How Howard Schultz inspires the employees as well as customers

This report is based on an analytical background on Starbucks and how Howard Schultz hopes to inspire the employees as well as customers. His primary vision and the goal as CEO of the biggest chain of coffee industries is to make people realise that buying a cup coffee in Starbuck’s is a lifestyle experience, unlike any other cafe. This report will look at how Howard Schultz will go about bringing back Starbucks from decline and pay special attention to restructuring the coffee market, employee and customer satisfaction and the Starbucks culture. Along with this there will be important leadership contingency theories that apply to organisational setting and will explain how and why Howard Schultz will be able to achieve corporate objectives more effectively through them

2. Starbucks Background

Starbuck’s was founded in 1971 by three coffee lovers, Gordon Bowker, Jerry Bladwin, and Zev Siegl in Pikes Place Market in Seattle. Each invested $1,350 and borrowed another $5,000 from a bank to open the Pikes Place store. The company’s logo was designed by an artist friend, was a two-tailed mermaid encircled by the store’s name. Starbuck’s grew at slow pace initially and at the end of its first decade (1981), there were four Starbucks stores. The partners also opened a roasting plant in Seattle (www.starbucks.com).

2.1 Howard Schultz in Picture:

In 1981, Howard Schultz, vice president and general manager of U.S. operations for Hammarplast-a Swedish maker of stylish kitchen equipment and house wares-noticed that

Starbucks was placing larger orders .Curious to learn what was going on, he decided to pay the company a visit. He went to Seattle to meet the partners and learn more about the business. What he saw of Starbucks interested Schultz immensely and he soon convinced the partners to hire him in marketing position at the company.

The turning point came in 1983, when Schultz visited Italy, where he learnt about the Italian coffee bar culture. Schultz saw the potential of serving ready to drink coffee by the mug and suggested introducing the concept in US. Partners were however reluctant to extend their brand into espresso drinks and it took Schultz a year to convince them of the potential of the idea. Eventually Starbucks started serving espresso coffee in 1985 when it opened its sixth store in downtown Seattle. The concept was an immense success and within two months the store was serving over 800 customers a day.

Schultz was keen on extending this concept to the other stores as well but Baldwin believed that selling beverages distracted the company from the core business of selling top quality whole bean coffee. Eventually in 1985 Schultz left Starbucks and started his own coffee bar called II Giornale’s. Bowker and Baldwin along with few private investors provided financial backing with Dave Olsen, who previously the owner of Cafe Allegro, a coffee a bar. Olsen and Schultz had a strong partnership as Schultz took care of the external aspects of the business while Olsen brought his experience to making and serving coffee (ICFAI Centre for Management Research, 2005).

In 1987, Baldwin, Bowker and Siegl decided to sell Starbucks with its six retails stores, roasting plant and the corporate name. Schultz along with the group of local investors bought Starbucks for $3.7 million. Eventually he changed Giornale’s name to Starbucks Coffee Company and merged the two businesses. Starbucks grew rapidly under Schultz leadership. During late 1980s the company expanded into Chicago, Vancouver and Portland and Schultz promised investors that Starbucks would have 125 locations by early 1990s. In 1989 Schultz brought in Howard Behar and Orin Smith to Starbucks in top financial and operational positions. The three of them worked well together and the company expanded rapidly (www.starbucks.com).

By early 1990s Starbucks had over 110 stores. The company had also explored new avenues of business such as mail order catalogues, and licensing coffee bars at airports. In 1992 Starbucks issued shares to public at $17 per share. The money raised from the public issue was ploughed into expansion and by the mid 1990s Starbucks had expanded overseas with stores in Japan and Singapore. The number of stores around the world exceeded 1000. The company adopted a mix approach for the expansion, partly setting up its own stores and partly through licensing (www.reuters.com).

