Starbucks: Maintaining principles as we grow case Study for MBA - Research Paper Example

?Module 2 a. Explain the competitive nature of the coffee industry Starbucks is in and recommend with reasons, the strategies most suitable for Starbucks’ survival and success. (Tip :? Recommended Strategies) Coffee is the second most consumed drink in US after water. Americans substitute coffee for alcohol and coffee shops are considered as a great place to hang out. It is an affordable luxury in America and consumers there are generally knowledgeable about coffee. The coffee industry in which Starbucks operates belongs to “Specialty Eatery Industry” . It belongs to the largest segment of the disposal income spending i.e. food and beverages. This industry has seen steady and rapid growth since the 1990s. Market structure is monopolistic and there are a lot of companies operating in the same marketing making the competition extremely fierce. Low to moderate costs are incurred for most location and in startup property and equipment are the only expenditures. The recommended strategy for Starbuck’s survival and success would be Focused low-cost strategy. In focused low-cost strategy, the companies serve market niches and targets smallest buyers in the industry which other competitors in the industry cant afford at such a low-cost. Through this strategy Starbucks will be able to retain its brand equity and will also be able to keep itself in line with the economic down turn. It will be able to offer the same experience at prices, its consumers can afford. Secondly, all low performing stores should be shut down and instead of expansion the strategy should be to revive business in current operational outlets. b. Critically examine the new strategy and its likely impact on the brand (Tip: Impact on brand) Starbuck’s new strategy as announced by Schultz would focus more on low-cost value. Under this strategy Starbucks would close all under-performance stores and re-invigorate the coffee experience. Beans would once again be grinded in stores for drip and free drip refills, Wifi to registered consumers and latte upgrades would be given. It will also roll out a low-rise espresso machine; launch its own VIA ready brew brand and introduce value meals. The focus of this strategy lingers around on “value” than “experience”. These moves would change the brand perception of Starbucks which was central to unique experience before. It will take Starbucks to crowded and competitive convenience market. As a result, brand equity of Star bucks is expected to dip while its overall revenues will increase over time due to low-cost operations that are in order. c. Critically evaluate the internal environment of the firm and recommend change The internal environment of a company is defined by the 5 Ms that govern it. These include the following: 1. Management 2. Manpower 3. Machine 4. Material and 5. Money The work culture that prevailed at Starbucks played an important role in helping the company recruit and retain top employees. The culture of the company was well recruited. The Management at Starbucks was thus grounded in modesty. The company would retain and give the impression of a small company even as Starbucks expanded world-over. Starbucks had one of the lowest turnover rates. It was 70% against the industry average of 300%. This was because the manpower at Starbucks enjoyed a lot of perks of being associated with the company. “Equality” was one of the most crucial values of employees at Starbucks. It was for this reason all employees at Starbucks were called partners. The organizational structure was decentralized and employees were encouraged to be as innovative as possible. Starbucks offered a lot of material and money benefits to its employees. Employee benefit program was extended to both part time and full time workers. There were other employee perks for instance 30% discount on Starbucks branded merchandise, discounted beverages and free pound of Java coffee every week. It was also the first company to offer stock options to its part time employees. The Bean stock plan was one of its most famous plans. However a lot of these perks have compelled the company to charge premium prices for beverages. The customers have to compensate for these bonus plans. As the company adopts a low cost focused strategy in these times of economic down turn, Starbucks should cut down on discounts to underperforming employees and save costs. Similarly operations should be smoothened by using more cost effective machines. d. Critically examine the concept of sustainable competitive advantage. How this sustainability would be achieved by Starbucks. Can star bucks achieve this? (Tip: ? How do you get competitive advantage and how to keep it) Sustainable competitive advantage rests at the center of a company’s corporate strategy. It ensures that the company is able to maintain and sustain its competitive position in the market. According to experts, sustainable advantage is achieved by continuously marshalling its existing resources and creating new resources in response to changing market conditions. Starbucks can achieve sustainable competitive advantage by creating a synergy of its distinctive and reproductive capabilities. For