Business ecology report
Starbucks 380

I was impressed by the honest statement of Louis Gallios', CEO of Airbus, that Airbus should have restructured, downsized, reorganised, or whatever one can call it.  NOT today - after the 380 problems ruined financial forecasts, but years ago, as when he said the airplanes were still sold as loaves of bread.  He referred to his French background, stating that expression was correct in French - as it is in my native language which is Dutch - and he expressed his belief in his audience - the global press - that they would have understood it.

Basically he stated that they should have restructured the company at a time that it seemed absolutely unnecessary to do so, whilst sales were high, the dollar was strong and Boeing almost didn't seem a real threat.  Now the restructuring is a shock to all employees who even a year ago thought nothing was wrong and feel betrayed now.

Why wasn't it done?  Why was top management not picking up signals?  Why did one fall asleep in the midst of all the success?  Of course, we know it is because of all the success.  Success works as a narcotic.  For many leaders this might start to become a mantra, but because of the lack of teamwork in the top few of Airbus (I would rather say, the energy and activity put in by the leadership to prevent a team to form in the first place), no real effort was made to create a team leadership where people could approach each other with some inconvenient truth and deal with it together, because the signals of decline are always there, clearly visible and systemically fitting together.  Let's not go too far into the archives and try to understand something we can't cure anymore.  Let's try to learn a lesson and apply it to an actual situation.

These processes are part of nature, part of any growth cycle, part of the S-curve and as such, they happen everyday and almost every day in business newspapers we can read examples.

Take Starbucks

Whilst I based most of the information on the BBC and CNN news broadcasting and what everybody can pick up from the written and broadcasted news in general, the following is partially based upon an article in the Financial Times with the title; "Why Schultz has caused a stir at Starbucks" by Andrew Ward published on the 25th February 2007. 

So.....again.....take Starbucks

What Andrew Ward reports is a leaked mail that Schultz the CEO, wrote about Starbucks.  Everything he writes, all the facts, the reaction of others, the consistency amongst the opinions and data, all points in just one single direction:  Starbucks is at the top of an S-curve.  What should leaders do at the top of an S-curve?  They should be aware of that, challenge the facts, downplay the financial success and work as hard as ever on creating a new S-curve.  If the wait is too long, the company will lose its core values and might not recover at all.

What are some key points that Ward picks up in his article?

Top of the S-curve: a whole consistent list of "typicals".  The first bullets refer to the facts.  The following ones to the symptoms:

• Starbucks went from 1,000 to 13,000 stores over a decade
• It is in a rapid growth curve, heading for 40,000 shops in the future
• There are many efficiency measures or edicts ("a coffee should not take more than 30 seconds to produce" or "getting more than 50 people through the drivethrough in 30 minutes")
• First quarter profits went up 18%, a rosy picture for the shareholders
• The brand is watering down
• McDonalds coffee is going to compete with Starbucks'
• Stores no longer have the aroma of coffee
• There are too many sterile cookie cutter stores

Read Andrew Ward's article for more details and background.  The key here is that this combination of bullets seems to be a mix of at least two different categories.  One about values, the other about growth and financials.  We tend, and in general we have learned it that way, to keep these things as separate categories.  We tend to ask ourselves, why can't we grow into a huge corporation without losing our values?  From a business ecological point of view, this is not possible.  Without a flexible, nimble organisation - we know now - values are impossible.  We can't create a bureaucracy and keep values alive,  one excludes the other.  We know now that values are emergent properties.  Emergent properties can only exist in living dynamic systems and as soon as feedback like control, rules, growth targets based upon pure financials, procedures and the like are going to dominate the system, it's dynamics will slow down and the emergent property will evaporate like a mirage.

So the list of bullets from Ward's FT article does not describe two patterns or categories, but just one.  Basically, all the bullets are interdependent and part of one phenomenon: growth, bureaucracy and loss of values.

My observation is that companies that keep their values and are still big, that in those systems the flexibility and leadership has been saved by organic structuring in smaller inter-dependent parts with a high autonomy.

I admire Schultz's courage and perception.  I think, this is exactly what leaders should do.  They should be, in terms of S-curves, where the others are not.  The disbelief of people reading his leaked e-mail, shows clearly that many are not where Schultz already is.

The big challenge for Starbucks is going to be to understand that one cannot go on in this way, trying to rescue the values whilst becoming more and more driven by stockmarkets and financials.  In order to save the long term financials, one should stop the greed and over ambitious non-organic growth targets.  That is paradoxically also in the interest of the shareholders.

The article refers almost implicitly to a strategy that is trying to solve an insolvable dilemma, maintaining its rapid growth all  the way to 40,000 coffee shops and at the same time keeping the values aspects like brand, service, image just as it has ever been.  We know now, that it is impossible to steer up and up an S-curve, create a moloch of a company and expect that the values will survive.  it is impossible and Schultz and his colleagues need to stop trying to solve a dilemma, but are more likely to face (citing Badaracco) some good-versus-good decisions that might strike against the hairs of the shareholders, but testing, revealing and shaping their values for the future.  That might be a different S-curve altogether.

Is it possible to make those kind of decisions?  Can it be done?  Does it need to be done?  Take Leo van Wijk, former CEO of KLM, the dutch airline company, who merged the company with Air France and got a minority share back.  Everywhere people were happy, but in the Netherlands, where many shareholders thought it had been sold too cheap - that things could go on for a while, everything seemed ok with KLM.  Still van Wijk persevered.  He sold the company before he entered the top of the S-curve.  He sold the company ahead of the S-curve and joined a new S-curve with Air France.  He had the courage to fight resistance and to follow his vision.  At present KLM is harvesting the benefits, more than it could ever have done on its own, and he himself is asked to play a key strategic role in the future of the company.  Yes.... it is possible to jump ahead but it needs courage, a high level of complexity-maturity, and still, there is no guarantee.  But if one doesn't , failure is mostly guaranteed and regret, like that of the CEO of Airbus - too late.

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