Globalization and technological advancement in the recent years has turned the contemporary business environment to a global village, with firms having to compete internationally. This is the case in coffee industry where large companies like Starbucks have to position themselves strategically in order to remain relevant and competitive in the industry.
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The magnitude customer base and number of outlets or stores make Starbucks an important player in the coffeehouse market worldwide. This paper will begin by discussing the impact of mission and stakeholders in success of the company followed by an evaluation of the five forces of competition.
The paper will also conduct a SWOT analysis of Starbucks as well as discuss various strategies, the communication plan, and corporate governance mechanisms applicable in the company. Lastly, the paper will discuss effectiveness of leadership and corporate citizenship in the company.
Starbucks is a US company specializing in coffeehouses, with its headquarters situated in Seattle, Washington D.C. The chain has been in operation since 1971, having been established by three entrepreneurs as a small coffee shop that later expanded its portfolio to restaurants and coffee bars.
Over the years, the coffeehouse chain has grown tremendously, especially after listing in stock exchange in 1992; currently, Starbucks owns over 20,000 coffeehouses in over 60 countries worldwide. This growth has been facilitated by its strong mission and vision statements, effective corporate governance and dedicated support from stakeholders (Garthwaite, Busse, & Brown, 2012).
Impact of Mission Statement and Stakeholders on Success of Starbucks
The mission of Starbucks is “to inspire and nature the human spirit – one person, one cup and one neighborhood at a time” (Starbucks, 2013). This mission statement also acts as the vision of the company and it has been very instrumental in the success of the company.
The performance of the company has also enhanced key components of the mission that focus on coffee, partners, customers, stores, neighborhood, and shareholders. Primarily, Starbucks focuses on offering high quality coffee to its customers in addition to embracing diversity in all its operations.
In addition, Starbucks designs its stores in such a way that they create an atmosphere that is very accommodating to both customers and employees, who are specifically referred to as partners. Moreover, the company is dedicated to empowering the community through positive contribution as it conducts its operation. This is in addition to ensuring that its operations are tailor-made to maximize benefits to shareholders.
For every organization to succeed, it must always take into consideration the interests of all its stakeholders and ensure it operates towards satisfying those interests. Starbucks has various stakeholders including shareholders, suppliers, customers, partners/employees, franchisees, and governments among others.
Shareholders play a big role in the success of Starbucks by investing in the company, while the company ensures it communicates about its strategies and performance regularly through mailing, investor conferences, and annual general meetings.
In relation to employees, the company provides comprehensive and attractive packages to its partners (employees), as well as properly coordinated shifts that ensure effective performance (Simon, 2009). Customers are the most important people in the company, and as a result, Starbucks offers specialized coffee that is tailor-made to the expectations of customers.
In relation to franchisees, Starbucks allows autonomy in operation of the franchisees, both local and international; indeed, franchisees account for 47% and 63% stores domestically and internationally respectively. Lastly, although Starbucks has been accused of tax evasion in the past, the company has ensured it adheres to the regulations of the governments in the countries in which it operates.
Impact of Porter’s Five Forces of Competition
Every organization has to take into consideration the Porter’s five forces of competition in the market in order to be successful (Sinkovics & Ghauri, 2009). In relation to the intensity of rivalry among competitors, Starbucks faces competition from a wide range of coffeehouses, both small and large.
Secondly, Starbucks faces a big threat from customers’ power, as these customers can easily switch to other firms offering coffee or other related products with minimal or no costs. Thirdly, there is a big threat of substitute products such as tea and soft drinks as well as bars and pubs, all of which offer valuable satisfaction that can influence customers’ buying behavior.
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The bargaining power of suppliers is also high due to the high demand of coffee and the small number of suppliers, given that only specific regions can produce coffee beans. Lastly, threat of entry by new firms is low because the industry is saturated, making it difficult for a new firm to break-even; indeed, the cost of establishment is also high, thus serving as a hindrance to new entry.
SWOT Analysis of Starbucks
For an organization to manage its operations effectively and efficiently, it must understand its internal capabilities and weaknesses as well as external opportunities and threats that it needs to respond to favorably (Hitt, Ireland, & Hoskisson, 2012).
Strengths in Starbucks
There are a number of strengths inherent in Starbucks, one of them being financial soundness. Here, Starbucks boasts of consistently rising profitability over the last few years, thanks to its ability to minimize costs and generate high revenues. In addition, Starbucks has one of the best returns on investment (ROI) rate compared to its competitors.
