In 2008, Starbucks was taking a major hit from the financial crisis, losing customers to competitors, and having to close hundreds of stores. Despite having its back against the wall, some decisions made around key Six Sigma principles helped Starbucks bounce back better than ever.
How Giving Quality and a Better Experience To Employees and Customers Brought Starbucks Back From Near-Bankruptcy
Eventually, though, there was something lost. Most blamed the financial crisis, but by 2008, Starbucks was becoming less of a go-to priority for coffee drinkers. People had less money to spend on coffee, so they were beginning to opt for the cheaper options now offered by McDonald’s. Moreover, the never-ceasing rapid expansion caused a lack of consistency among Starbucks locations, and there was less focus on the actual experience of going to a Starbucks. For many customers, the price of their product no longer felt justified. Starbucks wound up closing hundreds of locations, and most financial experts did not see them lasting beyond another seven months.
Back to the Customer Experience
Howard Schulz came back on as CEO of Starbucks after having stepped down eight years prior. During his time not being the CEO, it looked like Starbucks had become more concerned with expansion while putting less emphasis on the customer experience. The company was devaluing their own brand by no longer offering the across-the-board quality experience that Howard Schulz had originally built. There was a lot of advice thrown Schulz’s way as far as how to save the company. He was told things like, if he, for example, just dropped the quality of the beans by 5%, the company would save hundreds of millions of dollars. The advice he was given was just a further way to devalue the brand and was far outside of the original vision of the company that he built up from that first store in Seattle.
Instead, Howard Schulz did something considered radical. He decided to focus on what was best for his employees and customers by employing the Six Sigma strategy of taking the time to really understand the customer process as well as that of his employees. He opted to put the experience of people first and focus on quality and community.
Schulz began by flying 11,000 Starbucks location managers out to New Orleans for a meeting. He allowed them to see behind the curtain, to be vulnerable, and to let them see what was at stake. The CEO let it be known that he was embracing adversity and would be investing in his people as they worked towards returning to the core values of Starbucks, ultimately striving to embrace those core values even better than at the company’s height. Returning to the core principles meant not only going beyond customer expectations but also the expectations of the Starbucks team. Trust required rebuilding at every level.
The rededication of Starbucks to being part of the community began immediately during the week of that historic meeting. Starbucks staff contributed more than 54,000 volunteer hours across four days to help the people of New Orleans after the devastation of Hurricane Katrina. It was the largest amount of community support from a company in the history of the city. Not only did this effort show the dedication of Starbucks to the community at large, but it also helped bring its team of workers together, creating a united front for the road ahead.
Starbucks then strived to create greater value for its employees as well as its customers. One effort to make sure that their level of quality was uniform across all locations involved investing in better equipment, a good example of poka-yoke. The company introduced the high-yield espresso machine known as the Manerva at its locations. This machine was able to offer the same level of quality espresso quickly and consistently. This way, a customer would know they could count on their drinks being at a certain quality level, whether they were at a location in California or Nebraska. The machine also required very little guesswork on the part of its employees, as it was nearly fully automated and had a computerized menu. These advances required less manual labor on the part of employees. This, coupled with the fact that the machine was designed to operate at a lower vantage point than other machines, allows employees to be able to keep eye contact with customers and offer greater sustained engagement. While this was a sizable monetary investment, other activities cost Starbucks next to nothing, like having employees write customers’ names by hand on their drinks or by offering a free pastry with a coffee.
An effort was put in to make the Starbucks environment a home away from home for both the employees and the customers. Employees had the same information as the up-tops and were made to understand their own individual responsibility, worth, and value to the entire enterprise in working towards this collective mission of turning the organization around. Employees were encouraged to contribute to Starbucks by offering up ideas and strategies. Employees were also shown how valued they were by the organization by being offered healthcare benefits, even if they worked as little as 20 hours a week. This principle of involvement was extended to customers with the innovative “My Starbucks Idea” program. Customers were given a link to Starbucks headquarters and offered up 93,000 ideas that covered issues like store layout, social responsibility, in-store music, and products. Through this, Starbucks became an early leader in social media, utilizing 100 of the proposed customer ideas. This was also to help customers feel engaged and connected with the company in a meaningful way, even when they were not in a Starbucks.
