Contents
I Introduction
II Mission Statement
III Current Company’s Objectives and Strategies
IV Stakeholder Analysis
V Internal Audit
a) Resource Audit
9M’ Analysis
b) Core Competences
c) Cultural Web
d) Value Chain Analysis
e) Strengths and Weaknesses
VII External Audit
a) PEST Analysis
b) 5 Porters’ Forces
c) Opportunities and Threats
VIII Strategic Position
IX Strategic Choices and Alternative Strategies
X Strategy Evaluation
XI Conclusion
Introduction
The history of Starbucks began with a new concept of coffee houses as places to socialise, relax and read, to escape from the day-to-day routine. Starbucks’ idea to provide a unique experience along with quality products has brought recognition and popularity to the Starbucks brand. (Broughton Coffee House, 2004)
MISSION STATEMENT
Starbucks’ mission statement, which is the enduring statement of purpose that distinguishes the business from other similar businesses and identifies the scope of a firm’s operations in product and market terms (Pearson, 2002) is to create opportunities for millions of customers every day around the world to enjoy the high quality coffee and give them a memorable experience. Starbucks’ mission statement gives stakeholders the clarity of company’s aspirations and the sense of discovery, what Hamel and Prahalad (1994) call ‘strategic intent’ that motivates employees and managers.
The Business plan on Starbucks Marketing Analysis
Starbucks Coffee Company is the leading retailer, roaster and brand of specialty coffee in the world. The goal of Starbucks is to establish the company as the premier purveyor of the finest coffee in the world while maintaining the organization's uncompromising principles. In addition, Starbucks wants to develop its brand beyond being the preferred outlet from which to purchase coffee to becoming ...
The vision statement of the organisation can be defined as the source from which the goals, objectives and strategies flow. (Johnson & Scholes, 1999) Starbucks’ vision of the future is the transition from a category-dominant domestic branded retailer into a global consumer brand, and its goal is to build the country’s leading branded retailer of specialty coffee and the long-term goal is to become the most recognised and respected coffee brand in the world. (Case Study)
CURRENT COMPANY’S OBJECTIVES AND STRATEGIES
The main purpose of objectives is to enable a company to control its marketing plan, to help motivate individuals and teams to reach common goals, and finally they provide an agreed, consistent focus for all functions of an organisation. (On-line Encyclopedia, 2004) Objectives, if they are specific, measurable, achievable, realistic and timed, alleviate the implementation of strategies, which are the course of actions taken to achieve stated goals and objectives. (SBC, 2004)
Starbucks’ objectives are precise about what they are going to achieve, quantitative and distinctively timed, and strategies are clearly set against objectives. (Figure 1)
Applying Sheth’s (2000) methods of diagnosing marketing success, Starbucks’ strategy can be viewed as consisting of two general elements: horizontal expansion and vertical growth. Horizontal expansion as the major objective can be achieved by implementing the strategy in three ways: by expansion of Starbucks own stores, by specialty sales and by licensing. The vertical growth strategy lies in creating the whole range of coffee drinking occasions and penetrating various consumption places.
STAKEHOLDERS ANALYSIS
Stakeholders are not just the people with a financial stake, such as customers, employees and investors, but also any groups, which can influence the ability to thrive and prosper in the long term as well as more immediately (Mori Consultants, 2004).
The Term Paper on Global Staffing Strategies and Starbucks
Starbucks Corporation (Starbucks) is a specialty coffee retailer of hot and cold beverages, coffee-related accessories, complementary food items, teas, and other non-food related products. Starbucks has retail stores in 39 countries and about 146,000 employees. The company operates primarily in the United States (U.S.) with headquarters in Seattle, Washington (Starbucks, 2007). In the early 1970s, ...
It is important to identify key stakeholders, to assess their attitudes and to design strategies to keep them on board. It is also important for the business to monitor stakeholders that can emerge unexpectedly and identify their potential impact on the business. (University of Sunderland, 2004)
The objectives that Starbucks established are based on blending the various interests of different groupings (Figure 2).
As Starbucks’ mission is to be the market leader, it benefits all stakeholders, because customers get high quality products, shareholders receive high dividends, employees receive good wages (Statistics, Case Study, 1996).
