An Exploration Of Leadership Style Of Howard Schultz Management Essay

This essay explores the leadership style of a successful international businessman, Howard Schultz, the Chief Executive Officer of Starbucks coffee-house company, arguably the world’s most successful coffee company. Fellner (2008) credited Schultz with having a highly successful year in 2003 “… with a net sales of $4.1 billion (almost twice what it had earned in 2000 when it yielded $265 million” (p.16). Schultz was ranked as the 354th richest person within the USA in 2006 with a net worth of over one billion dollars (Forbes.com, 2006). Schultz joined the Starbucks Company initially as an executive in the early 1980s before becoming chief executive officer in 1987 and was credited for developing the company into an internationally recognized brand and multi-national corporation (James, 2009). He took a step down from CEO to Chairman in 2000 and witnessed the company struggle through the economic down-turn before returning to the helm as CEO in 2008 and navigating the company through an international expansionist strategy whilst reducing the number of physical companies in the domestic US market.

The premise of relevant leadership theories and models will be used to analyze the topic of Schultz’s leadership style. In particular, one will assess the type of skills that he has demonstrated in order to ascertain his style of leadership in terms of competencies and meta-competencies. This assignment will enable the reader to understand what makes a successful entrepreneur and global leader by providing a lens into their world-view. In conjunction with references to academic discourse, the components of this effective leader are illuminated through a personal bibliography within the following section.

CRITICAL ANALYSIS: LEADERSHIP THEORIES AND SCHULTZ’S LEADERSHIP STYLE

Burns (1978) introduced a theory on leadership that has had global implications for organizations. At the heart of Burn’s argument was a differentiation between two different types of leader: transformational and transactional. The latter often bases his approach on interactions and exchanges with those at lower organizational tiers in order to meet his desired strategic goals. In turn, his employees get what they require such as a salary, praise or promotion in exchange for what the leader values (such as effective performance levels). Conversely, a transformational leader seeks to redress employee/follower concerns and meet their desires whilst leading effectively and dealing with organizational issues at a higher contextual level. In this latter respect, followers are accorded respect and encouraged to develop as persons in their own right. They are also encouraged to participate at a collective level in order to ensure organizational objectives are met. Transformational Leaders tend to adapt a ‘selling’ style of leadership. The influence of this approach is captured in the following quote:

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‘…[It] engenders high levels of motivation and commitment among followers/members. The emphasis is on generating a vision for the organisation and leaders’ abilities to appeal to the ‘higher’ ideals and values of followers/members in order to achieve high performance, high commitment and high inclusion to an organisation or system’ (Rodgers et al; 2003: p.16).

The emphasis shift from Transactional to Transformational leadership occurred in order to redress the hierarchical imbalance associated with Transactional theories by encouraging active participation and inclusion amongst followers. Discourse widely proffers that effective leadership development is an ambiguous and contested concept due in part to the variability of people’s leadership styles. Bryman (2007) argues that heroic and hierarchical forms of leadership that focus on a leader’s competencies and behaviours have traditionally prevailed within business circles yet are increasingly unsuitable in the current and somewhat chaotic, global business environment (Collinson, & Collinson, 2009: p.367). It is widely argued that modern leaders must eschew novel skill-sets, meta-competencies such as inter-personal skills and positive behaviours in order to increase organizational efficiencies and effectiveness (Kiel and Watson, 2009). Kutz discusses some of the tensions emanating from globalization and free-market structures where a: ‘… Constant pressure to innovate, gives rise to continually changing contexts. In turn, these phenomena require executives and leaders to respond and adapt to quickly changing contexts’ (2008: p.18). Schultz recent advocated the use of mobile technology to enhance the efficiency and effectiveness of the company by accepting purchase payments through a mobile device. A Starbucks Card-Mobile iPhone application also enables use in a gift card capacity by presenting a technically secure QR bar code for baristas to scan in front of a high-tech 2D scanner during the payment process (Butcher, 2010). Participating customers now have the ability to reload their card balance via their mobile device using a major credit card. They also have the ability to check the status of their My Starbucks Reward status and to search for Starbuck stores in situ (ibid).

From an historical perspective and before mobile technologies were piloted and implemented across New York Stores, Schultz had a vision to create 2000 physical stores by the year 2000. Some observers credit this vision with the driver behind Starbuck’s success. Schultz used his ability to translate this vision across the organizations management teams and supervisors who possessed micro level visions that directly sustained and supported his aims: ‘His powerful communication skills define a leader who knows not only what he stands for, but also the values he promotes, and who knows how to make an emotional connection with his listeners’ (Bloomberg Businessweek, 2006: n.p). At a lower contextual level, management and supervisors directly supported their staff by providing them with the opportunity and resources to grow through various activities such as coaching, training, mentoring and educational opportunities. A shift towards a situated, networked and fluid leadership style based on novel forms of participation has been the consequence of Schultz’s actions. Schultz stresses the importance of sharing both the success and the credit of entrepreneurship (Neff & Citrin, 1999). Collinson & Collinson cited research by Bolden et al. (2008, 2009) within the higher education establishments which identified strong evidence of distributed leadership. Conversely, and paradoxically, respondents (employees) also recognized the importance of powerful and inspiring leaders (2009: p.376).

