New CIO Hopes to Perk Up Starbucks

The Right CIO for the Job

In January 2008, long-time leader Howard Schultz returned as CEO to rescue the ailing company. Former CIO Bryan Crynes left shortly thereafter. It would have been reasonable for Starbucks to reach into the retail or restaurant industries for a seasoned and well-known IT chief to help drive its transformation. "I was a bit surprised that they would call someone like me," Gillett concedes, given his lack of a traditional retail or supply chain background.

But Starbucks was "looking for a very different kind of CIO," Kuchinad says, one who could manage the traditional IT requirements and "bring innovation to some of the legacy systems." Most importantly, the leadership team wanted a CIO who understood Starbucks' new generation of customers and how they engaged with the brand in store and online.

Paula Rosenblum, managing partner at Retail Systems Research and a former retail CIO, says Gillett's hire was a signal of significant change. "Starbucks wanted to skew new and skew fresh," she says, "and get out of this old and stodgy, 'Well, if we do this in the supply chain, we'll save 15 cents and cost control our way to profitability.' That's not what they're about. They're about the customer experience."

Yet over the last few years, the company was so focused on the back end, "we were not devoting as much resources to the customer-facing side," says Kuchinad. "What fascinated the leadership team was Stephen's knowledge of where and how these consumers lived, and how he was technologically engaged with them. While he did not have the traditional retail IT experience, we wanted someone who was leading edge, who knew where the technology was evolving."

Starbucks wanted a fresher blend: someone who could manage a traditional IT environment and provide a creative take on how technology could better serve its customers using tools such as remote ordering and automated systems, loyalty cards and business intelligence.

"When you look at our customers and what's happening in our stores," Gillett says, "you see wireless devices, iPhones, converged networks, laptops. You see a generation of customers who are entering our stores and engaging [with us] in new ways."

Gillett believes that everything he learned at his previous employers is applicable to Starbucks' retail model. "There are a lot of things a traditional retailer can learn from big Internet and big software," he says, "as far as scale, analytics and really using those tools that drive the Web-type companies."

A Tall Order

The "Starbucks experience" is something you'll hear often from its executives. During the past several years, that experience has been diluted by an overexpansion to some 17,000 stores worldwide, diverging product offerings, new coffee-making equipment and cut-throat competition from Dunkin' Donuts and McDonald's. In a highly publicized 2007 internal memo, Schultz, who was not running day-to-day operations but still held the chairman title, derided "the watering down of the Starbucks experience" and "the commoditization of our brand."

Starbucks has been in a transformation mode since Schultz returned and took back the CEO reins. "Starbucks has to find a way in this economy of expressing the value message along with the indulgence factor," says RSR's Rosenblum. "So the challenge is to create, whether through technology [applications] or otherwise, that there's the perception of value. Along with that, it's really important for retailers to find clever and innovative ways to save money."

"Generating BI demand across the business and strong analytics is something that Starbucks is going to usher in." Stephen Gillett, Starbucks CIO

Gillett's priorities are wide ranging, but three in particular illustrate what he's up against. First, he says he's attempting to change internal perceptions of the IT department "from being perceived as and operating like a traditional IT shop...to becoming a technology company and using the term 'technology' versus 'IT' when we look at how we're going to transform our business."

His plan includes aligning IT's activities with those at the top of the company's transformational agenda, mainly its customer experience strategies. For example, ethical sourcing of coffee is a big piece of its social responsibility platform. Customer surveys have shown it is important, and executives view it as a competitive differentiator. Starbucks does have a system (using Oracle databases) that tracks coffee origin and other related information, Gillett notes. "If we want to increase the amount of fair-trade coffee or fair-trade cocoa in our inventory," Gillett says, "technology has to be able to deploy a system that can track which purchases are actually fair-trade certified and what aren't. You can't make that type of a statement without having a technology impact."

Gillett is also completing a previously planned global, multi-year Oracle ERP rollout. He spent his first couple of months learning the business and, ultimately, how the ERP rollout would impact business processes and activities. He found that in many cases, the ERP systems being introduced are replacing manual processes, "which is the most efficient thing you can do," Gillett says. (For more on enterprise software, see the Enterprise Software Unplugged blog.)

Perhaps his most crucial duty is to enhance Starbucks' ability to mine its customer data to help "re-ignite our passion with our customers," Gillett says. A lot is hanging on the loyalty card data (Starbucks' Reward cards) and business intelligence (BI) reporting tools to extract meaningful customer analysis. At a financial analyst briefing in early December, Starbucks marketing executives talked up success they've had, so far, with the Starbucks Reward cards and the new Gold Card in 2008. One of the first positions Gillett opened up when he was hired was a VP of business intelligence.

"Analytics is an absolutely key driver of everything you do," Gillett says. "And generating BI demand across the business and strong analytics is something that Starbucks is going to usher in. Technology has to play an absolutely critical role in all that."

A November 2008 Aberdeen report on BI's use in the retail industry, as well as a survey of 152 companies, shows Gillett has considerable work ahead. "Many organizations spend months and endure significant costs to obtain the reporting and analysis capabilities that BI promises," writes Aberdeen research director David Hatch, "only to find that different 'versions of the truth' still exist without any definite way of determining which one is real or accurate."

Gillett says that Starbucks is making progress but is nowhere near mastering BI. "[The business users] haven't indoctrinated it into everyday business decision-making yet," he says. "We still have a lot of decisions based on real-time data, intuition, or historical trends. I think in today's economic climate, having strong analytic and BI-based decision making can help give a new dimension to that."

As for the role that he and IT can play on the Starbucks team and in its transformation, he seems characteristically assured of himself.

"Technology and IT have a critical role in all that because we have to understand our customers with [respect to] today's economic climate and the cost pressures they face," Gillett says. "We have to understand our customers in ways that we've never had to in the past. I think BI and data warehousing, and consumer insights from a marketing perspective are going to be what gives us that view into the Starbucks customer."

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