Core Business Skills
1. 0 INTRODUCTION This particular assignment’s aim is to discuss the application of the strategic management process in a retail industry. I have chosen Starbucks Coffee as my food and beverage industry to research on, and to thoroughly explain the strategic management process implied by them. Starbucks Coffee Company was founded by English teacher Jerry Baldwin, history teacher Zev Siegl, and writer Gordon Bowker back in year 1971 Seattle, Washington. Starbucks Coffee Company is known as the world’s leading coffee retailer, roaster and last but not least brand of specialty coffee.
Apart from providing only coffee, Starbucks Coffee also cater light snacks like sandwiches, delicious pastries, healthy salads and etc. Since Starbucks Coffee is the world’s leading brand in coffee, they serve up to 35 million customers from all over the world weekly. Because of their great reputation, they have successfully opened up to 17,000 stores worldwide. The company’s mission statement is to ‘inspire and nurture human spirit’. Firstly, Starbucks Coffee focus to provide a ‘great work environment’ to their members so that they are treated with ‘respect and dignity’.
Secondly, Starbucks Coffee also believes that conducting business ethically is the main key to be successful in a business. As a worldwide and leading-brand company, Starbucks Coffee insists strongly on upholding a culture where diversities are well valued and respected. These diversities include ‘inclusion: human connection and engagement’, ‘equity: fairness and justice’, ‘accessibility: ease of use and barrier free’ so that employees with diverse background are fairly treated and respected to ensure a comfortable and enjoyable workplace (www. starbucks. com 2011). . 0 Strategic Analysis 2. 1 Internal Analysis 2. 1. 1 Strength: One of the main strength possesses by Starbucks Coffee is the strong brand image they have. In terms of the coffee industry, they are considered to be most reputable compared to Coffee Beans, Gloria Jeans, and other competitors among the industry. Starbucks Coffee manage to prove themselves as a highly resorted brand by getting rated as the top 100 most seeked after brand. Apart from having a high brand value, Starbucks Coffee has managed to globalise their target market in to all parts of the world.
This opens up the opportunity for Starbucks themselves to monopolise the foreign market as well. 2. 1. 2 Weaknesses: No matter what industry a firm is in, they will face certain weaknesses that they have to always try to improve on. As for Starbucks Coffee, one of their main weaknesses is the product price. In many countries, Starbucks Coffee is considered as a premium product where the prices of their products are higher compared to other coffee shops (Lee S, 2007). Another weakness that Starbucks Coffee has is that they are too focused in their domestic market which is the United Stated of America.
This will lead Starbucks Coffee into a vulnerable position where it is hard for them to predict unforeseen changes in the industry’s market at other countries. 2. 2 Stakeholders in Starbucks Coffee: Stakeholders in Starbucks Coffee includes all the workers which are known as partners. This is because Starbucks Coffee wants to create an environment where all their employees would feel comfortable and relaxed (Kembell B, 2002). The second stakeholders for Starbucks Coffee Company would be their highly valued customers. These customers play an important role in Starbucks Coffee because they are the ones who visit the coffeehouse almost everyday.
In order to feel connected to Starbucks Coffee, customers can easily hear and engaged with the employees and products of Starbucks anytime, anywhere (Hanft A, 2005). The other crucial stakeholder in Starbucks Coffee will be their coffee farmers. These coffee farmers are actually the backbone to Starbucks Coffee because Starbucks rely mainly on coffee products. In order to uphold the social and economic well-being of their coffee farmers, they have decided to pay a premium price for high quality coffee beans from them (Robertson H, 2006). 2. 3 Core Competencies:
As we all know, core competencies in any industry is actually their comparative advantage. As for Starbucks Coffee, one of their core competency is human resource. Firstly, Starbucks Coffee is a company that values their employees greatly. Starbucks shows their appreciation to their employees by giving them the opportunity to receive full healthcare benefits, stock options/discounted stock purchase plans (Weber G, 2005). Starbucks Coffee’s tangible resources will be their high-quality coffee beans called the Narino Supremo Beans. The Narino Supremo Beans have the highest quality and is the largest bean in Columbia (www. melita. om, 2011). In a recent report, it is said that the president of the Columbia;s National Federation of Coffee Growers have confirmed the purchase of 6 to 7 percent of Starbucks shares (Castaneda S, 2009). This shows that Starbucks Coffee has sole ownership over the high quality beans which is an advantage for them. Starbucks Coffee has a good reputation and is well accepted throughout the world. This reflects on their intangible resources to attract customers. Having a good brand name, friendly employees and high quality coffee beans are the main traits possessed by Starbucks Coffee. 2. 4. 0 External Analysis 2. 4. 1 Opportunities
