Understanding Strategic Management - Starbucks Corporation - Assignment Example

Understanding Strategic Management Table of Contents Table of Contents 2 Introduction 4 Core objective of Starbucks 4 Strategic Analysis of Starbucks4 Internal strategic analysis 4 Strength 4 Weakness 5 Opportunity 5 Threat 5 External strategic analysis 5 Political factors 6 Economical factors 6 Social factors 6 Technological factors 6 Legal factors 7 Environmental factor 7 Strategic Formulation of Starbucks 7 Conclusion 8 Reference List 9 Appendices 10 10 Executive Summary Starbucks Corporation is one of the leading coffee-house chain and coffee product manufacturer in the US. The organisation has its presence in almost all the major countries of the world. The core values of the organisation are focused on increasing their profitability and market reputation through providing quality premium products to the consumers. The report has demonstrated the external and internal business environment analysis of the organisation. This analysis has highlighted the current economical, technological and social condition of the organisation. It has also assisted the organisation to understand their position on the global market. The internal analysis has illustrated various weaknesses and threats of the organisation such as strict pricing policy, legal issues and market saturation. The external analysis of the organisation has elaborated the current political, social, environmental and technological condition of their operated countries. It has also helped the management to analyse the impact of these situation on the overall performance of the organisation. The final outcome of the report has helped the management to introduce various new strategies to improve the performance of the organisation. Introduction The report is based on the situational analysis of the organisational strategies of the Starbuck Corporation, a leading multinational coffeehouse chain. Starbuck Corporation was established in the year of 1971 and it is headquartered in Washington, USA. The organisation operates in almost 62 countries through 19,767 company owned outlets. They have recorded revenue of $14.89 billion by the end of 2013 (Marketline, 2014). The internal and external analysis of the organisation will be conducted to understand the strategic position of the organisation. Therefore, a strategic formulation of the organisation will be discussed to analyze the most appropriate course of action to achieve the overall goal of the organisation. Core objective of Starbucks The long term objective of the organisation is to establish themselves as a premium seller of finest coffee products across the world. Their mission is to maintain the uncompromising business principle to achieve the sales growth (Marketline, 2014). The main principles of their business are: Increase the profitability for future success. Providing healthy and encouraging working environment. Incorporate diversity as one of the essential component of business development. Maintaining the standard and quality of product (Marketline, 2014). Strategic Analysis of Starbucks Internal strategic analysis The SWOT analysis will assist the management of the organisation to evaluate the internal strength and weaknesses of the organisation. This will also illustrate the external opportunities and threats to expand their business venture (Pahl and Richter, 2009). Strength The organisation has demonstrated strong financial performance over a vast period of time. The organisation has their strong presence in all the developed and developing countries across the globe. The organisation has secured 34% of the share in the US market (Appendix 1). The organisation offers a diverse product mix to their global consumers. Their product portfolio caters to almost all age group and demographic factors (Appendix 2). The organisation possesses the biggest coffee house chain in the world. The organisation has introduced a mobile payment application with the help of the partnership of Square (Koehn, Besharov and Miller, 2008). Weakness The premium pricing of the product line has debarred the organisation to attract consumers from low to medium earning classes. The changes in the prices of coffee beans and coffee related raw materials are affecting the profit ratio of the organisation. Lack of compensation and benefits of the employees can be considered as one of the major weakness of the organisation. The organisation is facing saturation in the US market (Koehn, Besharov and Miller, 2008). Opportunity Increasing disposable income of the developing countries has provided the opportunity to expand their business to new locations. The organisation can utilize their strong market reputation to introduce new product lines. They can expand their business to food retail chain. They can co-brand with other leading manufacturer of drink and food (Koehn, Besharov and Miller, 2008). Threat The increase in the pricing of dairy products and coffee beans can hamper the production cost and profit margin of the organisation. Due to different political and environmental condition, the organisation may face disruption in the product supply procedure. The increase in competition in the local market is causing threat to the market positioning of the organisation (Koehn, Besharov and Miller, 2008). External strategic analysis The external strategic analysis of Starbuck Corporation has been conducted by using the PESTEL framework (Yüksel, 2012). Political factors The changes in the political relationship with the raw material sourcing countries are one of the major concerns for the organisation. The major raw material supplier countries such as various parts of Africa and Latin America are changing their policies regarding their trading of raw materials with the foreign countries. This situation is influencing the management of the organisation to evaluate their foreign trading strategies. Their business strategies are focused towards adhering to the environmental and social regulations imposed by different partner countries. The management of the organisation has started direct dealing with the major coffee manufacturer of the sourcing countries (Planet Starbucks, 2002). Economical factors The major economical factors that affect the global market strategies of Starbuck Corporation are the fluctuation in the exchange rate between USD and other foreign currencies and tax rates. The difference in the employee pay structure also impacts the global business decision of the organisation. Due to the economical slowdown, consumers are moving towards low priced coffee products. This condition has imposed a significant economical challenge on the overall corporate strategy of the