Consequently after identifying all stakeholders and their influence, it is worth finding a way to get all potential outcomes from all stakeholders groups. Applying the approaches proposed by University of Sunderland (2004), which give the business the advantages of having stakeholders involved and using all their capacities, it can be identified that Starbucks applies the Representation Approach (Figure 3) as the company uses direct contact with its employees, seeks their opinions and holds open forums for the purpose of collecting thoughts, questions, and opinions from all partners (Case Study).
Although Johnson and Scholes (1999) assume that it is difficult to produce mission statements that are acceptable to all stakeholders, undoubtedly, the Representation approach gives Starbucks an obvious route to gain widespread acceptance of decisions.
However, stakeholders have different levels of interests as well as varying levels of power to play key roles. According to the power/interest matrix (Johnson & Scholes, 1999) (Figure 4) frustration with the adoption of a new strategy is possible when stakeholders with high power and low interest, such as central and local governments, under certain circumstances, such as new laws, regulations, etc., which raise their interest, can move to category of key players.
INTERNAL AUDIT
A business can move forward rapidly, if its successes and failures are constantly identified, and strategies and results are measured against clear performance criteria. Performance measurement is the combination of results, gained by carrying out Business Appraisal (Internal, External Analysis and Overall Direction), which in turn leads to the evaluation of Strategic Choice (SBC, 2004).
The Essay on Starbucks And Business Ethics
Different businesses have different ways of advertising their products and contributing to the outside world. Starbucks being amongst these different businesses has an unethical way of marketing its goods. Their advertisements are very broad and manipulative to their customers. Starbucks follows business ethics, which is what makes marketing and global contribution circulate. They also give ...
(Figure 5)
In this case, Internal Analysis examines each of the key areas of Starbucks’ operations to understand the business’ current position.
The Resource Audit
The Resource Audit considers each of the main resources, which must be analysed. It could be worth applying the SBC 9 M’s analysis to audit Starbucks’ resources, as it seems to cover most areas. (Figure 6)
This analysis helps to understand company’s core competencies.
Core Competencies
Johnson and Scholes (1999) define core competencies as knowledge, which provide for organisation competitive advantage. However, Joyce and Woods (1996) argue that competitive-based strategy is primarily concerned with the conduct of corporate strategy, rather than competitive strategy. This view is based on Hamel and Prahalad’s (1994) theory of competition for the future, which includes Intellectual Leadership, Management of Migration Paths and Competition for the Market Share, where a company is considered as a portfolio of core competencies rather than individual business units. The advantage is that it focuses explicitly on how a company can create value by maintaining existing competencies, building new competencies and leveraging competencies by applying them to new business opportunities. According to Hamel and Prahalad (1994), core competencies are embodied in core products, which are components in new end products, which in turn, help to adapt the business to changing opportunities.
Hamel and Prahalad (1994) qualify core competencies as a competitively unique capability, which is ‘gateways to the future’. They assume that core competencies are longer lasting than any individual product or service and winning or losing the battle for competence leadership can have a profound impact on the company’s potential for growth and competitive differentiation. In these terms, Starbucks’ unique techniques of roasting coffee (computer roasting curves), allow the company to create its core product – coffee with a unique taste. Furthermore, excellent service and competencies in creating special atmosphere create the end product, which help the firm to adapt quickly to new opportunities.
The Term Paper on Starbucks Coffee Segmentation and Target Market
Starbucks Corporation was started at Seattle by Gordon Bowker, Jerry Baldwin and Zev Siegl in 1971 (Burks 2009). They were initially selling whole beans coffee in one of the Seattle store. By 1982, the business had tremendously grown and opened up five stores that were selling a roasting facility, coffee beans and a wholesale business to local restaurants. It started its business with only a small ...
Cultural Web
Johnson and Scholes (1999) suggest that the main organisational purpose of meeting stakeholders’ expectations might be influenced by culture at several levels. They assume that the concept of the cultural web is a representation of the paradigm of an organisation and physical manifestation of organisational culture. Business Guide (2004) defines organisational culture as implicit knowledge, which includes relationships, norms, values and standard operating procedures. They argue that it is far less tangible and deeply embedded into an organisation’s operating practices, and because tacit knowledge is much harder to detail, copy, and distribute by competitors, it can be a sustainable source of competitive advantage.
The assumptions that constitute the paradigm (Figure 7) reflect the common public perception that Starbucks provides for its customers great experience: relaxing atmosphere, good quality products and excellent service. Logically, Starbucks organisational culture leads to a paradigm, which reinforces the behaviours observed in other elements of the cultural Web. In conjunction with respectable partnerships, this creates brand reputation, which can be considered as an intangible asset of the company.
