Starbucks Clustering Tactic - Report Example

STАRBUСKS СLUSTЕRING ТАСTIС Student’s name Professor’s name Course title Date Introduction Organizations exist majorly to maximize profits, which is mostly the core objective. Shareholders maximization is achieved through profit maximization. This objective has been subjected to a lot of criticism by ethical scholars and theorists. However, it is only the individualism ethical theory that advocates for profit maximization in an organization. An organization should be ethical in all respects, including how it deals with its competitors (Eckert, 2012). Starbucks, in a bid to contain competition, resorted to use of unethical tactics of dealing with competition. Competition is healthy, but methods of dealing with competition could be unethical. Elimination of competitors is considered unethical. Starbucks resorted to cut throat competition technique in order to eliminate its competitors from the industry. The move contravenes the CFA code of ethic and standards of practice besides also being negatively criticized by the utilitarian and virtue theories. The essay therefore critically examines the ethical moves and activities involved in Starbucks actions. Background Starbucks is the leading coffee selling shop globally. Its success is owed to the belief they hold carrying out business activities ethically and always striving to do the right things is the only way to success. Starbucks started way long as a small business entity to where it is today, courtesy of good business dealings (Eckert, 2012). However, there are instances where Starbucks acted contrary to its own ethical principles. Starbucks used unethical tactics to out beat its competitors, small coffee selling shops, by literally “Killing their” businesses. The moves are considered unethical according to ethical theorists like utilitarianism. The utilitarian theorist beliefs that one should be in a position predict ones consequences right before acting. Therefore, in the eyes of the theorists, Starbucks actions were unethical Stakeholders According to Beauchamp, Bowie, and Arnold (2012), stakeholders are individuals or even organizations who have some form of interest in something. In the case of Starbucks, stakeholders refer to the management of Starbucks, the suppliers, the customers, competitors, the community as well as the members of the general public (Haskova, 2015). Ethical issues and dilemmas The sole reason why a business entity is established is to make profits, which is in accordance to the theory of profit maximization. Shareholders, being the most important stakeholders in an organization, are the owners of the resources (Haskova, 2015). Mostly, because of geographical locations, the shareholders usually select the management to take care of their resources. Therefore, ideally, the management is selected by the shareholders to safeguard their resources. However, mostly, there arises a conflict of interest between the management and the shareholders. The conflict of interest is in the form of an ethical dilemma because the management is torn between acting to the best interest of the shareholders and acting to their own interests. In the case of Starbucks, there was an ethical dilemma faced by the management and the shareholders regarding representation of interests. Additionally, there was a conflict of interest between the management and the members of the public with regards to corporate social responsibility (CSR) and ethics. According to Beauchamp, Bowie, and Arnold (2012), an organization should act ethically to its competitors and the general community as well. Management ethics broadly deal with ethical issues managers face on a daily basis in the course of doing business (Dion, 2012). Impacts of ethical dilemma Starbucks, being guided by the need and interest to make profits, according to the profit maximization theory, acted to their own interests (Eckert, 2012). There are also possibilities that the actions of Starbucks represented the interests of the management alone excluding the shareholders. In a bid to maximize profits, therefore, Starbucks used very crude tactics to deal with their competitors. By buying off small coffee businesses and offering to pay huge amount of money in relation to rental leases, Starbucks’ actions were not ethical (Eckert, 2012). Their actions impacted not only on the competitors and the general community, but it also on the potential customers. The competitors ended up closing up their businesses. Additionally, the potential customers had no variety to choose from in terms of prices because Starbucks was the only business selling coffee, after eliminating the competitors. Further, Starbucks’ coffee was highly priced therefore killing affordability for a majority of both existing and potential customers (Eckert, 2012). Development of the situation From the Stakeholders’ point of view. From the stakeholder’s point of view, the situation was as a result of conflict of interest between the management and the shareholders who are the major stakeholders (Chang, 2011). The management sought to interest the stakeholders in all possible ways by even using crude ways to ensure that high sales and consequent high profits are registered. All in all, the management never acted ethically. From the management point of view From the management point of view, the situation