Starbucks has always use their opportunities to expand their business in to a whole new level. Firstly, Starbucks has created an opportunity for themselves to expand their brand name to foreign countries. It is reported that Starbucks are planning to open up to 15,000 new stores across the world in the years to come (Datamonitor, 2005). Apart from that, Starbuck’s technological advancements has given them a good opportunity to conveniently distribute products to customers through the internet. Starbucks has also equipped all their lounges with WiFi services to accommodate their valued-customers to boot (Elgan M, 2008). . 4. 2 Threats One of the threats that will be faced by Starbucks coffee is the price fluctuation of diary and coffee products. The price of theese products can also be affected by the income levels of customers in upcoming or developing country as goods over there are highly inflated (Pinkasovitch A, 2011). In every industry that we are in, there will always be competitors trying to penetrate the market . Competitors for Starbucks Coffee would be other coffehouses that sells coffee. Coffeebean, San Francisco Coffee, and Gloria Jeans are direct competitors for Starbucks. 2. 5 PEST Analysis 2. 5. 1 Political Factor:
One of the political factors that posses as a major issue for Starbucks is the unstability of political issues that would directly affect the growth rate of Starbucks Coffee. From a recent report, it says that up to five Arab states have decided to boycott American goods with their primary target being Starbucks Coffee shops (Antievil, 2008) 2. 5. 2 Economic Factor: Apart from that, Economic factor is also a very important matter to look into when executing a strategic analysis. One of the economical problems that affected Starbucks was the recession in Switzerland, Japan and Germany in the early 2000s.
In a more recent report, the Company had revealed a 70% drop in their quarterly profits to only $64. 3m. Apart from that, they are also planning to close down up to 300 stores (Clark A, 2009). 2. 5. 3 Social Factor: Starbucks has always prioritise on their social issues and responsibilities. Starbucks always participated in upholding the importance of the environment. A move by Starbucks to create a partnership with the Conservation International, mainly to put their attention on environmental protection such as waste reduction and energy and water saving programs (David, 2009).
A move like this proves that Starbucks are cautious about the social responsibilities. 2. 5. 4 Technology: In terms of technology, Starbucks has always been up to date. All of Starbuck’s outlets are fitted with Wi-Fi services. Another move to be technologically involved will be the creation of music CDs that will suit the specific moods of customers. They are available for purchase at any Starbucks outlet (Lodi K, 2006). 2. 5 Porter’s Five Forces Framework: The Porter’s Five Forces framework is applied to go in to a more in depth analysis of an industry.
The five forces usually includes industry competitors, new entrants, suppliers, customers, and substitutes. In all industries, companies will have to face strong competitors in order to dominate the markets. For Starbucks, their main rivalries would be Coffee Bean, San Francisco Coffee, and other coffee lounges that falls into Starbuck’s category. They do not only compete domestically, but also internationally. Sometimes, rivalry from other industries can also be a threat. For example, McDonalds could pose as a threat to Starbucks because they are a fast-food chain yet they still provide coffee in their menu.
They could be one of the strongest competitors for Starbucks to face (Gregory S, 2009). Another forces that Starbucks faces is the emergence of substitute products. Because Starbucks is a premium product, therefore their prouct prices are usually very high. During a recession, there is a high possibility that customers from Starbucks look for a substition to lower down their expenditure. Products like Coca-cola or Pepsi-cola could be one of the substitues for high quality coffee beans. However there is a big difference in the taste and smell when it is being consumed. Therefore the main substitute for Starbucks will be basic coffee.
This will be a threat to Starbucks because they are an organisation that caters to high-income earners. One other factor that might affect an industry will be the customer’s buying power. However, this depends on the organisation itself. If they are an attractive organisation then the bargaining power of buyers will be low and poses no threat to the company. For Starbucks, the bargaining power of its buyers are low. Althought prices of Starbucks are high, customers still buy it because of its differentiated and outstanding products. The other forces that will directly affect an industry is the supplier’s bargaining power.
The supplier’s bargaining power will rise when there is a rise in demand of the product that they supply. Starbucks could be facing this threat because they rely on central american to produce the coffee traded. Since there are more demand in high-quality beans, main suppliers will naturally have a stronger bargaining power. “An over-crowded market will give the coffee suppliers bargaining power. There are no substitute products for the coffee beans Starbucks must buy. This is a potential threat to the company,” (Hanft A, 2005). 3. 0 Strategy Formulation 3. 1 BusinessLevel Strategy
For all the industries, they have to chose a business strategy that can successfully dominate the market. The formulation of this strategy is very crucial in a busines because it helps to find customers. One of the tools that can be used to formulate an industry’s business level strategies is the porter’s generic strategies. Starbucks uses the focused differentiated strategy derived by Michael Porter to run their business. As we all know, Starbucks is known as a food and beverage company. But to be specific, Starbucks is a food and beverage company that focuses on coffee brewing.