The understanding of the key aspects, such as company’s resources, core competencies and organisational paradigm, helps to understand the value chain of organisation
The Value Chain Analysis
According to Porter (1980), to be competitive an organisation has to continually deliver value to customers. Porter’s Value Chain Analysis is careful analysis of how an organisation utilises its resources to create sustainable competitive advantage. (Johnson & Scholes, 1999) The chain consists of a series of activities that create and build the value. Porter (1980) suggests dividing organisations’ activities into primary and support activities. Primary activities are concerned with the creation or delivery of a product or service; in turn support activities help to improve the effectiveness or efficiency of primary activities. The diagram (Figure 8) shows how Starbucks creates the margin. According to Sheth’s (2000) price–value equation theory, Starbucks is increasing the margin as it has shifted the paradigm of coffee consumption patterns and raised the value element in price-value equation by delivering a much higher value than regular coffee shops. Therefore, by increasing the perceived value of Starbucks’ service, it is able to charge premium prices of that price-value equation remains in equilibrium.
The Term Paper on Specialty Coffee Starbucks Company Market
Michael Porter, a Harvard Professor introduces his ideology of the Five Forces model that shapes the competition in the industry. Each force is interrelated and therefore leads into the other to show the elements directly involved in the further success or ultimate success of the firm. Starbucks Coffee Co. throughout its existence since 1971, with its great management team, innovative style of ...
Also the evaluation suggests that Starbucks possesses potential competitive advantages because of the uniqueness drivers located throughout the value chain-inbound and outbound logistics, operations, marketing and sales, as well as organisational infrastructure and technology development. This evaluation indicates that differentiation strategies are the firm’s most promising means to competitive advantage (Figure 9).
STRENGTHS AND WEAKNESSES
One of the ways of thinking about the strategic capabilities of a company is to consider its strengths and weaknesses. (Duncan et al, 1998) The primary task in the business analysis phase is to identify those factors that may give the firm a competitive advantage. (Empowerment Zone, 2004) Kay (1999) suggests division into distinctive capabilities and reproducible capabilities, which in synergy are the basis of sustainable competitive advantage. Distinctive capabilities, in the case with Starbucks, such as exclusive relationships with suppliers, partnerships with respected companies (tangible capabilities), brand name, effective leadership, and organisational culture (intangible capabilities), are the characteristics, which cannot be replicated by competitors, and they provide the basis for sustainable competitive advantage. In comparison, reproducible capabilities are those that can be bought or created by competitors.
Starbucks’ weaknesses (Figure 10) could be considered as illnesses caused by fast growth. However, Patrick (2001) argues that ‘ weaknesses’ should be better considered as constraints, which are the weakest links in any complex system and are limiting the ability to achieve more of the business’ goals. The Theory of Constraints (TOC) (Goldratt, cited in Patrick, 2001) is a philosophy of management and improvement, which allows holding two opposed ideas in the mind, and still retaining the ability to function. Constraints must be identified and the whole system must be managed with this in mind.
The Business plan on Starbucks Coffee Company 2
Beauty is only skin deep, companies must look within to secure longevity. Before a company can successfully bring a mission statement and vision to fruition, they must take a good hard look at their business plan. A company must reflect upon internal strengths and weaknesses, external opportunities and threats, and consider the trends associated with each. The fundamental process of strategic ...
EXTERNAL AUDIT
Hypercompetition is a key feature of the new economy and can be defined as a state in which the rate of change in the competitive rules is in such flux that only the most adaptive, fleet, and nimble organisations will survive. (Business Guide, 2004) In these terms, macro environmental scanning helps to identify key issues and ways of coping with change and complexity.
PEST ANALYSIS
The PEST analysis examines the broad environment in which the organisation is operating. (Johnson & Scholes, 1999) There are the four key areas in which to consider how current and future change can affect the business of Starbucks. It is recognised that coffee is the second more traded commodity to oil. (Broughton Coffee House, 2004) The level of uncertainty is very high, and obviously, it is not possible to forecast precisely in long-term such crucial factors as cherry beans availability, because of impact of natural disasters, plant infections and political regulations. It is common that most countries regulate coffee sales, as its export is the major source of foreign exchange for dozen of economies. (Equator, 2004) In such a case of uncertainty, Johnson & Scholes (1999) suggest using scenarios, which based on grouping of key environmental influences.
