STRATEGIC MANAGEMENT ANALYSIS SID# 1031489
1.0 Introduction 1.1 Strategic Management Strategic management consists of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. This definition captures two main elements that go to the heart of the field of strategic management. First, the strategic management of an organization entails three ongoing processes: analysis, decisions, and actions. That is, strategic management is concerned with the analysis of strategic goals (vision, mission, and strategic objectives) along with the analysis of the internal and external environment of the organization. Next, leaders must make strategic decisions. These decisions, broadly speaking, address two basic questions: What industries should we compete in? How should we compete in those industries? These questions also often involve an organization’s domestic as well as its international operations. And last are the actions that must be taken. Decisions are of little use, of course, unless they are acted on. Firms must take the necessary actions to implement their strategies. This requires leaders to allocate the necessary resources and to design the organization to bring the intended strategies to reality. As we will see in the next section, this is an ongoing, evolving process that requires a great deal of interaction among these three processes. Second, the essence of strategic management is the study of why some firms outperform others. Thus, managers need to determine how a firm is to compete so that it can obtain advantages that are sustainable over a lengthy period of time. That means focusing on two fundamental questions: How should we compete in order to create competitive advantages in the marketplace? For example, managers need to determine if the firm should position itself as the low-cost producer, or develop products and services that are unique which will enable the firm to charge premium prices-or some combination of both.
1.2 The Importance of Strategic Management Strategic management has gained importance in recent years. During last century organizations focused on long-term planning. Long-term planning supposed that external and internal environment will remain stable for long period of time and thus they made plans for long duration. Today it is clear to the managers and entrepreneur’s that environment can change at any point of time and their plans should follow a strategy that includes contingency planning too. This assignment will take a look into the life span of the coffee company Starbucks and how Strategic Management is implemented within the organization. The assignment will go into indebt detail of how Starbucks came about, how they market their product, how successful they have been since launching their product and what techniques where used in the process. The chosen country for this research is the United States of America.
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489
2.0 Company Background 2.1 History of Starbucks The history of Starbucks starts back in 1971 when the first store opened in Seattle, Washington. Jerry Baldwin, Zev Siegl and Gordon Bowker got the idea from Alfred Peet (of Peet's Coffee fame). The store initially sold just coffee beans and coffee making equipment rather than the drinks they have become so famous. After about 10 years, Howard Schultz was hired as Director of Retail Operations and came to the conclusion that they should be selling drinks rather than just beans and machines. He couldn't convince the owners, so he went his own way to start the Il Giornale chain of coffee bars in 1986. The next year, Baldwin and the others sold Starbucks to Schultz who then renamed his Il Giornale locations to Starbucks and quickly started to expand. After conquering Seattle, the chain spreads across the United States and then internationally. The first location outside of North America was in Tokyo and they still have a sizable presence in Japan today. Over the course of its life, Starbucks has bought or acquired companies like Peet's and Seattle's Best Coffee, and took over many locations of Coffee People and Diedrich Coffee stores. The company’s logo was initially a wood-cut style image of a 2-tailed mermaid or siren, but it has undergone a lot of changes over time. The original design had the mermaid with bare breasts, but the modern version has become more stylized and her hair covers her body. The name comes from Captain Ahab's first mate in the classic novel Moby Dick, who was named Starbuck. Aside from the ubiquitous coffee shops, they also own the Hear Music label and Ethos bottled water. Today, Starbucks has expanded to more than 17,000 stores in 55 countries around the world. Their biggest presence is still in the United States, with 11,000 locations. You can find a Starbucks in such diverse nations as Chile, Romania, Bahrain and Bulgaria. The most recent expansion was to Budapest in June of 2010.
2.2 Starbucks Mission Statement “To inspire and nurture the human spirit one person, one cup and one neighborhood at a time”.
2.3 Starbucks Vision Statement “To establish Starbucks as the premier provider of the finest coffee in the world while maintain our uncompromising principles while we grow” 2
STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 Task 1
3.0 Market Environment Analysis To critically analyse different external forces that can directly or indirectly affect an organization we use three different types of marketing research, this is an integral part of environmental scanning. These activities include the PESTLE, Lifecycles and Porters 5 forces.
