Tag Archives: Howard Schultz

The New Shape of Innovation

When I interviewed Howard Schultz for a magazine cover in the late 1990s, I was struck that he didn’t just talk about imagining Starbucks as a chain of upscale coffee houses like those that had charmed him on a trip to Italy as a young man. He talked about Starbucks as a “third place.” We all have our homes and our offices, he said, but he thought we could all use a “third place” that was somehow positioned between home and office and that let us pursue business or leisure however we cared to.

That thought has stuck with me as I’ve pondered the forms that innovation can take, and the term resurfaced for me when I read a recent interview with Kevin Kelly, a co-founder of Wired magazine and one of the more intriguing thinkers on innovation. He, too, had heard Schultz use his “third place” term and was thinking that the idea of a “third” way could be applied in many areas today. For instance, he said, Uber drivers aren’t really employees in the traditional sense, but they’re also not non-employee contractors. They’re a third thing — and should be treated as something new in employment contracts, in insurance and in government regulations.

I think that “third” idea could be important for insurance in two ways. First, we need to be aware of how the industries we cover are changing, so we can be there to provide insurance for Uber drivers and other innovations as they occur. Second, we, too, can find new forms for doing business if we think beyond traditional boundaries like home and office, as Schultz did.

Although Kelly didn’t get into the implications for insurance in this interview in Alta, he noted all sorts of anomalous “third” things that provide food for thought. Facebook isn’t a publisher in any traditional sense, but it sure provides a lot of content — it’s just a new animal, whose users provide and even create most of what appears on the platform. “And free speech?” Kelly says. “When you say something on Twitter, is it public? Is it private? Neither; it’s a third thing.”

He even raises more fundamental questions. “The idea of ownership is overrated,” Kelly says. “In the world where you can have instant delivery of anything you want from this jukebox in the sky, this access is almost the same as owning [something]. In fact, many times it’s better than owning it. You don’t have to store it. You don’t have to catalog it, insure it, clean it. You don’t have to find it.”

Transportation networking companies are certainly betting on this sort of approach to ownership, especially as driverless cars move into the mainstream. You won’t have to own a car, but you’ll always have a claim on one, because you’ll subscribe to a service and be able to summon a ride any time you want to go somewhere.

Plenty of other goods and services could move into that sort of in-between world, where you don’t own something but you have such clear access to it that you don’t really not own it, either. My daughters have occasionally rented formal gowns for events (back when people were hosting events) from an online company that provided an easy way to ship a gown back the next day. While Amazon and other online retailers currently focus on distributing goods, there’s no reason they couldn’t pick the goods up again after they’ve been used briefly. Rather than buying a bunch of equipment and leaving it in the garage to gather cobwebs, why not just rent the tools that you need for a weekend project and have them shipped to you, then return them when you’re done? After all, as the classic Harvard Business School line puts it: Consumers don’t want to buy a quarter-inch drill; they just want a quarter-inch hole.

Kelly says the thinking about the future of work needs to be reframed in a “third” way, too. Rather than wonder which jobs will be done by humans and which by machines, he says, we should think about “centaurs” — in this case, part human and part machine, rather than part human and part horse. In other words, don’t imagine having some work done by machines and some work done by humans. Think of ways that human/machine combos can do work most efficiently and effectively. The contribution by humans and machines in each job will vary a lot, but all will involve some such combination.

“What I’m suggesting,” Kelly says, “is that we’re in this era now where we have a whole bunch of things that are the third thing, and we’re still trying to [look at] them in an outdated, binary way.”

As the world adopts pieces of this “third” approach, the insurance industry will find huge opportunities in covering the risk for the gig workers at places like Uber, for those who now share assets rather than own them outright, for companies that provide products and services in new forms, etc. The relationship will be symbiotic: Unless insurance can come up with creative ways to cover new risks, these new forms of innovation in business will proceed haltingly, if at all.

Innovators in insurance might benefit from conceptualizing their own work on new products and services as finding a “third” way.

I’ve covered many of my ideas on the topic in this space over the months and years. For instance, I see term life insurance as potentially being included in a mortgage, to make sure the loan will be paid off even if the mortgagee dies. Such a policy would be cheap because there would be almost no sales cost, and underwriting would be almost automatic, based on the demographics of the person taking out the loan. The amount of coverage could even decline over the years as the mortgage is paid down. Life insurance could also combine more with wealth management, breaking down traditional silos. And why couldn’t life and health insurance feed into each other? After all, they’re both designed to give you a long, healthy life. I see the data that is currently used to underwrite risk increasingly being used to decrease it; if you see a problem in a company’s cyber security, why not help the company address the problem, rather than just jack up the premium? And so on.

