Strategic Management of Starbucks - Essay Example

Table of contents 0 Introduction 2 2.0 Task A: Market analysis for Starbucks 2 2 PESTEL analysis for Starbucks 2 2.2Porter’s five forces model 4 3.0 Task B: Strategic analysis for Starbucks 4 3.1 Human resources 5 3.2 Financial resources 5 3.3 Physical resources 5 3.4 Value chain and network analysis 6 3.5 Corporate social responsibility 6 4.0 Task C: Strategic fit analysis for Starbucks 7 5.0 Conclusion 9 References 10 Table 1: Porter’s five forces model 4 Appendix 1: PESTEL analysis for Starbucks 11 1.0 Introduction The report seeks to evaluate the strategic fit analysis for Starbucks with a focus on its operations in the US. The paper starts by outlining a brief history of Starbucks and this is followed by an outline of its current position and strategy. Initially found in 1971 in Seattle by three academic colleagues, Starbucks became a force to reckon with in the coffee industry in 1987 when Howard Schultz acquired the company and became the first CEO who has developed it to the stage it is right now. According to its FY11 Annual Report, Starbucks is the premier roaster of coffee, marketer and retailer of special coffee around the world and it operates in more than 50 Countries. Information obtained from its official website shows that the company is guided by its cornerstone value which is to “build a company with a soul.” The operations of the company are shaped by its mission statement which is: “To inspire and nurture the human spirit—one person, one cup, and one neighbourhood at a time.” Broadly speaking, Starbucks strives to be “a purveyor of fine coffees in the world while maintaining uncompromising principles.” The company seeks to differentiate itself from other competitors in the coffee industry through provision of finest coffees to the customers. In actual fact, it can be observed that the success of the company can be attributed to its differentiation strategy. This report mainly focuses on the US segment since this company is very popular in this country. It operates its own stores as well as licensed stores. The FY11 Annual report states that the US segment of the company contributed about 69 % of the total revenue raised and this is the reason why this paper focuses on analysing the strategic fit of this particular company in the US. Regulations such as North American Free Trade Agreement (NAFTA) however have a bearing on the operations of this company. 2.0 Task A: Market environment analysis for Starbucks In order to analyse the macro environment of Starbucks, PESTEL analysis will be utilized while Porter’s five forces model will specifically focus on analysing the microenvironment of the organization. 2.1 PESTEL Analysis There are various external factors that shape the operations of Starbucks and PESTEL stands for political, economic, social, technological, environmental as well as legal factors that impact the operations of the organization and these characterize its external environment in which it has little control of (Armstrong & Kotler, 2004). Appendix 1 at the end of the report summarises the external environmental factors that affect the operations of Starbucks in the US.according to its Annual Report (2011-2012), Starbucks generated revenue amounting to $11, 7 billion which shows that the company is operating effectively. There is political stability in the US and this has positively contributed to the success of the organization. However, there are certain economic factors that have a bearing on the performance of the company in the US. The stability of the economy in the US has significantly improved the operations of Starbucks which was not spared from the global economic recession that was witnessed from around 2005 to 2009, (FY11 Annual Report, 2011). Pricing of raw coffee is subject to volatility and this is one major economic factor that can affect the organization in its operations. The raw materials are sourced from other countries and their prices can be impacted by different factors which can also affect the performance of the final products on the market since the company can be forced to increase its prices if the market prices from the suppliers have been increased. Price increases along the supply chain can affect the price of the final product which can negatively affect the customers. The US is a multicultural country and it is comprised of people who come from diverse backgrounds. This impacts on their behaviour towards coffee products since some of them prefer to visit drive in coffee shops while others prefer to relax in luxurious coffee shops. All these factors significantly help the company to shape its strategies in the US. The company is also guided by the aspect of social responsibility which states that the company is part of the larger society it operates in hence it should plough back to the people affected by its operations (Kotler, 1999). This strategy has given the company a competitive advantage over other rival players. The company is also impacted by technological factors such as the use of new information communication technology. The bulk of the company’s business is conducted online and this has also contributed to the success of the organization. The company is also affected by environmental laws in the US which are supposed to be upheld. The company is also compelled to uphold ethical principles so as to make sure that that it implements ethical sourcing in its raw materials. There are legal regulations that are supposed to be observed by the company in its operations. For instance, The Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq. ("FCPA"), impacts the operations of the company since it is not allowed to solicit for bribes in its procurement of raw materials (US department of Justice, N.D). This piece of legislation makes it unlawful for certain classes of persons and entities to make payments to foreign government officials to gain favors related to their business. 2.2 Porter’s five forces model Porter’s five forces model is mainly concerned with analysing the attractiveness of the industry (Kotler, 1999). The table below summarises the micro environmental factors that affect the operations of Starbucks. Table 1: Porter’s five forces model Entry of competitors There are high chances of entry of competitors given that the coffee industry is not capital intensive. Threat of substitute There are many substitutes due to the fact that this particular industry is characterised by many actors. (HIGH) Bargaining Powers Of Buyers Bargaining powers of buyers is high since they have an opportunity to buy preferred products. Bargaining powers of suppliers - CAFE is mainly there to determine the price of the raw materials (LOW) Rivalry among the existing players - Rivalry is intense since there are many actors in this particular industry. There are no barriers to entry as a result of the fact that the coffee industry is not capital intensive like other industries. There are many competitors in this particular sector which entails that Starbucks is competing for customers with other actors in this particular field. As required by CAFE, the company is in a position to control the prices of the raw materials which is an added advantage to the company. In this case, the price of coffee is fixed which is an added advantage to the company. 