I never expected to find myself as one of the youngest CIOs of a Fortune 500 company, but here I was.
There is no doubt that Howard was taking a gamble on me, but I also think it was a measured risk based on his own business acumen and foresight. Howard realized that some very distinct things needed to happen in order for Starbucks to turn around. One of those critical things was bringing someone with a modern technological point of view on board. While Howard wasn’t tech savvy himself, he understood that technology needed to be integrated into the very core of the transformation he was about to lead. He understood that Starbucks needed to leverage technology to reconnect with customers, and to innovate how those customers were experiencing and interacting with the Starbucks brand. Howard already had plenty of people around him who understood retail and coffee. What he needed was someone else who thought in a different way, and the technology department was the best place to bring that in.
When I assumed the position of CIO at Starbucks in early 2008, things were not in great shape. The overall market was in the midst of what would come to be known as the Great Recession, and is often considered the most significant economic downturn since the Great Depression. Howard had reassumed the CEO role a few months before. Both he and the company were in a tough position. Everywhere you looked, people were making fun of the fact that there was a Starbucks on every corner. Episodes of The Simpsons showed a mall full of Starbucks stores. The late-night talk show hosts made fun of Starbucks as part of their standard fare. The stock was in decline, as was the value of the company, which lured in an activist shareholder famous for coming into troubled retail stocks.
Walk into any Starbucks at the time and you would notice distractions everywhere, from the smell of sandwiches burning in the oven to messy CD racks and book shelves to big screen TVs blaring sub-par content. No one was more aware of the fact that Starbucks had lost its way than Howard. The stores were becoming something Howard wasn’t proud of anymore. And there is no one who is prouder of Starbucks than Howard.
For me, this was a new world. What I quickly came to realize is that, while I had little experience in fast-casual retail, through the course of my work with big internet companies, I did have a lot of experience fixing the technology and digital challenges big retail had yet to address. Rather than thinking of Starbucks’ physical stores in the traditional way of retail stores, I thought of them as nodes on a network. Just like I thought about how to engage visitors on a website, I wanted to think about how we could leverage technology to engage customers in new ways. Once this way of thinking clicked, I became less intimidated by the opportunity in front of me. I approached Starbucks as a big internet property, where the pages were the store, and the visitors were the customers walking into the store.
When I arrived in 2008, the point of sale was still running on Microsoft DOS and using Windows NT. By then, both of these technologies were already fifteen years out of date. Still, they worked and they scaled, so Starbucks stuck with them. The problem was that these outmoded systems locked Starbucks out of modern innovation since most new consumer technology in the retail space had to integrate into the company’s point-of-sale system. Even if the antiquated IT tech could be rigged to work with modern technology, no one knew how to program old technologies like DOS and Windows NT to do new, state-of-the-art things. They were simply incompatible with all of the advanced capabilities of modern mobile computing, ordering, payments, and loyalty programs.
Within the first few weeks, I realized that I would have to make very large technology decisions that would touch the daily lives of tens of thousands of employees (or, as we called them, “partners”) around the world. These decisions would also represent a lot of time and expenditure. For example, changing the point-of-sale system would cost tens of millions of dollars and take years to complete. It didn’t make sense to fully embark on that without first understanding the specific issues and pain points of the current point-of-sale system. Likewise, if I was going to recommend IT systems that would change the way labor was allocated and schedules were created, I needed to understand how baristas were getting their shifts and how hours were being distributed within the stores. To fix logistics and transportation and delivery technologies through the supply chain, I would have to know how stores replenished their goods and supplies and what deliveries looked like. To update drive-thru technology and optimize for time of wait, I had to see how that was currently being done. Having firsthand, real-world knowledge of all of this would arm me with the confidence to make more informed decisions and lead the various teams in replacing, updating, and modernizing everything that desperately needed to be brought up to speed at Starbucks. The core of operations for all of this was in the stores.
So, I went to my local Starbucks and began working as a barista. I was still young enough that I was about the same age as your average store manager, so most employees considered me one of them. It was a very fun experience.
I worked the drive-thru. I did point-of-sale. I learned how to make all of the drinks. I did inventory and ordered supplies, as well as saw how baristas worked and traded shifts. A couple of weeks into this, CIO Magazine (the trade magazine for IT professionals) got wind of what I was doing and came on-site to interview me. They were taken aback that a Fortune 500 executive would take the time to actually work in a store and learn how its day-to-day operations worked. I didn’t understand why someone wouldn’t do this if they had both the opportunity and access. By the time I got back to my executive day job, I had pretty good firsthand knowledge of how things ran at my local store. As I made decisions over the next few years, I was heavily influenced by that time I spent working on the ground.
One of the key things I came to understand from working in the stores is that Starbucks had spent more than a decade expanding and growing, opening up new stores. In that, they didn’t pay a lot of attention to building out modern advanced IT systems to support the growth. What they had worked, so they kept it. It wasn’t until things slowed down and Starbucks wasn’t growing like they had been for all of those years that everyone looked around and said, “Wow, we just kind of did what we had to in order to get things done.” As a result, the only appropriate word for the technology in the stores at that time is antiquated. For example, the employee training manual still existed in the form of a three-ring binder. Every store employee had a smart device or a laptop for their personal system, but we were still sending out binders of information to train our employees. However, this was solvable. I was here to solve it.
