The Ethics of Business of Starbucks - Case Study Example

page Essay Ethics – Starbucks September 3, Table of Contents Introduction 3 An overview of Starbuckscompany 3 Answers to Question No. 1 4 Answers to Question No. 2 4 Answers to Question No. 3 5 Answers to Question No 4 5 References 6 The Ethics of Business of Starbucks Introduction It can be said that we have come to an era of coffee drinkers. According to the report of the National Coffee Association of USA, as cited by Powers, Deb of eHow , there are lots of ways how people consumed their coffee. It has been noted that there has been a growing trend of coffee consumption since 1993 and there is an increase of the number of people consuming coffee outside their home from 1950 to present. This trend of coffee consumption brought an upward fashion of specialty shops starting 1990s. Coffee drinkers are found among the young (16 and above) and senior age (60 and above) age groups (Powers, Deb). Coffee is a well misunderstood drink. Some say it is bad for the health and a growing number of people are concerned for their health. But the truth behind these fallacies maybe surprising to all since according to NCDT, coffee provides more health benefits. Data shows: ’ “61 percent of coffee drinkers said that coffee improves their focus; 46 percent listed the health benefits of drinking coffee as one of the reasons they drink coffee; and Fair-Trade certified and organic coffees are the fastest-growing segment of specialty market.”(Powers,Deb, n.d.). The growing trend of the coffee market shows the movement to specialty and the growing awareness of the public on health and the environment protection. Thus, in this scenario, the organic coffee was introduced, signaling the introduction of specialty coffee shops like Starbucks and other well known coffee shops. STARBUCKS Starbuck was established in 1971 by three partners who immediately recognized a business opportunity in the retail business of coffee shops. The partners offered a different coffee flavor which immediately became a hit, and the rest is history. From a simple beginning of a coffee house in Seattle, Starbucks today, operates 17,000 coffee houses in 55 countries. It is reportedly earning $11 billion revenues in a year, and has become the third largest chain restaurants in the United States (Case 2) Starbucks competes with players within the specialty market and with other outside specialty market. Some examples are the Tully’s Coffee, Seattle’s Best Coffee, and Caribou’s coffee. Others are MacDonald’s, Folgers, and Dunkin Donuts, to mention some. Starbucks has capitalized on the homey atmosphere of its coffee houses, and brand loyalty of followers. The study of Starbucks will lead us to their drive of how they evolved on their corporate strategy to withstand competition. Understanding its strategic efforts will lead to knowing the significance of a strategic approach in business. 1. Why do you think Starbucks has been so concerned with social responsibility in its overall corporate strategy Starbucks captured the opportunity of health benefits and presented their company as one championing the cause for health and environment. It has developed a mission : “ to inspire and nurture the human spirit, one person, one cup, one neighborhood at a time.” In 1990, Starbucks declared their mission as: “people first and profit last”. Its guiding principle in adhering to this principle is to” provide a great work environment and treat each other with respect and dignity.” (Case 1) In entering this highly competitive market, Starbucks need something to differentiate it from the existing specialty shops. Thus, it has developed a strategy that explores social responsibility to develop a niche in the market. It came out with a strategy that differentiated its products as to quality, to open their stores marked with convenience, atmosphere and ambiance, and to provide satisfactory customer service. It has created a barrier to entry by establishing partnerships with organic farmers to be assured of a continuous supply of quality coffee beans. By engaging on social responsibility, they make the suppliers and neighborhood as their partners, and by having exclusivity of contracts with suppliers, they maintain loyalty of suppliers, neighborhood and patronage of the community they serve. Social responsibility provides an added value to the company to enable it to compete and adopt sustainable standards. Thus, as the markets become developed, sustainability assures Starbucks of a recognized quality system. 2. Is Starbucks unique in being able to provide a high level of benefits to its employees? Starbucks considers their employees as partners. The company believed that” their employees are not only their “heart and soul, but also the public face of the company” (Larson, Ryan, 2008). The approach used by Starbucks to attain employee satisfaction is “to raise health care benefits and to extend them to all employees working more than 20 hours a week.” This means spending a lot of money, but to Starbucks, this move assures them of high-quality employee, reduction of the rate of turn-over, and a decrease in the overall expenses of the company in the long run. According to Larson, as cited from the book of Shultz,(2007, p. 27), this strategy cuts the turnover rate of “baristas’ to 60% and the managerial level to 25% which was considered as the lowest in the industry. The prevailing rate of turnover at a typical food chain is between 150% to 400 % a year. Another form of employee benefit, which could not be considered unique is the stock option plan. This is a plan offered to employee to grant stock options in proportion to their base pay. These incentives are not unique because training and health care benefits are standard operating procedures in management. What makes the practice unique is the level applied by management and the amount management is ready to spend just to satisfy its employees. 3. Do you think that Starbucks has grown rapidly because of its ethical and socially responsible activities or because it provides product and an environment that customers want? It is my belief that Starbucks has grown rapidly because it came up with a product and environment that customers want. Starbucks is consistent. It is always ahead, and looks at what people need, rather than being a traditional retailer. For instance, they ride on the recession problem to produce a product that can solve the dilemma. By introducing instant coffee, Starbucks was able to offer a product that reduces expenditures of people, yet still providing same coffee flavor people look for. They grew by differentiation approach, and being socially responsible is the strategy applied in the process. For instance, in taking advantage of technology, Starbucks allowed customers free wireless internet access in most of its stores in the U.S. They also offered Internet cards to customers that gave them convenience in purchases of many things in the store. Its success can be attributed to its ability to design a strategic approach to development that showed the possibility of adopting its business model that took advantage of the needs of the people. They grew through the strategies they used, for example, by maintaining loyal employees health care and incentives. It attained sustainability through partnerships with the community and organizations that assures them of quality supply. In doing so, Starbucks was able to maintain social interactions in the community. 4. What did you personally learn from reviewing this company and business ethics case? Ethics in business is the manner one pays attention to its daily dealings in its community and environment (WiseGeek). Good ethics should be a part of every business dealings. Its core values are anchored on integrity, honesty, and fairness. The implementation of these values will now depend on the company and its day to day dealings with its environment. Honesty refers to promise of the company in maintaining the quality of the product. To this, Starbucks has responded fairly well by establishing partnerships with growers aimed towards assuring quality products. Starbucks has retained its integrity by accepting social and environmental responsibility. Fairness could refer with the way treat its employees, and how it deals with people, competitors included. However, in the course of competition, good ethics drift apart. For example Starbucks was criticized for setting up stores in same locations creating a cut-throat competition. Its cluttering strategy has put smaller stores in the vicinity out of business. It has also created direct competition in the retail business as it began to offer food and other complementary products in groceries and super marts. To this end, is competitive advantage unethical? Owing to its largeness, economies of scale creates dilemmas to small producers who could not cope with Starbucks. Fairness in business, I learned, is very difficult to achieve without sacrificing one over the other. For instance, in satisfying employees, a large amount of money is expended in the process. This puts stockholders to a disadvantage point because profit and their dividends are sacrificed. References Case 2. Starbucks Mission: Social Responsibility and Brand Strength. Larson, Ryan, 19 April 2008. Starbucks Strategic Analysis: Past Decisions and Future Options. Brown University, Economics Department Powers, Deb. About Coffee Drinking Trends. eHow. com Retrieved 02 Sept. 2012 http://www.ehow.com/about_4574027_coffee-drinking-trends.html WiseGeek. What are Basic Business Concepts? Retrieved 2 September 2012 http://www.wisegeek.com/what-are-basic-business-ethics-concepts.htm Read More