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... t external opportunities and threats are events that could significantly benefit or harm an organisation in the future, and these are largely beyond the control of an organisation. The author continues to suggest that a basic tenet of strategic management is that firms need to formulate strategies to take advantages of external opportunities and to avoid or reduce the impact of external threats. For this reason, identifying, monitoring, and evaluating external opportunities and threats are essential for success. (Figure 11) Lobbying of city regulations is one of activities utilised by Starbucks to influence external opportunities and threats. (According to Pearson, 2002) New technologies as products of technological revolution create opportunities for big companies such as Starbucks and are threats for small businesses, as these cannot afford to implement expensive innovations. The strategic issues may be identified by considering the interaction of opportunities/ threats and strengths/ weaknesses. (Joyce & Woods, 1996) Smiths (1994) cross-tabulation matrix of SWOT shows that Starbucks strength gaining market share by store clustering and its aggressive real estate strategy in conjunction with external opportunity to purchase stores lead to internal threat for Starbucks of alienation of consumers who might lose the sense of discovery and Starbucks will be considered too general, when they have thousands of shops and the organisation might not be luxury anymore, also the image can be damaged by substandard service and quality in some licensed shops over which Starbucks does not have total control. Another example, Starbucks weakness - problems with finding quality coffee beans, whilst increasing volumes, in conjunction with opportunity - to invest in coffee plantations, lead to strength to become own supplier STRATEGIC POSITION Strategic position as the face of the business strategy specifies how the business aspires to be perceived by customers, employees and partners relative to its competitors and market. (Aaker, 2001) Applying the Life Cycle/Portfolio matrix (A.
D. Little, 1974) (Cited in Management Guru, 2004) (Figure 12) the current competitive position of Starbucks can be identified as Strong. The strategic positioning in terms of stage of industry maturity is at the transitional stage from Growth to Mature as Starbucks current strategic direction allows sustaining growth by continuing the development of the Starbucks brand image and by increasing its presence in different markets. STRATEGIC CHOICES Strategic choices involve understanding the underlying bases for future strategy at the functional, corporate and business levels, which should be consistent with each other. (Figure 13) (Business Guide, 2004) Operational method of development, which can improve Starbucks competitive position, could be a strategy of genetic diversity, introduced by Hamel & Prahalad (1994), it proposes to hire outsiders to maximise the share of voice of employees, as these bring fresh ideas, perspectives and beliefs, which substantially alter the genetic pool. In this case, top managers learn to seek out and reward unorthodoxy.
However, this is a very slow process of inducing genetic variety. At the business level strategic options can be set within the context of overall generic strategy. Porter (1980) suggests that there are three ways in which a firm can achieve objectives. According to Porters approach, Starbucks generic strategy could be identified as differentiation strategy, as Starbucks seeks to be unique within the industry. With this uniqueness Starbucks is able to charge a higher from average price.
Another element of strategy is creating brand loyalty, which also decreases price elasticity of demand. Starbucks can execute this strategy through constant innovations in the product itself and in the way its delivered. Yet, at the maturity stage, which is usually viewed as the saturation period, Starbucks might consider differentiation strategy without a price premium, proposed by Bowman & Faulkner (1996). This allows the company to gain market share and give stronger competitive advantage. However, Starbucks can keep premium prices, but just lower than competitors. Also capturing the dynamic of competence building, having a point of view where the opportunities lie and anticipating customer changing needs, Starbucks might be able to grow the numerator net income in ROCE and ROI, rather than reduce the denominator investment. (According to Hamel & Prahalad, 1994) The issue of strategic choice is also lying at the heart of the corporate strategy.
Applying Ansoffs (1988) Growth Vector Matrix, which is focused on present and potential products and markets, Starbucks approach to the growth can be identified as market development, as the company is targeting its existing products to new customers in new geographical regions. The growth can be achieved by further acquisition of single stores. The disadvantage of this strategy is that high concentration of Starbucks stores in particular city areas makes the company perceived as too general. The related alternative approach is diversifying by developing new products for new markets. It could be done by related diversification through vertical integration, which gives the control of supplies, control of markets and access to information. (Johnson & Scholes, 1999) (Figure 14).
In addition, Starbucks can further diversify into non coffee areas such as ice cream, candy, tea, specialty food, and even kitchen and home products. Evaluation of strategies Johnson & Scholes, (1999) suggest evaluating strategies against the key criteria such as: Suitability, Acceptability and Feasibility. Growth strategy is suitable for Starbucks as the companys position within the industry is Strong. Building new core competences will allow further differentiation and reinforcing value added. The growth strategy is also acceptable, as such factors as Operating Income and Earning per share are rising. (Figure 15) This shows that the business is attractive for shareholders and they will invest in Starbucks. However, while growing Starbucks depends heavily on financing.
