Strategic Management of Starbucks

This paper focuses on the strategic management of Starbucks, including the paradoxes faced by the company and the strategies used to overcome them. It also discusses the competitive position of Starbucks in the coffee industry and the strategic options available to the company. The success of Starbucks is analyzed using Porter's Diamond Model.

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Strategic Management
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Table of Contents
Introduction................................................................................................................................2
Overview of Starbucks...............................................................................................................2
Paradox and its management in Starbucks.................................................................................3
Competitive position of Starbucks.............................................................................................5
Strategic options available to Starbucks....................................................................................7
Individuals involved in the determination of organisational strategy of Starbucks...................8
Explanation of the success attained by Starbucks......................................................................8
Positioning of Starbucks............................................................................................................9
Evaluation of the changes made at Starbucks............................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

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Introduction
As noted by Warren (2015), the change undergone by the business world over the
years become apparent from the fact that rather than the aspects of cost and quality, the entity
of customer experience or customer satisfaction had gained a wider significance. Snell et al.
(2017) are of the viewpoint that the different business firms in order to attain a higher level of
growth are effectively trying to exploit these factors so as to earn the loyalty of the customers
and thereby a higher amount of profitability. However, at the same time it is seen that the
different kinds of paradoxes that exists not only within the business firms but also in the
business markets as well and also the manner in which it is being managed by the firms is
another important factor that greatly affects the financial returns earned by the firms or for
that matter their profitability (Pangarkar 2015). More importantly, it is seen that in the
majority of the cases, the firms not only fail to resolve the different paradoxes that they face
but at the same time effectively exploit them as well through the adequate usage of diverse
business strategies. In addition to this, it has become imperative for the business firms to
thoroughly understand the demands of the markets and also their customers and thereby
formulate relevant strategies for the same. This paper will focus on the different paradoxes
that the firm Starbucks faced and also the diverse strategies that it used for the management
of the same.
Overview of Starbucks
Starbucks Corporation, founded in 1971 in Seattle, Washington, USA, by Jerry
Baldwin, Zev Siegl and Gordon Bowker, is an American multination coffee chain which is
known for the unique brand of coffee that it offers (Starbucks.com 2019). The actual success
journey of Starbucks began with the association of Howards Schultz with the concerned firm
in the last decade of the 20th century. Presently, the concerned firm is the largest coffee chain

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of the world and offers a wide variety of coffees to the customers along with the other
products like tea, beverages, snacks and others which it offers to the customers taking the
help of the product diversification strategy. More importantly, taking the help of the process
of globalisation the firm in the recent times had expanded into business into the other nations
of the world like UK, India, Australia, Japan and others. In this context, it needs to be said
that the concerned coffee chain had more than 28,218 outlets as of 2018 and the gross
revenue generated by it for the year 2017 was more than US$22.387 billion, which makes it
one of the largest firms of the world in terms of the financial returns earned by it
(Starbucks.com 2019). However, the news of the retirement of Howard Schultz had adversely
affected the firm and many people have began to raise doubts regarding the future of the firm.
Paradox and its management in Starbucks
Devia, Aisjah and Puspaningrum (2018) are of the viewpoint that paradox can be seen
as the process through which the business firms compete with the customers so as to offer
them the kind of values within the framework of the products or services offered by them
even before then customers have felt the need of the same. As argued by Ragozzino, Reuer
and Trigeorgis (2016), this is being done by the business firms so as to ensure that the
products or services offered by them would not only be appreciated by the customers but at
the same time would enable them to attain competitive advantage within the business market
of their operation. This becomes increasingly important when the fierce business competition
that the firms had to face within the markets is being taken into account. In the particular
context of the coffee chain Starbucks it needs to be said that there are various paradoxes that
the firm is facing presently and some of the most important ones and also the manner in
which they can be managed are being discussed below.
One of the most important paradoxes that the firm Starbucks had been facing over the
years is the paradox of chaos versus control. This can be related to the fact that the different

