The former Wales boss took over from Tony Pulis for the 2013/14 season after the Potters decided they needed a change of direction.
Hughes guided the club to ninth place, their highest finish since being promoted to the Premier League in 2008, with their biggest points tally of 50.
Stoke are currently 10th on 42 points and with eight matches remaining look set to better last season's points haul and Hughes has already been rewarded with a new contract taking him to 2019.
Coates admits they had expected a short-term drop in performance following their decision to change the manager but it never materialised.
"When you make a change you think it will put you back initially because people have got to get used to working under a different approach," the chairman told stokecityfc.com.
"I think he (Hughes) was surprised by the squad he inherited.
"He's done very well and the players have bought into him and the new style of play which has been very pleasing, exciting and encouraging.
"I've long held the view that the critical appointment at any football club is the football manager, if you get that right then you will always have a chance.
"Mark has done very well and we are very pleased with what he has achieved in his spell and we're obviously pleased he wants to continue.
"As ever we do want to get better and Mark has aspirations to get higher up the table and we want to support him in doing that.
"It's great to have him feel like he can achieve progression here and it's nice to hear him say it, he is certainly someone who is confident in what he can and can't do.
"I am always cautious in football because things can easily go wrong, but we are really pleased with the progress we have made and we're delighted with Mark's attitude towards that."
Source : PA
Source: PA