During the 1990s the company extended its brand in a variety of ways through strategic alliances. It entered into an agreement with United Airlines to serve Starbucks coffee on flights, started selling brands of tea through its Tazo Tea company subsidiary, introduced coffee flavoured ice creams with Dryers and a coffee flavoured cola drink with PepsiCo, and distributed its whole bean coffees through Krafts stores. Stores also continued to expand rapidly. The strategy adopted by Starbucks was to blanket a region with its new stores. By doing so it could reduce the rush of customers to one store and also increase its revenues through new stores. This helped the company to reduce its distribution cost and the waiting period for customers in its stores, thereby increase the number of the customers (www.reportlinker.com).

3. Leadership and theoretical framework

Leadership is a complex phenomenon and can be defined in various different ways. The terms management and leaders tend to be used interchangeably on many occasions. They clearly involve groups of people and specific functions in relation to the group and its activities. It would be however to describe a group of people as having a manager, unless the group was in specific context. The context invariably lies within an organisation and specifically a formal part of the structure (Martin, 2001)

Greenberg and Barron and (1990) define leadership as “a process whereby one individual influences other group members towards attainment of defined group or organisational goals”. Kotter (1998) says that the process of creating a vision for others and having the power to translate it into a reality and sustain it. A leader have faith in his capability to smooth the progress of the organization with his emotions, by motivation and positive attitude, by communicating with his group, being courageous and acting to achieve an efficient performance with the leadership style, role and context (Hannah, Avolio, Luthans, Harms, 2008). Leadership is believed to be as a managerial subset because both of these hold significant importance in facilitating the performance for the organization (Bedeian and Hunt, 2006). Yukl (1998) says that ” Leadership has been defined in terms of traits behaviour, influence , interaction, patterns, role , relationships and occupation of an administrative position” this study adopts Yukl’s (2002) managerial definition of leadership and investigates the followers expected leadership style in organisation. According to Yukl (2002) “leadership is a process of influencing others to understand and agree about what needs to be done and how it can be done effectively and the process to facilitating individual and collective efforts to accomplish the shared objective.

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We can say that leader’s roles and responsibilities can reveal the importance of leadership effectiveness in organisations. Leadership is an ability to influence a group towards the achievement of goals. The source of this influence may be formal, such as that provided by the possession of the managerial rank in an organisation, because management position comes with degree of formally designated authority. A person may assume a leader role simply because of the position they hold in the organisation. But not all leaders are the managers nor for that matter all managers’ leaders. Just because an organisation provides its managers with certain formal rights is no assurance that is the ability to influence that arises outside the formal structure of the organisation- is often as important than formal influence. In other words leaders can emerge from within a group as well as by formal appointment to lead a group.

In this briskly growing world of business, the leadership which exists today may be different tomorrow and the leaders of today and tomorrow should have the characteristics of adjustability, flexibility and ability to change the styles based on the present environment.

4. Change, Transformation and organisational Development

Senge et al. (1999) refer change to as the way organisations adapts internally to the changes in the environment. With regards to this, change is not something that happens but must be planned in proactive and purposeful way to keep an organisation current and viable (Robbins, 1990). As Kanter et al. (1992) point out “if change doesn’t occur in character it will be cosmetic and short lived and therefore will not have desired affects”. Transformation according to Head (1997) is the ” step by set process of restructuring as existing organisation, remove what does not work, keep that which does and implementing new system, structures, and cultures values where appropriate”. Therefore transformation occurs when organisation taps into complete potential of human resources and align with both structural and the cultural processes involved with the overall goals of organisation.

In 2000, H. Schultz left the company to pursue other interests and his position was taken over by Jim Donald and under Donald the company was expanding attempting to reach a goal of forty thousand retail outlets on a global scale. However, this expansion created a serious problem as it was diverted from the initial intention of being just a small company selling coffee products. Starbucks had started to lose focus on core competencies and the importance of creating service experience, and adding to that there was of course growth of competitors. The company sales were starting to suffer as a result as many people started to find the outlet everywhere and it become somewhat of “just another coffee place”( www.reportlinker.com).