I also began to understand something else that had nothing to do with technology. For as much as I had heard about Howard’s early origins in the company and all of the pioneering things he did to champion for his employees—like healthcare for part-time employees, compensation in the form of stock options, and education reimbursement—to an executive in the headquarters, they were all just distant concepts. What really hit home and surprised me in the course of being on the ground was the passion, conviction, and competence of the partners who were working the stores. Often, these were young people in their twenties and thirties, and there were even a few teenagers who worked the early shifts. All of them were happy and engaging with customers. They had a great camaraderie with one another, and were very committed to the company, mission, and purpose. They seemed to truly believe that every cup of coffee they served was brightening someone’s day. Here I was with my systematic IT mindset, looking at systems, technology, process, upgrades, and efficiency but, still, what really hit home to me was the human connection that was cultivated in these stores.
One barista who worked the coffee bar and machines made a particularly big impression on me. Every single time a customer walked in the door, she would yell out their name. “Hello, Susan!” “How’s it going, John?” “Good morning, Mary!” How many people’s names can this young lady remember? I wondered. The answer seemed to be: all of them. It was impressive, to say the least.
We already had the most important thing on our side: it was clear that Starbucks had something special going for it. Howard’s belief in our people, in treating them right, and in creating community was more than just words; it was real. This was at the very heart of my core lessons from Starbucks. I saw that, despite the fact that the company was now in the position of fighting for its survival, Howard never lost sight of the fact that we existed for more than the purpose of achieving a great stock price or having a great earnings call. Whether it was dealing with farmers in the equatorial coffee-growing regions of the world or baristas across more than sixty countries, Starbucks was undeniably driven by purpose. When you are purpose-driven, trying to do good in the communities where you operate and do right by your people, there is a net positive that can’t be acquired in any other way than through authenticity.
Despite all of this, when a company’s stock is collapsing, activist shareholders often try to change the strategy to focus on short-term results and oust the management team in the process. The media can be against you, and it’s easy to lose sight of purpose and core tenets. You can cut employee benefits. You can eradicate employee discounts and do away with their free coffee discounts, healthcare, or education reimbursements. After all, everyone would logically understand that you simply can’t afford to do that anymore.
To his great credit, Howard never did any of this. He believed that the future of business and success would be found in companies that combined what he called social conscience with profitability. In other words, don’t just go after the profits and financial rewards. Do good in the world; and, most of all, do good when nobody is looking. Yes, he had to make some difficult decisions when it came to closing stores, and those decisions most certainly impacted employees. But never, ever did he so much as consider—or even engage in conversation about—cutting out what he believed to be core tenets of the company. At one point, Starbucks was spending more on healthcare than on coffee. Think about that for a moment.
Whether Starbucks was in the midst of difficult times as a company or great ones, the core tenets always drove our leadership team. As a young leader, this made an indelible impression on me. It gave me the courage and confidence to lead by those same industry-agnostic values: do good for your people and do good for the world.
On my first day in the office, Howard gave me a tour around Starbucks HQ, or SSC. On one floor of the building he proudly introduced me to the marketing team and told me all about their branding and holiday packages and how they showed up in the world. I always thought that if Howard wasn’t the CEO, he would be the CMO; he’s that good at evangelizing and leading the brand story.
On the next floor, he introduced me to the design team and told me all about how they came up with concepts and transformed Starbucks into the third place people wanted to be after home and work.
On the following floor, Howard got really quiet. “This is your IT team,” he said in a low voice. “I know they do really important work on this floor.” We then went on to finance and legal, where Howard’s voice returned to its normal tone. I immediately realized that it would be a challenge to translate the company’s technological opportunities and needs to Howard and the other executive team members. And, beyond that, to the board of directors, because they also wouldn’t necessarily have the background necessary to fully understand how the proper use of modern technology could not only enhance and accelerate building a new connection with customers, but also with the younger demographic of our store partners.
The other immediate challenge was winning over my own direct team of people. Many of them had been at Starbucks for more than a decade and a few were fifteen or twenty years older than me. Understandably, they were all a little skeptical of me at first. It was my job to get this team of seasoned, competent, and long-tenured people on board with the ideas of the new guy who knew little about retail or coffee and wanted to reimagine how we engaged with customers. I spent a lot of time with each of them, getting to know them and asking for their help.
When I started, I had been given a broad mandate that if I needed to hire a new team, I could. I interviewed the existing IT leadership team members about how Starbucks had gotten to this point—how did we fall so far behind technology as a company? I was told that when you are in a position of opening several new stores a day, no one has the attention span to figure out how to modernize a point-of-sale system. For years and years, there had been no time for the team to do anything but stand up stores, open up doors, and set up service. There was certainly no bandwidth for a three-year ERP platform, a two-and-a-half-year point-of-sale refresh, or a significant upgrade to the way inventory, ordering, or labor hours were handled. It was only when everything began to slow down that everyone had a moment to look around and realize how neglected the company’s technology infrastructure and capabilities had been.
My team already had a lot of the answers and ideas we needed. In fact, most of the same people who led the twenty-year expansion of the company also led the technology part of the transformation. They just needed an ambassador and translator who could package their ideas in such a way that a non-technical leadership team could buy in.
