Business Management System of Starbucks - Essay Example

?Table of contents 0 Introduction 2 1 Task A: Analysis of Starbucks external environment 2 2 PESTEL analysis 2 3 Porter’s five forces model 41.4 Critical success factors 4 2.0 Task B: Analysis of Starbucks strategic capability 5 2.1 Strategic capability: Threshold resources and competencies 5 2.2 Physical resources 5 2.3 Financial resources 6 2.4 Value chain and network analysis 6 2.5 Social responsibility 7 3.0 Task C: Strategic fit analysis 7 3.1 Strengths and opportunities for Starbucks 7 3.2 Weaknesses and threats of Starbucks 8 3.3 How Starbucks is matching the CSF identified in task A 8 4.0 Conclusion and recommendations 9 References 10 Table 1: Strengths and opportunities for Starbucks 7 Table 2 Weaknesses and threats of Starbucks 8 Appendix 1: PESTEL analysis for Starbucks 11 Appendix 2: Porter’s five forces model 12 1.0 Introduction This paper seeks to evaluate Starbucks strategic fit in the market it is operating in. According to its FY11 Annual Report, Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world, it operates in more than 50 Countries and it was formed in 1985. Information obtained from http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-irhome, also posits to the effect that “Starbucks purchases and roasts high-quality whole bean coffees and sells them, along with fresh, rich-brewed coffees, Italian-style espresso beverages, cold blended beverages, a variety of complementary food items, a selection of premium teas, and beverage-related accessories and equipment, primarily through company-operated retail stores.” The company also sells coffee products and tea through other channels like licensed retail stores. According to information obtained from its official website, Starbucks was established in 1985 and its operations are mainly guided by its mission statement: “To inspire and nurture the human spirit—one person, one cup, and one neighbourhood at a time.” The company also strives to be the world’s leader in production of fine coffee. Its success as the world leader in the coffee industry can be attributed to the differentiation strategy it uses. This report will specifically focus on the United States Segment where the company has its own stores as well as licensed stores. Starbucks is very popular in the US and of notable concern is the fact that its operations are also shaped by trade practices as well as regulations such as North American Free Trade Agreement (NAFTA).The economic forces in the US also shape the operations of the company. However, the US operating segment contributed 69% of total net revenues for the fiscal year 2011. 1.1 Task A: ANALYSIS OF STARBUCKS’ EXTERNAL ENVIRONMENT This section of the report critically analyses Starbucks’ external environment. PESTEL analysis will be used to analyse the macro environment while Porter’s five forces model will be used to analyse the micro environment. This part of the paper will also identify the opportunities and threats that exist in the external market. 1.2 PESTEL Analysis There are various external factors that shape the operations of Starbucks and PESTEL is an acronym for political, economic, social, technological, environmental as well as legal factors impacting on the operations of the organisation and this too is going to be used to carry out the external environmental analysis. The table in index 1 shows the external factors that impact on the operations of the above mentioned company. Starbucks FY11 Annual Report (2011) shows that the company managed to raise the highest amount of revenue of $11, 7 billion from its operations. This is the highest amount of revenue to be generated by the company after the global economic recession that was witnessed in the US around 2007-2009. The success of the company can be attributed to the external factors that are obtaining in the environment where the company operates. As shown in appendix 1, political stability in the US plays a pivotal role in the success of the company since it is in a position to attain its set goals. On the other hand, it can be seen that the company is also affected by various economic factors in its operations. The economy of the US as a whole has a significant impact on the operations of the company as a whole. Having experienced the global economic recession in 2007 to around 2009, it can be seen that the US economy is now stabilizing and this has contributed to the growth of revenue generated in the company’s 2011 fiscal year since it generated revenue amounting to about $11 billion. The other economic factor that can impact on the company is related to pricing strategy of the raw materials which may be volatile as a result of many factors. Thus the main threat to Starbucks the price of coffee is subject to significant volatility. According to its Annual Report (2011), Starbucks posits to the effect that supply and price can be affected by multiple factors in the producing countries, including weather, political and economic conditions. These factors can result in an increase of the products which can affect the performance of the product on the market. If the price of the raw materials increases as a result of adverse impacts of weather, then the suppliers may be forced to increase the price of the coffee. This triggers an increase of the price along the supply chain of the products. At the end of the day, some customers may end up failing to visit coffee shops