Influencing Organisational Strategy

This article analyses the strategy of Starbucks in relation to its financial performance, coherence with internal and external environments, and consistency. It also discusses the company's strategy of extending digital engagement and establishing a community relation and social purpose.

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INFLUENCING ORGANISATIONAL STRATEGY
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1-28-2019

INFLUENCING ORGANISATIONAL STRATEGY 1
Contents
Q1. What is Starbucks’ strategy?.................................................................................................2
Q2. Assess Starbucks’ strategy in relation to:.............................................................................6
a. Starbucks’ financial performance.....................................................................................6
b. The overall coherence of Starbucks’ strategy in terms of its fit with the company’s
external and internal environments and the internal consistency of the strategy....................9
Q3. Does Starbucks operate in the interests of its shareholders or its stakeholders?................11
Q4. What threats does Starbucks face; how should it counter these threats?............................16
References......................................................................................................................................21

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Q1. What is Starbucks’ strategy?
For analysing the strategy of Starbucks, it is important to understand the external environment in
which the company exist, and working, which affect the company to large extent. For this
purpose, the PEST analysis would be helpful. The four factors as of PEST analysis include:
 Political factors – since the company is working in various nation worldwide, the political
aspect of the nation becomes important to abide and understand to sustain in the market.
For instance, the involvement of political parties may affect the business, for instance in
case of promotion strategy Starbucks, have to abide with certain rules and have to do
according to the legal system and rule. Moreover, this is the reason that the company
have to enter the business with different mode of entries.
 Economic factors – this include aspects like GDP of the country, which reflect the
income level and consumer spending, which may affect the pricing strategy of the
company. Another aspect was tax, in some nations corporate tax is high and low in other
nations, which affect the revenue of the company
 Social factors – this include the social trends, for instance the consumption preference of
the customer. For instance, westerner nation are more found of coffee, whereas nations
like china are more found of coffee. Moreover, culture also affect the strategy, like in
some nation the culture of having coffee at coffee shops do not exist much, like in India,
when the company enter it was new to the culture.
 Technological factor – this factor includes the adaption level of the customers in case of
technology. For instance, UK, or other western countries are more technological
advanced nation, where the company needs to introduce technology in business as well,
like in payment system (Doole & Lowe, 2008).

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The overall strategy of Starbucks is to build the company into a destination, for which the
company aims to broaden the experience of the company, through product differentiation. This
included adding music, food, books, and videos. Ansoff’s matrix can be used to analyse the
major strategy of the company. The company has already developed the brand in most of the
nation worldwide while adopting market development. In today’s scenario, company’s major
strategy include product development that is targeting existing market with new product to offer.
Figure 1:( Source: (Aksoy, 2018)
This Starbucks’s strategy included the additional diversification of business, products, and
channel of distribution, which included:

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 Licensed coffee shops & Kiosks – this strategy involves expanding the business through
reaching out to maximum customers through coffee shops of Starbucks, which licensing,
which was with Host Marriot, at its first licensed
 Distribution of retail packs of Starbucks through various retail food stores, and
supermarkets – since the purpose of the strategy of the company is to reach out to the
customers, it can be possible by proving the Starbuck’s coffee retail packs to the
customers, through more approachable supermarkets and retail outlets.
 Licensing for bottle drinks – another aspect of the strategy is to license the product with
Unilever and PepsiCo for Starbuck Bottle drink supply to the customers. for instance,
Tazo tea, and Frappuccino
 Involvement in financial services – this begins with the prepaid store card of Starbucks,
along with the visa credit card afterward. This also initiated the card of Starbucks to enter
into the reward program, which let the customers enjoy the free drinks and various other
benefits to the customer who is regular or loyal customers to the brand (Aksoy, 2018)
 High-quality coffee beans – the major aspect of the strategy of the company is quality of
coffee beans, and consistent about the quality standards, which make the customer
experience the best of espresso coffee beans. Those beans were prepared with roasting
carefully and also enhancing the life of the growers of the coffee.
 Employee involvement – the counter staff of the Starbucks played an important role in
implementing the Starbucks experience the major role of the strategy was not only to
provide the customers the best range of coffee but also focus towards the customer
engagement and source of entertainment through excellent experience at the coffee shop.
For this, the employees were playing the major role as they would be responsible to

