Starbucks – Evolving Into A Dynamic Global Organization Essay
Starbucks – Evolving Into A Dynamic Global Organization
1. What was Howard Shultz’s original strategic vision for Starbucks? Is his 2010 vision for Starbucks different from the one he had in the 1980’s? How many times has his strategic vision changed? Is his present strategic vision likely to undergo further evolution? After evaluation of the case, it can be said that Shultz’s first strategic vision for Starbucks began during his trip to Milan, Italy in 1983. It is during this trip that Shultz’ came to the conclusion that “the Starbucks store in Seattle completely missed the point.” For him, going to Starbucks should feel like a treat for their customers and every time should be an experience. For this to be possible, Starbucks should do more than selling coffee beans, they should also serve fresh coffee in their stores, this, Shultz believed, would help recreate the Italian coffee bar culture in the United States, his original vision. This vision is represented throughout the opening of his own company, Il Giornale in 1986. In 1987, his vision continues to expand.
At this point in time, Shultz acquires Starbucks, and the combination of the two companies creates Starbucks Corporation. Once he has become CEO and president, Shultz shares his vision with the staff; he aspires that Starbucks will become a national company with values and guiding principles that the employees could be proud of. Shultz also seeks for Starbucks to become the most respected brand name in coffee, and that this brand name will be admired for its corporate responsibility. During this same year, Starbucks continues to see some changes within the company, mostly through expansion outside of the Pacific Northwest, with a total opening of 15 new stores by 1988, 30, in 1990, 32 in 1991 and 53 in 1992, without the use of franchising. Between 1992 and 1993, Starbucks tried the “Starbucks everywhere strategy” in order to minimize delivery and manufacturing costs, which proved to be ineffective.
From the beginning of 1995 until present day, Starbucks also launched a long-term strategic campaign for product line growth; this includes the many alliances, acquisitions and licenses that Starbucks formed. Another example of the product line growth within the company can be seen through the change of menu in 2008, in an attempt to diversify their products to reach more consumers. It should also be noted that all of the partnerships that were formed from the 1980’s to the 1990’s were updated, either through remodeling, change, or discontinuation, proving the evolution of the company’s strategic visions throughout the years. Finally, in 2010, following the aggressive growth strategy of Donald, Shultz returns to his position as CEO and continues to make some changes.
During Donald’s growth strategy, Shultz felt that Starbucks was becoming less passionate about their customer relationships and the customer experience therefore he came up with a major restructuring and revitalization initiative. This was to be accomplished through several main points; strengthening the core, elevating the guest experience, investments and growth, expansion in Asia, India and Vietnam. All of these strategies were put in place in order to recast Starbucks into the company it envisioned it should be. Therefore, it can be seen that the vision of the company has not undergone many changes since the beginning; Shultz always envisioned that Starbucks will become the number one brand associated with coffee and a place with corporate values that the employees could be proud of. However, throughout the company’s expansion, it can also be said that the vision has grown larger, but the core values have remained the same.
2. Which corporate, entry timing options and diversification strategy does Starbucks follow? It can be deducted that the overall direction of the company is expressed through their mission statement “to inspire and nurture the human spirit – one person, one cup, and one neighborhood at the time.” The strategies that have been employed further support this goal. Starbucks used a growth strategy in order to reach their expansion goals, increase sales and market share and increase the firm’s overall value. Internally, the growth increased the firm’s sales, their production capacity, workforce and their geographic coverage. This internal growth was achieved through vertical integration, expanding the company’s activities, within the same industry. It was also achieved through diversification, by offering more product choice to its customers in order to appeal to a larger base. External growth was also done through the acquisitions and formation of strategic alliances, such as the one with PepsiCo for a diversification and increase in market share.
We also believe that Starbucks performed the following types of integrations: forward vertical integration, which was done through their retail stores. Not only do they produce the coffee with their own roasted coffee beans, but they then proceed to sell that coffee directly to the end user, the consumer in their retail stores. Forward vertical integration is also performed through their licensing agreements, such as with Kraft Foods, Inc. in order to market and distribute Starbucks coffee beans within the grocery channel in the US. In this case, Kraft is responsible for the marketing and distribution for the product. Backward vertical integration can be seen through the direct purchasing agreements made with their coffee growers, roasting plants and warehouses. This is done in order to ensure that they will have a secure supply of coffee beans at a pre-arranged price.