Before long, I learned to use my own knowledge to curate the best ideas from my team and combine them with my own point of view to reimagine what was possible for Starbucks with the right investments in technology. I would then translate that in such a way that the leaders who had never spent a day working in tech—and many of whom were reluctant to use smartphones or even email—could understand, get behind, and support. I was a student to these accomplished IT leaders as much as I ever was a teacher.
This was all very new for me. In my previous companies, most people were technical enough that many thought they could do my job better than I could. This was not the case at Starbucks. Instead, most people were intimidated that technology was moving so fast. They knew Starbucks needed to be a part of it, but they did not have a deep understanding of what that meant. Before I arrived, a few team members championed digital technology and started to think about new forms of engagement through the launch of a new website called mystarbucksidea.com. This small group of people worked hard to plant the seeds of technology across the company, but they were in the minority in terms of technology and digital thinking. This, again, is a testament to Howard’s awareness of the need to hire the CIO role outside of the pre-existing system.
Since there was an understanding of how important the technology was—even if there wasn’t an understanding of what the technology was—for the first time in the history of the company, the Starbucks CIO reported to the CEO rather than the CFO or COO. That meant I had a seat at the table at the top of the organization and input into all of the major decisions the company was making. Sometimes this involved technology, but it also involved stores, partnerships, acquisitions, international expansion, public relations, operations, design, and marketing.
This was all very new. When you’re at a tech company, engineering and IT are inherently at the core. At Starbucks, it was like technology had finally graduated to having a voice in the future of the company. It set us up for a lot of potential new innovations, because we all had the opportunity to take the company in what was an entirely new direction.
There was also a lot of risk, but the culture and leadership accepted it. Howard championed technology and digital transformation. We all worked together to deliver for our people and customers in ways that, in some cases, made the company unrecognizable from what it had been ten years before.
In the winter of 2008, everything mattered. Every dollar we spent mattered; every person we hired mattered; and every strategic decision we made mattered. It reminded me of how it had felt when my parents were small restaurant owners, about to lose everything. I felt a lot of the same instincts coming out in me that I did as a kid—I wanted to do whatever I could to help save us.
In the midst of this, a big snowstorm hit Seattle, covering the entire parking lot and drive-thru of my local Starbucks, which happened to be a high-performing store. (This was the same Starbucks where I had temporarily worked as a barista.) No one—including the employees—could get anywhere near the store because of the snow and ice, so it seemed clear that we were going to have to shutter up the store for the day. I understood how devastating the inability to open even for a day can be for a business, so, in the dark, early hours of the morning, I threw snow shovels into my big four-wheel-drive Jeep Rubicon and headed down to Starbucks.
Once I got there, I began digging out a path so that employees could get to work to open the store. Employees began to trickle in and were very perplexed when they saw me digging out the parking lot. It was a lot of sweaty, unpleasant work, but I kept going. I got the path cleared for employees, the drive-thru cleared for customers, and made everything safe amidst the thick ice and snow.
To be honest, I hadn’t thought much about clearing the snow, beyond the fact that it had to be done, but to my surprise the story went viral within the company. While it was important that we opened the store that day, what was most important was the sense of ownership and commitment it demonstrated.
We had a large task before us. The 2008 financial crisis served as the backdrop for Starbucks’ decline and our company became the poster child for excess spending. There were countless articles—most with our brand name attached—about how cutting out that three dollars per day could improve finances. Competitors swarmed around this. One day we walked into SSC to find the billboard in front of our building now displayed a huge McDonald’s logo and read, “$4 is dumb. Try the new McCafé, coming soon!” Starbucks hadn’t really done any significant marketing up to that point and now this company—whose marketing budget alone represented a huge part of our total budget—was gunning for us.
In one meeting, Howard asked a leadership team member, “What was the average age of a Starbucks customer in 1998?”
“In their late twenties,” was the reply.
“What’s the average age of our customer today?”
“Early forties.”
This told us that, while Starbucks’ earlier customers remained loyal, we had lost the same relevance to younger demographics. We saw this as an opportunity to connect with smartphone users, online communities, and the digital generation. Now we had to figure out how to use digital technology to be more relevant with younger customers—to get people to engage with the brand in ways that they didn’t typically. This set up the framework for what was to come.
Over Christmas break in 2008—when things were at their lowest—Howard tasked the leadership team with returning from the holiday with an hour-long presentation about what the company should be doing, investing in, and focusing on. He made it clear that he wanted each of us to weigh in on every department rather than confining our thoughts to our specific discipline. So, I wasn’t just going to strategize for tech, but also for other areas, like finance, marketing, operations, and store design.
That was the first time I ever wrote a business plan outside of business school. I wrote about how I wanted to create a new business unit that focused solely on the technical and digital aspects of the transformation initiatives. This would create a center of excellence for digital and technology capabilities responsible for championing and rolling out digital and technology efforts. It would also serve as a resource pool for other departments that wanted this expertise. I called it Digital Ventures, and it included aspirations around all things digital, like free Wi-Fi, mobile payments, and loyalty. I wrote out Digital Ventures ideas and strategies for all of our teams, put them in a binder, and presented it. There were a lot of great ideas in there, and a lot that weren’t so great, like incorporating the lottery and ATM machines into Starbucks. A lot of these bad ideas were a reflection of my desire to come up with ways to more effectively monetize our retail footprint.