3.1 PESTLE Analysis of Starbucks in the USA Political
Economic
Social
Technological
Legal
Industry-specific rules and regulations. Political stability. Taxation Policy. Deregulation. Trading agreements. Employment Law. International Stability. Buying power of consumers. Local currency exchange rates. Local economic environment within each market. Economic Growth. Competitors Pricing. Globalisation. Consumer preferences. Changing family patterns. Changes in lifestyles of population. Income Distribution. Attitude to work. Standard of Education/Skills. Working Condition/Safety. Location. Age Distribution. Health Consciousness. Emergence of innovative technology. Biotechnological developments. Developments in agriculture. IT development New Material and Processes Software Upgrade Rate of Technology change Introduction of policies and 3
Critical success factor. Opportunity Threat Threat Threat Threat Threat Critical success factor Opportunity Opportunity Threat Opportunity Opportunity Opportunity Opportunity Threat Opportunity Opportunity Critical success factor Opportunity Threat Opportunity Critical success factor Critical success factor Critical success factor Opportunity Opportunity Opportunity Opportunity Threat
STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 regulations by health authorities about caffeine production and consumption. Introduction of tougher customs and trade regulations. Licensing regulations related to the industry. Environmental
Environmental rules and regulations. Environmental disasters in countries producing coffee beans. Global warming and other environmental issues in a global level
Threat Threat
Threat Threat
Threat
3.1.1 Political: Taxation policy
High taxation imposed on farmers in those countries producing the coffee bean will usually mean Starbucks pay a higher price for the coffee they purchase. Any fluctuations in taxation levels in the industry are almost certainly ultimately passed on to the consumer. Recently (June 13, 2003) Tanzania's Minister of Finance harmonized and rationalized local government taxation to boost rural productivity of the coffee bean. Tax was lowered for these s mall holder' farmers and this saving will have been passed on to purchasers of coffee like Starbucks.
Deregulation
A decade ago, the USA pulled out of the ICA (international Coffee Agreement) that set export quotas for producing nations and kept the price of coffee fairly stable. Coffee quotas and price controls ended. Since the deregulation farmers have suffered and their earnings have dropped. Many have struggled to make a living so have given up. International trade regulations/tariffs Trade issues will affect Starbucks predominantly when exporting and importing goods. When another country's government imposes a tariff it not only results in an efficiency loss for Starbucks but large income transfers can become inconsistent with equity. This extra charge can turn a bargain into a rip-off. Also, since 9/11, trade relations have been adversely affected between the USA and some other countries.
International stability
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489
The international economy must be brought into consideration as it can affect Starbucks' sales and markets. The aftermath of 9/11 was an example of an economic downturn that affected the world market. If the world market is in a slump it is not usually the ideal time for a business to look at grand expansion.
Employment law
A reduction in licensing and permit costs in those countries producing the coffee bean for Starbucks would lower production costs for farmers. This saving would in turn be passed onto the purchaser.
3.1.2 Economic: Economic Growth
If growth is low in the nation of location of Starbucks then sales may also fall. Consumer incomes tend to fall in periods of negative growth leaving less disposable income. Consumer confidence in products can also fall if the economic 'mood' is low Inflation rates Inflation is a condition of increasing prices. It is measured using the Retail Price Index (RPI) in the UK. Business costs will rise for Starbucks through inflation, as will shoe-leather costs as they shop around for new 'best prices' of materials, menu costs will rise as Starbucks have to create new price lists. Also, uncertainty is created when making decisions not least because inflation redistributes money from lenders to borrowers. A firm that borrows L1000 during an inflation period will pay back less in 'real terms' as the value of this money will decline over the period.
Competitors pricing
Competitive pricing from competitors can start a price war for Starbucks that can drive down profits and profit margins as they attempt to increase, or at least maintain, their share of the market.
Globalisation
Globalisation of the coffee market has meant farmers of the bean now earn less money than they used to. This can result in a decrease of people willing to do it for a living, which will mean a decrease in coffee produced, resulting in a drop in Starbucks supply levels and probably profits.
Exchange rates
Starbucks are affected by exchange rates when dealing with international trade. If the value of the currency falls in the country of a coffee supplier this enables Starbucks to get more for their $ or L when importing the goods to their country. This saving can be passed along to the customer. Exchange rates are forever changing throughout the world in today's market. 5
STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 3.1.3 Social: Income distribution
Where income is distributed is another factor that Starbucks should look at as this also demonstrates the ideal place to aim their marketing or to locate their stores. Coffee is more of a luxury product so it is those people/places with the most amount of disposable income to spend that should be targeted the most intensely.
Attitude to work
Starbucks would not want to locate to an area where the local population have a poor attitude to work. Recruitment would be difficult, training arduous, and staff turnover would be high. Attitudes to work are important in other ways. A large number of workers in large cities now go out for their lunch rather than use an internal canteen. Starbucks can use this to their advantage and promote the shop as a place where people can meet up and so it will mean that they will get a larger amount of people in their stores at this time of the day.