Horizontal integration is also evident throughout the company’s actions, through the acquisitions, partnerships and joint ventures made with other companies, such as that with Ethos Water in order to further diversify their line of products and with Tazo Tea in 1999. Diversification is also apparent through the making of such products such as CD’s, to promote the music played throughout their retail stores, accessories, such as their mugs, and coffee machines. It should however be noted that their diversification strategy continues to rely mostly on related products. The only truly unrelated diversification is demonstrated through the production of CD’s and the Apple application. In order to classify their entry timing options, we believe that Starbucks is a leader offensive company, seeing as they were the first to enter into the market, offering a new product and service. It can be noted that their main objective was to be the only company providing their customers with a great product combined with a strong customer connection. This can also be seen in their pricing strategies, seeing as their prices have gradually increased over time.
3. Which one of the 5 generic competitive strategies most closely approximates the competitive approach that Starbucks is employing?
Throughout the case, it is evident that Shultz aims for Starbucks to offer something attractively different to their customers from any other company. This is achieved through employing a broad differentiation strategy, by offering a wide range of products that appeal to an extensive spectrum of consumers. They also diversified their offerings to incorporate the sale of products outside of their retail stores through their partnerships with Tazo Tea and PepsiCo (to name a few). Their customer base is extensive due to their constant quality and service within the stores, which promotes the purchases of other Starbucks products outside of these stores. After reviewing the history of the company, it can also be said that Starbucks promotes constant innovation in order to stay ahead of any imitative competitors. All along, a strong concentration is put on the quality of the product, starting from the quality of the coffee beans and roasting procedures used by the company.
This is a promise made to the customers that only the best coffee will be used for their products and can be seen through their mission statement “our coffee has always been and will always be about quality. We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care and improving the lives of people who grow them. We care deeply about all of this, our work is never done”, proving their constant innovation. Their differentiation can also be proven through their pricing strategy, which remains high in order to cover the extra costs of their differentiating features; high quality coffee, an attractive work environment for their employees, and larger retail stores with exceptional, and environmentally friendly design.
4. What are the key policies, practices, business principles, and procedures that underlie how Howard Schultz and Starbuck’s management have implemented and executed the company’s strategy? As noted earlier, Schultz had a vision of Starbucks becoming the strongest brand related to coffee, with a large focus on expansion. In order to achieve this vision, Schultz executed 6 main guiding principles around which the company’s strategy is formulated: i. « Provide a great work environment and treat each other with respect and dignity »: Schultz understood that in order to be successful, his store employees need to be knowledgeable about the company’s products, pay attention to details in preparing the company’s espresso drinks, eagerly communicate the company’s passion for coffee and possess skills and personality to deliver consistent, pleasing customer service. The employee base pay determined by the pay scales prevailing in the geographic area where an employee worked and the person’s job, skills, experience and job performance. Starbucks was featured on the ‘100 Best Companies to Work For ‘ according to Fortune magazine thanks to the camaraderie among workers, health insurance even for part-timers. ii. « Embrace diversity as an essential component in the way we do business »
Schultz puts a strong emphasis on his employees and believes in offering the same opportunities to each of them; this is supported through extensive training for everyone. Every barista/partner hired receives at least 24 hours training in their first 2 to 4 weeks, which includes classes on coffee history, drink preparation, coffee knowledge, customer service and retail skills and of course, ‘Brewing the perfect cup ‘. This diversity can also be seen in the line of production variation, by offering a wide selection of products to their customers from coffee to CD’s and coffee machines. iii. « Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee »
The coffee-purchasing group working with Starbucks’ personnel tested new varieties and blends of green coffee beans from different sources (70 tropical countries producing coffee). Starbucks continues to source from different country, which reduces the risk related to weather or eco/political conditions. Starbucks bought coffee using fixed price and price-to-be-fixed purchase commitments, depending on market conditions to secure an adequate supply of quality green coffee. iv. « Develop enthusiastically satisfied customers all of the time » This is achieved with an emphasis on the quality of service required by each partner in the training process seeing as the quality of the coffee at the center of the Starbucks concept.
Customer satisfaction is always viewed as a main concern through all the policies set by Starbucks v. « Contribute positively to our communities and our environment » This can be seen through the purchasing strategy of Starbucks, in which they ensure that the prices being paid for green coffee beans are high enough to ensure the small farmers are able to cover their production costs and provide for their families. They also work directly with these small coffee growers, local coffee-growing cooperatives and other types of coffee suppliers to promote coffee cultivation methods that protected biodiversity and that are environmentally sustainable.
For instance, Starbucks partnered up with Conservative International’s Center For Environmental Leadership to develop specific guidelines (CAFE Practices) covering 4 areas: product quality, price received by farmers/growers, safe and humane working conditions and environmentally responsible cultivation process. vi. « Recognize that profitability is essential to our future success » Profitability remains the aim of any company, and it is also the case for Starbucks. Fortunately, it was seen in the case that the revenues have gone up by 6.6 billion over the first 6 months of 2011 with an operating income of 985 million in the first half of 2011.
