Did Process Improvement Destroy Starbucks?

The Memo

I came across a memo from Howard Schultz, the chief executive of Starbucks the other day.

Here are the bits that caught my eye — to read the whole thing click here.

From: Howard Schultz

Sent: Wednesday, February 14, 2007

Subject: The Commoditization of the Starbucks Experience

Over the past ten years, in order to achieve the growth… 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…

Many of these decisions were probably right at the time… 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… moved us toward the decision… for flavor locked packaging…  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…

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…

I think the memo is fascinating in two ways:

1. It shows the problem with process improvement

The memo highlights the Achilles heal of process improvement beautifully

It is easy to blame process improvement for the installation of automatic espresso machines. It is easy to say that it was the process improvement team that started to deliver bags of pre ground coffee to the stores direct. But in both cases blaming the process guys misses the point.

Who were these “improvements” implemented for?  The company or the customer?  Did they fix an internal business metric or an external customer need?

A process improvement only counts if the customer benefits.  Let the customer judge.  If they don’t like the improvement then it doesn’t count as an improvement… does it?

2. It is all about management integrity

The second fascinating point is one of integrity.  It is a brave man who, when he sees a mistake, takes full responsibility for it and does a U-turn to solve the problem.

How would your CEO behave?  Would he admit that the organisation had been wrong to focus on its internal measures and face into the issue? Or would he have blamed the process improvement initiative and scapegoated  the people responsible?

Process improvement isn’t about costs…

Or service metrics or quality scores.  It is about customers.

To improve your processes you need management integrity far more than clipboards and stop watches.

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Comments

  1. Your point in #1 is well made – and the question I asked as I read the letter: who were the improvements made for? from where were they driven?

    In this case, if they’re not for or because of the customer, then we’re doing it all wrong.

    Annette :-)

  2. Spot on James: “To improve your processes you need management integrity far more than clipboards and stop watches.

  3. Right on target! Agree 100%. (Loyal Starbucks Fanatic).

  4. The impact upon customers and indeed all stakeholders, (within reason), of process improvements should be evaluated as part of any project. All too often we see improvement projects focussed on a single goal, for example reduced cost, and celebrate their success when the indicators for success show we have achieved this goal even if the longer term impacts of the improvements create problems elsewhere. With the financial pressures faced by the NHS at the present time we are seeing far too many ill thought out cost improvement projects that will save money this year but could damage the organisations ability to serve customers effectively and efficiently going forward

  5. Another case of product-thinking leaders forgetting the experience-feeling customers. Starbucks was never designed to become a coffee factory; it was crafted to be more like the old-fashioned coffee houses. Seems the vision that made them great took a back seat to the procedures that make them efficient. At least with Schultz, there is the courage and willingness to be honest and make changes. But, in a larger sense, I wonder if he “went to sleep at the wheel” again! The changes dictated by his memo did not happen overnight. And, their implementation likely required the approval of Schultz. Did he not close stores for four hours a while back to train employees again to slow down and acknowledge the customers more? Why do leaders let circumstances get so far off course that adjustment seems dramatic. Starbucks is an amazing story with a rich tradition. Let’s hope they can stay the course a bit better going forward and let the “romance and theatre” that favors a great customer experience remain in the forefront of their decision making.

    • James Lawther says:

      I guess Mr Schultz got caught up with being busy, rather than worrying about what was important.

      It happens to us all

      Thanks for the comment

  6. This resonates with me, especially in the two areas cited in the post. It calls to mind the “creeping meatballism” identified by the late storyteller, Jean Shepherd (who wrote and narrated “A Christmas Story”) and ‘boxes of ticky-tacky’ from the song by Pete Seeger. Having written several blogs on the perils and evils of experience commoditization and passive customer value delivery observed in multiple industries, I’ve concluded “… the best approach may be that of ‘back to basics’ experiential and emotional value for current customers, and less of a focus on customer acquisition and, once on board, benignly commoditizing the offerings in the belief that these customers will be retained.”

    Here’s what is most impressive. Schultz was able to see past the ‘re-engineering’ effects of operational speed and cost cutting, and recognize that it was the original concept, and the accompanying rich customer experience, that was being undermined and threatened. Most senior executives don’t seem to have that level of customer-centeric discipline and focus. If they ‘get it’, as Schultz clearly did, they are not able to move their corporate Titanic in time to avoid the deadly icebergs.

    • James Lawther says:

      Interesting to compare Howard Scultz with Jeff Bezos. Both look to re-engineering for speed and cost cutting, but arguably Mr Bezos kept his eye on the customer throughout.

      • Hi James,
        Interesting that you raise Mr Bezos. He talks a a lot about making sure the customer is always in the room and how they always have an empty chair at every meeting to embody the customer. I wonder how Starbucks will keep the customer ‘in the room’ going forward to make sure that this doesn’t happen again?

        Adrian

  7. James,

    Thanks for making these points.
    The norm is for companies to initiate process changes based on what will better serve their needs. Too often these “improvements” serve the company at the expense of the customer.