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communicate with the customers and direct link type the end users, which needs to be
enthusiasm
 Community relation and social purpose Schultz had provided the organization with the
view of refining role of the business of Starbucks in society. The major purpose of eth
strategy is to create the company where everyone is respected and valued, irrespective of
the place they came from, color, cast, and education level. The purpose was to link the
shareholder to the cultural values. Moreover, the positive action was a major purpose,
which included the positive action to bring the customers, partners of the company, and
society to contribute each day.
 Designing and layout of stores of Starbucks – this is something which indicates the
positivity or the negativity of the company in the customer perception. Therefore, the
strategy included that the company must have the good physical appearance of the coffee
shop and product offered to the customers like the design of the store and its layout must
be done. The company reflected the humanity of Starbucks through the designing of the
store (Andersson, 2016)
Starbucks experience is the key to the Starbucks strategy, which included the creation of the third
place for the people to make them feel other than work and home and where the people would be
able to engage socially and will be able to experience best taste coffee. This is a reaffirmation of
Starbucks, which will include social commitment and a good place for the world to spend, hang
out with friends and a stronger commitment towards the society through corporate social
responsibility of the company. This has reduced the automation of coffee creation, and
experienced the ready coffee with relaxation, and served with care. Moreover, along with a
coffee various variety of foods can also be offered such as sandwiches. Therefore, this strategy

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was to create to make higher profits of the company while making a better place in the world.
Moreover, the higher connection with the customers lead to better customer loyalty and increase
in use of social media platforms to reach out to the customers. As already discussed, the
employee engagement was also a major role in the strategy, which leads the company to
introduce with the “My Starbucks reward” for the employees in order to encourage innovation in
the company (Betton, 2017)
Q2. Assess Starbucks’ strategy in relation to:
a. Starbucks’ financial performance.
The strategy of the company considering one of the major factors that are the financial
performance of the company. The company’s downturn of 2007-2009, leads the company to
change the strategy in order to increase the financial performance of the company, which will
help the company to overcome the financial crisis. Schultz’s included the turnaround strategy
which included two major initiatives of the company. The first one is retrenchment, this was to
cancel or close down new stores and to enhance the cost efficiency of the company, and the
operational practices were revised. According to this strategy, around six hundred stores in the
US were closed. The company was able to save $500 million in operating costs in 2009, which
also leads to the self-salary of Schultz to $10,000, which was $1.2 million and selling three jets
of the company (Bruns, 2013)
The second initiative of the strategy involves the reaffirmation of the company’s value and
principles of business, this including the revitalizing of Starbucks experience, which was already
discussed in the previous section.

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Considering the growth potential of the company in 2016, the growth strategies of the company,
for the increase in the company’s revenue, it includes:
 Growing the stores in number – one of the growth strategies is to increase the store's
number, in next some years, where only the footprint would not be expanded but the
focus of the strategy will also be on shifting or bring a change to its store mix. That is
instead of only concentrating on the place to hang out and have fast food and coffee, the
company is also introducing the drive-through in various outer areas of suburban and
urban areas (Chari & Feng, 2018)
 Elevating the experience of coffee – the company strategy is to pull itself to most
preferable place to have coffee for the customer, for this they will be elevating the
experience of the people at the coffee shops while offering more customized taste and
offering. On the highest priority, is to target the roasteries, at least 10 roasteries would be
looked by the company which are the coffee connoisseurs and uber-rich. Another priority
would be the reserved stores. , which will have larger footage than that of normal stores.
The company has planned to open at least five hundred new reserved stores, which will
focus majorly on upper middle class according to the income size. This will include
providing the premium roaster although the price will be kept relatively less than the
roasteries (Chatzoglou & Chatzoudes, 2018)

