Corporate Culture as a Core Strategy: How Starbucks Leveraged its Culture to become a Global Champion

Author’s Note to Readers:

This newsletter focuses upon various aspects of the development of “Sustainably Successful Organizations.”? ?

ABSTRACT

This article examines the role of culture from a different perspective. Specifically, it examines culture as a “core strategy.” A “core strategy” is the way in which an organization plans to achieve its strategic mission and differentiate itself from other organizations. It a central theme around which all other strategies are (or ought to be) developed. Examples of companies with core strategies include Southwest Airlines, American Express, and Starbucks. All are sustainably?successful companies, and leaders in their space. The article also examines how Starbucks used culture as a core strategy which enabled it to become a global?business champion and leader in its space. It draws upon Eric Flamholtz’ personal experience as a consultant and participant observer with Starbucks from 1994-1997.

NOTE: The author, Eric Flamholtz worked with Starbucks as an organizational development?consultant from 1994 through 1997, as cited in Howard Schultz’ book with Dori Jones Yang, Pour Your Heart into it: How Starbucks Built a company One Cup at a Time, Hyperion, 1997. Howard Schultz also authored a Forward for Eric Flamholtz and Yvonne Randle’s book, Changing The Game, Oxford University Press, 1998.

PURPOSE

I have previously written about the role of corporate culture as a strategic asset and its impact upon financial performance.[1] This article examines the role of culture from a different perspective. Specifically, it examines culture as a “core strategy.”

WHAT IS A “CORE STRATEGY”?

A “core strategy” is the way in which an organization plans to achieve its strategic mission and differentiate itself from other organizations. It a central theme around which all other strategies are (or ought to be) developed.

Based upon my experience most companies have many strategies but not a “core strategy.” If a core strategy exists in a company it will be fairly clear and recognizable. If not, the organizations’ strategies are like a donut which a hole at the center. Examples of companies with core strategies include Southwest Airlines, American Express, and Starbucks. All are sustainably ?successful companies, and leaders in their space. We will examine each in turn.

THE CORE STRATEGY OF SOUTHWEST AIRLINES

During its initial growth phase, the core strategy of Southwest Airlines was “low cost, no frills air fare.” Everything was about being a low cost-low price airline. The company’s supporting strategies in all aspects of its business (market selection, “product” resources, operational systems, management systems, and culture) were ball based upon this core strategy. A detailed examination of this is beyond the score of this article, but can be found elsewhere.[2]

THE CORE STRATEGY OF AMERICAN EXPRESS

The core strategy of American Express is all about the ‘brand.’[3] The firm abandoned its strategic mission of becoming a “one stop financial supermarket” (crafted under the leadership of Jim Robinson), and under former CEO Harvey Golub repositioned itself and its core strategy as “all about the brand.” This led to the divesture of several units of AMEX.

CORPORATE CULTURE AS A CORE STRATEGY

Many companies have great difficulty articulating a core strategy. For some the problem is that they are essentially producing commodity produces or services. With respect to Gertrude Stein, in some ways “a bank is a bank is a?bank”; “an airline is an airline is an airline”; and “a silicon chip is a silicon chip is a silicon chip”.

This is because most companies look at product as the key factor for competitive differentiation. However, there is at a deeper level always the possibility of differentiation in an organization through other means.

A relatively neglected source of differentiation is corporate culture. ?Corporate culture can be used to differentiate an organization in two key ways: 1) in the treatment of customers or clients, and 2) in the treatment of its employees.

HOW STARBUCKS USED CULTURE AS A CORE STRATEGY

This dual strategy of using culture as a differentiating factors or core strategy is captured best by Starbucks. As Howard Schultz, founder and former Chairman of Starbucks, clearly one of the great entrepreneurs and architect of arguably the most dramatic corporate success story of the last 30 years, states: “When people ask me the reasons for Starbucks success it tell them something that surprises the, the real reason for the company’s success its people.” Schultz view of the underlying reason for SBUX’s success is more clearly stated in the title of the book written by Howard Behar, who was the head of retail operations during the company’s great growth and an iconic brand. As the books title states: It’s not the Coffee[4]!?As Behar explains, it is the leadership and culture of Starbucks that is the real reason for it great success.

