Strategic Management Analysis of Starbucks - Assignment Example

? Strategic Management Analysis Table of Contents Table of Contents 2 Introduction 3 Starbucks: A Brief Overview 3 TASK A – Market Environment Analysis 4 Micro Environment Analysis 4 Macro Environment Analysis 5 TASK B – Starbucks Strategic Analysis 7 Organizational Analysis 7 Firms Resources 9 Capabilities 9 Core Competencies 9 TASK C – Strategic Fit Analysis 10 SWOT Framework 10 References 12 Introduction Billions of people around the world, everyday walk inside the Starbucks store to have a cup of coffee. Despite of the high price, it’s the taste and ambience which bring customers day after day inside the shops of Starbucks. The stores offer a cheerful, friendly and optimistic environment. Also the supportive staffs help customers to solve any kind of issues pertaining to the quality of coffee or services offered (Schultz and Gordon, 2011). This study proposes to evaluate Starbucks from a strategic viewpoint. In this context of the study, the United States segment of the company will be evaluated. It will also shed light on the coffee industry of USA. The primary rationale behind the industry analysis is to measure attractiveness of this industry. The attractiveness of the industry will be gauged by using PORTER’s five forces framework analysis. Apart from that the external business environment will be also analysed using PESTEL analysis. The next portion will be about identifying the strengths and weaknesses of the company. This will be done with the help of a SWOT framework. In addition, the study will also emphasize on the capabilities, core competencies and resources. Starbucks: A Brief Overview The history of Starbucks Corporation dates back to the early 1970s, when the company was founded by the famous Jerry Baldwin, Gordon Bowker and Zev Siegl (Starbucks, n.d.). Since the time of its foundation, the motto of the company has been to offer unique and special experience to the customers whenever they visit a Starbucks store and taste coffee. Starbucks is presently headquartered at Seattle, Washington, U.S (Dess, Lumpkin and Eisner, 2009, p.557). The company operates with around 6705 company owned stores, and 4,082 licensed stores throughout the United Stated. However from a global perspective, the company operates with 20,366 stores and has presence in 61 countries of the world. It sells hot drinks, foods and retail merchandising items. Starbucks has staggering employee strengths of 1, 50,000. As of financial year end 2012, the net revenue of the company was US$ 13.29 billion. Some of the major competitors of the company are Dunkin' Brands Group, Inc., McDonalds, Nestle, Yum Brands, KFC and Wendy's International, Inc (Yahoo Finance, n.d.). TASK A – Market Environment Analysis Micro Environment Analysis Coffee is admired as one of the most precious agricultural commodities and thus the coffee industry is also witnessing strong growths globally. With strong and established players such as Starbucks and availability of mass customer makes it one of the potential industries of the world. Now to get deeper insights of the micro environment and to measure the attractiveness of the coffee industry of USA an in depth industry analysis will be carried out. To do so PORTER’S five forces framework will be employed. Porter’s five forces is one of the widely used tools to determine the competitive forces of the industry. The five forces of the industry as portrayed by Michael Porter are the threat of the new entrants within the industry, threat of the substitute products, and intensity of the existing rivalry within the industry, bargaining power of the suppliers and finally the bargaining power of the buyers. The analysis is shown below:- Threat of the substitute products The substitute products are the products that are not exactly the same as the core product, but perform almost the similar function or provide the same benefit as given by the core product. In the context of Starbucks, the substitute products are soft drinks, energy drinks, coffee pills and caffeine. The consumption patterns are highly dependent upon the countries cultures. However considering the necessity and habit, the threat of substitutes in this industry is low. Intensity of the existing rivalry The intensity of existing rivalry describes the level of competition with the industry. In this context, Starbucks faces competition from the companies such as Caribou Coffee, Diedrich Coffee, Dunn Bros, KFC and McDonalds (Cohen, 2004, p.77). Due to economic downturns the customers are also switching towards the low priced coffee. This increases the rivalry to a large extent. Hence it can be stated that the intensity of existing rivalry is high. Threat of the new entrant The new entrants are those companies that are not currently operating within the industry, but can be a potential entrant. Hence the threat of new entrant is characterised by the chances of new entry within the industry. In