Strategy Formation and Evaluation Process - Starbucks - Essay Example

INTRODUCTION Starbucks is one of the leading s in coffee house in US with is foothold almost around the globe. Among many reasons that shall be attributed for the success of the business, overall strategy formulation and its more effective implementation has played dominant role. The entire process is result of well thought out long term visional plan that has been translated and well transmitted to the all levels of business. This process also requires incorporating the rapid changes arising in the business world and posing impact to business. Hence, this report conducts the examination of strategy formulation, its implementation and evaluation of alignment between two former steps to extracts the element of it success story. Report in the end provides recommendations for the possible areas of improvement. Strategy formation and Evaluation Process Vision Statement The Starbuck’s vision according to the CEO of the company is “To be the most dominant national retailer of coffee that provides the country with variety of special coffee and to establish Starbucks as the most respected brand in the whole world”. (Starbucks, 2011). Mission Statement “Provide fresh and high quality products to customers. To create a positive long-term relation of trust and understanding among the employees, customers and the company. To contribute towards the environment and communities positively and to embrace diversity” (Starbucks, 2011). GOAL S AND Objectives of Starbucks The Goals and objectives set by Starbucks as follows: To be the most respected company in coffee industry To server fresh and high quality coffee to customers To buy the best coffee beans for perfection To open 125 more coffee shops internationally within 5 years and 25,000 store locations by 2013 To increase the current market share from 7% in US and 1% in world. Establishing more company owned outlets than franchises to worldwide consistency in of high quality service with respect to location and products. To believe and practice continuous improvement with time. To pass knowledge about coffee to customer To enhance high quality relationship management based on trust between the company and the employees To maintain a culture and environment of respect and inspiration for workforce To hire diverse workforce that are passionate about coffee SWOT ANALYSIS OF STARBUCKS STRENGTHS OF STARBUCKS 1- HIGH QUALITY PORDUCT Starbucks is one of the leading names associated with fresh and high-quality coffee products. The company is committed to provide the customers with the best and fresh quality coffee within the country and internationally. The name Starbucks is well-known to customers for the popular experience that gives it competitive edge over competitors. . 2- SATISFIED CUSTOMERS Satisfied customers is one of the major strengths of the company that gives them the edge over others (Hitt, Ireland, and Hoskisson, 2007). The customers are valued and respected that create a healthy relationship between the company and the customers Starbucks is famous for providing customers with an environment that is considered friendly and are always welcomed. The friendly sales staff at Starbucks has also made it easier for the customers to interact and learn about the fine coffee being offered at the store. This respect and politeness towards the customers have created a relation between the company and the customers (Starbucks a, 2012). 3- LOCATIONAL ADVANTAGE With a strategically thought out wide network of Starbucks locations, the company can easily gain the customers’ attention giving it competitive advantage of location over other competitors. . This enormous number of location has helped the company in reducing the waiting-lines of the customers. Each shops provides customer with ultimate exposure of enjoying the best coffee. 4- FINANCIAL STRENGTH The strong financial position and resources of the company have made it easier to expand globally. Constantly growing experience in coffee business and retail business also develop strong knowledge resource to be leveraged to other businesses of related diversification. 5- WORKFORCE STRENGTH Human resource are the most important assets of the company and an organization can survive in the long run if they value their human resource (Glueck, 1980). Starbucks to provide higher customer services focus on hiring experienced, loyal and enthusiastic personnel. These personnel not only provide quality services to the customers but also help to achieve company’s vision. High satisfaction levels of employees have resulted in low turnover rate as compared to other companies in the market. 6- MANAGEMENT AND BUSINESS PRACTICES The Starbucks management is decentralized and follows open door policy. Employees at Starbucks are encouraged to take innovative steps to give customers the best place to enjoy coffee. Employees are encouraged to share their views and thoughts regarding the success of the business with the top management. Preserving the environment and ethical conduct in dealing has made Starbucks a well-known company and has enabled it to create a positive image in the market. 