Strategic Analysis of Starbucks: Internal & External Environment

This report provides a comprehensive strategic analysis of Starbucks, examining its internal and external environments. It begins with an introduction to strategy and its importance for organizational development and profitability, specifically focusing on Starbucks as a case study. The report delves into the external environment using PESTLE and Porter's Five Forces models to assess political, economic, social, technological, legal, and environmental factors, as well as competitive forces within the coffee and snack industry. It then explores the industry life cycle, detailing the stages relevant to Starbucks. The internal environment is also analyzed to understand the company's strengths and weaknesses. Finally, the report concludes with recommendations for improving Starbucks' performance over the next three years, including a stakeholder report, offering insights into how the company can maintain its competitive edge and achieve sustained growth in a dynamic market.

Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
An Introduction ...........................................................................................................................1
External Environment..................................................................................................................3
Internal Environment...................................................................................................................6
Recommendation for improving performance in next 3 years..................................................10
Part 2..............................................................................................................................................11
Stakeholder report of Starbucks.................................................................................................11
CONCLUSION..............................................................................................................................13
REFERENCE ................................................................................................................................14

INTRODUCTION
Strategy is the important task for each organization which can be uses by organization to
develop their business and maintaining the higher profitability. If organization is able to design
the ideas and planning then it will be considered as opportunity for their business as continuous
growth. Organizational strategy defined as sum of actions and tactics that are formulated by
business industry and maintain the higher performance (Baylis, Wirtz and Gray, eds., 2018). This
can be explained as plan and strategy which specifies how businesses are going to allocate
resources and capital in organizational activities that can help to operate the business and attain
the higher profitability. The organizational strategy is the dynamic long term plan that uses by
industry to map the route towards attainment of company's vision and goals. The management of
organization is responsible person who analysis the market situation and bring the changes in
their planning which can help to develop the business and attain the profitability effectively. The
present report is about Starbucks that is an American multinational chain of coffee houses and
roastery reserves that provides the better taste and quality of coffee. This report will help to
increase insights how selected organization is attaining profitability by conducting internal and
external analysis, competitive advantages by using appropriate model and recommendations that
can help to develop a business more.
An Introduction
Starbucks Corporation is an American multinational company that has a longer chain in
different countries which can help to increase the sales and profitability. This organization was
founded in the year 1971 by Jerry Baldwin, Zev Siegl and Gordon Bowker. It is serving world
wide area and having headquarter in Utah Avenue South, Seattle, Washington which can help to
increase the sales and profitability. The products which are providing by organization are Coffee,
beverages, tea, smoothies, sandwiches, and other type of fast food that can help to increase the
organizational sales and performance in competitive market. The management understand the
needs and taste of their customers then introduces products accordingly which can help to attain
the higher productivity (Burgelman, 2020).
The brand Starbucks is very powerful as it increases the customer satisfaction level by
managing all functions and activities effectively. The competitive position of Starbucks in
relation to competitors is higher as it offering the range of products along with best quality that
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can help to recognise the brand from other company. The management is responsible for all
activities and functions which can help to bring the changes if activities are going down.
Illustration 1: Competitive edge of Starbucks. 2020.
Source: Competitive edge of Starbucks. 2020.
From the above digram it has clearly mentioned that Starbucks is maintaining the
competitive edge in coffee and beverage industry as it has been fighting with Dunkin Donuts,
and McDonald and many more. The organization is began close to 50 years ago with a single
location, has experimental phenomenal growth and success. The case study of selected
organization show in the year 2018, the company owned 604 new location by brining new taste
and food items which influenced the number of customers and attain the higher profitability.
Starbucks is global brand which can be recognise by all individuals as it introducing products
with good quality and taste in changing environment (Competitive edge of Starbucks, 2020).
