Strategic Management and Strategic Competitiveness: Starbucks

Strategic Management and Strategic Competitiveness: Starbucks

Impact of Globalization on Starbucks

Globalization refers to the increasingly close integration and interdependence of freely trading economies and societies resulting in the spread of technology, information, and products (Boudreaux, 2008). The success of many corporations such as Starbucks hinges on global expansion. Despite their success within the United States, it was incumbent upon the company’s management to explore a global strategy that capitalizes on foreign markets to realize its full potential. The evolution of Starbucks into a worldwide conglomerate started in 2003 through a business model that challenged the norms within the beverage industry in what would later be termed the “Starbucks Effect”. Since then, the Seattle-based company has grown into more than 30,000 most of which are located in North America. Their strategy to brand themselves as an authority in the best and finest quality coffee appears to have resonated with the global market.

Starbucks’ first foray into the international market through the same aggressive business model that had proved successful in the US did not work out as planned. They were met with resistance from retailers and governments that felt compelled to protect local retailers. In Europe for instance, consumers did not find coffee beans imported from other countries as exotic as the American consumers had. This called for a change in tack. To this end, they captured the French market by seizing on the French sense of creativity and artistry to offer consumers a chance to brew their coffee.

The growth of Starbucks into an international powerhouse has necessitated intellectual property considerations to prevent competitors from copying their successful business model and retain their competitive edge.

The organization’s court battles with competitors such as Shanghai Xingbake Café Corp. Ltd and the Ethiopian government gives us a glimpse into how Starbucks has capitalized on globalization without falling prey to intellectual property theft.

Starbucks and Technology

Since its inception in 1971, the company has invested heavily in technology to keep customers enthralled with its high-quality coffee and personalized service. It is through their embrace of technology that they have been able to adjust their strategy in meeting consumer needs and conveniences.

My Starbucks Idea Initiative

The company launched the idea in 2008 as a way of opening channels of communication with consumers to receive feedback in areas to improve on. This initiative gave rise to the company’s technological advancements such as Wi-Fi installation within the stores and the mobile payment options and loyalty program. The company also entered into strategic partnerships with The New York Times, The Wall Street Journal, and The Economist to offer digital content to consumers through the Starbucks Digital Network.

Mobile Payment Options and Loyalty Programs

The Starbucks smartphone application was released in 2014 to allow consumers to conveniently make their orders in advance and pay for the order during pick-up. Two years later, the company reported 25% of sales having been completed via the mobile application. This innovation not only succeeded in streamlining the ordering process but it reduced the inconvenience of delays by decreasing customer wait times. The application also came with a digital loyalty program that enabled the company to engage with consumers directly through gift cards, promotional pricing, among other loyalty rewards.

Internet of Things (IoT)

Starbucks has partnered with tech giant Microsoft to deploy IoT technology called Azure Sphere that enables their machines to collect dozens of data points to securely aggregate the data and identify problems with their equipment before they break down and paralyze operations. The solution also introduces automatic uploading of coffee recipes to the machines at the click of a button.

Industrial Organization Model

This strategy takes into account the business’s external environment and the impact of the industry on the performance of the company (Belleflamme & Peitz, 2010). My analysis of the retail coffee and snacks industry begins at the economic crisis in 2009. This period was characterized by changing consumer demands leading to a major slowdown in the industry causing industry revenue to drop by 6.6% to $25.9 billion in the US. This decline had been preceded by a period of consistent growth that lasted for over a decade. However, the economic slump reduced consumer purchasing power and shifted their purchasing priorities away from luxury and high-priced coffee drinks. The industry then grew steadily at an annual rate of 0.9% from 2008 to 2013.

The industry would then grow at an annual rate of 1.5% and accruing revenues that are projected to grow at an annual rate of 8.7% in the next five years (Statista, 2020). This growth was driven by a US economy that was recovering from the recession that improved consumer purchasing power as well as expanded menu offerings within the industry. Starbucks would emerge as a dominant force holding about 36.7% of the market share, followed by Dunkin’ Donuts at 24% and the rest shared by competitors such as Costa Coffee, McDonald’s, and Tim Horton

With the above external factors in my mind, it is my view that Starbucks’ biggest growth potential remains in the international market. There are significant opportunities to open stores in emerging markets such as China (although they’ve already made significant inroads here), India, Mexico, Brazil, and South Africa thanks to their growing middle-class. To win these emerging markets the company must strive to provide relevant services to the consumers and deploy a management strategy that allows freedom of management decisions in response to unique consumer needs within their localities. Regarding the price of coffee beans which is a vital input into the Starbucks value chain, the company can implement effective hedging strategies to mitigate against market price volatility. To achieve this, they can manage future costs by preemptively making purchases when prices are low based on estimated future use requirements.

Resource-Based Model

This model conceptualizes the organization’s unique resources and capabilities in the implementation of its business strategy (Wernerfelt, 1995). It considers the effect of the company’s internal resources in its performance over time rather than the external industry characteristics and leverages the same to gain a competitive advantage. Starbucks’s key internal asset has been its ability to employ product differentiation strategies to produce high-quality premium beverages and snacks. Another internal strength the company has had is its values-based human resource management strategy that strives to build strong relationships with suppliers and catalyze organic expansion into international markets. They have also engaged in smart acquisitions and strategic partnerships that have contributed to solidifying the Starbucks brand name throughout the globe

With these unique internal capabilities, my view is that Starbucks can gain a significant competitive advantage and increase profits by leveraging its rich brand equity to merchandise products and charge license fees for usage of its brand logo. The company can also rely on its effective human capital management strategy to continue providing excellent customer service and consequently attract more consumers. The company should continue to capitalize on the location (high visibility locations such as university campuses, office buildings, and suburban areas) and aesthetic appeal of their stores to penetrate prime markets across the world.