the context of coffee industry, there are many encouraging factors for a new player. Well defined distribution infrastructure, negligible cost of switching, low initial investment, diverse customers, absence of stringent regulations etc. makes the industry lucrative for a new entrant. Hence the threat of new entrant is high. Bargaining power of the suppliers The bargaining power of the suppliers highlights the extent to which the suppliers of raw materials can bargain and increase the price of the raw materials thereby ensuring price rise. In the context of Starbucks, the raw materials include coffee beans, tea leaves etc. Since these items need specialized climate, they are mostly found in the areas such as Asia, South America and Africa. Moreover Coffee beans are commodity goods and are hence the prices are dictated. The power of suppliers is therefore reckoned as moderate. Bargaining power of the buyers Buyers refer to the customers who buy the products or services from the company. Now the bargaining power reflects the ability of the customers to reduce the price of the offerings. In the context of USA the super and hyper markets nearly accounts 80.4 % of the tea and coffee purchases. The large chains of shops do posses some amount of price negotiation powers. The bargaining is based upon the quantity purchased. In addition, due to varying demands retailers are forced to stock different quality products and it reduces the bargaining power of buyers. The net bargaining power of the buyers is therefore deemed as moderate. Macro Environment Analysis The macro environment is the environment which is not in the control of the business. However to a large extent it influences the decision making process of the organization, influences the business strategies and also affect the performance of the whole organization. The factors include political factors, demographic factors, economical factors, social factors, technological factors, environmental factors and legal factors. It is an external environmental analysis tool which helps the organisations to determine the external trends. In this context of the study, PESTEL framework will be used to evaluate the macro environment of USA. In general PESTEL analysis is done to evaluate the external environment of a business (Henry, 2008, p.51). In this perspective, US segment of Starbucks will be considered and the company also has its origin in the USA. Hence a comprehensive analysis of USA will be carried out to identify the impacts of these factors on the company. Political Factors The political aspect of PESTEL analysis gives insights about the political scenario of a country. USA is considered as one of the most powerful countries of the planet. The country also has significant influence on the global economy. Moreover USA also has well defined taxation policies. It collects tariffs from the custom duties and sales taxes. Hence from an overall viewpoint the, USA is politically stable and may offer favourable political environment to Starbucks. Economic Factors The economic factors comprises of the level of income, economic stability of a country, and related economical factors. USA follows a mixed, capitalist economy along with the presence of natural resources, advanced infrastructure, and greater productivity. In this context International Monitory Fund (IMF) highlighted that the GDP of USA is $14.870 trillion and accounts to 24% of the global GDP. In addition, the disposable income of the US citizens is also on the higher side. Thus USA has a stable economic condition and Starbucks can gain from it. Social factors The social factors of a country are significant in commencing and running a venture. It includes trends in the demographics such as cultural factors, population size, age, and consumer activities. The total area of USA is close to 1.9 billion acres. The country is also considered as culturally diverse and home of various racial groups. Thus it gives Starbucks an opportunity to cater to diverse customer segments. Technological factor The technological factors of a country include the technical infrastructure such as electronic data exchange, information system, and management information system. In addition, it also compromises of increase in process automation, rate of new product development, and impact of internet on human being. USA ranks among the top technically developed countries. For example it develops a number of gadgets and electronic goods which symbolizes the technical expertise. Hence it can be concluded that USA has well developed technical infrastructure. Operating in a technically superior country will also offer some advantages to Starbucks in the form of preserving the coffee beans. Legal Factors The legal factors of a country refer to the rules and regulation, rights, consumer protection act and any other legal framework. Besides laws for employment, biasness, favouritism, antitrust and health and safety also fall in this aspect. USA has a