question 5 : how is kevin johnson as CEO different from howard scultz ? what leadership style is johnson pursuing ? do you think he will be succesful ? why or why not.

MiniCase 2 Starbucks CEO Kevin Johnson: "I'm not Howard Schultz STARBUCKS HAS MORE than 10.000 stores and 526 tion in annual revenues, making at the largest coffee house chain in the world. Starbucks has also experienced a sustained competitive advantage. Exhibit MC2.I shows that since its IPO in 1992. Starbucks has outperformed the wider stock market by a huge mar gin-23.500 percentage points with an especially pro nounced performance increase since 2008, when former CEO Howard Schultz came out of retirement How did all this start, especially since the United States is not known for its coffee culture? Inspired by Italian coffee bars. Schultz set out to provide a com pletely new consumer experience. The trademark of any Starbucks location is its ambience-the music and comfortable chairs and sofas draw customers in to sit and visit with friends while enjoying their beverages (and in some locations wine) food (a more recent addition), and complimentary WiFl. The menu boasts an array of offerings: Caffe Misto, Caramel Macchiato, Cinnamon Dolce Latte. Espresso Con Panna, and Mint Mocha Chip Frappuccino, as well as nearly 30 different coffee blends Impressed customers then pay up to $450 for a Vents sized drink. Starbucks has been so successful at creating its Starbucks experience that customers keep going back for more. Starbucks' Core Competency Starbucks core competency is to create a unique con sumer experience the world over. When buying out the original owners of Starbucks (a coffee bean master in tially) in 1987, Schulte's strategic intent was to create a "third place. hetween home and work, where people would want to visit, ideally daily, and enjoy a sophisti cated cup of coffee Customers would pay for the unique experience and ambience, not just for the coffee. The consumer experience that Starbucks cre ated is a verare, and costly to imitate intangible resource. This allowed Starbucks to gain a competitive advantage. Since 2000. Starbucks' revenues have grown 1-fold. from less than $2 billion to nearly $26 billion in 2019 While core competencies are often built through learning from experience, they can atrophy through forgetting. This is what happened to Starbucks between 2004 and 2008, when it rapidly expanded operations by doubling its stores from 8.500 to almost 17,000 (see Exhibit MC2.2) It also branched out into ice cream. desserts. sandwiches, books, music, and other retail merchandise, Straying from its core business. In trying to keep up with its explosive growth in both stores and diverse product offerings. Starbucks began to forget its core competency. It lost the appeal that made it special and its unique culture became diluted. For example, it used to be that baristas would grind coffee beans each time a new pot of coffee needed to be brewed (which was at least every eight minutes, so basi cally throughout the day). The sound of coffee beans grinding and the fresh aroma of coffee filling the air were ubiquitous across all Starbucks stores. But to accommodate the band's rapid growth, many baristas began to take shortcuts They would grind all the coffee beans in the morning and then store the ground beans for us throughout the day. The new espresso machines that were great for efficiency were not so great for cus tomer service they were so tall, they blocked intera tion between baristas and customers. Although these and other operational changes allowed Starbucks to reduce costs and improve efficiency, they undercut Star bucks' primary reason for succes going to Starbucks mot simply for the quick cup of coffee, but for the whole Starbucks coffee cuperience. Losing a Wind taste-test to fast food giant McDonald's further underscored the negative impact of Co-eduction measures. As one of among six coffees tested. Starbucks came in last. Even run-of-the-mill supermarket brands rated higher. Customers that were 475 476 MINICASE 2 So CEO Kain Son Tor Scrum EXHIBIT MC2.1 Starbucks Normalized sange Stock Appreciation from htel Public Oferng Poin June 26, 1992.10 June 6, 2019 Comprisons S&P 500 stock market index Starbucks Corp. Price Change S&P 500 Level Change Apr 2 2017 April 2017 Howard Schew Johnson 2nd retirement CEO 24 24.DOKS 16.00 June 26. 