Longitudinal Strategic Development of Starbucks - Case Study Example

Longitudinal Strategic Development Study Starbucks Corporate Strategic History Starbucks Corporation draws its history in the early 1970s. It was during this time that the company was started by Jerry Baldwin, Zev Siegel and Gordon Bowker. The three investors only began a small coffee shop with a contribution of $1350 each in addition to borrowing $5000 from a bank. However, the company’s progress and success largely leaned on a number of takeovers as well as transformations in the management system. However, it can be deduced that the management system was well aware from the start that good leadership depended on social responsibility. As such, the major investors had to take on different tasks within the corporation so that the best man was put in the right job section. At the start, Baldwin kept books as Bowker maintained the store setting. This led to eventual expansion within the company to up to four stores by 1980. Transformation in this corporation reached its peak when Howard Schultz, the most competitive CEO of Starbucks visited the coffee shop and eventually incorporated as one of the investors in the company. His move into the company started when he paid a visit to the company in 1981, a time when he shared the company’s vision with Bowker. Schultz was particularly attracted by the willingness and passion that these leaders had towards their work. However, he noted that the company could easily crumble down at the verge of competition if expansion strategies were not put in place. Even though expansion strategies were meant to improve the corporation, there was still much to be done especially on the side of employees. The company’s employees lacked confidence in the management of the corporation. This required agent actions to be undertaken so that the company could come back into profitable operation. Apart from managerial change since the corporation’s foundation, there was a transformation n the business’s profile. This was achieved through acquisitions. The most significant turnover occurred in 1987 when founders of the company decided to sell the entire operation of the corporation to Seattle. This move opened avenues for Schultz to acquire the company and eventually became the CEO of Starbucks Corporation. His main achievement was in the sense that there could be no more conflicts based on management of the company which arose against his vision. Under Shultz, the company was on the journey of becoming an international business corporation. However, there was no much effect on the side of initial Starbucks’ employees since Schultz decided to absorb all of them. He well understood that their contribution to the profitability of Starbucks was paramount given that they had gained a lot of experience in working for the company. Another move in the business activities of Starbucks came up during the building of a management team after full acquisition of the organization by Schultz. To begin with, it was noted that 125 stores had to be opened within a period of five years. The transformation projected revenues of $60 millions in 1992. Nevertheless, the company’s progress was well slowed down by the lack of skilled managers. Research indicates that Schultz was not professionally versed with the CEO position and therefore acquired skills on the job. His deputy, Dave Olsen, had only had experience in running a single café and this was not well enough for a multi-store operation at the Starbucks Corporation. This was a similar case to the rest of the company’s employees who had centralized themselves in managing smaller stores within the corporation. As a result, Schultz decided to hire Lawrence Maltz who was 20 years but had gotten experience as the president working for a profitable public beverage company. Lawrence was therefore assigned duties as the operations vice president, finance and human resource sections. An emphasis on transformations being undertaken at the Starbucks Corporation was done through changing the logo. In 1992, the company decided to win back employees trust through the Starbucks’ roasting plant decertification: an employees’ initiative. Four key managers of the company took full responsibility to take the company to greater heights by 1994. This was achieved through reshaping of the company’s values, principles and cultural practices. However, it was notable that expansions and partnering had their own shortcomings. In addition, expansions took place in other states outside UK. This demanded for an inner understanding of the local movements, clientele preferences as well as local regulations. As a result, it took the company a lot of time to study local trends and large capitals invested in the move to expand the company in these novel areas. In the event of expanding the business, the CEO redefined the target. There were a number of partnering movements in the verge of strategically transforming Starbucks Corporation. For instance, in 1994, the company entered into business partnership with PepsiCo which helped the company to make coffee related goods purported for mass distribution through new channels of Pepsi. This helped the corporation to expand its market channels. In 1996, Frappuccino was introduced in Starbucks. During the same period, there was partnering of the company with Dreyer’s Grand Ice Cream which facilitated Starbuck to enter the ice cream sector during the same year with a wide range of coffee based products. Prior to