Free Argumentative Essay About Starbucks Management

Level 5 Leadership

The concepts of Level 5 Leadership or being a level 5 leader was first introduced by best-selling author, business consultant and entrepreneur, James “Jim” Collins. It is believed that the creation of this business concept was the product of Jim’s continuous research for the holy grail of turning a good business into not just a good business but a great one. Majority, if not all, of his works and writings were focused on the subject of business sustainability and growth. Basically, a Level 5 Leader is someone who has reached the peak of the five hierarchy leadership characteristic pyramid that he presented in his books; or someone, a leader of course, who embodies the perfect but rather paradoxical mix of professional will and personal humility. Critics of Jim Collins’ works, particularly those that are about Level 5 Leadership often argue that what this author presents about leadership sparks confusion because it encourages leaders to be humble and at the same time, aggressive (i.e. when it comes to being a leader).
However, Jim often uses the argument that suggests that a leader does not have to follow a black and white approach when it comes to selecting what type of leader he wants to be (i.e. either a socialistic or an authoritarian one) because the more effective approach, the one that would lead to good results is the approach that suggests that leaders should find the perfect balance between laxity and authoritarianism within the context of leadership. The objective of this paper is to discuss the principles of Level 5 Leadership and then relate its principles to Starbucks Corporation, with emphasis placed on its leaders and how they were able to run the company or based on how Jim Collins would put it, how they were able to turn the company from good to great.
The figure above shows all the five levels of leadership that Collins was pertaining to when he first explained what Level 5 Leadership is all about. So far, we have a total of five leadership levels starting from the lowest to the highest: (1) Highly Capable Individual (2) Contributing Team Member (3) Competent Manager (4) Effective Leader and the (5) Executive Leader. The first level of leadership according to the model that Collins presented is considered the lowest because it only pertains to a person who makes productive contributions in the organization through talent, knowledge, skills, and good work habits . It is followed closely by the Contributing Team Member level because in that case, the leader already masterfully uses his skill to contribute to the achievement of the group objectives. The hierarchy classification placed on the middle or on the third level describes a competent manager or one who organizes people and resources effectively toward the efficient pursuit of predetermined objectives . The second to the highest level or the fourth level of leadership pertains to the effective leader or one who catalyzes commitment to and vigorous pursuit of a clear and compelling vision and also stimulates the group to commit to high performance standards. And then lastly, the fifth level of leadership or the Executive Leader pertains to a leader who possess and builds enduring greatness through a paradoxical combination of personal humility plus professional will .Collins argued that in order to create a high performance organization, that organization should be led by a high performance leader as well. Collins backs this argument with his over 20 years of experience in trying to understand how some companies were able to sustain superlative performance. In this paper, we look into the superlative performance improvements that Howard Schultz made possible for his company, which is Starbucks Corporation.

