Top Down Approach: Starbucks - Essay Example

TABLE OF CONTENTS DETAILS P.NO: Introduction: Existing Strategy at Starbucks 2 7. The Three Pronged Approach 3 7 Top Down Approach-Starbucks 3 7.2. The Bottom Down Approach 6 7.3. Inside Out 9 8. Recommendations 9 8.1 Price cutting strategy 10 8.2 Promotional Strategy 10 8.3 Product Strategy 12 References 14 Strategy for Starbucks Introduction: Existing Strategy at Starbucks: The Starbucks Company has been remarkably successful because it has focused on a customer centric approach. At Starbucks, information technology is also as important to its operations as the preparation of good coffee. One of the technology initiatives that has been implemented at Starbucks is the automation of supply chain systems and applications, in order to improve overall control over those operations.(Rubenstein, 1997). The Company uses software tools such as Manugistics and oracle because it is a packaged goods company which sells coffee to retail outlets and also manufactures the product. The Company also uses the AS/400 midrange system for most of its critical databases, together with some Oracle databases. The network operating system used is Novell Netware with Microsoft NT for some of the groups at the headquarters. (Rubenstein, 1997). The Starbucks Company uses IBM 4600 series point-of-sale terminals with some wireless networking at these points. The Company strategy also includes measures to improve the speed of service and line efficiency at individual stores, including the provision of additional registers for this purpose. The Starbucks Company has been expanding its international operations and has had some success; however its international operations are not as profitable due to its joint venture and licensing agreements. It also experiences operational problems due to the lack of a trained workforce and finding suitable real estate for its stores. The Company’s recent entry into the Russian market has been criticized as a move made too late to try and capture an already congested market. (Merrett, 2006). Analysts have also pointed out that Starbucks needs to rethink its entry strategy into international markets and take into account, the risks arising from volatile political and business environments across the world, especially in view of the increased sensitivity in the world about America and American companies.(www.globalexchange.org) 7. The Three pronged approach: According to Earl (1989:69), “no single IS strategy formulation will work”, therefore on this basis he argues that IS/IT strategy within a firm should follow a multiple methodology made up of the three pronged approach. The three pronged approach consists of the top down, bottom up and inside out approaches. The top down approach seeks to clarify the business strategy in terms of the IS needs and policies. It matches the business needs with the current investments in Information Systems. This approach is implemented using the critical success factors. 7.1: Top down approach - Starbucks: The three pronged approach may be applied to the Starbucks Company in order to evaluate the current opportunities existing in the Information management systems within the organization and in developing new strategy initiatives. Starbucks has stated its major objective as being to expand its operations in other international markets, including India, Brazil and Russia.(www.starbucks.com). The Company also wants to become the most recognized and respected brand of coffee in the world. (www.mnhe.com). The focus of this report will be upon Starbucks’ achievement of these goals by improving its information management systems. Therefore, its major objective is to achieve better targeted and successful market entry through the use of information systems. Using the PEST analysis system, taking into account the Political, Environmental, Social and Technological components in the international environment, the critical success factors that will impact upon Starbucks operations are identified as follows: (a) A well maintained database network in order to integrate chain supply management and customer service (b) Successful order processing through the provision of well networked point of sale terminals (c) Effective advertising in order to get the attention of customers. The Information Systems applications that are available with the Company include wireless networked point of sale terminals, as well as the Novell/Oracle Database which maintains critical data and makes it available to various stores, as well as a networking system facilitated by Novell software and Windows NT. IS applications that are likely to be required for Starbucks to successfully achieve market entry into other countries will include a market research database, computerized home order and delivery systems, an integration of the Novell software and Windows NT applications so that they both run together as one coordinated unit. Market research is vital in the case of Starbucks, in order to make its international operations a success. Political conditions existing in some countries are unstable and the mediocre performance of Starbucks stores in the Middle East has been attributed to have been caused by the growing sentiment against American institutions.