Standard of education/skills
When Starbucks are deciding upon new premises they must look at the standards of education and skills locally. They must be sure there are people who live there with sufficient skills to ensure successful operation of the business, or at least the potential to learn that comes with a good education.
Working conditions/safety
Those people with the most disposable income, e.g. young single professionals etc, will be accustomed to high standards. Starbucks must ensure it's shops are clean and comfortable, service is of the highest order and health and safety issues are fully addressed.
Location
Transport needs to the premises must be considered for both staff and customers. Easy access is vital to ensure there is no excuse for staff to arrive late or for customers not to visit.
Age distribution
Research shows the average age of the population is getting older and birth rates are stagnating. Starbucks is presently aiming it's product at young people but maybe these views will change in the long-term as the market proportion for young people diminishes. The most profitable way forward may be to widen their target market despite the risk of alienating present customers.
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 Health consciousness
Good health and foodstuffs associated with healthy living are important I today's market place, as this is a trend that is occurring at the moment in western societies. Starbucks can use this information when deciding the additional products to sell, as well as coffee, as a large number of their customers are looking for healthy alternatives to cakes and biscuits, which have been associated with coffee in the past.
3.1.4 Technological: IT development
Starbucks is always looking to develop and improve its Internet facilities. Starbucks launch edits first-generation e-commerce Web site in 1998. In late 1999, Starbucks decided the site needed a major upgrade to enable new functionality and prepare for long-term growth. To achieve these goals, Starbucks upgraded to Microsoft Commerce Server 2000, one of the key Microsoft .NET Enterprise Servers. As a result, scalability and performance have improved, and the company now has the tools it needs to profile and target customers, analyze site data, and deliver new features to the market in the shortest time possible.
New materials and processes
Developments in the technology of coffee making machines and the computers that Starbucks use to run their cash registers will enable their staff to work more quickly and efficiently. This will result in customers being served quicker and create the potential to serve more customers in a day. This will prevent customers from having to wait around for long periods thus improving customer relations along with increasing the customer base.
Software upgrades
In the short-term, Starbucks must identify the most efficient software upgrades to use to keep up with the competition. This applies to the improving the accessibility of their website (www.starbucks.com) and also improving the speed and quality of the service provided on the shop floor.
Rate of technological change
The rate of technological change in the current world market is high, much higher than, say, thirty years ago. Much of this is down to the Internet and the speed with which information can be communicated around the globe. Starbucks will need to invest heavily just to standstill in their ever expanding and developing market, and even more so to try to stay ahead of competitors.
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 3.1.5 Legal Trade and product restrictions
Starbucks need to be aware of the trade laws in the various countries they occupy and do business with. They need to ensure they are not in violation of e.g., religious laws. Also, certain countries impose a tariff that has to be paid when goods are imported/exported so this must be taken into account.
Employment law
Each country has varying employment laws. Some may have a Sabbath day, some may have a limit on the number of hours an employee may work per week, all will have varying levels of minimum wage. Starbucks should consider these factors when deciding on relocation.
Health and Safety regulations
Starbucks may find these regulations are not as stringent or well enforced in certain countries. It would be wise though to enforce a universally high standard of health and safety throughout all it's shops to maintain a good global image and ensure all laws are abided by. Also, by not maintaining high standards they will be liable for a large amount of civil cases as it is a legal requirement for them to enable that their staff and customers are safe when they are in their stores.
Monopolies commission
If Starbucks consider expanding their operations further to control an even larger percentage of the market than they already have they will have to consider the possibility of breaking monopolies legislation as they may have a share of the market that is too large. This would mean that they would have unfair advantage over other companies in the same market. This would mean that they could benefit from economies of scale and would also be able to charge prices that were not competitive in the market and get away with it due to the lack of competition. The Competition Commission are in place to try and prevent these situations occurring [e.g. CC (back then the MMC) block BskyB attempted takeover of Manchester United in 1999].
Land use
Starbucks may have to abide by local planning regulations when building shops or altering purchased sites, as certain areas of land may be protected or unsuitable. All matters would be addressed by the local government.
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 3.1.6 Environmental Pollution problems
Starbucks customers create a lot of waste as they often leave the shop with their cup of coffee and then dispose of it in the street. The packaging for this cup must be carefully considered to make it as biologically degradable as possible. Certain other materials can be very harmful to the natural environment.
Planning permissions
Planning permission may not be granted if Starbucks wish to build in an area that could be harmful to the environment. The land may be protected.
