Strategic Management Process: Starbucks Corporation - Case Study Example

 Strategic Management Process: Starbucks Corporation Introduction Strategic management is an effective managerial tool necessary in any organization aiming at succeeding, or realizing competitive advantage in the market. Strategic management is described as a set of managerial actions and decisions that are significant in determining the long-term performance of an organization (Thenmozhi, 2014). Strategic management attempts to reveal how small and large organizations can be efficient and effective in the present market and the future. Organizational Description Starbucks Corporation is among the multinational corporations that utilize strategic management effectively. The Starbucks was formed and opened in 1971 by Jerry Baldwin, Gordon Bowker, and Zev Seigel. The name of the corporation was inspired by the first coffee loving mate, Mody Dick and the sea love viewed from the location of the company in Seattle Washington. Starbucks originated as a single shop in Seattle, Washington that specialized in the production and delivery of brewing products and high-quality coffee. The company expanded rapidly and established multiple locations in 1970s. In 1981, Howard Schultz, the CEO of the company realized the vast opportunity and joined the company’s founder Jerry Baldwin (Shahi et al., 2007). After the Italy trip to find new organizational products, Schulz decided to implement and adopt the café community environment that he discovered in Italy, to the U.S. This was the initial step in developing the current form of the company. The first test to be done by the Starbucks was to sell espresso by cup (Lee, 2010). Later, Schultz parted with Baldwin to open his Italian coffee house that experienced outrageous success. Schultz and other investors decided to buy the Starbucks Company in 1987 after the founders decided to sell the original six locations. The company went public in 1992 and experienced rapid expansion and success. Currently, Starbucks Corporation is a premier marketer, roaster and retailer of high quality and specialty coffee in the world. The Starbucks Corporation has approximately 19767 licensed and operated stores with 182000 employees in 62 countries in the world. The corporation's product mix comprises of handcrafted and roasted premium priced or high-quality coffee, fresh food varieties, tea and other forms of beverages. The corporation is among the highest revenue earner since it earned approximately $14.89 billion in 2013 (White & Moraschinelli, 2009). Strategic analysis Strategic management is made of four major steps. These include strategic analysis, strategic formulation, strategic implementation and strategic evaluation (Bordean et al., 2008). Strategic analysis is the initial process in strategic management. Strategic analysis involves an analysis of the organization’s external and internal environment. The key purpose of undertaking the external and internal analysis of the organization is to identify various strategic factors determine the company’s future direction and performance (Dress, 2005). Internal factors that influence the organizational performance are mainly categorized into a company’s strengths and weaknesses. These factors are experienced within the organization and can be effectively handled by the organization’s management. On the other side, external factors are the opportunities and threats of the company. They are mainly the macroeconomic factors that affect the organization. External analysis of the Starbucks Company Starbucks Corporation primarily operates in the retail industry for the coffee and snack stores in various countries. The industry had experienced steady growth in several decades before the 2009 economic crisis. During the economic crisis, the total revenue for the industry reduced by about 6.6 percent to around $25.9 billion. The decline in revenue for the retail coffee and snacks was because of shrinking budgets and change in the customer tastes and preferences. In addition, low-priced substitutes for the products produced by the Starbucks Corporation also contributed significantly to the decrease in sales and revenue. After the economic crisis in the United States, the industry constantly grew at an average rate of 0.9 percent from 2009 to 2013. The current revenue collected from the industry is approximately $29 billion, and it is expected to increase by 3.9 percent over a period of five years to come. The retail coffee and snacks industry in the United States is dominated by the Starbucks Corporation with 36.7 percent market share. The second dominant company is Dunkin Brands with a market share of 24.6 percent. Other competitors in the industry like Tim Horton, McDonalds, and Costa Coffee share the rest of the market share (Geereddy, 2011). Several external demand determinants and drivers to profitability exist in the coffee and snacks industry. Some of these drivers and determinants include per capita coffee consumption, demographics, world pricing of coffee, disposable income and attitudes towards health. The industry is sensitive to several macroeconomic factors that influence the growth of disposable income of households. Secondly, the demand and profitability in the retail coffee and snacks industry are influenced by the per capita coffee consumption. Other factors that determine the demand and profitability include prices of the coffee and attitudes towards health. Internal Analysis Internal analysis involves determining the company’s core competence and limitations. Core competencies of the Starbucks Corporation are its ability to produce products effectively through the application of product differentiation strategies such as the provision of high-quality snacks and beverages in a premium product mix. In addition, Starbucks offers unique experiences to customers derived from prime customer service, well-maintained and clean beverages and snack stores. Other core competencies of the Starbucks include horizontal integration through alliances and acquisitions, a high degree of customer loyalty and value-based approach (Geereddy, 2011). Starbucks SWOT Analysis SWOT analysis involves identification of strengths, weakness, opportunities and threats of an organization. Strengths The Starbucks Corporation has several strengths that enable it to be a premier corporate in the retail coffee and snacks industry. Some of these strengths include global brand recognition and strong market position. Starbucks Corporation has significantly ventured into the different countries across the globe, thus ensuring that its products are recognized worldwide. In addition, the organization has