CULTURE AS A CORE STRATEGY AND “THE BOTTOM LINE”

The underlying message is captured in the implicit core strategy articulated by Starbucks: “the way we treat our people influences the way they treat our customers, and in turn, our financial performance.” Today SBUX has more than $20 billion in revenues, is a recognized global brand, a respected corporate leader. Yet it was all done with a commodity product. Coffee is coffee is coffee! The nominal product (coffee) comes from Arabica coffee beans which are gown in many places.?The real product is the experience of customers, and that is the product of Starbuck’s core strategy based upon its leadership and culture.?

THE BOTTOM LINE: IMPLICATIONS FOR ACTION

What are the key implications of this article for action? Stated briefly, corporate culture is the ultimate competitive weapon. Accordingly, corporate Leaders require a deep understanding of culture, how to create it, and how to manage it. Without a deep understanding of corporate culture, corporate leaders are playing a game with more than one hand tied behind their back, and they are likely to be playing a losing game.?

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Further Information: For further information about corporate culture and culture management, see Eric Flamholtz and Yvonne Randle, Corporate Culture: The Ultimate Strategic Asset, Stanford university press, 2011. See also: www.Mgtsystems.com/ What we do/ Culture management. ?

References

Howard Behar with Janet Goldstein, “It’s not About the Coffee: leadership principles from a life at Starbucks,” Portfolio, 2007.

Eric Flamholtz and Yvonne Randle, Changing The Game, Oxford University Press, 1998.

Eric G. Flamholtz and Yvonne Randle, Corporate Culture: The Ultimate Strategic Asset, Stanford University Press, 2011.

Eric G. Flamholtz and Yvonne Randle, Growing Pains: Building Sustainably Successful Organizations, Wiley 2016.

Eric G. Flamholtz and Yvonne Randle, The Crisis Leadership Playbook, Vandeplas Publishing, 2020.

Howard Schultz’ with Dori Jones Yang, Pour Your Heart into it: How Starbucks Built a company One Cup at a Time, Hyperion, 1997

About the Author_________________________

Eric Flamholtz is Professor Emeritus, Anderson School of Management, UCLA. He is the founder and President of Management Systems Consulting Corporation, 10940 Wilshire Boulevard, Suite 600, Los Angeles California, 90024. He has served on the faculties at Columbia University, The University of Michigan, and UCLA, and has lectured at Columbia University Executive Development Program, Cornell University School of Hotel Management, Cheung Kong Graduate School of Business (China), Fudan University (China), Shanghai Advanced Institute of Finance (China),??HEC (France), Almaty University (Kazakhstan), CETYS (Mexico), Orestano University (Sardinia),?Stockholm University (Sweden), and?Moscow School of Management Skolkovo (Russia).??His latest book (co-authored with Yvonne Randle, is The Crisis Leadership Playbook, Vandeplas Publishing. 2020.?Portions of this article are drawn from Eric Flamholtz and Yvonne Randle, ?Corporate Culture: The Ultimate Strategic Asset, Stanford University Press, 2011. See also: www.Mgtsystems.com.

?Foototes

[1] Eric Flamholtz and Yvonne Randle, Corporate Culture: The Ultimate Strategic Asset, Stanford University Press, 2011.

[2] See Eric Flamholtz and Yvonne Randle, Growing Pains: Building Sustainably Successful Organizations, Wiley 2016. ?chapter 7.

[3] Eric G. Flamholtz and Yvonne Randle, The Crisis Leadership Playbook, Vandeplas Publishing, 2020.

[4] Howard Behar with Janet Goldstein, “It’s not About the Coffee: leadership principles from a life at Starbucks,” Portfolio, 2007.