well defined legal framework and there is less legal constraint for a business. Hence Starbucks will be least impacted by legal factors. Environmental Factors The environmental factors of a country stated about the natural environment of the country. It takes into account natural phenomenon such as weather patterns, climate, and also natural disasters. In USA the weather remains cool throughout the year. The country also has well defined policies to protect the environment. Furthermore, USA also encourages the companies to become socially and economically responsible. TASK B – Starbucks Strategic Analysis The internal analysis is characterised by the evaluation of Starbucks and its internal environment. It will include an organizational analysis with the help of McKinsey 7s framework, its resources, capabilities and core competencies. Organizational Analysis In order to evaluate Starbucks, McKinsey 7S framework will be modified to cover the six elements among the seven. This framework was developed by Robert Waterman and Tom Peters as an organizational analysis tool in the year 1980 (Witcher and Chau, 2010, p.248). Figure 1 (Source: Witcher and Chau, 2010, p.249). Corporate Mission The corporate mission of the company is dependent upon the current scope and purpose of the business. The mission statement of the company is “Our mission: to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time.” The mission statement of the company clearly portrays how the company is concerned about the protection of environment and how the company is enthusiastic towards serving high quality coffee to the customers. Products and Service The company serves coffee, food items and some retail merchandises. The bestsellers in the drinks category include Cappuccino, Iced Caffe Latte, White Chocolate Mocha, Iced Caffe Mocha, Green Tea Frappuccino Blended Beverage and Java Chip Frappuccino Blended Beverage among many others. Apart from the drinks, the company also sells different type of food items. Some of the bestsellers in this category include Basil Tomato & Mozzarella Cheese Sandwich, Banana Brownie Rocky Road, Turkey & Swiss Sandwich and Raspberry Truffle Cake Pop among others items. Moreover the company also sells bottled beverages to the customers (Starbucks, n.d.). Leadership Leadership has always embraced an important position in the company. Without any doubt Howard Schultz is considered as the most influential leader of Starbucks. Being the CEO, he has almost single-handedly revived the financial condition of the company. In addition, he also makes the business strategies to ensure long term sustainability of the organization (Flamholtz and Randle, 2012, p.293). Organizational culture Organizational culture is segmented into three categories namely high performance, unhealthy and adaptive. The organizational culture of Starbucks can be characterised as adaptive along with compassionate managers and positive attributes of entrepreneurship at all the employee levels. In addition, the company has the culture to remain proactive in terms of identifying issues, assessing the options and implementing the solution quickly. Strategy In general there are five generic competitive strategies namely overall low-cost provider strategy, broad differentiation strategy, focused low-cost provider strategy, focused differentiation strategy and best cost provider strategy (Porter, 2008). Among the aforementioned strategies Starbucks makes use of broad differentiation strategy. It allows the company to differentiate their offerings from their rivals. Furthermore, this strategy also helps them appeal to a large customer segment (Misner, 2012). Structure The organizational structure is dived into two type namely departmental organizational structure and divisional organizational structure. In the context of Starbucks Corporation, they follow a divisional organizational structure. It suggests that, the company recruits dedicated people and provides separate equipments and markets for them. This is the reason why we find Starbucks has separate president for the coffee division in US and in the international market. Firms Resources The resources of a firm are categorised into tangible and intangible resources. In case of Starbucks, the resources are highlighted below:- Tangible Resources Tangible resources can be portrayed as the physical items that facilitate a company to operate. Starbucks possesses tangible resources that include warehouse property, retail outlets, coffee roasting machineries, brewing machine, inventory and transportation equipments. Intangible Resources Intangible resources of an organization are basically the intellectual properties, by using which the company can generate revenue. For example goodwill, brand image and patent are considered as intangible resources. Starbucks possesses intangible resources that include strong brand image and brand image. The company also embraces expertise in product improvement, selection of outlet