Political factors
Political factors include government regulations and legal issues and define both formal and informal rules under which the company must operate. (Knowles et al, 2001) As Starbucks is expanding internationally, trade restrictions, tariffs, tax policies and employment laws of related to their business countries have influence upon Starbucks. To formulate the future strategy Starbucks managers have to take into account very different political situations in countries from which Starbucks buy coffee and countries, the company expands to: from extensive poverty and deep social inequality, which are characteristics of Latin America (O’Donnell, 1996), to the fast growing economy of Asia. As predicted, by 2010 60% of the world’s population will live in the Asia Pacific region. (Fly Consultants, 2004)
Economic factors
Economic growth in countries where Starbucks operates, such as USA, Pacific Asia and Europe, stipulates the firm’s growth strategies. The comparison of growth of GDP in the US from $2,7 trillion in 1980 and $6,95 trillion in 1995 to $7,61 trillion in 1996 (Morsy and Alaadin, 1995) gives the clarity of potential opportunities for growth.
The Starbucks business depends on economic factors in developing countries, where it buys the coffee beans. Coffee is the principle commercial crop. Consequently, the slump in world coffee prices turns into disaster for coffee producing countries. Starbucks imports 55% of coffee from Latin America. As the Arabica coffee is more expensive to grow, it commands premium prices, therefore there is the threat for the company when some small coffee farmers in Bolivia and Peru (the external debt of Peru rose from $9,38 trillion in 1980 to $20 trillion in 1990, (Denperu Statistics, 2004)) are tempted to turn to coca and poppy production, because these crops are much more profitable than coffee. (Boughton’s Coffee House newsletter, 2004) However, such organisations as USAID, Fair Trade (FTAA) work to reduce the problem, and there is encouraging information that FDI in Peru rose from $27 trillion in 1980 to $41 trillion in 1990. (Denperu Statistics, 2004)
Social factors
The social and cultural influences on business vary from country to country. Social factors include the demographic and cultural aspects of the external environment. These factors affect customers’ needs and the size of the potential market. (Johnson & Scholes, 1999)
Specialty coffee consumption is growing at rate of 15% per year, at the same time basic coffee industry is suffering. (Broughton Coffee House, 2004) Coffee consumption patterns are changing, because people tend to have healthier lifestyles to replace alcohol. Also coffee acts as a social catalyst and has moved into category of affordable luxuries. As demographic trends are always the matter of change, there is the need to monitor this change to understand the present market, and predict changes in the future. For example, the life expectancy in the US rose from 70 years in 1980 to 77 years in 1995. (Morsy and Alaadin, 1995) This tendency of the growing older population has to be taken into account for the formulation of new strategies
Technological factors
Technological factors can lower barriers to entry, reduce efficient production levels. (Joyce & Woods, 1996) Technologies allow Starbucks to offer the higher standard quality products; its computerised roasters allow the company to create unique computerised curves in roasting coffee beans. The company invests in research to obtain even better quality of roasting and various blending. Also Starbucks uses the Internet as a distribution mechanism and implement Internet cafes to attract customers. Implementing of new methods of working as mobile communication, intranet gives Starbucks advantages of prompt communication.
PORTER’S FIVE FORCES
The main technique used to analyse competition in the industry environment is Porter’s (1980) Five Forces model. Five forces looks at five key areas namely: the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes and competitive rivalry. The stronger each force the more competitive is the industry and the lower is the rate of return that can be earned. (Goudaskas, 2002)
Threat of Entry
Starbucks operates in highly competitive industry where there are strong brands among competitors, such as Deidrich and Second Cup etc. (Case Study) However, the entry in the retail speciality coffee market is low. As the capital requirement for purchasing or renting one store is not high. There were more than 3, 485 competitors in 1996, but most of these were one-store establishments with no real plan for growth. (Case Study) Although the cost of entry is low enough, new entrants have to compete with respected brands.
To respond to the phenomenal growth in specialty coffee in the grocery chain, many large basic coffee manufacturers were moving into more specialty brands by introducing upscale versions of already popular supermarket brands. (Case Study)
Coffee bulk purchasing offers Starbucks significant economies of scale.
Outlets, stores, grocery chain, kiosks, Internet, mail delivery allow Starbucks to have access to a wide range of distribution services.
Business Guide (2004) considers barriers to entry as a source of competitive advantage. In accordance with this point of view Grant (1998) suggests that a company can erect barriers to entry by creating and exploiting economies of scale, by product differentiation, contrived deterrence or using government policy to deter entry.