Moreover, Starbucks has to continue to rely on the power of technology through its mobile application and other initiatives to spur annual growth. In this regard, I would recommend streamlining the ease of use of the mobile application system in making payments improving service delivery. The company also has tremendous growth opportunities in fresh juice products and tea. To this end, they should apply the same strategy they used to build their coffee brand to these new products. They can also tailor their menu to include more variety in snacks and beverages as well as health-conscious products in line with shifting consumer tastes and lifestyles. Another avenue for increased revenue is packaged and iced coffee products. The efficiency of distribution of these products can be improved through partnerships with big-box retailers and chain stores to get premium shelf space

Vision Statement

The Starbucks cooperate vision is a reflection of its strategic direction outlining the company’s ambitions for the future, focusing on being a leader in the coffee industry. The success of Starbucks in edging out the competitors such as Dunkin’ Donuts and McDonald’s therefore relies heavily on the effective implementation of its vision statement.

The Starbucks vision statement is clear and concise to inspire it in its efforts to distinguish itself as a premium coffee provider and industry leader (Abiodun, 2010). It challenges and motivates the management together with the human resources with the onerous task of striving to achieve the company’s objectives. The “premier purveyor” aspect of the vision makes it timeless and stable such that it will remain relevant even in the future. It is also a statement of intent to provide the best quality product through continued multinational expansions. The jury is, however, still out on the “finest coffee in the world” bit. Critics have pointed out McDonald’s or Dunkin’ Donuts as better than Starbucks to some extent. Nevertheless, the company upholds the “uncompromising principles” aspect of its vision statement by cultivating a warm culture maintaining high ethical standards. My view, however, is that there’s still a need to improve Starbucks’s vision statement to encompass the company’s new products and business operations such as tea, pastries, and consumer goods.

Mission Statement

The company’s corporate mission indicates its business agenda for target consumers. Starbucks’s mission statement focuses on their distinct business purpose. It gives a sneak peek into the inner workings of the business and emphasizes the company’s reverence for the consumer. The “inspires and nurtures the human spirit,” aspect of the statement is in sync with the company’s corporate culture of warmth and rapport with employees and consumers alike.

Additionally, it pertains to the company’s mission of providing memorable customer experiences through initiatives like the use of employees and customers’ first names in their cafés. The coffeehouses are also designed to provide an ambiance of warmth and coziness. It is also noteworthy that the “one person, one cup and one neighborhood at a time” aspect of the statement indicates the company’s focus on providing a meaningful impact on their consumers and employees. It also conveys the company’s mission to achieve gradual and consistent growth as a multinational.

More generally, my view is that there’s sufficient abstraction in the mission statement to prevent it from being rendered irrelevant by future business scenarios. However, this corporate mission strays from the conventional characteristics of typical mission statements (Bartkus, Glassman & McAfee, 2006). To this end, it fails to provide important details such as the type of product and target consumer. There’s, therefore, a need to improve the statement to not only present the business philosophy but also ensure parity with the company’s operations.

Stakeholders

These are the parties that have an interest in the company such as employees, customers, suppliers, investors, and the government. The actions of shareholders have a direct impact on the company and vice versa (Bryson, 2004). Starbucks employees for instance can be considered one of their key assets responsible for providing their consumers with the best quality service and acting as their brand ambassadors. The company acknowledges its employees’ important role by providing them with stock options, health care, and retirement benefits. Starbucks customers also play a pivotal role in the success of Starbucks as in any business. The company’s international expansion strategy, for instance, relies heavily on consumer reception and attitudes. The success of the company’s mobile application system gives us a clue as to the pivotal role customers play in terms of providing feedback. To this end the company to upscale its marketing activities beyond providing premium quality products. It also incumbent upon the company to build strong relationships with its suppliers as a measure of sustaining growth through favorable access to the raw material. Lastly, government policy is also a key factor in the overall success of Starbucks. The company can use its stellar reputation and brand name to negotiate with governments to implement policies that favor their business strategy and such as subsidizing coffee production, or tax cuts for its importation which is their key raw material

References

Abiodun, A. J. (2010). Interface between corporate vision, mission and production and operations management. Global Journal of Management and Business Research10(2), 18-22.

Bartkus, B., Glassman, M., & McAfee, B. (2006). Mission statement quality and financial performance. European Management Journal24(1), 86-94.

Belleflamme, P., & Peitz, M. (2010). Industrial organization: Markets and strategies. Cambridge University Press.

Boudreaux, D. J. (2008). Globalization. ABC-CLIO.

Bryson, J. M. (2004). What to do when stakeholders matter: stakeholder identification and analysis techniques. Public Management Review6(1), 21-53.

Statista. (2020, September 6). Coffee – United States | Statista market forecast. Retrieved October 22, 2020, from https://www.statista.com/outlook/30010000/109/coffee/united-states

Wernerfelt, B. (1995). Resource-based strategy in a stochastic model. Resource-Based and Evolutionary Theories of the Firm, 133-145. https://doi.org/10.1007/978-1-4615-2201-0_6

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