(Starbucks case study). Therefore, before entering any new market, Starbucks must thoroughly research its potential customer base and the political conditions prevailing in the country it proposes to enter. For example, Merrett (2006) points out that in Bulgaria, the most popular hot beverage in the country is coffee which accounts for 90% of sales and Euromonitor’s Reports reveal that there is a growing demand for specialist coffee shops in eastern Europe, yet this remains a market that is under exploited (Merrett,2006). Similarly, in India, there is a large pool of qualified software developers available to assist Starbucks in the development of its networking and information systems needs. African countries pose a risk because political conditions are unstable. Through the development of an effective, pre-entry market research process, Starbucks will be able to effectively assess how it can tailor its entry strategy to suit its target country. Maintaining well networked point-of-sale terminals is also vital to ensure that order processing and deliveries take place promptly and efficiently. Wireless networking is likely to be even more effective, since power supply in most of the developing countries in Asia and Africa are likely to be erratic. Lastly, advertisement is vital if Starbucks is to make an impact upon foreign markets. In countries such as India and Brazil, where coffee drinking is already an established practice and where markets for coffee production are well developed, Starbucks needs to develop an innovative and resourceful advertising strategy to make its higher priced product stand out among the lower priced, local alternatives that may be available. This is likely to be an issue especially in developing countries. Since customer service has been one of Starbucks’ strong points, it appears likely that once Starbucks is able to successfully pull in customers into its stores, it may be able to retain their business. Therefore, in brief, it may be stated that the major objective of Starbucks is to achieve successful market entry into various nations. It will be able to achieve this by improving its market research database and engaging in exhaustive research before entry, maintaining a well networked system of point of sale terminals and engaging in an innovative and aggressive advertising program to successfully market its product in a new country. 7.2: The Bottom Down approach: The bottom up approach however seeks to gain a comprehensive understanding of the current investments the organization has in IT and how it is impacting upon the business, in terms of the results obtained and the use of the systems. The top down approach has identified the general objective of the Company and the critical aspects that must be considered. The bottom down approach evaluates how effectively existing IT systems in the firm are capable of meeting those needs. The IT field is one where there are such rapid developments that existing systems are quickly found inadequate to meet the needs of organizations. For example, in the case of Starbucks, the number of its stores had increased to 11,000 by 2005 and with its rapid expansion, the number of stores continues to expand.(Case Study). Therefore the storage requirements of existing information systems need to be expanded and there must be facilities provided in the software for different languages to be used in Starbucks websites in different countries. The old Novell software and Oracle database systems may need revamping because they are likely to have become legacy systems. Legacy systems are typically those that function on the basis of old software and database systems. These systems may be slow and unable to handle very high loads of information flow through the system. Zoufaly( No date) points out that the pace of technological change weakens the business efficacy of legacy systems, because they become obsolescent very soon and it is difficult to modernize them. He also points out most organizations still use legacy systems which has resulted in incomplete integration of their most critical business processes. Most legacy systems have pre-defined process flows, which makes it very difficult to integrate the business applications with customer relations management. Since customer relations are an important aspect of the Starbucks’ policy, it is vital that legal systems are modified or replaced with more viable alternatives. Zoufaly (no Date) identifies some quick solutions such as screen scrapping and legacy wrapping to more permanent solutions, such as replacing the legacy systems with packaged products. A revamping of the entire legacy system could be a costly process; therefore it is unlikely that such a procedure will be approved by the management. Therefore, a more viable alternative is for Starbucks to thoroughly evaluate its existing systems to determine how satisfactory they are in actual practice. As recommended by Earl (1989) such an evaluation of the existing system can be achieved by bringing in experts to evaluate the system and compare it to the stated objectives of the Company, in order to determine how the systems may be better tailored to meet the needs. Another approach is to conduct surveys throughout the organization, in order to test employee perception of how efficient the current systems are. Such surveys can be conducted by passing out questionnaires asking employees to rate various aspects of the system. In this