When Principles Pay by Geoffrey Heal

Author:Geoffrey Heal
Language: eng
Format: epub
Tags: BUS000000, Business and Economics/General, BUS008000, Business & Economics/Business Ethics
Publisher: Columbia University Press
Published: 2008-05-14T16:00:00+00:00

Starbucks

Starbucks is another iconic company, successful beyond the wildest dreams of its founders. Like Wal-Mart, it has come to symbolize globalization and the spread of American institutions around the world. And they both symbolize the growth of the service sector as a source of employment. Starbucks could easily have followed Wal-Mart along the road to controversy and ill-repute, but some early strategic choices took it in a totally different direction.

Whether this was by luck or judgment it is hard to tell, but Starbucks seems to have anticipated the three areas in which it could run afoul of conflicts with NGOs and the body politic. Growing coffee can be very hard on the environment: there is a real external environmental cost to this activity, which typically leads to a response by civil society. Growing coffee is also very unrewarding financially, with many coffee growers in the same financial bracket as the laborers in Chinese assembly plants. Finally, it is easy in a labor-intensive service business to skimp and save on wages and benefits, producing a cadre of poorly paid and discontented employees whose plight attracts public sympathy. By aggressively pro-environment and prolabor policies, Starbucks avoided all of these risks almost from the outset. But before discussing these aspects of its strategy, we need some more background on the company.

What is most remarkable about Starbucks is that a chain of cafes can be worth $28 billion22—that is, $28,000,000,000. With about eleven thousand stores worldwide, this works out to nearly $2,500,000 per cafe. This seems almost a preposterous idea at first. Yet the earnings are there to justify this value—Starbucks’ earnings increased from $93 million in 2000 to almost $500 million in 2005. Although Starbucks was founded in 1971, for its first eleven years it was run by different and altogether less ambitious management: Howard Schultz, the present chief executive officer, bought the company in 1987 and took it public in 1992. Schultz always wanted to create an employee-oriented company, and in line with this their Web site comments that

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