Schultz advocated the purchase of companies including Seattle Coffee Company in the UK and subsequently expanded their operations beyond the United States into Europe and South East Asia. By 2003 the number of stores rose to 6,000 and by 2010 approximately 16 thousand stores existed in over 50 countries (New York Times, 2010). The success of Starbucks has been attributed to Schultz’ collaborative style that contained powerful social essence, encouraged follower empowerment and which was seen as non-hierarchical and less-centralized compared to many other business models. Starbucks’ business strategy was driven by a man who exhibited effective leadership skills by empowering lower-tiered management and staff to participate in decision-making activities (associated with the 2000 vision) and by, for instance, providing universal healthcare for all employees. Starbucks uses 2 mission statements which are noted in the company’s website: ‘To inspire and nurture human spirit – one person, one cup, and one neighbourhood at a time’ and ‘Starbucks is committed to a role of environmental leadership in all facets of our business’ (www.starbucks.com). James (2009) recently noted how the company still prides itself on its treatment of workers (baristas) who receive the same health benefits as all other tiers of the company: ‘He gave baristas health care plus a share of the profit. When the AIDS epidemic was at its height, Starbucks paid for terminal illness care for employees for 29 months until the government took over’ (n.p).

James also noted some of the current tensions facing Starbucks Corp and its CEO in particular. Schultz may have provided all employees with a 401(k) plan and stock options (including health benefits); however Starbucks’ Workers Union has restricted rights which limit its ability to defend staff against low-paid work and unsociable hours. James noted how Schultz stated: ‘I was convinced that under my leadership, employees would come to realize that I would listen to their concerns…If they had faith in me and my motives, they wouldn’t need a union’.

On his return to the CEO fold in 2008, Schultz planned to dramatically reverse a decline in sales and achieve a turnaround in the companies’ financial performance at a time when the business world presumed that Starbucks had effectively lost its innovative edge. He advocated the closure of 300 US stores and cut hundreds of jobs yet aggressively opened hundreds of new stores beyond the US market (New York Times, 2010). Schultz took the decision to downsize in the US market and expand further globally with the support of his senior management team. This reflects Hughes, Ginnett, and Curphy (1999, p. 365), who found that: ‘[members] solidify into an interdependent team of mutually supporting friends and colleagues’ (cited in Bentley et al; 2004). Tobak, (2009) questions whether Schultz had the vision at that time to acknowledge that Starbucks undertook such changes without foreseeing the problems that may ensue. He conveniently blamed the economic downturn [1] for much or Starbucks’ problems when in fact significant problems occurred approximately 18 months before the economy: ‘…took a nose dive. From January 2007 to August 2008, its share price was off 60 percent while the Nasdaq index was essentially flat. This is not about the economy, and Schultz knows it’ (n.p). Schultz stated in a recent July/August 2010 Harvard Business Review article:

The past two years have been transformational for the company and, candidly, for me personally. When I returned, in January 2008, things were actually worse than I’d thought. The decisions we had to make were very difficult, but first there had to be a time when we stood up in front of the entire company as leaders and made almost a confession-that the leadership had failed the 180,000 Starbucks people and their families. And even though I wasn’t the CEO, I had been around as chairman; I should have known more. I am responsible. We had to admit to ourselves and to the people of this company that we owned the mistakes that were made. Once we did, it was a powerful turning point. It’s like when you have a secret and get it out: The burden is off your shoulders. Cited in Petty (2010: n.p)

In early 2009, the company bounced back and has seen more store traffic and renewed earnings growth with Starbucks shares raising to $24 a share. By spring 2010, the company: ‘…announced its first dividend to be paid in cash to investors. In April, the company said its profit rose more than eightfold in the second quarter, as more customers visited its stores and spent more’ (ibid: n.p). Kiel & Watson (2009) suggest that most organizational issues encompass human rather than technical challenges and suggest: ‘While no academic study has been conducted on this topic [affective leadership and emotional intelligence], we believe that [those] who are successful in developing the support of their communities…are ones who expend considerable emotional labo[u]r’ (p.22). Schultz’ leadership style has been described in the following terms:

They don’t teach caring in business schools, and benevolence isn’t usually discussed in corporate management seminars. But these values anchor Schultz’s leadership philosophy as he seeks to build connections between people through demonstrations of heart and conscience. Starbucks’ baristas, for example, receive a “Green Apron Book” that exhorts them to “be genuine” and “be considerate.” And the company works hard to treat its coffee growers in Third World

countries with dignity while purchasing their products at above-market prices

(Meyers, 2005, p. 1)

