Orin Smith Ceo Starbucks

There were praises, cheers, and stories at the last Starbucks annual shareholders meeting. This was the last meeting for one of Starbucks' most successful executives, Orin Smith. As the 62-year old Smith retires this month as Starbuck's CEO, he will be remembered for his leadership in the company by turning the inspiration and vision behind Starbucks into a reality. When previous CEO Howard Shultz approached Smith to join the Starbucks team in 1990, there were only approximately 45 stores in the U.S. and Canada combined (Starbucks). Today, there are around 9,000 stores occupied over 39 countries in addition to the 1,500 planned to open this year (Ouchi A1).

Executive Background

While studying at the University of Washington, Smith decided to take time off to work as an engineer for Boeing Enterprises. During his tenure, he recalls rows and rows of engineers sitting at their desks, reminding him of the assembly line. Seeing this unattractive future, he decided to switch to a Business orientation and eventually enrolled into Harvard Business School in pursuant of an M.B.A. (Smith).

In 1987, Howard Shultz purchased the Starbucks name and assets and presided as the new CEO. Three years later, he approached Smith, who was then working at Danzas (a freight shipping company) to enlist him as the company's CFO. Smith was able to see the vision and future potential of Starbucks. It was then, that Smith began driving Starbucks through its delicate years of raising capital, becoming a public company, and developing goals for future growth (Moix 1).

Management Style

"Before you can have an emotional connection with your customers, you have to have an emotional connection with your people." (Ouchi A1).

The success of Starbucks is partly due to Smith's strong emphasis on relationships between management and lower ranked employees (also called partners). Similar to JetBlue's CEO David Neeleman, Smith believes that a good relationship between management and employees will translate into a good relationship between the employees and the customers. In the past, both CEOs have been known to practice a 'hands-on' approach by stepping onto the 'front lines' of the business. Every quarter, Smith spends at least a couple of days behind the counter as part of their 'Adopt a Store' program for the senior executives. Smith believes that this is not only an excellent way for executives to interact with employees and customers first hand, but also a good opportunity to keep executives "connected with the spirit of the company." (Smith).

Smith also has a good sense of how the company needs to address the issue of expansion internationally. One of the most important things that Smith stressed when Starbucks was in the initial stages of going overseas was to not assume that the market or consumers in other countries are similar to Americans. The operating concepts used in the U.S. rarely work overseas. Smith realizes that operating in different markets require a lot of knowledge about the culture, real-estate, market, and operating environment. In order for Starbucks to obtain this knowledge, it hires local managers; they are better able to understand how to conduct business successfully. Starbucks even has partnerships with other companies for stores in Europe to give them further knowledge about the operating environment.

Aside from improving relations between the strategic side of management and the operations side, Smith has also improved Starbucks' information systems, financing, and legal affairs (Ouchi A1).

Corporate Strategy

In the early 1990s, Smith and Shultz were able to see the importance of the environment in which coffee was sold. In the past, coffee was generally treated as a commodity and quality was considered secondary to cost. Both men saw the opportunity to expand this experience, particularly the interactions between the customers and employees. To change this, Smith and Shultz created an appealing environment that included using all the sensory appeals. Stores were usually very attractive, equipped with comfortable chairs and sometimes, even fireplaces. The general ambience of a typical Starbucks location was a gathering spot that invited customers to stay and chat, in a world that otherwise would have been unsociable. Starbucks is committed to offering high quality coffee combined with the 'Starbucks experience,' while conducting its business in ways that produce social, environmental, and economic benefits for communities in which it does business.

Both Smith and Shultz believed the key to success is to be 'preemptive' and to enter sectors before the competition. In such case where the competition is ahead, development must be accelerated. For example, Starbucks was one of the first major establishments to offer wireless Internet access in its stores. Just recently, Starbucks has been trying to install CD burners in its stores for customers to create their own music CDs.

Starbucks is one of the fastest growing consumer brands and one of the most visible American culture emblems. "Americans don't walk. So if you have to go more than two blocks, they don't go," says Smith. Conventional retailing theory has traditionally stated the easiest way to grow is to open more stores. It also states that retailers who place stores too close to one another cannibalize their own sales (ElBoghdady H.01). Yet, this is the exact strategy Starbucks has embarked