but would prefer to prefer their own beverages at home which may be cheaper. There are many social factors as shown in appendix one which affect the operations of the company. The US is comprised of people who come from different social backgrounds and these factors influence their behaviour towards the products offered by the company. For instance, some customers prefer to visit drive in shops while other prefer to enjoy their coffee while sitting. The company harnesses its operations on the concept of social responsibility. Basically, the concept of social responsibility maintains that businesses are part of the larger society in which they operate and are accountable to the society for their actions (Kotler, 1999). This strategy gives the company an added advantage in its operations. The major opportunity of the company is based on its business strategy that is customer oriented. The company is committed to offer supreme value in terms of the products it offers to the customers. Technological and environmental factors also influence the operations of the company as shown in appendix 1. The company relies heavily on new information and communication technology across different sectors. The company’s legal obligations play a very important role in the operations of the company which improves its viability. The company is also committed to promote a clean environment by minimising the levels of carbon footprint through its operations. This is a major opportunity since the targeted people have trust in the company’s operations. The business strategy used by the company is a major opportunity since it is designed to satisfy the interests of the stakeholders. 1.3 Porter’s five forces model Porter’s five forces model is “an outside business strategy tool that is used to make an analysis of how attractive an industry is” (http://www.12manage.com/methods_porter_five_forces.html, N.D). This business analysis tool is also going to be used to illustrate the degree of attractiveness of the coffee industry. The table shown in appendix 2 illustrates Porter’s five forces model with reference to the operations of Starbucks. As shown in index two below, it can be seen that there are many threats that can affect the viability of Starbucks. It can be seen that there are low barriers to entry in this industry which entails that there are more players who can actively participate in this sector. The aspect of competition cannot be ignored by Starbucks since it is likely to impact on its operations. This is a major threat to the company since it means that the organization will be competing for the same customers with other actors in this field. The existence of substitutes in this sector is another threat that can affect the viability of the company in its operations. However, as shown in appendix 2, the major opportunity for Starbucks is that the company has an opportunity to control the prices as required by the CAFE regulation which compels organizations to offer prices to the growers. To a certain extent, it can be seen that the price of coffee is fixed so there are no fears of unprecedented price changes that can negatively impact the viability of the company. 1.4 Critical success factors The major critical success factors of the company include the following: The company has managed to create quality brands that are valued by the customers. The company has successfully created consistent positive consumer experience The company also leverages on its corporate social responsibility programs. These factors have significantly contributed to the success of the company in 2011 and beyond. 2.0 Task B: ANALYSIS OF STARBUCKS STRATEGIC CAPABILITY According to Porter (1996), “a strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” Therefore, this section of the report seeks to evaluate the strategic capabilities of the company in the coffee industry. 2.1 Strategic capability: Threshold resources and competences Human resources The Starbucks CEO Howard Schultz is a great asset to the company as a whole. Since his elevation to the post of CEO in 1987, Schultz has managed to implement various strategies that have significantly contributed to the performance of the company. The organization has been characterised by steady growth as a result of the intellectual capability of Schultz. Schultz also uses innovative ideas that have also played a major role in improving the performance of the company. The human resources capital is also greatly valued in the company. According to the FY11 Annual Report (2011), the company has programs that are designed to offer ongoing training to the employees so that they can improve in their operations. The company has more than 160 000 employees in the US. For instance, customer care is highly valued which is a major strength for the company since it is in a better position to appeal to the interests of the customers. The employees are also trained to treat the customers as kings and this strategy has significantly contributed to the growth and success of the company. This strategy also significantly contributes to the company’s competencies with regards to satisfying the needs of the consumers. 