Starbucks: External Environment Analysis and Internal Factors

This report analyzes the external environment and internal factors of Starbucks, including competitors, PESTEL analysis, and Porter's Five Forces. It also discusses the value chain model, VRIO model, and capabilities and competencies of the company.

Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
Main Body ......................................................................................................................................1
Introduction to Starbucks and it's Competitors......................................................................1
Explain the external environment (5 Force Analysis, PESTEL, Industry Life Cycle Model)1
Discuss internal environment (Value Chain Model, VRIO model, Capabilities and
Competencies)........................................................................................................................7
Recommendations for next 3 years........................................................................................7
PART 2............................................................................................................................................7
Stakeholder report .................................................................................................................7
CONCLUSION ...............................................................................................................................9
REFERENCES................................................................................................................................1

INTRODUCTION
From the case study of Starbucks it has been concluded that in order to remain in the
competitive world it is essential to compete with rivalry. Firm need to frame strong tactics to
over the challenges created by competitors (Atzori and Murphy, 2018). Costa Coffee, Caribou
Coffee, Cafe Coffee day etc. are some of competitors of Starbucks. This report is based on
Starbucks. This assignment covers internal and external environment factors which are
influencing their business activities. Along with it meaningful recommendation is suggested to
the CEO of Starbucks so that performance can be raised over three years.
PART 1
Main Body
Introduction to Starbucks and it's Competitors
The annual revenue of Starbucks is $16 million and around 2,00,00 skilled workers are
working day and night to meet the set goals and objectives. Business is expanded in over 60
countries are able to meet the emerging taste of the customers successfully. From the case study
it has been found that around 21,000 Starbucks branded cafes are there in the where potential
customers can visit and can enjoy the taste of the coffee. But in the year 2008 and 2009 around
900 stores are closed down because of the rapid decline in the consumption of the coffee. Due to
which profit margin reduced to a large extent in the global market. Management of the
organisation decided to regain their position in the market by diversifying their products in the
global market. Starbucks entered into other segments where new innovative products will be
able to create value in the global market. By this organization will be able to capture huge market
ratio (Cachia, 2017).
Starbucks is serving it's services across the globe and large customer base has been build
over the years. Due to which organization is surrounded by many competitors prevailing in the
competitive world. Some of the rivalry who are creating tough challenges for Starbucks are,
Dunkin' Donuts, McDonald's, Costa Coffee, Caribou Coffee, Cafe Coffee day and many more.
51.22 is the outstanding sales of Dukin and has 11,000 stores across the globe. Whereas,
McDonald's has 36000 stores and 420, 000 employees are working day and night to meet the
desire standards. It has been examined from the case study that as compare to Starbucks Costa
Coffee is more demanded in UK.
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Explain the external environment (5 Force Analysis, PESTEL, Industry Life Cycle Model)
PESTEL analysis is conducted by Coffee day Industry in order to better understand the
external environment forces prevailing in the global market. By understanding political, social,
economical, Technological factor and so on industry can easily flourish without government
interference (Campbell and Helleloid, 2016). The PESTEL analysis of Coffee day Industry are
highlighted as under:
Political factor: Coffee day Industry is greatly affected by political factor. Trade
restrictions, environmental law, tariffs so on are some of the examples of political factor. In order
to over the political factor policies are framed by Coffee day industry so that best outcomes can
be attained.
Advantages:
 By facing issues related to political factor Coffee day industry can flourish smoothly in
the global market.
 Political factor makes the industry stronger and flexible in nature so that they can cope up
easily with political instability in the coming years.
Dis-advantages:
 Coffee day industry does not invest more in understanding political factor due to which
heavy financial losses are beard by them.
 The growth of the industry come on stake if political conditions are not determined.
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Illustration 1: Pestle analysis
Source: Pestle analysis, 2018
Economical factor: It is important to understand economic factor by Coffee Day Industry in
order to gain competitive advantages in the open market place (Deligöz and Ünal, 2017). Tax
rates, interest rates, wages, policies and many more are examples of economical factor.
