-wide retraining and leadership conferences for all managers. Although these sound like rather small changes, they were highly effective. Starbucks did not need to worry about re-branding because they already had a good thing; it just wasn’t being consistently applied. Schultz basically took an organizational behavior approach to the problem. He believed that if he changed the culture of the employees, he would change the culture for the customers. The alternative to this may have included halting expansion or even pulling back; closing stores to account for the dip in revenue. Schultz took a risk by continuing to expand while addressing the issues at an employee level.
An alternative approach Schultz could have pursued would have been to follow a rational planning approach. Following this approach, he would have created an actionable plan for each of the stores and management teams. That plan would have been forwarded to them with the expectation that it would be followed. Part of the problem with this approach is that it is too clinical and it assumes there is a common interest (“Comprehensive rational planning”, 2007). This approach would have been too clinical in that it would not help to create a positive relationship between the managers and the corporation. It would likely be seen as micromanaging and disliked or rejected by the managers. Further, the disapproval from the managers would spread to the employees. Finally, the disapproval of the employees would result in poor customer service and higher turnover rates.
Based on the available information, Schultz made the correct decision in following the path he did. The retraining was necessary and done in a positive way. Employees were not minimized or pout down for the way they were doing things; they were just trained in the correct way to do things. Additionally, the leadership conferences ignited a positive feedback loop within the company. A feedback loop can be positive or negative; either way, a feedback loop is the circular motion of change (“Feedback Loops”, 2012). For example, the leadership conference got the managers excited about working for Starbucks. The managers took that level of excitement back to their employees, which got them excited. The employees then gave better customer service, which led to higher sales, which in turn, made the managers more excited. The positive changes continue in a circular motion, feeding into each other. The better the customer service is, the better the sales are; the happier the managers are, and so on. Similarly, a rational planning approach may have resulted in a negative feedback loop. Once a company gets stuck in a negative feedback loop, changes must be made to break the loop or it will destroy the company.
If I were in Schultz position, I would have followed the same approach. Getting people excited about their job, regardless of what it is, increases employee retention. Employee retention is high because people enjoy their job, they feel appreciated, and they develop a sense of loyalty to the company. Providing benefits to part time workers negates one reason an employee may have for taking a job with another company. Additionally, Starbucks promotes from within, which adds to the culture of success. Employees know that if they work hard, they can move up within the company; it gives them personal goals that align with the company’s goals. Despite the amount of money spent on the leadership lab, it is more cost effective than dealing with high turnover. According to the Society of Human Resource Management, the estimated costs to replace one $8.00 per hour employee are $3,500 (Blake, 2006). This includes the costs associated with recruiting, interviewing, hiring, training, reduced productivity, etc. (Blake, 2006). This number gets significantly higher when dealing with salaried and management-level employees. Like all business expenses, the cost of turnover goes up each year. Considering Starbucks has well over 100,000 employees, high turnover rates can be costly.
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