Starbucks CIO Stephen Gillett is brewing change

Sharp-eyed and highly caffeinated regulars might have noticed the brand new employee at the drive-through Starbucks in Mercer Island, Washington state, last November. The newbie, wearing the standard–issue green apron, was receiving a crash course in just about every function at the 1800-square-foot store. He took a turn as a barista, manned the drive-through desk, handed out samples to customers, took out the rubbish, and assisted a patron who was trying to connect to the Wi-Fi network. He tinkered with the store’s point-of-sale -system. He even did some scheduling. What customers likely didn’t realise was that the nearly six-foot, three-inch man offering them free cookie and coffee samples was not just any barista. He was Starbucks’ new CIO, Stephen Gillett. To Gillett, who frothed lattes as part of the coffeemaker’s week-long executive immersion process, nearly every business and customer-facing process in the store was new. “They do a lot in the store,” says Gillett,- the former CIO of stock photography firm Corbis whose background includes senior IT posts at Yahoo and CNet, although Gillett can claim some retail experience: in his younger days he worked at a restaurant and at an Albertsons grocery store. “They do a lot of manual things, and they do a lot of automated things using systems and process. For me, it really amplified the expediency by which I want to deliver some of our key transformational technology platforms.” Since being named SVP and CIO of Starbucks in May 2008, Gillett has learned all about the expediency required at his new gig – whether it’s delivering coffee to a hurried drive-through customer or refreshing Starbucks’ core technology portfolio. And the pressure is on. Starbucks is in the midst of a gruelling company-wide transformation to recapture the brand’s mystique with aficionados who once didn’t mind paying three to four dollars for a cup of upscale coffee. But with the economy unravelling, newly frugal consumers are now more concerned with paying their bills each month, and not with choosing between two shots of espresso or three. This abrupt about-face by its customer base has jolted Starbucks. In 2008, the company closed 600 of its nearly 6800 US stores and laid off more than 12,000 employees out of a global workforce of 176,000. Fourth-quarter 2008 profit fell 97 per cent compared with the previous year, and the stock tanked, losing half its value last year. In 2009, the company has said it expects to reduce its cost structure by more than $400m (£283m). Against this backdrop, Gillett’s mission is to create and implement the technology vision of “anything that touches the consumer, whether it’s in back-end [IT operations] or in how a customer interacts in a physical Starbucks store,” says Chet Kuchinad, executive vice president of Starbucks partner resources, who led the team that hired Gillett. “Stephen’s not just about legacy systems and not just about efficiency. He’s about how we take technology and connect with Starbucks’ consumers in a different way. Frankly, we’ve just begun, and there’s a lot of work to be done yet.” Gillett’s keenly aware of the stakes, and his role. “I feel like the pressure is equally distributed among the executive team,” he says. “I’m part of the team.” Gillett knows a thing or two about pressure and being a team player. He was a member of the University of Oregon Ducks football team, which plays in the Pacific colleges’ first division football conference and often competes in championship ‘bowl’ games, like Gillett’s team did in 1996’s Cotton Bowl. Gillett played the offensive guard position, where the success of the entire offense depends on five large men working in concert to provide protection for the quarterback and open lanes for running backs to tear through the gaps and gain vital yards towards goal.