The organization also doubled down on its efforts to be seen as a company that was beneficial for the world. They expanded their relationship with Conservation International, committing to source their coffees in an ethical way, in order to reestablish Starbucks’ position as a leader in climate preservation and sustainable practices.
The Financial Results Were Not Instantaneous
It would be great to be able to say that the company’s turnaround was immediate. Unfortunately, that is not what happened, and there were definite setbacks. A clear example would be another round of layoffs that occurred in 2009. It took some real time for the organization to right the ship and stick to its guns in its quest to reestablish trust in the Starbucks experience. Thankfully, the belief and dedication were there among the team, fostered by that initial meeting in New Orleans, and continued onward quarter after quarter.
The Outcome Was Staggering as Starbucks Eventually Recorded Record Profits
By re-establishing its core principles and focusing on the Starbucks experience for both its customers and team, Starbucks saw a turnaround by the first quarter of 2010. In some regards, that first quarter represented the best results financially in the history of the company. By Q2 of 2010, it was the first time there had been incremental traffic in Starbucks locations at thirteen quarters. As of this writing, Starbucks is reporting record revenues of $8.2 billion.
A lot of these record revenues continue despite current inflation. It is an absolute reversal of the situation in 2008 when the economic downturn had people limiting their visits to Starbucks. Due to Starbucks spending years reestablishing the value and quality of its experience in the eyes of customers, it is now able to weather financial storms.
4 Best Practices When Giving Quality to Your Customers and Employees
There are some key lessons to be learned from the hardships that Starbucks faced and how the company was able to turn around and become even more successful than before:
1. Do not sacrifice the quality and value of your product or service
There was a great deal of pressure from internal and external sources directed toward the Starbucks CEO to take short-term measures to fix the financial bottom line. This included everything from dropping the quality of the coffee or lowering the price to not offering benefits to the employees.
Instead, Howard Schultz focused efforts on building up the quality of the Starbucks experience so that it came to be seen as an integral part of the daily lives of both its staff and customers. He also made sure that the level of product quality at all Starbucks locations was exceptional, reliable, and consistent.
2. Value your people and gain their trust
Schultz let his people know they were valued by letting them be involved and invested in the future of the organization. He had everyone looking towards the same goal and rewarded them by making sure they knew they were important. It made for better workers who trusted in the organization they were a part of and, in turn, made for better workers that were more engaged with the Starbucks customers.
3. Investing in Quality May Not Yield Record Results Immediately
Hunkering down on Starbucks’ processes and returning to its core values did not yield incredible financial results immediately. It took time for the value of the changes to be embraced and for trust to build with the staff and visitors. Customers had to see over time that Starbucks was an organization that was valued and that their product deserved to be a part of their daily lives. This did happen over the span of a couple of years, and the benefits of this focus on quality and the overall experience are still being seen today, with Starbucks reporting record profits.
4. Innovation simply for the sake of innovation
Any innovations that Starbucks embarked upon were not for the sake of innovation itself. Their innovations were also never made directly in the pursuit of profit. Instead, any of the innovations the organization underwent were in service of providing further quality and value to the overall experience of its customers and staff. This, in turn, created more profit by making customers and employees want to continue to be part of the Starbucks experience.
Starbucks went on to grow even bigger than before, having locations all over the world, and expanding into beverages available in convenience stores as well as instant coffee that could be made at home. This kind of expansion would have likely been a mistake or even impossible if Starbucks had not first made the effort to reestablish its brand to be seen as a beacon of quality and a pleasurable experience. Even during times of economic hardships in the world, customers still flock to Starbucks, as they see it as a valuable part of their daily lives.
Starbucks teaches us that if you give people a service they see as enriching and the experience offered adds value to their lives and community, they will be loyal and keep returning, even during times of economic downturn and when there is a cheaper, lower-quality option available.