Starbucks Business Strategy Analysis

This assignment requires a comprehensive analysis of Starbucks' business strategies. Students must examine their competitive advantage, organizational culture, and financial performance. The analysis should utilize Porter's Five Forces framework to evaluate the industry structure and Starbucks' position within it. The provided resources offer insights into various aspects of Starbucks' operations, enabling a thorough understanding for the strategic analysis.

Running head: STARBUCKS STRATEGIC MANAGEMENT ANALYSIS 1
Starbucks Strategic Management Analysis
Student’s Name
Institutional Affiliation

STARBUCKS STRATEGIC MANAGEMENT ANALYSIS 2
Table of Contents
Executive Summary.............................................................................................................4
Introduction..........................................................................................................................5
The Internal Environment of Starbucks...............................................................................5
Starbucks' Leadership......................................................................................................6
Culture.............................................................................................................................6
Competitive Advantage (Price).......................................................................................7
Structure...........................................................................................................................7
Strategic Capabilities.......................................................................................................8
People..............................................................................................................................8
External Environment of Starbucks.....................................................................................9
Competition.....................................................................................................................9
Rivalrly......................................................................................................................10
Consumer Power.......................................................................................................10
Supplier Power..........................................................................................................10
Substitute Products....................................................................................................11
New Entrants.............................................................................................................11
Political Factors.............................................................................................................12
Economic Factors..........................................................................................................12
Social Factors.................................................................................................................12

STARBUCKS STRATEGIC MANAGEMENT ANALYSIS 3
Technological Factors....................................................................................................13
Recommendations..............................................................................................................13
Implications.......................................................................................................................15
Conclusion.........................................................................................................................15
References..........................................................................................................................16

STARBUCKS STRATEGIC MANAGEMENT ANALYSIS 4
Executive Summary
Strategic management is an important concept of organizations, and it involves setting an
company's targets, evaluating the competition levels, and assessing the internal arrangement. Its
success depends on various internal and external environments that are defined by the
arrangement of an organization and the surrounding elements in which it operates. Starbucks is a
suitable company for understanding the interplay between these factors and strategic
management. The success of this process is achieved by analyzing these factors using different
strategic models including VRIO, 7-S model, PESTLE, and Porter’s five forces model. This
report shows that Starbucks has strong internal environment marked by effective leadership,
competent staff, elaborate structure, and a supportive organizational structure. Additionally, the
external micro environment shows major threats of product substitution and customers’
bargaining power. On the other hand, the external macro environment indicates major business
opportunities presented by technological growth, improved economic performance, and political
stability. This way, the report recommends Starbucks to capitalize on the available opportunities
while considering boosting its competitive abilities. However, these recommendations come with
massive financial implications and strategic decisions.

STARBUCKS STRATEGIC MANAGEMENT ANALYSIS 5
Starbucks Strategic Management Analysis
Introduction
The company of analysis for this report is Starbucks Corporation, which is an American
organization that roasts, markets, and retails specialty coffee worldwide. Globally, it is the
leading enterprise in the foodservice sector. Further, it has ranked high in the global list since
2003, and it is among the most impressive in social responsibility, people management,
innovation, quality of products, and financial stability among others (Starbucks, 2017). Besides
coffee, Starbucks also sells coffee and tea products including other beverages and fresh food
items. Further, it operates in the retail and fast food stores where it commands the largest share
of the coffee industry (Latif, Qurat-ul-ain, Gulzar, Bukhari, & Sameen, 2014). As such, it is
apparent that Starbucks' strategic management is a success. The company's strategy is premised
on offering a third-place convenience, quality coffee, expanding globally, and including
technology in different business processes (Dudovskiy, 2017). The prosperity of Starbucks in the
coffee sector attributable to internal and external factors that could be explained through strategic
management models such as 7-S strategy, VRIO, PESTLE, and Porters Model.
The Internal Environment of Starbucks
The understanding of a company's strategic management requires a proper analysis of its
internal operating environment. According to Cole (2003), strategic management refers to the
process of setting an organization's targets, evaluating the competition levels, and assessing the
internal arrangement. Besides, it involves evaluating the company's techniques and checking the
effectiveness of the management in applying the strategies in the enterprise. Markedly leadership
is one of the internal factors that determine the success of strategic management.