At a glance, Gillett is both a contradiction and affirmation of IT stereotypes: a jock, but also an MBA grad and once one of the top guild masters in the online role-playing game World of Warcraft. Those gaming skills helped Gillett land a senior director of engineering position at Yahoo and they’ve enhanced his leadership skills more than his MBA coursework, says John Seely Brown, director emeritus of Xerox PARC and a visiting scholar at the University of Southern California, whom Gillett counts among his vast social network. Former managers describe Gillett as a socially gifted and highly charismatic businessperson. Just how charismatic? In 2006, he became the CIO of Corbis, which is owned by Bill Gates. During his tenure, Gillett often went head-to-head with Gates on internal technology-purchasing decisions and persuaded Gates to adopt technology platforms that were, in some instances, from Microsoft’s competition, such as SAP’s ERP products. “Stephen was able to explain to Bill why Bill’s product wasn’t the right product,” says Ted Cahall, EVP of the platforms business unit and technologies division at AOL, who Gillett worked under at CNet and who twice attempted to hire Gillett for the CIO position at AOL. “You’ll meet a lot of technology people who are extremely intelligent but they have really stunted social skills,” Cahall says. “They don’t have an ability to sell their ideas and don’t have the ability to ingratiate themselves with key leaders. Stephen does that so well.” Of course, you don’t become CIO of any organisation without having the technical chops. At 12 Entrepreneuring, where Seely Brown and Gillett worked together, Seely Brown says under Gillett’s watch the company installed the first complete VoIP Cisco system and “bet our entire enterprise on it working”. The system worked quite well and Cisco used some of 12 Entrepreneuring’s findings in a product-training video. “[That’s] just one simple example of thinking both about the technology and the people,” says Seely Brown . And, by the way, Gillett’s just 32 years old. So it’s a safe bet that he’s one of the youngest Fortune 500 CIOs. But his take on leadership and success makes him sound older than his years. “Those are traits that are really age-agnostic,” Gillett says. “Having a proven track record is what really drives your ability to execute.”

New blend of skills What emerges, then, is not only a picture of the IT leader who’s tasked with transforming Starbucks’ technology infrastructure and digital in-store offerings, but also a glimpse of the next generation of CIOs: a technologist with an MBA, a socially adept leader with loads of ambition, and a senior vice president of a multi-billion-dollar company who uses the web for LinkedIn as well as World of Warcraft. In January 2008, long-time Starbucks leader Howard Schultz returned as CEO to rescue the ailing company. Former CIO Bryan Crynes left shortly thereafter. It would have been reasonable for Starbucks to reach into the retail or restaurant industries for a seasoned IT chief to help drive its transformation. “I was a bit surprised that they would call someone like me,” Gillett concedes, given his lack of a traditional retail or supply-chain background. But Starbucks was “looking for a very different kind of CIO,” Kuchinad says, one who could manage the traditional IT requirements and “bring innovation to some of the legacy systems”. Most importantly, the leadership team wanted a CIO who understood Starbucks’ new generation of customers and how they engaged with the brand, both in store and online. Paula Rosenblum, managing partner at Retail Systems Research (RSR) and a former retail CIO, says Gillett’s hire was a sign of major change. “Starbucks wanted to skew new and skew fresh,” she says, “and get out of this old and stodgy, ‘Well, if we do this in the supply chain, we’ll save 15 cents and cost control our way to profitability.’ That’s not what they’re about. They’re about the customer experience.” Yet over the last few years, the company was focused on the back end. “We were not devoting as much resource to the customer-facing side,” says Kuchinad. “What fascinated the leadership team was Stephen’s knowledge of where and how these consumers lived, and how he was technologically engaged with them. While he did not have the traditional retail IT experience, we wanted someone who was leading-edge, who knew where the technology was evolving.” Starbucks wanted a fresher blend: someone who could manage a traditional IT environment and provide a creative take on how technology could better serve its customers, using tools such as remote ordering and automated systems, loyalty cards and business intelligence. “When you look at our customers and at what’s happening in our stores,” Gillett says, “you see wireless devices, iPhones, converged networks, laptops. You see a generation of customers who are engaging [with us] in new ways.” Gillett says that everything he learned at his previous employers is applicable to Starbucks’ retail model. “There are a lot of things a traditional retailer can learn from big internet and big software, as far as scale, analytics and using those tools that drive the web-type companies,” he says.

