Starbucks holds an enviable position among innovative companies. The coffee chain has an insatiable appetite for innovation. The company is willing to suffer some losses in the near-term to develop superior products in the long-term via incremental innovation. However, the willingness to suffer losses is not what makes the company outstanding.
The company’s wish to pay a high price in pursuit of innovation is what reflects its remarkable feature. This paper uses management tools and frameworks to explore the role that management practices play to support innovation.
Specifically, the paper evaluates how Starbucks creates and develops opportunities and how it manages innovation. In addition, the paper explores how this company behaves as an entrepreneurial organisation.
Creating and Developing Opportunities
A number of studies that explore the capacity of entrepreneurs to create and develop opportunities exist. Ardichvili, Cardozo and Ray (2003) contend that entrepreneurs do not create opportunities but rather recognize the presence and emergence of opportunities.
In this sense, the authors propose that the main issue to investigate when studying the dynamics of business opportunities is the entrepreneurial capacity to develop, recognize, and evaluate them. In recent times, sustainability has become a major issue in entrepreneurship because of the concerns associated with the deteriorating global environment.
Research shows that entrepreneurs who are aware of environmental issues tend to identify and pursue business opportunities in ways that promote sustainable operations. They do not just look at the financial rewards that the opportunity will bring, but also the sustainable features of the business opportunity.
The five main factors that drive the process of recognizing and developing business opportunities are “entrepreneurial alertness, information asymmetry and prior knowledge, social networks, personality traits, and the nature of the business opportunity”.
Entrepreneurial alertness refers to the ability of an entrepreneur to maintain a high level of awareness in regard to emerging opportunities. If an entrepreneur lacks entrepreneurial alertness, it is difficult for him/her to identify emergent opportunities. Information asymmetry and prior knowledge refer to the knowledgebase of an entrepreneur.
At organizational level, this quality is the basis for the emergence of concept of learning organizations. Knowledge makes it possible for entrepreneurs to recognize opportunities when they are still undefined. In addition, it spurs the capacity of the entrepreneur to make the decisions needed to transform a business opportunity into a business venture.
Social networks play a vital role in the process of recognizing and developing business opportunities because entrepreneurs often need information and resources not currently under their control to pursue business opportunities. It is normal for entrepreneurs to identify opportunities that they cannot develop unless they get assistance from their social network.
The personality traits of entrepreneurs also determine how they pursue business opportunities. While all entrepreneurs are risk takers, they have different degrees of risk tolerance. Companies like Starbucks have a greater appetite for risk compared to most of their competitors. This comes from the personalities of the leaders of the firm.
One personality issue that may influence the way an entrepreneur handles business opportunities is whether the given entrepreneur is an introvert or an extrovert. In this case, an extroverted entrepreneur has a larger social network to draw support from while an introverted entrepreneur has a smaller list of trusted allies.
It could be estimated that Starbucks loves risk as the company believes in the rapid deployment of ideas followed by careful analysis and improvement of the original idea over time. Companies such as Apple ensure that they have fully developed a product before they release it to the market. In fact, Apple takes a lot of care to keep its product development processes secret, until the release of specific products.
Starbucks sustains entrepreneurial alertness by maintaining a data collection system that gathers information from its employees and customers. Employees are asked to write to the company’s executives each time they feel that a given decision goes against the mission of the company.
This also allows the company to attain information asymmetry because at any time, the company has more information regarding a specific issue affecting its business compared to its competitors. This enables the company to take advantage of the opportunities that arise in its favor.
Managing Innovation
In the context of organisational innovation, the word that represents the activities of entrepreneurs is “intrapreneurship”. “Intrapreneurship” refers to the activities undertaken by individuals within organisations that promote innovation. These activities focus on internal opportunities or circumstances that demand changes in the operations of a given organization.
In this sense, innovation is not limited to the activities of individuals, but rather innovation can be the result of the activities of teams in an organisation. In cases where teams promote innovation, intrapreneurship refers to their collective activities that improve the services and products offered by the organisation. Innovation can take place at the “micro level, the meso level, and the macro level”.
At the micro level it refers to activities undertaken by the organisation internally to ensure that it improves its products and services. Innovation at the meso level refers to the industry specific elements of innovation covering the organisation’s supply chain and its immediate operating environment.
Macro level innovation results from opportunities that arise because of things that take place at a higher level, such as changes in legislative frameworks and the legal environment of the business.
Starbucks is adept at the management of innovation. The company has a strong culture of innovation, which is the backbone of its entrepreneurial model. Starbucks is using all available means to expand its footprint beyond the coffee sector. In fact, some people question whether coffee is just a Trojan horse in the Starbucks business model.