In relation to brand reputation, Starbucks’ brand is one of the highest valued brands in coffeehouse segment, mainly due to its high quality and value for customers (Moon, & Quelch, 2006). Indeed, excellent customer service has been the motivating factor in the success of Starbucks coffeehouse brand around the world.
Another strength that Starbucks boasts of is experience in coffee business, which allows the company to deliver perfectly blended coffee complemented with quality music, affable staff and conducive environment that delights customers to the maximum. Starbucks is also the leading coffeehouse chain in the world as evidenced by its large network of outlets that surpasses 20,000 in over 60 countries across the globe.
Indeed, its ability to diversify its market to different geographical locations is a testament to its positive response from customers in the markets in which it operates.
Lastly, Starbucks enjoys a strong and effective employee management policy that allows the company to offer competitive and attractive compensation to its employees compared to other competitors and the industry in general. Indeed, the extensive range of benefits and incentives play a very significant role in motivating employees to deliver excellent service to customers that differentiates Starbucks from other competitors.
Weaknesses in Starbucks
Despite the above-mentioned strengths, Starbucks harbors various weaknesses that derail it from attaining its expected growth rate. First, the uncertainty in the price of coffee beans makes Starbucks unable to adequately estimate its profitability as well as have a standard coffee price.
Importantly, coffee beans are under the control of suppliers and in most cases, their price tends to be influenced by certain factors such as hedge funds and bad weather, which will definitely affect the price and profitability of Starbucks coffee.
Another weakness in Starbucks is pricing of its coffee, which tends to be above other brands in the market. Indeed, although other factors may have influence on the price of coffee, the high quality coffee offered by Starbucks makes it to be priced at a premium, which is normally higher that competitors’ prices, a situation that may lead to decline in customer loyalty.
Moreover, Starbucks has also been receiving negative publicity due to some ethical and business malpractice issues. Primarily, Starbucks has been accused severally for its insensitivity to corporate social responsibility, especially in relation to environmental conservation. Additionally, the company has received accusations of evading tax as well as mistreating some of its suppliers.
Starbucks operates in a market that is full of opportunities, especially due to its sustainability of the market. One of the opportunities that Starbucks faces is a diversified supplier network, which allows the company to remain stocked with coffee beans all the time as well as enjoy some buyer power over these suppliers.
Indeed, a large number of suppliers will provide cushion to the supply of coffee beans; for example, when one supplier is affected by certain factors such as bad weather, another supplier would be contracted to supply the materials.
Another opportunity involves expanding to potentially profitable markets, especially the emerging markets of China and India where Starbucks has not managed to penetrate fully; indeed, these markets are increasingly becoming global business hubs.
Diversification of business is an area that guarantees growth and profitability, and as such, Starbucks has to expand its product lines to accommodate some products such as tea, wines, and beers, which complement, supplement, or even substitute coffee.
This will ensure that Starbucks’ coffeehouses remain competitive and continue to expand by capturing a wide range of customers. Lastly, Starbucks has a chance to expand its business through franchisees as well as partnerships with retailers such as supermarkets, who will sell Starbucks coffee on its behalf.
Despite the above opportunities, Starbucks faces various threats in its operations, one of them being the rising cost of raw materials including coffee beans and dairy products. Basically, Starbucks cannot estimate the prices and availability of coffee beans. Indeed, unpredictable factors such as political, economic, and weather conditions affect not only the supply of raw products, but also the cost of production at Starbucks.
Secondly, Starbucks faces the threat of freedom of entry into the coffeehouse market, which results in increased competition. This allows small players to offer low-priced coffee and big coffeehouses to offer specialized and customized services that pose a big threat to Starbucks coffee. However, such freedom has made developed markets to be saturated, thus making it difficult for Starbucks to make a fresh breakthrough.
Business and Corporate Level Strategies at Starbucks
As organizations always strive to gain competitive advantage in the market over their rivals, they adopt various business-level and corporate level strategies (Hitt, Ireland, & Hoskisson, 2012). At Starbucks, the company has adopted different strategies to deal with competition from other coffeehouses.
Primarily, Starbucks has concentrated on differentiation by providing a unique coffee culture that makes the company the leader in the market. In addition, Starbucks concentrates on high quality product development as the key to attract and retain customers for successful business performance.