Who and What

Starbucks Corporation is one of the largest chains of coffee and pastry shops in the world . It originally started as a coffeehouse company in Seattle, Washington. After years of continuous expansion, thanks to its highly effective global expansion program, the company has been recognized as the largest coffeehouse company in the world, significantly ahead of other major coffeehouse brands like United Kingdom’s Costa Coffee and one of its closest rivals in the United States food industry, McDonalds.
Based on the company’s latest reports, it has over 21, 160 stores in over 63 countries and territories. More than fifty percent of its coffeehouses are located in the United States. Despite being the largest coffeehouse company in the world already, the company still pursues to expand in foreign markets, focusing on ones that are not yet saturated like the emerging markets in Asia, China, Canada, Japan, and the United Kingdom .
In 1987, the original owners of Starbucks sold the chain to Howard Schultz , one of the company’s former employees when it was only a few years since it has been founded by the original owners. During that time, Schultz already had his own chain of coffeehouses in Seattle. After buying Starbucks from its original owners, he renamed all of his originally owned coffee outlets as Starbucks. He drafted plans on how he could quickly expand the market and along with it, his share of the market. After a few months, Schultz quickly executed his expansion plans. Starbucks successfully announced that it would open new branches in different locations in Canada. Its first branches in Canada were in Vancouver. It also opened new branches in Chicago, Illinois, U.S. Some three years after Schultz bought the company and integrated its assets, Starbucks was already operating more than forty six stores across the North American continent.
Being the ambitious and consistent business manager that he is, Schultz used the reaction of the market to the execution of its expansion plans as one of the indicators of his future expansion plans. Based on his readings, he knew that the newly-founded market of coffee-selling has just started to grow and so he made a move to turn the company public. After another three years, Schultz talked to different investment bankers and secured an approval from the United States Securities and Exchange Commission to allow it to issue shares to the public. After agreeing on a set price with the investment bankers he chose as the company’s underwriter, he finally announced that the company would conduct an IPO (Initial Public Offering) in June 1992. According to Schultz, the move was based on the idea that if they can secure a huge amount of capital from the public retail and institutional investors, Starbucks Corporation can increase its allowable capital expenditure by many folds and along the process, it can fund a larger number of expansion projects, perhaps even venture into the global markets and establish the company’s dominance in such markets, at a time when the coffee selling business and its corresponding market segments are not yet fully established.
What made the public retail and institutional investors buy into the business of Starbucks was its exponential growth in terms of revenue and market share holding. In 1987, for example, with only a few branches to prop its financial books up, it recorded total revenue of $1.3 million. Three years after that, the company was already reporting more than $75 million of annual revenue. The company sold 12% of the company to the public during its IPO and got a total of $25 million from the sale of its shares. It then used the proceeds to finance the company’s future expansion plans.
The company’s leaders, headed by ambitious and consistent business leader Howard Schultz, managed to double its coffeehouse holdings over the next two years. With the company earning more and more and opening an increasingly larger number of stores every year, a lot of investors gained or developed a positive outlook on the company’s stock. Just a few years after the company conducted its IPO, Starbucks’ price was already trading 70% higher than its IPO price. The company’s earnings per share ratio were also more than 100 times higher than its IPO value. This means that even with the huge upward movement on its share price, the company could still be easily considered as undervalued.

Brutal Facts

The act of confronting Brutal Facts pertain to a culture of not giving up and not capitulating, even if it takes a long time for an individual or in this case, an organization, to prevail. Brutal Facts may be perceived as challenges (i.e. brutal challenges) that an individual or an organization may face while he or that organization is on the process of accomplishing something. Collins argued that what separates the good from the great is the ability to confront these brutal facts; that “leadership does not begin with just vision, it begins with getting people to confront brutal facts and act on the implications” .
The great leaders or the level 5 leaders, for example, do not yield whenever they confront brutal facts and so as a result, they emerge as victorious and ever stronger whenever challenges get thrown right at their paths, as opposed to the good or mediocre leaders who tend to give up even at the slightest sight of a challenge. In Starbucks’ case, it can be said that Schultz faced a lot of instances where he had to confront brutal facts. An example would be when he risked the stability of his own chain of coffee houses when he decided to buy the Starbucks line of business from its original owners.
No one at that time knew whether the venture that he was heavily planning and working on to expand would be as large and as successful as it is today. But he confronted the brutal facts of that decision and executed his plans.

Hedgehog Concept

The hedgehog concept is based on the famous story between the fox and the hedgehog. The fox knows a lot of things and so it uses different strategies so that it can do whatever he wants; the hedgehog, on the other hand, only knows one big thing and that is how to survive in the woodland from the attacks of animals such as the fox. According to Collins’ this concept can be applied to organizational management saying that “the best leaders and corporate strategists reach success because they have identified their company’s unique hedgehog concept” .
In Starbucks Corporation’s case, it can be said that it indeed found its hedgehog concept a long time ago. The chairman of the corporation, even before it bought Starbucks from its original owners, was already a renowned owner and manager of a chain of coffee houses in the U.S. He essentially bought the business of his competitor and moved on towards expanding the business further and further. In a way, the hedgehog concept explains that one has to look for its strength and capitalize on it. This is exactly what Schultz did.