The real value of the exercise, though, was that Howard had gotten all of us to think above and beyond just the areas we led. He also opened up the leadership team to focus on the best idea, rather than where an idea originated from. If someone had a marketing idea and they didn’t work in the marketing department, that didn’t mean the idea shouldn’t be entertained. He cross-pollinated the team and helped us take off our blinders in terms of where we should be focusing our attention. We were all on the same team, and we all had the same end goal in mind.
Now it was up to us to figure out how to get there.
To usher in transformation, it was critical that we understood as a group where the younger demographic was congregating and what they were doing. While I felt like I had a good grasp on this, a lot of the company did not, especially amongst the ranks of leadership. I suggested to the leadership team that we look at companies that were still growing and doing good things during the recession.
“How many of you have heard of GameStop?” I asked.
Two hands wavered unconfidently in the air.
I explained to them that GameStop was a retail video game outlet and that, even during the recession, it continued to grow and increase sales. I pointed out that GameStop had thousands of stores—in fact, they were about the same physical store size as Starbucks. Not only that, but GameStop was largely frequented by the very same demographic that wasn’t frequenting Starbucks, the younger online generation. I then mentioned that we should consider looking for partnership opportunities with these gaming firms. For example, we might offer or unlock free in-game content to customers who did something unique in our physical store or sell trial subscriptions to digital games in Starbucks.
The room filled with raised eyebrows and perplexed looks. Why would we ever do this? was clearly the overriding sentiment.
I then explained that one of the most popular games at the time (and my favorite) was World of Warcraft (WoW). I explained that the average WoW gamer spent twenty-five hours per week playing in the online world. Again, I was met with confusion.
It was clear to me that the Starbucks leadership team needed a crash course in the digital gaming world. I emailed the CEO and CMO of Blizzard, which I consider to be one of the most successful gaming companies in the world. “Look,” I told them, “I need you guys to help educate the Starbucks executive team on the business side of the games and virtual worlds that you build. How you drive affinity and loyalty, and your in-game reward system. They don’t even know that your world exists.” A few weeks later, the entire leadership team got on a plane headed toward Irvine, California, where Blizzard was based.
When we arrived at Blizzard, Howard joked that I looked like a kid in a candy store. The CEO and CMO of Blizzard greeted us and, for the rest of the day, the Starbucks team got to move across different groups at Blizzard. The Blizzard execs explained how they hired people out of college, and what degrees they looked for. They told us about their HR process for hiring creative talent. They shared how they managed game-related economics, purchasing, distribution, and online digital downloads. They talked about managing their player communities and dealing with fraud and security. They showed us their latest games and the production studios. They explained how the business side of gaming works and how digital communities are the future. Then they told us about the one hundred million people globally who had played their games over the past fifteen years.
At one point around mid-afternoon, we walked into the network operations center. It was filled with tech people wearing headsets and looking at giant screens. They were watching a dashboard that showed how their games were performing and alerting them to login and server issues. We all crowded into the corner and watched in amazement. The screen showed weather conditions next to the data centers around the world that were running the games. It also had a count by country of how many millions of players were online. Howard was fascinated. He leaned over and asked a nearby tech, “Hey, is that a list of gamers online in China?” At this point, China was a huge part of the Starbucks expansion strategy, so, of course, Howard was interested.
“Yes, sir,” the tech responded, as he zoomed in so that we could see the major cities. Below the map, the figures showed that hundreds of thousands of people were currently playing the game.
“That’s amazing!” Howard exclaimed.
“Yeah,” the tech nodded. “And it’s 3:00 a.m. in China.”
Everyone’s mouth dropped open. They now understood that this was a world we needed to understand and get involved with as a company.
This visit represented the early bridge that would connect Starbucks to a new demographic. It involved bringing experiences, achievements, and capabilities to people who were largely inspired by the things that made gaming so successful and engaging, and that commanded such a high commitment from its population of users.
In 2009, Starbucks created a transformation agenda to ensure that every idea or experiment we undertook was in service to one of our pillars of transformation. Every activity in our respective areas should be designed to transform the very existence of the company. With this, we were encouraged to stop all activities that were not focused on the transformation.
Once we were all aligned, we had to orchestrate across each of these areas, because often a single issue would require three or four teams from different groups. For example, to get a new point-of-sale required store operations, store design, IT, marketing, supply chain, and finance. There was a lot of cross-disciplinary effort.
This transformation agenda became our way of determining and prioritizing whether or not we should work on a particular project. If we opted in, it basically unlocked every group across the company to work on the project because we were all driven by the same mandate and wanted to make it happen.
There was a collection of several mock Starbucks stores on a designated floor of SSC, which the store development team had set up to experiment with various design concepts. Since Starbucks was such a non-tech company at the time, the IT leadership team decided to turn one of these stores into a “technology derby.” The IT staff dressed up in barista attire and each team member set up a demonstration of a new technology and how it would work in the store. For example, one of our guys ran a new point-of-sale prototype so that everyone could try it out; someone else showed how the remote ordering system could work; there were people running new drive-thru, labor scheduling, and shift-swapping technology.