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Figure 2: Source: (forbes, 2019)
Figure 3: Source: (forbes, 2019)
This could also be analysed through VRIO framework. Its factors would be responsible for the
financial performance of the company
1. Value – this reflect the cost for the resources to be procured
2. Rareness – this reflects the rareness of the resources that is how limited the resources are
3. Imitability –this reflect the difficulty for the other party to imitate the resources
4. Organization – this reflect the use of resources in the better manager and their
arrangement level (Chari & Feng, 2018)

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Figure 4: (Source: (forbes, 2019)
b. The overall coherence of Starbucks’ strategy in terms of its fit with the company’s
external and internal environments and the internal consistency of the strategy
The external environment is a major aspect which affects the strategy of any company, as it is
dynamic and changing very rapidly. Therefore, it can be said that the company changes its
strategy according to the external environmental change and analyzing the company’s own
strengths and weakness.
For external environment analysis, the porters five force model was analysed, which justify the
strategy of the firm. This include five major forces:

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1. Bargaining power of buyers (low to medium influence) – since the company is providing
premium product and include product differentiation, the bargaining power are not much
in hands of buyers.
2. Bargaining power of suppliers (low to medium) – the company’s strategy include to have
large number of suppliers worldwide, which leads to low influence of supplier and the
bargaining power are not in hands of suppliers
3. Competitors (medium to high competition) – some of the popular fast food chains are the
major competitors of the company, for instance, Mc. Donald’s, Dunkin donuts, costa
coffee, café coffee day. Moreover, due to rapid change in technology, the competition has
been increased to larger extent.
4. Threat of new entrants (low influence) – the influence is low due to brand image and high
brand loyalty
5. Throat of substitute (medium to high influence) – the substitute for this can be
restauranyts, coca cola, apple juices, hard drinks in various nations, green tea. These can
be the substitute that can be a threat to the company
For instance, considering the industry analysis, some of the major strategy of the Starbucks
included:
 Extending digital engagement – in the United States the payment through mobile consist
of more than one-fourth transaction for Starbucks. This could be the result of the
initiative taken by the company for promoting the easy comfortable and seamless
experience of digitalization. Moreover, the company’s loyalty program has been changed
the basis of frequency to the amount of transaction, as this was leading to the splitting of

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order and issues like the queue were observed to be long due to a number of transaction
considered for the basis of loyalty programs (forbes, 2019)
The requirement and the increase in the use of digital marketing strategy, the company
realize to launch the coffee mammoth plans to reach to the customers from email
marketing to reach to the customer on one to one basis, and various other social
marketing strategy was adopted to increase the sale of the Starbucks (Chu & Liu, 2017)
 Establishing a new partnership – considering the external environment and various
opportunity to gain by the company, including this another strategy to create a new
partnership. For instance, in 2016 the food sale of the company was around 20 percent of
the company’s revenue. The company thus observed that the saturation level while
considering per day food offering is far below. This leads to the strategy of the company
to create or establish a partnership, in order to make food business as one of the major
growth opportunity in the future. Through this, the company initiated the bunch business
through testing the weekend brunch in various western locations, which would be
conducted from 8 Am to 2 PM on Saturdays and Sundays. The Starbucks decided to
serve the princi food at their premium restaurants. One of such partnership is with
Macy’s, and it has been observed that Starbucks has an association with Macy’s through
its 49 stores of Macy’s (Davis, et al., 2016)
Q3. Does Starbucks operate in the interests of its shareholders or its stakeholders?
Before understanding the Starbucks strategy towards the stakeholder’s interest. The marketing
position of the company is important to understand, for which BCG matrix would be analysed:

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Figure 5: (Source: (sanasecurities, 2018)
From the figure above, it can be said that the position of the Starbucks, according to the industry
growth rate and market share position, Starbucks is positioned as STARS. According to this the
market growth of the industry in which the company is working is high and growing rapidly that
is food and beverage industry. Moreover, the market share of the Starbucks is also high, which
make him a star company. Through this it can be said that the most approachable strategy would
be integration of the company, market penetration, product development, and market
development. Therefore, the model can be used for investment decision of the company.
For analysis the internal environment of the company, Value chain analysis could be helpful,
which include:

