Starbucks had created a mystique around the enjoyment of coffee.
Carefully designed stores and an experience that encouraged people to stay and chat had built Starbucks into a powerhouse. Howard Schultz (founder and CEO) stepped down from active manage- ment of the business and Jim Donald took over as CEO and drove the company toward efficiency, pricing growth, and diversification. The company went from an American success story to one with a 97% drop in net income and same store sales in negative territory. Despite a well-known e-mail from Schultz to Donald in 2007 encouraging him to return to core elements of the business, things did not improve, and in January 2008 Schultz replaced Donald as CEO. In February 2008, all 7,100+ Starbucks in North America shut their doors for a three-hour video conference with Schultz so they could reset the Starbucks experience. He shut down almost 1,000 outlets and instituted a series
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54 PART 1 Introduction to Strategic Management and Business Policy
of moves aimed at returning the company to its preeminent position. The turnaround at Starbucks has been a remarkable story of regaining the cache they almost lost.50
The evaluation and control of performance completes the strategic management model. Based on performance results, management may need to make adjustments in its strategy formulation, in implementation, or in both. (Evaluation and control is discussed in more detail in Chapter 12.)
FEEDBACK/LEARNING PROCESS Note that the strategic management model depicted in Figure 1–2 includes a feedback/ learning process. Arrows are drawn coming out of each part of the model and taking information to each of the previous parts of the model. As a firm or business unit devel- ops strategies, programs, and the like, it often must go back to revise or correct decisions made earlier in the process. For example, poor performance (as measured in evaluation and control) usually indicates that something has gone wrong with either strategy for- mulation or implementation. It could also mean that a key variable, such as a new com- petitor, a change in the environment, or a significant regulatory change has occurred. Just after Shultz took back the reigns at Starbucks, the recession hit and the mantra in the country became, “save money, don’t buy Starbucks.” The business was built on an image as the comfortable place away from home, but had trended toward a fast-food operation. Schultz eliminated hot sandwiches which were filling the place with the smell of burnt cheese instead of coffee, refocused on the services provided by the baristas, started grinding coffee on-site to add the smells so loved at a Starbucks, and put in new coffee machines that allowed baristas to talk with customers. Starbucks reassessed the environment and found a better way to profitably apply its core competencies.