Organizational Structure Starbucks - Essay Example

? International Business Contents Contents 2 Introduction 3 Methodology 3 Organisational Structure 3 Strategic Management of the Company 4 Organisational Development Issues 4 External Business Environment 5 Functional Strategies of the business 6 Corporate Culture of the business 7 Main Findings 8 Business challenges 8 Examining the Success or Failure 8 Conclusion 9 Recommendations 9 Reference List 11 Introduction Everyday around billions of people walk inside the premises of Starbucks, in order to have a cup of coffee. Starbucks is known as one of the best coffee joints around the globe. The retail chain is considered among the premium coffee shops, though the taste and quality of the products offered by them makes up for the price. The stores offer a friendly, cheerful and optimistic environment. In order to solve any kind of issues related to customer queries or quality of services and products offered, the company has hired well trained and skilled staff. This study proposes to evaluate Starbucks from an international strategic viewpoint. It will also shed light on the coffee industry of USA. The primary rationale behind the industry analysis is to present strategies followed by the company and the advantages and disadvantages. The organisational structure is explained in detail. Apart from the external business environment, the report will also analyse using PESTEL analysis. The next part will be about identifying the strengths and weaknesses of the company. The main findings include business strategies for future. Methodology Organisational Structure In order to combine functional and divisional structures, Starbucks have used a matrix configuration. As a result of complex matrix structure, the company is known as a mechanistic firm. There is high level of horizontal and vertical complexity, high centralisation, high formalisation, high standardization and narrow control spans. The senior management has planned to create a more streamlined and efficient structure where free flow of information will be present. This will help in exchange of important information and feedback from consumers and front level executives to the organisational level (Anthony, Gales and Hodge, 2003). In a complex structure, this is often difficult to achieve. The matrix structure is used by Starbucks in order to avoid breakdowns in communications especially in case of vertical integration. As we go down in the organisation, authority level increases. Starbucks have divided its workforce into cross-functional teams, allowing workers to report to different supervisors. This organisational structure has helped the employees to have efficient and successful communication downward, upward and lateral with the workers. Matrix structures have also helped Starbucks in creating successful external and internal communication. To increase internal collaboration, the management encourages discussions and exchange of ideas in a timely manner. External communication is achieved by promoting ownership and loyalty with customers and stakeholders. Regular feedback is solicited in order to generate updated customer preferences. Strategic Management of the Company In the year 1971, Starbucks was launched (Starbucks, 2013a). The firm started as a small retailer of whole beans and ground coffee, tea and spices in a single store in Seattle. Today, the company has millions of customers. The products of Starbucks include more than 30 blends of premium coffee, merchandises, handcrafted beverages, consumer products and fresh food products. Starbucks coffee and Seattle’s Best Coffee are the best selling brands of Starbucks. The corporate value of the company lies in building an organisation with a soul. The company owns more than 20,000 stores located in 50 different countries (Starbucks, 2013b). These stores are categorised into company owned and licensed stores catering people all over the world. Starbucks is not in favour of franchising because of culture and quality control issues. The business of Starbucks runs on ethics and doing the right thing for achievement of success. The mission of Starbucks helps in the protection of its culture and reputation. The brand is committed to ethical and responsible conduction of business which helps the company to earn respect and trust from its partners, customers and neighbours. To develop a strong culture, the company is involved in ethical sourcing of business, environmental stewardship and continuous community involvement. The company is committed to deliver brand value in terms of great work environment and providing a great place to work. It aims at embracing diversity as a crucial component of the business. To increase awareness and communication among its various partners, the company is involved in training and facilitation of legal compliances, investigation of sensitive issues and providing extra channel so that the partners can address their issues and concerns. Organisational Development Issues The company has the opportunity to initiate retail operations. The company can