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firms have an inherent desire to control the different aspects of their business in an effective
manner so as to attain a minimum required level of growth which would be in alignment with
the business goals or objectives that they have formulated. However, the different kinds of
chaos which exists within the framework of the different firms adversely affects not only the
control of the firms over their diverse business activities but at the same time the stability or
the profitability of their firms as well. In this particular context of Starbucks, it needs to be
said that one of the major factors which lead to the decline of the firm in 2007 was the
extensive usage of product diversification strategy which was being pursued by the firm
without having any real control over the products which were offered to the customers
(Campbell and Helleloid 2016). Furthermore, the inability of the coffee chain to manage the
supply as well as the demand for the different products offered by it like tea, beverages and
others in US market created various kinds of chaos which the firm failed to control in an
effective manner and this in turn lead to the crisis faced by it (Mason, Cole and Goza 2017).
The global versus local was another important paradox that the coffee chain faced in the
different overseas market wherein it tried to offer the same Americanised coffee and similar
products to the customers. However, because of the inherent cultural differences and also the
taste differences of the people the concerned products failed to live upto the expectations of
the customers and this in a significant manner towards the setback that the coffee chain faced
in overseas markets.
Another important paradox which the coffee chain Starbucks faced was on the score
of intended versus emergent aspect. In this regard, it needs to be said that the intended
strategies are the owes which the firms plan to execute whereas the emergent strategies are
the ones unplanned strategies that are in response to the unexpected opportunities and threats
presented by the business markets (Moutinho and Phillips 2018). For example, it had been
seen that the firm Starbucks failed to formulate effective emergent strategies during the time

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period 2000-2007 and this in turn significantly lead to the crisis faced by it. The logic versus
creativity is another important aspect on the basis of which the coffee chain faced paradox
and it was seen that prior to 2000 during the leadership of Schultz, the firm had been taking
the help of creativity whereas post his retirement the firm primarily relied on logic which in
turn significantly contributed towards the crisis. More importantly, at the time of its
foundation the business idea used by Starbuck was a revolutionary one however after the
retirement of Schultz the firm failed to evolve in an effective and this in turn also contributed
towards the crisis. In addition to this, rather than following the process of co-operation in the
different overseas market, the firm took the help of aggressive competitive strategies and this
in-turn significantly reduced the scope of the concerned firm in the overseas markets. Lastly,
another important paradox that the concerned firm faced was the fact that the firm failed to
effectively develop or utilise its resources in the face of the changing demands of the
customers and also the business market (Mason, Cole and Goza 2017). However, at the same
time it needs to be said that the recent success attained by the after the crisis of 2007 clearly
indicates that the firm had been able to overcome these paradoxes in an effective manner.
Competitive position of Starbucks
Bargaining Power of the Buyers The bargaining power of the customers or the buyers is
very low because of the fact that the unique quality of
coffee and other products, customer experience, coffee
bar ambience and other aspects of the services which are
being offered by the concerned firm are not being
offered by the other coffee chains and this in turn had
reduced their power in a significant manner (Martínez-
Torres, Rodriguez-Piñero and Toral 2015).
Bargaining Power of the Starbucks over the years have developed a unique

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Suppliers supply chain system and also the raw materials procured
by it are obtained from specific farmers or cultivators
who have long-term contracts with the firm (Harrington,
Ottenbacher and Fauser 2017). In addition to this, the
firm had licensed or franchised various stores or coffee
bars so as to ensure adequate supply of the products
offered by it in the market. This in turn had significantly
reduced the bargaining power of the suppliers associated
with the firm.
Threat from New Entrants Starbucks enjoys a positive brand image in the market
because of the high quality of products offered by it, the
unique experience that the customers have at the coffee
bars of the firm and other additional facilities that are
being offered to the customers. This in turn had
significantly reduced the amount of threat that Starbucks
faces from the new entrants within the concerned
market.
Threat from Substitutes It is pertinent to note although the cost of switching
brands within the concerned industry is very low yet at
the same time it is seen that because of the high quality
of services offered by Starbucks the customers generally
do not switch brands and take the help of the services
offered by other firms. Thus, it can be said that the
threat that the concerned firm faces from the substitutes
is very low.