way, the existing operational flaws or drawbacks in the system are likely to be highlighted and the Company can then focus solely on those aspects and improve upon them, without necessarily going for an overhaul of the entire system. In the case of Starbucks, it is likely that the computerization of chain supply operations and the development of wireless point to sale terminals will be elements of the system that may still be retained. However, in view of its international operations, there may be an increased need experienced by the employees for better networking facilities between the various Starbucks outlets across the globe. Websites may need redesigning at different country outlets to incorporate the language of the target country and facilitate customer activity. It also appears that storage requirements may need to be expanded and the speed of online activity increased where necessary in order to bring increased productivity to the firm. Zoufaly (No Date) points out that database vendors like Oracle and IBM already have facilities for automated database migration which can be introduced into existing systems through the use of appropriate tools and this may be one option for Starbucks to consider. Therefore in summary, Starbucks will need to identify where its legacy systems may be interfering with productivity by gaining feedback from its employees who use the systems. This will help to shed light on the weak links in the information system, which can be remedied by introducing relevant application packages. 7.3: Inside Out: The inside approach is gearing towards identifying any opportunities that are provided by the existing opportunities or new possibilities that could bring fresh strategic options to the business. The availability of the tools of information technology offers an exciting opportunity for Starbucks to improve and strengthen its advertising strategy by redesigning its website to make it even more attractive to customers. The online environment offers tools for e-commerce which Starbucks can seize upon. It can promote its products through its websites, and allow customers the facility of ordering coffee products online. The Company can then deliver the product promptly and can gain itself a wide base of customers, especially in the developed countries, who are likely to appreciate the facility of home shopping and deliveries. Starbucks can also use its website to offer discounts to customers who are frequent buyers, or take orders for special brands of coffee or other natural, organic products online. With growing health consciousness, customers are eager for such products and Starbucks business in Japan has shown recoveries due to its sensitivity to customer tastes within the region. (Starbucks case study). An improved IT environment also allows for better customer relations management and Starbucks can better track sales leads and opportunities. 8. Recommendations: Some of the measures recommended above may be useful for Starbucks to implement. However, merely applying a three prongs approach to strategy is likely to be inadequate because it provides a more overall approach to strategy. It is likely to be inadequate in assessing the detailed measures that such overall strategy will require during the implementation process. A generalized three prongs approach also does not provide specific details of infrastructure changes that may need to be made to existing IT systems and how the lacunae in specific systems are to be redressed. Therefore the Three P’s strategy may be applied to further delineate strategy and suggest some concrete measures that Starbucks can implement. 8.1: Price cutting strategy: At the outset, it must be noted that the Starbucks Company offers a uniform product. Its retail stores are the same the world over, and it also offers its products at a uniform price. As a result, when Starbucks into international territory, its price may be considerably higher as compared to other countries where superior coffee brands may be available that suit local tastes and are priced much lower, especially in Asian and African countries. For example, the per capita income in Nigeria is only $560,(www.news.bbc.co.uk), which would automatically place services such as Starbucks out of reach of 80% of the population in this country. While it is possible that the American image that is associated with Starbucks may prove to be a draw in some countries such as India, the percentage of population that can buy Starbucks coffee in such countries will be limited, although the quality associated with the Starbucks product will be appreciated. Therefore Starbucks could consider offering its products in a lower price range in developing countries to attract more customers. 