this, in 1995, Starbucks had worked with Seattle’s Redhook Ale Brewery to manufacture a stout beer having a taste of Starbucks coffee in it. In the early years though, the company had no emphasis on the mission statement. It was only during the early 1990 that its management team realized the importance of using the mission statement as a tool to communicate to clients. Through this, it was discovered that consumers could easily understand the type of products being offered by the company and in which quality. This led to a mission review system so that all sectors within the company adhered to the ideologies in the mission statement. It was during this mission and vision statement that the company developed a strategy for expansion which considered regions of high demographic profile. In addition, a real estate team was set in place to select highly attractive specific cities through a complicated system. During the founding of Starbucks, a number of moves were achieved through loans from banks. However, the 1996 decision by the management served as a turning point for the company. It avoided debts and instead chose to finance its development totally using equity investment and returns: reducing the general cost of business operation. This was majorly facilitated by market expansions that allowed the company to grow at individual pace without any external threats from competitors. Starbucks’ Current Strategic Situation Starbucks Corporate Social Responsibility CSR maintains the exchange of ideas on the rights and duties in an ethical way between the employees, organization, and society are important for community relations and social purpose. Schultz’s approach to human resource management was not simply about the role of Starbucks’ employees as key agents in transmitting the Starbucks’ Experience, but also part of a broader vision of a common humanity: Furthermore, problems present have implicated the morel rights and duties among the organization and the stakeholders, community, regional diversity and the national posing moral challenges in their overseas operations and may be tempted to lower their standards when situations permit. The counter staff at Starbucks stores-the baristas played a central role in creating and sustaining the Starbucks Experience. Their role was not only to brew and serve excellent coffee but also to engage customers in the unique ambiance of the Starbucks coffee shop. The admission and recognition of the idea that organization progress means change and that each individual needs to drive it through personal progress first. In addition, acknowledging the three stages of transformation, which are unfreezing, moving and refreezing, is fundamental in this Endeavour. Reducing the obstruction to strategic renewal and maximizing the chances to a change the Endeavour are accentuated at the unfreezing process. While the realization of the fundamentals of change and the submission to changes that have already occurred in the labor force involves the moving step. Offering healthcare was a transforming event in the equity of the Starbucks brand that created unbelievable trust among our people. We wanted to build a company that linked shareholder value to the cultural values that we want to create with Starbucks clients. Dynamic stability ensures implementing a change by connecting elements within the company and involvement with more staff members will gradually bring tinkering and kludging. This implies that employees are to be consistently informed of the prospect changes, as they are the main initiators of the resultant changes. On the other hand, managers should gather feedback from time to time by interacting with workers, and by this the business will be geared towards successful outcome in strategic reform implementation Work Value Chain and Operation Management The company focuses on integrating operations and supply chain strategy with a firm’s operations capabilities. This involves decisions that relate to the design of the processes and infrastructure needed to support these processes. Process design includes selecting the appropriate technology, sizing the process over time, determining the role of inventory in the process, and locating the process. The infrastructure decisions involve the logic associated with the planning and control systems, quality assurance and control approaches, work payment structure, and organization of system quality assurance and control approaches, work payment structure and organization of operations and supply chain functions. While every Starbucks store is adapted to reflect its unique neighborhood, “there is a subliminal unifying theme to all the stores that ties into the company’s history and mission-“back to nature” without the laid-back attitude; community minded without stapled manifestos on the walls. The design of a Starbucks store is intended to provide both unhurried sociability and efficiency on-the run, an appreciation for the natural goodness of coffee and the artistry that grabs you even before the aroma. This approach is reflected in the designers’ generous employment of natural woods and richly layered, earthy colours along with judicious high-tech accessorizing. No matter how individual the store, overall store design seems to correspond closely to the company’s first and evolving influences. The clean, unadulterated crispness of the Pacific Northwest combined with the urban suavity of an espresso bar in Milan Improvement in the layout and flow of work is normally associated