Using Porters Competitive Strategy by Starbucks - Case Study Example

Starbucks Case Study Name Institution 1. Which of Porter’s Competitive Strategy is Starbucks using? Starbucks uses the differentiation strategy. By using this strategy, the Starbucks provides high quality coffee in addition to an exceptional customer experience through its baristas throughout its large number of locations globally. Razak (2011) explains that in using the differentiation strategy, a business seeks to be exceptionally distinctive in the industry along by integrating certain dimensions that the customers value to build its brand. The evidence provided in the case study shows that Starbucks seeks to employ certain attributes greatly valued by its customers, and seeks to position itself uniquely to address those needs. In turn, the company gets a premium price as a reward for its distinctiveness. For instance, while Starbucks' coffee is expensive, it still manages to get millions of customers each week from across the globe. Starbucks also seeks to sell high quality products and services. To further ensure quality, Schultz hires smart people and baristas. It recruits its employees from universities and provides them with 24 hours' training in making coffee and lore. The company believes that this strategy enables it to create a distinctly hip image and quality service. Again, to maintain production of high quality coffee, the company roasts its coffee onsite. Indeed, Schultz acknowledges that his key challenge is becoming a brand that is respected and recognised globally over the long-term. Hence, rather than seek cost advantages by selling its coffee at low-cost, Starbucks relies on making quality premium products that set it apart in the industry. 2. Discuss how Schultz uses leadership, structure, information and control systems, and human resources to implement strategy Leadership The key to Starbuck's effective strategy execution is leadership. Daft et al. (2010) describe leadership as an individual’s ability to influence other individuals into embracing productive behaviours necessary for implementing an organisation’s strategy into action. Chand (2015) also comments that leaders are supposed to apply motivation strategies, persuasion, as well as influence the organisational culture to influence the individuals to support the new strategy in place. Schultz relies on his leadership to influence employees to engage and align workers to his objective of building a globally respectable and recognised brand. One form of motivation strategy the company uses is training. Schultz uses 24 hours' training to teach employees on how to uphold the company’s reputation for quality coffee. Again, Schultz is indeed persuasive and charismatic. He has managed to change the world's drinking habits through Starbucks. Therefore, it could be reasoned that employees who relate to him are first aligned to his strategy of achieving quality. Structure Daft and Samson (2014) view concept of structure, or structural design, as pertaining to the duties of the managers, the levels of authority the managers command, as well as the structuring of departments, facilities and divisions. Additionally, it describes the issues of decentralisation and centralisation and the job design and tasks. The company used centralisation to execute a differentiation strategy that does not conflict with the company's structural design, specifically in regards to which the authority of the managers is affected. Based on the evidence provided in the case study, it could be argued that Starbucks relies on centralisation to ensure that its global operations operate on the same understanding of achieving quality products that set the company apart. Indeed, all indications show that Starbucks has consolidated power under a central control at its headquarters in Seattle. Starbucks has set up a system where each night, the computers from its entire store send information to its head office in Seattle. This enables the executive management to identify the regional buying trends to determine whether its differentiation strategy is indeed effective. Again, through centralisation, the company is able to reorganise the entire global operations into teams that work with local customers directly, yet keep the headquarters updated on any development requiring significant attention (Schultz, 2003). Information and control systems Daft et al. (2010) describe the information and control systems as a set of structures, such as the pay incentives, the budget, information technology systems, reward systems, as well as the organisational policies and regulations needed for putting the strategy into action. By leveraging some of these systems, such as Starbucks’ information technology infrastructure, Schultz has been able to put its strategy of differentiation into action. For instance, Schultz values excellent technological expertise as he targets people with such expertise for hiring. He also makes use of quality information technology resources. For instance, through a computer network, the Starbucks is able to expand its business empire. In fact, Schultz tends to hire top information specialists from companies, such as McDonald's, who design the company's point-of-sale system to allow managers to track sales. Human resources Starbucks' human resources are basically its employees, such as the baristas. According to Daft et al. (2010), the function of the human resources in promoting organisational strategies or strategic goals include recruiting, selecting, training, transferring and promoting employees. At Starbucks, Schultz supports recruiting of individuals from universities, whom are further trained to advance their skills and knowledge in ensuring quality customer experience. The objective of recruiting university students is certain. As explained in the