Starbucks: Evaluating Organisational Strategy and Performance Report

This report provides a comprehensive analysis of Starbucks' organizational strategy, financial performance, and its interaction with both internal and external environments. It begins by defining Starbucks' core strategies, including marketing, innovation, and product differentiation. The report ...Read More

Running head: STARBUCKS 0
Influencing Organisational Strategy

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Table of Contents
Introduction................................................................................................................................2
1. What is Starbuck’s Strategy?.................................................................................................3
Marketing Strategy.................................................................................................................3
Innovation..............................................................................................................................3
Product Differentiation...........................................................................................................4
2. a. Starbuck’s Financial Performance......................................................................................5
Ratio Analysis........................................................................................................................5
Role of Strategy is Better Financial Performance..................................................................6
2. b. Effectiveness of Starbucks Strategy for Various Environments........................................7
3. Shareholders or Stakeholders Interest....................................................................................8
Conclusion................................................................................................................................11
References................................................................................................................................12
Appendix..................................................................................................................................15
List of Figures
Figure 1: Starbucks Stores Growth..........................................................................................15
Figure 2: Starbucks Compared to its Competitors...................................................................15
Figure 3: Starbucks Financial Growth.....................................................................................16
Figure 4: Starbucks CSR Policy...............................................................................................16

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Introduction
Starbucks is an American coffee corporation established in 1971. The company has more
than 23,768 stores globally and each store serves an average of 500 customers per day.
Starbucks has revenue of US$ 19.16 billion in 2015 financial year. Howard Schultz, who was
one of the founders, is the CEO of the organisation. The company has been significantly
successful in the coffee market and they have created a unique status on social media sites.
Starbucks forces on providing their customers a unique social environment rather than just
serving good quality coffee. This report will analyse the strategy adopted by Starbucks and
evaluate their financial performance. Further, the report will focus on ascertaining the link
between Starbucks strategy and its internal and external environments.

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1. What is Starbuck’s Strategy?
In order to analyse Starbucks strategy, it is important to understand the requirement of
strategy in a corporation. According to Grant (2013), strategy assists an organisation to
achieve their objectives and gain success in the market. It is essential for each organisation to
evaluate and formulate proper strategy according to their corporation’s requirements. As per
Grant (2013), there are four common factors that can be found in every strategy:
1. A strategy is required to establish goals which are simple to understand, consistent
and establish the long term objective of the company.
2. The strategy should be formed with a proper understanding of the competitive
environment in the industry. The strategy and objectives of competitive companies
should be evaluated before formulating a corporation’s strategy.
3. The strategy should be based on enhancing the internal strength of an organisation
and protecting the areas which are weaker.
4. The strategy should completely and effectively implement over an organisation.
Without effective implementation, a corporation cannot take full advantage of
strategic objectives and cannot achieve its goals.
Marketing Strategy
According to Hill, Jones, and Schilling (2014), Starbuck’s strategy is based on a theory
provided by German scientist Theodor W. Adorno. It is called ‘theory of standardisation’
which is based on providing customers sense of identity. Starbucks is focused on providing
their customers a unique social experience while enhancing the shareholders’ value as well.
In 2008, when the company was facing huge losses, Schultz’s decided to close 600 Starbucks
store from US markets, due to which more than 6000 employees lose their jobs. The
company decided to change their strategy to the theory of standardisation by focusing on
enhancing their social media approach to improve their customer’s intersection. The firm
incorporated a social media marketing strategy to market their products on social sites such as
Facebook and Twitter. As per Aiello and Dickinson (2014), the majority of Starbucks’s
consumers comprise adult hip peoples and the company provides them positive social place
which makes them feel valued in the corporation, which is the basis of the theory of
standardisation.

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Innovation
In shareholders meeting of 2015, following strategy was provided by Starbucks:
 Starbuck’s standardisation strategy helps them implement modern technological
innovation in their business procedures. The company introduces use modern
technology to improving the experience of their customers. For example, the company
introduced their mobile application which allows customers to book their drink in
nearest store to avoid long booking lines. They also introduce mobile payments to
eliminate the requirement of cash (Hill, Jones and Schilling 2014).
 Rothaermel (2015) has provided in his research that Starbuck’s standardisation
strategy focus on elevating their customer’s coffee drinking experience by providing
them a social place to interact and introducing new drinks. The company introduces
various new drinks according to different occasions and events. The ‘Frappuccino’
drink of Starbucks is significantly popular among young customers. Starbucks also
focused on giving back to the society by different charities. The customers prefer
Starbucks due to the high quality of their coffee and from 2015, 99 percent of coffee
obtained by Starbucks will be morally obtained and sustainably manufactured.
 Starbucks also gives significant importance to their employees. The research of Kim
and Mauborgne (2014) concluded that Starbucks believed that employees play an
important role in enhancing the customer’s loyalty toward the company. The company
maintains a positive relationship with their employees by ascertaining their needs and
increasing their engagement in business decision-making. The company also provide
competitive benefits to their employees as compared to their competition. The
employees can share their ideas with the organisation and the company implement
those ideas in the business.
Product Differentiation
 According to Bayus (2013), Starbucks is focusing on enhancing their customers by
introducing new products such as donuts, sandwiches, tea and much more. The
company makes sure that these entire products are fresh and high quality likes their
coffee, to maintain the trust of their customers. These new services and product
increase the number of customers in Starbucks stores. Starbucks also introduced other
products such as home coffee machines, ice creams, book and many others.

