Strategy concept and application: Starbucks - Essay Example

? Strategy Concept and Application Inserts His/Her Inserts Grade Inserts (13, January, Introduction In today’s tough business environment it is extremely difficult for firms to expand their operations and remain profitable. Strategic management has become important for firms in order gain competitive advantage over other firms. Starbucks is a known name not only in United States of America, but all over the world. The company made the coffee culture famous in the US and reshaped the perception of people regarding coffee houses. The rapid growth of the company made it an extremely famous brand throughout the world. The strategic management of the company was excellent in its starting years beyond doubt because they developed a market which was not there. The company led the way in Coffee houses in US which is something commendable. In this paper we will talk about the current strategic position of the company and will discuss the basis and sustainability of its competitive advantage. A variety of key strategic issues presented in the case study will be elaborated alongside with their impact on long term success of Starbucks. In the end suggestions will be given as to how the company can improve and solve the issues it is currently facing. Current Strategic Position of Starbucks Starbucks is currently at a stage where market is getting saturated as many new firms have entered the market. The company now has to compete with firms like McDonalds that has great infrastructure and a significant hold of the US market. Other small firms are also entering the industry providing consumers with more option. Current position of Starbucks is like a lion that was once the ruler of the jungle but who is now getting tired and old. The brand of Starbucks is still considered valuable by experts, according to the case study, but still the company does not hold the same customer base it did in previous years. This is mainly due to the saturation of market and loss of business to rival firms. Price competition is also hurting the company now because the purchasing power of consumers has reduced. Starbucks used to sell its coffee at premier prices and customers also were not price conscious, but all this has changed. With a slowing economy consumers have become price conscious and they are switching to cheaper alternatives. This situation is something new for the company as Starbucks was always able to charge premium prices from customers. Environment is getting tough for the company due to pricing competition. The company has now decided to close stores and it is again not a good sign. Closing stores will create a negative perception of the brand and the news will hurt the value of the name of Starbucks. Also the company was unfamiliar with downsizing as it continued to grow for a substantial period. If we look strategically the policy of ‘growing and growing’ created problems for the company. The standards were not met and now customers are not feeling the same in coffee houses of Starbucks. This is the current position of the company vis-a-vis the environment in which it is operating. The customers are not satisfied and the name of the brand is in jeopardy. Company has compromised its ambiance and taste, which were its differentiating factors, while following the path of rapid expansion and growth. Resources wise strategic position is also weak. The main resource of the company were its ‘partners’ but even they are feeling the pressure now. The environment of Starbucks gave exclusivity to the consumers and employees knew the customers personally. This created a special environment for customers. But now employees of the company are not able to personalize with the customers because Starbucks has ceased to be a place to sit and chat. Starbucks also started to use standardized machines instead of brewing which again was a huge compromise. This was done to enhance efficiency but it ended up reducing sales because the taste was not the same. The experience that Starbucks previously created was not present as customers were somewhat detached with the coffee making process. The strategy of the company was to increase efficiency and reduce serving time but this strategy is not working. The strategy of Starbucks currently is to reduce the number of stores which is inevitable. The stores are not performing well and the company has to improve its on paper performance. This is why the company has chosen to call back its founder which is a good move. From a strategic point of view the company is looking towards changing things which is a good sign. But the current strategy of Starbucks regarding its store ambiance and coffee machines is not working. Reducing stores is also inevitable because the company is losing clientele to rival companies. It is imperative that action is taken or else the company may further lose its brand value in the eyes of the consumers. Starbucks is currently selling many flavours of coffee but over the years the company has stopped to innovate on a regular basis. New products are not being served and it seems that the strategy is to mechanize the business of the company. It is important to understand for Starbucks that it cannot work like an assembly line of a manufacturing company. Efficiency is important but not at the expense of customer satisfaction. The company seems to run in a systematic fashion without any major innovation in drinks. This strategy is also a point of concern for the company. Basis and Sustainability of Starbucks’ Competitive Advantage Creation of core competence at both individual and organizational level forms the basis for enduring competitive advantage (Bonn, 2001). Starbucks had been successful in doing this for almost a decade. They created an environment for the consumers that was special and that made customers feel exclusive. The company also served fresh brewed coffee to the consumers with a personal touch. All this made Starbucks a successful brand and this was the main source of its competitive advantage. The core competence of the company was not only the coffee it served but it was also the way with which