2.2 Physical resources Starbucks is the world’s leader in premier roaster and retailer of specialty coffees, and the organization has 6, 705 company operated stores and 4, 082 licences stores in the US. This brings us to the total of 10, 787 stores operated by Starbucks in the US. The stores are designed in such a way that they are elegant which is testimony to the company’s commitment to providing quality services to all customers from all walks of life in the US. The US based stores have contributed about 69 % of the total net revenue in its 2011 fiscal year. The company has its own training and development centres across the US that are designed to foster employee development and training in their work so that they can improve their competencies in their operations. 2.3 Financial resources An analysis of financial statement of the company for 2011 shows that it has a steady financial background that can sustain its operations in a profitable way. According to its 2011 annual Report, the company managed to generate revenue amounting to $11 billion. The financial statement of the company shows that it has witnessed a steady growth in 2010 and 2011 fiscal years. The company is endowed with numerous financial resources that have positively contributed to its competence in the coffee industry. There are also indications from the financial statement that the company is poised for growth since it has managed to record a positive growth in terms of financial resources generated from its operations. 2.4 Value chain and network analysis McCarthy & Perreault, (1996) suggest that the aspect of maintaining value chain of the products offered by the company is a source of competitive advantage given that the product will be unique in the market. Starbucks has managed to leverage on this strategy of maintaining value chain in the products it offers. These products are unmatched by other products that are also offered by other actors in this particular industry. The company has managed to build a strong brand name under the leadership of Schultz. According to its 2011 Annual Report, the company’s “objective is to be the leading retailer and brand of coffee in each of its target markets by selling the finest quality coffee and related products, and by providing each customer a unique Starbucks Experience.” Value is also created through the marketing strategy that is used by the company which is customer oriented. The customers continue to buy the product as a result of the good treatment they get from the company. Once the customers have experienced the good aspects of the product, they will continue buying it which has significantly contributed to value creation. The company also has a strategy that is specifically designed to ensure that the company has a good network with its suppliers, customers as well as other stakeholders that are impacted by its operations. The employees in the company are trained so that they can give timely response to the needs and interests of the customers. Starbucks uses a carefully designed website that enables it to communicate with all stakeholders in its operations. All the customer interests are given priority since these people form the backbone of the company. The employees are encouraged to interact effectively with all stakeholders in a bid to create a long lasting relationship with them. 2.5 Social responsibility As noted above, the company also leverages on the concept of social responsibility and this has greatly helped it to appeal to the interests of many people in different places where it operates. Kotler (1999) posits to the effect that the concept of social responsibility state that the company should be in a position to plough back to the communities it will be operating in as a sign of showing good will to the people affected by its operations. The company has committed itself to “Create Jobs for USA and it has inspired Starbucks customers, partners and concerned citizens to support community business lending. The company has also embarked on the Guatemala Education Initiative and has collaborated with Save the Children to help farmers‘ children and schools,” (Annual Report 2011, p. 1). This stance has boosted trust among the people in different areas where Starbucks operates in throughout the US. The company also leverages on the strategy of ethical conduct in its operations. For instance, the company ethically sourced more than 80% of coffee through C.A.F.E. Practices (Annual Report, 2011). Trust is created through good practices that are used by the company in carrying out its business. 3.0 Task C: STRATEGIC FIT ANALYSIS 3.1 Strengths and opportunities of Starbucks The main strength of Starbucks is that it has a strong brand that is valued by most customers. This is a major strength since it has contributed to a strong customer base that is currently being enjoyed by the company. The other strength of the company is that it is comprised of a dedicated workforce that is committed to satisfy the needs and interests of the customers. The business strategy that is used by the company is oriented towards the customers where customer care is given the priority it deserves by the company. These strengths correspond well with the opportunities that are available in the market which is an advantage to the company. This is a major opportunity since the company is in a position to attract more customers who can in turn contribute to the growth of the organization. The strengths and opportunities of the company are summarised in the table below. Table 1: strengths and opportunities of Starbucks Strengths Strong brand name Opportunities More customers are likely to be attracted to the company The company has a dedicated and experienced workforce The company has the opportunity to grow since its business model is customer oriented. This industry is poised for growth. 