Power of Buyers
The force is high, because customers are large and provide a large proportion of company profits and also it is easy to switch between competitors, as the competition on brand recognition is very high in the coffee industry. Coffee companies basically use the same product – coffee beans, the competition based on quality of roasting, product innovations and variety and excellence of services. To neutralise the threat of powerful buyers, the company can reduce buyer uniqueness by product differentiation, cooperation, diversification, and forward vertical integration (- to become own distributor) (Grant, 1998)
Power of Suppliers
Supplier power is high for Starbucks. Although exporters are anxious to become Starbucks suppliers, there are a few suppliers and increasing volumes of purchasing by Starbucks leading to difficulties in finding beans that meet the company’s quality requirements. Although Grant (1998) in the chapter ‘Opportunities to Neutralize Treats’ suggests that reducing supplier uniqueness and development of second sources can neutralise the threat, in coffee industry where there are a number of coffee farms that can be increased, Starbucks should invest into the industry, otherwise it is very difficult to develop second sources.
Threat of Substitutes
This threat can be generated by competition among non-coffee related products such as teas, and soft drinks. Also technological innovations in roasting, give the opportunity to roast Soya beans. (Broughton Coffee House, 2004) However, the threat is quite low, because there are no natural substitutes for coffee beans.
Competitive Rivalry
The competition is intensifying as the specialty coffee market is growing. There is little difference between products, which makes the competition fiercer. As Starbucks is expanding internationally, the company can benefit from global consumers. In countries where Starbucks has established its name, the organisation can take an advantage of the recognition of its brand. Also it is very beneficial for Starbucks that exporters of coffee respect the company. Comprehensive Internet site allows Starbucks to attract more stakeholders. Gaining the market share by store clustering, Starbucks depletes its rivals.
Although, Porter’s Five Forces model gives a quite clear vision of the competitive environment, it has been criticised for presenting a static picture of competition that de-emphasises the role of innovation. Gudoskas (2002) argues that innovation can revolutionise industry structure and completely change the strength of different competitive forces.
OPPORTUNITIES AND THREATS
Pearson (2002) argues that external opportunities and threats are events that could significantly benefit or harm an organisation in the future, and these are largely beyond the control of an organisation. The author continues to suggest that a basic tenet of strategic management is that firms need to formulate strategies to take advantages of external opportunities and to avoid or reduce the impact of external threats. For this reason, identifying, monitoring, and evaluating external opportunities and threats are essential for success. (Figure 11) Lobbying of city regulations is one of activities utilised by Starbucks to influence external opportunities and threats. (According to Pearson, 2002) New technologies as products of technological revolution create opportunities for big companies such as Starbucks and are threats for small businesses, as these cannot afford to implement expensive innovations.
The strategic issues may be identified by considering the interaction of opportunities/ threats and strengths/ weaknesses. (Joyce & Woods, 1996) Smith’s (1994) cross-tabulation matrix of SWOT shows that Starbucks’ strength – gaining market share by store clustering and its aggressive real estate strategy in conjunction with external opportunity to purchase stores lead to internal threat for Starbucks of alienation of consumers who might lose the sense of discovery and Starbucks will be considered too general, when they have thousands of shops and the organisation might not be luxury anymore, also the image can be damaged by substandard service and quality in some licensed shops over which Starbucks does not have total control. Another example, Starbucks’ weakness – problems with finding quality coffee beans, whilst increasing volumes, in conjunction with opportunity – to invest in coffee plantations, lead to strength to become own supplier
STRATEGIC POSITION
Strategic position as the face of the business strategy specifies how the business aspires to be perceived by customers, employees and partners relative to its competitors and market. (Aaker, 2001) Applying the Life Cycle/Portfolio matrix (A.D. Little, 1974) (Cited in Management Guru, 2004) (Figure 12) the current competitive position of Starbucks can be identified as Strong. The strategic positioning in terms of stage of industry maturity is at the transitional stage from Growth to Mature as Starbucks current strategic direction allows sustaining growth by continuing the development of the Starbucks brand image and by increasing its presence in different markets.