coffee was served. At individual level employees or ‘partners’ of the company were aware of the needs of the customer and provided the customer with a special environment. On the organizational level the company was committed to promote customer centric policies by coming up with new products regularly and maintain its taste. This overall strategy became the source of the competitive advantage of the company. Coffee market was also not saturated at the point when Starbucks entered so it was able to attract clientele. Its global operations also went good in the initial stages. The company maintained its taste even when it was growing at a great pace because the used flavour lock bags to retain the freshness and taste of their coffee. The overall strategy of the company was complementing its overall core competence. Value and rareness are two important indicators of sustained competitive advantage of any organization (Barney, 1991). Starbucks is currently declining in both these indicators currently. The question of sustainable competitive advantage is trouble the company because Starbucks had advantage over firms but now the firm is unable to translate it into sustainable competitive advantage. Key Strategic Issues and their Impact on Starbucks The main strategic issue the company is facing is that its focus has shifted from its main differentiation factor that was serving fresh coffee in a unique manner. Experts suggest that failure to understand the real source of firm’s above normal earnings may lead to problems (Cool, Costa, & Dierickx, 2006). The firm has shifted its focus on efficiency as it thinks this can increase profit. The profits are on a declining trend but the country made profit in 2007. But it is important to understand that in future the company will lose its brand value on the basis of which it is earning profits right now. Starbucks is losing its thing and its differentiating factor, and if the problem is not corrected now the company will lose its brand value too. Another problem is that the company has introduced products like sandwiches on its menu. This is strategic move to increase sales but it does not go with the overall strategy of the company. There is a need for coherence in the approach of the company. Starbucks is famous for its exclusivity. Consumers come in for the experience but by serving too many products and by serving too many customers at once that experience is compromised. Also when servers would ask the customer whether they wanted the sandwiches or not it will destroy that sense of exclusivity. It is also important for Starbucks to slow its growth strategy. The company grew at a great pace and standards were ignored as a result. When growth is accelerated it is easy to get carried away because the firm gets arrogant. The managers feel at the top of the world and the focus becomes growth and not customer service. This shifted the focus of the Starbucks from its core competence. The company failed to realize when it needed to stop and consolidate. This is a major strategic issue the company is facing currently. Sometimes firms feel pressured due to over saturation of markets and have to focus on consolidation (Johnson, Whittington and Scholes, 2011). This is exactly the point when Starbucks failed. The company failed to understand when it had to cease its growth strategy and when to start consolidation. Growth is attractive for managers as it gives an impression that the company is doing well. It also makes leaders arrogant and let emotions take better of them. When Starbucks was opening 3 or 4 stores per day someone should have come up and questioned the strategy. The growth strategy of the company is a major strategic issue because Starbucks was not able to pick the point when markets were getting saturated. The impact of this problem will be on the long term success of the company. The company will take some time before it can come up again with a right number of stores and the right mix of products to attract the same clientele it had. This will not be easy given that significant market share has also been lost to other small coffee houses that have open in large quantities in the country. These coffee houses are offering better coffee at lower prices and therefore Starbucks will need time to compete with them. The incorrect growth strategy the company pursued will therefore have long term ramifications for the company. The role of strategic planning should be to act as a catalyst and support strategy making (Mintzberg, 1994). In Starbucks however planning was overemphasized as new stores were opened and reliance was more on forecasts than on actual objective data. This is again an issue because planning is just a tool to facilitate the overall strategy making. Present events and conditions must also be taken into account for development of an apt strategy and this was done at Starbucks. With strategy making another important element is emotional intelligence of leaders (Graetz, 2002). The managers at Starbucks should have known when to get out of the growth phase and start the consolidation phase. This was however not done and the company suffered as a result. Emotional intelligence is required to control the flow of emotions in the firm so that rationality prevails. The growth frenzy in Starbucks created a host of problems for the company and contributed to its current situation. Another problem in Starbucks is that the company is trying to cut costs by replacing comfortable couches from the stores. This is being at the same when the company plans to price its brand on a premium. This is not acceptable because at one hand the company wants to reduce costs by lowering down the quality of its services and on other hand charge extra from customers. The problem here is that at one hand cost leadership is being aimed and on the other hand differentiation is being sought. Both the strategies are in conflict with each other and therefore the company is suffering. Core competence must be applicable to a range of products and must be competitively unique (Sadler & Craig, 2003). This is not true right now for the company because it is offering sandwiches too and in