organisation (Planet Starbucks, 2002). Social factors Adaptations of western cultures in the developing countries of Asia and Africa and globalization of lifestyle have influenced the growth of the organisation. The global consumers are getting more aware about the health consequences regarding the consumption of the excessive sugar and caffeine through these coffee materials. The organisation has modified their production strategies to fulfil the expectations of the consumers (Planet Starbucks, 2002). Technological factors Agricultural innovation and upgraded coffee processing methods has assisted the organisation to modify their international business strategies. The organisation has introduced Wi-Fi facilities in all their outlets across the globe. They have also collaborated with the Apple Inc. to introduce a new application to offer discount coupons to the potential consumers. Rapid technological advancement and adaptation by the competitor companies is the major issue faced by the management of Starbuck Corporation (Starbucks Corporation, 2013). Legal factors A number of industry-specific legislations and regulations, such as employment law, healthcare and safety regulations and consumer protection law, are affecting the international business venture of the organisation. They have decided to spend approximately $250 million for the health insurance of their workers. Different unethical practices have triggered legal activities on the business venture of the organisation. By the end of 2013, the UK division of Starbucks Corporation has paid only 8.6 million pound corporate tax against 400 million pound of business revenue. This situation caused various legal activities against the organisation. The management paid additional 5 million pound to eliminate all the legal charges (Planet Starbucks, 2002). Environmental factor A number of international advocacy groups and environmental activists are concerned about the business practices of the organisation. The management has already introduced various environment friendly strategies to improve their market reputation. They have incorporated water-saving technology in their manufacturing equipments. They are working hard to reduce 25% of the water consumption by the end of 2015. They are also recycling the disposed coffee containers to minimize the usage of natural resources (Starbucks Corporation, 2013). Strategic Formulation of Starbucks Formulation of new strategies will assist the management of the organisation to select the most appropriate course of actions to eliminate all the negative influences. It will also help the organisation to increase their efficiency to achieve the ultimate goal (Alkhafaji, 2011). As per the study of the internal and external environment of the organisation, a list of new strategies has been recommended for the organisation- The organisation needs to utilize the concept of “Espresso Bar” in all their outlets across the world (Starbucks Corporation, 2013). This will help them to differentiate their brand from other competitors. The organisation has a positive growth opportunity in the business of tea, fresh juice and energy drink products. They must create a new product line along with their traditional coffee materials. The management need to focus on increasing consumer loyalty. The management can add nutritional values to their offerings and introduce healthy food and beverages to fulfil the increasing demand of consumers. To avoid the market saturation in the US, the organisation needs to concentrate on penetrating the untouched rural markets. They also need to concentrate on expanding their businesses across the developing countries such as India, China, Brazil and Mexico. A huge part of these markets are still untouched by the competitors of Starbucks Corporation. Penetrating these markets will certainly provide added advantage in their business and profit growth. They must diversify their pricing policy as per the consumption power of different market. Competitive pricing policy needs to be adopted for the rural and developing market. The mobile payment application of the organisation has already gain recognitions from the consumers. They should integrate their loyalty program to this mobile application to increase their consumer engagement. They must invest in other environment supporting corporate social responsibility programs. Certain amount of investment need to be made to advertise their CSR movements. The organisation should incorporate Employee Stock Ownership Plan (ESOP) in their employee management system. This strategy will assist them to avoid the misuse of their brand name. Conclusion The report has communicated the core values and objectives of the Starbucks Corporation. The in-depth study of internal and external environment of the organisation has provided a broad view about their current economical condition and technological advances. It has also detailed about their foreign trade relationship. The report has highlighted the strength and weaknesses of the present business model. It has also illustrated the threats and opportunities of the current global market. Therefore, a number of innovative strategies have been suggested to improve their efficiency and competitive advantages. Reference List Alkhafaji, A. F., 2011. Strategic management: formulation, implementation, and control in a dynamic environment. Development and Learning in Organizations: An International Journal, 25(2), pp. 93-117. Koehn, N. F., Besharov, M. and Miller, K., 2008. Starbucks Coffee Company in the 21st Century. [pdf] Harvard Business School. Available at [Accessed 2 February 2015]. Marketline, 2014. Starbucks Corporation: Company Overview. [pdf] Marketline. Available at [Accessed 2 February 2015]. Pahl, N. and Richter, A., 2009. SWOT Analysis - Idea, Methodology And A Practical Approach. Germany: Books on Demand. Planet Starbucks, 2002. Starbucks Corporation: Competing in a Global Market. [pdf] Planet Starbucks. Available at [Accessed 2 February 2015]. Starbucks Corporation, 2013. Fiscal 2013 Annual Report. [pdf] Starbucks Corporation. Available at [Accessed 2 February 2015]. Starbucks Corporation, 2015. Menu: The science of delicious. [online] Available at [Accessed 2 February 2015]. Statista, 2015. Market share of the leading coffee chains in the United States in 2011. [online] Available at [Accessed 2 February 2015]. Yüksel, I., 2012. Developing a multi-criteria decision making model for PESTEL analysis. International Journal of Business and Management, 7(24), p.52. Appendices Appendix 1: The coffee and snacks retail market share of the US (Source: Statista, 2015) Appendix 2: Diversified product mix of Starbucks (Source: Starbucks Corporation, 2015) Read More