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Starbucks' Leadership
One of the ideal strategic management models for analyzing this factor is VRIO
framework, a competitive tool for evaluating a firm's internal factors using value, rarity,
imitability, and organizational aspects of capabilities and resources (Peng, 2009). The coffee
giant's leadership has made a significant impact on the implementation of the company's
strategy. It has hired seasoned executives from major companies in the U.S., such as Disney and
Microsoft, to serve in its management team (Lebowitz, 2016). The author states that the
corporation's CEO, Howard Schultz, motivates his team including the executives to challenge his
ideas whenever they find them unsatisfactory. Using the VRIO framework, the strategy is
valuable, rare, costly to imitate, and organized to derive value. In this view, it enables the firm to
exploit opportunities, acquire temporary competitiveness, resist imitation, and establish
processes. This success is found in Schultz's strategy of delegating leadership responsibilities and
openness to discussions which add value to the company's growth.
Culture
The culture of an organization influences the performance of employees and the overall
success of the business. According to Ferguson (2017), Starbucks organizational culture is
among the unique features of the firm. The author explains that its workers interact closely,
while their response to customers is warm and friendly in all their cafes. Further, it cultivates a
feeling of belonging, diversity, and inclusion where supervisors and managers support their
subordinates. Besides the leaders encouraging openness, this culture also emphasizes
communication and collaboration while embracing inclusion and diversity at the workplace.
Markedly, this approach is unique to the company. Therefore, when analyzed using the VRIO
framework, this internal factor advances the firm's strategy. A unique organizational culture is a

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valuable tool for improving working relations, while it is a rare approach in the industry.
Although the culture is imitable by other organization, it adds significant value to Starbucks
since it leads to customer satisfaction, hence a competitive advantage.
Competitive Advantage (Price)
Even though Starbucks has held the first position in the coffee industry, its premium
pricing is one of the internal factors that could have an impact on its strategic management. Over
the years the price of one cup of coffee has increased significantly, which has invited other
competitors in the market. For example, Dunkin Donuts and McDonalds have since joined the
industry with the aim of offering same quality coffee at lower prices. Other new industry entrants
include Tim Hortons and Second Cup who target to capitalize on Starbucks ever-increasing
coffee prices. This phenomenon has a significant impact on its strategy of expanding globally.
Based on VRIO's strategic analysis model, this internal factor has no value, and its rarity has an
adverse impact on the competitiveness of the business. Although other firms may not imitate this
strategy, it is not organized to capture value. To this effect, the premium pricing strategy of
Starbucks could influence its ability to remain competitive, which is a strategic management tool
for every firm.
Structure
The organization chart of a business is another internal factor that impacts its strategic
management. According to Meyer (2017), despite Starbucks' size as a coffeehouse chain, it has
one of the best organizational structures that correspond to the current business needs. Markedly,
the arrangement influences leadership and management, change, and communication among
other crucial internal factors. It assumes a matrix format that combines functional structure,
geographic divisions, teams, and product-based divisions. This way, its structure places the

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operations according to business functions (HR, finance, and marketing), location (continents),
product lines (coffee, baked goods, and mugs), and teams at lower organizational levels. Based
on Waterman et al.'s 7-S framework, this approach represents the way a firm's business units and
divisions work harmoniously to deliver the strategic goals of a company (Channon & Caldert,
2015). This way, Starbuck's organizational structure has a particular focus on the strategic
purpose of offering the highest quality coffee to consumers. Besides, it is an ideal structure of
concentrating on customer experience and its financial performance.
Strategic Capabilities
Starbucks uses several vital resources for its operation in various parts of the world.
Some of the primary resources include the strategic location and efficient store designs that place
it in a suitable position to compete in the coffee industry (Kell, 2016). Additionally, the company
utilizes several core competencies such as exceptional customer service, high employee
motivation, and a robust leadership from the top management. These factors fall into the
category of systems category of the 7-S framework as outlined by Waterman et al. The concept
explains how procedures and processes in a company contribute to the decision-making and
daily operations. Given that systems are crucial to the running of business, they are part of the
overall strategic position of a firm. Markedly, the superiority of Starbucks' strategic capabilities,
which are internal factors, gives it a competitive edge that contributes to the achievement of its
strategic objectives of offering quality coffee and gaining global recognition.
People
The last key internal environment that influences the strategic management of a Starbuck
is the employees or staff. Starbuck considers workers as one of the vital assets that contribute to
its survival in the competitive coffee industry (Tylor, 2016). Markedly, the recruitment process