Howard Schultz returned as the CEO of Starbucks in 2002 to “re-ignite” the emotional attachment that connected consumers to the coffee. His goal was to battle the dropping sales of the U.S. coffee shop chain and bring Starbucks to a fresh level. He intended to provide clear direction through leadership and take a contingency approach in organizational behaviour. To Schultz, Starbucks is not just a coffee business; it is a way of life. It exudes with culture that seems to be fading out in the last couple of years. There are a few reasons for this:

Competition within the fast growing coffee industries. Starbucks has cannibalised its own business through rampant expansion.

Its mergence with McDonalds is discouraging consumers from spending more.

There is an inevitable drop in the stock markets.

A rise in the prices of dairy products and a general slowing of the U.S. sales growth.

(www.investor.starbuck.com)

4.1 Starbuck’s Mission Statement

“To inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time”. The mission statement clearly describes the dream and the future of the company that is to be the world’s most well known coffeehouse and also to be the most appreciated and positively graded brand by all levels of people around the world. The company also focuses its mission to employee satisfactions, so that the employees will be happy (www.starbucks.com).

4.2 Starbucks’s six key principles

Starbucks mission statement is: Establish Starbucks as the premier purveyor of the coffee in the world while maintaining our uncompromising principles while we grow. The six principles are:

Provide a great work environment and treat each other with respect and dignity.

Embrace diversity as an essential component in the way we do business.

Apply the highest standards of excellence to the purchasing, roasting, and fresh delivery of our coffee.

Develop enthusiastically satisfied customers all of the time.

Contribute positively to our communities and our environment.

Recognise that profitability is essential to our future success (www.starbucks.com).

4.3 Objectives

“Is to grow by making employees feel valued”. Starbucks approach the employee with good compensation and comprehensive benefits package. The company beliefs that sharing the company’s success with the people who made happen will help them think and acts like an owner of the company (www.starbucks.com).

5. Restructuring of Starbucks

Howard Schultz primary objective was to restructure the current market by halting the rate of outlets being constructed and paying special attention to employee and consumer needs. He also felt that the “extra stuff” that was being sold in the store such as sandwiches and sweets (trademark of Starbucks) were a distraction to the selling of coffee products. In order to turn around what Starbucks has now become, Howard Schultz will be taking the company back to basics, to what made it so unique in a society that was consumed within the culture industry. Starbucks like any other coffee industry thrives on the three p’s, product, passion and people. Often with many big companies the need for growth is inevitable, however transforming with the growth is essential (www.brandautopsy.com).

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There was however a small problem. Starbucks is an already acclaimed coffee industry. It has already made its mark in society. There is no turning back time to change a few loopholes, so the company would have to rejuvenate its sales technique and production in order to cater to mass consumers. According to a release from the pressroom on February 11, 2008, Schultz decided to enforce a training experience nationwide in the U.S. to “transform the customer experience” and this was known as an “in-store education event”. He believed that motivated and committed human resources are key to the success of retail business. Therefore he took great care in selecting the right kind of people and made an effort to retain them (www.reportlinker.com).

Making coffee was a skill at Starbucks and all new employees were required to understand the skill. During training program employees were taught the basics of retail business and coffee making skills and the steps to take to create a positive customer experience. The operation of this was to ensure that the employees were well trained in dealing with consumer needs and they too benefited from the unprecedented level of commitment. The reason behind this event was to gain elemental knowledge on what Starbucks was all about. More than making coffee and selling it to customers there is an underlying motto – to make coffee with passion. Schultz reason for doing this was to make the people realise the coarseness of what made Starbucks unique from other coffee companies. Using his effective leadership role, Schultz would pay greater emphasis to heightened customer experience and in the long run would prove vital to customer satisfaction (www.brandautopsy.com).

5.1 Benefits programs

Starbucks was one of the few private companies to offer comprehensive benefits to part-timers. Howard Schultz referred to his employees as partners to create a sense of equality. Leaders often, within an organizational culture, use phrases and language that stimulate positive vibes for the company as a whole. In emphasising on “partners”, Schultz meant what he said. Starbucks offers its employees full benefits in the USA and Canada such as dental, health and vision insurance as well as stock option grants. Starbuck design a work life balance program that took into consideration the physical, mental and spiritual wellbeing of its employees. Other incentives like that plus a box of tea or a pound of coffee each week as per choice was a clear way Schultz succeeded in boosting up the company employee satisfaction.