Work disposal
Starbucks need to carefully consider the methods in which they dispose of their waste as there are strict laws in most countries to ensure a firm trading in their country disposes of the waste that is created in their business in a specific and efficient way. If they do not follow these laws they may find themselves being sanctioned, which not only affects them financially but also tarnishes the reputation of the brand name, as most of the waste created will bear the logo of Starbucks.
Environmental pressure groups
Starbucks should be aware of the physical and influential power of groups such as Greenpeace and Friends of the Earth. Any violation of animal or environmental rights by a company is usually followed by a swift and attention-drawing protest from one of the groups. Brand image and customer bases are often irreconcilably tarnished due to the actions of these groups.
3.2 Product life cycle 3.2.1 Product Life Cycle Defined Product life-cycle management (or PLCM) is the succession of strategies used by business management as a product goes through its life-cycle. The condition in which a product is sold (advertising, saturation) changes over time and must be managed as it moves through its succession of stages. As of now Starbucks is in the Maturity stage because of their level of success over the past few years and the large amount of income they also earned in the past years. Starbucks doesn’t look like it’s going to be slowing down anytime soon and it is only going to get bigger in time.
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489
3.3 Porters 5 Forces Porter's five forces analysis is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit.
3.3.1 Threat of new competition Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will tend towards zero (perfect competition). The 10
STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 primary deterrents to new entrants into any industry are the barriers to entry. The higher the barriers to entry are within any given industry the smaller the threat of new entrants to that industry. (Porter, 1998, p. 7) Starbucks can experience a loss in both profit and customer. Consumers have a habit of wanting to try new products and services and if it’s cheaper and the quality is better they quickly branch over and this poses a threat for many companies. This is why Starbucks needs to keep their consumers happy by keeping their prices low and product quality at a high standard.
3.3.2 Threat of substitute products or services The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. Note that this should not be confused with competitors' similar products but entirely different ones instead. For example, Competitors like Pepsi and Coca-Cola offered beverages, which had the caffeine inherent in specialty coffee, at significantly lower prices (Quelch, 2006). However, there existed large differences in taste and the demographic makeup of consumers between the two products; thus, consumers were unlikely to directly substitute coffee for caffeinated soft drinks or vice versa. If substitute occurs Starbucks can and will see a decrease in sales, their might still be loyal consumers but if the product offered by the competitor or competitors satisfy consumer wants and needs this can affect Starbucks and may even cause the franchise to be put out of business. This is why Starbucks needs to reinvent itself constantly.
3.3.3 Bargaining power of customers (buyers) The bargaining power of customers is also described as the force of the buyer’s bargaining power is proportional to the ability of buyers to force down prices, bargain for higher-quality products or more services, and pit rival organizations against one another (Porter, 1998 p. 24). In the case of Starbucks customers have a lot of influence over the prices and menu presented by Starbucks. If consumers decide that Starbucks coffees and treats are too expensive and decide to cut back on the amount they consume for the year this will affect the profit and therefore cause a loss for Starbucks as well as cause them to reduce prices which will still affect profit within the organization.
3.3.4 Bargaining power of suppliers The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively 11
STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 high prices for unique resources. The suppliers of Arabica beans were mostly small to medium-sized family owned farms and typically sold their crops to processors through local markets. (Lee, 2007). Primarily, these farms were located in Latin America, the Pacific Rim and East Africa. (Lee, 2007). These farms were numerous and unrelated to one another, with no unionization, giving them very little collective bargaining power. If Starbucks suppliers were to either rise the prices on the beans, cups or anything else they supply to Starbucks in order for Starbucks to make a profit they will have to elevate the prices on menu items and this could cause a problem for consumers. They might see it as paying too much and therefore would cut back or stop buying and this would cause Starbucks great loss. This is why organizations need to keep their suppliers happy in order to keep consumers happy and also to remain successful within the market.