STRATEGIC CHOICES
Strategic choices involve understanding the underlying bases for future strategy at the functional, corporate and business levels, which should be consistent with each other. (Figure 13) (Business Guide, 2004) Operational method of development, which can improve Starbucks competitive position, could be a strategy of genetic diversity, introduced by Hamel & Prahalad (1994), it proposes to hire outsiders to maximise the share of voice of employees, as these bring fresh ideas, perspectives and beliefs, which substantially alter the genetic pool. In this case, top managers learn to seek out and reward unorthodoxy. However, this is a very slow process of inducing genetic variety.
At the business level strategic options can be set within the context of overall generic strategy. Porter (1980) suggests that there are three ways in which a firm can achieve objectives. According to Porter’s approach, Starbucks generic strategy could be identified as differentiation strategy, as Starbucks seeks to be unique within the industry. With this uniqueness Starbucks is able to charge a higher from average price. Another element of strategy is creating brand loyalty, which also decreases price elasticity of demand. Starbucks can execute this strategy through constant innovations in the product itself and in the way it’s delivered. Yet, at the maturity stage, which is usually viewed as the saturation period, Starbucks might consider differentiation strategy without a price premium, proposed by Bowman & Faulkner (1996).
This allows the company to gain market share and give stronger competitive advantage. However, Starbucks can keep premium prices, but just lower than competitors. Also capturing the dynamic of competence building, having a point of view where the opportunities lie and anticipating customer’ changing needs, Starbucks might be able to grow the numerator – net income in ROCE and ROI, rather than reduce the denominator – investment. (According to Hamel & Prahalad, 1994)
The issue of strategic choice is also lying at the heart of the corporate strategy. Applying Ansoff’s (1988) Growth Vector Matrix, which is focused on present and potential products and markets, Starbucks’ approach to the growth can be identified as market development, as the company is targeting its existing products to new customers in new geographical regions. The growth can be achieved by further acquisition of single stores. The disadvantage of this strategy is that high concentration of Starbucks stores in particular city areas makes the company perceived as too general. The related alternative approach is diversifying by developing new products for new markets. It could be done by related diversification through vertical integration, which gives the control of supplies, control of markets and access to information. (Johnson & Scholes, 1999) (Figure 14).
In addition, Starbucks can further diversify into noncoffee areas such as ice cream, candy, tea, specialty food, and even kitchen and home products.
Evaluation of strategies
Johnson & Scholes, (1999) suggest evaluating strategies against the key criteria such as: Suitability, Acceptability and Feasibility.
Growth strategy is suitable for Starbucks as the company’s position within the industry is ‘Strong’. Building new core competences will allow further differentiation and reinforcing value added.
The growth strategy is also acceptable, as such factors as Operating Income and Earning per share are rising. (Figure 15) This shows that the business is attractive for shareholders and they will invest in Starbucks. However, while growing Starbucks depends heavily on financing. To reduce debts, Starbucks has to franchise some stores, whilst reducing the risk of loosing control over franchised stores. Also the growth strategy stipulates rising of risk profile of stock. These two factors together can lower the acid test/liquid ratio: Current assets – Stock
Creditors: amount falling due within one year
Finally, the growth strategy is feasible for Starbucks in accordance with its core competencies and business practice. High quality of coffee and service, special atmosphere can attract people across the world. However, Starbucks with its aim to create ‘a desire for Western brand’ should be more conscious about traditions and habits of people in countries where Starbucks is going to expand.
Conclusion
The key to Starbucks success lies in the overall business strategy. The company’s goal is not to benchmark competitors’ products and services or to imitate them, but to develop independent points of view about how to create opportunities and exploit them.
According to Hamel and Prahalad’s (1994) theory of competition for the future, Starbucks is gaining Intellectual Leadership by the company’s strategic architecture: foresight, breadth, uniqueness and consensus. The employment policy to employ senior management from outside and Representation approach to stakeholders is in accordance with the theory of genetic variety. Employees are important human capital, the company’s biggest strength and asset. The role of corporate culture, shared values and beliefs, and social cohesion in the workplace are on a very high level. These aspects respond (according to Pascale & Athos, 1981) to Japanese superior management techniques, which brought success to Japanese industry. Such soft factors (style, skills, staff, shared values, which were usually underestimated by American strategists), in conjunction with long-term vision, clear objectives and well-defined strategies are in the base of Starbucks’ success.