3.2 Weaknesses and threats of Starbucks Whilst the strengths of the company outweigh the weaknesses, it can be seen that Starbucks has some weaknesses in its operations. Under the CAFE agreement, it can be seen that the company does not have the power to control the price of raw coffee from its producers. Due to this price volatility, it can be noted that adverse prices in the raw products can also affect its operations in the long run since the prices of the end products may not be favourable to the customers. The other threat that is faced by the company is that it operates in an environment that is characterised by stiff competition. Other players can reduce their prices in order to attract many customers. These forces are summarised in the table below. Table 2: Weaknesses and threats of Starbucks Weaknesses Threats The company does not have control of prices for raw coffee Some companies may lower their prices which can trigger intense competition. 3.3 How Starbucks is matching the CSF identified in task A The major critical success factors of the company are listed below and a brief explanation is going to be given in order to show the extent to which the company is matching these. The company has managed to create quality brands that are valued by the customers. This critical success factor is matched by Starbucks’ operations since it has managed to maintain quality brands to its customers. The company has successfully created consistent positive consumer experience. This fit is matched given that the company has measures in place that are designed to attract more customers in its operations. The company also leverages on its corporate social responsibility programs. It can be seen that many communities have benefited from this initiative as explained above. 4.0 Conclusion and recommendations Over and above, it can be seen that the success of Starbucks in the coffee industry can be attributed to its unique business model that is customer oriented. The company leverages its operations on the aspect of brand value. However, it can be seen that the customer tastes are constantly changing hence there is need for the company to keep pace with these changes. Therefore, it is recommended that the company should also use the strategy of product development in its operations. The company should be able to satisfy the constantly changing tastes of the customers through product development. This can be done through conducting market research so as to be in a position to establish the changing tastes of the customers. (3000 words) References Kotler, P 1999, Kotler on Marketing: How to create, win and dominate Markets, Free Press, London. McCarthy, JE & Perreault, WD, 1996, Basic Marketing, International student Edition, 10th Edition, Irwin, Boston North American Free Trade Agreement (N.D.) Viewed 8 December, 2012 from: Starbucks Corporation Fiscal 2009 Annual Starbucks Corporation Fiscal FY11 (2011) Annual Report Porter, ‘What is strategy?’, Harvard Business Review, 1996, November– December, p. 60. Porter, ME 1985, Competitive Advantage; Creating and Sustaining Superior Performance, The Free Press, New York: NY. Porter’s five forces, 2012, viewed 8 December, 2012 . Starbucks investor relations, 2012, Investor overview. Viewed 08 December 2012 from: . Strydom, J, 2004, Marketing, 3rd Edition, Juta & Co Ltd, CT. Appendix 1 PESTEL analysis for Starbucks Political factors -political stability in the US has significantly contributed to the positive performance of the company. The company is also expected to operate within the political framework obtaining in this country. Economic Factors - price of coffee is subject to significant volatility. According to its Annual Report (2011), supply and price can be affected by multiple factors in the producing countries, including weather, political and economic conditions. Social factors -Other customers prefer shops with seat while others prefer drive inns. Stakeholder interests are given priority by the company Technological factors -the company has improved its technology especially in coffee making machines. Environmental factors -Starbucks has partnered with Conservation International’s Center for Environmental Leadership in a bid to support environmentally sustainable best practices with regards to coffee growing. Measures are being put in place to avoid activities that are detrimental to the environment. Legal factors -the legal regulation known as Fair Trade Certified Coffee compels Starbucks to engage in fair practices that are designed to benefit the community coffee growers. The legal requirement compels the company to offer fair prices to the coffee growers and it emphasises on the need to promote fair labour practices. . Appendix 2: Porter’s five forces model Entry of competitors The coffee industry is not capital intensive like other business ventures hence there are high chances of penetration by other competitors. (HIGH) Threat of substitute There are quite a number of substitutes since there are different actors in this industry. (HIGH) Bargaining Powers Of Buyers Buyers have an opportunity to buy preferred products (HIGH) Bargaining powers of suppliers - CAFE determines the price of coffee (LOW) Rivalry among the existing players - Rivalry intense since there are many players in this industry (HIGH) Read More