CXO

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...

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