case study, Starbucks recruits baristas from universities to prepare the coffee drink, as a strategy for creating the hip image (Daft and Samson (2014). Since this image is intended to make Starbucks to appear uniquely exception, it could be reasoned that the company is able to attain its differentiation strategy. Still, it should also be perceived that training employees is significant, as it enables them to understand the objective and significance of having a new strategy, overcoming resistance, as well as developing the requisite skills and organisational behaviours that support Starbucks' objective of building a long-lasting respectable and recognised global brand. Starbucks has mainly recruited managers with many years of experience from leading companies, such as Blockbuster, Wendy's, Taco Bell, and Burger King. 3. What strategies has Schultz used in expanding Starbucks internationally? Schultz has steered Starbucks to enter international markets through a three-pronged strategy: licensing, company-owned subsidiaries, and joint ventures. Joint Ventures The strategy of using joint ventures enables Starbucks to own a proportion of the business, as well as to take part in the management of the foreign-based company (Schultz, 2003). Wada (2004) explains that joint ventures call for the use of direct investment and training, offering assistance to the management and transferring of technology. Starbucks uses this strategy to gain access to the local skills, as well as to share the risks of the new market and development costs. As indicated in the case study, Starbucks partnered with foreign entrepreneurs to launch its first international business in Tokyo in 1996. It also uses the strategy to address the local needs and requirements. In particular, the company treats its partners as instrumental to its global success and in turn selects them based on whether they share certain values and corporate culture. The partners are also assessed based on their commitment to customer service, their reputation for quality services, their level of local knowledge, as well as their capacity to build brands. Starbucks also examined the financial strength of the partners. Indeed, while some analysts were opposed to Starbuck's strategy of expanding through joint-venture, the company's high flexibility and the effective management structure provided it with the stimuli to succeed internationally. The company has formed joint ventures with international brands, such as Pepsi-Cola to manufacture bottled Frappuccino. Other partners include Dreyer's Grand Ice Cream Inc to manufacture the leading brand of coffee ice-cream in the United States. Wholly Owned Subsidiaries According to Tang and Liu (2011), when it comes to the company-owned subsidiary, the parent firm owns the entire stock (100 percent) of the subsidiary. Evidence provided in the case study to support this strategy is adverse. However, it could be reasoned that Starbucks uses this strategy to set up new business in new countries, through Greenfield investments), which in turn allows it to protect its technology, as well as to actively take part in the management of its foreign enterprise to ensure quality customer service. This can be explained by the fact that Starbucks has been indicated to be highly concerned about its reputation for quality services, customer service, as well as the capacity to build global brands Starbucks. Indeed, Tang and Liu (2011) explain that the entry mode to the international market requires that a company makes a decision between owning and controlling the methods. This implies that in selecting the three strategies, Starbucks has to make a decision on whether to control the methods or own the methods, depending on the costs of entry, flow of information, speed of entry and the perceptible sign of commitment. For instance, it will use wholly-owned subsidiaries when it perceives less managerial commitment, as well as when it needs to enter the market gradually and to own its technologies. In using company-owned subsidiary strategy, Starbucks makes optimal capital and managerial commitment compared to joint ventures and licenses. Licensing Wada (2004) describes licensing as an arrangement where the company that owns the license grants another company the rights to intangible property, such as designs, copyrights, trademarks, formula and inventions for a particular period. In return, the licenser acquires loyalty fee, or what Wada (2004) describes as royalty, from the company it grants the rights. In the case study, it is indicated that Starbucks uses the ‘licensing’ strategy. Still, the level in which the strategy has been embraced remains unclear, as it remains unexplained. According to Wada’s (2004) argument, the licensing enables a company to benefit from low development costs and low risks of investing in new territories, which provides some evidence indicating Starbucks motivation to use “licensing.” References Chand, S. (2015). How to Implement Business Strategies in Internal Organisation! – Answered!. Retrieved: Daft, R. & Samson, D. (2014). Fundamentals of Management: Asia Pacific Edition. South Melbourne: Cengage Learning Australia Daft, R. Kendrick, M. & Vershinina, N. (2010). Management. New York: Cengage Learning Razak (2011). Seven Unique Differentiation Strategies to Online Businesses: A Comprehensive Review of Malaysia Airline System (MAS). Journal of Internet Banking and Commerce, 16(2), 2-15 Schultz, H. (2003). Starbucks’ International Operations. Business Internationalization. Retrieved: Tang, J. & Liu, B. (2011). A Network Based Theory Of Foreign Market Entry Mode And Post-Entry Performance. International Journal of Business and Social Science 2(23), 50-59 Wada, T. (2004). Joint Ventures and the Scope of Knowledge Transfer: Evidence from US-Japan Patent Licences. Retrieved: Read More