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HOW STARBUCKS EXPLOITS SOCIAL MEDIA TO ENHANCE CUSTOMER

DRIVEN INNOVATION

Student number: 1504063


Programme: Business Intelligence and Social Media
Module code: MG5594
Module title: Knowledge Management
Date of submission: 18 March 2015

1. Introduction
The external environment for many organisations now days is characterised by turbulence
associated with globalization, deregulation of markets, changing customer and investor
demands and increasing product-market competition (Jashapara, 2011). There is a growing
need in organisations to move beyond solving existing problems to improving continuously in
the face of changing conditions (Hamel and Prahalad, 1994). Knowledge has emerged as the
most strategically significant resource of the firm (Grant, 1996) and the ability of a firm to
learn faster than its competitors as the only sustainable form of competitive advantage (De
Geus, 1988). In accordance with the view of knowledge as a capability Newell et al. (2009)
define knowledge management as processes aimed at improving the ways in which firms
facing highly turbulent environments can leverage their knowledge assets in order to ensure
continuous innovation. Innovations rely heavily on social interactions between different
interests (Jashapara, 2011). Hence Jashapara (2011) concludes that social networks are
essential for the success of innovations.
Starbucks is an international coffee house chain, which consistently attracted around 60
million weekly visitors across the globe (Michelli, 2007), before it saw its earnings drop
drastically in 2008 (York, 2010). To re-boost its decreasing sales Starbucks started
experimenting with social media services (Schultz and Gordon, 2011). In 2010 the coffee
chain began to see sales lifts following its social media endeavours (York, 2010).
The following formal report will: first, critically discuss the nature and process of knowledge
creation and transfer within organisations; second, critically evaluate how organisational and
social dynamics combine to engender innovation; third, analyse how Starbucks applied the
discussed concepts and theories to its customer-centric knowledge management strategy;
fourth, provide recommendations for Starbucks how to even increase its innovation capacity
with further exploitation of social media.

2. Organisational learning
The learning theory in much of the literature on organisational learning stems from either
behaviourist or cognitive individual-orientated psychological perspectives. These perspectives
see decision making in organisations as done by individuals, and as a process that can be
enhanced by individuals learning. By way of individuals acting on behalf of organisation
individuals learning outcome can be crystallized in organisational routines and values and
become organisational learning (Brandi and Elkjaer, 2011). According to Argyris and Schn
(1996) the individual-organisational split-up remains one of the major problems in the
organisational learning literature based upon individual learning theory.
Social learning theory has grown out of criticism of individual learning theory. Father of
social learning theory Bandura (1977) explains human behaviour as continuous interaction
between cognitive, behavioural and environmental factors. Similarly, Lave and Wenger (1990)
argue that all learning is situated in activity, context and culture. Learners engage in a
community of practice, an informal network of learners, and the social interaction embodies
the beliefs and behaviours to be acquired. In social learning theory it is not just the individuals
who solely retain knowledge; rather knowledge is distributed within and among artefacts and
organisational members (Richter, 1998). Brandi and Elkjaer (2011) urge that social learning
theory might be problematic due to its strong focus on the organisational context, thus failing
to encompass the mobile, knowledgeable, and potentially influential individuals.
Crossan, Lane and White (1999) tried to overcome critiques of individual and social learning
theory by formulating an integrated 4I model of organisational learning. The 4I model
considers organisational learning at individual, group and organisational level. The 4I
framework builds on the tension between exploration and exploitation in organisation and
places these notions at the heart of strategic renewal. Strategic renewal stems from
organisations exploring and learning new ways while at the same time exploiting what they
have already learnt. Four learning processes flow from one another without any distinction
where they begin or end: intuiting as largely subconscious process that requires pattern
recognition, which may lead to exploitation, however, it also generates new insights;
interpreting as process of explaining through words and/or actions an insight to ones self or
another person; integrating as learning process aimed at developing shared understanding and
taking coordinated action; institutionalizing as learning process to ensure that routinized
actions occur. Jashapara (2011) criticises 4I model because most of innovation rests on

intuiting in the first individual phase. Without the necessary feedback loops it is unlikely that
the institutionalised organisational routines would be challenged, with a consequence of
exploitation behaviours predominating within any organisation (Jashapara, 2011).

