Leadership

Starbucks = Wang Computer?

Good ideas without consistent and visionary leadership cannot keep any organization successful on their own. The business landscape is littered with stories of "formerly great" organizations who fail as a result of lack of leadership. Starbucks appears destined to fail for the same reason.

 If you ask most people what they know about Wang Laboratories, the chances are you'll get a shrug of their shoulders. But Wang was a big deal at one time:

A computer company founded in 1951 with a focus on other products, Wang was headquartered in a part of the USA where very few other big companies resided. At its peak in the 1980s, it had revenues of $3 billion/year and employed over 40,000 people. It was an important company. Everyone knew who it was and what it did.

Over time however, new competitors appeared, the market took different turns and evolved, and Wang's importance and value lessened. Losses started racking up. In its final days as a freestanding company, it added products, changed management (note to investors: always be concerned when the founder's son is brought in to save a sinking company) and became increasingly smaller and less important. It filed for bankruptcy in the mid 90's as I recall. While there are still products made with the Wang brand on them, they have little to do with the original organization.

Starbucks, as we all know, grew very quickly as well. Started with 11 stores in 1987, it too is based in a part of the country where few large head offices exist. Afterward, they grew to become the dominant player in their business. With amazing wind at their backs, they then decided to parlay success as a retailer of coffee and move into selling products including music and books. Next came a move into wholesaling, offering coffee products to other retail chains. With 16,000 stores, and coffee available at places like even Target, everyone knows them.

But the best times are now behind Starbucks, and they've now moved into a downward trajectory similar to Wang's.

Consider the evidence:

  • Stock prices are way down from their peak.
  • Same store sales are down year over year.
  • They lost their original cache as the product was made available everywhere.
  • Locations are being closed across the country.
  • Products are being discontinued and then replaced by new items intended to build past levels of volume.
  • The original founder has come back in as the boss. His objective: to fix it.

Now add these facts:

  • The economy is tough
  • Competition is greater than ever (if you haven't tried similar products at Dunkin Donuts or MacDonalds you're missing good deals)
  • The company leader is making decisions based on "gut feelings" as opposed to, say, research.

Last month the UCLA Anderson School of Management awarded the company founder/CEO, Howard Schulz, their first-ever annual award for exemplary leadership. (That choice was kind of scary in itself, but that's another blog.) In follow-up interviews, he was asked about his strategy to lead Starbucks back to greatness. The reply was telling. Rather than citing statistics or market research data they have obtained from customers, the CEO spoke only about his opinions. He strongest statements about why they will get back to their past success were that they have lots of room to grow with just 8% of the total coffee market share currently, and that they have a new cold drink coming out for the summer.

Those answers would be fine if one were talking to a Starbucks store manager or even a district manager. But not the company's leader. The head of any organization should be prepared to address longer-range plans, factors, and tactics that go beyond a few months. I believe that Howard Schulz does not have a strategic plan that he can use to explain why they will ever recover.

Over my 30 years in boardrooms across North America, I've seen CEOs in action who were good, bad, and ugly. I have had the opportunity to spend time with some of the finest leaders in business and politics. One of the characteristics that all the great leaders possessed was vision.

I don't see this from Howard Schulz. I see what seems to be a nice guy who is apparently delighted with how successful both he and his company became. He seems to understand the importance of customer service and providing good benefits to his employees, but those alone, while important, will not stave off a downward spiral for Starbucks. The company needs vision, strategy and short-term tactics to ensure it will not become another Wang.

john

Leadership Coach

About

John M. McKee is the founder and CEO of BusinessSuccessCoach.net, an international consulting and coaching practice with subscribers in 43 countries. One of the founding senior executives of DIRECTV, his hands-on experience includes leading billion d...

21 comments
techrepublic
techrepublic

While this article was a while back, I ran across it and have to say that Wang became great on the basis of its Word Processing (and other business) systems. They were unique and saved businesses money. Only when commodity PCs began showing up and SW developers began writing WP programs for them (MultiMate was a knockoff of Wang WP), did Wang's business start to severely erode. Starbucks always had a commodity product (coffee), but is a more inventive marketer. While there are other competitors, the value proposition isn't changing the way it did for companies such as Wang (and DEC, etc. -- most all of which have disappeared from the landscape, except maybe IBM, which was always big on service in addition to products).

simechis
simechis

Local coffee houses, are where its at. As for Measurements...the key to successful business decisions rely on balance..ie a balanced score card.

silvergrrl
silvergrrl

I sincerely hope that you are right. Serving crappy beverages at inflated prices is just a starting point. I find it interesting that you do not mention the predatory business practices that have given them a bad name in the business community. This includes things like forcing small coffee shops out of office buildings via agreements with the property management companies. When the lease comes up - oops! too bad! Can't renew! If you anger enough people, the bad publicity just adds to the difficulty of trying to regain your footing.

bcole
bcole

A Wang pc was the first pc I ever used. Up until 2005 we still ran one application on one device. It still ran fine.

cyberdragon666
cyberdragon666

Not sure where you have gotten your data but in my area Starbucks stores have doubled in the past year (we have around 40 now). There have been NO closings unless you count the one they bulldozed and are building a newer one to replace it. These are not the kind of moves you see from a company on the downward spiral.

PeriscopeMan
PeriscopeMan

Look at what Steve Jobs did for Apple. Sometimes it takes a CEO to walk in with some great ideas that are NOT based on statistics. Many times when you do a poll (as the one here) it does not tell you the true story. Sometimes you need to go with your gut. As for StarBucks, they need to do more training for their people like the evening they shut down and trained nationwide. I find their problems are a lack of training.

NickNielsen
NickNielsen

"I never liked Starbucks in the first place."

boxfiddler
boxfiddler

Ditto that.

