When Howard Schultz returned to the CEO position at Starbucks Corp. in January 2008, he set out to engineer a turnaround at the company he built.
“When you build something from the ground up and have so much at stake and you’re watching it drift, well, I had to come back,” says Schultz, who also holds the chairman and president positions. “It needed love and nurturing, and we needed to remind people of the cause of the company. I could not, under any circumstances, allow its downward fall to happen. I thought we could be a better and stronger company.”
Schultz discussed how he brewed up Starbucks’ plan for a revival at the Ernst & Young Strategic Growth Forum 2009.
“We were dealing with five simultaneous moments,” Schultz says. “First, we had to admit to ourselves and our people there were self-induced mistakes and own them.”
This included growing too quickly and holding too much real estate.
At the same time, the economy was beginning to crumble.
“There was a cataclysmic financial crisis, and we were a leading indicator of the recession,” he says. “We were navigating through a financial storm we didn’t understand.
“Third, for the first time, we had competition. McDonald’s became a player in the premium coffee market.”
While this was occurring, bloggers began using Starbucks as a sign of excess in the economy.
As if that weren’t enough, Schultz faced another challenge — preserving the Starbucks’ culture.
“I knew that the only way to exceed the expectations of our customers was to exceed the expectations of our people,” he says.
So Schultz started there, assembling 10,000 key employees — executives and store managers — for a retreat in New Orleans where he intended to build the foundation for Starbucks’ comeback.
“New Orleans served as a great foundation of bringing people together toward a common goal,” he says. “It gave people hope and understanding.”
Back in Seattle, Schultz communicated feverishly, working to explain to every employee why the company was underperforming and what his plan was for fixing it.
“I was constantly trying to put them in a place where they knew we cared about the performance and health of the company,” Schultz says.
Approximately 900 stores were slated to close — most of them were less than 24 months old.
“The rules of engagement had so significantly changed, and we had to change our strategy,” Schultz says. “It made me sick, but it had to be done. I stood naked before those employees [when we announced the closings] and told them it was the hardest day of the company. I was honest.”
Beyond store closings and employee morale, Schultz attacked each of the other problems individually.
“For the Web, we invested time and money in our online strategy,” he says. “Starbucks is now the No. 1 brand on Facebook. With competition, McDonald’s made us better. It also brought up fear and courage and taught us that competition is not a bad thing.”
While he couldn’t do much about the economy, Schultz did learn something else about navigating through challenging economic times.
“The battle plan was maintaining our core customer at any price. I realized that if you lose them, it costs a lot to get them back.”
Near the end of 2009, Starbucks posted strong financial results — top-line trends are up and costs are down.
“We took out $580 million in cost this year,” Schultz says. “Ninety-plus percent of that will be permanent and none of it is consumer-based. The turnaround is occurring today because of the beliefs in the value of our company, quality of our coffee and culture of our people.”
H. Lee Scott on building a better story for Wal-mart
H. Lee Scott has a simple philosophy on change: “There is more danger in not changing than there is in changing. If you don’t change, you will become irrelevant.”
That goes for one of the world’s largest companies, Wal-Mart Stores Inc., for which he served as president and CEO from 2000 to 2009. Today, Scott is chairman of the executive committee of the company’s board of directors. He recalls how he put the notion of change into action when Wal-Mart was on the receiving end of a litany of bad press.
“During 2004 and 2005, we changed the culture,” he says. “I learned a huge lesson back then: Until you turn sideways and let the energies of your opponents go past you, you won’t go anywhere.”
At the time, those energies led to accusations of Wal-Mart underpaying its workers and not offering ample health care benefits.
“You can’t just fight with facts,” Scott says. “So we changed tactics, starting with a call for an increase in the minimum wage. By doing so, we were able to deflect criticism that we didn’t pay people enough. Actually, we paid them more than the minimum wage but didn’t get credit for that. By changing strategy from saying what we did to calling for an increase in the minimum wage, it changed the conversation.”
Scott also called for renewal of the Voting Rights Act.
“Wal-Mart is the largest employer of African-Americans in North America,” he says. “Again, we didn’t get credit for that. But when we started calling for renewal of the Voting Rights Act, suddenly the minority groups stood up and took notice.”
And, Wal-Mart expanded its employee health care benefits program.
“It was something we believed needed to happen,” he says. “We had more people who didn’t have health care insurance than we wanted.”
All of this changed public perception.
“As we became a better company, the criticism against us dropped off,” Scott says. “Today, we’re more acceptable to people than we were before. It wasn’t about telling our story better. We needed a better story to tell.”