However, tremendous growth brings out a concern about the unique Experience that Starbucks is supposed to provide. Overextended pursuit for growth can jeopardise the mission of Starbucks as the premier purveyor of the finest coffee in the world. The related problem is the identity crisis when Starbucks stretches its presence too far. The problem is that it is hard to combine the breath of distribution with the depth of service and quality. Starbucks will have to re-invent the successful growth strategy without losing the company’s vision: to be the most recognised and respected brand of coffee in the world as Hamel and Prahalad (1994) suggest that to build leadership in the future the company must be capable of regenerating its core strategies.
APPENDIX
Figure 1
Starbucks Current Objectives and Strategies
OBJECTIVES STRATEGIES
For Growth
To generate 20 to 40 stores per month, and expand to 2,000 stores by 2000 Aggressive real estate strategy of purchasing new stores
To develop partnership and to double volumes of purchasing coffee over the next three years To increase participation in specialty sales contracts
Not to heavily depend of equity and debt financing to grow Franchise some stores
To take advantage of highest coffee consumption in different countries To continue expansion in the international market
For Market Share
To maximise market share and to build a regional reputation Concept of store clustering
For Product Development and Brand Recognition
To take advantages of sales areas (train station, street corners, malls, etc) To introduce new espresso carts and kiosks
To penetrate into the grocery channel and build the reputation with supermarkets To allow supermarkets to capture 80% of the home coffee business
To concretely define the band image To increase awareness through agreements with retailers, wholesalers, restaurants, airlines, bookstores, selling high quality items like coffee makers, mugs, stationery, souvenirs, etc
Customer Satisfaction
To meet needs of customers not located near Starbucks retail stores and its regular home users To develop mail order
To deal with increasing volumes To offer the increasing number of blends
Figure 2
Starbucks identified stakeholders, who have the strategic influence, are:
Customers – they belong to different age groups; have different consumer patterns depending on sex and social status. Also as Starbucks is expanding they tend to be international
Employees – they are mostly students and people with a degree.
Suppliers – exporters from Latin America, Pacific Rim and East Africa.
Shareholders
Business Partners – United Airlines, PepsoCo, ARAMAC,
Red Hook Breweries, etc.
Investment companies – such as William Blair and Company
Local communities, local and central governments.
Media and analysts
Figure 3
Representation v Delegation – University of Sunderland
Approach Advantages Disadvantages
REPRESENTATIONAttempts to take in the full range of views, interest groups and organisational units as part of the full decision making process. Characterised by democratic, committee-type decision-making * covers full range of views*an obvious route to gain widespread acceptance of decisions *involves people who may have limited knowledge of the subject area*slows decision making*can result in compromises which do not really represent ‘best fit’ in any particular area
DELEGATIONDelegated responsibility to those identified as being best suited to the job *Work carried out by those with appropriate skills and knowledge Permits project to move forward more rapidly Acceptance relies on trust in those delegated Needs care to ensure that all relevant issues are properly understood and covered
Figure 4
Starbucks stakeholders mapping
LEVEL OF INTEREST
Low High
LowHigh Minimal Effort Keep InformedEmployees (+)Suppliers (+)Investment Companies (+)Business Partners (+)Shareholders (+)
Keep SatisfiedLocal and central governments (+) Key PlayersCEOBoard of DirectorsPowerful Shareholders
Figure 5
Internal Analysis Overall Direction External Analysis
Resources Audit Mission, Vision and PEST Analysis
The Value Chain Analysis Objectives Porter’s Five Forces
Figure 6
Starbucks Resource Audit
1MMoney(Finance) Net earnings in 1996 amounted to 42, 128,000 against 10,206,000 in 1994Specialty sales increased from 26,498,000 in 1994 to 78,702,000 in 1996The company’s rating is a ‘BUY’ to investors
2MMen(Human Resources) 1) Employees tend to be with a degree2) 24 hour training of serving to customers for every position, including managerial3) Higher wages, health insurance, etc.
3MManagement All senior managers tend to have the knowledge of managing high growth retailer
4MMateriala(Supply and Purchasing) Excellent reputation among coffee suppliers and this gives the opportunity to select the finest Arabica coffee
5MMarkets To gained market share by leveraging the size and going into different distribution channels. Penetration into grocery channel.
6MMachines(Production) State-of-the-art roasting and coffee equipment from recognised manufacturers as Krups, Bodum. Constant research of roasting and blending coffee.
7MMake-Up(OrganisationalStructure) Organisational structure is very flat. The direct contact between front-line staff and Senior Management
8MMethods(Business Processes) The managerial approach is not bureaucratic. There are different waysContacting any level of managers, via Internet, phone, direct line, etc
9MManagement Information H Schultz and The Board of Directors make strategic decisions and understand the company performance.