Advantages:
 Research and development work can be performed smoothly by Coffey Day Industry by
evaluating economic factor.
 This helps in enhancing public services in positive manner which directly assist in
uplifting in the living standards of the people.
Dis-advantages:
 In Coffee Day industry unproductive results are attained by ignoring economic factor.
 By not focusing on economic factor in Coffee day industry more unemployment ratio
will be raised at a tremendous scale.
Social factor: Market value can be raised of the Coffee Day Industry by full-filling the social
requirement on priority level. Some of the examples of social factor are customs, traditions,
norms, beliefs and so on.
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Advantages:
 Industry focusing on social factor indirectly raises better learning opportunities for their
employees (Harrington and Fauser, 2017)
 More capable and talented workers are hired in the industry by analysing the social factor
Dis-advantages:
 Industry focusing more on meeting social need affect their customer base because their
demand are not up-to their expectation level.
 Coffee Day Industry is influenced greatly by the personal income of the consumers.
Technological factor: To be in the top position Coffee Day Industry adopts modern technology.
By this quarrier of the customers can be resolved easily and better goods and services can be
offered to the end users. 3D technology is used by this industry to bind potential customers
longer time duration.
Advantages:
 More customer base for the goods and services raises by execution of advanced
technology.
 The industry is growing at a rapid scale because of adoption of high tech information
technology .
Dis-advantages:
 Profit margin of the industry decreases because finance is invested in implementation of
modern plant and machinery.
 High tech tool and their uses in the Coffee Day industry are balancing their ethics.
Environmental factor: Industry is working more on environmental factor in order to save the
atmosphere from depletion. Many eco-friendly ways are used by Coffee Day Industry to survive
in the competitive world over the years. Ignoring environmental factor leads to cancellation of
licence from operating.
Advantages:
 The sales ratio of the goods and services raises in the Coffee Day Industry because
customers are think that company is conscious for environment.
 Bank offer sufficient amount of finance to Coffee Day Industry because they are
working to environmental issues in better way.
Dis-advantages:
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 Sufficient time and money is required by Coffee Day Industry to work on environment
factor (Hossain and Islam, 2015).
 Experts are hired in order to train workers regarding how to use and recycle the resources
in best way. Due to which working criteria slows down for some time span.
Legal factor: Large number of customer base can be raised by assuring the customers that
Coffee Day industry is conducting legal activities. According to the nation legal factor are
adopted so that smoothly business can be operated without government interference. By this
loyal client can be build over the years.
Advantages:
 Coffee Day industry liability is limited to large extent.
 By adopting legal factor industry can operate smoothly without government interference.
Dis-advantages:
 Goodwill falls down when legal laws are not followed properly by the industry. Survival of the industry comes to an end if illegal work are conducted by Coffee Day
Industry
5 Force Analysis:
Porter's five force analysis widely adopted by company so as to determine competition
of a business. Coffee Day industry conduct this in order to better understand the market
condition and accordingly plan strategies to be in the leading position. The five forces created by
M. Porters in the year 1979 are elaborated as follows:
Competition in the industry: In order to succeed in the international market competitors
compete with each other aggressively. In order to capture huge market ratio tough bench mark is
formulated by Starbucks for their rivalry in the open market place (Jo and Kim, 2017). The
power is more or high when:
 When the exit barriers are intense
 Growth of the industry is very less
 Rivalry are of same standards
 Similar goods present in the market and does not have any major differences in
themselves.
 Substitutes are easily available in the market
 Abundance number of competitors prevailing in the market
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Potential of new entrants into the industry: The threat come big in the international market
when organisation does not have sufficient funds to enter into the market. Those organization
who are monetary stable in nature tend to face less barriers in the open market place at the time
of entry. Starbucks is financially strong they face less challenges while entering into new
market. The degree of power is more in some conditions which are stated as under:
 When there is no specified government regulations
 Goods are mostly similar in nature with common features and characteristics.