opt for retailing especially in rural markets, where the company does not have any stores. New distribution channels can be considered. For example online selling can prove to be an effective option for promotion and branding. Starbucks will have to modify its pricing strategy in order to make its services and products more affordable to the general class and average income groups. In order to increase its presence in the market, the company can opt for brand extension and launch new product in their portfolio. The company can also opt for market expansion in emerging markets such as Italy and India. In order to bring back loyalty and brand strength among consumers, Starbucks can reinvent its popular food menu. The organisation can opt for extensive research and feedback surveys in order to find out the current performance and changing preferences among the consumers (Yan, 2010). According to research reports, loyal customers are ready to pay more for premium offerings. In order to tap this opportunity, Starbucks can provide combo and other combined offering instead of serving just one product. External Business Environment Starbucks’ external environment can be analysed by using PEST analysis. Political- As a result of the changes in the taxation policies, farmers will have highest taxation, imposed on them. This implies that Starbucks will have to pay higher prices for the purchase of coffee. Any kind of fluctuations in the taxation levels within the industry will be ultimately filtered down to the customers. When a country’s government imposes tariffs, where the company has opened its coffee shops; it results in loss of efficiency as well as inconsistency in income transfers. These extra charges can result in a loss of bargaining ability of the company. Economical- The key challenge which the company is facing as a whole is related to the recession which emerged during 2008. Due to the economic crisis and budget deficit, the purchasing capacity of the consumers has reduced. Now, sustainable and normal living standard has become a challenge for the local people. As a result the customers became cautious about their casual spending because of high unemployment and personal debt issues. Social- as a result of the volatile market and economy, customer sentiments have changed. People have started cutting costs and saving money wherever they can. Customer footfalls have decreased in restaurants and coffee and snacks joint. Overall, Starbucks will have to make value-based strategies in order to attract customers. Technological- The emerging innovative technologies in agriculture and farming, developments in the field of biotechnology have helped the farmers in increasing their productivity. This will help the company to source the raw materials at a lesser price. Functional Strategies of the business Till now, most of the strategies of Starbucks have been successful. The company has been able to evaluate the demographics of various regions and gain a large chunk of market share. At the same time, the company has successfully changed the way customers perceive coffee. With the help of its creative ambience and creative services, the company has made coffee more than just a drink. In order to achieve all these, Starbucks have applied many strategic actions. Few of the recent and successful strategies of Starbucks are as follows; Horizontal Integration Horizontal integration has been used by the company in order to control its competitors and reach potential customers. During the acquisitions of Coffee People, Torrefazione Italia and Seattle’s Best, Starbucks have used this strategy. Market Penetration In order to increase the market share of services and products which are currently offered, market penetration strategy has been used. Starbucks focus was on developing the overall quality of daily experience this differentiation helps the company to achieve better brand status and preference. In order to deliver its products apart from the traditional coffee shops, Starbucks made many action plans. The company has formed alliances with U.S. Food Services, PepsiCo and Kraft Foods etc in order to distribute food products to food retailers and other grocery stores. Market Development Starbucks developed a unique market development strategy by educating customers about the benefits of speciality coffee so that the customers are able to enjoy the coffee for the high price they are paying (Subhadra, 2006). Concentric Diversification In order to increase sales and generate overall availability of the brand, the company has strated cross-selling of its products. Starbucks have been involved in developing products such as Double Shots and Frappachino, with the objective of catering niche customers. Starbucks has also extended its arms by acquiring companies such as Ethos Water and created strategic alliance with organisations such as Jim Beam and Dryers Ice Cream. This has helped the company to increase its base from coffee customers to other segments also. Conglomerate Diversification In order to reach out to customers from diverse backgrounds and