The organization is planning to always maintain its competitive advantages by being the
leader in product innovation and introducing distribution services as it has wider area of network
which supports to manage all functions properly. The management analysis the all functions and
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needs of their customers then introduce the products as per demand which provides the higher
satisfaction and maintain the profitability. The management bring the change in their activities
and performance by formulating effective planning and strategies which can help to deliver the
higher sales and production as it uses high quality of coffee beans. Thus, explanation is very
clear that chosen organization is getting good brand image and profitability by focusing on
production, innovation, increasing distribution channel, managing all functions and developing
the business performance in competitive environment.
External Environment
For running a business and managing the all activities there is needed to analyse the
environment which can help to increase the insights how to manage a business and bring the
changes. If environment is totally properly analysed then it will be good opportunity for
organization to develop the business and manage the higher performance. To analyse the external
environment for Starbucks different models are uses that supports to make right decisions.
PESTLE analysis – This is a framework which uses by organization to conduct the
proper research and increase insights how to manage the all functions. This also states which
factors can be affected the organizational performance as well as operation that are as explained:
Political - This is showing the government stability, tax rates, trade regulations and
others which are affecting the business. Starbucks is operating their business in various countries
as it is well known brand where it gets fully support of government as it follows all regulation
and giving the share to make strong economy. Thus, this factors is providing the competitive
advantage to organization (Le Grand, 2018).
Economical – This involves inflation, interest rate, population growth, and GDP rates
which affects the business. This factor can be affected the operation of Starbucks negatively as
after Covid-19 rate of employment in whole country has been decreased where customers are
demanding low price of products with best quality. So, it affects the sale of products and services
negatively.
Social – This factor consider career attitude, health consciousness, cultural barriers,
changing in taste and lifestyle of customers. In changing environment demand of customers in
continuously changing where they are requiring new taste that can be challenging for Starbucks
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brand as to maintain their sales and productivity continuously in changing environment (Miller,
Gomes and Lehman, 2019).
Technological – Different activities are considered in this factor such as technology
incentives, automation, R&D and others. By considering this factor Starbucks is organising its all
functions in sustainable environment as it provides new tastes and services by introducing
innovation that can help to reach the targeted customers and increase the sales which can help to
attain higher profitability. Thus, technological factor has a good impacts on organization.
Legal – This factor is considering different laws as discrimination laws, copyright and
patent, consumer protection, and employment laws which supports to operate the business and
develop the higher productivity. Starbucks is having high number of employees which is
following all employment, discrimination and copyright laws that can help to increase sale and
performance in changing environment (Kingsnorth, 2019).
Environmental – This states weather climate, environmental policies, maintaining good
environment, climate change and other activities which can help to operate the business and
develop higher performance. Starbucks is following all environmental policies, reducing
wastages in manufacturing process, participating in CSR activities and others which can help to
maintain the sustainability and higher profitability.
Porter's 5 Force model – For getting the competitive advantages and managing higher
performance it is important for organization to analyse the performance and bring the change in
their strategies which can help to improve image. Starbucks is using porters model in their coffee
and snacks industry:
Threats of new entrants -In relation to Starbucks there is moderate threat of new
entrance as the barriers to new entry is not high due to monopolistic competition structure. This
can be challenging situation for chosen organization as new industry has entered with new
innovation and better products then sales will be reduced.
Threat of substitutes – There is high threat in relation to Starbucks because many
reasonable substitutes of coffee are tea, fruit juice, water soda, and healthy drink that can be use
by organization while operation and it would be affected sale of chosen organization directly. To
reduce this threat Starbucks is trying to counter by selling coffee makers, premium coffee packs
at reducing cost which can help to influence large number of customers (Shao and et.al., 2018).
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Bargaining power of buyers – In countries population is increasing day by day where
customers are demanding variety of products and services. There is moderate threat of buyers as
chosen organization is targeting high profile of customers and providing better quality of
products that increases the sales. This provides the competitive advantages to organization as
customer who wants better taste ready to pay extra that can help to attain profitability.