Bean Stock Plan came into operation, making Starbucks the first company to give stock options to part-time workers. The Bean Stock Plan allowed employees who had completed six months at Starbucks and worked a minimum of 20 hours a week is become eligible for stock options. In addition to monetary benefits, Starbucks offered several programs that promoted the wellbeing of employees. The company had onsite fitness offered several programs that and provided childcare and elder care assistance to employees. A program called Working Solutions helped Starbucks address the personal needs of employees by providing them the required assistance as when need arose. Another example of Starbucks wellness programs was Partner Connection , a program that design to link partners sharing similar interest from across the organisation.

Flexibility was one of the key aspects of Starbucks human resource polices and extended to all area of management. Starbucks valued its employees was reflected in the fact that it empowered employees and encouraged innovativeness on their part. Some of Starbucks most innovations came from employees. Frappuccino, a very popular cold coffee, blended beverage was the result of the ideas of few employees. Similarly Starbucks ventured into marketing CDs when one store mangers begin experimenting with customized in store music tapes. Starbucks ranks as the seventh best company to work for in the U.S. in 2008, from the sixteenth best in 2007 according to the Fortune Magazine (www.brandautopsy.com).

6. Evaluation of Leadership approach and style in Starbucks

6.1 Approaches to Leadership:

There are many ways of looking at leadership and many interpretations of its meaning. Leadership might be based on function of personality or, it can be seen as a behaviour category (Vecchio, 2000). It may also be viewed in terms of the role of the leaders and their ability to achieve effective performance from others. The relationship between leaders and management is that management is more usually viewed as getting work done though other people to achieve organizational objectives (Worsfold, 1989), where as leaders are more concerned with the attention to communicating with motivating, encouraging and involving people (Hunt, 1986). There are so many theories and models of leadership like Traits approach, the functional approach, Leadership as behavioural category, Style approach, Contingency models, and Transformational Leadership.

Here we would like to discuss Transformational leadership with regard to leadership approach and style in Starbucks. In recent years increasing business competitiveness and the need for the most effective use of human resources are needed. The transformational leadership’s view focuses on idealized influence, inspirational motivation, intellectual stimulation and individual consideration (Bass, 1985). According to Bass transformational leaders motivates followers to do more than what they are expected and the extent of transformation is measured in terms of leader’s effects on followers. It emphasizes on generating a vision for the organization, creating a feeling of justice, loyalty and trust.

6.2 Transformational Leadership

In transformational leadership follower influenced by leader who has faith, esteem and respect for a leader. There are different ways in which leaders transform followers like boosting their awareness of duty importance and value, giving preference to team or organizational goals, rather than their personal interest, starting with higher-order needs (Bass, 1985). Transformational leadership can be described in four components

6.2.1 Idealized influence:

This symbolizes the capability of building trust and confidence in the leaders and followers. At this point leaders inspire followers in such ways that cause followers to identify with the leader (Bass, 1985). As Starbucks is employee focused company Schultz has taken a great care in recruiting partners and promotes the existing partners. He designed stock option plan and give ownership in organization to employees. This helps employees to become loyal towards organization. Schultz made himself as an example for the employees to follow him.

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6.2.2 Inspirational motivation

Inspirational leadership is regarded as motivating the whole organization. Leaders having inspirational motivation confront followers with clear optimism about future, high standards and explaining the meaning for their work and opportunity (Mullins, 1996). Starbucks designed benefits program, mission review program and training program for their employees. This motivates and develops employees and makes them ready for future opportunity in organization.

6.2.3 Intellectual stimulation

Those leaders, who solicit new and novel approaches for performance to work, will be creative for problem solutions. Leader with this character stimulate and encourage their followers to explore new ways of doing things (Mullins, 1996). Starbucks appreciated feedback from the employees and they felt empowered and encouraged. Starbucks one of the most thriving innovations came from the employees “Frappuccino” a popular cold coffee.