 Switching rate of customers are low
 Less customer loyalty
 Present companies does not posses trademark, patent right or do not have ay brand
reputation in the global market (Kang and Namkung, 2018).
Illustration 2: Porter's Five Force Model
Source: Porter's Five Force Model, 2018
Power of suppliers: In the global market bargaining power of suppliers are high then are able to
sell less quality goods and services at high price to the customers. Here, customers exploitation is
done more and power lies in the hands of the suppliers. Starbucks faces lot of problem when the
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power is in the hands of suppliers. It mainly take place in monopoly market. The degree of
power is more in the hands of suppliers in certain conditions which are explained as under:
 When the cost of shifting raw material is more
 Scare resources are there with suppliers
 Less substitute raw materiel exist
 large number of buyers present in the market but limited suppliers available
Power of customers: When the degree of power is high in the hands of the buyer or customers
then they has capabilities to lower the process of the goods and services of Starbucks in the
global market (.Koapaha and Tumiwa, 2016) . Buyers can seek high quality products at low cost
when bargaining power is strong. By this suppliers are affected more as higher quality goods
raises the production cost and they are unable to maximize huge profit from the selling. In some
condition bargaining power of buyer's are strong that are showcased beneath:
 Too many alternate option are available in the market.
 When end users are more price delicate
 Switching ratio to other suppliers is less
 Buying in bulk quantities
Threat of substitute products: It is another aspect of Porter's Five Force Model which is more
threatening to the organization when buyers has abundance substitute goods present in the
market. Along with this the switching rate of customers from Starbucks raises when competitor
is offering high quality goods and services in less price. Here, customers are not loyal they keep
on shifting if slight changes occur in prices, quality and so on. This indirectly raises competition
in the market.
Discuss internal environment (Value Chain Model, VRIO model, Capabilities and
Competencies)
Internal environment of organisation
In the present scenario, most of the current organisation are performing their work at
global level. This determines it is mandatory for Starbucks to perform their work according to
the existing strength and weaknesses of organisation. Therefore, with the implement of VRIO
analysis it is easy for management to formulate effective and long term strategies for
organisation (Lee, 2017). The main motive to analyse the internal environment is to understand
strength of management so it is easy for organisation to deal with the issue that are impacting on
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business's and its performance. It results the sale of Starbucks products will increased with the
help of effective strategy due to which it is organisation will able to achieve their objectives in
specified time period. Therefore, VRIO model in context of Starbucks is mention as follow:
Valuable- According to value perspective, it is analysed that Starbucks are performing
their work with more efficiency through providing better and high quality products to its
customer's. The main motive of them is to increase their market share as well as to gain long
term benefits by offering better products to consumers. Goodwill of organisation is an essential
part for the management of Starbucks because it helps management to sale their products and
services at premium price. Example- Starbucks is selling their products at high prices as compare
to its competitors because of its better brand recognition.
Majority of the existing organisation in food industry are performing their work at global
level. Therefore, it is mandatory for management to adopt those tools that enhances business's
performance at global level. In context of Starbucks, management is more focused towards
implement of better supply chain because it helps to deliver products with quick approach. On
other side, quality of Starbucks products is also high so it leads management to gain better results
in existing market conditions.
Resources- Their are large number of resources are required for the Starbucks to perform
their work at global level. This governs that it is mandatory for management to arrange and
organised all resources in effective manner due to which Starbucks is able to perform their work
in effective manner. On the other side, all raw-materials which are used by Starbucks are high in
quality (Logan, 2016). This results it is easy for organisation to provide better products to its
customer's. Goodwill of organisation is a rare perspective for organisation that is used to enhance
long term benefits. It is also monitored that customer services such as quick delivery of products
also works as one of the rare perspective for organisation. In the last, investment decision of
authority also work as positive aspect by performing their work on valuable and rare basis.
