by Thomas Wailgum

Starbucks Spikes Its ‘New’ Business Strategy with a Double Shot of IT

Mar 20, 20095 mins
Enterprise Applications

At its annual shareholders meeting this week, Starbucks executives detailed their strategy for profitable growth amid what Chairman and CEO Howard Schultz called, in what seemed like the understatement of the year, “the challenging economic environment.”

Starbucks Coffee

Starbucks is normally a lightning rod for coverage from the business and consumer media, especially when its financial news is bad (and it has been). But news reports of its latest shareholder meeting and strategy discussions got about as much attention as a D-list Hollywood celebrity overdose, overshadowed as it was by the controversy surrounding AIG’s retention bonuses.

Nevertheless, several key themes emerged: increasing profitability by slashing $500 million in expenses in fiscal 2009; meeting Starbucks customers’ needs for “value and quality”; growing consumer products (such as its recent entrance into the $17 billion instant-coffee market with its VIA product); and “focusing on disciplined global store expansion in key markets.”

This new strategy (essentially: cut costs, get closer to customers, limit store expansion) sounded awfully familiar to Schultz’s “transformational” strategy delivered in January 2008, when he came back and took over the coffee purveyor’s reins.

As I reported last year, in “How IT Systems Can Help Starbucks Fix Itself,” Schultz said his key tasks included: refocusing on the in-store customer experience and new products; slowing the pace of U.S. store openings; re-igniting the emotional attachment with customers; and streamlining the management to better support customer-focused initiatives.

I guess there’s only so much new stuff you can do with a coffee company. Or is there more?

I believe there is. And it starts with IT and Starbucks’ new-ish CIO Stephen Gillett, whom I profiled in “Starbucks’ Next-Generation CIO: Young, Fast and In Control” in early 2009.

Though they were overshadowed during the shareholder meeting, there were two critical pieces of information that related to Starbucks’ technology initiatives. First, CFO Troy Alstead noted that “improving operational efficiencies and making technology investments” as well as “investing in the tools and training store managers need” would be critical drivers for the company.

This was actually a “new” strategy, and I would suggest it was due, in no small part, to Gillett’s impact on Starbucks’ brass. (Gillett was hired in May 2008.) As Gillett told me, business users’ adoption of BI and analytics data was critical to help “re-ignite our passion with our customers,” Gillett said. “Analytics is an absolutely key driver of everything you do. And generating BI demand across the business and strong analytics is something that Starbucks is going to usher in. Technology has to play an absolutely critical role in all that.”

Perhaps that enthusiasm for BI data has begun percolating among the ranks of business users.

The second IT-related piece of news from the annual meeting was that shareholders had elected two new board members: Kevin Johnson, CEO of Juniper Networks, and Sheryl Sandberg, COO of Facebook—both of whom, the company noted,” have strong technology backgrounds.”

I’ll say. To me, the elections are another indication that Starbucks is realizing just how critical it is to have board members who can span both the business and technology worlds. The executives Starbucks’ elected to its board know what a differentiator great tech can be today and know how to reach today’s tech savvy customers.

Let’s face it: Consumers don’t want to be marketed to via traditional, mass-media-type approaches. Customized, highly relevant and personalized marketing messages are what works. And no one inside the company seems to know this better than Starbucks’ CIO.

“When you look at our customers and what’s happening in our stores, you see wireless devices, iPhones, converged networks, laptops. You see a generation of customers who are entering our stores and engaging [with us] in new ways,” Gillett told me last year. “We have to understand our customers in ways that we’ve never had to in the past.”

Core enterprise systems—the ERP, CRM and supply chain apps where valuable customer and partner data resides—must be mined in an intelligent manner right now, which Gillett has undoubtedly been working on. (Gillett did not return an e-mail seeking comment for this blog.)

For sure, Gillett knows both the intense challenges he faces and the IT-enabled opportunities there for the taking. But it seems that he now has senior management’s and the board’s attention. And that’s some good news.

UPDATE: I received an e-mail from Gillett (who is at an annual IT summit in Europe). He pointed me to Mitch Ratcliffe’s blog which noted that Gillett has added another role: General manager of Digital Ventures, a new LOB for Starbucks. Gillett’s mission: to “expand Starbucks reach in the digital space in a way that is profitable in the current business climate—organizationally nimble, small and focused on creating new revenue streams for the company,” according to an e-mail from CEO Schultz.

Given Gillett’s track record, I’m not surprised by this latest news in the least. And in terms of the bigger business picture, Wall Street apparently likes what it’s seeing from Starbucks as of late: Starbucks stock has now jumped 55 percent from the lows it experienced last fall, reported the Wall Street Journal. The WSJ blog also noted that “more than 750,000 people have signed up for Starbucks loyalty cards, triple what the company expected.” Opportunity is definitely knocking for Starbucks’ CIO.