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 / Summer 2008 / Issue 51(originally published by Booz & Company)


Starbucks and the Power of Story

It is important to assess Schultz’s story not as a blueprint for other companies to adapt but as a testament to the value of an enduring creation myth and system of corporate values. Communicating compassion has been an undeniable factor in the company’s success. Public claims of being altruistic and benevolent and caring can, in fact, attract and motivate employees and appeal to customers, leading to a profitable cushion that affords a company the ability to pursue such practices as insisting on “fair trade” benefits for its coffee bean growers. Being good becomes, in effect, a self-fulfilling credo. And yet, there’s more to that than meets the eye.

How much should one separate the story of Starbucks from a rigorous analysis of its success? How much of the premium that folks pay for Starbucks coffee owes itself to this appealing fable? Here’s where a recent book by Phil Rosenzweig helps frame the entire conversation. Even though it is not explicitly about Starbucks, The Halo Effect — and the Eight Other Business Delusions That Deceive Managers offers invaluable insight into understanding the power of its mythology.

In The Halo Effect, Rosenzweig, a former manager and current professor at Switzerland’s IMD business school, argues that most conventional thinking about corporate success is shaped by delusions: “For all the secrets and formulas, for all the self-proclaimed thought leadership, success in business is as elusive as ever. It’s probably more elusive than ever, with increasingly global competition and technological change moving at faster and faster rates — which might explain why we’re tempted by promises of breakthroughs and secrets and quick fixes in the first place. Desperate cir­cumstances push us to look for miracle cures.”

Rosenzweig cautions that we create rationalizations for success when the real explanations are far more difficult to identify, let alone codify in a way that enables others to make equally productive decisions. And so the tale of what has really happened gives way to the one that people want to tell. Describing ways that journalists reported on Cisco, depending on which side of the profit mountain it was on, he writes, “Facts were assembled and shaped to tell the story of the moment, whether it was about great performance or collapsing performance or about rebirth or recovery.”

Unlike the field of science, in which one can conduct replicable activities with relative certainty about their outcome, in business, managers cannot assume that following a formula will produce predictable results. So they gravitate toward stories, which represent “a way that people try to make sense of their lives and experiences in the world,” writes Rosenzweig. “The test of a good story isn’t its respon­sibility to the facts as much as its ability to provide a satisfying explanation of events.”

Rosenzweig is not arguing against making good decisions but against pursuing easy conclusions and delusional plans. The relevance of his assertion to Starbucks is simply this: The noble purpose of the company is a good thing, and has led to nice policies that have benefited employees and contributed to the popularity of the brand. But one must view the Starbucks claims with caution. Two things in particular should be noted.

First, there’s no guarantee that these practices (which are harder to sustain as a company grows) will be critical factors as the business moves forward. Given the pace of change threatening every company, simply following several core principles will never ensure sustained success. The world changes too much and too fast for a static set of guidelines to work with the same impact.

And second, one must be careful not to confuse causality and correlation when it comes to linking the company’s values and mission to its spectacular run. Starbucks’s practices have been admirable. They have helped the company in tangible ways. Yet how many other companies that have been launched in the past 20 years have also made genuine commitments to nurturing the human spirit? How many of them backed up this mission with real policies? Why haven’t they succeeded on the same level that Starbucks has? It’s clear that the Starbucks story is comforting and, to a degree, instructive — but it’s not a recipe for success. Its lessons are neither absolute rules nor scientific principles, but rather “guidelines” that must be followed…until they shouldn’t be.

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Starbucks Resources
Works mentioned in this review.

  1. Scott Bedbury with Stephen Fenichell, A New Brand World: 8 Principles for Achieving Brand Leadership in the 21st Century (Viking, 2002), 240 pages
  2. Karen Blumenthal, Grande Expectations: A Year in the Life of Starbucks’ Stock (Crown Business, 2007), 309 pages
  3. Taylor Clark, Starbucked: A Double Tall Tale of Caffeine, Commerce, and Culture (Little, Brown, 2007), 297 pages
  4. Michael Gates Gill, How Starbucks Saved My Life: A Son of Privilege Learns to Live Like Everyone Else (Gotham Books, 2007), 265 pages
  5. John Moore, Tribal Knowledge: Business Wisdom Brewed from the Grounds of Starbucks Corporate Culture (Kaplan, 2006), 252 pages
  6. Phil Rosenzweig, The Halo Effect — and the Eight Other Business Delusions That Deceive Managers (Free Press, 2007), 260 pages
  7. Arthur Rubinfeld and Collins Hemingway, Built for Growth: Expanding Your Business around the Corner or across the Globe (Wharton School, 2005), 268 pages
  8. Howard Schultz and Dori Jones Yang, Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time (Hyperion, 1997), 358 pages
  9. Leonard Sweet, The Gospel According to Starbucks: Living with a Grande Passion (Waterbrook Press, 2007), 222 pages
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