1992 SBUKIPO April 6, 2000 Howard Schultz Ist retirement January 8, 2008 Howard Schule returns 3.00 50495 1995 2000 2005 2010 2015 2015 Source $4.50 Venti cups of Starbucks coffee (see revenue drop in Exhibit MC2.2) not fans of the Starbucks fuvor had nicknamed the chain "Charbucks to reflect what some critics claimed to be an apt description: overly roasted, dark, and bitter To make matters worse, the 2008 global financial crisis hit Starbucks hard. As is usually the case during a recession, the first items consumers tend to sacrifice are luxury items-people were no longer ordering Howard Schultz's Return In January 2008, Howard Schultz came out of an eight year retirement to once again take the reins as CEO of EXHIBIT MC2.2 Total Number of Starbucks Stores and Revenues (5 bok 1971-2019 1.000 SBUK Stores - Revenues | hond Number of Stores 30.000 Revenues al 25.000 20.000 15.000 1000 2002 2004 2005 2008 2009 2010 200 200 200 205 206 2007 2008 2015 2016 2015 INICASE 2 Shok477 opened in Starbucks' home city. Scattle Indeed Schultz's plan was to open 000 of there are format. Highend Fosteres in both and international locations with the hopes they would Improve declining sales and refresh the band Schultz believed that customers would the experience of watching baristas brew speciality coffeessing the est techniques and thus willing to 512 cupli ing cocktails and serving animal baked gods and other food item. Schultz wanted these stes to be a new third place for people to visit between work and home Starbucks. His mission was to recreate what had made Starbucks so special from the start Upon his return, he immediately launched several strategic initiatives to turn the company around. Just a month after coming hack. Schultzordered more than 7.000 Starbucks tores across the United States to close for one day, so baristas could relearn the perfect way to prepare col fee. The company lost over $6 million in revenue that day, which heightened investor jitters. The financial hit and investor anxiety notwithstanding. Schultz knew was critical for Starbucks employees to relearn what made the Starbucks experience so unique-he saw this as the key to restoring its corporate culture. NEW STRATEGIC INITIATIVES. In 2009. Starbucks introduced Via, its new instant coffee a move that some worried might further dilute the brand. In 2010, Schultz rolled out new customer service guidelines: Baristas would no longer make multiple drinks at the same time, but rather concentrate on no more than two drinks at time, starting a second one while finishing the first Schultz also focused on readjusting store managers goals. Before Schulu's return, managers had been mandated to focus on sales growth. Schult, however, knowing that Starbucks' main differentiator was its special customer experience, instructed managers to shift their attention and efforts accordingly. Although its earlier attempt to diversity away from its core business in the mid-2000s failed, it succeeded under Schultz. Late afternoons and early evenings were trade tionally always the slowest times for Starbucks, so it became Schulu's poal to increase store traffic beyond the regular morning hours, when customers typically vir ited for their daily shots of caffeine Schultz started by adding baked goods, sandwiches, and other small food items to the menu. To invite an even later crowd, he then introduced fresh vegetable plates, flatbread pizza, cheese plates, and desserts. Eventually, he added alcoholic bev erages such as wine and beer (to be served after 4p.m. only) as part of Starbucks Eveningsprogram Starbucks continued in these efforts by introducing new luxury items, catering to the wealthier customers within its existing customer base. It introduced lim ited run, exclusive batches of varietal coffees for home use and sold them at high price points online and in stores. Some stores also included these same higher priced roasts on their menus By 2014, Starbucks had launched its new Starbucks Reserve Roastery and Tasting Room. The first of these super high end stores with more on the horizo-was MODIFIED STRATEGIC INITIATIVES. Many of the new initiatives est discussed have been modified For example, Starbucks has toled its Evening program, announcing in 2017 that it would serve alcohol only at its roastery locations. These modification have not dampened its ambitions. Over the next few years, Starbucks aims to double its food revenues and be recognized as an evening food and wine destination. To symbolize its transition from a traditional coffeehouse, Starbucks dropped the word coffee from its logo Schultz also pushed the adoption of new technol ogy to engage with customers more e intimately and effectively. It now use Facebook and Twitter to com municate with customers more or less in real time. In 2019. Starbucks had 26 million mobile paymentsers more than that of Apple Pay (25 million Google Pay (13 million), and Samsung Pay (12 million). Experts predict that by 2022, Starbucks will have 30 million users on its mobile ordering and payment app, and will continue to lead Apple. Google, and Samsung Some 30 percent of all transactions in U.S. stores are now made using mobile devices. The Starbucks app allows customers to order and pay for drinks and food ahead of time, so that they can bypass standing in line and simply pick up their order when they arrive at a location. With more than 14.000 stores in the US market Schultz started looking overseas for growth opportuni ties. Although traditionally a tea-drinking nation, cof fee is catching on with urban professionals in China. In 2019, Starbucks had more than 3.500 stores in China up from 1,500 in 2015. Starbucks plans to continue its rapid penetration of the Chinese market, aiming to operate 6,000 stores by 2022. Over the next few years Starbucks also plans to double its presence in other areas of Asia (opening more than 4.000 caes). 