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Industry Rivalry Starbucks holds a monopoly within the beverage and
coffee industry of USA yet at the same time it is seen
that the concerned market of USA is being characterised
by its fierce competition. Some of the most important
competitors of Starbucks are McDonalds McCafe, Costa
Coffee, Café Coffee Day, Dunkin Donuts and others
which although presently do not present any significant
threat to the concerned firm yet in the longer run can
adversely affect the business prospects of the same
(Harrington, Ottenbacher and Fauser 2017).
Strategic options available to Starbucks
The effective usage of the Ansoff Matrix by the firm Starbucks is likely to offer
insightful information regarding the strategic options which are available to the concerned
firm. In this regard, it needs to be said that as per the Ansoff’s Matrix, one of the best
possible strategic options which is presently available to Starbucks is market penetration.
Hanson et al. (2016) are of the viewpoint that for the effective usage of this strategy the firms
are required to develop the demand for the commodities or the services offered by them
within their existing business markets of operations. As noted by Lasserre (2017), this
objective can be attained through the reduction of the prices of the commodities or services,
product refinements, use of aggressive marketing or promotional strategies, acquisition of
competitors and others. Thus, it is likely that the firm Starbucks would be able to penetrate
the market of USA in a much better manner if it reduces the prices of the coffee and other
products offered by it, takes the help of different kinds of digital marketing strategies for the

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effective promotion of the products offered by it, purchases its rival firms and through other
feasible measures.
Individuals involved in the determination of organisational strategy of Starbucks
Hitt, Ireland and Hoskisson (2016) are of the viewpoint that “The Strategic Pyramid”
is an important framework which enables the business firms to formulate strategies that
would be in alignment with the tactics or programs or for that matter other kinds of business
activities followed by the business firms. This in turn also informs the firms about the
individuals or the kind of stakeholders whom they need to incorporate into the meetings in
which the strategies of the firm are being formulated or designed. In this particular context of
Starbucks, it needs to be said that the CEO of the concerned firm for the designing or the
formulation of the business strategies of the firm needs to include not only the individuals
from the management team of the firm and the members of the ‘Board of Directors’ but also
the important stakeholders whom the implications or the usage of the formulated strategies
would directly affect. The incorporation of all these individuals is important because of the
fact that it will greatly facilitate the implementation of the concerned strategies while
reducing the resistance that the firm is likely to face for the implementation of the same from
the stakeholders.
Explanation of the success attained by Starbucks
An analysis of the success gained by the firm Starbucks on the basis of Porter’s
Diamond Model is likely to reveal insightful information. For example, the effective usages
of market penetration, product diversification strategy and others followed by the firm had
not only enabled it to earn a higher amount of profitability but at the same time competitive
advantage as well (Voigt, Buliga and Michl 2017). On the other hand, it is seen that the firm
over the years had been successful in enhancing the demand for the products offered by it and

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this in turn enabled it to gain a significant amount of success. Furthermore, the firm also
started to offer different kinds of secondary products like tea, snacks, beverages and others so
as to increase their profitability and thereby gain success. Lastly, the firm over the years had
depended on home growth resources and this also enabled the firm to gain success. Thus, it
can be said that the success gained by the firm Starbucks can be explained in a succinct
manner through the usage of the Porter’s Diamond Model.
Positioning of Starbucks
Starbucks over the years had taken the help of cost leadership strategy to offer the
best quality coffee and other related products to the customers and that too within a price
range which is comparatively lower than the price charged by the other firms. This in turn
had enabled the firm under discussion here to attain a unique market position within the
concerned industry not only in terms of the cost but also on the score of the high quality of
products offered by it as well. Thus, it can be said that Porter’s Generic Strategies concept is
an important one which helps in understanding the manner in which Starbucks had been able
to gain a unique position within the business market.
Evaluation of the changes made at Starbucks
The adaptive changes that Starbucks had made over the years belongs to the category
of transformational and incremental changes as per Balogun and Haley’s types of change
framework. In this regard, mention needs to be made of the different kinds of product
adaptation as well as business model adaptation changes made by the concerned firm so as to
cater to the demands of the customers and also the business market. Furthermore, these
changes not only enabled the firm to transform the products offered to the customers but also
to incremental benefits through the usage of the same (Harrington, Ottenbacher and Fauser
2017). These product modifications, ambience in the coffee bars modifications and others

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become apparent not only in the overseas coffee chains of the firm but also in the nation of
USA as well.
Conclusion
To conclude, the different business strategies which are being used by the
contemporary firms play a pivotal role within the framework of their business operations. For
example, the profitability as well as the competitive advantage earned by the firms are
significantly related to the kind of strategies which are being used by firm. Thus, it becomes
all the more important for the firms to take into account the demands of the customers and
also the changing trends of the market for the formulation of business strategy. The above
analysis of Starbucks in the particular context of the given case study clearly reveals this fact.

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