location and technology. Capabilities Capabilities are important for a company to formulate the business strategy. Some important capabilities of a firm are skills, important physical assets, and human assets (Johnson, Whittington and Scholes, 2011). Starbucks possesses skills in the form of developing and launching innovative dishes in the market. With strong financial condition, the company can also drive and fund strategic initiatives. In addition, intellectual capital and human resource can be also portrayed as one of the competitive capabilities of the organization. Core Competencies The core competency is depicted as the activity that an organization performs better among the other internal activities and gains sustainable advantage from it. Moreover, for any activity to be considered as core competence, it should be hard to emulate by the competitors. The core competency of Starbucks lies in its knowledge-based approach and exists in the intellectual properties. Leadership of Howard Schultz and innovative products can be also highlighted as the core competency of the organization (Ferrell and Hartline, 2010, p.2). TASK C – Strategic Fit Analysis The study of the macro environment, micro environment and also the internal environment of the company has offered large number of information. Based on those finding the strengths, weaknesses, opportunities and threats of the company have been determined. Now to portray the same more evidently, SWOT framework has been used. The framework will highlight the special strengths/weaknesses and opportunities/threats of Starbucks. SWOT Framework Strengths It has high rate of product diversification. The company has several self regulated retail stares. The business environment of USA is favourable. The company has strong financial condition. Good market reputation and a large base of loyal customers (Williams and Cutis, 2012). The stores are located at the high visibility locations and thus able to attract large number of customers. The product is socially accepted and people are addicted to it. Presence in more than 60 countries of the world. Opportunity The company has the opportunity to initiate retail operations. Especially in rural markets, where the company does not have any stores, can opt for retailing. Operating in a technologically advance country may offer advantages to the company. New distribution channels can be considered. For example online selling can be an effective option. The pricing strategy can be modified and can be made affordable to the average income groups as well. The company can come up with new products and can embrace brand extension. Expansion in potential markets like India and Italy. Weakness The company has less concentration on the internal value chain and rather focuses on the external factors. Cannibalization is also a weakness for the company. The products are highly priced thereby making it unaffordable for the average and lower income group. Limited retailing done by the company. Threats Ever increasing competition from direct competitors and restaurants, caffeine based products, coffee pills and street carts. Saturation of the US market. Volatility of coffee beans in the supplying countries and that may increase the cost. Health consciousness of the consumers and shifting away towards more healthy products. Estrangement of some of the customer segments. References Cohen, W. A., 2004. The Art of the Strategist: 10 Essential Principles for Leading Your Company to Victory. New York: AMACOM Div American Mgmt Assn. Dess, G. T., Lumpkin, and Eisner, A., 2009. Strategic Management: Text and Cases. 3rd ed. New York: McGraw-Hill Education. Ferrell, O. C., and Hartline, M. D., 2010. Marketing Strategy. 5th ed. Connecticut: Cengage Learning. Flamholtz, E. G., and Randle, Y., 2012. Growing Pains: Transitioning from an Entrepreneurship to a Professionally Managed Firm. 4th ed. New Jersey: John Wiley & Sons. Henry, A., 2008. Understanding Strategic Management. Oxford: Oxford University Press. Misner, I., 2012. The Five Key Competitive Strategies. [online] Available at: [Accessed 21 November 2012]. Johnson, G., Whittington, R., & Scholes, K. 2011. Exploring Strategy: Text and Cases. 9th ed. New Jersey: FT/Prentice Hall. Porter, M. E., 2008. The five competitive forces that shape strategy. Harvard Business Review, 86(1), pp. 78-93. Schultz, H., and Gordon, J., 2011. Onward: How Starbucks Fought for Its Life without Losing Its Soul. New York: Rodale. Starbucks, No Date. Menu. [online] Available at: [Accessed 21 November 2012]. Starbucks, No Date. Our Heritage. Available at: [Accessed 21 November 2012]. Williams, J., and Cutis, T., 2012. CIM Coursebook 06/07 Marketing Management in Practice. London: Routledge. Witcher, B. J., and Chau, V. S., 2010. Strategic Management: Principles and Practice. Connecticut: Cengage Learning. Yahoo Finance, No Date. No Date. Starbucks Corporation (SBUX). [online] Available at: [Accessed 21 November 2012]. Read More