Analysis of Business of Starbucks - Case Study Example

Business Report: Starbucks Introduction Starbucks is an international coffee chain restaurant which is located in US and other regions.It is the world largest coffee company with handling 17, 000 stores in 49 countries. It is specializes in selling beverages like coffee, tea and variety of food items to the worldwide customers. Its overall business strategy encompasses a series of other segmental operations. Starbucks has adopted a functionality-based approach to business strategy and decision making in the larger context of corporate expansion, both within the US market and other regions. The strategic business environment of Starbucks has been transformed in to a more complex and diverse phenomenon with its independent approach to managing an internationally diverse strategic operational environment. As the strategic analysis shows Starbucks has been highly affected by a variety of internal and external operational environmental influences. However its strategic environment as divided in to product and marketing strategy, competition strategy, growth strategy and financial strategy indicates that the organization has been faced with many constraints. Future of the company's sales strategy depends on the current market related outcomes as well as the strategic initiates being adopted at the organizational level. Predictably the company would be able to turn around in respect of costs and efficiency under the stewardship of Shultz (CEO at Starbucks) though how soon is not clear. In the first place the current economic downturn has forced the company to diversify its average portfolio of products, e.g. the launch of VIA Ready Brew and value meals. These product innovations would have a very good impact on the sales volumes for sure but how would they impact on the relative profitability of the company isn't known yet. 2. Starbuck's Global Strategy 2.1 Innovation Organizational success is determined by the internal strengths of the organization in which controlling, rationalizing and utilizing the available resources to achieve the maximum productivity and the associated organizational goals through competitive advantage are the predominant activities. Thus Starbucks has the highly calibrated capital, trained employees and networks in the form of strategic intelligence about markets, finances, operations, techniques and HR management. Its capacity building and enhancement strategies have known to be sound and its core competencies have been built around this formulaic strength-weakness determination paradigm. Despite this position of Starbucks as a pioneer of costly-to-copy resource development processes still there is competition coming from rivals who have been able to imitate the same product by reducing its cost and using advanced technology, e.g. online ordering related techniques. While many market analysts have pointed out the existence of a downturn related sales curve at Starbucks in the coming months, Shultz is determined to turn around its growth trajectory to hit some predetermined sales targets (Serwer, & Bonamici, 2004). According to analysts there is a very strong suggestion for product innovation accompanied by cost cutting efforts. The former has been happening thought then latter has yet to happen. Fast food chains have not given up on their own product diversification and innovation strategy. This is cited as one of the major challenges to Starbucks. McDonald's, Burger King and KFC have reinvented their standard formulas. 2.2 Marketing Despite these constraints in its organizational environment, Starbucks has successfully initiated some far reaching policy related outcomes. For instance Starbuck's product and marketing strategy have been oriented towards achieving a series of positive M&A related synergies including growth and competitive capabilities. Starbuck's competition strategy is basically related to its product and marketing strategies. Some of the products aren't sold on a mass scale at Starbucks. Its premium brands are now bought and consumed less and less while the concept of creating value to the customer has caught up with the idea of selling ordinary coffee (Michelli, 2006). The value concept has become a clich now in marketing circles and management has known that its appeal to the average customer is no more tempting as it was some time back. Future sales at Starbucks depend on a number of other factors like price, quality, quantity and above all variety of choice. Thus Porter's idea about selling a standardized product on a mass scale would be diluted as much as the current trend shows that there would not be any brand loyalties left behind when economic difficulties force consumers to make hard choices between value and affordability. Thus Starbucks' future sales would be determined by a host of market-centric forces other than demand and supply. Strategic vision of the Starbucks management was to create a third place in between the home and the workplace. Thus the idea of a coffee bar where the individual would be able to relax and enjoy a branded cup of coffee was born. By 2000 Starbucks had almost captured the total market for the brew in North America. Starbucks vision is also centered on the need to