Bargaining power of suppliers – The main inputs in to value chain of Starbucks is
coffee beans which are getting from Africa and Arebica coffee which are grown in selected
region that supports suppliers to make the switching cost as they have High power of bargaining.
This can be higher threat for chosen organization to buy the raw material at higher prices if
suppliers has increased the prices of their products which can create challenge in selling the
product more premium cost.
Intensity of Competitive Rivalry – There is high threat of competition as Dunkin
Donuts, Costa, McDonald and many more are main competitor of Starbucks which create the
significant pressure on organization and reduces the profitability. To reduce this threat selected
organization needs to provide its product by reducing cost that can help to increase the number of
customers and attain the higher profitability (Huda, 2019).
Industry Life cycle – This refers as evolution of industry or business by developing the
performance in changing environment. This is important for organization to know what is going
on in market and how a business can be increase by managing all functions and activities.
Different phases are involved in life cycle that are explained in context to Starbucks that are as
defined;
Introduction Phase – This stage involves introduction, start up and establishment of
business by involving the development and early marketing in relation to new product and
service. This stage states innovators who always thinks about creating new ideas by developing
the new products and services which can help to increase the sales and profitability. This stage is
uses by Starbucks in their early stage which supported to grow their business by managing all
activities and functions effectively. Thus, the industry tends to be highly fragmented in this
stage that develop the good productivity.
Growth Phase – This means consumers in new industry have come to understand the
value of the new offering and demand that grows rapidly. A handful of important players in
particular industry can be very effective which can help to develop the good performance.
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Starbucks is using this stage by establishing a share of new market by considering new location
and geographical area (Dodgson, 2018).
Maturity phase – This is another stage of industry life cycle that begins with shake out
period, during which growth slows, focus shifts toward expense reduction. Starbucks is
managing all performance and functions effectively as it introduce the new products and services
by using innovation that can help to achieve economies of scale and helps to sustain in
competitive market. This develop the market share, profitability and cash flows which is primary
goal and helps to maintain higher profitability.
Decline Phase – This is another stage which states the position of company after
attaining the higher profitability by supporting growth. The stage is creating margin pressure,
forcing weaker competitors out of the industry. For instance, due to Pandemic Covid-19, position
and financial activities of Starbucks started to reduced as goes in to decline stage. In this
environment, change and wants of customers is totally changed which has reduced the sales of
organization as taste and interest of customers is being changes who are demanding now healthy
and safety food products.
Internal Environment
Internal environment can be defined composition of elements in organization that can
help to operate the business and manage the all activities effectively. It involves current
employees, management, corporate culture and behaviour that can help to manage the all
activities and functions properly. Starbucks is taking the competitive advantages by applying
different models that are as explained:
Value chain analysis: A framework which is related to business uses by organisation for
analysing the activities and to see how selected company creates the competitive advantages is
known as value chain analysis. This is similar to business strategy that helps to understand how
strategies are adding the value of products in future and maintain competitive advantages such
as:
Primary Activities:
Inbound logistics: This is the first stages in which goods are collected from suppliers in
range of quantity. Such as management of Starbucks uses this activity for collecting the goods
and raw material and coffee beans from suppliers in order to produce products which can help to
manage the operation (Hsieh and Wu, 2019).
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Operations: Raw material and goods are manufactured in operation stage that can help
to provide the final products. In Starbucks, management focuses on operation by changing the
raw material in finished products as they prepare the food items and coffee according to taste of
customers and make them happy.
Outbound logistics: In this, products and services which are manufactured by
management ready to be distribute. Such as after preparing food and introducing new services
management of chosen industry focuses on distribution process.
Marketing and Sales: This strategy is uses by management of Starbucks to make sure
that all products and services is targeted the right customer group by establishing effective and
competitive strategies. This can help to increase the number of customers and selling activities in
relation to hospitality industry.
Services: The management of Starbucks also provides after sales services as they option
to share feedback and bring the changes in next time whenever they comes again. This increases
the customers satisfaction level and deliver better quality of services.
