A New Roast: Starbucks’ Post-recession Paradoxical Renewal Blend

Note: The following is an excerpt from a discussion I authored that proposes to introduce the concept of paradoxical thinking in a business environment. It’s a little deeper than my usual geeky forays, but I was actually quite proud of this so I wanted to publish it here for safe keeping. It was an interesting topic to research. Enjoy!

Introduction: Setting the Course

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Between 2007 and 2009 the U.S. experienced a series of banking failures that led to a prolonged recession considered to be the worst since the Great Depression. Collapse of the American housing market in 2006 and 2007 profoundly affected U.S. and global banking systems. Smith, Meeker, and Sharma (2011) attributed the recession to the many large financial institutions that were heavily invested in mortgages such that the “bursting of the housing bubble led to a steep deterioration in bank balance sheets” (par. 2). While economists have determined the official end of the crisis to be in June 2009, slow economic growth in the subsequent years coupled with high unemployment rates characterized the recovery “modest” at best (Smith, et al., 2011, par. 2).

Most companies felt the sting of the downward economy. One such company was Starbucks. In 2011, CEO Howard Schultz recounted the state of the company to FastCompany.com, which had named Starbucks among the most innovative companies. Schultz recounted Wall Street’s insistence that the company’s best days were behind it in 2009 and how it needed to improve from an economic perception that Starbucks coffee was an ideal thing for consumers to cut back on (Gertner, 2011). Ultimately what saved the company was a series of developmental choices in the realm of paradoxical thinking that reinvigorated the decades-old Seattle-based company.

The purpose of this discussion is to explore how deviation from traditional thinking into one paradoxical in nature allowed Starbucks to not only recover from the economic crisis, but also continue to expand, proving that paradoxical thinking can be learned and applied at any stage of development. First, I will define and explain both paradoxical thinking and cause and effect thinking in order to detail how the alternative paradoxical thinking model exemplifies a masterful approach to solving complicated managerial problems and why cause and effect thinking hinders such mastery. Once defined, it will be applied to Starbucks, a real world case that details how paradoxical thinking saved the company from a bleak future during a time when the economy was faltering. Following this real world example and using pop culture examples in Star Wars The Empire Strikes Back and Finding Nemo, it will be explained how one can learn paradoxical thinking, the challenges it poses and how these challenges can be overcome to become stronger thinkers able to approach complicated issues with confidence. This paper will conclude with the presentation of understanding that paradoxical thinking can improve not only organizations but empower thinkers to approach all facets of life with a new perspective to which they can exercise decision-making with confidence.

Starbucks’ Paradoxical Decisions

To explain Starbucks’ successes it is first necessary to understand what paradoxical thinking is and its effect on an organization’s internal and external practices. Chen (2011) describes a paradox as a statement or situation that contains two or more logically opposing elements, but that may actually be true. He further explains in a paradox, “contradictory and mutually exclusive elements are present and operate at the same time” using the example “less is more” to explain two opposing terms that are juxtaposed to create an “illogical statement” on the surface, but also reveal a wisdom beneath that less information can contain a more focused message than a “verbose” message with several ideas (Chen, 2011, pg. 19). This is in contrast to traditional schools of thought that comprise cause and effect thinking. To best illustrate cause and effect thinking, Dannenberg (2014) uses ice cream to explain a way of thought engrained in people since childhood, “we tell our children that eating ice cream too fast causes a brain freeze and we allow them to eat it at their own pace without correcting them,” essentially parlaying the notion that for every action (cause) there is an accompanying reaction (effect). While cause and effect thinking is useful in childhood development, and likely saves many hands from children learning to not put them on a hot burner, carrying such thought processes into adulthood presents an innovative challenge, especially within the rapidly-evolving business realm. Relying too heavily on cause and effect inhibits one’s ability to “think outside the box” (Dannenberg, 2014). It can inhibit explorative thought that evaluates possibilities with the approach that in one may reside a solution or all of them, at the same time. Cause and effect thinking models engrained since childhood leads people to resist change and attempt to apply simply solutions to complicated issues because of the mindset it instills that promotes such thinking as this is the way we have always done it.