Good grounding The ‘Starbucks experience’ is something you’ll hear often from its executives. During the past several years, that experience has been diluted by an overexpansion to some 17,000 stores worldwide, diverging product offerings, new coffee-making equipment and cut-throat competition from Dunkin’ Donuts and McDonald’s. In a highly publicised 2007 internal memo, Schultz, who was not running day-to-day operations but still held the chairman title, derided “the watering down of the Starbucks experience” and “the commoditisation of our brand”. Starbucks has been in a transformation mode since Schultz took back the CEO reins. “Starbucks has to find a way in this economy of expressing the value message along with the indulgence factor,” says RSR’s Rosenblum. “So the challenge is to create, whether through technology or otherwise, that there’s the perception of value. Along with that, it’s really important for retailers to find clever and innovative ways to save money. “Generating business intelligence demand across the business and strong analytics is something that Starbucks is going to usher in,” she adds. Gillett’s priorities are wide ranging, but three in particular illustrate what he’s up against. First, he says he’s attempting to change internal perceptions of the IT department “from being perceived as and operating like a traditional IT shop … to becoming a technology company and using the term ‘technology’ versus ‘IT’ when we look at how we’re going to transform our business.” His plan includes aligning IT’s activities with those at the top of the company’s transformational agenda, mainly its customer experience strategies. For example, ethical sourcing of coffee is a big piece of its social responsibility platform. Customer surveys have shown it is important, and executives view it as a competitive differentiator. Starbucks does have a system that tracks coffee origin and other related information, Gillett notes. “If we want to increase the amount of fair-trade coffee or cocoa in our inventory,” Gillett says, “technology has to be able to deploy a system that can track which purchases are actually fair-trade certified and what aren’t. You can’t make that type of a statement without having a technology impact.” Gillett is also completing a previously planned global, multi-year Oracle ERP rollout. He spent his first couple of months learning the business and, ultimately, how the ERP rollout would impact business processes and activities. He found that in many cases, the ERP systems being introduced are replacing manual processes, “which is the most efficient thing you can do”, Gillett says. Perhaps his most crucial duty is to enhance Starbucks’ ability to mine its customer data to help “re-ignite our passion with our customers”, as Gillett says. A lot is hanging on the loyalty card data (from Starbucks’ Reward cards) and business intelligence reporting tools to extract meaningful customer analysis. At a financial analyst briefing in early December, Starbucks marketing executives talked up success they’ve had with the Starbucks Reward cards and the new Gold Card in 2008. One of the first positions Gillett opened up when he was hired was a VP of business intelligence. “Analytics is an absolutely key driver of everything you do,” says Gillett. “And generating BI demand across the business and strong analytics is something that Starbucks is going to usher in. Technology has to play a critical role in all that.” A November 2008 Aberdeen Group report on BI’s use in the retail industry, as well as a survey of 152 companies, shows Gillett has considerable work ahead, according to Aberdeen research director David Hatch. “Many organisations spend months and endure significant costs to obtain the reporting and analysis capabilities that BI promises, only to find that different versions of the truth still exist without any definite way of determining which one is real or accurate,” says Hatch. Accordingly, Gillett says that Starbucks is making progress but as yet is nowhere near mastering BI. “[The business users] haven’t indoctrinated it into everyday business decision-making yet,” he says. “We still have a lot of decisions based on real-time data, intuition, or historical trends. I think, in today’s economic climate, having strong analytic and BI-based decision making can help give a new dimension to that.” As for the role that he and IT can play on the Starbucks team and in its transformation, he seems characteristically assured of himself. “Technology and IT have a critical role in all that because we have to understand our customers with [respect to] today’s economic climate and the cost pressures they face,” Gillett says. “We have to understand our customers in ways that we’ve never had to in the past. I think BI and data warehousing, and consumer insights from a marketing perspective are going to be what gives us that view into the Starbucks customer.”

Stephen Gillett: CV

1988-99: Director of IT, Ardent Software

1999-2000: Director of IT, Wine.com

2000-01: Director of IT, 12 Entrepreneuring

2001-02: Director of IT, Centerrun Software – acquired by Sun Microsystems

2002-04: VP of IT, CNet Networks

2004-06: VP utility computing, Yahoo!

