Starbucks Strategic Management - Case Study Example

Starbucks Strategic Management ­ Student’s name ­ Course name and number ­ Instructor’s name ­ Date of submitted Introduction Strategic management is a prerequisite for an organization and is useful for thinking through strategic problems. The cultural and political arena of an organization requires strategic action in practice. The goal of an organization, employees’ behaviors, ability to manage the competitors and innovation account for tactical organization approach to progress. Strategies can develop through managerial experiences, sensitivity to changes in organization environment and learning from operating in the market. Looking at the past decades of experiences at Starbucks, this discussion sets up a three year strategic management proposal based on economic and marketing assessment, financial and organizational structure planning. The three facets in Starbucks, including their strategic position, strategic choices and strategic implementation will consequently show the position Starbucks will be three years ahead. Strategic Position The Environment Starbucks exists in a complex economic, political, commercial, social, cultural and technological world. The environment is changing and the position taken by Starbucks in relation to its environment will affect its central operations. The environmental and historical effects on Starbucks have been favorable since 1987. Currently, its expansion has gone to external markets, though the market share is only 1%. However, the current 10,241 stores possibly predict a favorable growth in the next three years. There are present effects and various changes expected in Starbucks to take effects in coffee market. In the analysis of Starbucks market, it has only a 7% market in U.S and 1% in foreign countries. No other specialty coffee rival has more than 400 stores. This indicates a great deal of opportunity as market availability is very significant. There is unobtrusive competition from restaurants, supermarkets, specialty coffee shops and convenience stores. However, nationwide coffee manufacturers including the Kraft General Foods, Procter & Gamble and Nestle who distribute their coffee through supermarket are significant companies that pose a threat to its market expansion. The prediction of their growth has significant threat to Starbucks. Expectations and purposes The strategies that the management will advance on depend on how they have set up their expectation (Ambrosini & Bowman, 2009). The main focus at Starbucks has been to take charge of markets opportunity in China, Brazil, India and Russia. Starbucks has also to keep its coffee as prominent global brand, take risks and be innovative. The culture build on the beliefs and assumption of Starbucks have an important influence. The strategy to be followed is concretely build on research so that Starbucks may attain revenues growth annually and net earnings as planned. Starbucks Resources Resources determine the strategic capability of an organization. The resources area determines the strengths and weaknesses. In consideration of Starbucks physical plants, management, financial structure and its products it is possible to see the internal influences, the constraints and the strategic choices they have to employ. Starbucks expected a total of 15,000 stores worldwide by 2006. The scope of Starbucks long-term opportunity operated in underestimation and the recent increase has targeted stores increase from 25,000 to 30,000 by 2013. In comparison of Starbucks financial statement, revenues and profits in 2005, it is possible to assess its current financial status for strategic growth. The revenues reported in fiscal year, 2005 were $6.4billion from approximately 10,000 stores worldwide. This was a 205% compared to $2.1billion in 2000. The 2005 was $494.5 million which was a positive increase by 423% compared to 2000. Having expanded its stores by almost three times to 30,000, the profit and revenue has also increased. Three-year strategic financial plan Stores expansion for the three years Revenue projections for the three years 2013 2014 2015 Total Revenue 4851600 6220000 7464000 18535600 Cost of sales 2021500 2591667 3110000 7723167 Gross income 2830100 3628333 4354000 10812433 Less total expenses 1946000 2500000 3129678 7575678 Net income 884100 1128333 1224322 3236755 These financial estimates are in accordance to the data the company has experienced in the last five accounting period. The new stores to be opened will boost the sales of coffee in the regions. According to the growth we have been experiencing 29800 new stores will be opened in the next three years in all areas we operate. The international market is responding very well our coffee and this is a ready market. These stores will earn the company 3236755 in income at the end of the three years attributable to the shareholders. Strategic choice From the above analysis, it is possible to come up with a strategic choice for Starbucks. There are three parts to consider in this strategic management aspect. Strategic options generation There are several possible action courses for Starbucks. At this given time, Starbucks is faced with a decision of increasing its multinational goals and expansion. There are however refined choices Starbucks has come up with and this has led it to choose the most areas in the world that its operations can concentrate on. United States, as an identified good market for coffee will majorly have various ne outlets. The other foreign stores will majorly be in China, Russia, Brazil and India. Most Starbucks operations are currently concentrating on common basis and trading across different countries. The variations are well segmented by market focus. Strategic options evaluation The relative merits of Starbucks