Gertner (2011) profiles Starbucks’ plan of action at the end of the last decade. Schultz received mounting pressure to downsize the company as well being advised to also lower prices and cut health benefits to the employees. He insisted on doing neither of those things, while only closing a few underperforming stores. Instead, he invested in new ideas rather than cut back.

Among those new ideas was the launch of its popular light roast, trademarked Blonde in 2011. The blend itself was a contradiction to its premise that dark roasts are better than light (Gertner, 2011). The blend itself proposed an opportunity to satisfy the tastes of Starbucks’ staunchest coffee drinkers while also meeting a market demand that found forty percent of U.S. coffee drinkers preferred lighter and milder roasts. Different blends, eighty different roasting progressions and 18 months of development culminated in the final Blonde roast formula that hit stores and boosted revenue as seen in figure (1).

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Figure 1 (Starbucks, 2013)

 

Other examples of paradoxical thinking include Starbucks’ approach to store design. While most chain stores attempt to build in various locations while adhering to notions of uniformity where a visit in one location will mirror a visit in another (Cracker Barrel restaurant and retail stores come to mind), Starbucks designs its vast number of shops to complement the neighborhoods in which they reside – trying to be global and local at the same time (Gertner, 2011). The coffee it sells might be global, but the art displayed to the cups on sale and the tables and chairs upon which purchases are enjoyed speak to the locality of the shop.

Gertner reported that Schultz saw the events of the recession as a case study in what it means for organizations to focus growth as a strategy rather than a tactic. By stepping beyond the traditional cause and effect line of thought that would have seen the release of a new flavor of Frappuccino, something Schultz saw as laziness rather than innovation, Starbucks looked beyond laurels to reinvigorate the brand with an entirely new way of roasting a coffee bean thus introducing a new blend. Line extension like that of a new Frappuccino flavor involves little in the way risk taking, which was a problem with the “old” Starbucks (Gertner, 2011).

The Learning of Paradoxical Thinking

Starbucks is a decades-old company that had grown into its processes. Rapid growth allowed it to expand globally, but the recession forced it into a precarious position of having to rethink how it not only did business, but its philosophies on deriving and executing ideas. Such reframing is not an easy task especially when one considers a rapidly evolving technological, political, and socioeconomic landscape. Lewis (2000) forewarned that increasing technological change, global competition, and workforce diversity would intensify paradox within an organization so much so that it often lead to a “vicious” dynamic. Paradoxical thinking can be learned, but in order to be successful, both individual and groups need to overcome six defensive obstacles Lewis identified that obstruct progress. Splitting entails further polarization of contradictions, i.e. if Starbucks had developed its lighter Blonde roast on the notion that it would never compete with darker roasts and creating a blend that would ultimately fail. Projection signifies a transfer of feelings onto a scapegoat, i.e. if Starbucks had blamed the consumers for their economic issues rather than their lack of innovation at the time. Repression entails the blocking of tumultuous experiences while regression involves resorting to notions that offered security in previous situations, i.e. Schultz’s example of simply expanding the Frappuccino line by offering a new flavor simply because it was a tactic Starbucks used in the past that was successful. Reaction formation prompts a person to form a supportive feeling toward a notion opposite to the most threatening. Lastly, ambivalence requires one to compromise emotions for both sides, which results in the loss of vitality of the two extremes.

