Why Boards Need To Clone Starbucks Digital Leadership

The rapid groundswell to deploy and leverage AI to modernize and revitalize business models leaves many executives confused, frustrated, overwhelmed and lockjawed. IBM recently reported that 40% of organizations are still “exploring or experimenting with AI, but have not deployed their models.” That’s no surprise after years of digital transformation corporate-speak, wasted funding and sky-high failure rates.

IMD b-school professor Didier Bonnet, affirmed these trends, writing, “Most digital transformations fail. Studies indicate that the rate of digital transformations failing to meet their original objectives ranges from 70% to 95%, with an average at 87.5%.” Bonnet attributes the widespread woes to severe time and scope underestimation, poor change management and inadequate tech deployment oversight.

Starbucks provides an exceptional exception. Its digital transformation success, anchored in driving customer loyalty, bolstering resilience and amplifying reputation, ideally positions the coffee giant for the AI era and offers clear lessons for adrift enterprises.

Most distinctively, Starbucks c-suite publicly demonstrates a clear understanding and unambiguous commitment to how technology drives revenue growth, underpins competitive edge, drives strategy execution and enables functional excellence.

Attention worthy

In November 2023, Starbucks launched its Triple Shot Reinvention Strategy with three priorities: (1) elevating the brand; (2) strengthening and scaling digital; and (3) becoming truly global. Those aims are backed by clear plans and meaningful metrics.

Several noteworthy Q1 2024 achievements evidence enviable ongoing success:

• Customer loyalty and purchase frequency remain incredibly strong. CEO Laxman Narasimhan noted, “We saw our most loyal customers around the world coming into our stores more often. Specifically, in the US, we set new records with our 90-day active Rewards members growing 13% year-over-year to a record 34.3 million, with tender reaching an all-time high of 59%.”
• Mobile Order & Pay set a company-high 30% of all transactions.
• Customers loaded a record $3.6 billion onto the app and gifts cards. This massive interest-free customer financing spares Starbucks hundreds of millions in borrowing costs, as corporate rates hover near 10%.
• Starbucks plans to grow from 38,000 locations globally to over 55,000 by 2030. That’s an average of eight store openings per day. In the U.S. alone, Starbucks operates over 16,300 stores with 20,000 outlets targeted.

The executive team enthusiastically envisions even greater, tech-driven potential.

Tomorrow today

Starbucks earnings calls are refreshingly different than most corporate updates which only mention tech with either perfunctory buzzwords or in crisis response. Routinely, Starbucks senior leaders offer understandable relevance and specificity which connect customer experience to to key business decisions and performance.

Here are just a few recent, strategically-relevant, cross-functional examples:

“Starbucks has direct, digital relationships with hundreds of millions of customers. Our ambition is to know every customer, personalize their experience and make Starbucks effortless,” Brady Brewer, chief marketing officer, explained. “We have a clear and compelling roadmap, the acceleration has already started, and we will extend our digital leadership globally.” The company aims to double its Rewards program enrollment to a staggering 150 million members in the next five years.

Sarah Trilling, president of Starbucks North America, added, “We see an opportunity to better leverage our footprint to serve the evolving needs of our customers. Innovation in our store formats, to purpose defined stores like pick-up, drive-thru only, double-sided drive-thru, and delivery-only allows us to better meet our customers where they are at through differentiated experiences. To capture that demand we will build more new stores — with new formats, in new cities and cities we’re already in. To be clear, Starbucks has not saturated the U.S. market.”

Technology is central to that plan. CTO Deb Hall Lefevre, observed, “In many ways, Starbucks is a tech company. We are a company that uses the power of digital to nurture the limitless possibility of human connection anywhere in the world.”

“With more 22% of global sales coming through digital channels, Starbucks continues to leverage and grow our scale. And that scale is important because it allows us to attract world-class talent and create collaborations with technology pioneers,” she continued. Notably, Starbucks disclosed partnerships with tech goliaths Microsoft for AI capabilities, Apple for business process experimentation and innovation and with Amazon for “reimagined customer in-store experience.”

Hall Lefevre detailed, “Included in the modernization of our tech stack is the extension of Deep Brew, our internally built predictive AI platform that allows us to innovate through data, hyper-personalize the Starbucks experience for each customer and efficiently manage our stores through augmented capabilities. Our recent Deep Brew enhancements allow us to deploy new artificial intelligence, machine learning in weeks instead of months to unlock value faster.”

None of the operational aspirations are disconnected from public company financial stewardship and accountability. Narasimhan emphasized, “Our Reinvention was designed to re-accelerate growth through focus on four key building blocks (comp store growth, [absolute] store growth, margin expansion and disciplined capital allocation) to collectively establish a more durable business model.”

To those aims, Starbucks recently announced the implementation of a $3 billion efficiency program, with two-thirds expected from supply chain and sourcing gains.

CFO Rachel Ruggeri noted, “We are very confident in our ability to create a more resilient, durable business for the long-term.” On the Q1 2024 earnings call, she indicated that improved in-store operational efficiencies, equipment upgrades, better staffing and supply chain management, “give us confidence in progressive margin expansion [and] importantly our ability to continue to meet 15%-20% earnings growth.” Coupled with sizable quarterly customer prepayment cash infusions, such fiscal oversight epitomizes substantive AI-era finance leadership.

Invincible shield

As businesses openly grapple with how, when and why AI can help, Starbucks smartly prioritizes customer experience as the bedrock for all tech decisions. Now scaled to $36 billion in annual sales with formidable growth plans underway, that truly strategic and action-oriented mindset fortifies its unrivaled digital edge.

Contrast such clarity with inexcusable “loss-for-words” leaders-in-title-only whose inactions fuel AI era risk, undermine competitiveness and jeopardize viability.

Who’s gold or just glister?