8.2: Promotional strategy: An aggressive advertising campaign has been suggested in the three prongs approach. One of the strong points Starbucks has is the quality of its product and the American ambience of its retail outlets, coupled with excellent customer service. However in the international outlets lack of adequate training has proved to be one of the problems that has restricted its top notch operations. Therefore the Company needs to introduce better training programs for local customer service outlets. It can engage in an advertising campaign before its outlets are opened. Advertisements can be placed over television or radio, through its website and by buying space on trucks and other moving vehicles. Starbucks can also consider conducting sample surveys before establishing itself in any territory, so that people in a local area who have already been exposed to the quality of the Starbucks product will be encouraged to patronize the outlets and will also pass on the news to their friends. Another advertising technique Starbucks can consider to promote itself in a target country is to offer its customers free gifts such as tiny refrigerator magnets which are in the shape of coffee mugs with StarBucks prominently printed across them. These are relatively inexpensive to give away even in large numbers and since they are permanent, people are likely to put them up on their refrigerators on their reminder notes. The magnets will serve as a constant reminder of the product and therefore offers an inexpensive but effective advertising device that could be used by Starbucks. They are likely to be more effective than flyers for example, which are inexpensive to produce but which customers often discard and forget about. In today’s global marketplace, creativity and innovation have assumed a great deal of importance and it is important for a Company to have a fresh and novel strategy if it is to succeed in the market place, as identified by Porter (1996: 68). According to Porter (1996:64), “Competitive strategy is about being different.” Porter also states that “Strategy is the creation of a unique and valuable position, involving a different set of activities……different from rivals.” (page Porter 1996: 68). Therefore, Starbucks must set itself apart from its competitors by devising unique strategies in every country it goes to. So far, it has tried to re-create the American experience across the world, by making all its retail stores spacious and large, and offering superior coffee products. However, it may need to redesign its strategy in every country to suit customer requirements and culture. For example, Starbucks enforces a policy of No Smoking in all its stores, but in France, it set up tables outside the store for those customers who wished to smoke, thereby incorporate the French local practice of outside cafes. 8.3: Product Strategy: Market research has been identified as one of the critical elements in Starbucks’ strategy. Investing in research and development is likely to prove beneficial for the Company, especially in enhancing the quality of its products and tailoring them to be more in accordance with customer tastes. For example, in Japan, Starbucks has recognized the cultural aspects of coffee drinking and the fact that people like to eat snacks with their coffee; Starbucks outlets in Japan offer a variety of snacks. In a similar way, Starbucks outlets in India for example, could offer customers the facility of cushions on the floor where they can sit cross legged in the traditional manner and enjoy their coffee; Starbucks can also consider serving snacks on plantain leaves. These are some of the ways in which Starbucks may set itself apart from its competitors and offer a unique experience in its outlets that customers cannot find elsewhere. Investing in research and development is also likely to be beneficial to the Company in developing a system of technology that will be tailored to the needs of the Company as it operates in an international environment. The introduction of Customer relations Management software into the existing IT systems is likely to enhance productivity for Starbucks and enhance its already well developed customer service policy. Introducing Customer Relations Management software applications will enable the Company to keep track of its important customers, identify its repeat customers so that they can be offered some extra benefits and gifts not offered to others. This is akin to rewarding customer loyalty and is likely to be very helpful to Starbucks in improving loyalty to its own brand among the variety of competing brands of coffee that may exist in the international markets. References: * Annual Report of Starbucks, 2005. [online] Retrieved August 2, 2007 from www.starbucks.com * Merrett, Neil, 2006. “Costa Coffee to enter Bulgaria.” Beverage daily.com [online] Retrieved August 4, 2007 from: http://www.beveragedaily.com/news/ng.asp?n=71470-whitbread-costa-coffee- bulgaria-coffee * Country profile: Nigeria: [online] available at: http://news.bbc.co.uk/1/hi/world/africa/country_profiles/1064557.stm * Earl, Michael J, 1989. “Management Strategies for Information technology.” * Porter, M.E. (1996), What is Strategy? Harvard Business Review, Nov-Dec.: 61-78. * Rubenstein, Ed, 1997. “Deborah Gillotti: Forget the froth; Starbucks’ CIO brews high tech strategy.” Nation’s restaurant News, Nov 3. [online] Retrieved August 4, 2007 from: findarticles.com/p/articles/mi_m3190/is_1997_Nov_3/ai_50355591 * “Starbucks backlash: The Java Giant’s expansion brews dissent overseas.” [online] available at: www. Globalexchange.org, April 16, 2003. * “Starbucks Corporation” Case study. [online] Retrieved August 2, 2007 from: http://www.mhhe.com/business/management/thompson/11e/case/starbucks-2.html * Zoufaly, Federico, No Date. “Issues and Challenges facing Legacy Systems.” [online] Retrieved August 4. 2007 from: http://www.developer.com/mgmt/article.php/11085_1492531_2 Read More