3. Knowledge management
To be able to comprehend knowledge management (KM) we first need to understand the
concept of knowledge. Knowledge can be defined from various perspectives, as shown in
Table 3.1.
Table 3.1 Definitions of knowledge
Perspective

Author

distinction between knowledge, information and data


a state of mind
an object
a process of simultaneously knowing and acting
a condition of access to information
a capability with the potential of influencing the future

Dretske, 1981
Schubert, Lincke and Schmid, 1998
Carlsson et al., 1996
McQueen, 1998
McQueen, 1998
Carlsson et al., 1996

action

These different perspectives on knowledge lead to different perceptions of KM (Carlsson et


al., 1996). The view of knowledge as a capability suggests a KM perspective centred on
building core competencies, understanding the strategic advantage of know-how, and creating
intellectual capital (Alavi and Leidner, 2001).
Strategic management literature grounds definition of KM in Penroses (1959) resource-based
theory of the firm (RBP). RBP claims that competitive advantage stems from firms resources
(Wernerfelt, 1984). RBP serves as the basis for the knowledge-based perspective of the firm
(KBP). KBP postulates that the services rendered by tangible resources depend on how they
are combined and applied, which is in turn a function of the firms know-how. Know-how (or
knowledge) is embedded in and carried through multiple entities including organisation
culture and identity, routines, policies, systems, documents, and individual employees
(Spender, 1996). Because knowledge assets are difficult to imitate, they produce long-term
sustainable competitive advantage (Alavi and Leidner, 2001).
In accordance with the KBP Nonaka (1991) introduces the model of knowledge-creating
company, which is based on continuous innovation through knowledge creation (see Figure
3.1). Nonaka (1991) uses Polanyis (1967) distinction between explicit knowledge (i.e.
knowledge articulated and specified either verbally or in writing) and tacit knowledge (i.e.
unarticulated, intuitive knowledge). Model describes knowledge creating as a continual
interplay between the tacit and explicit dimensions of knowledge and a growing spiral flow as
knowledge moves through four modes of knowledge creation on individual, group and

organisational levels (Nonaka, 1991). Socialisation allows tacit knowledge from one person to
be passed to the other. Such knowledge cannot be leveraged. Externalization is the conversion
of tacit knowledge to explicit knowledge. New knowledge is formed in a form that can be
shared. Combination is about combining discrete pieces of explicit knowledge held by
individuals. Internalisation allows individuals to broaden their knowledge base and create
new knowledge by converting explicit knowledge to tacit. Bereiter (2002) criticises Nonakas
(1994) model for failing to explain how exactly new ideas or understandings were created in
organisations and how they could be applied to other contexts.

Figure 3.1 Knowledge-creating company (Nonaka 1991)


To surpass Bereiters (2002) critique Teece, Pisano and Shuen (1997) postulate a dynamic
version of RBP. The dynamic capabilities perspective claims that due to the fact that the value
of a resource can change over time, competitive advantage comes not only from
organisational resources, but also from the firms capability to continually create, integrate
and reconfigure new resources. Consequently Newell et al. (2009) define KM as processes
aimed at improving the ways in which firms facing highly turbulent environments can
leverage their knowledge assets in order to ensure continuous innovation.
Herkema (2003) defines innovation as a knowledge process aimed at creating new knowledge
geared towards the development of commercial and viable solutions. The innovation is always
related to change, which can be radical or incremental (Herkema, 2003). While incremental
innovations present themselves as modifications of existing products, therefore enhancing
existing internal competencies of an organisation by providing the opportunity to build on the
existing know-how, radical innovations often put the business at risk by making the existing
knowledge redundant, however they are crucial to long-term success (Gloet and Terziovski,
2004).