Supportive activities:
Firm infrastructure: The selected organisation is following all legal and management
structure effectively that influences customers more and increases the future activities. The
structure of Starbucks is well known and designed that influences number of customers in
competitive environment.
Human resource management: In Starbucks, human resource are managed and
organised by HR Manager who analysis the employee's needs and motivate them by filling their
needs that can help to attain the competitive advantages (Liu, Chen, Chu and Zhu, 2018).
Technology development: The management of Starbucks uses new technology in
research and development, providing good services, making easy booking table and cancellation
etc. This influences number of customers and develop the effective future by increasing
activities.
After implementing all strategies and planning by management of Starbucks deliver the
best quality of products and services at best prices which can help to maintain the good
performance by attaining the business goals.
VRIO analysis – This is defined as specific model which is supplemented by other
analytical techniques by evaluating the key resources. This can help to manage all resources and
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capabilities effectively as it provides the competitive advantages. The key resources of Starbucks
are as explained:
Resources Valuable Rare Inimitable Organised
Strong global
presence
Yes No No No
Speciality coffees Yes Yes No No
Suppliers
relation
Yes Yes Yes No
Upscale and
Cozy atmosphere
Yes Yes Yes Yes
Valuable – This means all resources and capabilities of company are valuable which can
help to increase the organizational performance and profitability. The key resources of
Starbucks are global presence, upscale and Cozy atmosphere, suppliers relations, speciality
coffees and upscale Cozy atmosphere which helps to increase the brand value by offering better
quality of products and services. This increases the size, sales and market share in competitive
environment as it is recognizable organization which deliver the best quality of coffee and other
food items.
Rare – This means products and services which are rarely available in the market and
influences the number of customer to make buying decision Starbucks is providing different
design, taste and flavour of coffee to their customers by using specific equipment which are
rarely available in other organization and its competitors. This can help to increase the
organizational sales and profitability.
Inimitable – This means products and services which are inimitable for other companies
and supporting the original company to increase their sale and productivity. In context to
Starbucks, suppliers relation is inimitable as management are buying coffee beans from Africa
and other country where it is naturally produced by maintaining good relation and decided the
cost which can help to increase the organizational productivity and provide sustainable
competitive advantages (Ong and Djajadikerta, 2018).
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Organised – This is another strategy which states that all resources and activities of
organization should be properly organized and managed as it can help to operate the all functions
and activities in changing environment and maintain the higher profitability. By offering a
variety of options in food items and continually changes their food menu, Starbucks is taking
advantage of this capability. The organization is maintaining upscale cozy atmosphere such as
eco-friendly and sustainable which helps to manage the all functions and activities by motivating
staff (Liu, Chen, Zha, Ling and Wang, 2018).
Thus, With a lot of options, most people can find something they like and people who
like to try new drinks frequently can easily do so at Starbucks. The chosen organization is taking
the competitive advantages in changing environment by optimising all resources and capital
effectively.
SWOT analysis
This can be explained as competitive framework that states competencies of business
organization by managing all functions and activities effectively. This model is uses to analyse
the internal environment of business organization and develop the opportunities accordingly. The
SWOT analysis in context to Starbucks are as defined:
Strength Weakness
 Starbucks has significant geographical
presence across the globe and maintain
36.7% market share.
 It leverages its rich brand equity by
merchandising products, and licensing.
 This provides highest importance to the
quality of their products.
 Maintaining high brand standard and
quality of coffees (Lin, Xie, Hao and
Wang, 2020).
 This target premium, high traffic, high
visibility location near a variety of
setting.
 Managing all human resources that are
 Starbucks is providing high quality of
products at high range that charges the
high premium from its customers.
 It does not come under increased
scrutiny and maintaining tight control
over practices.
 The culture of chosen brand is not
widely accepted in some countries as it
is part of international strategy.
 This is over dependence in US market
that might be affected the sales of
organization.
 Having high competitors who are
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