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Sunday, January 13, 2008

The evolution of Starbucks...Part II

A year ago, I had talked about evolution of Starbucks on this blog. The main idea was that it would be very difficult for Starbucks to be successful going forward with its centralized control structure. Since then Starbucks stock has gone down ~40% and the CEO, Jim Donald was fired last week and Howard Schultz returned back as the CEO to replace Jim Donald. Although I get some sense of satisfaction that I was able to predict things correctly, it bothers me that most companies still don't understand Complex Systems (go to NECSI to learn more about Complex Systems).

To understand Starbucks behavior we must have understanding of the environment (economy, customers, competition, partners, vendors, etc.) Starbucks is operating in and how the environment is influencing Starbucks behavior. And, how the relationship between the parts of Starbucks-customers, employees, management, vendors, stores, technology, etc. gives rise to the collective behavior of Starbucks.

Instead of explaining how and why using Complex Systems, I would say, in plain English, that the following changes must occur if Starbucks wants to continue to dominate the retail food/beverage industry:

1. Decentralize control. Most decisions should be pushed out to the field.
2. Don't panic. It may do something irreversibly damaging if Starbucks panicked. MacDonald's can not take away any significant market share from Starbucks in one year.
3. Fix the service. Starbucks is a coffee company if you are out of coffee at 7:00AM every other day, it is a big problem. Or, if it takes 20 minutes to get your cappuccino that's another problem.
4. Focus on coffee for now. I am not sure how much value-add are the other things i.e movie production etc. if you can not serve coffee correctly. Don't try to add on/push other products to coffee sales. People are paying good amount of money for coffee and don't want to be bothered with other stuff Starbucks is trying to sell. And, understand what business are you in. Don't try to be everything to everyone.
5. Branding. TV campaigns will not increase coffee sales and will be a complete waste of money. Brand is a result of the experience and not the other way around. Don't waste any more money and time on ad campaigns.
6. International Expansion. This is the area where Starbucks needs to move very fast. And, slow down expansion the US until the current problems are fixed.
7. Retrain employees. Baristas were able to connect with people and now they don't.
8. Policy is more important than people. The stock temporarily went up when Howard Schultz became CEO. However, in an organization as complex as Starbucks, the leadership team's influence is minimal compared to policies that are put in place. So, focus on policy development and implementation rather than reorganizations.


Without competition most organizations and organisms become lazy and lose their supreme position. To successfully evolve, one must have competition and cooperation. If you are interested in understanding how Complex Systems could be applied to understanding and predicting Starbucks, please drop me an email.