Imitability- All of major resources that is used by management of Starbucks are too
costly that is used to make better products for customer's. It also determines that most of the
product that are provided by management are valuable as well as rare. Due to this it is easy for
organisation to achieve better sustainability in market through formulating competitive edge in
market with better goodwill and brand image.
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Similarly on the other side, as the management increases sustainability in market it is
easy for them to complete work in proper manner. This is also used to gain long term results as
well as to perform their work as per quality of products it also helps the management to increase
their sales and revenues by capturing more market share.
Organisation- Starbucks is performing their work at global level so they offer several
products to satisfy the needs of customer's in effective manner. From the perspective of
Starbucks it is mandatory for management to accomplish their objectives in effective manner
with the understand of VRIO framework. Along with this the main aim of Starbucks is to
enhance their goodwill as well as supply chain to formulate positive working environment in
organisation.
Value chain analysis- This is mandatory for organisation to perform its work according
to global standards . It is also divided into several categories that is used to accomplish
organisational task in appropriate manner. Value chain analysis leads organisation for
completing their primary activities by utilising physical conception of its products (Shiau,
2016). Along with this secondary activities is also achieved to complete the work according to
infrastructure and strategy of organisation. Like human resources, technology and strategies
leads management to gain top position in market.
Resources- Starbucks offers wide range of products to its customer's that are tangible.
Similarly, intangible services is also used by management for completing their work as per needs
of consumers. Like, Starbucks offer their products with the client name on their glass. Its results
this it is mandatory for management to perform the work in effective manner. On the other side,
retail organisation is offering various products to its customer's due to which whole work will be
accomplished with the motive of gaining competitive edge in market. It also governs that with
implement of new and better technology it is easy to increase profits for firm by satisfying needs
of customer's.
Capabilities- Starbucks is one of the major organisation that offers and deliver coffee and
its products to more number of customer's for increasing their market size. High quality products
and goodwill of Starbucks are the pillars which helps to increase market area. Moreover, by
covering more market area number of customer's will also increased that is used to earn better
revenue (Shirdastian and Richard, 2017).
COMPETENCY FRAMEWORK
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Competency framework demonstrate better infrastructure which is used to develop better
knowledge and skills among employee's. The main motive of competency framework is to
increase productivity of employee's.
Leadership development- It includes that all action, operations, activities etc. are
essential part of organisation which is increasing market knowledge of employee's by organising
seminars and workshops of employee's.
High potential talent- Most of the existing employee's of Starbucks learned better skills
as well as gain more experience by learning all aspects of management on constant basis. It
determines that most of the operations of Starbucks are performed according to market needs and
customer's expectation.
Recruitment and selection- All the roles of Starbucks are separate from each other as
they are divide according to skills and capabilities of employee's. Therefore, it is easy for
organisation to identify right candidate as per their skills and capabilities. It results the
recruitment process will be improved of Starbucks.
Performance management- Starbucks provides high quality products to its customer's.
Along with this they are performing their work at global level so it mandatory for management to
make and offer equal quality of products at their stores. Therefore, it is essential to perform the
work as per benchmarks standards (Sisson and Bowen, 2017)
Rewards and recognition- In order to get better results it is mandatory for Starbucks to
encourage their employee's due to which better work performance will be gained. The main
motivate of employee's is to increase morale of employee's. This results management is able to
perform their work with high quality.
Recommendations for next 3 years.
Across the globe Starbucks Coffee is offered to the customers. In order to serve best
services to the potential customers Starbucks work on their taste and preferences by examining
their feedbacks and review of the coffee. Starbucks is expanding their business in developing
nation in order to raise their customer base for the goods and services offered by them. By this
huge market ratio can be captured and the designed objectives can be accomplished by the
company easily. The SMART objectives designed by management of Starbucks are illustrated as
under:
Specific: Starbucks has attained annul sales growth by 26% in the 22 years.
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Measurable: The sales ratio shot up to 84% in the global market
Achievable: Starbucks objectives is to earn good profit by serving high quality product
and services to the potential customers. It has been achieved over the years.
