From the beginning of our coaching and co-learning relationship at Starbucks, we were traveling new lean territory. It was about two decades ago when Scott (at the time the VP of Strategy at the coffee shop chain) sought counsel from John (an independent consultant prior to his leadership role at LEI), during which time Josh (current LEI President) was managing a Starbucks in Portland, OR. The factors at play at the time presented numerous learning opportunities:
- Applying lean to a retail store environment across thousands of locations,
- Exploring how to effectively translate company strategy to disparate store operations, and
- Using evidence from experiments and improvements at the frontline to define standardized chain-wide actions necessary to achieve ambitious corporate objectives.
Prior to joining Starbucks in 2002, Scott, a graduate of the Tuck School of Business at Dartmouth, was a management consultant with McKinsey & Co.
While still relatively new at Starbucks, he “stumbled into this world of lean and the Toyota production system through a weird set of coincidences” that led him to John and LEI and changed his life. He jokes that he got the task to improve an internal process effecting Starbuck’s 7,000 stores because he was absent from a meeting when the assignment was made.
John found the opportunity to take lean into a retail setting intriguing, a gemba experience that could expand his own learning and the lean learning for those outside of manufacturing. To John’s surprise, he and Scott initially started improvements in a coffee roasting facility, which to John was like most manufacturing plants. Their observations and experiments there yielded some “amazing” learnings and opportunities for the organization.
Scott didn’t have much experience with manufacturing plants, and came away from the time at the roasting facility impressed with John’s lean expertise, his ability to see and understand the situation, and how he engaged and interacted with those at the site. He’d also clearly seen and was motivated by what was possible via lean, and wanted to document and share this knowledge, even if leadership at Starbucks wasn’t quite in a position to understand it.
Both Scott and John were “learning like crazy” based on knowledge gained through observations at the gemba, and were achieving some amazing results. “Everything we would see and do, something would happen that would be dynamic and exciting,” said John. The two were then “joined at the hip” and saw that it was time to take their lean learning out to the individual retail stores and see the work of baristas, at which point Josh entered the picture.
The store work was unfamiliar to John and, while Scott remembered retail operations from his time working at McDonald’s as a youth, he had not spent much time in Starbucks’ retail stores. He did, however, know more about retail stores than John at that point. “We go in, and you can see all these things were going on. So you were teaching me,” said John. “So as I’m asking questions, maybe they sounded like wise sensei questions or something, but partly I didn’t know what the hell was going on. And you’re explaining, and you’re explaining what you look for, and I quickly learned what the executives of Starbucks would look for when they went into the stores. And we both agreed that those aren’t the right things to be looking for. Those aren’t the most productive things to be looking for.”
Scott previously had been looking at what most other corporate executives everywhere look at, which is rarely how the actual work is done and how to ease burden on the frontline and make the work better. Learning by watching is not the normal decision-making approach for executives trained in the finest business schools. It’s not what Scott and other senior leaders are trained to do; they’re used to making decisions via data analysis and spreadsheets. For most, the lean approach is too simple, too mundane. But it soon wasn’t for Scott.
While going into stores and watching baristas, Scott also was connecting what he saw back to Starbucks corporate strategy and seeing lean as the vehicle to transform operations and the company and develop people. What opportunities at the store level could help Starbucks address its challenge of growing the chain as fast as possible while maintaining the unique experience that each store offers?
John was learning that Starbuck’s lean effort would need to align with the chain’s historical approach to growth. Starbuck’s priority was location rather than some cookie-cutter format that could be dropped onto a specific kind and size of space. Starbucks was putting in stores where it made sense from a customer perspective — urban stores crammed into downtown office buildings, relaxing setups in trendy neighborhoods, simple offerings in suburbia. And just as every store was different, the product itself was highly customizable. John wrote in an LEI article in 2009 that a Starbuck’s customer could order any of more than 80,000 drinks from the nearly infinite available combinations.1
Prioritizing location over a consistent format added significant variability to stores, both on the clientele side and the operations of the stores (e.g., the equipment, layout, and number of employees that can fit). The challenge was: How do you scale something with standardization when each store is a snowflake? This had previously been attempted through corporate directives, and a classic industrial engineering approach. “Standardizing work” — which might work at McDonalds — wasn’t consistent with Starbucks culture, so corporate stayed silent on work methods, leaving stores to just “figure it out” sometimes with competing directives. John and Scott were introducing Starbucks leadership to a very different approach: teach everyone about good work design and practical problem solving, and then provide the knowledge to customize routines to fit their unique clientele, mix, layout. By providing store teams with basic lean principles and problem-solving skills, work could be improved at each snowflake while also recognizing the power in local problem-solving capabilities.
After observing work in a variety of Starbucks locations, Scott and John started some pilot store work in Portland, OR, which is when Josh entered the picture. “We said we need to find a place where we can really try all this out and see how this way of working and thinking about work meets the real environment,” recalled John. “So there’s where [Scott] found that it, again, comes down to people so much. People talk about how do you choose a model line area, and there are a number of ways of thinking about that. But the No. 1 criteria is you want your first model line to be successful, because if it’s not, that’s what’s going to be communicated to the broader organization.” Scott and John found a regional team receptive to their lean approach and willing to “try something different” and conduct experiments at four stores (one being Josh’s store). Around this time, Scott also traveled to spend two weeks with a store manager and her district manager to test a different approach to engaging them and improving work. The information and insights were fully flowing.
Up to this point, Scott was running his lean journey somewhat independently and under corporate radar, occasionally having to secure budget and request permission. He also had the luxury of time, until he didn’t — the financial crisis of 2008 and its impact on Starbucks stores. Starbucks founder Howard Schultz returned as CEO and publicly committed to an aggressive transformation agenda targeting some $500 million savings in fiscal 2009.2 The leadership team gathered, including Scott, to find where the money would come from across the P&L. Scott’s model line experiments pointed to detailed ideas about what needed to change in order to hit the goal for many agenda items.
He eventually signed up for and was accountable for a significant portion of the needed savings. Scott had gained deep knowledge of Starbuck’s corporate operations strategy through gemba observations and experiments and the innovation, improvements, and data that followed. While the target was clearly on cost savings (through waste reduction), Scott and the team focused primarily on improving the customer experience (product quality, experience) and the experience for the barista (less bending, reaching, lifting) and store managers (engaged in real improvement at their store).
Starbuck’s full-year operating margin was 13.3% in 2010 (highest full-year consolidated operating margin in company history), up from 9.2% in 2009 and 8.1% in 2008. The adoption of lean also contributed to improving the store partner and customer experience, and customer satisfaction scores for partner friendliness, speed of service, and taste of beverage also had increased.3
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