The Organization’s Environment
Starbucks obviously belongs in the coffee industry, specifically in the specialty coffee industry. Specialty coffee is different from ordinary coffee because unlike the latter, it has no defects and has distinctive flavor in the cup (Specialty Coffee Association of America, 2005a). The term, on the other hand, refers to the ‘highest quality green beans’ roasted by experts in the field (Specialty Coffee Association of America, 2005a).
Generally, the coffee industry is in a healthy state. In SCAA’s ‘Specialty Coffee in the U.S.’ report, the daily consumption of specialty coffee among adults has risen from 9% in 2000 to 16% in 2004 (SCAA, 2005b). Similarly positive for the industry, the occasional consumption of specialty coffee has increased from 53% in 2000 to 56% in 2004, although it had increased from as high as 60% in 2001.
The U.S. and Canada are two of the biggest players in the industry – the former handles a fourth of the total global coffee import, while the latter imports over 400 million pounds (Giovanucci, 2001). The overall U.S. coffee market has the net profit of $18.5 billion. Forty percent of it or $7.8 billion is the sales of specialty coffee in the country in 2001 (Giovanucci, 2001). Coffee cafes in the U.S. achieve the combined sales of 6.12 billion dollars annually (SCAA, 2005b). On the other hand, $.81 billion is the combined annual net sales of Coffee Kiosks, while $.29 billion is to coffee carts. Finally, coffee bean roaster/retailer has the combined sales of $1.25 billion. Overall, the sales of specialty coffee reached $8.43 billion in 2003 (SCAA, 2005b).
Coffee houses that are independent, with 1 to 3 units dominate the population with 57%. This is followed by coffee houses that are chained, with 40%. Finally, 3% are the total coffee houses that are chained (SCAA, 2005b). Number of operating units has grown from 585 in 1989 to 17,400 in 2002 (SCAA, 2005b).
In terms of customer concern, the North American Specialty Coffee Industry survey found that coffee quality rather than price, customer demand, or convenience of supply was the overwhelming criterion for industry purchasing decisions. On the other hand, consistency of supply ranked second in importance - understandable, given the costs and risks of sourcing from new suppliers (Giovanucci, 2001).
According to Coffee Talk Inc. (2002), the specialty coffee industry is in a current boom. This is obvious based in the figures presented earlier. The reasons for the trend are: awareness for specialty coffee through micro roasters; extensive media campaigns; consumer education regarding coffee products; and special services in coffee shops. On the other hand, the trends in marketing are: coffee café/espresso bar; coffee carts; specialty marketing and niche marketing; espresso carts with fast food combination; mini coffee stores and co-retailing; drive-through kiosks; mobile machines; and coffee houses (Coffee Talk Inc., 2002).
Environment Analysis
The PEST Analysis establishes a good analysis of the external effects on a company by breaking them into essential and obvious sorts.
Political- the government’s policy on coffee production and tariffs.
Economic- the government’s decision to put tax on food.
Sociological- Starbucks’ adaptation measures to the different patterns on consumers’ coffee consumption
Technological-e-commerce impact on Starbucks’ distribution costs.
Strategic direction
Starbucks developed a three-year geographic strategy that targeted areas which not only had favorable demographic profiles but which also could be serviced and supported by the company’s operations infrastructure. (Kennedy:2000) For each targeted region, Starbucks selected a large city to serve as a “hub”, teams of professionals were located in hub cities to support the goal of opening 20 or more stores in the first two years, Starbuck created zone vice presidents to direct the development of each region and to implant the Starbucks culture in the newly opened stores. Starbucks had notable success in identifying top retailing sites for its stores. The company had the best real estate team in the coffee-bar industry and a sophisticated system that enabled it to identify not only the most attractive individual city blocks but also the exact store location that was best. The company’s site location track record was so good that of 1997 it had closed only 2 of the 1,500 sites it had opened.
Power and Control in the organization
Starbucks utilizes the four views of leadership: Power view, transformational, Paradigm shift and social views. (Datamonitor:2005) The power view is characterized by the ability to face the world with a strong sense of mission and to accomplish what is necessary in a confident, clear, firm way. Any number of leaders may come to mind, some more or less.(Gross, 1996) While the transformational view focuses on leaders who have idealized influence, inspirational motivation, intellectual stimulation and individualized consideration. The leader constructs a culture that is dedicated to and supports a creative and empowering vision. The Paradigm Shift view has an element similar to the Transformational view but also includes scanning the environment for new opportunities, as well as taking risks about new ways of doing things and conducting business.(Gross, 1996) The Paradigm Shift view moves beyond what is possible in the current realm of things and looks for an entirely new order, taking on an entrepreneurial focus. Finally as a key feature, the Social view focuses on a leader’s ability to lead with a truly caring and benign view of others. This leadership approach looks for ways to enhance employees’ job satisfaction and organizational goals. A good example is the CEO of Starbucks, Howard Schultz, he considered a “visionary with values.” He demonstrates self-respect for employees and focuses on helping others to strive for success, making a difference and contribution to the community and rewarding workers for courage, integrity and social vision in business.