maintained a high market share in the retail coffee and snacks industry in the United States of 36.7 percent thus having a competitive advantage. Secondly, the corporation produces unique products of the highest quality in the industry. Starbucks Corporation concentrates more on the production of high-quality products in order to attract a large number of customers and maintain high customer loyalty. The quality of Starbucks’ products gives the corporation outstanding image and customer preference thus resulting in high and stable sales (Geereddy, 2011). Diverse product mix provided by the Starbucks Corporation makes the organization unique and outstanding in the industry. The product portfolio of the Starbucks caters for all demographic groups and factors. Differentiation of products ensures that all customers are effectively satisfied by the products provided by Starbucks. Fourthly, human resource management is a key strength of the Starbucks Corporation. The corporation has qualified, motivated and esteemed employees that are the key organizational asset to its achievement. Adoption of mobile outlets and modern technology gives Starbucks outstanding position in the industry. Starbucks has an application for android and apple software’s thus enhancing ordering processes. Lastly, the organization has a strong customer base loyalty that is enhanced through the provision of Starbucks Cards and Starbucks Rewards programs. Weakness Starbucks Corporation has few weaknesses that limit some activities and achievement of the set goals. These weaknesses include expensive products, self-cannibalization experienced through overcrowding of people in the outlet stores, negative corporation image, corporation’s overdependence on the U.S. market and diverse and inconsistency coffee culture in other countries as to that of American or European culture. Opportunities Opportunities available for the Starbucks include future expansion into the new markets in different continents, expansion of offerings and product mix, brand extension, adoption of advanced technology in production, marketing and distribution of products, development of new distribution channels and expansion of retail operations. Threats Starbucks Corporation faces some threats in the market and industry. Some of the threats experienced by the corporation include increased competition, economic crises in developed economies, price volatility in the global market for the coffee and changing lifestyle and customer taste and preferences. Strategic Formulation The strategic formulation is a strategic management process that involves determining the organization’s goals, objectives, mission, vision and selecting an appropriate strategy. The strategic formulation involves extensive research and decision making that aim at determining the ways and means of achieving organization goals, objectives, and vision (Mitchell, 2004). The strategic formulation can also be described as continuous process of developing a set of directions aiming at achieving organizational goals. Several factors influence the strategic formulation process. Some of these factors include evaluation of external and internal organizational environment, establishment of predetermined goals and mission of the organization, setting organizational strategic policies and guidelines and assessment of values, needs and skills possessed by strategy developers. According to the Saylor Foundation (2008), strategic formulation involved a set of six steps. These steps include organizational definition, definition and development of a strategic mission, description of strategic objectives, development and identification of the competitive strategy, implementation of strategies and evaluation process. Strategy formulation is a process that consists of several components as identified by Thenmozhi (2014). These components of strategy formulation include mission, vision, objectives, strategies, policy, and strategic choice. Mission is described as the reason or purpose for the existence of an organization or enterprise in an industry. A well-developed mission statement is composed of fundamental and unique purposes that distinguish an organization from other organizations in the industry. In addition, the mission statement describes the scope of the organizational operations such as the market served and products offered by the organization. A mission statement of an organization can be broad or narrow in scope. A broad scope mission statement focuses on a large number of products or activities carried out by the organization. However, a broad scope mission statement fails to clarify on the specific product or activity carried out by the organization. A narrowly scoped mission statement states clearly the primary business activities of the organization but limits the organization’s scope of activities in terms of services offered, products produced, market served, and technology used (Thenmozhi, 2014). In the case of Starbucks Corporation, the mission statement is “To inspire and nurture the human spirit- one person, one cup and one neighbourhood at a time.” The mission statement reveals the objectives of the company. Secondly, strategy formulation process has a vision statement of the organization. The vision statement of an organization reveals the overall goal or future position of the organization. Vision is a long-term goal of the organization aimed at directing and focusing resources towards achieving the prime organizational goal. Thirdly, strategic formulation consists of various organizational objectives. Organizational objectives state what the organization should accomplish within a specific period. Accomplishing objectives results in fulfillment or accomplishment of the organizational mission. Objectives should be quantified and should state what the organization aims at achieving. Common areas, where organizations might establish objectives, include utilization of resources, growth, profitability, shareholder’s wealth, etc. Strategies are key components of the strategy formulation process. A strategy is a master plan that states how an organization or corporate will achieve its objectives or mission. Strategies are grouped into three major categories- corporate strategy, business strategy, and functional strategy. The corporate strategy describes the overall direction of an organization in terms of management of various activities and product lines and the attitude towards organizational growth. Corporate strategies are developed and monitored by the top level managers in an organization and focus on long-term organizational achievements. The corporate strategy focuses on three major issues facing an organization