Starbucks in 2012: Evolving into a Global Dynamic Organization Essay
Starbucks in 2012: Evolving into a Global Dynamic Organization
Has Howard Schultz done a good job since his return as Starbucks’ CEO? Why or why not? What evidence can you cite in support of your position? The return of Starbucks’ CEO was a clear success. In fact, the company has witnessed a great financial performance, since the return of its visionary CEO, Howard Schultz, who not only possesses efficient management skills but also, a great sense of leadership flair. For instance, Shultz proceeded to launch a series of actions to reorganize Starbucks into the company he envisioned it ought to be, push the company into new plateaus of differentiation and innovation, while preparing for renewed global expansion. Those transformational efforts were indeed the centerpiece of his return. He also had three main goals, which were to strengthen the company’s cores, enhance the Starbucks experience, while investing and growing.
In addition, he created and implemented a cost containment and efficiency campaign, which produced satisfying results. Conversely, Schultz is involved in creating and executing the strategies that will ensure that the company remains competitive in the future (Loudon & Wrenn, 2006). As we can see, all Shultz’s efforts contributed to the positive turn -around of the company’s overall performance. Which one of the five generic competitive strategies (low cost, best cost.) most closely approximates the competitive approach that Starbucks is employing? Out of the five strategies, Starbucks seems to follow a broad differentiation strategy that puts an emphasis on product differentiation. For instance, compared to its competitors, Starbucks has been very successful in its differentiation approach, which offers numerous products that allow the company to appeal to its customers’ base. In fact, Starbucks’s management has learned that consumers’ tastes and preferences cannot be fulfilled by one homogeneous or standardized product. Therefore, products’ differentiation is necessary, to stay competitive. For instance, Starbucks offers different products’ line that includes coffee, iced drinks, lattes and blended drinks.
In addition, the company offers food products, such as salads, sandwiches and pastry’s items. In fact, Starbucks provides all this products’ variety, using the highest quality possible. As a result, Starbucks is able to retain its existing customers, while acquiring new ones. Conversely, Starbucks’s high prices do not drive customers away, since its customer loyalty remains high. Actually, the company’s high quality product is due to the highly skilled employees who work for Starbucks (Gilbert, 2008). For instance, highly skilled employees coupled with a great investment in technology, helps lower the production and logistics cost; hence, passing the benefits of a high quality product to the consumers. The differentiation methods that Starbucks has applied include: •Exceptional customer service
Starbucks’ management lead by its CEO, has emphasized on the importance of treating the customer right. However, to achieve this superior customer service, Schultz realized that employees need to be satisfied and have their voice heard. As a result, Howard introduced a medical insurance program and stock options for full and part- time employees, since he believed that treating employees right, would lead them to treat the customers’ right. •Offering additional features
The company enhanced the Starbucks’ experience, by including additional stores’ features, such as fireplaces, music, couches and free Wi-Fi access.
Starbucks has carried out intensive marketing campaigns in a bid to promote its products. As a result, the company was able to gain a larger market share.
•Investing in research and development
Starbucks has invested heavily in research and development to improve its existing products line, while creating new ones, such as iced drinks. What is your evaluation of Starbucks social responsibility strategy? Is it sincere or just something the company does and talks about to create a good public image? Starbucks’ social responsibility strategy seems to be genuine, as it really strives to make a difference in the world. In fact, the company purchases most of its coffee from third world countries, where it created programs that offer healthcare and educational support to the citizens of these countries (Hermann, 2010).
Additionally, the company strives to promote ethical growing practices for its coffees and teas, while striving to buy its manufactured products from pro-social and environment suppliers. The organization is also adapting pre-environment initiatives that aim at reducing waste, increase recycling, use renewable energy sources and conserve water resources. Moreover, the company is mostly using green building materials to build its facilities. On the other hand, Starbucks Foundation, which is in charge of the company’s philanthropic activities, fosters to numerous non-profit organizations, while being involved in humanitarian activities (i.e. Haiti and Japan earthquake). As a result, the company has received numerous prizes for its exemplary social responsibility initiatives that cover numerous areas such as, environment, climate change, human rights, philanthropy and employees relation, to say the least. What is your assessment of Starbucks’ financial performance during fiscal years 2007-2011? The late 2008-2009 global recession resulted in the company’s declining EBITDA margins and revenues (please see figure 1 below).
That was the time, when the company implemented serious retrenchment initiatives to cut costs and close 900 under-performing stores worldwide. On the other hand, the company did show some improvement starting 2009, where net earnings grew to 390.8 M (please see exhibit 1 from the book’s case) compared to 2008, and operating expenses dropped to 9,334.5 M, compared to 2008. However, the company did experience a higher growth in 2010 and 2011. (Please see exhibit 1 from the book’s case) Therefore, we can conclude that the company’s financial performance is strong, since it improved right after the global recession and continued on that path. Finally, the company is expected to maintain a good financial performance in the future, as its strategy execution plan seems to work. As a result, market share, global expansion and presence should grow further and hence, revenues and profits as well.
Figure 1. Starbucks financial performance
(Adopted from www.starbucks.com)
What issues confront the company as of mid-2012? What should Starbuck’s management be worried about? The company’s major problem lays on the new beverages companies’ stiff competition. For instance, these companies are trying to differentiate themselves, by introducing new products in the market at very competitive prices, while gradually taking up some of Starbucks’ market share. In fact, these companies are striving to gain international recognition, while managing to expand into other regions, where Starbucks already operates. As a result, management should be cautious about the stiff competition effects, which could also affect the company’s brand name recognition, positioning among competitors, global presence and its overall financial performance.
What recommendations would you make to Howard Schultz to sustain the company’s growth and support continued strong financial performance in the years ahead? I would suggest Howard Schultz to create and implement aggressive marketing strategies that enable the company to stay competitive, while keeping Starbucks’ heritage alive. In addition, I would recommend him to invest more on the R&D department, while being innovative in its vertical integration’s business part. In fact, the company could try to enter into new market niches that could go, hand in hand with its drinks’ line, such as the frozen pizza sector, for example. Moreover, I would advise him to re-invent its beverages, bakery and pastry’s line- ups, since customers are always eager to try new goods. In fact, failure to do so, might result in losing market share to competitors.
Another suggestion would be to add the number of Starbucks drive- through stores that cater to the on-the-go coffee drinkers, as this could lead to a higher speed of service and customer turn over. I would also recommend the CEO to moderately lower the company’s prices, to gain more customers base and break into the price’ sensitive market segment. For instance, most of its customers do enjoy the Starbucks’ experience, but couldn’t indulge themselves all the time. Finally, I would advise the CEO to strategically increase the company’s global presence, while expanding into untapped markets.
Loudon L., Wrenn B. (2006).Marketing Plan guide. Psychology press Gilbert,S.(2008).The story of Starbucks. Juvenile nonfiction Hermann, R. P. (2010). The HIP investor. Wiley & Sons Publishers Schultz, H. (2012). Pour your Heart into It .Hyperion Press.