7- SUPPLIER RELATIONSHIP MAGAMENT Starbucks is also known for its relationship with suppliers which help to cater the needs of the customers by providing the best quality coffee from best quality beans. . WEAKNESS OF STARBUCKS 1- ONLY COFFEE: Starbucks entire business is within coffee industry that has made the company highly dependent on coffee. Instead of diversifying into other industries, the entire focus is on coffee, making the company an easy target for the competitors in both the foreign and local market. 2- LARGE NUMBER OF STORE Starbucks focuses on capturing the market by blanketing it with large number of shops has resulted in self-cannibalization shops focusing on capturing each other’s share instead of emphasizing on competing with competitors. 3- GRWOING COMPETITION: Many competitors such as McDonald’s McCoffe etc throw higher competition threats to Starbucks as these competitors have wider range of products to cater. Starbucks places much importance to cover the foreign market for profits and ignores the main local market. They charge premium price in the international market which is considered higher than the local coffee shops in the local market. This globalization of Starbucks has increased the numbers of competitors that are entering the market to compete against the company and their market share. OPPORTUNITIES FOR STARBUCKS 1- INCREASING MARKET SHARE Growth In home and international Market: Starbucks has 7% of local and 1 percent share of coffee market. Therefore, it still has much more room to grow. 2- MORE DIVERSIFICATION Growth can also be accelerated with providing wider range of related products under one roof. Alliances with companies ran also help Starbucks to expand into markets beyond their imaginations and can also help to develop brand image. THREATS TO STARBUCKS 1- INCREASING COMPETITORS Increasing number of coffee shops and other restaurants are a threat for Starbucks as the company will have to defend the market share against these local competitors as well as international brands. 2- COMPETITIVE ADVANTAGE- IS IT REALLY IMMITABLE? The company will also have to defend against the major companies that are ready to add quality coffee that could compete against the standards of Starbucks. 3- COMPETITVE ADVANTAGE LOOSING SUSTAINABILITY The company is also very dependent on the coffee industry making the company exposed to the rising cost of coffee and would have to charge even higher. Also stagnant growth of coffee drinking is posing threat to its competitive advantage. STARBUCKS CORPORATE STRATEGY CEO of Starbucks Mr. Schultz directed Starbucks with the globalization strategy. It is constantly increasing its standing on countries across globe. To establish its standing in global market using of product development strategies is important (Johnson & Scholes, 2001) and Starbucks follows the same. Starbucks also has merged and created strategic alliances with major companies around the globe to cater market internationally. These alliances have enabled the company to form strong relationship with supplier to provide high quality products and services. Also alliances at international level provide Starbucks to leverage country specific coffee habits of the new market. Starbucks has also used vertical integration to roast its own coffee and to foster partnership with farmers. This vertical integration has become one of the main pillars of Starbucks and sustainability to its competitive advantage. BUSINESS LEVEL STRATEGY The company was highly focused on providing the market with something new and different. The CEO used focus-differentiation in business level strategy. By doing so the company was able to charge premium pricing. The company also used innovative tactics to develop variety in the product line. Variety of choices was added in the coffee making it difficult to be copied by the competitors. This enabled Starbucks to serve the customers better than others in the market. By using the company’s resources and capabilities, they were able to attract the niche market by providing customized coffee as per requirement. FUNCTIONAL STRATEGY Starbucks to support the corporate level strategy of constant product development and increase its market share strive to provide high level services at each outlet. Increasing the exposures of each customer at Starbucks outlet its HR follows hiring high quality work force that are enthusiastic about the coffee. STRATEGY IMPLEMENTATION Schultz keeping in mind the vision of the company has expanded in local as well as international Franchising was strictly opposed by the CEO to maintain control of the quality and to create common culture in all the stores. He kept increasing the numbers of stores in the market to challenge the organization and to increase the growth and profitability of the company. All the strategies that were followed were based to achieve the goals and objectives of the company. Starbucks started from only 9 stores but with a vision to increase the numbers of stores to 25,000 in 2013 (Starbucks b, 2012). The main theme behind expansion was to cater both international and national market as the company still has the potential for growth as coffee is the second most consumed beverage in the world. Instead of franchising, the company opened stores in partnership with local companies. They hired and trained baristas that were