hit every aspect of consumer touch point, Starbucks have evaluated those opportunities which are not related to their traditional portfolio (Chen and Popovich, 2003). The company has made a strategic alliance with Hear Music Campaigns which uses iTunes and Satellite stations to distribute music produced by Starbucks. Developments in Value Chain Maintaining a strategic value chain partnership has always been top priority for the organisation. Evaluating and maintaining good suppler relationship is very important. Starbucks always makes sure that ethics and regulations are follows by the suppliers and third party retailers and fair trade is established between the parties and the organisation (Roby, 2011). Corporate Culture of the business At Starbucks, inclusion and diversity form important aspects of the overall organisational culture. Starbucks expects to be a leader in diversity and culture and expects support and collaboration from internal as well as external stakeholders (Starbucks, 2013c). Capabilities and talents of employees and managers are leveraged and awarded. Workers spending extra time in completion of task are provided benefits. The goal of introducing diversity and inclusion in the organisational culture is to build a diverse workforce, shape a culture favouring inclusion, develop a diverse network of third party retailers and suppliers and increase cultural competencies. The upper management of Starbucks is known to be more diverse than most of its counterparts in United States (Forbes, 2013a). Employee training is one of the core functions of the organisational culture and development teams. Since it is a service sector, the management makes sure that employees are properly trained and equipped with right skills and knowledge. As employee training is an integral part of the management system, so are the customers. The organisation dwells on the objective of customer satisfaction. Apart from providing good food, providing great ambience and luxury experience has been a dedicated objective of the organisation. Even though the company has tried to create a differentiation strategy through premium pricing, it can lose economies of scale. In the current economic slowdown, consumers have shifted to savings mode, and this could hurt the sentiments of the business. With reduced output and revenue, organisation might have to cut on benefits and incentives. This could result in decrease in employee morale and even increase the rate of attrition. Main Findings Business challenges Apart from the opportunities, the company is also faced few challenges. The company has less control on the internal value chain and focuses more on the external factors. Cannibalization is also a growing weakness for the company. Most of the products are highly priced thereby making it unaffordable for the average and lower income group. Limited retailing is done by the company. Ever increasing competition from direct competitors and restaurants, caffeine based products, coffee pills and street carts are taking away the market share from Starbucks (Dess, Lumpkin and Eisner, 2009). There is an increasing volatility of coffee beans in the supplying countries and that may increase the cost. Examining the Success or Failure The giant coffee chain was no doubt a market leader for many years. Its premium range coffee, though affordable by a few customers segments, were taken as a part of luxury living. However, the perception of coffee has changed over time. With the entry of new coffee joints and a stringent price war, the loyalty and preference of Starbucks customers have changed. The giant coffee chain is no longer the sole dominant player of the coffee market. Host of new coffee joints, catering to many niche segments such as youngsters, college students, entry and mid-level executives etc have been launched. With the diversification of the market, customer segmentation has become more specific and discreet and market share of the top contenders have reduced drastically. In order to overcome their current challenges and shortcomings, the company should come up with suitable strategies and action plans. Conclusion From the above discussion, it is clear that the current organisation structure and business strategy of Starbucks need a change. The organisation will have to look into its existing business models, strategies and practices it order to make sure that they go on with the changing conditions of the industry and overall business environment. The company has been into coffee retail business for more than two decades and has been market leader for almost the same time. But the current market conditions are changing and Starbucks no longer holds the biggest market share in the coffee sector. According to the analysis of its current strategies, it can be said that most of the strategies of Starbucks have been saturated. The organisation needs a strategic change and a revision of its management principles (Forbes, 2013b). The loss of market share denotes that customer preference is changing and customer loyalty is decreasing. Thus, Starbucks will