Ed Woychowsky
Ed Woychowsky

Yeah, no coffee flavor, just a bitter taste.

boxfiddler
boxfiddler

that there was a recent Starbucks gripe fest. Also seems that the consensus was that for a good, plain old cup of coffee, Starbucks is a miserable failure.

nwjerseyliz
nwjerseyliz

I worked briefly at Wang once. Geez, it's been years since I thought about that company. It was a very comfortable situation for the times.

CareerCoach
CareerCoach

Do you think it is possible that any single leader can make or break a company this big?

SundayBiker
SundayBiker

So it can make a difference. Also, I very raraly go to Starbux for a coffee, I go there to study with a few books or for a chat with somebody. It's my home away from home when I don't want to be distracted and it is the office (sometimes the only office) for a lot of people. I've seen seen some ladies having a Church small group meeting at the next table! It's a silent rule not to come with small children or any kids (at least in this area), people are studying or doing business and that would be a major distraction. Recently they give you 2 hrs of free wifi, that's aother reason I go to starbucks and have a coffee or a green tea frappucino. Yes, I agree the service gor worse lately, but for these reasons I think it will still survive. And don't forget they plan on opening a billion stores in China pretty soon.

Dumphrey
Dumphrey

because I have never drank much starbucks and have never really been a supporter, but I do drink a lot of coffee. Another point is that Starbucks made a big impact on customers with their wonderful service, as the economy tightens, they close stores, and give smaller if any raises, increase benefits costs, hourly employees are going to be less likely to work hard and give 100%. Customer service will decline (see Belks corporation for an example of what not to do...) and business will decline. Add to that that many stores were in very poor locations and depended on the Starbucks name to get people to go out of their way to find parking to get coffee... shops within blocks of each other, essientialy competing with themselves... One person at a time (loss of customers) COULD break Starbucks, especially with them over extended as they are. Reality? They will downsize, go back to their core business model, and survive. I think Shultz has a very good chance to make this work (one person saving the company).

boxfiddler
boxfiddler

One cup, never again. I didn't even answer the poll - and I like to answer polls! An option for 'don't drink Starbucks coffee' needs to be there. As to whether or not one man can make or break a business, yes and no. If that man has the backing it takes to implement stupid policy, yes. If not, no.

CharlieSpencer
CharlieSpencer

Just to name two who have pulled off big turn-arounds.

JohnMcGrew
JohnMcGrew

Iaccoca's only real achivement was pandering to Congress to get them to impose "voluntary" import restrictions upon the Japanese auto makers, who were making cars that Americans actually wanted to buy. These quotas had the effect of raising the price of all automobiles, both Japanese and domestic. During that period, Chrysler never really sold any more (or any better) cars than they did before. It's just that the profit margin on each car went up by about $1500 because of the artificially created strain on supply. In reality, it was just a hidden tax upon American car buyers in the name of saving Chrysler. I don't remember the acutal numbers, but in the early '90s, some econmists were able to put a price tag on what it cost consumers per job saved at Chrysler. It was no great deal for us, or them.

Oz_Media
Oz_Media

One person can destroy the biggest corporations. Bush did it; George W. Bush's businesses fail but he makes millions: [b]Arbusto[/b], an oil exploration company, lost money, but it got considerable investments (nearly $5 million) because even losing oil investments were useful as tax shelters. [b]Spectrum 7 Energy Corp.[/b] bought out Arbusto in 1984 and hired Bush to run the company's oil interests in Midland, Texas. The oil business collapsed as oil prices plummeted by 1986, and Spectrum 7 Energy was near failure. [b]Harken Energy[/b] acquired Mr. Bush's Spectrum 7 Energy shares, and he got Harken shares, a directorship, and a consulting arrangement in return. Harken, under Bush, brought in Saudi real estate tycoon Sheikh Abdullah Bakhsh as a board member and a major investor. Over the next few years, Harken would turn out to have links to: Saudi money, CIA-connected Filipinos, the Harvard Endowment, the emir of Bahrain, and the shadowy Bank of Credit and Commerce International. A 1991 internal SEC document suggested George W. Bush violated federal securities law at least 4 times in the late 1980s and early 1990s in selling Harken stock while serving as a director of Harken. This is essentially the same kind of activity that Martha Stewart is going to prison over. [b]Except at the time of the investigation, Mr. Bush's father was president and the case was quietly dropped.[/b] Both Arbusto/Bush Exploration and Spectrum 7 failed with Bush as chairman and CEO. At Harken, Mr. Bush was relieved of day-to-day management responsibilities but still served on the board of directors. Starbucks? No problem!

JohnMcGrew
JohnMcGrew

He'll restore us to the wonderful economic times known as the '70s.

funnyfridaysguy
funnyfridaysguy

Depending on how the company is run, One guy can. Look at Jack Tramiel and Commodore Computers. If the company is run as a great team, probably not. If one fellow pulls and commands all the strings; in some cases it can be a powerful driving force. But once that engine goes away well.... Things can happen. Depends on how StarBucks is run at the top. If they are willing to adapt with the times and the economy they could do well.

RationalGuy
RationalGuy

Starbucks started out as a shop in your town that replicated a great coffee house experience. The baristas actually knew how to make a great cup of coffee. Business picked up, they started selling espresso machines and CDs, and hiring warm bodies who were more interested in getting health insurance than in learning how to make the foam on your latte *just right*. It stopped being a coffee house and just became an expensive fast food joint. Amazon.com on the other hand started out as an online bookstore, but the value was in the convenience and the quick turnaround. They were able to extend that value proposition to other products, and turned from virtual Barnes & Noble to virtual Wal-Mart. The core of the business was the same, but the focus widened. The core of Starbucks has shifted radically, and that above all will be their undoing.

Editor's Picks