8-Stage Model of Change: Starbucks

Change Management

Management Theory

Change management: Starbucks case study

Kotter & Cohen (2002) outline an 8-phase change process to explain why some organizations succeed and others do not at change management. These stages of change include increasing the sense of urgency for change; building a guiding team for the change; getting the change vision right; communicating to stakeholders to generate enthusiasm or 'buy-in'; empowering action; creating short-term wins; not letting up; and making the change 'stick' (Kotter & Cohen 2002: 6). All of these principles can be seen in the case of Starbucks, a popular coffee retailer that saw its fortunes flagging until it decided to drastically improve the quality of its coffee and focus on international rather than domestic expansion.

In 2008, Starbucks was in a state of crisis. The Seattle-based coffee chain had become wildly profitable and popular and spread across America, often opening stores very close to one another in defiance of conventional business wisdom. The concept behind Starbucks was to provide an accessible European coffee experience and with a hometown feel to every store. Unlike many franchises, Starbucks was known for tailoring the resources of its stores to the needs of the specific, local customer base. However, by 2008 Starbucks was facing major revenue loss due to criticisms that the quality of its coffee had deteriorated and was not worth the price. Also, "Starbucks' business model had spiraled out of control," with seven new stores opening a day (Kowitt 2008). This rapid expansion had resulted in a loss of quality control for the organization.

This was a critical failure for Starbucks given that the price of its coffee was an 'affordable luxury' -- although not prohibitively expensive like a Prada bag, there were many cheaper alternatives and the argument for choosing Starbucks was always its quality. As a result, to create an immediate sense of urgency, Starbucks did the unthinkable: it closed down almost all of its stores for a day to engage in a massive retraining of its baristas, to show customers and staff members alike that it was returning to a focus on the quality that made it famous (Allison 2008). Unless there is a sense of urgency, people will not feel motivated to make the necessary changes in their behaviors and alter their current, complacent state (Kotter & Cohen 2002: 17).

Building a guiding team was also vital, both at the store and managerial level. Starbucks specifically bought in its old CEO, Howard Schultz (who remains the leader to this day) to supervise the turnaround. Schultz had a strong sense of the company's vision, which ties into the third step of change, getting the vision right. Starbucks was facing increasing competition from McDonald's and Dunkin' Donuts, both of which were offering similar coffee beverages at a lower price point. Schultz knew that unless Starbucks could communicate its quality and uniqueness, its reputation and base would falter. Additionally, given the soft economy at the time, it was vital to justify the company's price point.

Communicating for buy-in thus required an intensely personalized strategy, hence the massive retraining effort which quite literally communicated to every employee the need for change. Schultz also continued to communicate the need for Starbucks to uphold the value to shareholders. It shut down 600 stores -- "80% of them had been open for less than two years" -- to focus improving on the quality of its core, base stores. Also, Schultz refused to bow to pressure to drop healthcare for employees, despite considerable pressure to do so, citing the commitment it had made to its employees (Kowitt 2008). This increased worker loyalty, always a fragile thing in low-wage retail and also increased customers' positive perceptions of Starbucks as an ethical company, despite criticisms that it was putting small coffee shops out of business. Ultimately, worker loyalty saves the company money in retraining and unlike standard fast food; Starbucks requires that employees are competent enough to prepare its beverages.

Empowering action was achieved by actually providing retraining and education for employees, rather than simply using rhetoric: employees were not simply told to 'get better' but were given specific instructions on how to do so. Also, the company's standard operating procedures were altered by shifting back to the old ways it had manufactured coffee in the past, reducing beverage 'hold' time and thus improving the Starbucks experience (Allison 2008). Short-term wins were also generated by the immediate success of improved beverage quality for customers, even though a larger change plan was needed. Starbucks begin to focus more on specific areas of international expansion into the developing world and keeping the quality constant and current in its existing stores, rather than seeking to rapidly expand domestically. This also decreased U.S. market saturation.