Below each of these stations, we set up a Price is Right-like display showing how much the tech would cost to implement, and approximately how long it would take to implement. I then walked Howard and the leadership team through all of the systems so that they were real, rather than conceptual. It was a great way to educate and translate tech ideas into business terms.
These new technologies and the enhanced business processes that they supported were inspired by systems that could help our baristas and field and partner system. The technology derby displayed back-office capabilities that helped manage inventory and ordering, as well as front of house customer-facing technology, such as drive-thru and mobile ordering. We showcased technology that was targeted to customer engagement, such as a faster and conversation-based ordering system at the point of sale. We had ideas for updates and improvements to our loyalty system and benefits that were largely inspired by reverse engineering what we had learned about the gaming industry. These targeted behavioral rewards and a sense of achievement.
We didn’t want to pollute the stores by getting more big TV screens on the walls. Instead, we wanted to build experiences for the screens our customers were bringing into the store with them in the form of smartphones, tablets, and laptops. We believed that just as Starbucks offered a physical third place for its customers, it should also offer a digital third place if customers wanted to participate in it. And, for those who didn’t, Starbucks would remain a cozy cafe environment.
We looked at the current iteration of Starbucks stores as an analog version and thought about how we could bring all of those elements into the digital age. For example, if we currently have physical copies of the New York Times and the Wall Street Journal in stores, we wanted to think through how we could offer digital versions as well. If we had physical cards with the Apple Pick of the Week song, we instead wanted a curation from the entire Apple library, including not just music, but also games, apps, and books; we wanted to allow customers to redeem these on their smartphone rather than using a physical card.
The IT and digital teams did an incredible job on all of this. Not only did they understand technology, but they were also very business savvy. They understood inefficiencies in the supply chain. They knew the types of pain that marketing and store design were experiencing. As they demonstrated the theatrical prototypes for each of these areas and addressed each department’s very real concerns and issues, you could hear each of the department leads exclaiming about how blown away they were. We ended up getting the company excited about tech in ways that a spreadsheet, slide deck, or discussion about efficiency and ROI never would have. Our vision about what Starbucks’ technology and digital could provide to the customer and partner experience became real for everyone.
In the end, a majority of these prototypes were funded and we started delivering them in 2009.
When people think about the Starbucks transformation, free Wi-Fi, the loyalty program, mobile payments, or remote ordering usually come to mind. But it all started in a far less sexy way. I thought that we needed to be sequential in our new technology rollout. We had to first deliver the biggest overall internal opportunities for the company. The most basic elements of the IT service being offered for Starbucks partners were outdated by many years. Only with this currency could we then focus on the more visible consumer aspects of the digital upgrade.
So, we had to be ambidextrous, building core pillar, expensive, and long-lead-time applications while, at the same time, delivering customer-facing apps to drive a new engagement from a younger and more digital audience.
Our technological pain or, as we called it, “debt,” began all the way up at SSC. Our internet connection was slow. The Wi-Fi had dead zones around the corporate office. Cell phones didn’t work in certain conference rooms. People were using old screens and dated desktop computers. There was immediate IT pain that impacted everyone on an everyday basis. I knew it would be hard to ask the company to trust us with all of these big technology and digital plans when they could barely get their job done at their desks.
We decided to begin by giving the organization a rapid-fire succession of quick wins. We wanted to drive innovation and new tech for our partners and demonstrate that this new investment in productivity and digital experiences was not just for stores and customers but for all our team as well. This faster delivery of internal IT systems would also give us more credibility and currency when we later asked the organization to support us throughout the course of longer, more painful, and more complicated forklift upgrades to key IT applications.
Very quickly, everyone at SSC received upgraded laptops, flat panel screens, and smartphones. For as much as people may understand the importance of a global enterprise resource planning effort, it’s the twenty-five-inch flat screen and new desktop computer that win the day. We fixed all of the Wi-Fi access points in the SSC and distribution offices so that everyone had a strong signal. We also increased the AT&T, Verizon, and T-Mobile cell phone coverage in our buildings to make sure there were a minimal amount of dead zones. We increased network speeds and opened up an internal tech stop called the Tech Cafe, where employees could walk up to get their technology serviced in a very well thought out environment that looked like a Starbucks and the Apple Store combined. The employees could also see all the new technology that IT was offering and get special training on IT systems that they used every day to get their work done. We held a logo design contest for the Tech Cafe, and the winner was an IT analyst who also had design skills. The winning logo was a design based on the molecular structure for caffeine, which was very appropriate in so many ways. We had the logo printed on the T-shirts that the techs in the cafe proudly wore.
Very quickly, IT won a lot of credibility. Productivity increased and the work-life experience improved as partners could now more easily access corporate resources while traveling. Now it was time to ask people to be patient with the more complicated long-term issues that Starbucks needed to address.
It was obvious that getting a new computing platform into the stores was an urgent matter and that it was long past time to move away from Windows NT, DOS, and three-ring binders. This was all the worse because our partners consisted primarily of young professionals who had smartphones in their pockets and laptops in their bags, but came to work and were greeted with legacy processes and technology.