5. What “values” does Starbucks have? How well do they connect to the strategy and to the manner of which the company conducts its business? The exhibit 6 outlines Starbuck’s main values as following: Cornerstone value: “build a company with soul” and never stop pursuing the perfect cup of coffee by buying the best beans and roasting them to perfection Starbucks’ Core Values:
Partner: It’s not just about work, it’s passion, respect and dignity Store: Sense of belonging, “full of humanity”
Customer: human connection, promise of a perfectly made beverage Neighborhood: Every store is part of a community
Shareholders: Our success rewards the shareholders
Throughout the case, we raised different development strategies, all interrelated with the core values: Market expansion strategy: Since the acquisition of Starbucks, Schultz’s first intention has always been to expand Starbuck’s global footprint. By expanding internationally he creates connections all over the world. Store expansion strategy: With regard to location, individual sites are selected in the most highly visible places possible, and centralized cities. Throughout the “Starbucks everywhere strategy” Schultz developed a real community and raised this notion of “ neighborhood” bringing together customers and employees sharing the same passion for coffee.
International expansion: Starbucks is looking for partners having strong retail/restaurant experience, values and corporate culture compatible with Starbucks, committed to good customer service, strong financial resources and demonstrated brand-building skills Strategy to expand product offerings and enter new market segments Great place to work: Schultz developed a special training program for all store employees aimed at reigniting their emotional attachment to customers, and focusing their attention on the details of delivering superior customer service and pleasing customers (Instituting health care coverage for all employees, Stock option for employers, Purchase plan for employees) Starbucks coffee purchasing: Each coffee producer is carefully chosen (country, agricultural conditions, varieties, sources) in order to meet Starbuck’s exacting standards of quality and flavour.
Starbuck also pays attention to the pricing and purchasing arrangement and makes sure that farmer and coffee growers are treat fairly. Starbuck corporate social responsibility strategy: “The way to build a great, enduring company is to strike a balance between profitability and a social conscience”. Through this strategy, Schultz intents to contributes positively to the communities in which Starbuck has stores and conducts its business in a way that earn the trust and respect of customers, partners, shareholders …
6. Preform a SWOT analysis for Starbucks
Partner Recognition Program – 18 different awards and programs Donald’s management and aggressive growth strategy
Expansion / new stores in US, China, Europe with licensed stores
Wide variations in municipal recycling capabilities that could prevent Starbucks to implement their recycling stores
Clear and communicated mission statement
“Starbucks Everywhere” strategy
Further development of new products
Increased competition developing of similar concepts
Limited Children’ s Menu
More strategic partnerships /alliances/acquisitions
Another Economic Crisis
CAFE partnership and member of Fairtrade International
Increase in coffee consumption- growth in the market
Devaluation of stock
Starbucks Farmer Support Centers
Reliance on the US market
Increased market price for coffee and dairy products
Starbucks’ Corporate Social Responsibility:
Ethically sourcing all of its products
Community involvement and corporate citizenship
High operational costs
Change in customers taste
Motivated staff thanks to the ideal workplace conditions
7. What recommendations would you make to Howard Schultz to sustain the company’s growth and support continued strong financial performance in the years ahead? Starbucks emphasizes thoroughly on the operation-side of its business, making sure that the customer experience is at the best that it can be. However in order for their international expansion to be successful, efforts on marketing should be encouraged. This marketing would assist Starbucks to further understand the market conditions and customer preferences of the markets they plan on entering and increase the brand recognition in these countries. In the United States, their marketing was mostly based on word-of-mouth and educating their customers (excluding their counter advertising for “Mc Café”). Social media could be used as a source of advertising to maintain a close relationship with its customers.
Starbucks should also continue its’ international expansion; their geographical distribution is not very even considering the amount of retail stores in the US, therefore our second recommendation is to penetrate new markets such as China where there is a strong interest in the product. Thirdly, we believe that Starbucks should return to one of their primary values; creating a strong connection with the customer. This value is one of Starbuck’s strongest differentiating qualities and therefore making a stronger effort with this can create a stronger customer loyalty. This customer connection risks to reduce due to the speed of expansion and therefore extensive training should be done in all of the stores for it to become a constant standard, no matter which store or location is in question.
Lastly, we believe that Starbucks should do a big advertising campaign on their Verismo machines with their respective pods. This will decrease their competition with Nespresso and could make them the first choice for at home coffee machines. This could be successful due to the well-known quality of Starbucks coffee and products, and a stronger advertising approach will make more people aware of this possibility. Also, the fact that Starbucks has more selling points than Nespresso can make customers more willing to buy their coffee prods from their retail stores, rather than looking for a Nespresso store.