Square, Starbucks Deal: Could Your Team Do It?

Forget the $25 million investment part of it. Does your company have the innovation infrastructure to make this kind of game-changing move?

Chris Murphy, Editor, InformationWeek

August 9, 2012

3 Min Read

The snapshot explanation of the Starbucks-Square deal is that it happened between two entrepreneurs on a handshake. Look, Starbucks founder and CEO Howard Schultz seals a mega deal with Square founder and CEO Jack Dorsey. Just like that.

The Schultz-Dorsey relationship undoubtedly matters. But Starbucks also has built an infrastructure--with its organization and its technology--to cut this kind of deal. That infrastructure makes deals like this more likely to happen. And it makes it more likely that technology like Square's mobile payment processing system is actually relevant in Starbucks coffee shops--that it's brought in a tool for doing new, practical, and creative things and not viewed as some two-headed monster dropped into stores by an executive grasping for cool.

First is the organization. Starbucks has a business unit whose whole purpose is to look for ways that digital innovations like Square's could shake up Starbucks. It's not a science lab. The group works closely with Starbucks marketing and IT teams to find real-world ways that mobile and Web technologies are changing, or potentially could change, how customers interact with Starbucks.

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Several years ago, this group created the Starbucks' digital network, which gives customers free content, like the Wall Street Journal and select iTune downloads, over the company's much-used free Wi-Fi. Steven Levy notes in Wired that Starbucks' digital team played a key role in demonstrating Square's potential to Howard Schultz a couple of months ago. The digital team is led by Adam Brotman, an exec with a title just created this year at the company--chief digital officer.

As far as infrastructure that fuels innovation, note this line from All Things D's coverage, a variation of which appeared in every article I've seen on this: "Starbucks won't put iPads at its registers--at first." There's a tinge of lament in this observation, because wouldn't it look oh-so-hip if suddenly every cafe had an iPad register? But for an IT organization, there's a victory as well: You can bring in Square's new money-saving technology and run it without throwing out the existing IT platform. (Square promises savings on the cost of processing credit cards.)

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That almost certainly wouldn't have been true even four years ago. In its hyper-growth years, Starbucks was running on an outdated, inflexible cash register system, but it was too worried about upsetting its single-minded goal of adding stores to deal with an upgrade. Starbucks has since implemented a new, more flexible point-of-sale platform, in a project led by a longtime Starbucks IT vet, then-senior VP Curt Garner.

That leads to another, critical piece of innovation infrastructure: people. We named Stephen Gillett, Starbucks’ CIO at the time, as InformationWeek's Chief of the Year in December for helping put this innovation infrastructure in place, including creating a Digital Ventures group, which he also led.

When Gillett left early this year to lead Best Buy's digital business, Brotman was named Starbucks' first chief digital officer, and Garner became CIO. And digital innovation is charging forward. That innovation wasn't just about Gillett, any more than this deal's just about Schultz and Dorsey.

Top executives can set the tone for this kind of risk taking--encourage it, or squelch it. But to execute on it and wring out real costs savings or added sales, it takes a culture and infrastructure built to welcome and even demand new ideas. Creating that takes a lot more than a handshake.

About the Author(s)

Chris Murphy

Editor, InformationWeek

Chris Murphy is editor of InformationWeek and co-chair of the InformationWeek Conference. He has been covering technology leadership and CIO strategy issues for InformationWeek since 1999. Before that, he was editor of the Budapest Business Journal, a business newspaper in Hungary; and a daily newspaper reporter in Michigan, where he covered everything from crime to the car industry. Murphy studied economics and journalism at Michigan State University, has an M.B.A. from the University of Virginia, and has passed the Chartered Financial Analyst (CFA) exams.

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