There are loads of clever people out there who understand the problems and potential solutions far better than I do. Here’s hoping they find a way, “third” or otherwise. Maybe a cup of coffee would help, even if you can’t get to your local Starbucks in these pandemic times.

Stay safe.


P.S. In case you’re wondering, Schultz uses a French press to make his coffee. He also must have quite the constitution. It seemed to be a point of honor that he’d welcome each guest with a cup of coffee, and my meeting with him was mid-afternoon, so the pot he made for us in his office must have been at least his sixth or seventh of the day. Yet, while I would have been bouncing off the walls on the first such day and then sleep-deprived for the rest of my life, Schultz was as serene as could be.

P.P.S. Here are the six articles I’d like to highlight from the past week:

Transforming the Claims Space

Paying claims needs to be the default, with AI and analytics ensuring that adjusters spend their time more valuably and have more interesting work.

The Evolution of Telematics Programs

Interest in pay-as-you-drive or pay-per-mile policies has increased in 2020 as more Americans are working from home.

How AI Powers Customer Contacts

Existing and prospective customers now expect prompt, appropriate answers via the channel of their choice, or they may look to your competitors.

Accelerating Industry’s Digital Scenarios

Scenarios that previously seemed like nice-to-haves have suddenly escalated to urgent, and futuristic ideas may become critical.

Essential Steps for Cyber Insurance

Corporate IT, legal, risk and business leaders must collaborate on three steps before updating or acquiring new cyber coverage.

Innovation Comes to Risk Engineering

“From now on, nothing in risk engineering will ever be constant BUT change. If you can’t get used to constant change, you’d better leave.”

Thought Leader in Action: At Starbucks

From the You Can’t Make This Stuff Up Department: Steve Legg took an important step on his path to becoming the director of risk management of Starbucks to avoid having what looked like a bad pun on his business card. He had earned his Associate in Risk Management designation, but that meant his name appeared as Legg-ARM. So, he says, he went on to earn his Chartered Property & Casualty Underwriter (CPCU) designation, because it is listed before ARM. His card now (safely) reads “Steve Legg, CPCU, ARM.”

But I’m jumping into the middle of the story, in this second in our series of Thought Leaders in Action. (The first, with Loren Nickel, director of risk management at Google, is here.)

To begin at the beginning, I’ll provide a summary of Legg’s background, then follow with the story of how he earned his prestigious position, some detail on Starbucks and how it manages risk and some insights from Legg for other risk managers.

Steve Legg

His bio

Legg, who is 46 years old, has been at the Starbucks headquarters in Seattle since June 1997. His responsibilities include global corporate property and casualty insurance and risk financing for the company. Legg reports to the treasurer of Starbucks and heads a risk management team of 13 professionals, with two-thirds involved in claims management and the balance working in risk financing and risk transfer, its risk management information system (RMIS) , internal reporting and captive management. Starbucks has 22,519 stores in 66 countries, with a targeted growth rate of 1,650 net new stores during this fiscal year. Starbucks, the name inspired by Herman Melville’s novel Moby Dick, has one of the most recognized logos in the world. Its mission statement, developed by its founder Howard Schultz, is “to inspire and nurture the human spirit one person, one cup and one neighborhood at a time.”

Before joining Starbucks, Legg worked as an independent insurance broker, as well as in a claims capacity for Crawford & Co. Legg served on the board of the Washington state chapter of the Risk & Insurance Management Society (RIMS) for seven years, serving as president of the chapter during the 2005-2006 year. He has been an active participant within National RIMS and has served as a speaker to other insurance industry groups, such as the CPCU Society, the Professional Liability Underwriting Society (PLUS) and the Marine Insurance Association of Seattle. He has a degree in political economy of industrial societies from the University of California at Berkeley.

His story

Legg grew up in Kirkland, WA, on the east side of Lake Washington. Nicknamed “the little city that could,” Kirkland is the former headquarters for the Seattle Seahawks and Costco. Kirkland Signature is still Costco’s store brand.

“I grew up interested in a lot of different things, but I wouldn’t say with any degree of certainty that I knew what I wanted to do for a living,” Legg said. “I was intrigued with going somewhere else to study, so I attended UC Berkeley. I was interested in crisis management, and I just happened to be at Cal when the 6.9 Loma Prieta earthquake [1989] and devastating Oakland Hills firestorm [1991] hit. From those experiences, I thought I might pursue law school.

“As things turned out, my first job was back in Washington state working as a claims adjuster for the branch manager of Crawford & Co., hired by our mutual friend and industry colleague Katrina Zitnik, who was later director of workers’ comp for Costco, 2001-2013. We handled the huge Boeing workers’ comp self-insured account. There were around 100 employees in that office alone. My specialty was working with chemical-related claims, which was really fascinating, before I moved over to liability claims. By my second year there, I started to really understand what risk management was all about.”

