Honor the Past, but don't be trapped In it

Adapted from "Leading the Starbucks Way: 5 Principles for Connecting with Your Customers, Your Products and Your People" (McGraw-Hill)

Before we examine the adaptive and progressive strategies Starbucks designed to ensure that the brand stays relevant, let's take a moment to look at one of the biggest challenges to fostering innovation for strong brands like Starbucks: complacency and inertia born of success. One of the best examples of the liability created by past accomplishments is the Polaroid Corporation.

The glory days for the legendary Polaroid brand ran from the company's creation in 1937 through the late 1970s. During World War II, the company prospered as a defense contractor, but the pivotal innovative moment for the brand occurred in 1948, when Polaroid's founder, Edward Land, created a camera that could process a photograph in minutes. For the next 20-plus years, that single invention was the ticket to Polaroid's monopoly on the instant photography marketplace.

Despite having invested more than 40 percent of Polaroid's research and development budget in digital technology, the company's leaders never fully engaged customers in their efforts to develop digital cameras. As a result, Polaroid saw its market share drop and was ultimately forced to file for bankruptcy in 2001.

Andrea Nagy Smith, writing for the Yale School of Management, places the responsibility for the company's failure squarely on faulty "fundamental assumptions that did not allow top management to adjust to new market realities. First, Polaroid leaders believed that customers would always want a hard-copy print...When customers abandoned the print, Polaroid was taken by surprise." Andrea further points out that the leaders at Polaroid had a history and a bias toward making money in photography through chemistry as opposed to digital breakthroughs.

According to Andrea, "The sheer profitability of film sales created another obstacle to thinking about new business models...Instant film had gross margins well in excess of 65 percent. So if you're dealing with a media change, how do you replace that with something that's almost or probably as profitable as instant film?'" Polaroid's leaders were victims of their own success. The very strengths that had brought Polaroid dominance in its market worked against the leadership's nimble pursuit of an alternative path...

Tightening Up

In addition to reliance on artisanship and versatility, Troy Alstead, Starbucks chief financial officer and chief administrative officer, suggests that the transition was also anchored to fervent attention to operational excellence and efficiency: "It's interesting for me in hindsight to recognize that new store growth was masking problems we were beginning to experience before we closed 800 U.S. stores in 2008 and 2009. Many in the press, consumers, analysts, and even most of us inside Starbucks believed that we were great store operators." Troy goes on to note that Starbucks' brand strength in attracting customers was clouding the picture, covering merely satisfactory operations. Specifically, he points to the leadership's historically marginal performance on the effectiveness of labor deployment or on using data to determine whether a store's hours should be adjusted. Troy shares, "Across many important operational elements, we were just getting by. As such we have had to innovate to exercise greater financial discipline. We still need to achieve powerful human connections, but in the process we also need to create more efficient staff deployment as well as greater management of productivity and waste."

A key element in the success of the Starbucks transformation in the area of efficiency improvement results from an alignment between leaders who are charged with driving change and those who are responsible for ensuring consistent operations. As Craig Russell, senior vice president, Global Coffee, puts it, "If you only let operators run the world, we probably wouldn't have as many stores and we wouldn't have as much innovation. If you only let innovators run the world, you'd have businesses that would be very hard to run and may not make as much money. Our challenge has been to bring both sides of this equation together so we could produce innovations that improve operations, drive growth, enhance the partner and customer experience, and increase profitability. That's a tall order, but it often occurs in the most subtle ways." Ultimate success in driving innovation hinges on the alignment of those who foster change and those who maintain stability.

One example of the subtlety of the improvements that have emerged from an "operational innovation" mindset is the Starbucks "steaming pitcher." Starbucks leaders announced the new pitcher in 2012 by noting that the innovative "design will allow Starbucks baristas to handcraft espresso beverages more efficiently and consistently, so they can continue to deliver great customer service." Specifically, the pitcher's tapered bottom not only was created in pursuit of perfectly steamed milk, but also allowed baristas to easily pour milk to lines marked in the pitcher that conformed to all Starbucks drink sizes. It also limited the space available to overfill the pitcher, thus decreasing waste. In essence, the pitcher, which was smaller than its predecessor, offered a threefold win: (1) improved product quality and consistency, (2) increased ease of use for baristas, and (3) reduced milk waste...

Curiosity Directed Inward

While many people have offered their opinions concerning the differences between an invention and an innovation, I have always favored the view that an invention is a new creation and innovation is a new solution that attracts a customer. In essence, innovation is an applied and marketable phenomenon. It involves taking an invention and/or an existing product or service and improving on it in a way that makes it more valuable to those you serve. Often leaders have a robust appetite for customer-facing innovation, but at Starbucks, equal attention is directed to improvements that add value to the lives of partners. At the forefront of this innovation is curiosity and a willingness to ask about and listen to the ideas and concerns of your people...

Reprinted by permission of McGraw-Hill. Adapted from "Leading the Starbucks Way: 5 Principles for Connecting with Your Customers, Your Products and Your People", copyright 2013 McGraw-Hill. All rights reserved.

Joseph Michelli focuses on the intersections of business, leadership and workplace productivity. He is a prominent thought leader on the topic of customer experience.