with the incorporated downsizing, which empowers organization work teams, individual employee and the department to step up their performance and replace the long-established hierarchy. However, the number of level which will vary tremendously between organization and which, to some extent, may form a competitive advantage to the organization will also determine the performance. The layout and design of Starbucks stores were seen as critical elements of the experience. Starbucks has a store design group that is responsible for the design of the furniture, fittings, and layout of Starbucks’ retail outlets. Like everything else at Starbucks, store design is subject to meticulous analysis and planning-following Schultz’s dictum that “retail is detail.” Good communication will enhance good relationships; develop a good understanding with each other, growing intimacy, familiarity, trust, and support. As such, Schultz was unable to convince his Starbucks bosses of his vision, Schultz left to open his own Italian coffee bar, Giornale, in 1986. Conflicts in relationships have frequented to levels that it seems a normal and necessary part of healthy relationships. It is inevitable for two partners, friends, or relatives to agree on each and everything they communicate to each other at all times. There are always some instances of disagreements, which makes it critical to learn how to handle conflicts rather than avoiding them. The main cause of these relationship conflicts is communication comprehension and miscommunication between the two relationship partners. Corporate strategy of company issues to do with diversification Starbucks Corporation exists in an epoch of rapid and spectacular change where fundamental alteration in consumers preferences, tastes and subsequent anticipation and demand, advancement in technologies, competitors with innovative business representations, a number of shifts in labor force demographics and standards, fresh collective demand and limitations. Business entities ought to answer to the outside dynamics so that to develop and sustain exceptional performance. Diversification was realized when Schultz introduced “the romance of the Italian coffee bar” and recognized the opportunity for Starbucks to be a place where people would come to share the experience of drinking great coffee rather than to simply buy coffee beans. Creative strategy is a fundamental approach in gaining market share and successes in business. The distinction between breadth of reference and depth of attention recollections is connected to the lateral and vertical accepted wisdom. Central to Starbucks’ strategy is Schultz’s concept of the “Starbucks Experience.” Starbucks stores-like the original I1 Giornata coffee bars-were founded on Schultz’s idea of creating a “third place”: somewhere other than home and work where people could engage socially amidst the shared experience of drinking good coffee. With the addition of Wi-Fi, Starbucks stores become a place to work as well as to socialize. The contrast also is evidenced in divergent and convergent inventiveness. The industrious dilettante dichotomy is embedded in creativity strategy theory. Creativity calls for mental brainstorming and critical thinking in such a way as to bring cross-fertilization of ideas when operating across a set of connections of enterprises. Further, a creative capacity to flexibly apply creative thinking between fields of domains by means of multiple contacts may perhaps result in generation of an idea Strategic renewal in organizations has proved to be successful. The change requires wide-scale innovation, recreation, and redesign of enterprise processes and organizational structures. Strategic renewal will be effectively adopted if the company embarks more on publicizing a new strategy, but stretch further and implement the new organization capabilities using the effective resources, employee ability, and skills, which have to be advanced in the same line as well. Finance Position Company-operated retail revenues increased due to the opening of 236 new Company-operated retail stores in the last 12 months, favorable foreign currency exchange rates, primarily on the Canadian dollar, and comparable store sales growth of 2% for fiscal 2008. Starbucks’ financial results for the year ending September 2008 revealed the damage being done by the economic downturn to same-store sales and margins. However, it was the results for the final quarter of 2008 that showed just how badly Starbucks was being hurt: net income was down by almost 70% and the company had experienced its first ever decline in quarterly revenues. The announcement prompted a 33c decline in Starbucks’ share price to $9.33. Chairperson and CEO Howard Schultz commented: In the midst of the weakening global consumer environment, Starbucks is following a well-developed plan to strengthen our business through operations that are more efficient and by preserving the fundamental strengths and values of our brand. Starbucks remains focused on driving the discipline and rigor necessary to create long-term shareholder value, and we are taking aggressive steps to excite customers by providing relevant value and innovation, even during this challenging time. Operating margin decreased primarily due to higher cost of sales including occupancy costs driven by continued expansion of lunch and warming programs in Canada, higher distribution costs and higher building maintenance expense due to store renovation activities. In