21511 Individual Essay - Starbucks
Howard Schultz rescued Starbucks after returning as CEO in 2008, what operations strategies were adopted by Schultz to bring this change about?
This report provides an evaluation and analysis of the methods adopted by Howard Schultz to recover Starbucks Corp. from imminent economic instability. With over 16,000 stores across 60 different countries, the publicly listed Starbucks (SBUX) has endured a fiscal history of many troughs and peaks. From his return as CEO in 2008, this essay will identify and dissect Schultz’s changes to operations strategies, specifically, the strategies that directly resulted in the performance reversals akin to companies such as Steve Jobs’ Apple in the 1990’s and, under David Sokol, Berkshire Hathaway's Net-jets in 2010.
It is first necessary to understand the state of Starbucks that he had left behind 8 years prior. Between Schultz’s departure from and return to the company, Starbucks had fallen from an all-time trading high of $39.63 by almost 50% - just one year after Jim Donald’s appointment as CEO in 2005. When Schultz publicly stated that the “Board asked me to return” the company was valued at $15.43 Billion and the Board of Directors had lost faith in Donald. The 12 months following Schultz’s return, the new CEO had inherited a company that had been infected with complacency in it’s operations and was now dealing with the impact of the abrupt and concerning resignation of the company’s one-year-old CFO.
Schultz had been tasked with reinvigorating a company that was entrenched with inefficiencies, over-spending, a general lack of long-term planning, the internal disarray of resignations and low morale, all whilst navigating through the sever externalities of the ‘07/‘08 Global Financial Crisis. Schultz outlined in his mind, and then to the board, a two-step remedy. Plan A was to shift company values back to a consumer-centric approach. Plan B was to employ cost-cutting techniques and reduce wastage within the company’s 16, 000 stores. As noted by Schultz at the time “We could not control the economy, but we could exert greater control over how we operated in it”. It was at this point that the board intervened, “No...[Plan B] should be your new Plan A”
It is the exploration of this new ‘Plan A’ that will highlight the major management theories that had been employed by Howard Schultz and his executive team - Six Sigma Approach, Total Quality Management and Lean Techniques - as well as how the actual convergence of these theories created the synergistic environment that lead to Starbucks’ success.
As the Starbucks team identified ways to cut costs, some “low hanging fruit” gave the team cues to short-term strategies for reducing waste simply within the “four walls” of their stores. This immediate waste-reduction was made possible through the five steps of the Six Sigma approach. Summed up by David Nave, the basis of this theory is that “the outcome of the entire process will be improved by reducing the variation of multiple elements”. This reduction in variation ensures that each process can be perfected and then replicated continuously to ensure the product is defect-free. Antony and Banuelas explain that this is used to “improve profitability, to drive out waste, to reduce quality costs and improve the effectiveness and efficiency of all operations processes that meet or even exceed customers' needs and expectations” In the case of Starbucks, these elements were people rather than components and the customer’s expectations were quality of food & beverage and level of service. Starbucks first defined this process by focussing on the activities that take place within their actual coffee outlets. This process, identified by Starbucks’ VP of Lean Thinking Scott Heydon, was then measured through the locomotion of store...