3.3.5 Intensity of competitive rivalry For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Although Starbucks is as successful as it is it can still be affected by any one of these threats of competitive rivalry, this can cause Starbucks to either go out of business in the US or any other country that they operate in or it can do damage to Starbucks in terms of making a good profit. Although Starbucks aren’t really competing with any large competitors there are still those coffee shops that sell the same quality of coffee as Starbucks these are the threats which Starbucks has to prepare for in the long run. Starbucks Competitors are;
Green Mountain Coffee Roasters Coffee Bean and Tea Leaf Costa Coffee (London) Peet's Coffee and Tea Caribou Coffee
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 3.4 Starbucks Critical Success Factors Main aspects of Starbucks critical success factors defined using (Lei decker and Bruno, 1984) key sources are the product, atmosphere, staff and perks. Through achieving these factors companies could insure competitive performance for the organization. Product Taste your own product. The basis of the modern café is the coffee or espresso. Before you do anything else, make sure your coffee taste good. That means trying different beans and learning how to make espresso properly. Serve food, more than just pastries and cookies. You need choices that are delicious but don't require that you hire an expensive chef. Healthy salads, sandwiches, wraps and soups make the difference between keeping your customers in the café. After you are in business for a time, rework your menu to eliminate items that don't sell well. Restructure the menu to feature the best-selling products
Staff Hire conscientious employees with positive attitudes. Of course, they must follow procedures laid out in the company manual. The products must be created in the same manner every time to assure consistency. Customers must feel wanted and well cared for. Be sure to overlap employee work schedules, so there is seamless transfer of staff.
Atmosphere Create a welcoming, relaxed atmosphere. Frequent other cafes or coffee houses and make notes about what you like and don't like. Add a comfortable couch along with bistro-type tables and chairs. Be sure the café is spotless inside and out. Stay open later in the day. Don't close your doors at 2p.m.; stay open until 9 pm and even later on Fridays and Saturdays. Get a liquor license so you can serve wine and specialty beers in the evening. Offer entertainment on the weekends, even if it is just an open-microphone night that costs you no money. Other times, offer gentle music from a stereo system, or satellite radio, that will be enjoyed by all. On the other hand, if there are particular days, such as Sundays, when there is little evening traffic cut hours to reflect the needs of the café. Perks Offer wireless Internet. If you don't offer your customers internet access, you may find you will lose those who check their email or conduct business during their coffee break or lunch. If you are concerned about loafers who sit for four hours using your Wi-Fi, while sipping on the same coffee drink, only offer it for a two-hour stretch unless there is another purchase. Give your frequent customers frequent drink cards. Punch their card every time they purchase a coffee drink. After so many punches, they get one free coffee drink. Offer prepaid gift cards.
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 Task B
4.0 Starbucks Strategic Analysis 4.1 Resources 4.1.1Republic Resource Audit The strategic capability of any company is underpinned by the resources available to it. Practically all resources fall into one of four categories: Physical, Human, Financial or Intellectual capital.
4.1.2 Physical resources The physical resources of Starbucks are the shops that they own, any vehicles they own for transporting goods and all the equipment that is used to create the cup of coffee (or pastry etc). Those resources that are younger and in better condition are deemed more useful to Starbucks. In 2002 Starbucks had 5689 outlets around the world, which at the time was still increasing at a 'breakneck speed' and at the end of the 1990's the company was opening an average 2 stores per day. In January 2004 the company opened their 8000th store (www.Starbucks.com)
4.1.3 Human Resources The human resources are the knowledge, skills and adaptability of the workers at Starbucks. Staff who work to their potential in these areas often become a company's 'most valuable asset'. Schultz, the founder of Starbucks, believes every member of staff plays an equal part in the 'customer experience' regardless of whether they be CEO or waiter. Financial Resources: These are the capital, cash, debtors & creditors, and suppliers of money (e.g. shareholders) of Starbucks. Obviously for Starbucks the less debt they are in, the more positive their resource audit looks. Starbucks have a lot of working capital tied up in the business. Some of this capital includes varieties of whole coffee beans, foodstuffs, teas, coffee mugs, coffee grinders, coffee-making equipment, filters, storage containers and other accessories.
4.1.4 Intellectual capital These are the intangible/immeasurable resources of Starbucks. This is the information captured in brands, patents, customer databases, business systems and relationships with business partners. All these can contain great value and when a business is purchased these values fall under the price-tag marked 'goodwill'. One of the few ways Starbucks can protect this intangible information is to ensure employees sign confidentiality agreements to protect any leaks of knowledge to competitors.