Figure 7
Starbucks: Cultural Web
(Boughton’s Coffee House newsletter) (Boughton’s Coffee
Figure 8
Starbucks: Value Chain
Firm InfrastructureFlat structure of organisation
Human Resource ManagementEmployees tend to have degree Higher wages Employee turnover is very lowCareful recruitment selection Insurances Direct contact with managersHigh job satisfaction Supply Chain Operation built to reduce redundanciesConsistent and complete training programme
Technology DevelopmentResearch in roasting and blending coffeeImplementation of computer technology in creating unique roasting curvesHigh quality coffee making equipment from manufacturers as Krups, Bodum
ProcurementEstablished long-term relationships with reliable suppliersIncreased participation in specialty coffee sales contractsIncreasing volumes of purchase
Inbound LogisticsOnly finest Arabica beans from various suppliersCareful coffee selection OperationsUnique roastingVarious blendingVacuum sealed bagsManufacturing of roasted coffee is unique Outbound logisticThe best supply chain operationsComplex distribution modelForecasting process where coffee is needed the mostMail ordersRetail store unitsGroceryWholesalers Marketing & SalesIntroduction of new espresso carts and kiosksNew products: Frappuccino, ice-creamsGrocery channelHigh echelon of restaurantsConstantly developing channels of distributionAggressive real estate approach ServiceHigh quality service
Figure 9
The comparison of TEV (Total Enterprise Value) between Starbucks and other leading coffee companies in the US shows that Starbucks has 25.1 against 14.5 average for the industry. Starbuck’s net margin is 6.0%, which is more than twice higher than the industry’s average. (Statistics, Case Study).
Figure 10
Starbucks: Strengths and Weaknesses
Strengths Weaknesses
Quality of the product and the range of products offered: latte, frappuccino, mocha, teas, juices, and high-end souvenirs Difficulty with getting price confirmation from exporters, because the price depends of many factors
Fully integrated manufacturing and distribution process Increasing volumes make problematic to find coffees that meet quality and quantity requirements
Constant research of potential and existing coffee customers Some bad partnerships, difficulty in monitoring franchised stores
Highly educated, also highly motivated and satisfied employees Challenge to constantly motivate its real estate staff to continue to generate 20-40 stores per month
Best supply chain operations The risk profile of stock is rising
Own real estate and design team Supply chain operations consists of four units, it is the challenge to support them in integrated, effective and cost-effective method
Commitment of CEO and Top Management Heavy dependence on equity and debt financing to grow
Flat organisation structure, direct contacts
Excellent manufacturing and coffee making equipment
Figure 11
Starbucks: Opportunities and Threats
Opportunities Threats
The existence small one-store establishments in the coffee industry give Starbucks the opportunity to gain the market share by purchasing small rivals
The consumer preferences for specialty coffee is growing Change of regulations and lawsFluctuation in exchange rates, inflation
Technology Innovations Economic deterioration in developing countries. Replacement of coffee crops with opium poppies.
International market in the process of globalisation, the opportunity of finding new markets and distribution channels The publications in press about coffee threat for health
FDI in coffee plantations The threat from basic coffee manufacturers moving to specialty coffee
Figure 12
The Life Cycle/Portfolio Matrix (AD Little, 1974)
Stages of Industry Maturity
EMBRYONIC GROWTH MATURE AGEING
DOMINANT
STRONG Fast growCatch upAttain cost leadershipDifferentiate Attain cost leadershipRenewDifferentiateGrow with industry
FAVOURABLE
TENABLE
WEAK
Figure 13
Figure 14
Starbucks – Related Diversification
Possible advantages Examples
Control of suppliers To own coffee plantations to secure continuity of supplyTo produce own roasters and coffee machines
Building on: core competences –Roasting and blendingExcellent service and relaxing atmosphere Christmas, Easter, etc special coffeesTo organise evening introduction events
Access to information and distribution of information To set up own magazine or newsletter Children related editions
Spreading risk To avoid over-reliance on just roasting coffee, but have an experience of roasting Soya beans, which possibly can be considered by healthy life style adepts as the most acceptable
Figure 15
Starbucks operating income 1994- 23,298, 000, 1995 – 50, 116,000, 1996 – 56,993,000
Net earning per share – 1994 – 0.17, 1996 – 0.47 (Case Study)
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