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forms Starbucks' foundation for acquiring a workforce that has the right skills for its operations.
Its recruitment motto starts the company's commitment to have the right people hiring the right
people. Additionally, it uses human resource practices and policies as a strategic tool for
retaining the best skills through motivation and developing their competencies.
This internal element of the firm is explained by the staff and skills elements of the 7-S
framework. The model explains that skills component include the capabilities and competencies
that enable a business' employees to perform well. On the other hand, the staff element concerns
the type and size of the workforce that an enterprise has as well as the methods used to motivate,
train, reward, and recruit. In this view, the highly skilled and diverse workforce in Starbucks has
a massive influence on the achievement of its strategic management targets.
External Environment of Starbucks
On the other hand, Starbucks has external environmental factors that affect its strategic
management. According to Craig and Campbell (2012), these are factors outside the operation of
the business which they must respond to in achieving its operational objectives. These elements
include customers, government, competition, and the economy of the region in which companies
operate. Markedly, firms respond to these factors in various ways including marketing strategies
and adjusting its models of operations. However, the understanding of these factors could be
understood using several different management theories including Porter's Five Forces and
PESTEL analysis tool.
Competition
Starbucks dominated the specialty coffee industry for a long time since its establishment
in 1971. However, the industry experienced significant changes in the last one decade following
the entrance of highly established companies to the market. Even though there are several other

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new players in the market, McDonald's and Dunkin Donuts, are the top well-performing firms
that compete with Starbucks (Brizek, n.d). This trend completely changed the industry's
competitive landscape as evaluated using Porter's Five Forces Model.
Rivalrly. The company faces the five external forces in varying intensities for which it
implements strategies to minimize their impacts. The first force is the competitive rivalry, and it
is a strong force that McDonald's has to deal with in the specialty coffee market. According to
Dobbs, 2014, this is the level of competition in an industry or the extent to which businesses
exert market pressure on each other. Markedly, this industry is already saturated with numerous
fast food companies joining the bandwagon of selling coffee. Such companies include Wendy's,
Dunkin Donuts, and McDonald's among several other fast food organizations that operate at the
international level. However, Starbucks responds to this pressure through its extensive chain of
outlets in different parts of the world.
Consumer Power. The second force is the bargaining power of coffee consumers, which is very
strong. This concept refers to the ability of buyers to force down the prices of commodities by
demanding improved quality and playing competing businesses against each other (Hill & Jones,
2009). Starbucks' inability to control the buyers' influence is the result of low switching costs,
numerous coffee companies, and availability of substitute products. Consequently, buyers can
consume specialty coffee from other restaurants, such as McDonald's, or take different
beverages, such as tea. One of the strategic decisions that Starbucks uses to mitigate this effect is
diversifying, where they offer other coffee products.
Supplier Power. The fourth force is the bargaining power of suppliers, which is significantly
low. According to Palep, Bernard, Healy, and Peek (2007), the power of vendors refers to the
availability of different suppliers for raw materials. Apparently, Starbucks procures coffee beans

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from a variety of providers worldwide, where its buying capacity makes the company relevant to
the buyer. This way, the enterprise has low switching costs since most of the coffee beans
varieties needed are easily available. Consequently, it has the power to make strategic decisions
over where to source its raw materials.
Substitute Products.On the other hand, competition is determined by the numerous threats that
face the existence of the business in the industry it operates. The first threat is that of substitutes,
which refers to the ease of a company's products being replaced by other products in the market
(Griffin, 2012). Starbucks' products have a high threat of being replaced by other types of
beverages. The most common ones include tea, chocolate, and other drinks such as juice and
sodas. Besides, most of these substitute products are cheaper than the specialty coffee. To this
effect, the firm needs to make strategic decisions to respond to this threat.
New Entrants.Also, Starbucks faces a moderate threat of new entrants, which refers to the
magnitude of barriers to establishing new businesses developing in the industry. According to
(Bruzelius & Johansson, 2012), new firms seeking to gain market in this industry have to deal
with incumbent companies that enjoy economies of scale. Markedly, Starbucks produces its
merchandise in large-scale thereby spreading out its fixed costs over more units. Additionally,
customer loyalty and the demand-side benefits of scale make it even difficult for other firms to
match the levels of Starbucks. In this view, the moderate threat is a great concern for Starbucks
to consider when in strategic management. The analysis of the Starbucks' competition landscape
shows that it influences its strategic management since the company has to find a means of using
the available resources to mitigate the impacts of these forces.