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 4.2 Starbucks Value System The value system is the inter-organisational links that are vital in the creation of the product or service of a company. It follows the production of the service/product from raw material stage right through to the customer purchase. Each instruction for the development of the product is detailed and explained at each stage of the value system. The Value System;
SUPPLIER VALUE CHAINS
FIRM VALUE CHAINS
CHANNEL VALUE CHAINS
BUYER VALUE CHAINS
4.2.1 Suppliers Value Chain
As it is seen from the figure above in value-chain analysis the business activities are divided into two categories: primary activities and support activities. The primary activities directly deal with the creation of products or services, whereas, support activities can be used to obtain or increase competitive edge in the marketplace. 15
STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 4.2.1.1 Support Activities
Infrastructure. Starbucks infrastructure includes a range of general support activities such as “management, planning, finance, accounting, legal support and government relations that are required to support the work of the entire value-chain” (Hitt et al, 2009, p.87). Human Resource Management. The workforce is duly perceived to be the most valuable resource by Starbucks. Accordingly, a wide range of training and development programs are available for them and they are motivated by both, tangible and intangible incentives. Specifically, in UK Starbucks staff is entitled to free drinks during the shift. Technology development. Starbucks relies on technology for cost-saving purposes, as well as, ensuring the consistency of the quality of products and offering a high level of customer experience in general. For instance, with the introduction of computerized coffee roasters the consistent taste of Starbucks coffee was ensured and this has contributed to the level of customer retention for the company. Procurement. This involves purchasing items that are needed for the production of final products or offering services. For Starbucks it would be coffee beans and raw food items, as well as fixed assets such as buildings, machinery etc.
4.2.1.2 Primary activities
Inbound logistics. Starbucks inbound logistics involve company agents choosing coffee beans producers mainly in African continent, communication the standards related to the quality of coffee beans, establishing strategic relationships with suppliers and organizing the supply-chain management . Operations. Starbucks operations are conducted in more than 50 countries in two ways: direct operation of the stores by the company and licensing. Currently there are 8870 companyoperated stores globally, whereas 8139 stores operate on the basis of license (Starbucks Company Profile, online, 2011). Outbound logistics. The outbound logistics for Starbucks has traditionally involved selling its products through its stores without any intermediates. However, starting from recent a range of Starbucks products such as 3-in-1 coffees in sachets are being sold through a set of leading supermarkets. Marketing and Sales. Starbucks does not heavily invest in marketing relying instead on the word-of-mouth achieved through the high quality of products and high level of customer services. However, occasional marketing activities initiated by the company involve sampling of new products that are usually conducted within areas nearby the stores. Service. Providing superior level of customer services is one of the Starbucks’ main objectives and it is driven from the mission statement of the company. Accordingly, the company staffs are encouraged to go to great lengths in order to ensure the high level of customer satisfaction.
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 4.2.2 Firm Value Chain
The 'firm value chain' is the most important to a manager because that is their company, however, a good manager will understand the whole process and how to manage each individual link and relationship to maximise customer value. Managers should also need to learn the whole value system because most of the cost and value creation occurs in the supply and distribution chains.
4.2.3 Channel Value Chain
The 'channel value chain' deals with the outlets Starbucks uses to enable consumers to purchase their product. Starbucks should know everything that is sold under their banner and also the sales methods used to customers. They should know the location of every store along with its surrounding area so it can generate an idea of the surrounding customer demographics, e.g. students, young professionals, etc. Starbucks should know in detail all information regarding any business partners they are involved with, be they retail estate agents - used to obtain premium retailing sites -or foreign suppliers- who can take advantage of market conditions.
4.2.4 Buyers Value Chain
Customer value chains' illustrate how value is added by the end buyers of the product. Customer value can be increased by Starbucks by ensuring the store environment is how it should be, the coffee is consistently up to a high standard, the menu is broad and varied enough to cater for most tastes, value for money is achieved and most of all the service is exemplary. Through training and research and development all these factors are achievable and maintainable for Starbucks and should ensure a bright and prosperous future.
4.3 Starbucks SWOT Every organization has some strength. In some cases this is obvious, for example, dominant market shares. In other cases, it is a matter of perspective, for instance, a company is very small and hence has the ability to move fast. It is important to note that companies that are in a bad position also have strengths. Whether these strengths are adequate is an issue for analysis. Every organization also has some weakness. In some cases, this is obvious; say for example, a stricter regulatory environment. In other cases, it is a matter of perspective, for example, a company has 99% market share and is open to attack from every new player. It is important to note that companies that are extremely competent in what they do, also have weaknesses. How badly these weaknesses will affect the company is a matter of analysis. All organizations have some opportunities that they can gain from. These could range from diversification to sale of operations. Identifying hidden opportunities is the mark of an astute analyst.