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Figure 6: (Source: (Chari & Feng, 2018)
The four factors of primary activities of the company include, infrastructure of the firm, human
resource management, technology, and procurement. The infrastructure is the plus point of the
company, as it is created to have a nice place for customers to spend. HRM of the company is
considered to be major aspect, and for which training is provided to the employees of the
company. Technology is used in the company, in form of payment, reaching out to the customer
and much more. The procurement of raw material is majorly from coffee agricultural suppliers
around the world.
Some of the secondary or supportive activities of the company includes inbound and outbound
logistics, operations of the company are managed well. Moreover, the company’s USP is service
that is experience of the customers at coffee shop. Moreover, marketing and sales of the
company majorly includes brand positioning, and various promotional tools.
The major stakeholders of Starbucks include employees of the company, customers, suppliers,
investors, environment, and governments.

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Considering the stakeholders, the company’s major strategies included employee involvement,
where the company selects their employees on the basis of their dependability, adaptability,
teamwork capacity, and willingness. Moreover, training and developmental program have been
conducted for the employees. Moreover, for the benefit of the employees, the company provide
health insurance and provide educational opportunity through college achievement plan, which
includes providing the reimbursement of the online degree gaining by the employees from
Arizona state university, which is a unique catering chain. This will provide the employees an
opportunity to grow and develop. Through this employee involvement program, the company is
majorly working for their main stakeholders that are customers, to provide the best experience
and best quality of coffee at Starbucks (Doole & Lowe, 2008)
Moreover, through community relation and social purpose strategy of the company, the company
major aspect was to promote equality and no racism for the betterment of the community and
society as a whole and provide a better environment in every nation. In 2015 the company
introduced to the race together campaign, through which the company promote employees to
participate and discuss the racism with their customers, which was also used as a promotion of
cascade negativity on social media and through positive publicity (forbes, 2019)
Moreover, another important stakeholder was suppliers that are the farmers of the coffee and the
whole supply firms. The revenues are generated by the farmers through the increase in demand
from the Starbucks. The company considers the interest of these stakeholders while developing
their strategies. For instance, the company had a supplier diversity program, through this strategy
number of suppliers are associated with Starbucks globally to the supply chain. Another program
was initiated by the company for the interest of these stakeholders that is the coffee and farmer
equity program, this program ensures that the farmers are paid properly through providing the

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transparency within the wholesale suppliers of coffee (panmore, 2019). Thus it can be said that
the company operates in the interest of these stakeholders.
Another stakeholder includes the investors that are the shareholders. For this group of
stakeholders, various growth strategies of the firm have been adopted by the company. The
reason being, the growth of the company is the major objective of any business, and an increase
in profits is also a necessity to sustain the business in the market. Many strategies as a part of
growth strategy have been discussed in the report, one of the strategies which lead to the major
change in growth of the company and advantageous to the investors were Starbucks experience
strategy. This included the company to make the presence of the company as a place to spend
time with friends and family and enjoy the coffee drink and food. Another strategy within
expansion strategy includes creating new customer occasions, which is in favor of investors, as
the major purpose of the strategy is to increase the sale of the product and eventually increase the
shareholder value. This strategy initiated a various variety of food and footstep in tea. The
company initiated the cold brew in more than five hundred stores in order to attract more
customers of different needs.
The digitalizing strategy was also in the favor of this group of stakeholder that is investors, as it
has transformed the customer experience to a large extent. Moreover, elevating the coffee
experience strategy was another one that was responsible for an increase in profits for the
customers by providing roastery to the premium customers and earn large profits. Another such
strategy that has led to the increase in the sale of the company, an increase in a number of
customers and eventually increases in profits of the company is “building Teavana.” This
strategy has to lead the company to gain an increase in sale for seven consecutive quarters. The
company expanded the Teavana in Europe and China as well, which gave a boost to the

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company this has also increased the average spend each consumer on beverages of Starbucks
(Forbes, 2019)
Q4. What threats does Starbucks face; how should it counter these threats?
A model that can be helpful strategic planning, McKinsey 7’s would be analysed, it will help to
analyse the business elements which can increase the effectiveness.
Figure 7: (Source: (research-methodology, 2019)
From the model 7 ‘s , among which hard s include
 Strategy – for Starbucks, the strategy that result into increase in company effectiveness
was product differentiation, and technological innovation
 Structure – divisional organization structure of Starbucks was helpful in better
management in the company
 Systems – it is largest coffee seller, the integrating system of the company that also
included mobile ordering system was helpful.