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Image 2 (N.A., 2014)

While these defenses may seem like difficult obstacles to overcome, the benefits of moving beyond them to incorporate a paradoxical thought process outweigh these challenges because of paradoxical thinking’s power to “generate creative insight and change” (Lewis, 2000). Westenholz (1993) also cautions, however, it is important to note that once paradoxical thinking is in place, it is vital it be maintained because if not, people can relapse to earlier thought processes, or, into their old frames of reference. To further explain this process, let us refer to the wisdom of Master Jedi Yoda in Image (2). In the movie Star Wars: The Empire Strikes Back, the hero, Luke Skywalker, begins his transformation from that of a defiant farm boy from Tattoine, to a Jedi hero. But the journey, as Yoda warns, is not easy. Yoda subjects Luke to a series of exercises both mental and physical exercises aimed at tearing down the walls of learning to expand Luke’s thoughts on the powers of the force. The force, one could say, is a paradoxical thinking. It is all-present, fluid and powerful. But to wield such power, one must unlearn the previous methods of learning, such as the cause and effect way of thinking people are taught as kids. One cannot expect to go to the gym to bench press 250lbs from the start. One has to build muscle to gain strength. To gain muscle, one has to tear down the existing tissue through simpler exercises to make room for the additional tissue that will strengthen and lead to the ability to bench press that 250lbs. But the benefit of the added muscle is added strength and confidence. So too will is the realm of possibility that opens up when one embraces paradoxical thinking. Paradoxical thinking requires one to not accept what is routine and to have a skeptical mind when engaging in it (Ravi, 2005).

Paradoxical Thinking and Intelligence

If we further explore both the Jedi and bench pressing analogies and apply them to paradoxical thinking, it is easy to see why it is such a difficult concept for most to grasp. It requires work, hard work, such that if the tendency is to take the path of least resistance, then it is understandable why cause and effect thinking takes precedence to that of paradoxical thinking. But the easiest path is not always the wisest and in fact can be deceptive. Observe in Image (3):

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Image 3 (Disney, 2003)

 

In Disney’s Finding Nemo, there comes a point at which the two protagonists, Marlin and Dory, must make a choice between two paths: the dark and mysterious, scary looking trench; or, the seemingly peaceful calm of the waters above. Ultimately, Merlin decides on the path above because all he can see is the surface of each choice, and fails to look beneath the surface to discover that there is a realm of possibility that cannot be explored with the cause and effect thinking that hinders such exploration, which, ironically enough is the theme of the entire movie. Marlin is on a journey to rescue his son, Nemo, whom he has raised in a shell, or a sea anemone as it were, because of the traumatic opening of the film where Nemo’s mother dies. Marlin states that he promised to not let anything happen to Nemo, to which Dory in her absentmindedness brilliantly – and paradoxically – declares, “That’s a funny thing to promise. You can’t never let anything happen to him, then nothing will ever happen to him” (Finding Nemo, 1:10:54) which she states while they are in a whale’s mouth and she’s trying to convince Marlin to let go in order to escape. It would seem that because Marlin who possesses the attributes of thoughts most people would identify with is challenged by Dory’s thinking. Dory’s quirk is that she cannot retain memory and so it seems that she has not constructed the walls that inhibit paradoxical thinking in the way it does with Marlin and is able to use such thinking freely. To Dory, it is not this way or that or either/or it could very well be both which is why Ravi (2005) describes paradoxical thinking as one of eight signs of intelligence. The others include memory, logic, judgment, perception, intuition, reason, and imagination. He notes paradoxical thinking as the least used skill because it “involves the ability to reverse, manipulate, combine, synthesize opposites” (pg. 2). It is a skill that needs the most conscious effort to strengthen, which often deters people from entertaining it. Dory, in my example, is a master of it because she’s done it since she was born and so the process of breaking down previous notions of cause and effect thinking is not necessary for her as it would be for the rest of us. Westenholz (2011) describes this dilemma as a “deframing” but explains that this is a good thing because it makes one open to possibility and bridges the gap between old prejudices and new opportunities.