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 No organization is immune to threats. These could be internal, such as falling productivity. Or they could be external, such as lower priced international Competition. 4.3.1 Strength -
Excellent product diversification: coffee, baked goods, cds, and etc Established logo, developed brand, copyrights, trademarks, websites, and patents Company Operated Retail Stores, International Stores High Visibility Locations to attract customers. Valued and motivated employees: low employee turnover Good Relationship with coffee suppliers Not a Franchise Coffee industry market-leader Globalised
4.3.2 Weakness -
Ever increasing number of competitors in growing market Clustering of too many shops in a small area: self cannibalization Cross Functional Management- Price: expensive
4.3.3 Opportunity -
Expansion into retail operations Technological advances Finding new distribution channels, i.e. delivery Launch new products Further international market expansion Asia etc. Distribution Agreements- Brand Extension
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Competition: restaurants, street carts, supermarkets, other coffee shops, other caffeine products.- US Coffee Saturated Market by 2004 Coffee price volatility in developing countries Poorly treated farmers struggling to make a living in those countries supplying thecoffee beans negative publicity. Consumer trends toward more healthy ways and away from caffeine
4.3.4 Threat
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 Task C
5.0 Strategic Fit Analysis 5.1 Strategic fit At present Starbucks is the number one leading in the coffee industry, the amount of income generated by Starbucks with in the US alone is said to be 4.8 billion plus cups of coffee per year. Starbucks value chain helps the company to match the right products and solutions to consumer’s specific needs. 5.2 Business Activities Starbucks currently employs strategic goals that can be broken down into four major categories. They are focused on improving the current state of the U.S. business, re-igniting the emotional attachment with customers and making foundational changes for the long term. Starbucks also introduced the first phase of a Starbucks Card Rewards program, rewarding registered cardholders and providing unique new benefits when using their cards in Starbucks stores. The launch of MyStarbucksIdea.com, Starbucks first online community which takes the Starbucks experience outside the store and enables customers to play a role in shaping the company’s future. Then leading the company’s’ strategy and development efforts and finally concentrating on worldwide corporate marketing activities: 5.3 SWOT Analysis Strengths Starbucks Corporation is a very profitable organization, earning in excess of $600 million in 2004.The company generated revenue of more than $5000 million in the same year. It is a global coffee brand built upon a reputation for fine products and services. It has almost 9000 cafes in almost 40 countries
Starbucks was one of the Fortune Top 100 Companies to Work For in 2005. The company is a respected employer that values its workforce. The organization has strong ethical values and an ethical mission statement as follows, 'Starbucks is committed to a role of environmental leadership in all facets of our business”
Weaknesses Starbucks has a reputation for new product development and creativity. However, they remain vulnerable to the possibility that their innovation may falter over time. The organization has a strong presence in the United States of America with more than three quarters of their cafes located in the home market. It is often argued that they need to look for a portfolio of countries, in order to spread business risk. The organization is defendant on a main competitive advantage, the retail of coffee. This could make them slow to diversify into other sectors should the need arise.
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 Opportunities Starbucks are very good at taking advantage of opportunities. In 2004 the company created a CD-burning service in their Santa Monica (California USA) cafe with Hewlett Packard, where customers create their own music CD. New products and services that can be retailed in their cafes, such as Fair Trade products. The company has the opportunity to expand its global operations. New markets for coffee such as India and the Pacific Rim nations are beginning to emerge. Co-branding with other manufacturers of food and drink, and brand franchising to manufacturers of other goods and services both have potential.
Threats
Who knows if the market for coffee will grow and stay in favor with customers, or whether another type of beverage or leisure activity will replace coffee in the future? Starbucks are exposed to rises in the cost of coffee and dairy products. Since its conception in Pike Place Market, Seattle in 1971, Starbucks' success has led to the market entry of many competitors and copycat brands that pose potential threats
5.4 Future Strategic Options Having analysed the external and internal forces of Starbucks it is now possible to generate three possible future strategic decisions. These are Diversification, Mergers and Expansion.
5.5 Recommended Option On the basis of all the research and evidence consulted for these three strategic decisions, the researcher inclined to suggest Expansion would be the most profitable and successful venture to undertake. It also seems this decision has the most undiscovered potential for Starbucks to exploit. The prospects for this plan look good and, at the end of the day, Starbucks are a strong brand, and strength of brand is often the key factor in whether a growth strategy is a success or failure.