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Moreover, the soft s include skills, staff of Starbucks, style and shared value, for instance the
value creation to the customers through their amazing experience (research-methodology, 2019)
The SWOT analysis would be helpful to analyse major threats to the company:
Strengths Weakness
 Product quality
 Brand loyalty
 Brand positioning
 Largest coffee house
 Not able to target low and medium
income group
 Premium prices
 Violation of principles of fair coffee
trade
Opportunities Threats
 New product development
 Expansion in network
 Increase in customer segments to
target
 Saturation of United States market
 Starbucks growing diversification
 Growing competition
 Risk of brand reputation
 The threat of new entrants
 Increase in raw material cost
 The threat of substitutes
The major threats that the company face is:
 Saturation of United States market – the threat of saturation of the market leads to the
company in the problem. The company has targeted and has gained enough from the US
market, and the market is saturated, for which the best option that the company can gain

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opportunity through is expanding their business, through increase the stores, or though
widening the business in different segments.
 Starbucks growing diversification – the company was focusing over diversification in
form of an increase in food segment, initiation of serving teas section. This could be risky
or a threat to the company as well. The reason being the company while focusing on such
diversification can get to the lack in Starbucks experience. The focus of service
orientation could have shifted to the product-oriented company. For this threat, the
company can introduce various other training and development program for the
employees to keep them growing and keep them motivated hard to be customer friendly
staff (Chiang, et al., 2016)
 Growing competition – the competition in the market has been increasing to a larger
extent. The increase in trend of coffee places, there is a much large organization in
various nations that are major competitors of Starbucks, like Café Coffee Day. This could
decrease the sale of the company in near future. For sustaining in the market, the
company must focus on increasing the number of customers through various growth
strategies, like a premium product, or product differentiation (Forbes, 2019)
 Risk of brand reputation – due to major business incidents, the threat of decrease or harm
to the business reputation is always there. The business incident could be initiated due to
the company of partners of Starbucks, and the charter of the incident could be isolated or
recurring in nature. This could have eroded trust among the customers towards the brand,
like breaches of privacy, or contaminated food. For this, the company can avoid the
threat through accurate quality management process, this is to ensure if the quality that

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the company or business partners are providing to the customers are best and up to the
standards.
 The threat of new entrants – like the competitors, the threat of new entrants is also a large
threat to the company. With the increase in coffee shops trends, there are many
businesses opening with more innovative and latest ideas to compete Starbucks and can
decrease the sale of the company. Since entering into this industry is not a major task, and
with a change in environment and technology, this could be possible that the company
affects the Starbucks business to a large extent. For this threat, the company has to be
updated that is the company must analyzing the external environment like a change in
technology, any social changes so that the company can update themselves accordingly
and minimize the threat of new entrant. Up gradation and innovation could be the major
key for the company to sustain in the market and reduce the threat of new entrant.
 Increase in raw material cost – this is the environmental threat which could lead to harm
in the production often coffee beans, an increase in the cost of the ingredients and raw
material in near future. This could reduce the operating profits of the company. For this
threat, one of the major initiative by the company that was in favor of suppliers will also
help in minimizing this threat to the company that is increasing the number of the
suppliers around the world. In case of any environmental issue in one nation from the
suppliers, the company can opt to gain supply from another nation suppliers.
 The threat of substitutes – substitute products for the coffee is fresh juices, restaurants for
proper dining, and organic food. For instance, Coca Cola is the major substitute product
brand for Starbucks, which could be the major threat for the company as the prices are
quite low than that of Starbucks, which attract most customers from upper middle to

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lower income customer segment. For this, the company must widen their product range
and product differentiation strategy could help the company to gain sustainability in the
food and beverages industry. Therefore, it can be said that substitutes can also be a major
threat to the company, although this risk can be mitigated or minimized through
appropriate adoption of strategy by Starbucks (Forbes, 2019)

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