Relevant: By 2000 Starbucks was to take $2 billion in revenue.
Time-bound: In the competitive market place due to time bound short term objectives
are set which can be attained in three months or six months according to the dynamic
environment condition (Taecharungroj, 2017).
In the era of modern technology where are resources are utilized in optimum level despite
of that fact Starbucks need to frame strong and unique strategies so as to examine the required
resources for the organization. Some of the tactics are formulated by Starbucks which are
elaborated as under:
Growth strategy: Starbucks impose strict rules and regulations in order to accomplish
the firm's activities smoothly. By studying the market condition it came to known that by serving
quality coffee to the targeted customers huge revenue can be maximized. Growth strategy aid
firm to compete with their rivalry prevailing in the open market place.
Demographic segment: In order to be in the leading position Starbucks coffee is
segmented accordingly. By this long term profit can be generated. Through demographic
segment it is easy for the management to expand their business in the targeted market (Talhelm
and Oishi, 2018).
PART 2
Stakeholder report
Internal and external stakeholders of Starbucks
Stakeholders Internal or External Reasons for considering
them
Workers Internal Workers are considered as
stakeholders in the
organization because they are
the most useful aspects which
helps in meeting the emerging
needs of the customers.
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Government External The reason behind considering
it as stakeholders is that they
design legislation and policies
which are beneficial for
business and support them to
operate the firm smoothly.
Shareholders Internal Shareholders are important
stakeholders for the
organisation because they
directly or indirectly assist in
raising the funds so that day to
day business operations can be
performed smoothly (Tikson,
2018).
Suppliers External They are backbone of the
business. Suppliers are
considered as stakeholder
because they assist in running
the business activities
effectively and efficiently.
Customers External Customers play a vital role in
the company. They are
considered as stakeholder
because through their support
and help business in
competitive world is able to
gain huge revenue as compare
to rivalry.
Customers on priority of Starbucks among stakeholders group
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In the competitive world stakeholder play a significant role in a company. They influence
the firm's day to day operation activities and decision making process to a large extent.
Moreover, Starbucks customers are stated on top priority from the list of stakeholders. All the
stakeholders associated with the organization are helping business to perform their activities
smoothly and guide them to meet the emerging needs of the customers as soon as possible. From
the case study it can be concluded that customers are treated as precious assets and train their
employees to meet their expectation level (Voigt and Michl, 2017). Many sessions are conducted
where customers taste, preferences, quarrier regarding quality and prices are addressed. The
feedback and the review taken from the end users are taken in positive side and necessary
improvements are done in order to bind customers emotionally with the product and its brand.
Starbucks are offering discount and other schemes on festive session where middle-class
customers can enjoy the Starbucks coffee.
Power and interest of workers
Illustration 3: Power and Interest of customers
Source: Power and interest of customers, 2020
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The above mentioned digram it can be concluded that customers holds high interest in an
organization. By this sales ratio of the goods and services of Starbucks can be raised at a
tremendous scale in the global market. Also, customers are highly satisfied. On the other hand
power of customers are low so that prices of the goods can be set according to their desire.
Organization can design the coffee according to the customers taste so that huge revenue can be
maximized as compare to rivalry in the global market.
CONCLUSION
From the above discussion it can be summarized that there are distinguish competitors in
the global market who creates tough challenges for the organization. In order to cope up with
them in the international market it is very essential to conduct Pestle analysis in appropriate
manner. Pestle (political, economical, social, technological,environmental and legal) analysis
directly or indirectly assist company to cope with the external forces easily. By this competitive
advantages can be gained against rivalry and business can be flourished smoothly without
government interference. Porter's five force analyses is another way to identify the degree off
power that competitive forces holds. In order to assess internal environment several models are
used in the premises such as, VRIO , value chain and many more. All this guide management to
work on the loop holes so as to attain productive results. Appropriate recommendation is
suggested so that firm can enhance their performance over the next three years.
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