The company of analysis for this report is Starbucks Corporation, which is an American organization that roasts, markets, and retails specialty coffee worldwide. Globally, it is the leading enterprise in the foodservice sector. Further, it has ranked high in the global list since 2003, and it is among the most impressive in social responsibility, people management, innovation, quality of products, and financial stability among others (Starbucks, 2017). Besides coffee, Starbucks also sells coffee and tea products including other beverages and fresh food items. Further, it operates in the retail and fast food stores where it commands the largest share of the coffee industry (Latif, Qurat-ul-ain, Gulzar, Bukhari, & Sameen, 2014). As such, it is apparent that Starbucks' strategic management is a success. The company's strategy is premised on offering a third-place convenience, quality coffee, expanding globally, and including technology in different business processes (Dudovskiy, 2017). The prosperity of Starbucks in the coffee sector attributable to internal and external factors that could be explained through strategic management models such as 7-S strategy, VRIO, PESTLE, and Porters Model.
The understanding of a company's strategic management requires a proper analysis of its internal operating environment. According to Cole (2003), strategic management refers to the process of setting an organization's targets, evaluating the competition levels, and assessing the internal arrangement. Besides, it involves evaluating the company's techniques and checking the effectiveness of the management in applying the strategies in the enterprise. Markedly leadership is one of the internal factors that determine the success of strategic management.
One of the ideal strategic management models for analyzing this factor is VRIO framework, a competitive tool for evaluating a firm's internal factors using value, rarity, imitability, and organizational aspects of capabilities and resources (Peng, 2009). The coffee giant's leadership has made a significant impact on the implementation of the company's strategy. It has hired seasoned executives from major companies in the U.S., such as Disney and Microsoft, to serve in its management team (Lebowitz, 2016). The author states that the corporation's CEO, Howard Schultz, motivates his team including the executives to challenge his ideas whenever they find them unsatisfactory. Using the VRIO framework, the strategy is valuable, rare, costly to imitate, and organized to derive value. In this view, it enables the firm to exploit opportunities, acquire temporary competitiveness, resist imitation, and establish processes. This success is found in Schultz's strategy of delegating leadership responsibilities and openness to discussions which add value to the company's growth.
The culture of an organization influences the performance of employees and the overall success of the business. According to Ferguson (2017), Starbucks organizational culture is among the unique features of the firm. The author explains that its workers interact closely, while their response to customers is warm and friendly in all their cafes. Further, it cultivates a feeling of belonging, diversity, and inclusion where supervisors and managers support their subordinates. Besides the leaders encouraging openness, this culture also emphasizes communication and collaboration while embracing inclusion and diversity at the workplace. Markedly, this approach is unique to the company. Therefore, when analyzed using the VRIO framework, this internal factor advances the firm's strategy. A unique organizational culture is a valuable tool for improving working relations, while it is a rare approach in the industry. Although the culture is imitable by other organization, it adds significant value to Starbucks since it leads to customer satisfaction, hence a competitive advantage.
Competitive Advantage (Price)
Even though Starbucks has held the first position in the coffee industry, its premium pricing is one of the internal factors that could have an impact on its strategic management. Over the years the price of one cup of coffee has increased significantly, which has invited other competitors in the market. For example, Dunkin Donuts and McDonalds have since joined the industry with the aim of offering same quality coffee at lower prices. Other new industry entrants include Tim Hortons and Second Cup who target to capitalize on Starbucks ever-increasing coffee prices. This phenomenon has a significant impact on its strategy of expanding globally. Based on VRIO's strategic analysis model, this internal factor has no value, and its rarity has an adverse impact on the competitiveness of the business. Although other firms may not imitate this strategy, it is not organized to capture value. To this effect, the premium pricing strategy of Starbucks could influence its ability to remain competitive, which is a strategic management tool for every firm.
The organization chart of a business is another internal factor that impacts its strategic management. According to Meyer (2017), despite Starbucks' size as a coffeehouse chain, it has one of the best organizational structures that correspond to the current business needs. Markedly, the arrangement influences leadership and management, change, and communication among other crucial internal factors. It assumes a matrix format that combines functional structure, geographic divisions, teams, and product-based divisions. This way, its structure places the operations according to business functions (HR, finance, and marketing), location (continents), product lines (coffee, baked goods, and mugs), and teams at lower organizational levels. Based on Waterman et al.'s 7-S framework, this approach represents the way a firm's business units and divisions work harmoniously to deliver the strategic goals of a company (Channon & Caldert, 2015). This way, Starbuck's organizational structure has a particular focus on the strategic purpose of offering the highest quality coffee to consumers. Besides, it is an ideal structure of concentrating on customer experience and its financial performance.