6.2.4 Individualized consideration

It includes attaining unique and particular needs of followers to make sure that they are included in transformation process of the organization. People are treated personally and differently on the base of their skill and knowledge (Mullins, 1996). Starbucks for individual consideration developed ‘Working Solution’ to help its employees for their personal needs by providing them assistance when required. Starbucks is also having different training program for all class of employees according to their skills and knowledge.

6.3 Leadership Styles

In order to get the best results from the employees, leaders need to encourage and be co- operative to the employees (Bonnington, 1988) .According to Adair (2003) Leadership style is the way in which the functions of leadership are carried out.

In 1930, Kurt Lewin identified three different styles leadership including Authoritarian, democratic and laissez-faire. Here we would like to discuss autocratic and democratic style of leadership with regard to leadership style in Starbucks of Howard Schultz. In democratic style, the functions of leadership are shared with the members of the group. The group members have a greater say in decision making (Useem, 2001).

Starbucks leadership team is among the best when it comes to global market. Schultz looked for employees who are team player and have passion to work for Starbucks. Schultz took care of employees and treated them with respect. He has created a unique culture in Starbucks in which entrepreneurship and empowerment, quality and service define values of leadership. Schultz gave more power to employees in decision making and also flexibility to choose their own working hours. He honoured the feedback from the employees in Starbucks therefore it shows that Schultz had democratic style of leadership in Starbucks.

Whereas autocratic style is concerned leader makes all the decision. The leader selects which member will work collaboratively and determines solely the work task for the time (Useem, 2001). In recession Howard Schultz did something more drastic. He has to acknowledge that the company needed to change almost everything how it operates. Starbucks had to become more ordinary. The first orders of the business: cut cost by at least $500 million, shut 800 stores and lay off employees. Also conducted more customer research, offer discounts and advertise.

Leadership styles are the way leaders either consciously or subconsciously influence their followers. The style of the leader depends on the circumstances in which he operates the type of followers and his own personality. Howard Schultz demonstrates democratic and autocratic style of leadership as in the time of recession he has to make some strong decision for Starbucks.

7. Conclusion

Starbucks main and overall goal is to increase profits. In order to accomplish this Howard Schultz focuses on variety of strategies that allow the company to maintain a competitive edge and constantly reinvent its approaches. The corner stone of Starbucks success is the opening of the new stores. Howard Schultz wants Starbucks to enhance its brand name and equity and accomplish this by attracting new customers.

Starbucks has come a long way in strengthening organizational culture. With its ambience of music, comfortable chairs, a great coffee and tea collection along with a wireless internet service available at most outlets, Starbucks has worked consistently to reward customers with a consistent workforce and by managing a cultural network of Starbucks regulars. The organizational culture of shared assumptions; core values and beliefs of Starbucks are vital to its success within a saturating coffee market. The best and acceptable way to improve Starbucks would be to concentrate more on the quality of its produce rather than trying to sell. Anyone can purchase a cup of coffee from the nearest food stall or restaurant, but unique quality remains a core element to the success of selling a great cup of coffee. In evaluating the company by its financial stability and customer reaction, Schultz is taking measures to further improve the business. It is common knowledge that the success of any company often relies on change from time to time and the process that go into making and achieving something remarkable is worth more than the final result, because that’s what makes history and that’s what people remember. The role of a leader is to take the company to new levels, invigorating it with authenticity and that’s what Howard Schultz is doing. His passion for the business, vision and dreams, and effective economic models are some of the powerful tools that will breathe life back into Starbucks continuing to make it “better than the rest”.

We would summarize by saying that Starbucks is the most flourishing coffee shop in the world and with Schultz leadership and vision Starbucks still continue expand. Starbucks take great care in recruitment and selection and trains them intensively. Schultz believes that it is important for Starbucks respect all the employees and motives them. Starbucks enjoys the democratic style of leadership. Overall there is mixture democratic and autocratic style of leadership and transformational approach to leadership


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