was a result of the need to maximize profits. However, profit maximization in as much as works best for a business entity, contravenes ethical principles. The case developed as a result of the management‘s need to make profits at the expense of the general public (Chang, 2011). Starbucks compromised ethical provisions by resorting to adopt unethical competition strategies. Therefore, the case was a result of the need to obey the theory of profit maximization, which according to the ethical theory of utilitarianism, is not ethical. From my point of view From my own point of view, the situation developed as a result of the desire to acquire a bigger market share and consequently maximize profits .Starbucks intended to have a bigger market share and therefore to achieve the objective, the company decided to adopt unethical tactics to eliminate their competitors (Chang, 2011). Starbucks’ management knew of the fact that in order to make profits, revenues should overwrite operations cost. Revenue and consequently profits will be maximized if market share is increased. Therefore, from my own point of view, the move that Starbucks took was a justification for the need to increase their own market share. However, the moves contravened all ethical theories except the ethical theory of individualism which supports profit maximization theory (Chang, 2011). Application of CFA code of ethics and standard of practice Current actions According to Haskova (2015), Starbucks is considered one of the world’s companies that maintain ethical principles. Starbuck aims at achieving higher ranks as far as reputation is concerned. Starbucks pride itself in the manner in which it conducts its business operations particularly through community participation, ethical sourcing procedures, ethical environmental operations as well as encouragement of diversity. According to Starbucks ethical principles, Starbuck struggles and strives to operate according to the requirements of its mission statement and core values (Haskova, 2015). Starbucks makes a display of its commitment to engage in socially responsible activities and wants their customers to know of the same. In a bid to address the ethical issues and dilemmas therefore, Starbucks has started venturing into socially responsible activities. Additionally, by adopting ethical sourcing procedures and commitment to environmental sustainability, Starbucks is slowly improving on its corporate image identity. Out of the actions, customers feel they are receiving value for money and are willing to part even with higher prices. This is because customers have a feeling that the company is socially responsible (Haskova, 2015). CFA code of ethics According to the CFA code of ethics, organizations should exercise diligence and high degree of thoroughness in making recommendations related to investment (Saqib, 2010). Additionally, investment actions should portray a high degree of diligence and thoroughness. Organizations should act with integrity, competence, professionalism and diligence besides acting in an ethical way when dealing with clients, both current and prospective, employees as well as the general public. Additionally, CFA code of ethics and professional conduct requires that organizations should never put their interests above the interests of their clients. Besides, organizations should exercise professional due care in making investment decisions and recommendations (Saqib, 2010) .The employment of crude competition tactics by Starbucks gave it a negative image and questioned its ability to act in compliance with its own ethical rules and those set by CFA. However, Starbucks involvement in ethical activities like having concern for the environment and involvement in corporate social responsibilities is in accordance with the provisions of CFA code of ethic which stipulates that an organization should not put its own interests first, before the interests of the clients. The CFA code of ethics provides an insight and shades light on how activities should be ethically conducted in an organization. Cultural and institutional aspects to ethics in Starbucks According to Stanwick and Stanwick (2013), cultural understanding is one factor to consider in ethics implementation. Cultural consideration is an important tool in decision making. Starbucks failed to understand how their competitors operate and therefore resorted to using unethical tactics which are against the provisions of ethics that govern business operations. Organizations should be structured in a manner that prevents implementation of unethical activities (Driver, 2006). Employees should be trained and reminded of the need and importance of acting ethically not only within the organization but to the outside world too. Starbucks governance structure may have therefore failed to address this. Recommendations How the company can improve on its ethical compliance i. Community involvement and participation The community, being part of the stakeholders in a company should be actively involved in the activities of the organization, especially, those that concern them. The organization’s involvement in the community is regarded as an act of social concern (Saqib, 2010). Social corporate Responsibility is an act that allows an organization to actively involve in community matters. This is not only ethical, but also improves on an