HOWARD SCHULTZ GETS STARBUCKS PERKING AGAIN Background. By the time Howard Schultz stepped down as chief executive of Starbucks, in 2000, the coffee chain was one of the world's most recognizable brands—and on a steady trajectory of growth. Eight years later Starbucks was suffering from a rough economy and its own strategic missteps, and Schultz felt compelled to return to the CEO seat. His previous tenure had seen promising growth, but now he faced a challenging mission: to lead a turnaround of the company he had built. [Here are excerpts from Schultz's interview with Harvard Business Review:] HBR: We thought we knew the Howard Schultz story. You had a vision, built a successful company, and moved on. But then Starbucks ran into trouble, and two years ago you had to return as CEO. How hard has it been to get things right? Schultz: The past two years have been transformational for the company and, candidly, for me personally. When I returned, in January 2008, things were actually worse than I'd thought. The decisions we had to make were very diffi cult, but first there had to be a time when we stood up in front of the entire company as leaders and made almost a confession—that the leadership had failed the 180,000 Starbucks people and their families. And even though I wasn't the CEO, I had been around as chairman; I should have known more. I am responsible. We had to admit to ourselves and to the people of this company that we owned the mistakes that were made. Once we did, it was a powerful turning point. It's like when you have a secret and get it out: The burden is off your shoulders. We had never had much competition. Everything we did more or less worked. And that produced a level of hubris that caused us to overlook what was coming. Big-time people began to notice that this coffee business is a good business and highly profitable. McDonald's and Dunkin' Donuts were on the very low end. Let's characterize them as willing to do anything to capture or intercept customers—free coffee, coupons, say anything, do anything. We respect them as companies, but we didn't respect their practices. At the higher end were the independents who went to school on Starbucks. And there was this feeling of "Let's support the local companies." So Starbucks was being squeezed to the middle, and that is an undesirable place for us to be. And by this time, bloggers were making life tough for you. Social media suddenly started defining Starbucks. We were an easy target. Bloggers were putting holes in the equity of the brand, and it was affecting consumer confi dence, our people, everything. I woke up one day and went to my desk, and I had 75 to 100 e-mails and phone calls about an issue I had never heard of. There was a sensational story in the Sun, in London, that Starbucks was wasting water through someaning called the "dipper well." My phone rang, and it was a reporter asking me to comment on the dipper well. "I have no idea what you're talking about," I said. The reporter said, "Mr. Schultz. I suggest you Google Starbucks real fast." The Sun claimed that we were pouring "millions of litres of precious water down the drain" as a result of the method we used to sanitize equipment. The report was wildly exaggerated, and we had been working for several years to find a better solution, but we suddenly became the target of conservation groups. We had a real problem. The lesson was that the world had changed. Something that had happened in London had created a worldwide story that positioned Starbucks with venom and disrespect. And we didn't know how to respond. The issues of social media, digital media, and getting smart about the rules of engagement emerged as a tremendous weakness for the company. Ultimately our reputation didn't suffer, but we spend countless hours defending ourselves when in fact we have a very strong track record in environmental stewardship What was the low point after your return? The challenge was how to preserve and enhance the integrity of the only assets we have as a company: our values, our culture and guiding principles, and the reservoir of trust with our people. There was unbelievable pressure from multiple constituents. I've saved every analyst's report and major story, and what was said about us and about me. My favorite was "Never give an 800-pound gorilla caffeine." There was a death march of comments like "Starbucks's days are numbered," "It's no longer relevant," "McDonald's will definitely kill Starbucks," and "How could the board bring back Schultz, who is responsible for all this?" How had things gone so wrong? There was a different team here-very good people, who deserve respect and not the burden of responsibility, because I was chairman of the company, and I am culpable. Success is not sustainable if it is defined by how big you become or by growth for growth's sake. Success is very shallow if it doesn't have emotional meaning. I think there was a herd mentality-a reason for being that somehow became linked to PE (the price/earnings ratio of the common stock), the stock price, and a group of people who felt they were invincible. Starbucks isn't the first company that has happened to, and thankfully we caught it in time. Do you feel there's a clash between trying to be a premium destination with a premium-priced product and being a public company? I don't think so. Hundreds of public companies have a premium position in their categories. I think the tension is about can you be big and stay "small"? Can you maintain intimacy with your customers and your people? We understand our business very well, and we understand our customers. And to a person, we understand that we are only as good as yesterday and we have to come to work every day and try to exceed the expectations of our people and customers. Yet every company that begins small and "authentic" eventually finds it hard to retain that image as it expands. How can you combat that? You have to have a 100% belief in your core reason for being. There was tremendous pressure in the first three or four months after my return to dramatically change the strategy and the business model of the company. The marketplace was saying, "Starbucks needs to undo all these company owned stores and franchise the system." That would have given us a war chest of cash and signifi cantly increased return on capital. It's a good argument economically. It's a good argument for shareholder value. But it would have fractured the culture of the company. You can't get out of this by trying to navigate with a different road map, one that isn't true to yourself. You have to be authentic, you have to be true, and you have to believe in your heart that this is going to work. Someone said to me, "You are roasting 400 million pounds of coffee a you reduce the quality 5%, no one would know. That's a few hundred million dollars!" We would never do that. Using your imagination and making reasonable assumptions, how would a SWOT analysis for Starbucks look?