They are well known for their high-quality beans and comfortable lounges. Starbucks chooses a segment to market their products to. This includes coffee fanatics and people who are looking for a place to relax. However, Starbucks caters their products to mostly high-income earners because their products are expensive. This shows that the focused differentiation strategy is used to seek their competitive advantage in the market through uniqueness of their products (Campling J, 2007). The advantage of Starbucks’ focus on a single market can give them the chance to handle all managerial, financial, technological, and capabilities in one business.
Starbucks has always been trying to come out with more creative and innovative products to be differentiated among their competitors. This has certainly made them the biggest winner in the coffee based industry (Guarriello T, 2008). Although the prices are high in Starbucks, they are very differentiated in terms of the coffee beans they use and they way the serve. This shows that the focus differentiation startegy that Starbucks uses is an effective way to attract customers since they are the world leading brand in its industry. Another way to formulate a business-level strategy in an industry is to apply the product life cycle method.
The first stage of a product life cycle is introduction, followed by growth, maturity, and decline (Campling J, 2007). 3. 2 Corporate-level Strategy The corporate strategies are used by industries to direct their organisations towards a sustainable competitive advantage (Campling J, 2007). The main purpose for the use of this strategy is to set a target and control resources allocation for an enterprise. The first approach to formulate a corporate strategy is the portfolio planning approach. The portfolio planning approach are designed to help managers to decide on investing scare organisational resources among competing business opportunity.
This straregy is very useful for multibusiness enterprises like Starbucks. Growth strategy can be used as one of the corporate level strategy to effectively expand and increase the size of a company’s operations, through store expansion and global market penetration. In order for Starbucks to successfully expand their stores, it is required for them to have full concentration on their products (Campling J, 2007). Starbucks has been very aggressive in store expansion, this includes them opening up to a dozen of stores in China in year 2007 (Yan Z, 2008).
In addition to that, Starbucks has also put their main focus on diversifying their growth to other products. 4. 0 Strategy Implementation 4. 1 Organisation Structure: An enterprise’s organisation structure is the mixture of task and reporting relationships that allows the company to control its lines of authority and communication at the same time allocating rights and duties. There are three types of organisational structures, the divisional structure, matrix organisation and hybrid structure. Starbucks has adopted the matrix organisation structure to focus on.
All the employees in this firm would report to both a functional and divisional manager and lastly to a project manager. Failures of strategic planning happens most of the time. The most common strategic planning failures are failures of substance and failures of process. Failure of substance happens because there is inadequate attention being paid to major strategic planning elements. Failures of process will be caused by poor handling of strategy implentation like lack of participation error and goal displacement error. Therefore, the organisational structure in a company is very important to avoid unwanted uprising problems. . 2 Corporate Governance: The corporate governace is the system of control and performance monitoring of top management (Campling J, 2007). This task is usually done by the boards of directors, and other major stakeholder in the company. For Starbucks Coffee, they currently have 9 directors including the CEO of Starbucks Howard Schultz. These directors of Starbucks are responsible for ensuring goals and objectives in the company are met. The directors are well aware of their responsibility to provide a stable managing process so that the company’s goalds are met (www. starbucks. com). 4. Strategic Leadership Strategic management is a leadership responsibility. Whereas strategic leadership is the capability to prepare others with the ever-changing strategies in the market. Michael Porter says that the strategic leader of an enterprise has to be the CEO of an organisation (Campling J, 2007). One of the most crucial task for a strategic leader is to be a guardian of trade-offs. Countless commitment and disipline has to be put in by a strategic leader in order for the business the be successful. Another trait that a strategic leader must posses is the ability to create a sense of urgency.
By having a sense of urgency, the strategic leader is able to give out a strong message to its organisation and their members that the need for consistent improvementwill always persist. A strategic-chief will also have to ensure that everyone related to the organistion understands the strategy that they are using. Leaders in an organisations will have to keep their members updated with their latest business strategy. Furthermore, the task of a strategic leader also includes being a teacher and a good communicator. 5. 0 Conclusion 5. 1 Importance of Strategic Management In conclusion, strategic management involves many processes.
This includes identifying the mision, objectives and strategies of an industry. Strategic management is very important for a business as it is used to derive the main strategy for your business. With good strategic manangement skills, leaders are able to adopt to the sudden change in the market and they can also prepare themselves to the different needs and wants of their customers. An industry with a good strategy will always be succesful. Strategic management can also be applied to analyse the internal and external environment of an industry which can give leaders of an industry a better understanding of the market.