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489
6.0 Conclusion Overall, Starbucks is a strong corporation that is in a growing industry. The researcher discovered that Starbucks is taking a strong stand in the coffee industry and initiating promising strategic and environmental goals. It is also securing coffee supplies from India as well as China in order to keep its costs under control. Starbucks may have started from the humble beginnings of three friends that liked high quality, premium roasted coffee it has since turned into a leader in the coffee industry. This is due largely through the efforts and vision of Howard Schultz. His success and leadership of the industry has been compared to what Ray Kroc did to McDonald’s and the fast food industry. Today Starbucks serves as a model that many other successful rivals try to emulate or improve on. Starbucks is powered by their continual product innovation, customer service aptitude, ability to expand globally, and successfully select locations. Coffee and/or tea are consumed globally by most of the population. This coupled with the forces that drive change in the industry result in a net positive force that makes the industry attractive to businesses. An analysis utilizing Porter’s five-forces model outlining competitive pressures will show that the coffee industry is able to provide for attractive profits by firms in the industry. The overall competitive pressures are moderate and firms can be successful but they will have to be efficient and effective in the strategies that they undertake or they risk being removed from the industry by consumers. Starbucks enjoys a favorable position in the strategic group that it is in. Starbucks has a high priced, high quality product with a wide breadth of product offerings. They are the only firm in this position. Most other firms offer moderate or few product offerings at a lower price point. Starbucks has been able to build its brand image and market power while in this position which has yielded annual profits. As Starbucks is in the strategic group position of power, the expected moves of rivals are all designed to keep up with Starbucks. No firms have been able to successfully produce new products that meet market demand in as convenient locations as Starbucks has been able to offer. Starbucks also enjoys critical know how and experience in the key success factors that the coffee industry demands of successful firms. Starbucks keenly utilizes technology to enhance customer experience, selects convenient locations, innovates products that are in demand and profitable, and continually looks to conquer new markets and market share ahead of rivals. The Starbucks mission is to nurture the human spirit of everyone around the globe by offering the finest coffee, tea, and food products in a friendly and inviting atmosphere that serves as a home away from home. Starbucks does this through a decentralized leadership style that emphasizes lower level decision making and information sharing to promote product innovation and customer service. The customer service is a key component to the organizational culture of rewarding and treating employees as partners in the business. The structure of Starbucks is one of geographical business units that allow Starbucks to enter into any market and achieve the think local, act local expansion strategy.
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489 Starbucks is able to leverage its resources, tangible and intangible, to create competitive capabilities and core competencies that allow for strategy execution. Starbucks achieves this by utilizing its human capital and expertise to constantly strive for excellence in product innovation. Furthermore, Starbucks is able to internally fund strategic initiatives from free cash flow produced from sound financial performance. Starbucks’s financial ratios have increased over the last three years due partially to a recovered general economy and partially to the return of Howard Schultz to the leadership position in the company. These financial ratio increases have positioned Starbucks in a greater financial situation. The SWOT analysis of Starbucks reveals that the strength of Starbucks lies within their strong financial performance based on their retail store operations. The weakness of Starbucks is an over reliance on a saturated U.S. market with a declining market share as a result from intensified rivalry in the marketplace. This weakness can be overcome by utilizing Starbucks’s strong finances to realize the present opportunities to expand into emerging markets. To realize the present opportunities Starbucks will need to implement and execute two critical objectives. The first is to continue to be an industry leader in product innovation. This will serve to further differentiate Starbucks from rivals and will also open new customer bases for the new products. The second objective will be to expand globally into emerging economic markets using a franchising approach. Starbucks will be able to create revenue streams via franchise fees while the markets mature and retail revenues increase. By implementing both of these strategic objectives Starbucks will continue to be the leader in the coffee industry and further enhance its brand power and market position.
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489
7.0 Recommendation http://online.wsj.com/article/SB119508847922393547.html http://online.wsj.com/article_print?SB118851606386114020.html Adamy, J. (2006, November 29). Different Brew: Eyeing a Billion Tea Drinkers, Starbucks Pours It On in China; Its Big Challenge: Creating A New Taste for Coffee, And Charging Top Prices; Wooing the 'Little Emperors'. Wall Street Journal, p. A1. Adamy, J. (2008, January 12). Starbucks Shifts More Executives, from Wall Street Journal: A.L. Van Houtte. (2005). Van Houtte-fine coffee, filtered water, quality teas, from About Van Houtte: http://www.vanhoutte.com/Adamy, J. (2007, November 15). At Starbucks, Too Many, Too Quick?. from Wall Street Journal:
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STRATEGIC MANAGEMENT ANALYSIS SID# 1031489
8.0 Bibliography Chambers, I. (1997) Business Studies (7th ed.) Causeway Press Genus A (1996) Flexible Strategic Management (2nd ed) Chapman & Hall Johnson G Scholes K (2002) Exploring Corporate Strategy (6th ed) Johnson, G., Richard, W., Kevan, S. (2011) Exploring Strategy (9th ed)
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