identify and cater to specialty requirements of customers (Blumenthal, 2008). Management felt that in America there was not the right kind of place for the individual who would desire a much less expensive but more harmonious place to rest a while. This was just a philosophical view of the otherwise overworked concept of the pub or the bar. Porter's emphasis on distribution related positive synergies is quite understandable in the context of mass marketing efforts of firms that sell a standardized product. Starbucks on the other hand sells coffee in its own cafes. These high street coffee bars have their own cost structures that preclude them from being strategically oriented towards meeting some targets. For instance competitors have adopted similar strategies and are targeting the same consumers on a day-to-day basis. Starbucks' selling philosophy of creating a third place has gone a long way now. Competitors have equally well created the third place and are increasing their sales by offering only a standardized product. 2.3 Operations Starbucks' North American operations in particular and the rest of the world's operations in general are characterized by a highly strategic policy oriented environment of competition. Against this backdrop its current operations concerning strategy, HRM practices, technology, innovation, marketing and organizational structure, culture and leadership style are essentially influenced by the organization's restructuring programs as undertaken by its current CEO, Shultz. He is determined to bring about a real change in the coffee chain with a global identity tag. He needs to prioritize the work ethics at the organization for this change. Against his backdrop this researcher has found out the existence of some structural drawbacks pertaining to motivation of the staff, communication related constraints, the deteriorating brand image through the loss of brand image about the uniqueness of taste everywhere and above all the negative impact of competition coming from the high street coffee bars. However this report does not deny the fact that Starbucks has achieved a degree of success by way of revenue growth both in its North American and European markets despite the current global economic downturn. In fact its current net revenue growth and cash flow suggest that the organization has been doing comparably well against many of its rivals. 2.4 Human Resource Management After the assumption of duties as the Chief Executive Officer (CEO), Shultz has initiated a number of changes in the workforce management at Starbucks. Work ethics is differentially applied to generate enthusiasm among employees. Workers at Starbucks are motivated through a good mixture of both financial and non-financial benefits (www.starbucks.com). Performance-related pay might encourage baristas and other crew members to contribute more and more to the success of the organization. Employees are told in no uncertain terms that competition has forced the management to take decisions and face tougher choices. Under the Starbucks' banner it's no more the brew to regain sagging spirits alone but also the source of regeneration of identity. Shultz' ability to create a wholly different atmosphere at Starbucks depends on the new organizational culture centered on more competition and less ideals. In this context Starbuck's employee retention strategies assume an international dimension along with their sharp focus on international Human Resource Management and Development (HRMD) practices. As much as employee motivation policies and initiatives at Starbucks play a very significant role in determining the policy direction in retention strategies there is an attendant cleavage between the two concerning the latter's convergence with the company's corporate goals (Bott, & Enquist, 2006). Thus the parametric growth of employee retention strategies at Starbucks can be attributed to the company's own concern for positive growth in such metrics as sales, revenue, profits and market share. Employee retention strategies as outlined by the current level of HRM practices at Starbucks show that they are basically centered on Training & Development (T&D), motivation and the reduction of labor turnover figures. Thus the existing horizontal organizational structure at Starbucks helps in integrating the diverse HRM policies and initiatives into the existing framework of organizational performance. Corporate goals such as profits, revenues, quality improvement and external supply chain management among others, have been part and parcel of this holistic strategic emphasis on modern HRM related strategy at Starbucks. 