In the business world, six managerial competency sets assist to bridge that gap and stimulate organizational change, a process that Clarke (1998) notes starts with the individual. Those competencies are managerial knowledge; influencing skills which include communication, assertiveness, influencing, and developing others; cognitive skills, which involves setting short term goals while still thinking and seeing long-term, bigger picture goals; self-knowledge; emotional resilience; and personal drive. Additionally, managing paradox can lead to further positive development of which there are three methods, acceptance, confrontation, and transcendence (Lewis, 2000). Put together, development of this level of intelligence along with core competencies can improve “reflective” decision-making (Clarke, 1998). Starbucks exemplified this by “thinking outside the box,” as the adage goes, when it chose to forgo downsizing in favor of increased input into research and development which led to the development and launch of new blends and even corporate social responsibility initiatives like its Jobs for U.S.A. program.

The Final Brew…

Paradoxical thinking is the essence of innovation. It allows one to ignore opposing forces as separate elements and enables thinking that accepts both as one. If Starbucks had accepted the premise that dark roasts are better than light, it would have never pushed itself to think beyond those lines of separation and develop a blend that meets the high standards of coffee aficionados while still being a light blend that caters to tastes of the noted forty percent of American coffee drinkers.

Paradoxical thinking is accepting skepticism as a strength, as Ravi notes, and learning to be open. It is accepting even the most seemingly absurd ideas and incorporating them into logical thought processes and making it work. But one cannot forget, paradoxical thinking requires vigilance to maintain because it can easily resort to previous, more elementary ways of thinking (Westenholz, 1993). It is like muscle in that regard. One has to tear down the walls of what currently exists to make room for new foundations and continuing to nurture it because it will make one stronger and more confident in their thought processes and ultimately, his or her decisions. While cause and effect thinking prevents mastery by forcing one to choose one or the other, Paradoxical thinking leads to mastery because of its requirement for thinkers, managers and leaders specifically with regard to the business realm, to consider that the answer between two opposing extremes could very well be both. If managers approach complicated issues with the notion that they will not want anything to happen to the business, then as Dory states, nothing will ever happen and progress and innovation will never present themselves resulting in a failing business.

References

Chen, D. (2011). Creative paradoxical thinking and its implications for teaching and learning motor skills. Journal of Physical Education, Recreation & Dance, 82(9), 19-23, 49-50. Retrieved from http://ezproxy.nu.edu/login?url=http://search.proquest.com/docview/903536100?accountid=25320

Clarke, M. (1998). Can specialists be general managers? developing paradoxical thinking in middle managers. The Journal of Management Development, 17(3), 191-206. Retrieved December 15, 2014, from http://ezproxy.nu.edu/login?url=http://search.proquest.com/docview/216313585?accountid=25320

Dannenberg, M. (2014) MGT 605. Paradoxical Thinking versus Cause and Effect Thinking. doc.sharing

Finding Nemo [Motion picture]. (2003). USA: Buena Vista Pictures.

Gertner, J. (2012, February 7). Most Innovative Companies 2012: 24_Starbucks. Retrieved December 14, 2014, from http://www.fastcompany.com/3017375/most-innovative-companies-2012/24starbucks

Lewis, M. W. (2000). Exploring paradox: toward a more comprehensive guide. Academy of Management Review. 25(4). 760-776. doi: 10.5465/AMR.2000.3707712

Ravi, K. (2005, June 05). Paradoxical thinking. NA. Retrieved December 15, 2015, from http://krravi.com/PARADOXICALTHINKING.pdf

Smith, R. C., Meeker, M., & Sharma, P. (2011) 2007-09 Financial Crisis. Slaying the Dragon of Debt: Fiscal Politics & Policy from the 1970s to the Present. Retrieved December 15, 2014 from http://bancroft.berkeley.edu/ROHO/projects/debt/financialcrisis.html

Westenholz, A. (1993). Paradoxical thinking and change in the frames of reference. Organization Studies, 14(1), 37+. Retrieved from http://go.galegroup.com/ps/i.do?id=GALE%7CA14175517&v=2.1&u=nu_main&it=r&p=AONE&sw=w&asid=d5e9f9e9c9165c31f30263a93abf20f4

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