Hewlett-Packard was a key Starbucks technology partner at the time. We got the idea that if we could get a modern, high-powered laptop into every US store, it would at least give our stores a modern way to interact with SSC and some of the new applications we were building. It would also provide a far less arduous system for store ordering, performance reviews, and other day-to-day tasks.
Simple enough, but the issue was that we needed to get ten thousand laptops for our US stores. It seems like you could just order and ship ten thousand laptops, but it wasn’t that easy. It required a complicated deal structure and logistical issues to contend with. We needed the right applications and to make sure the stores had powerful enough internet service to support the system.
I started talking to HP about what this would look like. Our goal was to have the deal hammered out by the time our ten thousand North American store managers had their retreat in New Orleans. They were meeting there for a big launch and to update store leaders on the transformation agenda. There was also time set aside to do a week of clean-up service in the wake of Hurricane Katrina, which the city was still recovering from several years after the fact. We wanted to unveil the laptops and give each of the managers a computer to take back to their store. That meant the pressure was on me to negotiate cost and logistics and then close the deal with HP so that we could pull it off. In the midst of this, Aisha was pregnant with our fourth child. It was getting down to the wire on all fronts. Aisha was due the same week the event was happening.
Cliff Burrows was the president of operations for Starbucks North America. He was due to get on stage at the event with Bono of U2 fame. Bono partnered with Starbucks a lot at the time, for various causes such as the RED campaign. Cliff and Bono were going to talk about the mission and purpose of the volunteer week and the values that led Starbucks to lend a hand. After this, Cliff was going to open a silver briefcase, take out an HP laptop, and tell everyone they were going back to their store with one as Bono stood by.
Cliff and his team kept texting me to ask if it was going to happen, while I frantically tried to close the deal with HP so that he could announce it. This continued happening up to the point where Aisha went into the wheelchair to go into labor and delivery. She snapped a picture of me in the hospital room, talking on the phone to HP while she was in early labor. I continued negotiating for two more hours in that delivery room until, finally, I texted Cliff to tell him that he and Bono were good to go—the deal had been closed. Cliff later told me that the only thing at the retreat that was a bigger deal than Bono was the laptops!
Just a few hours later, Audrey arrived. For obvious reasons, we call her our laptop baby. We also used to call her Kevin Bacon, because her blonde hair was crazy, pointing in every direction, just like Kevin Bacon’s did in the eighties. We have a picture of Audrey when she’s about eighteen months old, sitting in a shopping cart at Costco, holding what’s left of Aisha’s grande latte in her mouth in an attempt to get to the foam at the bottom of the cup hands-free. Clearly, Audrey was born of the Starbucks era.
Audrey is a wonderful, quiet-tempered girl who has gone on to love horses. She’s incredibly resilient, and always the happiest among us. She can always see the bright side of a situation. I’m particularly proud because she’s already an expert at Overwatch and Minecraft.
When I arrived at Starbucks, Wi-Fi existed in its stores, but it left a lot to be desired. Logging on required customers to use their receipt and sign up for a loyalty program; in turn, they received about thirty minutes of questionable Wi-Fi. It was complicated and not very customer-friendly. The primary purpose behind this original form of Wi-Fi was to register new people to the Starbucks loyalty program, not to provide them with an enhanced or high-performing Wi-Fi experience.
I knew we needed a version of Wi-Fi that was truly free, fast, and seamless, all with one click on the user end. It felt like this was one of the big steps we needed to take to transform Starbucks into the third place between home and work for our current and potential customers.
One afternoon at lunch, I went down to one of the visiting food trucks outside of SSC. The truck I visited had great Mexican food, and it also had a cardboard display out front with a handwritten sign on it: free Wi-Fi. I knew that many good-intentioned people at Starbucks were skeptical about free Wi-Fi; they were worried that people would fill up the stores to take advantage of the internet without buying any products. They were also concerned Starbucks would lose loyalty program members. However, I realized that if this truck could provide free, one-click Wi-Fi, so could Starbucks. I bought the food truck driver’s sign from him and brought it back into the office. “Look,” I showed some of the management team, “if the food truck can figure it out, so can we.”
I began to work with the very capable IT and digital team members in conjunction with the heads of marketing and operations so that we could figure out a free Wi-Fi program that would work for everyone. We began to research and learned that customers use Wi-Fi in different ways. For example, people who use Wi-Fi at an airport or hotel tend to be task oriented in their usage. They get online because they need something and then they get offline. People who used Wi-Fi in stores like ours, though, are more open to being entertained. I believed we could provide free Wi-Fi and entertainment in a way that could also work to our benefit and remain congruent with the brand. We all put our heads together to figure out what this might look like.
We came up with the idea of a landing page, much like users would see at a hotel. But instead of providing a bunch of random content, we could create the Starbucks Digital Network. Users would click once to get on Wi-Fi and land on a mobile-optimized digital network. That network would include everything users might want for entertainment—ESPN, a New York Times reader, Zagat, and book clubs. Our goal was to provide any sort of digital network that generally required a paid subscription. The pay wall would be taken down as long as the customer visited the sites from our Wi-Fi network. In the end, we went out to about thirty companies and did a business development deal to bring content partners on board for our free Wi-Fi and Starbucks Digital Network launch plans.
