Allianz SE : How Starbucks keeps innovating

Mohamed El-Erian, Chief Economic Adviser of Allianz

Many pathbreakers in business, such as Amazon, Apple, Google and Microsoft, succeed by creating something completely new. Their impressive deployment of one disruptive technology after another has comprehensively redefined existing industries and created new segments. They have empowered people and enhanced living standards around the world.

Less obvious - and sometimes counterintuitive - are the companies that take an existing activity and turn it into something much more consequential. Think of how Cirque du Soleil has revolutionized the circus experience. And how Starbucks, with more than 21,000 stores in 65 countries, has redefined coffee drinking, not only in the U.S. but also around the world, including Europe where skepticism was most intense. On recent trips to Europe, I couldn't help but notice the brisk business the company's increasing number of outlets conduct there (although, admittedly, I tended to stick to the more traditional cafes for my own daily consumption).

Now the challenge for Starbucks is to keep innovating as a dominant player in the industry. From the perspective of an outsider like me, it is succeeding through approaches that intelligently target different client segments. Three stand out.

First, Starbucks is doing more than just expanding and adapting its product line to enhance the experience of the coffee drinkers who constitute its core client base. It is also looking to improve their purchase experience in other ways. It announced that it would introduce new formats that would reduce client wait times.

Second, it is experimenting with more products to tempt those who use its stores as an ad hoc office during the day. Just recently I discovered that the place where I occasionally work while waiting for my daughter to finish an after-school activity now serves popcorn. It is not easy to resist the combination of reliable free Wi-Fi, a customized drink and popcorn munchies. You can even get beer and wine later in the day at some locations.

Third, it is employing user-driven customization to expand its reach among groups such as teenagers and tweens -- something that I discovered a few months ago when my daughter introduced me to the "Starbucks secret menu" (which, by the way, contains lots of drinks with no caffeine).

Not everyone admires Starbucks. Those who dislike the company and its influence can become quite entrenched in their opposition. One of our local coffee houses actually developed an identity almost synonymous with being anti-Starbucks.

Yet regardless of how you feel about the company, it is hard to ignore how it is constantly innovating on the foundation of an old "technology." Its approach is instructive for many other industries. Just imagine how many are waiting to be beneficially disrupted by this type of entrepreneurship.

By Mohamed A.El-Erian, originally published in Bloomberg View on 9/10/14. Reprinted with permission. The opinions expressed are those of the author.

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