strategic options can be examined through the context of the strategic analysis above. There are a series of question that Starbucks management should ask. First, the option that builds upon strengths is most probable. Most of the countries where Starbucks is currently operating have an increasing number of educated and upscale consumers. These are inclined to upgraded, premium coffee that has a more robust flavors. Specialty coffee market segments are increasingly expanding. The marketing strategy should seek to promote the popularity and intake of coffee among the middle and learned class of people in these countries. This means that Starbucks will strategically locate its stores in various urban locations where such demographic segment can be found. The major weakness at Starbucks has been lack of rapid expansion strategy. Though the market is available in various places, slower expansion reduces the benefit that would be gained. The options that can help Starbucks overcome weaknesses are preparation of expatriates and extensively expanding in international operations. The other options that can help Starbucks take advantage of opportunities is acquisition and merger and this can be very strategic in external operation where the existing operators will facilitate a speedy growth and penetration. To minimize or circumvent the threat Starbucks has faced, they have to ensure more penetration as their brand cannot concur with the highest taste if sold by other outlets like supermarkets. Coffee preparation at home is risky due to Starbucks quality control. It has also to increase the number of licensing agreement to establish their stores at airports and campuses. The strategic fit and suitable strategy is very significant for Starbucks comprehensive management. Strategy selection Starbucks has to select the options it will pursue. They can choose one or several of them. However, as Zahra, Ireland & Hitt (2000) deliberates, any strategy has its own dangers and disadvantages. The management judgment is very critical to come up with a choice. With risks identified with distribution through other indirect outlets like supermarkets, Starbucks has to establish more locations and assume strategic employees who can control its quality and offer the quality as desired. Build on quality of taste, the nearness of employee per a certain number of customers is desirable. Strategy Implementation This is concerned with the way Starbucks will translate its strategy into action. Implementation will involve some of the following parts: Resources planning and allocation Starbucks has to plan for its resource and the logistics of implementation. The resources have to be divided through the various segments that are core for expansion. Precisely, human resource both expatriates and trans-national recruitment will particularly promote expansion. The other resources will account for equipment and brand promotion though advertising. Simply, the brand popularity is promoted through reaching the relevant customers and mostly through mass media. The key tasks that need to be carried out are to obtain license of operation, ensuring that there is strong management and response to cultural demands in various geographical locations of operations (Keupp & Gassmann, 2009). There are also changes to make in the resource mix in Starbucks. Much of the resource should not be involved in just acquisition and focus on single operation. Starbucks coffee brand is a prominent beverage and thus, most of the resources should be geared toward popularizing the brand to other outlets that would sell their products. The skills are very significant and thus the supply chains that are not directly managed by Starbucks international management should be regularly monitored for the purpose of quality. The timeline would include researching for various markets, training the expatriates and recruiting subordinate workers, launching of Starbucks stores, managing customers’ expectations (Nielsen & Nielsen, 2011). The people responsible for the change will include the managers over every country or a redesign who should guide the activities according to the corporate culture of Starbucks. Starbucks Structure and design There are changes that are needed in the Starbucks structure to carry out the strategy. One of such area is a requirement for a decentralized management so that the managers in various countries may be able to take decisions and activities as the demands come. Responding to market demands is slowed when the centralized management has to account for decision and most actions. If resources are provided, little interferences should be ensured to allow strategic objectives pertinent to a particular area to take root effectively. There is a likely need to adapt a system that will be used in manage its international operations. This means a team of international mangers will constantly meet to assume a common stand for Starbucks brand, culture and other related activities (Keupp & Gassmann, 2009). A global organizational team is the most probable for Starbucks if efficiency and effectiveness is to be seen. The different departments that are to be responsible for this include the human resource and financial departments. The sort of information systems needed for monitoring the strategy progress will have to adopt the modern means of communication through the use of electronic conversation, video conferencing and data and knowledge sharing across various levels like leadership, management and workforce. There is a high need to retrain the workforce in Starbucks to adopt the complex scenarios that occur in the international markets. The cultural landscapes and dimension differs across borders and this has to be taken into account. In particular, operation in Asian countries should take concern of cultural