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Example research essay topic: Sustainable Competitive Advantage Porters Five Forces - 3,274 words

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Contents I Introduction II Mission Statement III Current Companys Objectives and Strategies IV Stakeholder Analysis V Internal Audit a) Resource Audit 9 M Analysis b) Core Competences c) Cultural Web d) Value Chain Analysis e) Strengths and Weaknesses VII External Audit a) PEST Analysis b) 5 Porters Forces c) Opportunities and Threats VIII Strategic Position IX Strategic Choices and Alternative Strategies X Strategy Evaluation XI Conclusion INTRODUCTION The history of Starbucks began with a new concept of coffee houses as places to socialise, relax and read, to escape from the day-to-day routine. Starbucks idea to provide a unique experience along with quality products has brought recognition and popularity to the Starbucks brand. (Broughton Coffee House, 2004) MISSION STATEMENT Starbucks mission statement, which is the enduring statement of purpose that distinguishes the business from other similar businesses and identifies the scope of a firms operations in product and market terms (Pearson, 2002) is to create opportunities for millions of customers every day around the world to enjoy the high quality coffee and give them a memorable experience. Starbucks mission statement gives stakeholders the clarity of companys aspirations and the sense of discovery, what Hamel and Prahalad (1994) call strategic intent that motivates employees and managers. The vision statement of the organisation can be defined as the source from which the goals, objectives and strategies flow. (Johnson & Scholes, 1999) Starbucks vision of the future is the transition from a category-dominant domestic branded retailer into a global consumer brand, and its goal is to build the countrys leading branded retailer of specialty coffee and the long-term goal is to become the most recognised and respected coffee brand in the world. (Case Study) CURRENT COMPANYS OBJECTIVES AND STRATEGIES The main purpose of objectives is to enable a company to control its marketing plan, to help motivate individuals and teams to reach common goals, and finally they provide an agreed, consistent focus for all functions of an organisation. (On-line Encyclopedia, 2004) Objectives, if they are specific, measurable, achievable, realistic and timed, alleviate the implementation of strategies, which are the course of actions taken to achieve stated goals and objectives. (SBC, 2004) Starbucks objectives are precise about what they are going to achieve, quantitative and distinctively timed, and strategies are clearly set against objectives. (Figure 1) Applying Sheths (2000) methods of diagnosing marketing success, Starbucks strategy can be viewed as consisting of two general elements: horizontal expansion and vertical growth. Horizontal expansion as the major objective can be achieved by implementing the strategy in three ways: by expansion of Starbucks own stores, by specialty sales and by licensing.

The vertical growth strategy lies in creating the whole range of coffee drinking occasions and penetrating various consumption places. STAKEHOLDERS ANALYSIS Stakeholders are not just the people with a financial stake, such as customers, employees and investors, but also any groups, which can influence the ability to thrive and prosper in the long term as well as more immediately (Mori Consultants, 2004). It is important to identify key stakeholders, to assess their attitudes and to design strategies to keep them on board. It is also important for the business to monitor stakeholders that can emerge unexpectedly and identify their potential impact on the business. (University of Sunderland, 2004) The objectives that Starbucks established are based on blending the various interests of different groupings (Figure 2). As Starbucks mission is to be the market leader, it benefits all stakeholders, because customers get high quality products, shareholders receive high dividends, employees receive good wages (Statistics, Case Study, 1996).

Consequently after identifying all stakeholders and their influence, it is worth finding a way to get all potential outcomes from all stakeholders groups. Applying the approaches proposed by University of Sunderland (2004), which give the business the advantages of having stakeholders involved and using all their capacities, it can be identified that Starbucks applies the Representation Approach (Figure 3) as the company uses direct contact with its employees, seeks their opinions and holds open forums for the purpose of collecting thoughts, questions, and opinions from all partners (Case Study). Although Johnson and Scholes (1999) assume that it is difficult to produce mission statements that are acceptable to all stakeholders, undoubtedly, the Representation approach gives Starbucks an obvious route to gain widespread acceptance of decisions. However, stakeholders have different levels of interests as well as varying levels of power to play key roles. According to the power / interest matrix (Johnson & Scholes, 1999) (Figure 4) frustration with the adoption of a new strategy is possible when stakeholders with high power and low interest, such as central and local governments, under certain circumstances, such as new laws, regulations, etc. , which raise their interest, can move to category of key players. INTERNAL AUDIT A business can move forward rapidly, if its successes and failures are constantly identified, and strategies and results are measured against clear performance criteria.