3.0 Task B: ANALYSIS OF STARBUCKS STRATEGIC CAPABILITY This section of the paper looks at the threshold and unique resources of Starbucks and its core capabilities/competencies. 3.1 Human resources Since his elevation to the position of CEO, Howard Schultz has proved to be the greatest asset to the company as a whole. His leadership policies are oriented towards the needs and interests of the employees as well as other stakeholders who have a significant stake in the company. Schultz’s intellectual capacity has significantly contributed to the performance of the organization mainly due to his innovative ideas that are geared towards the improvement of employee performance. The company has programs that are designed to improve the performance of the employees and there are also programs that are specially dedicated to motivate the employees (FY11 Annual Report, 2011).employees are constantly trained so that they keep pace with the changes that may be taking place in the environment in which they operate. In the US alone, the company has more than 160 000 workers. These workers are trained to be in a position to treat their customers as valuable assets. As such, the human resources capital is the major contributor to the success of the company in the US. 3.2 Financial resources The other core competent for Starbucks is related to its financial resources. Its annual report for 2011 and 2012 shows that the company has a steady flow of income and it also has a sound financial background. The annual report shows that the company managed to generate about $11 billion during the 2011/2 fiscal years. This is a healthy financial position that can ensure the viability of the organization. The company is likely to continue growing as a result of the fact that it has a strong financial background which is one of its main capabilities. The viability of the company also depends with the number of customers it has. It is widely believed that retaining existing customers in the organisation is quite easy compared to a situation where a company seeks to attract new customers to its products. The strong customer base has helped the organization to create a fortune in terms of its financial base. 3.3 Physical resources Starbucks is regarded as the largest retailer of special coffee and it has 6, 705 company operated stores and 4, 082 licensed stores in the US alone. All in all, the company has 10, 787 stores in the US. This puts it on top of the industry in the US since there is no any other competitor with such a large number of company operated stores. The stores are also designed in such a way that they attract many customers since they are so beautiful. According to the company’s annual reports, the US stores have contributed 69 % of the total revenue generated by the company during the 2011/2 fiscal years. The other advantage is that the company has its own physical buildings that are specifically meant to provide training facilities for the employees so that they can improve their performance. 3.4 Value chain and network analysis Kotler (1999) posits to the effect that maintaining value of the products is a major competitive advantage for the company. For instance, Starbucks offers unique products in the market and it has managed to maintain unique and valuable products in the market which have significantly contributed to its success. The advantage of offering valuable products is that they are often unmatched by other products found in the market. Schultz has put various measures in place that are meant to ensure that the company remains a leader in the coffee industry. Starbuck has managed to build a strong brand name under Shultz and it strives to sell the best coffee to the customers. The marketing strategy used by the company is customer oriented and this helps to attract more customers who continue to buy the products offered by the organization. Value is also created through the marketing strategy that is used by the company which is customer oriented. The customers are compelled to continue buying the products once they have tasted their great taste. Value is also created through establishing a good network with the suppliers. The needs of the customers are given priority and this strategy has significantly helped in creating value for the company. Thus, the needs of the customers are treated with the priority they deserve and this has helped the company to forge a good relationship with them. Value is also achieved through a careful network analysis of the supply chain of the raw materials as well as finished products. The company strives to maintain quality and it practices ethical sourcing of its raw materials. This helps it to maintain value throughout the supply chain of the end products that are distributed to different customers. The company has a clear network with its suppliers and this helps it to operate efficiently. 3.5 Corporate Social responsibility (CSR) A company that ploughs back to the society in which it is operating stands better chances of succeeding in its operations as postulated by the CSR concept. A company that is socially responsible in its operations is likely to create trust among the targeted people who are affected by its operations and this is likely to improve its viability. In this case, it can be seen that Starbucks is committed to create jobs in the US which can go a long way in addressing the problem of unemployment in this country. According to its Annual Report (2011/2) Starbucks has also embarked on the Guatemala Education Initiative and has collaborated with Save the Children to help farmers‘ children and schools to benefit from its operations rather than just focusing on reaping profits from its operations. The company observes ethical considerations in its operations given that it ethically sources its raw materials through C.A.F.E. Practices (Annual Report, 2011/2). This has helped the company to create trust with its stakeholders since it uses ethical practices in its operations. A company that has created trust among the consumers is likely to gain a large market share since they will be more interested in getting value for their money. 