aspects that affect management of human resources and expansion (Guest, 2011). Managing strategic change To implement the multinational expansion plan, Starbucks requires managing its strategic change through the action of part of its mangers. The whole team cannot be involved in international matters and expansion. Starbucks requires a separate managerial team that has experience and skills in international operations and which will be accountable for expansion details. Change process have to be managed and their mechanisms. There are issues that re-surface in every new market and they require to be adopted to be competitive. However, customer expectations are very significant for all markets as the brand is determined for a particular demographic segment (Ambrosini & Bowman, 2009). The mechanisms will particularly involve Starbucks redesign, changing of day-to-day routines, overcoming the political blockages and changing the cultural aspects in Starbucks. Recommendations There are key elements in strategic management that will particularly be of recommendation to Starbucks. There is a great need to study the behavior of Starbucks employees so that the management can suit it toward the goals of international expansion. The knowledge of organizational culture and environmental stakeholders is an effective approach to the operations in the next three years. Employees are particularly important in this case as coffee quality and preparation depend on how the company manages the various issues of its brand. The outcome of the study will determine the preparation, training and support requirements the employees will need to sponsor Starbucks operations across regions and with little management from the headquarters (Keupp & Gassmann, 2009). Starbucks has to study various operating environments to be able to manage its competitors. The ways needed to outsmart the competitors should be realized and put into practice. The most particular one in this case include plans for brand promotion, ensuring quality and need for speed as most markets are not well penetrated. Creation of customer values and strong management are desirable to outwit the exiting competitors in coffee markets. Innovation is very critical if Starbucks has to meet the changing customers and environmental demands. Starbucks has to face the challenges of adapting the modern technologies and compete with the scarce resources. Precisely, apart from merger, acquisition and launch of new stores, Starbucks has to reach more customers in various markets through promoting coffee preparation skills that will diffuse its product usage across vast regions that would be impossible to reach through the existing approach (Ambrosini & Bowman, 2009). To arrive at its tactic in international operation and expansion, Starbucks must study its past failures to deliver in a better way in future. It has to understand what the customers in different regions want to offer the coffee product which will then satisfy and keep them loyal to the brand. Starbucks need specific goals that will be determined against the time period of three years. The realistic goals have to state the number of stores to open at every part of the year. This conceptual goal has to be feasible and enough resource is needed to support this speedy expansion which can be supplied through the resulting profits or borrowing on a long-term basis. Starbucks requires various inbuilt tools so as to react to environmental changes that are unimagined. This calls for innovation that will still make it relevant even after various entry strategies fail or a particular strategy fails to deliver as expected. Marketing will also put their concept of expansion real and tactic (Guest, 2011). Conclusion Starbucks has had a positive market, revenue and profit growth in its history. However, there is more, in terms of market to be achieved. A strategic management takes effect of decision, monitoring and evaluation of what has to be done, the people to do and the time to do it. Having looked at the strategic direction for a period of three years, Starbucks tactic through strategic management has to be accomplished. The different goals required involve the institutional, feasibility, resources goals and the knowledge of the employees determines a lot to strategic expansion. The knowledge of the environment of operation, innovation, flexibility, technological usage and long-term thinking offers Starbucks an added advantage in the international expansion strategy. The management has to combine various strategies with long-term planning, studies, competitors’ knowledge, marketing and market understanding to promote its goals. Overall, the modern industry trend has been promoted by the exploits of an organization in customer satisfaction which Starbucks will depend on as its brand relay means a lot to customers. References Ambrosini, V., & Bowman, C. (2009). What are dynamic capabilities and are they a useful construct in strategic management? International Journal of Management Reviews, 11(1), 29-49. Guest, D. E. (2011). Human resource management and performance: still searching for some answers. Human Resource Management Journal, 21(1), 3-13. Keupp, M. M., & Gassmann, O. (2009). The past and the future of international entrepreneurship: a review and suggestions for developing the field. Journal of Management, 35(3), 600-633. Nielsen, B. B., & Nielsen, S. (2011). The role of top management team international orientation in international strategic decision-making: The choice of foreign entry mode. Journal of World Business, 46(2), 185-193. Zahra, S. A., Ireland, R. D., & Hitt, M. A. (2000). International expansion by new venture firms: International diversity, mode of market entry, technological learning, and performance. Academy of Management journal, 925-950. Read More