James Lather in his blog carries this interesting story about an internal memo from Howard Schultz on ‘The Commoditization of the Starbucks Experience’. Though dated, is very much relevant even today. Read on:
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From: Howard Schultz
Sent: Wednesday, February 14, 2007 10:39 AM Pacific Standard Time
To: Jim Donald
Cc: Anne Saunders; Dave Pace; Dorothy Kim; Gerry Lopez; Jim Alling; Ken Lombard; Martin Coles; Michael Casey; Michelle Gass; Paula Boggs; Sandra Taylor
Subject: The Commoditization of the Starbucks Experience
As you prepare for the FY 08 strategic planning process, I want to share some of my thoughts with you.
Over the past ten years, in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand.
Many of these decisions were probably right at the time, and on their own merit would not have created the dilution of the experience; but in this case, the sum is much greater and, unfortunately, much more damaging than the individual pieces. For example, when we went to automatic espresso machines, we solved a major problem in terms of speed of service and efficiency. At the same time, we overlooked the fact that we would remove much of the romance and theatre that was in play with the use of the La Marzocca machines. This specific decision became even more damaging when the height of the machines, which are now in thousands of stores, blocked the visual sight line the customer previously had to watch the drink being made, and for the intimate experience with the barista. This, coupled with the need for fresh roasted coffee in every North America city and every international market, moved us toward the decision and the need for flavor locked packaging. Again, the right decision at the right time, and once again I believe we overlooked the cause and the affect of flavor lock in our stores. We achieved fresh roasted bagged coffee, but at what cost? The loss of aroma — perhaps the most powerful non-verbal signal we had in our stores; the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer, and once again stripping the store of tradition and our heritage? Then we moved to store design. Clearly we have had to streamline store design to gain efficiencies of scale and to make sure we had the ROI on sales to investment ratios that would satisfy the financial side of our business. However, one of the results has been stores that no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store. Some people even call our stores sterile, cookie cutter, no longer reflecting the passion our partners feel about our coffee. In fact, I am not sure people today even know we are roasting coffee. You certainly can’t get the message from being in our stores. The merchandise, more art than science, is far removed from being the merchant that I believe we can be and certainly at a minimum should support the foundation of our coffee heritage. Some stores don’t have coffee grinders, French presses from Bodum, or even coffee filters.
Now that I have provided you with a list of some of the underlying issues that I believe we need to solve, let me say at the outset that we have all been part of these decisions. I take full responsibility myself, but we desperately need to look into the mirror and realize it’s time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks experience. While the current state of affairs for the most part is self induced, that has lead to competitors of all kinds, small and large coffee companies, fast food operators, and mom and pops, to position themselves in a way that creates awareness, trial and loyalty of people who previously have been Starbucks customers. This must be eradicated.
I have said for 20 years that our success is not an entitlement and now it’s proving to be a reality. Let’s be smarter about how we are spending our time, money and resources. Let’s get back to the core. Push for innovation and do the things necessary to once again differentiate Starbucks from all others. We source and buy the highest quality coffee. We have built the most trusted brand in coffee in the world, and we have an enormous responsibility to both the people who have come before us and the 150,000 partners and their families who are relying on our stewardship.
Finally, I would like to acknowledge all that you do for Starbucks. Without your passion and commitment, we would not be where we are today…
”
James observes this memo is interesting for two reasons:
1.It shows the problem with ill-conceived process improvement that fixed an internal metric and did not benefit the customer.
2.It is all about management integrity. The CEO is a brave man who, when he sees a mistake, takes full responsibility for it and does a U-turn to solve the problem.
My two cents: A process improvement that fixes an internal metric is not such a sin as made out to be. In fact it is sorely needed with the back-office processes. But when it intersects in any way with user’s experience – the memo provides with many concrete examples in this case – one needs to look at it with much greater care and caution. The points of intersection may not be obvious at the first glance.
End
Source: ft.com/cms/s/0/dc 5099ac-c391-11db-9047-000b5df10621.html#axzz3o8YnDFyr and James Lather’s blog at squawkpoint.com. Image is from flickr.com.
Interesting. Any idea what changes they made in 2008? They do not seem to be doing badly now. It is possible that they persisted with the change with some incremental improvements.
I tried to dig. There is a lot of interesting stuff on Starbuck’s practices in the net, not withstanding its haters. But I could not find answers to your precise questions. May be he has dealt with it in his book ‘Onward’.
Thanks.
http://www.qualitydigest.com/inside/twitter-ed/how-starbucks-managed-rapid-change-large-scale.html
Thanks, Surya, for pointing at another interesting addition to the Starbucks’ lore.