have to understand what their customer prefer and make strategies accordingly. Apart from that, decreasing revenue and profits have also impacted the overall employee morale and motivation level in the company. Thus, Starbucks need a mix of short-tem as well as long-term strategies in order to gain lost market share as well as gain sustainable growth and development in the future. Recommendations In order to ensure that the company’s reputation and brand image are restored, the company should evaluate appropriate promotional and branding strategies. These branding strategies should aim on establishing new growth direction for the company, without tarnishing or changing the original goals and objectives of the organisation (Proctor, 2000). The advertising campaigns should be more aggressive, in order to notify and educate customers about the uniqueness of the services and products offered by the company (Ferrell and Hartline, 2010). Starbucks has not invested much in advertising budget, unlike its immediate customers. In terms of advertising strategies, Starbucks has always focussed on inside store promotions. Though this strategy has been successful for Starbucks, in the current volatile environment the company needs to plan for more aggressive strategies. For example, the company can shed its snobby image and send the message as to why they take pride on their premium range of coffee products. Product differentiation is another strategy where Starbucks can gain its lost market share and establish a niche segment (Sun, 2010). Most of its immediate competitors such as Mc Donald and Cafe Coffee Day (CCD) have placed value based pricing in order to achieve differentiations. For Starbucks, cutting down prices will not be a viable option as the coffee chain is known for its premium range of coffee. Instead of jumping into the price war, Starbucks should invest in extensive research and development process in order to create new flavours and blends of coffee. For this, the company can also research the best known coffee variants available around the globe and launch those products to the coffee lovers. Retaining customer loyalty will be another strategic area which can provide competitive advantage to Starbucks. Most of the privilege cards and rewards program offer discounts and benefits to loyal and established customers (Starbucks, 2013d). In order to tap new customers, the company will have to create superior programs which could attract even the on-lookers. One strategy can be collaborating with the airlines and international hotels in the region. Customers travelling in these airlines will be provided a Starbucks passage and they will get special discount in Starbucks. Thus, new customers will be attracted and Starbucks will be able to tap them with its unique experiences and premium coffee products. Reference List Anthony, W.P., Gales, L.M., and Hodge, B. J., 2003. Organization theory: A strategic approach. Upper Saddle River, New Jersey: Pearson Education, Inc. Chen, I.I. and Popovich, K., 2003. Understanding customer relationship management (CRM): People, process and technology. Business Process Management Journal, 9(5), pp.672 – 688. Dess, G. T., Lumpkin and Eisner, A., 2009. Strategic management: Text and cases. New York: McGraw-Hill Education. Ferrell, O.C. and Hartline, M.D., 2010. Marketing strategy. Connecticut: Cengage Learning. Forbes. 2013. Starbucks and McDonald's winning strategy. [online] Available at < http://www.forbes.com/sites/panosmourdoukoutas/2013/04/25/Starbucks-and-mcdonalds-winning-strategy/> [Accessed 17 Aug 2013]. Forbes. 2013b. Starbucks: Global coffee giant has new growth plans. [online] Available at http://www.forbes.com/sites/walterloeb/2013/01/31/starbucks-global-coffee-giant-has-new-growth-plans/ [Accessed 19 Aug 2013]. Proctor, T., 2000. Strategic marketing: An introduction. London: Routledge. Roby, L., 2011. An analysis of Starbucks as a company and an international business. [pdf] Available at < http://digitalcommons.liberty.edu/cgi/viewcontent.cgi?article=1237&context=honors> [Accessed 17 Aug 2013]. Starbucks, 2013a. About us. [online] Available at < http://www.Starbucks.com/about-us/company-information> [Accessed 17 Aug 2013]. Starbucks, 2013b. Our heritage. [online] Available at < http://www.Starbucks.com/about-us/our-heritage> [Accessed 17 Aug 2013]. Starbucks, 2013c. Diversity and inclusion. [online] Available at < http://www.Starbucks.com/responsibility/community/diversity-and-inclusion> [Accessed 17 Aug 2013]. Starbucks, 2013d. My Starbucks rewards. [online] Available at < http://www.Starbucks.com/card/rewards> [Accessed 17 Aug 2013]. Subhadra, K., 2006. International management: Managing across borders and cultures. Management Research, 5, pp. 323- 330. Sun, P., 2010. Differentiating high involvement product by trivial attributes for product line extension strategy. European Journal of Marketing, 44(11/12), pp. 1557 – 1575. Yan, R., 2010. Product brand differentiation and dual-channel store performances of a multi-channel retailer. European Journal of Marketing, 44(5), pp.672 – 692. Read More