Growth And Success Of Starbucks example essay topic

There were praises, cheers, and stories at the last Starbucks annual shareholders meeting. This was the last meeting for one of Starbucks' most successful executives, Orin Smith. As the 62-year old Smith retires this month as Starbuck's CEO, he will be remembered for his leadership in the company by turning the inspiration and vision behind Starbucks into a reality. When previous CEO Howard Shultz approached Smith to join the Starbucks team in 1990, there were only approximately 45 stores in the U.S. and Canada combined (Starbucks). Today, there are around 9,000 stores occupied over 39 countries in addition to the 1,500 planned to open this year (Ouchi A 1). Executive Background While studying at the University of Washington, Smith decided to take time off to work as an engineer for Boeing Enterprises.

During his tenure, he recalls rows and rows of engineers sitting at their desks, reminding him of the assembly line. Seeing this unattractive future, he decided to switch to a Business orientation and eventually enrolled into Harvard Business School in pursuant of an M.B.A. (Smith). In 1987, Howard Shultz purchased the Starbucks name and assets and presided as the new CEO. Three years later, he approached Smith, who was then working at Danza's (a freight shipping company) to enlist him as the company's CFO. Smith was able to see the vision and future potential of Starbucks. It was then, that Smith began driving Starbucks through its delicate years of raising capital, becoming a public company, and developing goals for future growth (Moix 1).

Management Style " Before you can have an emotional connection with your customers, you have to have an emotional connection with your people". (Ouchi A 1). The success of Starbucks is partly due to Smith's strong emphasis on relationships between management and lower ranked employees (also called partners). Similar to Jet Blue's CEO David Nee leman, Smith believes that a good relationship between management and employees will translate into a good relationship between the employees and the customers. In the past, both CEOs have been known to practice a 'hands-on' approach by stepping onto the 'front lines' of the business.

Every quarter, Smith spends at least a couple of days behind the counter as part of their 'Adopt a Store' program for the senior executives. Smith believes that this is not only an excellent way for executives to interact with employees and customers first hand, but also a good opportunity to keep executives "connected with the spirit of the company". (Smith). Smith also has a good sense of how the company needs to address the issue of expansion internationally.

One of the most important things that Smith stressed when Starbucks was in the initial stages of going overseas was to not assume that the market or consumers in other countries are similar to Americans. The operating concepts used in the U.S. rarely work overseas. Smith realizes that operating in different markets require a lot of knowledge about the culture, real-estate, market, and operating environment. In order for Starbucks to obtain this knowledge, it hires local managers; they are better able to understand how to conduct business successfully. Starbucks even has partnerships with other companies for stores in Europe to give them further knowledge about the operating environment. Aside from improving relations between the strategic side of management and the operations side, Smith has also improved Starbucks' information systems, financing, and legal affairs (Ouchi A 1).

Corporate Strategy In the early 1990's, Smith and Shultz were able to see the importance of the environment in which coffee was sold. In the past, coffee was generally treated as a commodity and quality was considered secondary to cost. Both men saw the opportunity to expand this experience, particularly the interactions between the customers and employees. To change this, Smith and Shultz created an appealing environment that included using all the sensory appeals. Stores were usually very attractive, equipped with comfortable chairs and sometimes, even fireplaces.

The general ambience of a typical Starbucks location was a gathering spot that invited customers to stay and chat, in a world that otherwise would have been unsociable. Starbucks is committed to offering high quality coffee combined with the 'Starbucks experience,' while conducting its business in ways that produce social, environmental, and economic benefits for communities in which it does business. Both Smith and Shultz believed the key to success is to be 'preemptive' and to enter sectors before the competition. In such case where the competition is ahead, development must be accelerated. For example, Starbucks was one of the first major establishments to offer wireless Internet access in its stores. Just recently, Starbucks has been trying to install CD burners in its stores for customers to create their own music CDs.

Starbucks is one of the fastest growing consumer brands and one of the most visible American culture emblems. "Americans don't walk. So if you have to go more than two blocks, they don't go", says Smith. Conventional retailing theory has traditionally stated the easiest way to grow is to open more stores. It also states that retailers who place stores too close to one another cannibalize their own sales (ElBoghdady H. 01). Yet, this is the exact strategy Starbucks has embarked upon.

It has embraced this 'self cannibalization' and uses it as the fastest way to expand their business. (Despite self-cannibalization, sales have still proven strong). This strategy is somewhat related to Starbucks' earlier years, when advertising money was sparse and in order to build brand awareness through ubiquity, the company clustered stores. Today, Starbucks has learned that though sales do drop initially when a new location opens, it eventually increases, as it is able to create the demand where it is latent.

The company is also good at choosing locations, notably in places where well-educated and well-paid baby boomers are located (ElBoghdady H. 01). Employees are Starbucks are generally aspirational and people-oriented. The company offers stock options to all employees and was one of the first to offer health-care benefits to its part time workers. Every year, a consulting firm pools employees on their satisfaction. This stresses the importance of the employees in regards to conducting business. Degree of success achieved in his current position During Smith's 5-year tenure as CEO, Starbucks managed to increased its store count from 2,498 stores (with annual total revenues of $1.7 billion in 1999) to nearly 9,000 locations today, posting more than $5 billion revenues this past quarter (Moix 1).

His entire career at Starbucks has been quite successful. During one period, earnings per share grew steadily at 48% over 8 years. The growth and success of Starbucks has resulted from Smith's ability to work with Shultz in making their visions a reality. As Smith retires this month, Starbucks decided to honor him by establishing the company's first scholarship program under his name.

The loss of this valued leader will be felt company. However, the foundation Smith has created during the critical years will ensure sustainable profitability and growth for the company. The chain will more than double the number of stores in the United States in the next six years to 15,000 locations, with plans to multiply its stores in China, India, Brazil, and Russia. (A long-term goal was set for 30,000 stores total) (Flanigan C 1). While some believe the company is growing too rapidly and repeat the mistake McDonald's made by opening too many stores of offsetting its own profits, Starbucks still continues to remain strong. It has also been able to achieve growth in other ways by developing new products, such as the much-anticipated Starbucks Liqueur.

The future of Starbucks now presides with new a CEO, James Donald.

Bibliography

ElBoghdady, Dina. "Pouring It On? The Starbucks Strategy? Locations, locations, locations". The Washington Post 25 Aug. 2002: H.
01. Flanigan, James. "Starbucks Sees Cup as Not Yet Full". Business 24 Oct. 2004: C 1.
Moix, Laura. "Starbucks Coffee Company announces the promotion of two top executives". PR Newswire June 1994: 1.
Ouchi, Monica Soto. "Shareholders meeting raises cup to retiring Starbucks CEO who led spectacular growth". Seattle Times 10 Feb 2005, A 1+.
Smith, Orin. Personal Interview. 16 October 2001".
Starbucks Honors Chief Executive Orin Smith". Business Wire 9 Feb. 2005: 1".
Starbucks' CEO Serves Up Tales of Global Frappuccino: Green, Tea, or Strawberries?" Wall Street Journal 15 Dec. 2003: B 1+.