Howard-Schultz-Building-Starbucks-Community-(B)

9-407-127JUNE1,2007________________________________________________________________________________________________________________ProfessorBillGeorgeandResearchAssociateLancePiercepreparedthiscase.Thiscasewasdevelopedfrompublishedsources.HBScasesaredevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©2007PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.BILLGEORGELANCEPIERCEHowardSchultz:BuildingStarbucksCommunity(B)Inthespringof2007,HowardSchultzwasworriedthatStarbuckswaslosingthepersonalfeelingoftheneighborhoodcoffeehousehehadenvisionedsinceitsfounding.Inthedesiretobeubiquitousthroughouttheworld,theStarbucksfranchiseseemedtobeonthevergeofshiftingtomassproducedcoffeehousescreatedmorefortheconvenienceofthemanagementthanthepleasureofitscustomers.FromthebeginningSchultzaspiredtodevelopStarbucksasamodelcompany.Forhim,thismeantthatStarbuckswasmeasuredbymorethanfinancialperformance.Heobservedthatpeoplesoughtpersonalconnectionwithoneanother,andwantedtobepartofsomethinglargerthanthemselves.InSchultz’seyes,coffeewasmerelythecatalystforprovidingthisexperience.1Foundedin1971,Starbuckshadbecomethefastestgrowingchaininthehistoryofretailing.Sincejoiningthecompanyintheearly1980sandlaterpurchasingitwithagroupofinvestors,Schultzhadpresidedoverthecompany’sgrowth.Fromitsmodest,localbeginningsinSeattle,Starbuckshadgrownintwentyyearsfromthreecoffeehousestoaglobalbrandwith13,000outlets.2Thecompanyestablishedagoalofcreating40,000storesworldwide.In2006,however,Starbuckshadseenitssalesslipwiththeintroductionofnew,higherqualitycoffeeatcompetitorssuchasMcDonaldsandDunkinDonuts.Starbucksstock,whichallemployeesreceivedas“beanstock,”haddroppedfromitsall-timehigh.OnNovember16,2006thestockhadhit$40.01withaprice/earningsratiooffiftytimes3butinthemonthssinceithadfallentwentypercent,tradingaround$32.00.4Despitethesechallenges,thecompanyremainedanunquestionedfinancialsuccess.ButtherealquestionforSchultzwas:hadStarbuckslostitssoulintheprocessofbecomingaglobalbrand?TheSchultzE-mailOnFebruary14,2007,ontheeveoftheFY2008strategicplanningprocess,SchultzputhisworriesinwritingviaanemailtoJimDonald,Starbucks’snewCEO,withcopiestomembersoftheexecutiveteam.Thememo,titled,“TheCommoditizationoftheStarbucksExperience,”setforthanumberoftheunderlyingissuesthathefeltneededtobeaddressedinthestrategicplanningprocess.(SeeExhibit1.)407-127HowardSchultz:BuildingStarbucksCommunity(B)2InthememoSchultzexpressedhisconcernsthatthedecisionsmadetosupportthecompany’sgrowthandefficiencyhadinadvertentlywatereddownthecustomerexperience.Hecitedthesterilityanduniformityofstoredécor,theinabilitytosmellthecoffeebeingroasted,andtheequipmentrequiredtoservehighturnover.InSchultz’seyes,thesethingserodedthesmallcafeheritageofthebrand,andcompromisedthe“passionforcoffee”thathesawastheheartofStarbucks.Schultzhitthe“send”buttononhiscomputer,intendingtokickstartaconversationamongtheseniorteamaboutachievingthecompany’saggressivegrowthtargetswithmaintainingthebrand’sheritage.ByFebruary23rdthememohadsomehowbeenleaked,andpostedto“StarbucksGossip,”awebloglocatedonTypepad.comthatchronicledtheexperiencesandopinionsofStarbuckscustomersandemployees,aswellasrumorsaboutthecompany.Whenthememobecamepublic,thecorporatecommunicationsgroupatStarbuckstriedtogetoutaheadoftheissue.Thatsameday,Starbuckspostedconfirmationinthe“RumorResponse”sectionofthecompanywebsitethatthememowasauthentic.(SeeExhibit2.)Starbuckshadasectionofitsweb-basedpublicpressroomdevotedtoquellingorrespondingtorumorsaboutthecompanythatmightbedamagingtothebrand.Intheirpublicresponse,thecompany’smediateampositionedthememoasbeingconsistentwithStarbucks’songoingcommitmenttoreinventingitself,sayingitreflectedthecompany’sphilosophythatongoingsuccesswasnotautomaticallyagiven.AsrapidlyasFebruary24thhowever,thememohadbeenpickedupbyTheWallStreetJournalasthesubjectofa1,500wordarticleinSectionA,withnumerouspassagesofSchultz’smemoreprintedintheirentirety.5ShorterarticlesandjournalistblogpostingsalsoappearedthatdayonBusinessWeek.com,Bloomberg.com,andMarketWatch.com,6andthateveningitbecamethesubjectofasegmentonCNBC’s“OntheMoney”program.Theflurryinthebusinesspressgavetheissuepopularcurrency,andfromtherethememowentontobequotedwidelyelsewhere.Withindays,Schultz’sprivate,internalmemotohisteamcouldbefoundaroundtheweb—thesubjectofspeculation,skepticism,praise,criticism,andunwantedattentiononblogsandinthebusinesspress.SomeassertedwholeheartedlythatStarbuckshadinfactlostitswaysometimeago,whileotherslaudedSchultzforrecognizingtheproblemandattemptingtodealwithit.Someevendiscountedthememoasaforg