this it has to first ensure that the growth measures it has opted for sustainable in the long run before going for more expansion. It needs to attain sustain competitive advantage by closing underperforming and improving sales in existing stores before going for any further expansion. e. Compare and contrast the different forecasting techniques and recommend the best forecast methods. TIP: ? Forecasting (Forecast staff, sales, stock – clearly a huge element of efficiency of operation is based on the techniques. What are they and what do they do? Forecasting is the process of predicting future trends in the sales of a product and service and is critical to growth and success of a company. Typically forecasting in a company should be a collaborative effort involving sales manager to forecast sales ; human resource personnel to determine staffing requirements and finance analyst to predict future scenarios. As a huge amount of efficiency is dependent on these dimensions of a company, it is important to collaborate inputs from all personnel and opt for the best one. However the most apt forecasting technique would be to use sales forecast. There are various fore-casting techniques though they can be broadly put into two categories: 1. Time-series Methods 2. Econometric forecasting methods In Time-series methods, historical data is used as the basis for predicting future outcomes where as in econometric forecasting method, it is assumed that it is possible to identify the underlying factors which might influence the variable being forecasted. f. How would refill options and set meals add value to StarBucks? The refill options and set meals will add value will differentiate Starbucks from other competitors and encourage customer loyalty. They will serve as an added incentive to the customers regularly frequenting and Starbucks who will be feel that they are getting the value that they are paying for. g. Compare and contrast decision making methods (generic question – not in the case study to advocate any methods) Decision making can be considered as a mental process in which the best course of action is selected amongst various alternative scenarios. There are different types of decision making methods. They are programmed decisions, non-programmed decisions, tactical decisions, strategic decisions and operational decisions. Programmed decisions follow the same routine while non programmed decisions are non standard and non routine. Strategic decisions are in the long term interest of the company while operational decisions are short term decisions. Module 3 a. (i) Critically examine the leadership style of ”Uncle Howie” and its effect on companies past success and future changes. (Tip :? Change Management) Uncle Howie’s leadership style was largely delegative. He allowed a lot of empowerment to his employees but was responsible for the decisions made. Delegative leadership style is used when employees are able to analyze the situation and determine what needs to be done. In the past his leadership style took Starbucks through unprecedent success and expansion. On his arrival again, he has taken charge of the situation and seeks to revamp the sales of Starbucks by change management. He has called for the closure of underperforming shops, introduced free refills, Wifi connectivity and various other measures which are bound to bring Starbucks back on track. (ii) Critically examine the leadership style of Uncle Howie and its effect on Board, Part Time Employees and Stakeholders. The leadership style of Uncle Howie had its roots in his philosophy “to treat people like family and they will be loyal and give their all”. He churned out one of the best work cultures in the industry. His leadership style was costly but it ensured a low employee turn over. Part time employees were given stock options and were treated equitably. His leadership kept everyone content. b. What type of leadership and management style does starbucks need at present? Comment on the appropriateness of Uncle Howie’s return. The leadership management style needed at Starbucks is the participative leadership management style. In this style the leader involves the employees in the decision making process. However the final decision rests with the leader. This leadership style is normally suitable for a situation in which the employees have part of the information and the leader has part of the information. Uncle Howie’s return is an appropriate step. He has been previously successful with the company and knows the strategic handling of Starbucks inside out. c. Critically examine the Agency Theory and its effect on its Partners. ? Agency theory is the conflict of interests between management, creditors and shareholders due to their differing goals. At Starbucks employees were called partners and efforts were undertaken to ensure equality. The Bean Stock Plan allowed employees who had completed six months at Starbucks and worked a minimum of 20 hours a week to become eligible for stock options. This plan helped reduce agency problem. d. Critically examine the Mission Statement. Evaluate to what extent it contributed to Starbucks success and whether it has impacted negatively in recent years. (Tip : calculate earning per