Lara Wyss, Starbucks’ director of global consumer public relations also noted how: ‘The company is testing concept stores with various platforms that fit in with its Shared Planet pledge hat each new store built in 2010 will be Leadership in Energy and Environmental Design (LEED) certified’ (Zegler, 2010: p.62). Starbucks has recently introduced three concept stores in Seattle, Disneyland Paris and London. The former was recently redesigned in the light of its heritage concept theme and uses various recycled and revamped materials as part of its décor. Schultz illustrated examples of effective leadership by embracing a culture of open communication and by constructing active partnerships with his work-force. Schultz’ style of leadership would be at odds with a somewhat aggressive and negative management style that reflected an authoritarian and hierarchical leadership approach, such as that adopted by Michael O’Leary from Ryanair. A Wall Street Journal (2009) article highlighted O’Leary’s abhorrence and total disregard of trade union power within the airline industry and how his drive for cost savings included the prospect of refusing free food for airline staff if the opportunity arose. Further criticism was directed at him for a perceived lack of moral leadership by refusing to provide wheel chair assistance for disabled passengers (Box & Byus, 2005: p.68). Conversely:

Starbucks was among the first companies to provide medical benefits to part-time employees. Today, however, Starbucks is spending more on healthcare than on coffee, and the workforce is nervous about shrinking benefits. “We’re not ever going to turn our backs on our partners [employees],” says Schultz reassuringly. Then he faces reality. “But we need relief. Where is the money going to come from?” (US.news.com, 2005)

In this respect, Schultz and O’Leary are clearly different types of leaders with opposing leadership styles, yet both have similar beliefs in regards to trade union power. Fellner’s (2008) book viewed Schultz as the leader of a coffee chain with a proffered liberal consciousness and whose reputation was paradoxically categorized as a symbol of globalization and all that is immoral with free-market capitalism. She found paradoxes in the basis of employee friendly structures that espouse universal healthcare provision with anti trade-unionist practices; and between what she perceived as community individuality and forms of cultural hegemony. Carroll, Levy & Richmond (2008) discussed Alvesson and Sveningsson’s (2003ab&c) research findings which stipulated that numerous managers involved in leadership development may effectively articulate abstract ideals such as vision and inspiration. However, an inability to define or explain concrete actions undertaken in pursuit of such ideals was also deemed prevalent (ibid).

CONCLUDING NOTES

This section will provide a conclusion to the assignment and discuss some of its limitations. It was noted within the main body of text how different leadership styles can influence employee motivation and job satisfaction. A clear comparison can be made between Schultz’ leadership style and that of a successful entrepreneur in another industry (Michael O’Leary’s Ryanair airline company). It was also discussed above how various leadership styles impact upon employee motivation and job satisfaction. Nelson and Quick (2006) attributed Schultz’s leadership to a transformational style because his caring and generous nature reflects transformational leadership qualities. In some respects, it is clear that Schultz shows concern for the whole Starbucks organization and exhibits openness and debate amongst its employees and management rather than pursuing activities out of his own selfish interests. Spillane proposes that: ‘… from a distributed perspective, leadership practice takes shape in the interactions of people and their situation, rather than from the actions of an individual leader’ (2004: p.3). In realist terms, Fellner (2008) illuminated the chaotic social and business blend that Schultz embraces which seeks to maximize corporate profit by targeting new markets (foreign markets, mobile technology markets) whilst exhibiting sufficient social justice tendencies. It is this paradox that has led Schultz and his team to constantly align itself with one set of principles whilst seeking solace in another set of principles that are arguably at opposing sides of the spectrum. Collinson & Collinson (2009) noted how Cameron et al. (2006) viewed effective leaders as: ‘…simultaneously paradoxical, integrating factors usually seen as competing, contradictory and even incompatible’ (ibid: 377).

Schultz seems to have used high degrees of emotional intelligence by seeking alliances and partnerships within the Starbucks organization, rather than thrive on adversity and seek economic benefit from unethical channels. As noted above, O’Leary’s approach to staff meals and customer wheel chairs highlight his domineering and hierarchical leadership approach whilst Schultz’ willingness to support employees suffering from HIV shows aspects of social justice in his personality traits. Schultz embraced change and development in a chaotic, competitive and complicated external environment. He seemed to display a significant amount of vision and emotional intelligence in order to transform the status quo into a global brand in over 50 countries.

Overall, the literature suggests that modern leaders must provide effective leadership skills that compliment and encompass traditional management skills. These are increasingly linked to emotional intelligence, empowerment, empowerment, reflection, the ability to take risk without apprehension and the need to reflect upon the ethical and moral consideration of others. Schultz’ openness for social and ethical practices in pursuit of Starbuck’s business objectives has been applauded by many observers. Much of Schultz’ skills included trust building, negotiating with opponents and encouraging mutual co-operation. Therefore, one must possess a combination of hard, technical and softer, intuitive leadership skills in order to solidify their role as an effective leader in all situations. They must also be charismatic and inspirational yet calculated risk takers in order to navigate their respective organizations through the chaos and complexity (for instance, see Wheeler et al., 2007 in Collinson & Collinson, 2009)