Now, when customers got on the in-store Wi-Fi, they would land on the Starbucks Digital Network, a well-designed, beautiful web portal that was divided into categories like sports, business, health, and entertainment. There they would find exclusive content. We also signed a deal with Apple so that the Pick of the Week song cards would now be modernized to also include other categories such as books, music, and games, all available on the Digital Network. To access certain enhanced content, users would have to sign up for the Starbucks loyalty program—but the actual Wi-Fi was fast and free.
Howard launched the free Wi-Fi and Starbucks Digital Network at the Wired conference in New York City. I did a few interviews from the Starbucks in the lobby of the Empire State Building. Twitter exploded into a tweet storm and my colleague Adam Brotman (who had joined us in leading the Digital Ventures team) and I were following every mention of the launch.
Most of all, this move showed that Starbucks was embracing and stepping into the digital and technical future and putting the customer experience first, while alleviating our store teams of the need to troubleshoot our old complicated Wi-Fi system on customers’ devices. We had officially successfully created a seamless digital experience that replicated all of the comforts (and more) Starbucks’ customers enjoyed at home and work. And we weren’t polluting our environment to do so. In fact, we took down all of the big screen TVs that had been hanging up in Starbucks stores. We removed the CD racks. While the digital experience became more dynamic, the cafe experience simultaneously became more streamlined and peaceful. It cleaned up the store for people who just wanted to enjoy a great cup of coffee and undisturbed conversation. In addition to all of this, Starbucks also opened up new business opportunities by referring subscribers to our content holders and forging new digital-commerce-related business and revenue streams.
This single move allowed us the opportunity to connect to a younger demographic and begin the journey to make Starbucks a destination brand for a new generation of customers. This became the focal point for a cascade of new innovations. It was the beginning of a new Starbucks. As Howard put it, these digital upgrades gave the transformation a “wonderful top spin.” It was the core operations, process, marketing, store design, and IT that made the actual transformation work. But it was the Wi-Fi and all of the things that followed that gave us momentum.
During one of our leadership meetings, Howard had Costco CEO Jeff Brotman call in. Costco was one of the few companies that did not see significant declines during the 2008 financial crisis. We all crowded around the speakerphone, eager to hear his sage words. “You have to maintain, engage, and reward your most loyal customers,” Brotman told us. “They are the ones who will see you through the crisis.”
His advice was reasonable, but it hit me like a shockwave. It’s so easy to forget about those people who are coming in your stores ten to twenty times a month and, instead, focus on getting someone new in the door once or twice a month. Brotman reminded us that, in the process of trying to appeal to a new demographic, Starbucks couldn’t alienate the very people who made our business work. They were the ones who had allowed us to do great things in the world. They were the ones who were keeping us going.
This idea of championing and sponsoring, surprising and delighting our existing customers had a big influence on me throughout our transformation. And, to this day, it continues to interest me. Creating new customers is important, of course, but making sure you always focus on your most loyal customers should never drift from being one of the core focuses of any company.
Starbucks had tested online ordering on a rudimentary system before I arrived. During that experimental pilot, our customers in Denver, Colorado, could go to a website, choose items to purchase, and associate them with a number on their phone. They would then dial a special mobile ordering phone line and press a number for the order they had pre-programmed on the website.
The process was clunky, but it technically worked. However, the system only accounted for ordering; it didn’t account for things like traffic and timing. Customers still had to pay once they arrived at the store. Satisfaction scores went down in stores that enabled the program, because customers’ orders were often cold by the time they arrived. Quickly, the effort was abandoned.
By the time I arrived, more and more of our customers had smartphones. It felt like now a mobile ordering and payment system could work—after all, most people were carrying around what amounted to a supercomputer in their pocket.
The marketing and IT teams got together and realized that a mobile payment program was a natural extension of the already-mobile loyalty program system. We began by reaching out to technology and payment companies to figure out the structure and technology that was available to us. We got many conflicting points of view about what the future of technology would be for retail ordering and concluded that our vision was ahead of the reality of what was available in the market at that point.
In the end, we realized that we would need two separate apps to start—one for the loyalty program and one for payments. We had to build the payment app in-house, because there was little support available from both the tech and financial services sectors. We bought a 2D barcode scanner and figured out a QR code system with back end processing support. The result was simultaneously extraordinarily innovative and could scale, yet was simple in design. Today, Starbucks’ mobile payment system is considered one of the most successful solutions of its kind in the world. Our wildest expectations were exceeded, and, to this day, more than 30 percent of all Starbucks transactions are completed on a mobile payment app.
This might sound like second nature today, but those were unheard of numbers at the time we launched mobile payments.
When all was said and done, the transformation took about three years to gather its full momentum. By the end of 2011, we could see that all of our hard work was paying off and Starbucks was off to the races again. Not only had we recovered, but we were experiencing record partner and financial performance.
A couple of years after Starbucks put all of these initiatives in place, a Nielsen study showed Starbucks had become a top destination for teenagers and younger adults in the US. We won a Mobile Marketers Award and surpassed Coca-Cola to become one of the most followed brands on Facebook. We were the number one search term on Google Mobile Search, and hailed as having the most admired mobile payment and loyalty offerings. Our free Wi-Fi serviced tens of millions of customers around the world per month.