In corporate level strategies, Starbucks has concentrated on related diversification where it enters into partnership and franchise arrangements with likeminded enterprises to market Starbucks’ coffee.
These partnerships allow Starbucks to enter into new markets easily and at minimal or no penetration cost. Indeed, the advantage with this strategy is that the franchisee has readymade customers who will be introduced to the Starbucks coffeehouses.
Communication Plan for Strategies
A clear communication outline will be important to communicate the business level and corporate level strategy of Starbucks. This communication plan will be customized to suit different audiences including employees, customers, and shareholders. A general communication plan will begin with defining the strategies and their intended purposes or goals.
The second step would be to identify the different audiences by drawing an audience definition worksheet. Thirdly, the plan would link the message or the strategies with the audiences identified above by use of a message worksheet. Next, communication channels would be selected for each audience.
For instance, communication to employees may be through emails, departmental heads, brainstorming sessions, or informal communication. Customers may be communicated to using channels like advertisement media, employees’ interactions, and special events among others.
Communication to shareholders could be performed through annual and special general meetings or emails. The fifth step will involve putting all materials, personnel, and media in place.
This would be followed by implementation of the plan by operationalizing the above-mentioned channels. Lastly, a review of the communication would be conducted through assessing the response, feedback, and effectiveness of the communication plan.
Corporate Governance Mechanisms at Starbucks
Corporate governance involves strategic rules that direct the operations of the company in meeting the interests of all stakeholders as well as showing the direction, to which the company is headed (Hitt, Ireland, & Hoskisson, 2012).
At Starbucks, the first corporate governance mechanism used involves establishment of clear goals, objectives and operational policies, all of which clearly demonstrate the direction towards which the company is headed. A sound and strong mission statement dedicated to inspiring and nurturing people’s lives supports this mechanism.
The mechanism is effective in management of the company as it elaborates the roles of the board of directors including the oversight role that ensures the management works towards fulfillment of the interests of stockholders (Starbucks, 2013).
The second corporate governance mechanism involves mandate given to the board of directors to monitor the company’s corporate performance and integrity, an aspect that influences the investors’ decision. Here, the board has established a compensation committee that evaluates and regulates the compensation packages for board members and executives.
It has also drawn a performance-oriented compensation policy applicable in the company. The effectiveness of this mechanism is evidenced by improved performance, as well as its ability to enhance accountability across the company from directors to executives and employees (Starbucks, 2013).
Effectiveness of Leadership in Starbucks
Leadership is an essential tool in management of organizations as it influences performance (Hitt, Ireland, & Hoskisson, 2012). At Starbucks, the executives, including CEO, have demonstrated the democratic style of leadership using the functional and style approach. Here, employees are given an opportunity to participate in decision making through a feedback mechanism available in the company.
In addition, employees are offered training in leadership and professional skills, as well as an environment for development and growth in order to achieve company’s goals. This has been effective in motivating employees as evidenced by the great performance witnessed in the company over the years.
Corporate Citizenship at Starbucks
Companies are required to demonstrate ethical behavior or corporate citizenship when conducting their operations; this is based on employee relations, environmental impact, climate change, human rights, and philanthropy. Starbucks has demonstrated this through participating in community projects and sourcing coffee beans from ethically responsible suppliers and growers.
For instance, Starbucks committed itself to donate five cents for every beverage purchased towards Global Fund in honoring the World Aids Day in 2010 (Mystarbucksidea 2010). In addition, the company has one of the best employee relations policies that have seen it being named among the fortune 100 companies.
Moreover, Starbucks minds about the environment by embracing a culture of recycling products to minimize the waste.
For instance, the company encourages environmental conservation through encouraging customers to use reusable cups when purchasing coffee from Starbucks outlets; indeed, it offers discounts to those customers who present their own mugs, especially in the North American region (Fiscal 2009 CSR Annual Report, 2009).
Starbucks is the largest coffeehouse in the world thanks to its effective corporate governance, high quality coffee brand, strong business strategies and dedicated workforce.
Although Starbucks operates in a very competitive market, it has managed to gain a competitive advantage by diversifying to international market through franchisees and partnerships, as well as ensuring that customers feel at home at Starbucks coffeehouses.
Fiscal 2009 CSR annual report. (2009). Global Responsibility Report 2009. Year in Review: Fiscal 2009. Web.
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