2006-08: CIO, Corbis

2008-present: CIO, Starbucks

Q&A: Hiring – the Gillett way by John Mann

John Mann: What are your hiring challenges? Stephen Gillett: One of my challenges is really an opportunity: to put Starbucks’ technology activities on the map and to recruit from strong technology companies. I want Starbucks’ IT organisation in the Seattle community to be a “destination employer”. The challenge I have is messaging. One advantage that Starbucks has is its brand presence and affinity with people on a personal note. Odds are that the individuals I’m trying to recruit are consumers of our product. JM: How has the economic situation affected your talent acquisition strategy? SG: The pressure of the economic situation has done two things: one, it has reordered sequence. Before, I had two or three key positions open in parallel. Now I have them sequenced in order of most to least business impact. Second, it has allowed me to tune the job descriptions, talent pool and experience we are looking for. It is much better now to look for someone who has been through an economic downturn. For example, someone who worked at IBM in 1992 when Lou Gerstner came back is a good person to have right now. I do not want to see someone who has never had faced economic adversity in their career. I want someone who is going to be a pillar of strength at a time of uncertainty.

JM: What is the process for interviewing candidates for IT jobs at Starbucks? SG: I like to do a phone screen before I bring a candidate in for more extensive interviews because the last thing I want to do is have a candidate go through a one- or two-day, eight-hour session only to get to me and not be a fit. The talent acquisition team at Starbucks does a first pass, then I spend an hour with the candidate on the phone or in person. If that works, I bring them in for the full interview cycle. When I build the interview cycle for vice presidents and above, I have the candidate interview with their potential direct reports to show the directors and their staff that I value their opinion when it comes to hiring their future leadership. I typically conduct those interviews in a group setting of two or three directors so that it is not one-on-one – a director with their potential boss – which could be uncomfortable for the director. A group environment gives the directors more confidence. I also bring peers or potential business partners outside of IT, with whom I have a strong relationship, to interview candidates for VP-level positions.

JM: Do you ever interview candidates for executive-level positions outside of IT? SG: Yes, I interview candidates from marketing to supply-chain operations and from finance to food. I interview to assess general leadership and cultural issues, not to assess whether they know their discipline. I am going to talk to that person to evaluate how he or she will fit culturally, whether I will be able to work with him or her, whether this person will work with vice presidents in IT, how I see him or her acclimatising to the culture, and whether they’re geared for a turnaround.

JM: What questions do you always ask? SG: 1. Why are you interested in the job? What do you bring to the role? 2. If I was to talk to your current direct reports, what would they tell me about you, including areas you need to improve on? 3. Tell me one of the most difficult things you have had to do in your career. Have you inherited a failed project? Have you inherited a dysfunctional team? Have you had to terminate or reduce a significant size of a department? Have you had to hire quickly? Tell me how you have faced adversity in your career and overcome it.

JM: What is the biggest hiring mistake you’ve made? SG: I hired a professor/lecture speaker for a highly critical role. It was not a mistake in the short term because we had the attention span and bandwidth for that person to contribute, but longer term, their inclination to accept every invite to speak at a conference, to write every foreword to every friend’s book really started to diminish their effectiveness in the enterprise.

JM: What was the worst interview you ever conducted and why? SG: I did an interview with a person who was highly intoxicated once. Also, I interviewed a candidate who, during the interview process, was very clear that he was not interested in that particular job but was interested in upward mobility.

JM: Do you have any pet interview peeves? SG: Do not chew gum. Do not recite your résumé. Your résumé gets you in the door and your personality, experience, style and character gets you the job. I’ve looked at your résumé, now I want to look at you.

JM: Have you ever had a case where you really liked somebody you interviewed but your team did not? If so, what did you do? SG: I had a situation like that at a previous company, but it was much more complicated. When you have a culture where mid-level management does not have the authority to say yes, they exercise their authority by saying no to everything. So if you get a candidate whom everyone is saying yes to, some of the disrupters in the group would say no just to focus the discussion on why they said no.

JM: What advice can you offer candidates about their résumés and cover letters? SG: Think differentiation with a capital D. I received a professional résumé for a highly qualified candidate, and when I got down to the hobby section, it said, “I can juggle four things at once and I lost on Jeopardy.” That differentiated the candidate for me and got his résumé to the top of my stack.