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Political Factors
Starbucks' strategic management is also influenced by the political factors, which is an
aspect of PESTLE's model of the external environment of business (Cadle, Paul, & Turner,
2010). Such influence emanates from elements such as regional integration of markets,
government support for infrastructure, and bureaucracies. For example, regional integration is an
ongoing trend that presents Starbucks with an opportunity to expand globally. Further,
governments' efforts to improve infrastructure in most countries provide the company with
greater access to more markets. However, increased bureaucracies could be a threat to its
expansion. In this regard, the strategic management has to consider the political influence on the
company's ability to perform in the market.
Economic Factors
Also, Starbucks strategic management has to consider the financial situation and
transformations related to the industry as detailed in the PESTLE model. For example, it has to
embrace the economic growth of developing countries as an opportunity to tap the regions'
burgeoning markets. Similarly, the reducing unemployment rates in the world offer the company
an opportunity to utilize the growing workforce. However, the rising cost of labor in most
countries is a significant threat to the firm as the prices of raw materials are likely to increase
with these changes.
Social Factors
Another aspect of PESTLE framework is the sociocultural factors that have an impact on
the strategic management of Starbucks. Markedly, the growing agricultural culture is one of the
strategic management opportunities that the organization could consider. Also, the increasing
health awareness is another area that the firm ought to consider in making strategic decisions as

STARBUCKS STRATEGIC MANAGEMENT ANALYSIS 13
this could encourage it to produce health-conscious brands of coffee. On the other hand, there is
an unprecedented growth in the middle-class population around the world, which would prompt
it to consider increasing its production levels.
Technological Factors
Finally, the contemporary world is experiencing massive revolution from the
technologies (Rust & Espinoza, 2006). For example, the increase in production and usage of
mobile phones is a significant consideration for strategic management as it could help it improve
the mobile applications for customer use. Further, the firm has the opportunity to improve its
supply chain efficiency following inventions in coffee production. The analysis of Starbucks'
external environment shows that they influence its strategic management. Besides, this concept is
the process of setting an organization's targets, evaluating the competition levels, and assessing
the internal arrangement. To this end, the external environment has indicated the competitiveness
of the company and how that could help it achieve its strategic goals.
Recommendations
The findings of the report indicate there are numerous internal and external environments
that have an impact on Starbucks’ strategic management. The most outstanding of the internal
factors include structure, culture, strategic capabilities, and leadership. First, it ought to capitalize
on the robust leadership abilities of its management headed by Schultz to improve its employee
performance through motivation and open discussion. Also, the company should foster the
current organizational culture that encourages good working relations and warm customer
service. Besides, the culture of inclusion and diversity is a fundamental tool for motivating
workers to focus of customer satisfaction.

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Similarly, the robust strategic capabilities and staff would be a great strategic
management resource. To this effect, it ought to utilize the superior store design and strategic
positions to compete effectively in the specialty coffee industry. Also, the robust employee
motivation and leadership competence are strong competitive instruments that Starbucks could
consider expanding in strategic management. Further, the company’s recruitment and retention
policies are fundamental areas of consideration for Starbucks to achieve competitive edge in the
industry.
On the other hand, Starbucks should capitalize on the growing economies, technology,
and sociological factors to grow its market in the world. The current economic integration,
technological advancement in coffee production and processing, and health awareness are
potential opportunities for the company to tap into the burgeoning market and reducing costs of
coffee processing. Therefore, most of the external business environment is promising to the firm,
and it should take advantage to adjust its strategic management to match the current market
condition.
However, the company should be wary of the bargaining power of customers as they
have alternative products that are cheaper than specialty coffee. Given that the switching costs
are low, Starbucks has the ability to change the condition by offering cheaper coffee that targets
the lower class customers. Additionally, the threat of substitute products is substantially high as
consumers can opt for a broad range of beverages including tea, juice, and sodas. Markedly,
these prices are also comparatively lower than those of coffee. To this end, Starbucks’ strategic
management should consider developing the other products line further to cushion it from the
threat.

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Implications
The most significant implication of adopting the above recommendations is the massive financial
outlay needed for the task. For example, developing its other lines of products, such as tea and
coffee, will require the company to rebrand its numerous stores across the world. Markedly, the
current branding is one of the resource capabilities that have greatly contributed to the
tremendous success that the company enjoys today. On the other hand, Starbucks will have to
use extra resources in advertising the new products in all of its operating areas worldwide.
However, the changes have the potential to improve the performance of the company since it
already has established infrastructure, qualified workforce, excellent leadership, and well-
designed organizational culture and structure.
Conclusion
All in all, it is indisputable that internal and external environments of business have a
significant impact on its strategic management. Starbucks is an example of a company whose
strategic planning is massively dependent on the internal factors such as people, culture,
structure, and strategic capabilities. These elements are explained through the 7-S and VRIO's
models of strategic management. On the other hand, the external factors that shape its strategic
management include Porter's Five Forces and PESTLE's framework. Therefore, the elements
inside and outside Starbucks' operations are useful in making strategic decisions which shape its
success in the specialty coffee industry.

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