such products the company does not have a core competence. The focus should be on coffee and its different flavours only because this is the main business of Starbucks. Any other product will just change the focus of the company which is not good in the long run for the strategic success of the company. Suggestions for Starbucks Starbucks has to rethink its strategy in order to revive again. The tough environment of the US markets is making life difficult for the company. If Starbucks engages in pricing war with competitors then its service quality and coffee will further depreciate in quality. This will be bad for the company as well as for the brand of Starbucks. The company should not even think of lowering its prices down to attract customers because this will be the end of the brand of Starbucks as we know it. Customers have a developed sense of business now a day and they will immediately understand that something is wrong with the company. The strategy of growth should also be discontinued and consolidation should be targeted. This shift in the strategy is imperative for the company given the situation it is facing. The strategy of differentiation should be implemented by offering non-standardized products to the customers and then customers will be willing to pay premium in return for the excess value they are receiving (Hoskisson, Hitt, & Ireland, 2007). This is exactly what Starbucks has to do. Automated machines should go away and fresh brewed coffees should be served to the customers. Employees should be aware of the orders of the regular customers and this will create a sense of relationship between customers and stores. The focus should not be on standardisation because it is the death of differentiation. How can a company claim to offer differentiated products if it uses a similar machine to treat all customers? It is also important for Starbucks to train its waiters again so that they can remember the names and the choices of the customers. This can make a huge difference in sales because people like such small gestures. Moreover Starbucks claims to be a socialization place for people therefore this step should be taken immediately. Change should also be pioneered from the top level. A sense of commitment is required by the highest authority in the company so that the rest of employees should also be able to accept and in turn fuel the change process. It will not be easy for the firm to implement changes but there is no choice for Starbucks. This is the time to act otherwise competition will go ahead and the company will suffer. Without the commitment of the highest authorities change process would not work because change has to be pioneered from the top (Gill, 2002). Also it is important to include everyone in the policy making process. When firms are facing complex organizational problems it is imperative that policy making is done by participation of all parties involved (De Wit & Meyer, 2010). Here to the top management should include store managers and other middle level managers when designing the policy. Change cannot be implemented if everyone is not on board therefore it important to take everyone together when initiating a change process. Starbucks should also discontinue all non coffee products from the stores. This will give the company and the employees more time to focus on customer services and coffee that are the two sources of competitive advantage of the firm. No other activity should take their time because customer know Starbucks for its fresh coffee and store experience. Furniture of the stores should be changed and comfortable couches should return. It is also vital that franchised stores should be made to follow the change process by the book. All Starbucks store should look similar to the customers so that there is no discrepancy in the perception of the consumers. Franchised stores will require incentive to change their whole process but it is important. Starbucks should also work on music and other small details to make the stores more comfortable and cosy. People should be encouraged to come and sit in the store instead of buying coffee and then running away to their offices. This will make Starbucks again a worthwhile company where people will have a great experience combined with fresh coffee. Conclusion Starbucks is currently in a very tough situation where prices in the industry are going down and competition is increasing. Also customers are not feeling the same for the company as they used to feel. Key issues include standardisation process of coffee making and focus on non coffee products. Starbucks is also trying to practice cost leadership (by reducing costs and compromising quality) and differentiation (charging premium prices) at the same time. These strategies are in conflict and they will never work. The company needs to initiate a change process and the top tier of the leadership should be committed. Everyone should be taken on board in the policy making and differentiation should be sought, which was the main strategy of the company. Bibliography Barney, J. 1991. Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1):99-120 Bonn, I. 2001. Developing Strategic Thinking as a core competency. Management Decision, 39(1): 63-70 Cool, Costa, & Dierickx. 2006. Constructing competitive advantage. In Handbook of Strategy and Management. Pettigrew, Thomas and Whittington (Eds.), Sage De Wit, B. & Meyer, R. 2010. Strategy: Process, Content, Context – An International Perspective, 4th Edition Text and Cases. South-Western: Cengage Learning Gill, R. 2002. Change management--or change leadership? Journal of Change Management, 3(4): 307-318 Greatz, F. 2002. Strategic thinking versus strategic planning: towards understanding complementaries. Management Decision, 40(5): 456-462 Hoskisson, Hitt, & Ireland. 2007. Strategic management: Competitiveness and globalization. London: Cengage Learning Johnson, Whittington & Scholes. 2011. Exploring Strategy: Text and Cases, 9th Edition. Essex: Prentice Hall Mintzberg H. 1994. The fall and Rise of Strategic Planning. Harvard Business Review Sadler & Craig. 2003. Strategic Management. London: Kogan Page Publishers Read More