Performance measurement is the combination of results, gained by carrying out Business Appraisal (Internal, External Analysis and Overall Direction), which in turn leads to the evaluation of Strategic Choice (SBC, 2004). (Figure 5) In this case, Internal Analysis examines each of the key areas of Starbucks operations to understand the business current position. The Resource Audit The Resource Audit considers each of the main resources, which must be analysed. It could be worth applying the SBC 9 Ms analysis to audit Starbucks resources, as it seems to cover most areas. (Figure 6) This analysis helps to understand companys core competencies. Core Competencies Johnson and Scholes (1999) define core competencies as knowledge, which provide for organisation competitive advantage. However, Joyce and Woods (1996) argue that competitive-based strategy is primarily concerned with the conduct of corporate strategy, rather than competitive strategy. This view is based on Hamel and Prahalad's (1994) theory of competition for the future, which includes Intellectual Leadership, Management of Migration Paths and Competition for the Market Share, where a company is considered as a portfolio of core competencies rather than individual business units.

The advantage is that it focuses explicitly on how a company can create value by maintaining existing competencies, building new competencies and leveraging competencies by applying them to new business opportunities. According to Hamel and Prahalad (1994), core competencies are embodied in core products, which are components in new end products, which in turn, help to adapt the business to changing opportunities. Hamel and Prahalad (1994) qualify core competencies as a competitively unique capability, which is gateways to the future. They assume that core competencies are longer lasting than any individual product or service and winning or losing the battle for competence leadership can have a profound impact on the companys potential for growth and competitive differentiation. In these terms, Starbucks unique techniques of roasting coffee (computer roasting curves), allow the company to create its core product coffee with a unique taste. Furthermore, excellent service and competencies in creating special atmosphere create the end product, which help the firm to adapt quickly to new opportunities.

Cultural Web Johnson and Scholes (1999) suggest that the main organisational purpose of meeting stakeholders expectations might be influenced by culture at several levels. They assume that the concept of the cultural web is a representation of the paradigm of an organisation and physical manifestation of organisational culture. Business Guide (2004) defines organisational culture as implicit knowledge, which includes relationships, norms, values and standard operating procedures. They argue that it is far less tangible and deeply embedded into an organisations operating practices, and because tacit knowledge is much harder to detail, copy, and distribute by competitors, it can be a sustainable source of competitive advantage.

The assumptions that constitute the paradigm (Figure 7) reflect the common public perception that Starbucks provides for its customers great experience: relaxing atmosphere, good quality products and excellent service. Logically, Starbucks organisational culture leads to a paradigm, which reinforces the behaviours observed in other elements of the cultural Web. In conjunction with respectable partnerships, this creates brand reputation, which can be considered as an intangible asset of the company. The understanding of the key aspects, such as companys resources, core competencies and organisational paradigm, helps to understand the value chain of organisation The Value Chain Analysis According to Porter (1980), to be competitive an organisation has to continually deliver value to customers. Porters Value Chain Analysis is careful analysis of how an organisation utilises its resources to create sustainable competitive advantage. (Johnson & Scholes, 1999) The chain consists of a series of activities that create and build the value. Porter (1980) suggests dividing organisations activities into primary and support activities.

Primary activities are concerned with the creation or delivery of a product or service; in turn support activities help to improve the effectiveness or efficiency of primary activities. The diagram (Figure 8) shows how Starbucks creates the margin. According to Sheths (2000) price value equation theory, Starbucks is increasing the margin as it has shifted the paradigm of coffee consumption patterns and raised the value element in price-value equation by delivering a much higher value than regular coffee shops. Therefore, by increasing the perceived value of Starbucks service, it is able to charge premium prices of that price-value equation remains in equilibrium. Also the evaluation suggests that Starbucks possesses potential competitive advantages because of the uniqueness drivers located throughout the value chain-inbound and outbound logistics, operations, marketing and sales, as well as organisational infrastructure and technology development. This evaluation indicates that differentiation strategies are the firm's most promising means to competitive advantage (Figure 9).