4. Analysis: how Starbucks uses social media to enhance customer driven innovation
Starbucks is an international coffee house chain founded in Seattle, Washington, in 1971.
Once a roaster and retailer of whole bean and ground coffee, tea and spices with a single store
in Seattles Pike Place Market, has now expanded to more than 19,000 stores across 59
countries. Company, which consistently attracted around 60 million weekly visitors across the
globe (Michelli, 2007), saw its earnings drop drastically in 2008 (York, 2010).
In the times of crises companies start to innovate. According to Mintzbergs (1991) theory of
the dialectical nature of business strategy firms are never static and are moving in one or
another direction towards efficiency or innovation given a set of market conditions. Whereas
in the times of stabile market conditions firms tend to follow the established organisational
routines, focused on achieving efficiency, it is likely that a sudden market crisis will trigger
the firm to move from efficiency to innovation. And so did Starbucks. To re-boost its
decreasing sales Starbucks started experimenting with social media services (Schultz and
Gordon, 2011).
A change in business strategy brings along a change of firms KM strategy (Jashapara, 2011).
When faced with crisis, firms tend to focus on personalized KM strategies, based on people,
networking within and outside of organisation boundaries, dialogue and knowledge sharing,
aimed at achieving high profits through development of innovative solutions (Jashapara,
2011). Starbucks executive personnel were afraid that unhappy customers would switch over
to their competitors without disclosing their complaints. Therefore company applied social
media as a means to connect with its customers, to engage customers in a dialogue and find
out what customers really want from a coffee shop (Chua and Banerjee, 2013). By inviting
customers to join the company in a dialogue, Starbucks shifted from static knowledgewarehouse based approach to KM towards a more dynamic customer centric KM approach.
Most appropriate tool to extract knowledge from customers seems to be social media.
Whereas in the past companies used to deploy social media primarily as an outbound
marketing tool, lately they are starting to explore how social media can enhance business
interaction as a part of the innovation and product development process (Kenly and Poston,
2011). Newell et al. (2009) explain that firms ability to acquire new knowledge from external
sources depends on individuals engaging in external networks. Moreover, it is the weak ties
between organisational members and external environment that are most productive source of
ideas as they are more likely to challenge conventional thinking rather than conform to it

(Hansen, 1999). Therefore social networks are essential for the success of innovations as
innovations rely heavily on social interactions between different interests (Jashapara, 2011).
Starbucks claims that companys engagement in social media led to alleviation of customers
reluctance for voluntary knowledge sharing and redefinition of roles of its customers by
transforming them from passive recipients of beverages to active contributors of innovation
(Chua and Banerjee, 2013).
Starbucks uses various social networking services to connect with its customers: Twitter,
Facebook, Instagram, Google+, Pinterest, Youtube, Flickr and Mystarbucksidea.com.
However, Facebook and Mystarbucksidea.com are the two mainly being used for encouraging
customer innovation. Facebook is a social networking service that enables users to construct
and present their profiles within a bounded system, and articulate lists of other users with
whom they share connections (Ellison, Steinfield and Lampe, 2007). Mystarbucksidea.com is
a corporate discussion forum that provides dedicated avenue for Starbucks customers to
discuss organisation-specific issues (Lopez-Nicolas and Molina-Castillo, 2008).
Facebook and Mystarbucksidea.com are used by Starbucks as an interacting Ba, a space that
enables conversion of tacit customer knowledge into explicit organisational knowledge
through collaboration and dialogue, thereby enhancing customer driven innovation. Nonaka
and Konno (1998) define Ba as a common space for creating knowledge. Interacting Ba is
associated with the externalization mode of knowledge creation and refers to a space where
tacit knowledge is converted to explicit knowledge and shared among the individuals through
the process of dialogue and collaboration (for a detailed SECI model see Appendix 1)
(Nonaka and Konno, 1998). Collaboration is the ability of customers, suppliers and
employees to form knowledge sharing communities within and across organisational
boundaries in order to work together to achieve a shared business objective, resulting in
benefits to all community members (Chua and Banerjee, 2013). According to Cavusgil,
Calantone and Zhao (2003) collaboration plays a significant role in transfer of tacit
knowledge and building collective know-how, whereas sharing of tacit knowledge is at least
in two ways critical for organisations innovation capacity.
First, gathering tacit knowledge from collaboration partners can potentially reduce risk and
cost in innovation by ensuring a first-time-right approach, thus shortening the development
cycles end ensuring effective innovation (Cavusgil, Calantone and Zhao, 2003). Starbucks
uses Facebook to draw knowledge from their customers via posing polling questions, directly