Strategic Direction
In order to better understand the activities leading to a competitive advantage of Starbucks Coffee, one can begin with the generic value chain and then identify the relevant firm–specific activities. Thereby, process flows can be mapped, and these flows used to isolate the individual value–creating activities.
Once the discreet activities are defined, linkages between activities should be identified (Porter, 1986). A linkage exists if the performance or cost of one activity affects that of another. Competitive advantage may be obtained by optimizing and coordinating linked activities.
Value-chain analysis looks at every step Starbucks goes through, from raw materials to the eventual end-user. The goal is to deliver maximum value for the least possible total cost. The value chain also is useful in outsourcing decisions. Understanding the linkages between activities can lead to more optimal make–or–buy decisions that can result in either a cost advantage or a differentiation advantage.
Furthermore, value chain framework describes the activities within and around an organization, and relates them to an analysis of the competitive strength of the organization (Gifford, 1991). Therefore, it evaluates which value each particular activity adds to the organizations products or services. This idea was built upon the insight that an organization is more than a random compilation of machinery, equipment, people and money. Only if these things are arranged into systems and systematic activates it will become possible to produce something for which customers are willing to pay a price (Hitt and Hoskinsson, 2003). Porter argues that the ability to perform particular activities and to manage the linkages between these activities is a source of competitive advantage.
Starbucks’ application of the concept of value chain generates insights concerning how firms compete against other firms, how value is created, and whether or not firms can expect to maintain a current competitive advantage. The basic premise is that competitive advantage stems from, and is understood by, examining the many discrete activities a firm performs in support of its products.
Examining a firm's value chain sheds light on how the firm competes (cost, differentiation, or focus strategy), the basis for this competitive advantage, the relative strength of the competitive advantage, and whether the current advantage is sustainable (Gifford, 1991).
The competitive scope of Starbucks Coffee is likewise important in creating competitive advantage. Broad scope, for example, may allow a firm to exploit interrelationships between the value chains that serve a number of different product or buyer segments, geographic areas or related industries, while narrow scope can allow the tailoring of its chain to serve a particular target segment, geographic area or industry, resulting in lower costs or differentiation compared to competitors. This relationship between competitive scope and the value chain therefore provides the basis for defining more relevant business unit boundaries and allows a firm to establish organizational structure more in line with its sources of competitive advantage.
To sum it up, Starbucks Coffee’s practice is effective and efficient of this process must be driven by the companies overall strategy. The capabilities and grid characteristics of the utility, as well as the density and demographics of the company’s potential customer base should likewise be studied and considered for evaluation.
The use of technology
Starbucks also see the need to improve technological innovations to increase efficiency as well as quality of the service. This will include investments on machineries and equipment that will necessitate the increased and efficient operation of the business organization’s management system. Financial assistance on human resources particularly to knowledgeable and skilled individuals should be accorded in order to improve the overall business operation as well as the engineering, monitoring, and control aspects of the business.
The Internet, as one of the most popular form of new mass communication technology, has long been of full use and advantage to all sorts of businesses especially those who are in need of efficient and wide market reach on which to channel their promotional messages. Business, information and entertainment have been communicated with ease through such technological revolutions. The Internet is changing the way we do business, whether it’s finding new streams of revenue, acquiring new customers, or managing a business supply chain.
Direct marketing has never been as precise, powerful and popular as it is today. With its new applications to database marketing, global commerce and the internet, it is no longer an option for company officers and marketing executives; it is a necessity. Direct marketing has grown beyond its roots in traditional mail order to embrace a host of new technologies, customer relationship building techniques and performance measures set the bar for the future of marketing communications. It has become a powerful tool that every business should consider as part of an overall integrated marketing strategy. Imagine how much profit a business organization can gain from combining these two powerful tools together.
Organizational culture
There are many elements of change in business and management that an organization must combat with. Aside from facilitating the changes that modern organizations have to undergo, organizational culture is highly important nowadays as there is a shift in most organizations’ main source of value. From prioritizing material assets, corporations right now are more particular on the intellectual capabilities of its employees. In order to address the internal environment, an organization adopts a certain organizational culture that will deal with the organizational structure, development and management of its human resources, including their continuous work process improvement (Pedergast, 1999).
A certain corporate culture is required to encourage their intellectual participation which in turn will maximize the intellectual assets of the employees. The organizational culture also helps in the individual and organizational learning, creation and application of new knowledge and the sharing of ideas with others. Presently, culture must be a part in the promotion of creativity, management of knowledge, leadership and participative management.