Thanks, Surya, for pointing to additional material on Starbucks.
It is true that when one is growth focused some critical aspects – such as those highlighted – tend to be under weighed. it needs enormous dispassionate efforts to look at each new suggestion towards growth improvement as to how it changes an old time tested process and how does it affect one’s core strengths. Kudos to the CEO who is willing to sit back and take stock.
i have the same question as Kannan’s. What did they really do in 2008 and how are those changes if any stand today.
Thanks, Mani.
Kindly see my response to Kannan.
Fascinating and insightful. I suspect there are those in the “Starbucks” of academic institutions who would benefit from asking the same kind of questions. Commoditizing students can open the door to education for many who otherwise would be deprived. But something immensely valuable in the interpersonal interaction between teacher & student can be lost. Ditto for the medical profession. Human interaction may not be “efficient.” But it is invaluable and irreplaceable. Similar thoughts on the increasing number of jobs being taken over by robots. However intelligent & clever we might be able to make them, some things can only be provided by a fellow human,
Very true. Examples are not far to seek. Some of these banks, reservation agencies have Interactive Voice systems that go down thru numerous levels before you can talk to someone. In some cases you cant do that at all.
Thanks.
Very Interesting. Just a thought – this new set up and new environment may be the first coffee experience for a younger and newer coffee drinkers – Unaware of tradition or heritage of coffee. Who knows, this generation (rather a large customer base) would be happy and would appreciate the current way of drinking coffee.
A diff angle it is. I suppose the overlap of generations would set the expectations. Incidentally to cover the kids, they have a ‘secret menu’ option for kids to rig up their own drink! Thanks, Anand.
C K Murty wrote:
Thanks for sharing. It is interesting.
For me to enjoy the coffee, coffee seeds are to be roasted in front of our eyes and make coffee. We must feel the aroma of coffee while making the coffee. I used to enjoy this in Palghat Coffee Restaurants in our small town, Anakapalle (Near Vizag) in 1960s. Now there are no Palghat Restaurants in our town. Their children are well educated, became engineers and doctors and moved to other places. One of them,****** is one year senior to me in Kakinada Engineering College and lives in Mumbai. Like all others, his kids live in USA.
Now everywhere, it is instant coffee with no aroma of coffee.
CK Murty
Dear Raghu sir,
Quite thought provoking one as always from you. Passion and personal touch are potential victims of ‘Commercialization’ and ‘Professional Management’.
Commercialization – increasing Revenue and margin – mostly comes by increasing volumes i.e. more showrooms, more employees, more standardization of processes, more automation/ mechanization etc. To preserve the spirit amidst all these, management theory models the following:
A. Company has vision/ mission, values and even a Quality Policy which may carry words like ‘customer experience’ etc.
B. Leader/ CEO communicates the message down to the employees and
C. Employees align and share the vision, passion
In reality, at best, it is a limited alignment (by time or space) between aspirations of employee and company’s vision that’s at work. Aspects such as Passion and personal touch don’t find much place or priority in this schema. One can try designing KRAs to capture these but employees (at least many of them, if not all) will always find ways to meet and exceed them in letters but not in spirit.
Another important (social) institution suffering from the Starbucks syndrome is our traditional Indian marriages. Marriages were previously events managed by family members. In spite of reasonable planning, there used to be last minute chaos due to slippages in planning. Then came professional management of weddings claiming to save on this.
– Gone are the pleasant surprises of seeing the little girl, whom you saw as a toddler few years back, now manning the reception counter, inviting you with a tray of sugar and sprinkling rose water.
– Where is that relative who checked with you if you had dinner (duly taking into account the specific restrictions applicable to you) and enquired about updates from your personal life?
They are all now replaced with a machine spraying (blowing) fragrance on (at) you at the doorstep and uniformed women from that event-management company inviting you with the well-rehearsed and standardized, artificial smile.
To summarize, thanks to the professional management and the urge to avoid chaos, we successfully deprived marriages of their personal touch. We lost the true spirit or marriage marked with passion and personal touch to professional event management.
Company’s may have to decide to have the cake or eat it. Other options – they find a multitude of people who share exactly the same passion as intended in the vision statement (or Quality Policy) or techniques like CEO communication deliver exactly what they promise to in text books.
Excuse the long response.
Your example of how marriages are conducted parallels so well what he says in the memo. It’ll be interesting to know if he persisted with his ideas of de-commoditization and if it worked for Starbucks – the questions Kannan and Mani had.
Thanks, Sravan, for your studied response.
Can I add my own thanks to Tskragu’s thanks to Sravan. . I don’t live in India. I’m an American living in England. But I know exactly what you mean. And couldn’t agree more.