From that experience, Legg went on to achieve his ARM designation. “It may sound corny, but I didn’t like the way it looked on my business card as Legg-ARM, so I went on to pursue my CPCU,” Legg said.

“With that formal insurance education, I went to work for a regional insurance brokerage in Kirkland where I learned a lot about insurance and other facets of risk management.” Legg said: “I came to this realization that I didn’t want to handle claims or broker insurance. I wanted to be on the buyer’s side of all this – tending to insurance and a whole lot of other things.”

In 1997, Legg was hired by his predecessor at Starbucks, which had gone public in 1992. At the time he joined Starbucks, the company had about 1,000 stores in the U.S. and Canada and just a few new locations in Japan. Legg describes his experience at that time in risk management as more of a buyer of insurance, but his job responsibilities quickly deepened and expanded with the global spread of Starbucks. He assumed the director of risk management position in 2006 when his boss and mentor retired and became active in the management of Starbucks’ Vermont captive.

The evolving company

Legg explained that the organizational structure is set up based on three key global regions: (1) the Americas; (2) EMEA, which is Europe, Middle East and Africa; and (3) CAP, which is China, Asia Pacific. “Our biggest push is in the CAP region, especially China, which presents a lot of opportunity,” he said. Although that region has a tea-drinking tradition, Legg pointed out that Starbucks owns the tea company Tazo and more recently bought Teavana and its 300-plus stores, providing a high-end, specialty tea product that has become popular at Starbucks locations. He said Starbucks’ specialty coffee and expresso beverages have also become very popular in tea-drinking cultures.

Starbucks has also expanded its offerings in premium pastries (it bought La Boulange), food and merchandise offerings, and it recently began providing beer and wine in selected areas of the country. “Evenings at Starbucks had been under-utilized,” Legg said, “so with the rollout of beer and wine we’re able to serve additional patrons.”

How Starbucks manages risk

Serving 66 countries with various laws and customs, Starbucks has a global quality assurance organization work with business units that are immersed in foreign locations. “Risk management and legal principles are practiced with our people that understand and are sensitive to local government, culture, customs and laws,” Legg said. “Starbucks wants to provide appropriate food and beverages, and we have a global safety security organization, as well, that makes sure that we are tending to the different types of risks these different and diverse cultures hold. Safety and security are fundamental components in the initial and on-going training of our partners.”

When asked about the challenge of identifying, evaluating and treating risk in far-flung global operations, Legg noted that there is a common thread regardless of demographics that relates to keeping stores well-managed, clean, secure and hazard-free. He added that a global design team works with individual markets to address issues that mitigate any unusual risk factors, which could include something as simple as adjusting counter and stool height. Store components are designed to provide for each locale’s needs while Starbucks maintains the quality and consistency that its customers expect.

As for dealing with its insurance and reinsurance markets, Legg noted that Starbucks collects a significant amount of data on all of its locations to enable its internal team and underwriters to have the geographic information they need for modeling. North American operations are mostly self-insured via large retentions and deductibles; Legg points out that first-dollar and low-deductible insurance policies are far more common, accessible and prevalent in other parts of the world. Compulsory insurance requirements differ across jurisdictions — in many parts of the world, for instance, workers’ compensation as we know it is not available, and injuries or illnesses among employees (which Starbucks calls “partners”) are addressed in different ways.

“Regardless of the transfer or retention of risk, Starbucks feels that no one could ever care as much about our partners and our brand as we do,” Legg said. He added, “We inspire and nurture our partners and customers… through providing good products, friendly service and by contributing to our communities. It’s an important part of our culture and what makes this brand so strong.”

All eligible full- and part-time Starbucks employees receive comprehensive health coverage and equity in their company, referred to as “bean stock.” In turn, employees typically volunteer more than one million hours each year in helping their local communities. Starbucks has also set up agronomy offices in different countries around the world to help origin farmers to better manage their crops and businesses. “It’s really important all up and down the chain from the front-line stores to the source of the company’s most precious commodity to have a seamless connection,” Legg said.

His suggestions

I asked Legg what coaching suggestions he has for people entering the field of risk management.

He said, “I think to be successful in risk management that it helps to have a good understanding of a number of different disciplines like accounting, finance, law, etc. Most importantly, you need to have the ability to think critically through things to make good decisions and to then have the ability to communicate well and to influence others. Knowledge without good communication skills won’t equip you for this career.

“I find myself guiding and teaching other people in the organization every day, helping them develop their own risk assessment philosophy in what they do day in and day out. We in risk management can’t be there all the time, so our job is to train others throughout the organization to make good, sound risk management decisions.

“Be open-minded and flexible. Risk management staff needs to identify and admit their mistakes, correct things and be able to change course as needed.”

Legg added with a laugh, “You think you know in detail how things are, then you find out you really don’t know how things are.”