as a whole. These major issues are portfolio analysis, directional strategy, and parenting strategy (Bordean et al., 2008). Business strategy is mainly incorporated at the product level or business unit. It gives direction for improvement and advancement of the competition position of services or products in a marketing segment under a particular business unit. A business strategy can be either competitive or corporate strategy. Functional strategy refers to the direction taken by a basic functional unit or area within an organization to achieve business unit objectives or corporate objectives and strategies. These strategies and objectives are achieved through the maximization of resource productivity. The functional strategy aims at developing a unique competence that helps an organization or a corporate to gain competitive advantage (Mitchell, 2004). A policy is defined as guidance for a course of action. Policies guide decision-making processes and link the strategy formulation process with its implementation. Policies are used within an organization to ensure that employees take actions and make decisions that that are consistent with corporation’s strategies, mission, and objectives. Strategic choice is the process of evaluating alternative strategies and selecting the most appropriate strategy. The Starbucks Corporation has policies that enable the organization’s employees and managers to make decisions and take actions that are consistency with organizations goals, strategies, and objectives. For instance, employees in the organization ensure that customers are satisfied with the quality of their products by producing high-quality products. Strategic Implementation Strategy implementation is an important process since it enables an organization to benefit from the strategy by transforming the strategy to action. According to Thenmozhi (2014), strategic implementation refers to the process of putting policies and strategies into action mainly through the development of organization’s programs. Successful implementation of a strategy requires all the organization’s aspect to be consistent with the strategy. The strategic implementation process involves making decisions about executing activities that support the strategy rather than undermining the selected corporate objectives. After a new strategy is developed, it is implemented in presences of various changes in the organization. Some of these changes occur in the organizational structure, leadership, human resources, and information and control system (Christensen & Donovan, 2012). Leadership is a major factor that enhances strategy implementation. Leadership is defined as the ability of a person to influence other people to adopt and embrace new behaviors necessary for the strategy implementation process. Employees and other organizational stakeholders must be persuaded to believe in the selected organizational strategy and be committed to the achievement of goals and organizational vision. Leadership involves motivating employees, using persuasion and establishing organizational culture and values necessary to support the developed strategy within an organization. For instance, top-level managers in an organization can deliver speeches to the employees motivating them to adopt and support a new strategy for an organization. Secondly, managers can build relations and coalition with supporters of the strategy and persuade middle managers to act in accordance with organizational objectives and goals. In the case of Starbucks Corporation, the marketing manager can persuade employees, middle managers and partners to adopt and support a new organizational strategy in marketing such as online advertisement. Structural design is an important aspect of strategy implementation. The structural design of an organization begins with the organizational chart. It highlights responsibilities of managers, the degree of authority exercised by managers, and consolidation of departments, facilities, and divisions within the organization. In addition, the structure of an organization includes job designs and production technology used by the organization. Implementation of a new strategy within an organization requires several changes in the organizational structure like the addition of positions, shifting of position, reorganization of terms, shifting manager’s responsibility and redesigning jobs. In the Starbuck’s case, responsibilities of managers may shift from monitoring a certain area to managing a different area of the organization. Control and information systems are necessary for supporting strategy implementation. Some of the common information and control systems include pay incentives, reward systems, information technology systems. Changes in information and control system are important in supporting the implementation of a strategy. For instance, in the Starbucks Corporation, a manager can reassign resources from a certain department such as production to marketing in the presence of a new marketing strategy. Human resources in an organization refer to the employees working in the organization. Human resource is composed of activities such as selecting, recruitment, training, transfer, promotions and lay off to achieve strategic goals. For example, training employees enable them to develop and acquire various skills necessary in the implementation of the organizational strategy. Changes in human resources might be utilized by the Starbucks Corporation to achieve its goal. The Starbucks Corporation can consider providing training to various employees in various departments in preparation of implementing a new strategy. In conclusion, strategic management is an important and significant tool that contributes to the success of an organization. Strategic management enables the management of an organization to determine the current and future position of the organization. Secondly, strategic management processes help the organization to gain competitive advantage over other organization by developing effective strategies that aim at improving the performance of the organization. The strategic analysis process involves determining the strengths, weakness, opportunities and threats to enhance proper decision-making. External and internal factors influencing the organization are identified. The strategic formulation is a process that involves the development of the appropriate strategy. Lastly, strategic implementation is an important process that focuses on transforming the strategy into an action. Reference List Christensen C & Donovan T.(2012). THE PROCESS OF STRATEGY DEVELOPMENT AND IMPLEMENTATION. Innosight. 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