addition, restructuring charges of $19.2 million recognized in fiscal 2008 had a 90 basis point impact on the operating margin, nearly all due to the closure of 61 Company-operated stores in Australia Core Value A company vision is the most reliable statement that provides information ensuring security of job advertisements in an effort to reduce unemployment in the World. The core values ensure integrity and delivering superior and latest information or program performance. Again, it fosters an internal and external environment of increased globalization where any person can access job opportunities from all over the world. Starbucks is committed to build a company that linked shareholder value to the cultural values that we want to create with our customers and stakeholders. Starbucks is committed to selling only the finest whole-bean coffees and coffee beverages. To ensure compliance with its rigorous coffee standards, Starbucks controls its coffee purchasing, roasting, and packaging, and the distribution of coffee used in its operations. The Company purchases green coffee beans from coffee-producing regions around the world and custom roasts them to its exacting standards for its many blends and single origin coffees. The Way Forward for Starbucks Despite the fact that Starbucks has increased its profitability over time, it is imperative that the company maintains the upward trend within this business activity. Notably, sales within this company are escalating considerably. Still, the rate of improvement is gradually dwindling at existing stores. From research done so far, the decrease can be attributed to store cannibalization. This is because the company has been well known for opening new stores within a single region for the purpose of saturating the market expanse. This move can as well worsen competition among close Starbucks stores and destroy the corporation culture in the workforce, ultimately resulting into reduced employee performance. Development of the company has been brought down through poor product efforts that cause most of the company’s products on the shelf for a long period of time. As a way forward in the financial sector, the company has decided to put a lot of money of novel shares as alternatives for workers and managers of the company. The approach is underway and if approved by the stakeholders, the plan will propel options-related intensity to relatively more than 19% of exceptional shares, beyond the level at which most organizational investors might be anticipated to recoil. As a way to compensate employees and managers, the company should pour in a lot of additional stock so that it can prepare itself for the major hurdle in expansion. In the past attempts of business profitability, the corporation has indicated its capability to establish the logistics beforehand so as to support a belligerent fiscal growth era. However, there is a risk particularly in the slow down of expansion as most employees would be disappointed seeing their stock option decrease in profitability contrary to what they expect. In the future, the company’s stock is expected to stay considerably volatile as opposed to the industry. The impact of increased universal competition coupled with an infiltration of the US market causes anticipation of the following: The Return on Equity, Gross and Net Profit Margins could easily decline to concur with the industry. This on the other hand might make shareholders to choose other more vibrant earning companies. The Market to Book proportion might decline, denoting a decline in the corporation’s growth. There would be a decline in the Fiscal Leverage, bringing it far much below the corporation average hence discouraging new shareholders from investing into the company. The reducing Interest Coverage would indicate a less profit earning tool for investors. Since Starbucks situation may worsen, its strength towards consumers would decrease indicating increased Days Receivable. Similarly, the relationship between the corporation and its suppliers may as well decline following higher pressure seen in the increase Day Payable. In this regard, the following recommendations would serve to enrich the company’s profitability: Starbucks should focus on US local market, attain saturation and ultimately change its store locations for maximum profitability. On the other hand, the company should incorporate an employee motivational program so that workers are made to feel close to the corporation. This would involve a match of pay with work done, put in place rewards for better performance. An annual training program would serve best in strengthening training activities that involve all crucial workers from across the board. This may be emphasized through an online employee training program. The company as well should run promotional campaigns so as to appeal to the younger generation across colleges and universities. More contracts should be made with suppliers, particularly coffee suppliers for the purpose of promoting the commitments to the original program. Bibliography Australian Bureau of Statistics. 2001. Income Distribution 1999-2000 (Cat. No. 6523.0). Victoria: Australian Bureau of Statistics. Borland, J. (n.d.). Earnings Inequality in Australai: Changes, causes and consequences. Economic record , Vol. 75(229) pp. 177-202. Charlesworth, S. 2007. The Intersections of Gender Equality and Decent Work: Progress and Prospects in Australia. Journal of Industrial Relations . 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