Starbucks uses several vital resources for its operation in various parts of the world. Some of the primary resources include the strategic location and efficient store designs that place it in a suitable position to compete in the coffee industry (Kell, 2016). Additionally, the company utilizes several core competencies such as exceptional customer service, high employee motivation, and a robust leadership from the top management. These factors fall into the category of systems category of the 7-S framework as outlined by Waterman et al. The concept explains how procedures and processes in a company contribute to the decision-making and daily operations. Given that systems are crucial to the running of business, they are part of the overall strategic position of a firm. Markedly, the superiority of Starbucks' strategic capabilities, which are internal factors, gives it a competitive edge that contributes to the achievement of its strategic objectives of offering quality coffee and gaining global recognition.
The last key internal environment that influences the strategic management of a Starbuck is the employees or staff. Starbuck considers workers as one of the vital assets that contribute to its survival in the competitive coffee industry (Tylor, 2016). Markedly, the recruitment process forms Starbucks' foundation for acquiring a workforce that has the right skills for its operations. Its recruitment motto starts the company's commitment to have the right people hiring the right people. Additionally, it uses human resource practices and policies as a strategic tool for retaining the best skills through motivation and developing their competencies.
This internal element of the firm is explained by the staff and skills elements of the 7-S framework. The model explains that skills component include the capabilities and competencies that enable a business' employees to perform well. On the other hand, the staff element concerns the type and size of the workforce that an enterprise has as well as the methods used to motivate, train, reward, and recruit. In this view, the highly skilled and diverse workforce in Starbucks has a massive influence on the achievement of its strategic management targets.
External Environment of Starbucks
On the other hand, Starbucks has external environmental factors that affect its strategic management. According to Craig and Campbell (2012), these are factors outside the operation of the business which they must respond to in achieving its operational objectives. These elements include customers, government, competition, and the economy of the region in which companies operate. Markedly, firms respond to these factors in various ways including marketing strategies and adjusting its models of operations. However, the understanding of these factors could be understood using several different management theories including Porter's Five Forces and PESTEL analysis tool.
Starbucks dominated the specialty coffee industry for a long time since its establishment in 1971. However, the industry experienced significant changes in the last one decade following the entrance of highly established companies to the market. Even though there are several other new players in the market, McDonald's and Dunkin Donuts, are the top well-performing firms that compete with Starbucks (Brizek, n.d). This trend completely changed the industry's competitive landscape as evaluated using Porter's Five Forces Model.
Rivalrly. The company faces the five external forces in varying intensities for which it implements strategies to minimize their impacts. The first force is the competitive rivalry, and it is a strong force that McDonald's has to deal with in the specialty coffee market. According to Dobbs, 2014, this is the level of competition in an industry or the extent to which businesses exert market pressure on each other. Markedly, this industry is already saturated with numerous fast food companies joining the bandwagon of selling coffee. Such companies include Wendy's, Dunkin Donuts, and McDonald's among several other fast food organizations that operate at the international level. However, Starbucks responds to this pressure through its extensive chain of outlets in different parts of the world.
Consumer Power. The second force is the bargaining power of coffee consumers, which is very strong. This concept refers to the ability of buyers to force down the prices of commodities by demanding improved quality and playing competing businesses against each other (Hill & Jones, 2009). Starbucks' inability to control the buyers' influence is the result of low switching costs, numerous coffee companies, and availability of substitute products. Consequently, buyers can consume specialty coffee from other restaurants, such as McDonald's, or take different beverages, such as tea. One of the strategic decisions that Starbucks uses to mitigate this effect is diversifying, where they offer other coffee products.
Supplier Power. The fourth force is the bargaining power of suppliers, which is significantly low. According to Palep, Bernard, Healy, and Peek (2007), the power of vendors refers to the availability of different suppliers for raw materials. Apparently, Starbucks procures coffee beans from a variety of providers worldwide, where its buying capacity makes the company relevant to the buyer. This way, the enterprise has low switching costs since most of the coffee beans varieties needed are easily available. Consequently, it has the power to make strategic decisions over where to source its raw materials.
Substitute Products.On the other hand, competition is determined by the numerous threats that face the existence of the business in the industry it operates. The first threat is that of substitutes, which refers to the ease of a company's products being replaced by other products in the market (Griffin, 2012). Starbucks' products have a high threat of being replaced by other types of beverages. The most common ones include tea, chocolate, and other drinks such as juice and sodas. Besides, most of these substitute products are cheaper than the specialty coffee. To this effect, the firm needs to make strategic decisions to respond to this threat.
New Entrants.Also, Starbucks faces a moderate threat of new entrants, which refers to the magnitude of barriers to establishing new businesses developing in the industry. According to (Bruzelius & Johansson, 2012), new firms seeking to gain market in this industry have to deal with incumbent companies that enjoy economies of scale. Markedly, Starbucks produces its merchandise in large-scale thereby spreading out its fixed costs over more units. Additionally, customer loyalty and the demand-side benefits of scale make it even difficult for other firms to match the levels of Starbucks. In this view, the moderate threat is a great concern for Starbucks to consider when in strategic management. The analysis of the Starbucks' competition landscape shows that it influences its strategic management since the company has to find a means of using the available resources to mitigate the impacts of these forces.