STRENGTHS AND WEAKNESSES One of the ways of thinking about the strategic capabilities of a company is to consider its strengths and weaknesses. (Duncan et al, 1998) The primary task in the business analysis phase is to identify those factors that may give the firm a competitive advantage. (Empowerment Zone, 2004) Kay (1999) suggests division into distinctive capabilities and reproducible capabilities, which in synergy are the basis of sustainable competitive advantage. Distinctive capabilities, in the case with Starbucks, such as exclusive relationships with suppliers, partnerships with respected companies (tangible capabilities), brand name, effective leadership, and organisational culture (intangible capabilities), are the characteristics, which cannot be replicated by competitors, and they provide the basis for sustainable competitive advantage. In comparison, reproducible capabilities are those that can be bought or created by competitors. Starbucks weaknesses (Figure 10) could be considered as illnesses caused by fast growth. However, Patrick (2001) argues that weaknesses should be better considered as constraints, which are the weakest links in any complex system and are limiting the ability to achieve more of the business goals. The Theory of Constraints (TOC) (Gold ratt, cited in Patrick, 2001) is a philosophy of management and improvement, which allows holding two opposed ideas in the mind, and still retaining the ability to function.

Constraints must be identified and the whole system must be managed with this in mind. EXTERNAL AUDIT Hyper competition is a key feature of the new economy and can be defined as a state in which the rate of change in the competitive rules is in such flux that only the most adaptive, fleet, and nimble organisations will survive. (Business Guide, 2004) In these terms, macro environmental scanning helps to identify key issues and ways of coping with change and complexity. PEST ANALYSIS The PEST analysis examines the broad environment in which the organisation is operating. (Johnson & Scholes, 1999) There are the four key areas in which to consider how current and future change can affect the business of Starbucks. It is recognised that coffee is the second more traded commodity to oil. (Broughton Coffee House, 2004) The level of uncertainty is very high, and obviously, it is not possible to forecast precisely in long-term such crucial factors as cherry beans availability, because of impact of natural disasters, plant infections and political regulations. It is common that most countries regulate coffee sales, as its export is the major source of foreign exchange for dozen of economies. (Equator, 2004) In such a case of uncertainty, Johnson & Scholes (1999) suggest using scenarios, which based on grouping of key environmental influences.

Political factors Political factors include government regulations and legal issues and define both formal and informal rules under which the company must operate. (Knowles et al, 2001) As Starbucks is expanding internationally, trade restrictions, tariffs, tax policies and employment laws of related to their business countries have influence upon Starbucks. To formulate the future strategy Starbucks managers have to take into account very different political situations in countries from which Starbucks buy coffee and countries, the company expands to: from extensive poverty and deep social inequality, which are characteristics of Latin America (ODonnell, 1996), to the fast growing economy of Asia. As predicted, by 2010 60 % of the worlds population will live in the Asia Pacific region. (Fly Consultants, 2004) Economic factors Economic growth in countries where Starbucks operates, such as USA, Pacific Asia and Europe, stipulates the firms growth strategies. The comparison of growth of GDP in the US from $ 2, 7 trillion in 1980 and $ 6, 95 trillion in 1995 to $ 7, 61 trillion in 1996 (Morsy and Alaadin, 1995) gives the clarity of potential opportunities for growth. The Starbucks business depends on economic factors in developing countries, where it buys the coffee beans. Coffee is the principle commercial crop.

Consequently, the slump in world coffee prices turns into disaster for coffee producing countries. Starbucks imports 55 % of coffee from Latin America. As the Arabica coffee is more expensive to grow, it commands premium prices, therefore there is the threat for the company when some small coffee farmers in Bolivia and Peru (the external debt of Peru rose from $ 9, 38 trillion in 1980 to $ 20 trillion in 1990, (Denperu Statistics, 2004) ) are tempted to turn to coca and poppy production, because these crops are much more profitable than coffee. (Boughtons Coffee House newsletter, 2004) However, such organisations as USAID, Fair Trade (FTAA) work to reduce the problem, and there is encouraging information that FDI in Peru rose from $ 27 trillion in 1980 to $ 41 trillion in 1990. (Denperu Statistics, 2004) Social factors The social and cultural influences on business vary from country to country. Social factors include the demographic and cultural aspects of the external environment.