Put this in the context of 2011 and it is huge—revolutionary, really. Other companies were still struggling to figure out how to create mailboxes that provided more than ten-megabyte attachments. Starbucks had successfully positioned themselves as a digitally aware and tech savvy brand that appealed to an entirely new demographic.
In the course of transformation, many companies bring up their stock price and market cap, but can alienate their customers and employees in the process. It is easier to cut costs and solve financial issues when going through a turnaround. The harder thing to do is to successfully bring your customers and employees with you on that journey. That is the real measure of success. What made Starbucks so special is that we stuck to our values in the process of turning things around. Yes, we had to make some difficult decisions along the way but, with that, we never lost sight of what was important. In the end, I believe that’s what ultimately saved the company.
In Howard’s office at SSC, he had an org chart about the size of a big white board. There were two boxes on it. The top box said, “customers” and the bottom one said, “all of us.” That white board always acted as a reminder of who we were all there to serve every time we made a decision for the company: our customers and our people. As I was sitting in his office tangled up over a decision one day, Howard told me, “We can never expect our people to exceed the expectations of our customers if leadership doesn’t exceed the expectations of our people.” His message to me was to go with my instincts and do the right thing. The notion that, as a leader, I had to always work to exceed the expectations of our people really stuck with me. Every innovation we rolled out—whether it was free Wi-Fi or mobile payments—was complemented by investments in our employees, labor scheduling, point-of-sale, and drive-thru technology. In other words, we weren’t just making our customers’ lives better; we were also making our people’s lives better in very real and measurable ways.
Howard lived by that credo, and he made sure all of us did, too. He was generous, too. Looking back, Howard gave me opportunities to experience and lead in ways that, on paper, I wasn’t qualified for. He supported me when I made good decisions and coached me in those moments when my decisions were suboptimal.
In the end, Howard allowed me to take the company’s technology in a different direction. For a leader who self-identifies as someone who is not technical, he was savvy enough to allow someone like me and all of the great people that formed our technology and digital teams to reimagine what connecting with customers and employees in a modern way could look like. He stayed close enough to the work to shape, push, and refine who I was as a young leader and how I championed what mattered in the company—especially during difficult times.
I spent my early thirties with Howard and Starbucks. These were very impressionable years for me to experience leadership at that scale. In many ways, Howard shaped the leader I have become today and I will always appreciate the time and opportunities he gave me.
Howard wasn’t the only person I learned a lot from at Starbucks. Shortly after the technology derby, when our transformation began in earnest, Howard brought on a couple of new board members to work closely with us: Sheryl Sandberg, the COO of Facebook, and Kevin Johnson, who was a president at Microsoft and is currently (and ironically) the CEO at Starbucks. Before board meetings and any time we had to make critical technology decisions, I had the chance to have a “pre-game” discussion with Kevin or Sheryl. They were able to help me bridge any potential technology gaps in the formal board meeting so that the board could more easily understand what we were doing and how we were doing it. They were like my technical liaisons.
The two of them often gave excellent advice. They challenged me to think about decisions in more expansive ways, and, when necessary, I challenged them in return. As a tech guy himself as well as a twenty-year Microsoft executive, Kevin would ask me questions and offer advice about the technical side of things. What applications were we deploying? What was our global data center strategy? What would our IT and digital organizational design look like? Kevin served as my sounding board before I presented my latest project or pitch to the board. He was very good at advancing the discussion in ways I wouldn’t have thought of, and ensured that I was always prepared to put my best case forward at every board meeting. Kevin also helped me refine the business side of technology I advocated for, making sure that I was not just focusing on the tech, but also the impact it would have on the business and financial side of the company.
Meanwhile, Sheryl often helped me think through our community and social engagements. How might we engage and re-engage with employees and customers alike in new ways? What channels would be most effective for doing this—social media, mobile apps, or the in-store experience? Like Kevin, Sheryl was great at pushing me to think through things holistically, rather than always leading with technology first. The insight Sheryl’s background at Google and Facebook afforded Starbucks was invaluable.
Between the two of them, I learned how to use productive conflict and confrontation as a means to come up with better ideas, rather than feeling territorial or political. I also learned how to push back when I thought they were wrong. Sheryl and Kevin led us toward making better decisions as an IT and digital department.
Between both of their influences, I had a good partnership with the board as I steered through the transformation agenda. Without their input and guidance on key issues, I don’t think we would have been as successful as we were.
In retrospect, of course, the world knows that Starbucks’ transformation was successful. But, in the moment when it was all happening—when decisions were being made and leaps of faith were being taken—it all felt very uncertain. There were many days when those of us who were part of the transformation had to stare down unknown challenges and wonder if what we were doing was actually going to work. We did not have a blueprint—but we did have conviction.
The media liked to say that I was responsible for the technology and digital rise of Starbucks. The truth is that I just happened to play the role of ambassador for a whole range of partners who spent years sharing ideas, innovating, and working many long hours late into the night to make it real. I viewed my role as hiring, organizing, championing, and shaping the work of hundreds of people who worked together to build great technologies and experiences. Together, we made what was then considered impossible, possible. What we did is industry agnostic—this sort of collaborative, value-based effort will work in tech and in retail, in Seattle and Silicon Valley.
I’m proud to have been part of a team that believed in something and made it work. I’m also humbled by it.