To reduce debts, Starbucks has to franchise some stores, whilst reducing the risk of loosing control over franchised stores. Also the growth strategy stipulates rising of risk profile of stock. These two factors together can lower the acid test / liquid ratio: Current assets Stock Creditors: amount falling due within one year Finally, the growth strategy is feasible for Starbucks in accordance with its core competencies and business practice. High quality of coffee and service, special atmosphere can attract people across the world. However, Starbucks with its aim to create a desire for Western brand should be more conscious about traditions and habits of people in countries where Starbucks is going to expand. CONCLUSION The key to Starbucks success lies in the overall business strategy.
The companys goal is not to benchmark competitors products and services or to imitate them, but to develop independent points of view about how to create opportunities and exploit them. According to Hamel and Prahalad's (1994) theory of competition for the future, Starbucks is gaining Intellectual Leadership by the companys strategic architecture: foresight, breadth, uniqueness and consensus. The employment policy to employ senior management from outside and Representation approach to stakeholders is in accordance with the theory of genetic variety. Employees are important human capital, the companys biggest strength and asset. The role of corporate culture, shared values and beliefs, and social cohesion in the workplace are on a very high level.
These aspects respond (according to Pascale & Athos, 1981) to Japanese superior management techniques, which brought success to Japanese industry. Such soft factors (style, skills, staff, shared values, which were usually underestimated by American strategists), in conjunction with long-term vision, clear objectives and well-defined strategies are in the base of Starbucks success. However, tremendous growth brings out a concern about the unique Experience that Starbucks is supposed to provide. Overextended pursuit for growth can jeopardise the mission of Starbucks as the premier purveyor of the finest coffee in the world. The related problem is the identity crisis when Starbucks stretches its presence too far. The problem is that it is hard to combine the breath of distribution with the depth of service and quality.
Starbucks will have to re-invent the successful growth strategy without losing the companys vision: to be the most recognised and respected brand of coffee in the world as Hamel and Prahalad (1994) suggest that to build leadership in the future the company must be capable of regenerating its core strategies. APPENDIX Figure 1 Starbucks Current Objectives and Strategies OBJECTIVES STRATEGIES For Growth To generate 20 to 40 stores per month, and expand to 2, 000 stores by 2000 Aggressive real estate strategy of purchasing new stores To develop partnership and to double volumes of purchasing coffee over the next three years To increase participation in specialty sales contracts Not to heavily depend of equity and debt financing to grow Franchise some stores To take advantage of highest coffee consumption in different countries To continue expansion in the international market For Market Share To maximise market share and to build a regional reputation Concept of store clustering For Product Development and Brand Recognition To take advantages of sales areas (train station, street corners, malls, etc) To introduce new espresso carts and kiosks To penetrate into the grocery channel and build the reputation with supermarkets To allow supermarkets to capture 80 % of the home coffee business To concretely define the band image To increase awareness through agreements with retailers, wholesalers, restaurants, airlines, bookstores, selling high quality items like coffee makers, mugs, stationery, souvenirs, etc Customer Satisfaction To meet needs of customers not located near Starbucks retail stores and its regular home users To develop mail order To deal with increasing volumes To offer the increasing number of blends Figure 2 Starbucks identified stakeholders, who have the strategic influence, are: Customers they belong to different age groups; have different consumer patterns depending on sex and social status. Also as Starbucks is expanding they tend to be international Employees they are mostly students and people with a degree. Suppliers exporters from Latin America, Pacific Rim and East Africa. Shareholders Business Partners United Airlines, PepsoCo, ARAMAC, Red Hook Breweries, etc. Investment companies such as William Blair and Company Local communities, local and central governments.
Media and analysts Figure 3 Representation v Delegation - University of Sunderland Approach Advantages Disadvantages REPRESENTATIONAttempts to take in the full range of views, interest groups and organisational units as part of the full decision making process. Characterised by democratic, committee-type decision-making covers full range of views an obvious route to gain widespread acceptance of decisions involves people who may have limited knowledge of the subject area slows decision making can result in compromises which do not really represent best fit in any particular area DELEGATIONDelegated responsibility to those identified as being best suited to the job Work carried out by those with appropriate skills and knowledge Permits project to move forward more rapidly Acceptance relies on trust in those delegated Needs care to ensure that all relevant issues are properly understood and covered Figure 4 Starbucks stakeholders mapping LEVEL OF INTEREST Low High Low High Minimal Effort Keep Informed Employees (+) Suppliers (+) Investment Companies (+) Business Partners (+) Shareholders (+) Keep Satisfied Local and central governments (+) Key PlayersCEOBoard of Directors Powerful Shareholders Figure 5 Internal Analysis Overall Direction External Analysis Resources Audit Mission, Vision and PEST Analysis The Value Chain Analysis Objectives Porters Five Forces Figure 6 Starbucks Resource Audit 1 Money (Finance) Net earnings in 1996 amounted to 42, 128, 000 against 10, 206, 000 in 1994 Specialty sales increased from 26, 498, 000 in 1994 to 78, 702, 000 in 1996 The companys rating is a BUY to investors 2 Men (Human Resources) 1) Employees tend to be with a degree 2) 24 hour training of serving to customers for every position, including managerial 3) Higher wages, health insurance, etc. 3 Management All senior managers tend to have the knowledge of managing high growth retailer 4 Material (Supply and Purchasing) Excellent reputation among coffee suppliers and this gives the opportunity to select the finest Arabica coffee 5 Markets To gained market share by leveraging the size and going into different distribution channels. Penetration into grocery channel. 6 Machines (Production) State-of-the-art roasting and coffee equipment from recognised manufacturers as Krups, Bodum. Constant research of roasting and blending coffee. 7 Make-Up (Organisational Structure) Organisational structure is very flat. The direct contact between front-line staff and Senior Management 8 Methods (Business Processes) The managerial approach is not bureaucratic. There are different ways Contacting any level of managers, via Internet, phone, direct line, etc 9 Management Information H Schultz and The Board of Directors make strategic decisions and understand the company performance.