    A quote from recent VoC research we conducted on this topic sums it up beautifully, “Self service? Who does it help? I get that it will help the company reduce costs, but it certainly does not help me, the customer.”

    Ernan

    • James Lawther says:

      A very interesting point Ernan, when and how is “self service” a good thing for the customer?

      I suppose it depends on the alternative

  8. I think Starbucks has recovered nicely since 2007 when Schultz wrote that memo.

    In recent years there’s been a lot of interest in making things easy. Perhaps we can thank Amazon for that. Process improvement can save time/resources/money for the company while making things easier for the customers. What could possibly go wrong?

    The answer, of course, is that easy is not the only thing that matters for many if not most interactions. We want just the right amount of easy. At Starbucks, the experience is very nice, but if the line was out the door, I wouldn’t go in. I still want a short ordering experience.

    But not too short. Otherwise, it doesn’t have the “made to order” quality that makes it worth spending the extra money. A few times my latte has arrived super fast and it made me wonder how it was made.

    Process improvement is not a bad thing. Some call centers have improved processes, saved customers time while also saving $millions due to shorter calls. So long as the quality of the calls don’t suffer, it’s a good thing.

    The Starbucks story points out that great experiences have to be designed. I think in most companies they just happen as the outcome of attempts to improve processes, respond to customer feedback and so on. As a result, many companies will invest to “improve” CX and find themselves in the same pickle as Starbucks.

    • James Lawther says:

      I like the difference between “design” and “evolve” very much. I just wonder if we are really capable of designing a suitable experience for our customers. How do we know what they want.

      Perhaps test and learn is a more appropriate way forward.

  9. Cost reduction and “efficiency” programmes are often classed as process improvement initiatives when in reality they are anything but. Locking the doors and liquidating your business would deliver the greatest cost saving and maximise efficiency – suggest it next time you’re asked to deliver a process improvement focussed only on short term cost gains.

  10. Great post James – many thanks for sharing it. As a Lean Six Sigma Master Black Belt (among other things), I think you and the other thought leaders who have commented have captured the essence of this perfectly. I have been saying for a number of years that process improvement methodologies – Lean and Six Sigma among them – have been abused for years. Ultimately, if deployed as they were intended, these methodologies SHOULD be able to deliver the output of the process more effectively for the customer (internal and external). All process improvement projects worth their salt SHOULD contain a very clear understanding of VOC. Sadly, so many ‘projects’ over the years have just focused on cost reduction, the result is as described in your post.

    It is definitely NOT a bad thing to want to be more efficient and effective, but only if it is NOT at the expense of a great experience. If you are interested, you can read my thoughts on Six Sigma here – http://www.ijgolding.com/2013/09/16/shhhhh-dont-mention-six-sigma-the-truth-behind-the-stigma/

  11. Great points. While QC is crucial to product making and process alignment to ensure efficiency and effectiveness, the ultimate determiner of value is the customer. Even if you could genetically engineer a six-sigma goat, if your marketplace is a rodeo your customers will likely prefer a four-sigma horse!!

  12. A humble example of the unintended consequences that can arise when organisations fail to connect process improvement to the voice of the customer. Thanks for posting.

  13. David Kasprzak says:

    It’s called a Value Stream, and not a Cost Stream, for a reason. Looks like they focused on the Cost, and not on the Value — leading to the decrease of one at the expense of the other.

  14. I don’t know the full story here – I don’t go to Starbucks often (maybe a few times a month) since I believe that while they deliver a consistent, quality product, it is way overpriced. I also don’t like standing in line for 20 minutes for a cup of coffee. Which brings me to my observation in this discussion of Starbucks’ process improvement journey. I appreciate that there is tradition and brand identity that Mr. Schultz outlines in his memo, and, that from his perspective, there is a need to return to that identity.

    That being said, Mr. Schultz, and many of the posters don’t recognize that there is customer value in speed of service and keeping costs low. Keeping costs low allows them to contain prices, and, provide higher wages and benefits to their employees (another Starbucks identity characteristic). Let’s suppose they go back to the more traditional ways – material costs increase will reduce margin and slower service (albeit a richer experience) must reduce volume. I think there would also be a significant increase in lost sales, due to longer lines. Given that, if Starbucks wants to continue generous pay and benefits to its employees, it will have no choice but to increase prices.

    As an infrequent customer, I value shortened lead time and lower cost with a quality product. I value them much more than aromas, watching beans being ground, and a personal relationship with a barista (perhaps they should shut down the drive thrus?) So, I wouldn’t disregard the customer value these improvements represent. All I know, is that it will be interesting to watch….

    • James Lawther says:

      Thanks for the comments.

      I guess we are into a debate about one man’s meat and another man’s poison.

      In Mr Schultz’s favour he is richer than I am so must be doing something right. Though I did walk right by yesterday because the queues were so long…

      James

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