478 MINICASE 2 Sucks CEO Kevin Jamon Tone Sonar Kevin Johnson Is Not Howard Schultz In 2017, nine years after coming out of retirement to initiate a successful turnaround. Howard Schultz once again stepped down as Starbucks CEO in a seconda tempt at retirement (see Exhibit MC2.1). After his return, Starbucks' market valuation had appreciated approximately fivefold Schultz's strategic leadership was clearly critical in turning Starbucks around. Some worry that Starbucks success is uniquely dependent on Schultz, suggesting that Schultz (and Starbucks) may have a strategic weakness in executive leadership succession planning The primary evidence of this is that Starbucks stag- nated and even went into decline during Schultz's Chetty for absence. Some argue that Starbucks' struggle after sung comel 2022 Schultz's first departure is similar to Microsoft's chal ne contingere.00 from 1.500 2015 lenges after Bill Gates stepped down from day-to-day Supermohole business, Dell Computer after the first retirement of Michael Dell (now back). Walmart after the retirement of Sam Walton, and Apple after Steve Jobs was forced in particular, how to maintain Starbucks' core compo out in 1985. Although technically speaking. Howard tencies and how to achieve future growth-both Schultz is not a founder of Starbucks, he is the one domestically and internationally. The maturing sales of who created the company as we know it today. the more than 14.000 U.S-based stores is one of the Schultz hopes that this second retirement from the biggest challenges facing Johnson today. Exhibit company that he built from the ground up will be his MC2.3 displays the growth of same store sales (same last. In the meantime, new CEO Kevin Johnson, who store sales is an important performance metric in the transitioned from Microsoft, faces several challenges retail industry, it applies to stores that have been in EXHIBIT MC2.3 Starbucks Same-Store Sales (change from prior year, in 2011-2019 10% 95 8% 7% 6 5% 35 2x ox 201 2012 2013 2014 2015 2016 2017 2018 2019 ACO MINICASE 2 Starbucks CEO on How Sur 479 existence for at least one year). Such saleshwe not only declined over the past decade, but have also fallen strategic initiatives did Howard Schultz, following under its historie Spercent growth threshold a number his return as CEO in 2008. put in place to recreate that Starbucks has achieved for most of the past three Starbucks' uniquenes! decades 3. What is your assessment of Howard Schultz as a To address the issue of declining same store sales strategic leader? Where on the Levels pyramid of growth. Johnson is taking a more rational and data strategic leadership (see Exhibit 2.2) would you driven approach than did Schultz, who led by intuition place Schultz? Why? Explain. and emotion. First, Johnson drastically scaled back on 4. Howard Schultz, as the creator of the Starbucks Schultz's vision to open 1.000 new high-end roasteries brand that we know today, is a larger than life fig. and tasting rooms, capping this number to a mere 10, ure in the company and business community Do He wants to see whether they provide an appropriate you think it is difficult to follow such an iconic return on investment before expanding further and has leader? Why, or why not? laid out a stringent and disciplined approach to test the 5. How is Kevin Johnson as CEO different from How new store concept. By terminating this strategic initia- tive, Johnson freed up capital to refresh its existing and Schulte? What leadership style is Johnson pur suing? Do you think he will be successful? Why, or stores, and to return cash to shareholders, one of why not? Johnson's stated goals. Johnson also plans to grow rew enue by 10 percent and open an additional 12.000 tra Endnotes ditional stores around the world by 2021. In addition, L Shake chronic The he plans to expand Starbucks coffee delivery business, bestehenden See even though some observers are skeptical, claiming this For morate runs counter to the entire "third place idea on which 2. As the CEOK Starbucks was created Satna aa- During his first year as CEO, Kevin Johnson would often open meetings with Starbucks executives and Sewa 20. CEO pred SD employees by saying "I'm not Howard, I'm Kevin. "One L2001, M22 of Johnson's overarching goal is to bring more finan head of Google SARL Sa CEO which cial discipline to Starbucks, to run it based on hard The Tact Standing the data analysis, cutting edge management and opera and AS. De Sabah. CEO desene tional practices. Whether Kevin Johnson will be as su All I , des del The SMS cessful as Howard Schultz remains to be seen. So, www DISCUSSION QUESTIONS York Recetas The Sec 1. How did Starbucks create its uniqueness in the first "Saw ...the place? Why was this uniqueness so successful? La Set Culturel Dance 2. To be a source of competitive advantage over time. 3007 SHDI. Home New York core competencies need to be continuously honed See The and upgraded. Why and how did Starbucks lose its Rr. www.the uniqueness and struggle in the mid-2000s? What