4.0 Task C: STRATEGIC FIT ANALYSIS for Starbucks Strengths Powerful brand name- The company has a strong brand name that has significantly helped it to attract a lot of customers. Starbucks is a force to reckon with in the coffee industry given that it has differentiated its operations from other players in this sector. Starbucks offers unmatched products and these help it to attract as many customers as possible. Skilled employees- the other strength of Starbucks is that it is comprised of skilled employees who are customer focused. These employees are mainly concerned with fulfilling the needs and interests of the customers and this is one of the reasons why the customers prefer this brand. The employees are constantly trained so that they can meet the customer expectations. In most cases, the consumers are more interested in the service they get from the employers given that coffee is regarded as luxury in some sectors of the society. Some people can simply prefer to prefer their own beverage in the comfort of their homes. Strong financial base- The financial statement of the company shows that it has a strong financial base. This helps it to operate viably even during turbulent periods that are characterised by instability. The effectiveness of the company mainly depends on its financial status as well as the customer base. Opportunities High chances of attracting customers as a result of a strong brand name- this is a major opportunity for the company since it has a strong brand name and in a position to attract more customers. This can help it to continue growing which can improve its operations. The company is poised for growth since this industry is still growing- the industry is still growing and this is a major opportunity for the company to grow. The company can also harness new information and communication technology to improve its operations. According to its official website, the bulk of business is carried online where the marketers directly communicate with the customers. Weaknesses and threats of Starbucks Weaknesses Less power to control the price of raw materials- under the CAFE agreement, it can be observed that the company has little power to control the prices of the raw materials that are used in the production of coffee. Due to adverse impacts such as bad weather or any other political situation, it can be seen that the company may not be in a position to control these forces obtaining in other countries where they source their raw materials. Threats .competition- the coffee industry is characterised by stiff competition and this is a major threat for Starbucks. This entails that the company will be competing for customers with other players in this particular field. Regardless of the challenges that can be faced by the company identified above, it can be seen that its strategies have significantly helped it to gain a large market share in the coffee industry. The major critical success factor for Starbucks is that it has managed to build a strong customer base as a result of its strong brand name. The company maintains quality and this is a major point that has significantly led to its growth. Consumers are more interested of getting valuable products since this is the reason why they have developed trust in the coffee products they get from Starbucks. The other advantage of the company is that it has managed to create consistence in its operations and this has helped it to attract more customers. This has also helped the company to build trust among the customers who contribute to the viability of the organization. The other strategy that has contributed to the success of the company is that it has corporate social responsibility programs in place. These are meant to create goodwill for the company since it ploughs back some of its profits to the people in the society in which it operates. By virtue of upholding ethical principles, Starbucks stands greater chances of gaining a large market share in the US as well as other global markets in which it operates. 5.0 Conclusion In conclusion, it can be observed that the success of Starbucks in the coffee industry can be attributed to its business strategy that is mainly concerned with fulfilling the needs and interests of the customers. The company is specifically focused on fulfilling the needs and interests of the customers and it has programs in place that are designed to appeal to the interests of the targeted customers. The differentiation strategy that is used by the company has contributed to its growth and development since it offers products that are unique. Its services are unmatched in the industry and this has helped it to attract as many customers as possible. If the customers are happy about the products and services they get from a particular industry, they are likely to develop loyalty towards it. This is very important since it helps the company to create a strong customer base which helps it to remain viable in the market in which it will be operating. However, the company should continue developing its products so as to remain viable in the industry that is characterised by constant changes. The company should continue providing innovative products to the customers in a bid to create loyalty among them. (words 2973) References Brydon J, et al 2013, Industry analysis: Viewed 18 March 2013, from: . Kotler, P 1999, Kotler on Marketing: How to create, win and dominate Markets, Free Press, London. Kotler, P & Armstrong G 2004, Principles of Marketing, Pearson Education, Upper Saddle River: NJ. McCarthy, JE & Perreault, WD, 1996, Basic Marketing, International student Edition, 10th Edition, Irwin, Boston. North American Free Trade Agreement ND Viewed 18 March, 2013 from: . Starbucks Corporation Fiscal 2009 Annual Starbucks Corporation Fiscal FY11 (2011) Annual Report Porter, ME 1985, Competitive Advantage; Creating and Sustaining Superior Performance, The Free Press, New York: NY. Starbucks investor relations, 2012, Investor overview. Viewed 18 March 2013 from: . Strydom, J, 2004, Marketing, 3rd Edition, Juta & Co Ltd, CT. Appendix 1 PESTEL analysis for Starbucks Political factors -The US is politically stable and this has positively contributed to the success of the company Economic Factors - the price of the raw materials is subject to changes as a result of aspects such as bad weather.. Social factors -the US is a multicultural country that is characterised by people with different tastes Technological factors -the company is also affected by the use of new information and communication technology such as the internet. Environmental factors -environmental laws in the US shape the operations of the company Legal factors -legal regulations such as Fair Trade Certified Coffee impact on the operations of Starbucks in various ways. This legal requirement also compels the company to practice fair labour among all the employees. . Read More