employee and earning per store. Check analysts view on starbucks stocks oninternet. ) As per analysts, the shares of Starbucks slipped by 1.7% to $ 36.55 even though sales at different US stores had jumped up by 7%. Many analysts are of the view that rising fuel prices have caused this decline. It experienced growth in 2010 after a two year re-structuring phase in which costs were slashed and some 1000 cafes were shut down globally. Analysts have rated Starbucks highly since then. The Mission Statement has played a crucial part in the success of Starbucks. It promises experience, a passionate work culture and an enjoyable experience at their cafes. Even though the ride in between was bumpy, it held its roots .e. With the diversification into new markets, what has happened to the organization’s identity and culture? As Starbucks sought to expand into over-seas market, it found it difficult to cut down on costs and with licensing fees. It tried to retain its identity and culture by using collaborative relationships. In light of whatever it has learnt so far, the company continues to evaluate opportunities world over by capitalizing on collaborative relationships. Module 4 a. Based on the figure in Exihibit 2, do you believe Starbucks delivered shareholder value between 2005 and 2007 (Tip : Shareprice is missing. Can make assumptions or check internet) Starbucks price peaked at $40 in 2006. After that I declined by more than 75% in the next 2 years. Sales growth from same stores and operating profits declined during the year 2007 therefore I don’t think Starbucks delivered its shareholder value between 2005 and 2007. b. Which growth strategies was adopted by Starbucks ? Looking forward, can this be continued? How was this achieved (Module 5 incl.) Which one would be used in the future (Tip :? Analyse the past, what can be done to prevent the collapse. Note on Hansoff Matrix ) ? Starbucks opted for regressive expansion in the past. Diversification into new markets was opted for. It is one of the four strategies suggested by Hansoff in his Hansoff Matrix and is considered to be the riskiest of the lost. It expanded its number of stores nationally as well as globally. However in the wake of economic recession , it was unable to sustain growth in some of its stores due to which its sales dipped. In the future Market development strategy should be opted. c. How can linkages across supply chains enhance shareholder value? (Tip : Value chain of porter, Linkages) Linkages across the value chain enhance shareholder value by giving the customers a value for whom the cost encountered is less than the profits made. Porter suggested different elements of the value chain claiming that there are a sequence of activities that are common to every form. These activities give the firm its competitive edge and involve effective marshalling of resources to generate revenues. d. Compare and contrast the various ways to raise capital and given the current recession recommend the most appropriate solution. (Tip :? Data not available so no ratio analysis can be done) There are various ways of raising capital. These could be either through: 1. Debt instruments 2. Equity instruments. Given current economic conditions it is better to opt for equity instruments as leveraging increases the risk of bankruptcy while equity instruments don’t. e. What are the benefits and limits of diversification strategy? Recommend axis of diversification (Tip :?Food industry etc. Food industry – diversification is limited because it destroys the flavor of existing brand. ) Diversification is beneficial as it helps the company expand into newer markets and capitalize on the strengths of those markets. It generates bigger more prosperous sources of revenue. However there is an axis of diversification. It is the riskiest of all growth strategies and can even cannabilze company’s own brands or the flavor of current ones. Module 5 a. Critically examine the effect of globalization on Starbucks and its effect on net earnings between 2005 and 2007. The total number of stores of Starbucks increased by 1065 in United States between 2006-2007. On the international level there was a 277 store increase. On the other hand expenses increased between 2005-2007 while net operating income kept increasing at a decreasing rate between this period. c. Critically analyze the benefits of achieving synergies in cross borders Synergies across borders help organizations succeed by using the knowledge of all employees associated with the company. As a result, local employees who are better versed with culture of the home country give their input and put their skills to use with the foreign employees and this creates an effective synergy. The local employees know the home culture better while the foreign employees know the organizational culture better and these results in an effective synergy as knowledge is shared. d. Describe the innovative strategies introduced by Schultz to increase the sales in the downturn period. The strategies introduced by Schultz focused on creating value for customers by bringing down on costs incurred. He called upon the closure of non functional stores and introduction of free refills, Wifi for registered users etc. Read More