This question is valid, especially considering the portfolio of products that Starbucks is already offering, and the products that it is planning to launch. Starbucks is aware that innovation in the current business climate must go beyond the traditional aspects of innovation, which were quality control, cost cutting, and operational efficiency.
The first area of focus in the current paradigm of innovation is the reinvention of business processes. The second one is collaboration and integration within the firm, and the third one is the creation of new markets by meeting the emerging needs of customers.
The drivers of innovation at the macro level include the growth of e-commerce, and globalisation. One of the consequences of innovation using these new approaches is that companies find themselves with new competitors. When Starbucks started selling music, it found itself in direct competition with Apple. Apple, on the other hand, is not primarily a music retailer but a technology firm.
The Apple iTunes store was an innovative offshoot to support Apple’s iPod business. Starbucks, which is a coffee firm, finds itself in direct competition with Apple, which is a technology company, for a share of the music market.
Another illustration of the new philosophies of innovation at play in the Starbucks business model is the collaboration between Starbucks and PepsiCo to sell hot-on-demand coffee through vending machines. Starbucks specialises in selling different types of coffee products to its clients. On the other hand, PepsiCo has a large network of vending machines and has a lot of experience with vending technology.
Therefore, the innovative collaboration between these two firms led to the introduction of hot-on-demand coffee. PepsiCo owns the technology while Starbucks supplies the network with coffee. This way, the two companies are able to expand their footprint in the beverages market.
Behaving as an Entrepreneurial Organization
Entrepreneurial organisations refer to firms that have an active philosophy, which encourages entrepreneurial behaviour in the firm. This dimension is very important in the current business climate because of the competitive nature of international trade. Organisational structures can be entrepreneurial or administrative. Entrepreneurial organisations are said to practice corporate entrepreneurship.
The difference between administrative and entrepreneurial organsations is the attitude of their top leadership to risk. Administrative organisations favour the pursuit of low risk opportunities for lower rewards. Entrepreneurial organisations, on the other hand, favour the pursuit of higher risk opportunities for higher rewards.
One of the key indicators of an entrepreneurial organisation is the ability to develop and deploy new products ahead of the competition. This calls for intense innovation and a solid risk philosophy. A company such as Apple thrives on the capacity to develop and release new products ahead of its competition.
It is very difficult to sustain this ability without having an entrepreneurial mindset across the organisation. In other words, a company that wants to use innovation as its source of competitive advantage must have an entrepreneurial culture.
An important aspect in the development of entrepreneurial organisations is that the top management of the firms must be entrepreneurial. It is impossible to develop an entrepreneurial organisation where the top managers are averse to risk, or have no entrepreneurial commitment.
At the same time, the organisation must be able to give middle level managers the ability to experiment with new systems, and to learn. Middle level managers represent the future of the organisation. If the entrepreneurial mindset exists only at the top, then the organisation cannot survive in the long-term.
Starbucks CEO, Howard Schultz is well known for his entrepreneurial traits. Schultz worked with Starbucks when it was a very small retail chain. He was on a visit to Italy where Italian coffee bars inspired him to develop a national coffee retail chain in America. When the management of Starbucks refused to buy into Schultz idea, he went on to open new coffee retail stores named “Il Giornale”, on his own.
Afterwards, Schultz entered into an agreement with Starbucks to buy the coffee company. He chose to retain the Starbucks as the name for his expanded company. This story illustrates that Starbucks has always been in the hands of a very entrepreneurial leader. As such, the company has retained its knack for creativity and innovation.
Starbucks behaves as an entrepreneurial organisation because it has a very innovative and risk tolerant CEO. The company is not always successful in all its endeavours. However, no effort goes to waste because the company usually builds on the lessons it learns from its entrepreneurial ventures.
The company is aggressive in seeking feedback. It seeks the opinion of its staff, and monitors the comments made online by its clients and competitors, which gives the company an advantage.
Risk Profile
The activities of the company illustrate that it has a highly established entrepreneurial culture as well as a high level of risk tolerance. The organisation prefers to launch new products quickly before competitors can respond in contrast to many multinationals that prefer to refine new products before releasing them to the market.
In conclusion, Starbucks is adept at creating and developing business opportunities. It does this by maintaining a high appetite for risk. The company has developed a culture that tolerates its aggressive risk behavior and is also active in the pursuit of innovation in its operations.
Its model for managing innovation takes into account the modern approaches to innovation, which include collaboration with other businesses to create new markets. Finally, the organisation demonstrates tendencies of corporate entrepreneurship in its activities. The most compelling evidence of this is the personal profile of its CEO, Howard Schultz who supports corporate entrepreneurship as a serial innovator and entrepreneur.
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