organization’s corporate image identity, which is important in gaining competitive advantage. ii. Environmentally favored activities According to the CFA code of ethics, an organization should not put its own interests first above and before the interests of the customers (Saqib, 2010). This therefore means that any acts that contravene this provision is regarded unethical. To improve on ethical compliance, Starbucks should continually actively engage in activities that enhance environmental sustainabity. This involves the production of environmental friendly products and recognizing the fact that financial responsibility is essential for future sustenance of the environment. iii. Empowerment Employees are the most important asset in an organization. Empowering them is always the right move towards ethical compliance. The moment employees are empowered through regular training, achieving ethical compliance is possible (Saqib, 2010). This is because most acts in an organization are performed by the employees and empowering them in order to achieve ethical compliance is ideally a move directed towards the achievement of organizational objectives, which is always a measure of success. Importance of ethical and professional conduct From the Starbucks case study, it is evident that ethical practices are important for an organization’s existence. Competition is there and is there to stay. According to Haskova (2015), competition is key to achieving quality and value for money. However, ways of dealing with competition is what, matters. There are various friendly ways of dealing with competition which are considered ethical. The tactics that Starbucks employed in dealing with competitors were totally unethical and unfair and went against the provisions of ethics (Eckert, 2012). This to some extent affected the corporate image identity of Starbucks. The importance of ethical and professional conducts therefore is that ethical considerations improve on an organization’s corporate image identity. A good corporate image works for the benefit of the organization in terms of giving an organization and an edge over competitors in terms of achievement of competitive advantage. Corporate image relates to how stakeholders view the business. Solutions and strategies on how such conduct can be encouraged or cultivated to contribute to the public good within the local and global communities A monopolistic, market structure doesn’t always favor the customer who is reffered as the king in business operations (Chang, 2011). According to Chang (2011), A monopolistic market structure is where there is only one player in the industry. Because quality is compromised in a monopolistic market structure, there is therefore need the have competition in an industry. However, adopting techniques of dealing with competitors is one important factor to consider. Adopting classical and throat cutting techniques of dealing with competition is not only considered unethical, but is also considered suicidal on the part of achieving growth because it waters down an organization’s image (Chang, 2011). Competition should therefore be encouraged in order to improve on quality and offer customers’ value for their money. However, organizations should be encouraged to adopt ethical ways of dealing with competition and those that are found guilty of implementing unethical competition tactics should be punished. Conclusion Profit maximization objective, when viewed from an ethical perspective, is unethical. Organizations are ethically in dilemma in choosing between shareholder benefit maximization and participation in corporate social responsibility. Ethical theorists argue that organizations should not only aim at maximizing profits but should also be socially responsible. Undertaking activities that are environmentally friendly is one way of being socially responsible. Ethics is not limited to how employees are treated in an organization, but it also entails treating all stakeholders’ right. Competition among competitors should also be ethical. Ethics in competition involves not involving in classical and cut throat tactics that entails the forceful elimination of competitors. The competition tactics that Starbucks adopted contravened not only the CFA code of ethics, but its own ethical provisions set in its core values. Bibliography Beauchamp, T.L., Bowie, N.E. and Arnold, D.G 2012, Ethical theory and business, 9th edn., Boston, Pearson. Chang, W.W 2011, ‘Monopolistic competition and product diversity: review and extension’. Journal of Economic Surveys, vol. 26, no. 5, pp. 879–910. doi: 10.1111/j.1467-6419.2011.00682.x. Dion, M 2012, ‘Are ethical theories relevant for ethical leadership?’ Leadership & Organization Development Journal, vol. 33, no. 1, pp. 4–24. Driver, J 2006, Ethics: The fundamentals (fundamentals of philosophy), Malden, Blackwell Publishing. Eckert, K 2012, Starbucks scolded for stifling competition (2006). Available at: http://businessethicscases.blogspot.co.ke/2013/02/exchange-inc-v_3188.html (Accessed: 14 October 2016). Haskova, K 2015, ‘Starbucks marketing analysis’,  Bulletin of the CRIS, vol. 2015, issue. 1, pp. 11-28. Saqib, M 2010, ‘Standards, ethics, and regulation (SER)’, CFA Digest, vol. 40, no. 2, pp. 72–73. Stanwick, P.A and Stanwick, S.D 2013, Understanding business ethics, 2nd edn., Thousand Oaks, CA: SAGE Publications. Read More