2.5 Finance According to its financial statements, Starbucks experienced profits of US$ 315.5 million in the year 2008. Starbucks has categorized their business operations in to three segments i.e. US, international and Global Consumer Products Group. In US it has achieved 76% of total revenue in 2008 while internationally and GCP accounted as 20% and 4 % of its total revenue respectively. Thus Starbucks financial performance is highly dependent on its US operating segment, which it experienced a substantial downturn in US stores and it has directly impacted on company's business and financial performance (www.starbucks.com). Starbucks's total operating income in 2008 amounted to US$ 503.9 and it had US$ 5.673 billion worth assets in the same year. Starbucks's food culture has become a way of life for many of the people in worldwide. Organizations grow just in size to become virtual behemoths that identify themselves with social catalysts thus transforming the society in which they not only act as sellers of products but also as determinants of behavioral patterns and tendencies. The idea caught up with the members of the general public to such an extent that Starbucks developed its philosophy of doing business in a unique way. Entrepreneurial skills are born with the person and they are much less likely to be acquired. However, Shultz' theory of entrepreneurship has been influenced within the organization by changes that have taken place in domestic and international markets as of lately. Starbucks' entrepreneurship related variables show that the organization influenced by Shultz' family concept (Moore, 2006). His concept of family members being entertained has such a big impact on the organization's entrepreneurial spirit. Porter's Generic Strategy requires such costs to be brought under control so that scale related economies become positive by way of reduced average costs and mass sales. Despite Shultz' efforts to bring down costs by curtailing pay and extra benefits to staff, there is a sizeable rise in the pay checks and the company is losing on the competition front. 3. Starbuck's Key Problems and Issues International business practices in culturally diverse and complex organizational setting as that of Starbucks' requires a fair degree of restructuring based on motivating the employee to achieve predefined targets. Leadership style of Shultz might need to be changed in accordance with this requirement. But nevertheless the current business operations at Starbucks have many shortcomings as highlighted above. The entrepreneurial spirit of Starbucks is characterized by the need to survive rather than focus on strategic elements of growth and continuity. At least right now this seems to be the more appropriate strategy given the evolving circumstances against the global financial crisis. The current developments show that rising demands by employees for higher salaries and the addition of frills such as flavors have been the main cause of rising costs. Right now unfortunately it seems neither is happening at Starbucks and most probably this is partially due to the economic downturn. Finally its critical success factors such as corporate governance capabilities, financial management, planning and control procedures and processes and corporate strategy are all well managed and coordinated though some shortcomings still persist. These shortcomings have to be removed sooner. For example its staff motivation strategies lack the zing that is essential for retention of the trained staff. Conclusion The emergent trend of competition and the firm elaborates how organizations would focus on learning and innovation to achieve strategic competencies against rivals. Thus the manager's ability or inability to achieve organizational goals and success depends on his or her approach to resource management based on how internal organizational processes would determine capabilities to sustain a particular strategic initiative towards the achievement of the same goals. It's difficult to make a realistic assessment as to what extent Starbucks' restaurants in the world as a whole have adopted these strategic labor management practices in order to maximize HRM related positive synergies at the practical level of the organization. Only a few of them have adopted internationally reputed programs of retention while the rest have adopted a more mundane practice of retaining the highly skilled workers by paying more. Thus HRM practices and related CSR policy initiatives are virtually determined by a high level of dependence on organizational outcomes and not practical realties taking place on a daily basis at caf bars in the high streets of London or elsewhere. Starbucks' North American operations in particular and the rest of the world's operations in general are characterized by a highly strategic policy oriented environment of competition. Against this backdrop its current management practices are essentially influenced by the organization's restructuring programs as undertaken by Shultz. He is determined to bring about a real change in the coffee chain with a global identity tag. He needs to prioritize the work ethics at the organization for this change. REFERENCES . 1. Blumenthal, K 2008, Grande Expectations: A Year in the Life of Starbucks' Stock, Three Rivers Press, New York. 2. Bott, S & Enquist, BJ 2006, Starbucks - A Case Study, Service Management Control Master Course ,Karlstad University, Karlstad. 3. Michelli, J 2006, The Starbucks Experience: 5 Principles for Turning Ordinary Into Extraordinary, McGraw-Hill, New York. 4. Moore, J 2006, Tribal Knowledge: Business Wisdom Brewed from the Grounds of Starbucks Corporate Culture, Kaplan Business, Chicago. 5. Serwer, A & Bonamici, K 2004, 'Hot Starbucks to go', Fortune, vol.149 no.2, pp.60. 6. Starbucks Annual Report 2008, Retrieved from, www.starbucks.com. Read More