Starbucks' strategic management is also influenced by the political factors, which is an aspect of PESTLE's model of the external environment of business (Cadle, Paul, & Turner, 2010). Such influence emanates from elements such as regional integration of markets, government support for infrastructure, and bureaucracies. For example, regional integration is an ongoing trend that presents Starbucks with an opportunity to expand globally. Further, governments' efforts to improve infrastructure in most countries provide the company with greater access to more markets. However, increased bureaucracies could be a threat to its expansion. In this regard, the strategic management has to consider the political influence on the company's ability to perform in the market.
Also, Starbucks strategic management has to consider the financial situation and transformations related to the industry as detailed in the PESTLE model. For example, it has to embrace the economic growth of developing countries as an opportunity to tap the regions' burgeoning markets. Similarly, the reducing unemployment rates in the world offer the company an opportunity to utilize the growing workforce. However, the rising cost of labor in most countries is a significant threat to the firm as the prices of raw materials are likely to increase with these changes.
Another aspect of PESTLE framework is the sociocultural factors that have an impact on the strategic management of Starbucks. Markedly, the growing agricultural culture is one of the strategic management opportunities that the organization could consider. Also, the increasing health awareness is another area that the firm ought to consider in making strategic decisions as this could encourage it to produce health-conscious brands of coffee. On the other hand, there is an unprecedented growth in the middle-class population around the world, which would prompt it to consider increasing its production levels.
Finally, the contemporary world is experiencing massive revolution from the technologies (Rust & Espinoza, 2006). For example, the increase in production and usage of mobile phones is a significant consideration for strategic management as it could help it improve the mobile applications for customer use. Further, the firm has the opportunity to improve its supply chain efficiency following inventions in coffee production. The analysis of Starbucks' external environment shows that they influence its strategic management. Besides, this concept is the process of setting an organization's targets, evaluating the competition levels, and assessing the internal arrangement. To this end, the external environment has indicated the competitiveness of the company and how that could help it achieve its strategic goals.
The findings of the report indicate there are numerous internal and external environments that have an impact on Starbucks’ strategic management. The most outstanding of the internal factors include structure, culture, strategic capabilities, and leadership. First, it ought to capitalize on the robust leadership abilities of its management headed by Schultz to improve its employee performance through motivation and open discussion. Also, the company should foster the current organizational culture that encourages good working relations and warm customer service. Besides, the culture of inclusion and diversity is a fundamental tool for motivating workers to focus of customer satisfaction.
Similarly, the robust strategic capabilities and staff would be a great strategic management resource. To this effect, it ought to utilize the superior store design and strategic positions to compete effectively in the specialty coffee industry. Also, the robust employee motivation and leadership competence are strong competitive instruments that Starbucks could consider expanding in strategic management. Further, the company’s recruitment and retention policies are fundamental areas of consideration for Starbucks to achieve competitive edge in the industry.
On the other hand, Starbucks should capitalize on the growing economies, technology, and sociological factors to grow its market in the world. The current economic integration, technological advancement in coffee production and processing, and health awareness are potential opportunities for the company to tap into the burgeoning market and reducing costs of coffee processing. Therefore, most of the external business environment is promising to the firm, and it should take advantage to adjust its strategic management to match the current market condition.
However, the company should be wary of the bargaining power of customers as they have alternative products that are cheaper than specialty coffee. Given that the switching costs are low, Starbucks has the ability to change the condition by offering cheaper coffee that targets the lower class customers. Additionally, the threat of substitute products is substantially high as consumers can opt for a broad range of beverages including tea, juice, and sodas. Markedly, these prices are also comparatively lower than those of coffee. To this end, Starbucks’ strategic management should consider developing the other products line further to cushion it from the threat.
The most significant implication of adopting the above recommendations is the massive financial outlay needed for the task. For example, developing its other lines of products, such as tea and coffee, will require the company to rebrand its numerous stores across the world. Markedly, the current branding is one of the resource capabilities that have greatly contributed to the tremendous success that the company enjoys today. On the other hand, Starbucks will have to use extra resources in advertising the new products in all of its operating areas worldwide. However, the changes have the potential to improve the performance of the company since it already has established infrastructure, qualified workforce, excellent leadership, and well-designed organizational culture and structure.
All in all, it is indisputable that internal and external environments of business have a significant impact on its strategic management. Starbucks is an example of a company whose strategic planning is massively dependent on the internal factors such as people, culture, structure, and strategic capabilities. These elements are explained through the 7-S and VRIO's models of strategic management. On the other hand, the external factors that shape its strategic management include Porter's Five Forces and PESTLE's framework. Therefore, the elements inside and outside Starbucks' operations are useful in making strategic decisions which shape its success in the specialty coffee industry.
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