passionate about coffee and enjoyed what they were doing. Additionally, with training of two to four weeks, the baristas were taught to deal with the clients with Starbucks way effectively while maintaining interpersonal skills. Empowerment of employees is important in satisfying customers (Dubrin, 2010). Employees are empowered to take effective steps to please the customers such as providing customized coffee as required etc. They are allowed to provide feedback which could help the company in prospering effectively and efficiently. PERFORMANCE OF STRATEGY From the day when Schultz took over the company he had clear vision of becoming the most respected brand in the coffee worldwide. The expansion strategy for Starbucks has proved to be successful with innovative step in international market. With increasing profit and growth of Starbucks, the company expects to expand its share by 25,000 stores in 2013(Starbucks b, 2012). Starbucks revenue has gradually increased after 1990 when it launched a store that acted as a retail as well as espresso coffee shop. The existing stores have made an annual profit between 2-10 percent and 2003 was the 12th consecutive profitable year for Starbucks. This shows company’s sound strategic plan for growth by satisfying the customers has been well implemented (Starbucks b, 2012).. With a wide product line, Starbucks has attracted a wide range of coffee lovers and have become the market leader with the most innovated flavors and combinations in product line. Alliances with the companies have also played a great role in the success of the organization (Freeman, 2010). Starbucks have formed alliances and these alliances have made the company to easily access the foreign market and to supply the customers with fresh and high quality products. The sale of Starbucks wide range of coffee line has rapidly increased from year to year showing the success of Starbucks. The royalty and license fee from only the domestic stores was close to $150 million in the year 2003, with internal revenue from licensed retail store accounted for about $250 million RECOMMENDATION Starbucks has been successful in its strategy to be the most respected brand in the world. Its success can be witnessed from fact that coffee has been associated with Starbucks. However, to maintain the success story ongoing it further needs to conduct measures that strengthen Starbucks and its competitive advantage. Discussed below are certain recommendations for the same: Starbucks should continue to focus on expansion internationally along with further penetrating in United States where it has 11,000 stores and only 5,000 stores in the international market (Starbucks b, 2012).. The US market is saturated and have no room for expansion, therefore to increase market share it should look around for the acquisitions of small players that are making efforts to imitate the Starbucks flavor The company should use more of joint-ventures and licensing strategy, as it has proven to be successful in the past and could help minimize the risk of loss. Starbucks should introduce some localized products with innovation to attract the local customers. People today are concerned about healthy lifestyle so, Starbucks should use this opportunity to motivate the customers to choose Starbucks over other alternatives. To maintain the reputation for high quality coffee in the industry, Starbucks would have to improve the quality of coffee and the brewing system. By doing this Starbucks would be able to bring out different flavors of world’s exotic coffee. Starbucks should continue to make more efforts to enhance their image as the environmental friendly as done in the past. Starbucks is connected to the customers on emotional level. Stores should be designed in such a way that barista could interact with the customers establishing lasting impression on the customers. As an important strategy, it shall enter into new domains with related diversification in order to reduce its dependency on coffee only. Moreover, this diversification shall be so related that offers customers wider options under one roof. CONCLUSION The analysis of overall strategy o star bucks provide evidences factors that prove to be source of success recipe. Constant efforts to main the competitive advantage in the coffee industry and success in achieving it has made it a star. Strategies at all levels of business are aligned together and hence successfully contributing in the achieving its vision. References Dubrin, A. (2010). Essentials of Management. South Western, Cengage Learning, USA. Freeman, R. (2010). Strategic Management: A Stakeholder Approach. New York: Cambridge University Press Glueck , W. (1980). Business Policy and Strategic Management. McGraw-Hill, New York. Hitt, M, Ireland, R., and Hoskisson, R. (2007). Strategic management: Competitiveness and globalization: Concepts (8th Ed.). New York: Thomson/South-Western. Johnson, G., & Scholes, K. (2001). Exploring Corporate Strategy: Text and Cases. 6th edition. Prentice-Hall, London. Starbucks a. (2012). Starbucks Company Timeline. Retrieved November 5, 2012 from Starbucks b. (2012). Starbucks Company Profile. Retrieved November 5, 2012 from Starbucks. (2011). Our Heritage. 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