Figure 7 Starbucks: Cultural Web (Boughtons Coffee House newsletter) (Boughtons Coffee Figure 8 Starbucks: Value Chain Firm Infrastructure Flat structure of organisation Human Resource Management Employees tend to have degree Higher wages Employee turnover is very low Careful recruitment selection Insurances Direct contact with managers High job satisfaction Supply Chain Operation built to reduce redundancies Consistent and complete training programme Technology Development Research in roasting and blending coffee Implementation of computer technology in creating unique roasting curves High quality coffee making equipment from manufacturers as Krups, Bodum Procurement Established long-term relationships with reliable suppliers Increased participation in specialty coffee sales contracts Increasing volumes of purchase Inbound Logistics Only finest Arabica beans from various suppliers Careful coffee selection Operations Unique roasting Various blending Vacuum sealed bags Manufacturing of roasted coffee is unique Outbound logistic The best supply chain operations Complex distribution model Forecasting process where coffee is needed the most Mail orders Retail store unitsGroceryWholesalers Marketing & Sales Introduction of new espresso carts and kiosks New products: Frappuccino, ice-creams Grocery channel High echelon of restaurants Constantly developing channels of distribution Aggressive real estate approach Service High quality service Figure 9 The comparison of TEV (Total Enterprise Value) between Starbucks and other leading coffee companies in the US shows that Starbucks has 25. 1 against 14. 5 average for the industry. Starbucks net margin is 6. 0 %, which is more than twice higher than the industry's average. (Statistics, Case Study). Figure 10 Starbucks: Strengths and Weaknesses Strengths Weaknesses Quality of the product and the range of products offered: latte, frappuccino, mocha, teas, juices, and high-end souvenirs Difficulty with getting price confirmation from exporters, because the price depends of many factors Fully integrated manufacturing and distribution process Increasing volumes make problematic to find coffees that meet quality and quantity requirements Constant research of potential and existing coffee customers Some bad partnerships, difficulty in monitoring franchised stores Highly educated, also highly motivated and satisfied employees Challenge to constantly motivate its real estate staff to continue to generate 20 - 40 stores per month Best supply chain operations The risk profile of stock is rising Own real estate and design team Supply chain operations consists of four units, it is the challenge to support them in integrated, effective and cost-effective method Commitment of CEO and Top Management Heavy dependence on equity and debt financing to grow Flat organisation structure, direct contacts Excellent manufacturing and coffee making equipment Figure 11 Starbucks: Opportunities and Threats Opportunities Threats The existence small one-store establishments in the coffee industry give Starbucks the opportunity to gain the market share by purchasing small rivals The consumer preferences for specialty coffee is growing Change of regulations and laws Fluctuation in exchange rates, inflation Technology Innovations Economic deterioration in developing countries. Replacement of coffee crops with opium poppies. International market in the process of globalisation, the opportunity of finding new markets and distribution channels The publications in press about coffee threat for health FDI in coffee plantations The threat from basic coffee manufacturers moving to specialty coffee Figure 12 The Life Cycle/Portfolio Matrix (AD Little, 1974) Stages of Industry Maturity EMBRYONIC GROWTH MATURE AGEING DOMINANT STRONG Fast grow Catch up Attain cost leadership Differentiate Attain cost leadershipRenewDifferentiateGrow with industry FAVOURABLE TENABLE WEAK Figure 13 Figure 14 Starbucks - Related Diversification Possible advantages Examples Control of suppliers To own coffee plantations to secure continuity of supply To produce own roasters and coffee machines Building on: core competences Roasting and blending Excellent service and relaxing atmosphere Christmas, Easter, etc special coffees To organise evening introduction events Access to information and distribution of information To set up own magazine or newsletter Children related editions Spreading risk To avoid over-reliance on just roasting coffee, but have an experience of roasting Soya beans, which possibly can be considered by healthy life style adepts as the most acceptable Figure 15 Starbucks operating income 1994 - 23, 298, 000, 1995 50, 116, 000, 1996 56, 993, 000 Net earning per share 1994 0. 17, 1996 0. 47 (Case Study) List of References: Equator (2004) About coffee web accessed 15 / 09 / 04 Starbucks. com, (2004) web accessed 20 / 09 / 04 Johnson G. & Scholes K. 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Research essay sample on Specialty Coffee Growth Strategy