These factors affect customers needs and the size of the potential market. (Johnson & Scholes, 1999) Specialty coffee consumption is growing at rate of 15 % per year, at the same time basic coffee industry is suffering. (Broughton Coffee House, 2004) Coffee consumption patterns are changing, because people tend to have healthier lifestyles to replace alcohol. Also coffee acts as a social catalyst and has moved into category of affordable luxuries. As demographic trends are always the matter of change, there is the need to monitor this change to understand the present market, and predict changes in the future. For example, the life expectancy in the US rose from 70 years in 1980 to 77 years in 1995. (Morsy and Alaadin, 1995) This tendency of the growing older population has to be taken into account for the formulation of new strategies Technological factors Technological factors can lower barriers to entry, reduce efficient production levels. (Joyce & Woods, 1996) Technologies allow Starbucks to offer the higher standard quality products; its computerised roasters allow the company to create unique computerised curves in roasting coffee beans. The company invests in research to obtain even better quality of roasting and various blending. Also Starbucks uses the Internet as a distribution mechanism and implement Internet cafes to attract customers.

Implementing of new methods of working as mobile communication, intranet gives Starbucks advantages of prompt communication. PORTERS FIVE FORCES The main technique used to analyse competition in the industry environment is Porters (1980) Five Forces model. Five forces looks at five key areas namely: the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes and competitive rivalry. The stronger each force the more competitive is the industry and the lower is the rate of return that can be earned. (Goudaskas, 2002) Threat of Entry Starbucks operates in highly competitive industry where there are strong brands among competitors, such as Deidrich and Second Cup etc. (Case Study) However, the entry in the retail speciality coffee market is low. As the capital requirement for purchasing or renting one store is not high. There were more than 3, 485 competitors in 1996, but most of these were one-store establishments with no real plan for growth. (Case Study) Although the cost of entry is low enough, new entrants have to compete with respected brands.

To respond to the phenomenal growth in specialty coffee in the grocery chain, many large basic coffee manufacturers were moving into more specialty brands by introducing upscale versions of already popular supermarket brands. (Case Study) Coffee bulk purchasing offers Starbucks significant economies of scale. Outlets, stores, grocery chain, kiosks, Internet, mail delivery allow Starbucks to have access to a wide range of distribution services. Business Guide (2004) considers barriers to entry as a source of competitive advantage. In accordance with this point of view Grant (1998) suggests that a company can erect barriers to entry by creating and exploiting economies of scale, by product differentiation, contrived deterrence or using government policy to deter entry. Power of Buyers The force is high, because customers are large and provide a large proportion of company profits and also it is easy to switch between competitors, as the competition on brand recognition is very high in the coffee industry. Coffee companies basically use the same product - coffee beans, the competition based on quality of roasting, product innovations and variety and excellence of services.

To neutralise the threat of powerful buyers, the company can reduce buyer uniqueness by product differentiation, cooperation, diversification, and forward vertical integration (- to become own distributor) (Grant, 1998) Power of Suppliers Supplier power is high for Starbucks. Although exporters are anxious to become Starbucks suppliers, there are a few suppliers and increasing volumes of purchasing by Starbucks leading to difficulties in finding beans that meet the companys quality requirements. Although Grant (1998) in the chapter Opportunities to Neutralize Treats suggests that reducing supplier uniqueness and development of second sources can neutralise the threat, in coffee industry where there are a number of coffee farms that can be increased, Starbucks should invest into the industry, otherwise it is very difficult to develop second sources. Threat of Substitutes This threat can be generated by competition among non-coffee related products such as teas, and soft drinks. Also technological innovations in roasting, give the opportunity to roast Soya beans. (Broughton Coffee House, 2004) However, the threat is quite low, because there are no natural substitutes for coffee beans. Competitive Rivalry The competition is intensifying as the specialty coffee market is growing.

There is little difference between products, which makes the competition fiercer. As Starbucks is expanding internationally, the company can benefit from global consumers. In countries where Starbucks has established its name, the organisation can take an advantage of the recognition of its brand. Also it is very beneficial for Starbucks that exporters of coffee respect the company. Comprehensive Internet site allows Starbucks to attract more stakeholders. Gaining the market share by store clustering, Starbucks depletes its rivals.

Although, Porters Five Forces model gives a quite clear vision of the competitive environment, it has been criticised for presenting a static picture of competition that de-emphasises the role of innovation. Gudoskas (2002) argues that innovation can revolutionise industry structure and completely change the strength of different competitive forces. OPPORTUNITIES AND THREATS Pearson (2002) argues tha...


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