Culture of Discipline

According to Collins, “sustained great results depend upon the building of a culture full of self-disciplined people who take disciplined action, fanatically consistent with the three circles (1) what it can be best in the world at (2) what its people are already deeply passionate about and (3) what drives its economic engine” . Further, disciplined people can be described as people who are highly-trained to endure a condition of order and obedience despite the occurrence of negative experiences and misfortunes; inclination to finish whatever it is that was started; capable of facing and dealing with brutal facts, even the ones that are about themselves; and willingness to adhere to the systems, rules, and policies of the organization all in an effort to get the work done.
What Howard Schultz really planned for the company when he was contemplating about buying it from its original owners was for it to increase its size and along with that its market share, exponentially. Fast forward to today, we can definitely say that he executed those plans better, even way better than what most people in the industry expected. Schultz recognizes the fact that along the process of expansion, the company has developed its own culture of discipline and also its own identity; and the fact that along with expansion, most companies who do are not led by Level 5 Leaders, often encounter the problem of culture of discipline dilution.
An organization’s culture of discipline often gets diluted as the organization expands because the original core values (i.e. discipline) that turned the organization into one that has high performance standards tend to get replaced by less valuable values. This is why for Schultz, the maintenance of the organization’s original core values, which he describes as one that focuses on the creation and maintenance of high performance standards, is and must continue to be an integral part of the leaders’ expansion plans.

Technology Accelerators

Today, Starbucks Corporation is seen as one of the avid corporate fans of electronic commerce or more specifically, the inherent use of internet that can be found or associated with the internet in expanding its clout in the coffee selling market . The company now boasts of a significant volume of sales done via its e-commerce facilities not only across the United States but also in emerging economies where it has coffee houses already operating. In fact, in June 2013, the company announced that close to ten percent of its total in-store purchases in the United States were made and ordered via its customers’ internet connection-capable devices, which according to the company is thanks to the availability of a fully functional Starbucks App .
According to the company, they are continuously looking for more ways how they can introduce easier or more convenient ways by which their customers can order and receive what they have ordered. With the number of people being dependent on using internet connection-capable mobile devices on a continuous increase, the Starbucks management believes that it can be one of the keys that it can use to further strengthen its position in the market and convert such position to a higher percentage of market share and more importantly, higher sales volumes and revenues.

Works Cited

Ambler, T. "A Culture of Discipline - Building Toward Great." Center for Simplified Strategic Planning (2015).
Belluz, D. "Are you ready to confront the Brutal Facts of reality." Risk Wise California (2008).
Ceo, S. "How Starbucks Works with NGOs." California Management Review (2004).
Clawson, J. "Level Three Leadership Summary." Faculty Darden Virginia (2002).
Collins, J. "Level 5 Leadership." The Jossey Bass Reader on Educational Leadership (2007).
—. "Level 5 Leadership: Triumph of Humility and Fierce Resolve." Harvard Business Review (2005).
Conjecture Corporation. "What is the HedgeHog Concept." Conjecture Corporation (2015).
Saif, A. "Starbucks' Tweetacoffee Campaign Generated $180,000 in Sales, Huge Long Term Benefits." Keyhole (2013).
Schultz, H. and D. Jones. "Pour Your Heart Into It: How Starbucks Built a Company one cup at a time." Hyperion (1999).
Starbucks Corporation. "Mobile Payment at U.S. Starbucks Locations Crosses 10% as More Stores Get Wireless Charging." (n.d.).
—. "Starbucks Company Profile." Starbucks Corporation (2014).
Thompson, C. and Z. Arsel. "The Starbucks Landscape and Consumers' Anticorporate Experiences of Globalization." Journal of Consumer Research (2004).
Wasserman, T. "Starbucks' Tweetacoffee Campaign Prompted $180,000 in Purchases." Mashable (2013).