Rallying in a Recession

The London Underground is one of the world’s oldest and most iconic public transportation systems. Each year, 1.35 billion passengers are funneled along a labyrinth that spans 272 stations. But in 2014, a city-wide strike caused 171 of those stations to close.

Navigating the intricate system became an even greater challenge. Commuters had to improvise new routes on the fly as their habitual routines were disrupted. Researchers seized the opportunity to study the collective data from thousands of travel cards, and a surprising finding leapt out: despite half of their usual entrance and exit stations being closed, people only spent an average of 6% more time in transit.

Stranger still, many commuters arrived at their destinations faster. Disruption forced these travelers to disrupt their own routines, exposing new and improved ways of making their daily commutes.

Last week, we reviewed the counterintuitive evidence behind the idea that innovation is the best overarching strategy for tough economic times. All innovations ultimately begin their life as a breakthrough inside of the human mind, so we discussed the conditions necessary for fostering ideas. As we saw with Ford, McDonald’s, and Figma, studying examples that are familiar yet different from your own situation can be a powerful source of clarity. 

Howard Schultz's tenure as CEO of Starbucks during the 2008 recession offers many such analogies that can inspire your own response. The initiatives that made up his transformation agenda reveal some of the more nuanced principles, supported by science and historical case studies, for influencing your approach during uncertain times.

Because as the Tube strikes demonstrated, economic disruption can open up an opportunity for us to reevaluate our habitual patterns, and replace them with healthier alternatives. When businesses seize this opportunity, they tend to not only survive a downturn, but emerge stronger than before. A select few become faster, smarter, and more efficient than ever.

All of the forthcoming details about Starbucks’s turnaround are sourced from Schultz’s book Onward: How Starbucks Fought for Its Life Without Losing Its Soul. 

The cycle in action 

A state of dissonance was triggered again for Schultz after one of his internal memos was leaked online. His concerns about the direction of the company had been made public, and he was shocked at the media frenzy they’d unleashed. 

“Although the rush of news coverage, opinions, and false rumors was very frustrating, in retrospect it served a very important and unexpected purpose,” Schultz wrote. A problem had crystallized in his mind: Starbucks found itself increasingly defined by external observers and had no means of effectively responding or sharing positive news. 

Schultz adopted a state of readiness and began paying attention to relevant cues. He’d been keeping tabs on a new wave of technology: Apple had released its first iPhone, Google acquired YouTube, and a platform called Facebook invited anyone over the age of 13 to join. It was clear Starbucks had to figure out how to engage in a two-way dialogue with the world via these new communication tools. 

He also learned that many employees were deluged by suggestions from family and friends. It seemed that everyone had an idea to share about how Starbucks could improve. Clarity struck when Schultz discovered a second tool involved with Dell’s turnaround: a website called “IdeaStorm” that allowed PC users to post their suggestions.

Observation collided with serendipity, and—despite it being Christmas Eve—Howard called his chief technology officer and put plans in motion for “MyStarbucksIdea.com.” 

Within 63 days, a team had the suggestion site up and running—one of several initiatives that was launched in time for the annual shareholders’ meeting in March. Over 100,000 suggestions flooded in and 100 were eventually implemented.  

Other than serving as a great example of the “dissonance, readiness, breakthrough” cycle in action, this account underscores the importance of listening to your customers during a crisis as their needs and expectations shift. It becomes even more essential to keep an open dialogue in order to understand how your customers are affected, not only to hold onto existing business, but to spot opportunities to meet new demands. 

Input from customers on the new site would become yet another feedback loop for observation and help Schultz solve another source of dissonance he was facing: pricing.

Preserve your core 

At about $4 a cup, Starbucks was a premium product. This was a tough position to maintain during a period when most customers were under economic pressure. The problem was exacerbated by serious competitors offering cheaper alternatives. Schultz was unsure of how to respond to this complex threat—they couldn’t fold on price without lowering coffee quality or compromising its famous employee health program.