asking customers for their personal opinions, preferences and feedback, and by monitoring
customers comments (West, 2012). All these activities enable Starbucks to understand
customers behaviours, preferences, expectations, level of satisfaction, and ways they react to
new products and changes (Chua and Banerjee, 2013), thereby reducing risk and cost in
innovation.
Second, getting tacit knowledge from customers is a valuable source for organisations
innovation programmes, because such knowledge can be used as a direct input for innovation
(Cardinal, Allessandri and Turner, 2001). Mystarbucksidea.com acts as a venue for customers
to ask questions and vent out their frustrations, however, its main role is to gather new ideas
from customers. The summoned ideas are submitted to public voting and those that collect the
most votes get launched (Sigala, 2012). Currently forum contains over 200,000 submitted
customer ideas, out of which 19 are in action, meaning being either under review, already
reviewed, in the works or already launched. It can be said that by treating customers as both
creators and evaluators of ideas, forum involves customers directly into firms product
development and innovation process.
Analysis confirmed that Starbucks has been relatively successfully using Web 2.0 tools to
extract (external) tacit knowledge from its customers and convert it into (internal) explicit
organisational knowledge. Some of customers ideas have even been converted into real
products and services. However, Chen, Zhaohui and Xie (2004) warn that only a fully
integrated KM structure will ensure that timely insights can be made available to be drawn at
the right juncture for making sense. Starbucks is already successfully extracting new
knowledge externally, but the 4I model claims that true strategic renewal stems not only from
organisations exploring and learning new ways, but also from exploiting at the same time
what they have already learnt. Enterprise 2.0 tools would enable Starbucks to more effectively
integrate this newly acquired knowledge into its internal organisational teaming processes and
its internal collaboration with business partners and suppliers, thereby utilizing knowledge as
a resource to its maximum benefit (Du Plessis, 2007).

5. Conclusion
In its first part the formal report critically discusses the existing organisational learning and
knowledge management theories and models. In the field of organisational learning research
report tries to overcome critiques of individual and social learning theory by presenting an
integrated 4I model of organisational learning. The reports knowledge management
definition stems from the resource-based theory of the firm (RBP). RBP is further developed
into the knowledge-based perspective of the firm (KBP), which claims that knowledge assets
are the main source of firms long-term sustainable competitive advantage. Moreover, the
dynamic capabilities perspective (DCP) is introduced. DCP holds that the value of a resource
can change over time. Therefore competitive advantage comes not only from organisational
resources, but also from the firms capability to continually create, integrate and reconfigure
new resources. First part of the report wraps up with the introduction of the model of
knowledge-creating company and a definition of knowledge management, which views
knowledge management as a process aimed at improving the ways in which firms facing
highly turbulent environments can leverage their knowledge assets in order to ensure
continuous innovation.
Second part of the formal report applies theoretical concepts to the Starbucks exploitation of
social media. Analysis reveals that Starbucks is relatively successfully using social media, i.e.
Facebook and Mystarbucksidea.com, as an interacting Ba, a space that enables conversion of
(external) tacit customer knowledge into (internal) explicit organisational knowledge through
collaboration and dialogue, thereby enhancing customer driven innovation. However, for
Starbucks to utilize knowledge as a resource to its maximum benefit, Starbucks should also
deploy Enterprise 2.0 tools. Enterprise 2.0 tools would enable Starbucks to effectively
integrate the recently extracted new knowledge into its internal organisational teaming
processes and its internal collaboration with business partners and suppliers, thereby
exploiting it to increase the firms innovation capacity even more.

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7. Appendices
Appendix 1: SECI model (see Figure 7.1).

Figure 7.1 SECI model (Nonaka and Konno 1998)