Leadership Case study: Howard Schultz

(StarBucks)
Background
Starbucks was founded in 1971, but it wasn't until Howard Schultz joined in 1982
that the company began to grow rapidly. Schultz initially served as Director of Retail
Operations and Marketing, but after a trip to Italy, he envisioned transforming
Starbucks into more than just a coffee retailer—it could become a “third place”
between home and work, offering a sense of community. In 1987 Schultz became
CEO, he had plans for expansion to lead the brand to become a global coffeehouse
chain renowned for its premium coffee and customer experience, recognized the
need for a significant transformation to regain control over quality and brand
consistency. However, in the late 2000s faced serious challenges. Rapid expansion
had led to the dilution of its brand, customer experience was suffering, and the
global economic recession hit the company hard. Starbucks began closing stores,
and its stock price plummeted.

Leadership Actions
The company shifted from a natural system of governance, characterized by
decentralized decision-making and a broad array of product offerings, to a rational
system. This transformation involved centralizing decision-making, standardizing
store operations, closing underperforming stores, and focusing on core product
offerings. This case study explores the reasons behind Starbucks’ transformation, the
key strategies implemented, and the resulting impact on quality control, and overall
performance.

Reason for Change

- Regaining Control Over Quality and Brand Consistency: By the late 2000s,
Starbucks faced several critical challenges that necessitated a comprehensive
transformation:
• Quality Control Issues: Rapid expansion and decentralized decisionmaking
had led to inconsistencies in product quality and customer experience across
stores. Starbucks needed to standardize operations to maintain its
reputation for high-quality coffee and service.
• Brand Dilution: The introduction of numerous product lines and variations
had diluted the brand’s core identity. Starbucks needed to refocus on its core
 offerings to strengthen its brand and ensure consistent customer
experiences.
• Financial Performance: The company was experiencing declining same-store
sales and profitability. Starbucks needed to improve operational efficiency
and optimize its store portfolio to enhance financial performance.
How They Transformed
- Centralizing Decision-Making: A cornerstone of Starbucks’ transformation
was the centralization of decision-making.
• Leadership Consolidation: Howard Schultz centralized decisionmaking
within the corporate leadership team, reducing the autonomy of individual
stores and regional managers. He famously shut down all U.S. Starbucks
locations for a day in 2008 to retrain baristas in the art of making espresso, a
symbolic move to remind employees and customers of Starbucks’
commitment to quality. This consolidation allowed for more coherent and
strategic decision-making at the corporate level.
• Unified Vision and Strategy: Schultz established a unified vision and
strategic direction, focusing on operational excellence, customer experience,
and innovation. This vision guided all decision-making processes and aligned
the organization towards common goals. Starbucks introduced more food
items, diversified its beverage offerings, and invested in digital innovation,
including the creation of a highly successful mobile app that allowed for
order-ahead services. Starbucks also focused heavily on sustainability,
launching initiatives like ethically sourced coffee and environmental
responsibility.
• Standardizing Store Operations: To regain control over quality and brand
consistency, Starbucks standardized store operations.
• Operational Guidelines: Starbucks developed and implemented
comprehensive operational guidelines that outlined best practices for all
aspects of store management, from coffee preparation to customer service.
These guidelines ensured uniformity and high standards across all stores.
• Training and Development: The company invested in extensive training and
development programs for store managers and baristas to ensure adherence
to standardized processes. These programs included detailed training
modules, on-site support, and continuous education to maintain consistency
and quality.
• Closing Underperforming Stores: Starbucks took decisive action to optimize
its store portfolio by closing underperforming stores.
 • Store Optimization: The company conducted a thorough review of its global
store portfolio and identified underperforming locations for closure. This
optimization allowed Starbucks to focus resources on highperforming stores
and markets.
• Strategic Growth: By closing underperforming stores, Starbucks was able to
concentrate on strategic growth opportunities, opening new stores in high-
potential markets and enhancing the customer experience in existing
locations.
- Focusing on Core Product Offerings: Starbucks refocused on its core product
offerings to strengthen its brand and improve efficiency.
• Core Menu: The company streamlined its menu to emphasize core products
such as coffee, espresso beverages, and pastries. This focus on core offerings
helped simplify operations and ensure consistent quality.
• Product Innovation: Starbucks continued to innovate within its core product
categories, introducing new coffee blends, seasonal beverages, and high-
quality food items. This innovation reinforced the brand’s identity and
attracted customers.

Results and Impact

- Improved Quality Control and Brand Consistency: The transformation
significantly improved Starbucks’ quality control and brand consistency.
• Uniform Customer Experience: The standardization of operations and
centralized decision-making ensured that customers received a consistent
experience at all Starbucks locations. This uniformity reinforced the brand’s
reputation for quality and reliability.
• Enhanced Brand Identity: The focus on core product offerings strengthened
Starbucks’ brand identity. Customers could easily recognize and trust
Starbucks products, which contributed to brand loyalty and market
differentiation.
• Enhanced Operational Efficiency: Starbucks’ focus on centralization and
standardization enhanced operational efficiency.
• Reduced Costs: The optimization of the store portfolio and streamlined
operations led to significant cost reductions. Starbucks improved its supply
chain, reduced waste, and enhanced productivity, contributing to higher
profitability.
• Faster Service: The standardized store operations enabled faster service
times, enhancing the overall customer experience. Efficient processes and
 well-trained staff reduced wait times and improved order accuracy, leading
to increased customer satisfaction
- Financial Recovery and Market Leadership:The transformation had a
profound impact on Starbucks’ financial performance and market position.
• Financial Improvement: The strategic focus on operational efficiency and
brand consistency led to financial recovery. Starbucks saw improvements in
revenue, profitability, and overall financial health, reversing the decline
experienced in the late 2000s.
• Market Leadership: Starbucks maintained and strengthened its position as a
market leader in the coffeehouse industry. The company’s ability to deliver
consistent, high-quality experiences across its global store network set it
apart from competitors and attracted a loyal customer base.

Discussion Questions:
1. What risks do transformational leaders like Howard Schultz face when
making significant changes to a company’s culture and operations? How can
these risks be mitigated?
2. How can leaders like Schultz made difficult decisions, like closing
underperforming stores and laying off employees, during Starbucks’
turnaround while maintaining ethics or trust among employers?
3. How does Schultz’s vision for the customer experience impact the overall
success of a business? What can other leaders study about it?
4. What risks do transformational leaders like Howard Schultz face when
making significant changes to a company’s culture and operations?