Sunday, May 22, 2011

Tall, Grande, and Venti Watered Down Coffee (or, Growth and Diluted Efforts)

Two of the articles for this week speak of growth as if it’s not only obviously a good thing, but almost as if it’s essential if a business wants to be successful. One of the essential questions in “The Real Value of Strategic Planning” is “Are you pursuing growth aggressively enough?” In “Reinventing Your Business Model,” creating new growth is spoken of as if it’s an essential end, the only question being the means of getting there. Interestingly, this article also states that companies “dilute their efforts by attempting to do lots of things. In doing lots of things, they do nothing really well.”

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I think the two (striving for growth and doing nothing really well) go hand-in-hand and agree with Porter when he says in “What is Strategy” that “the growth imperative is hazardous to strategy.” It is this growth imperative that is oftentimes the reason companies end up doing nothing really well.

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I think a good example of this is Starbucks, which was discussed in Organizational Management, a class I think everyone has had or is currently in (see HBS 406127 and 407127). The original idea was that it would be a chain of neighborhood coffeehouses offering a unique and authentic experience, modeled off of the coffeehouses of Europe. One seemingly insignificant compromise after another was made along the way in order to achieve economies of scale and increase same-store sales to make Wall Street happy (okay, we’ll sell CDs… let’s sell food, too… it’ll be cheaper if all stores look exactly the same… flavor-locked packages will save money… drive-though windows, well, why not?). It’s now on its way to 20,000 stores worldwide, but at what price? The original vision was thrown out the window and now it loses taste tests to McDonalds and is trumped by Dunkin’ Donuts when it comes to customer loyalty. I realize almost everyone sees it as a huge success. If the original intent was to serve okay coffee and bad food in a sterile environment in 20,000 stores scattered around the world I would definitely agree. But I see Starbucks as a failure – a company that allowed operational decisions to take the place of strategy and completely lost sight of its vision. (Admittedly, I have no problem grinding my own Starbucks coffee every now and then!).

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I think it’s important to stress the fact that Starbucks got where it is today almost by accident – one little decision after another that moved it further and further away from where it wanted to be. If they made the choice and said, “We choose growth over the experience,” I would say well done and down a shot of Espresso to their success. But because they didn’t have a real strategy they allowed the choice to be made for them – and now it’s far too late to turn back. If twenty years ago the leadership at Starbucks sat down to determine its BHAGs and, as suggested in “Building Your Company’s Vision,” asked “What would we love to see in 20 years?” this (what it’s become) would definitely not be it.

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Starbucks bowed to the pressures of Wall Street and I wouldn’t be surprised if Howard Shultz, the CEO, drinks more than a cup of java when he thinks about what his baby has become. I think Starbucks originally had some (perhaps ill-defined) BHAGs, but never developed a coherent strategy to get there. Granted, they’ve made some money, but if you set out to write the next Great American Novel (or Great ________ Novel) but turn out some cheesy best seller, well, you failed.

2 comments:

  1. "The original idea was ...coffeehouses offering a unique and authentic experience...The original vision was thrown out the window..."
    I strongly agree with your view regarding the turn that the Starbucks has taken. Yet I would also argue that without such decisions, Starbucks might not have been able to survive or might have been a corner-coffee-store in Seattle.
    According to Mark W. Johnson, author of "Reinventing Your Business Model", IBM survived because it changed its business model again and again according to the market demand and structure. They moved from making big computers to desktop computers to laptop computers. He calls it "Disruptive Innovation".
    Similarly, according to Kaplan and Norton article, "Feedback and Learning" are important aspect of strategy development yet is often neglected. I would argue that Starbucks didnt and survived.

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  2. Thanks for the comment. I definitely understand where you're coming from. When you say that Starbucks "might have been a corner-coffee-store in Seattle," I guess I just don't see that as being a bad thing. Starbucks is now a watered down monstrosity, instead of an authentic coffeehouse on the corner that any owner would be proud of.

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