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 Becoming the number one choice of coffee store for customers. According to
Geereddy (2013), the company is focusing on enhancing their stores in both America
and globally. The example was establishing Starbucks coffee in India with 50/50 joint
venture with Tata groups. The corporation also enters in various new markets in 2014,
such as Costa Rica, Colombia, Vietnam, and Norway. For future expansion, the
company is focusing on expanding their stores in Asia-Pacific region by doubling
their stores in China from 1600 to 3400 (Figure 1).
 As per the research of Chua and Banerjee (2015), the social media marketing strategy
of Starbucks provide them a competitive advantage over its competitors such as Costa
Coffee or Café Coffee Day. The company is significantly popular over social media
sites with more than 70 million followers on different sites. The company constantly
interacts and share idea and opinions of their followers which make them feel valued,
which eventually enhance their loyalty towards Starbucks. They also introduced
various online campaigns such as Starbucks Pumpkin Latte campaign, Charity
campaign, and #TreatReceipt. In charity campaign, the company donates $1 for each
drink serve to AIDS awareness causes. This improves the reputation of the company.
Many principles of the theory of standardisation applied by Starbucks has proven
considerably successful, which gained them number one spot of the coffee brand in the
market. The company is also 35th in Forbes world’s most valuable brands, which show the
value of Starbucks brand image. Their social media approach helps them gain new followers
that are genuinely interested in the brand because they feel valued in the organisation. This
strategy helps Starbucks sustain their future development and growth (Filieri 2015).
2. a. Starbuck’s Financial Performance
Starbuck’s strategy has benefited the company by enhancing their customers and elevating
their brand image. This allows the organisation to gain rapid financial success in the market.
Since 2009 the company’s revenues are constantly increasing along with their stores (Figure
2). Starbucks also captured the largest market as compared to its competitors such as Dunkin
Doughnuts, Costa Coffee, and the Green Mountains. Schultz’s take a decision of shutting
down more 600 Starbucks stores in US markets to reduce their operating costs (Merced
2008). This strategy benefits company in long run since now Starbucks’s profits are rising but
their turnover costs are decreasing. The corporation has outperformed its top competitor
Dunkin Donuts in financial performance (Beauchamp and O’Connor 2012) (Figure 3).

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Ratio Analysis
1. Asset turnover ratio: The asset turnover ratio of Starbucks was 1.65 as compared to
dunking doughnuts who has a ratio of 0.5, which proved that Starbucks use their
assets more efficiently than its competitors (Brigham and Houston 2012).
2. Debt Equity Ratio: The company’s D/E ratio without operational leases is at 38.8
percent and the ratio without leases is at 133 percent as of 2014.
3. Return of Equity: It shows the revenue generated by Starbucks by using the
investments from their shareholders. In 2015, the company’s ROE ratio was at 49.3
percent.
4. Net Margin Ratio: This ratio analyse the expenses covering capability of a company,
such as operating expenses, financial expenses, and tax costs. Starbuck’s net margin
in 2015 was at 14.6 percent.
5. Operating Margin Ratio: This ratio analyse the ability of a company to generate
higher revenue then compare to their competitors. Starbucks ratio is 18.9 percent
which is significantly higher than its competitors who are usually at 5 percent (Park
and Jang 2013).
Role of Strategy is Better Financial Performance
Starbucks strategy allows them to reduce their operating costs which help in enhancing their
revenues. The company cut more than $581 million costs of their operating by closing more
than 600 stores in the US and started focusing on consumer oriented approach in the
company. Following are some example of Starbucks strategy which assists them in elevating
their financial results:
 Opening a large number of foreign stores by entering into agreements with partners,
which assist them, is sharing the expenses and threats (Husain, Khan and Mirza
2014).
 Implementing modern technology in their process which provides customers different
services such as online payment and online order booking. This increase the number
of order by customers since there is less hassle in the booking process (Ritter 2014).
 Introduction of new products for different occasions gives customers various options
rather than usual choices. The company also introduces new products which increase
the number of customers, eventually enhancing the financial results (Confino 2014).

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 Recreating a positive brand image of a company using social media sites, help them
improve their financial growth after their loss in 2008.
2. b. Effectiveness of Starbucks Strategy for Various Environments
Starbucks strategy is effectively implemented according to different internal and external
factors which affect the corporation’s business such as:
1. Political: The organisation has planned to double their stores in China because of
reduction in international trading barriers. This allows the company to significantly
enhance their global footprint and customers (Swan, Isa, Siddiq and Razak n.d).
2. Economy: With the establishment of 84 stores, the growth of Starbucks has jumped to
39 percent in India. China has provided the company a new market with the
opportunity for faster growth since the Starbucks China's growth has raised 15 percent
in 2012.
3. Social: Starbucks provide their customers a unique place to socially interact and with
the change in lifestyle of peoples in different countries, the growth of Starbucks has
raised as well. In the United Kingdom, the company receives success because coffee
drinking culture is considerably popular.
4. Technology: Starbucks strategy allows them to implement the latest technology to
provide a simple and better experience to their customers. In case of China, the
company has a competitive advantage since coffee baking technology has not
advanced (Roderick 2015).
5. Environmental: The use of biodegradable packaging to provide coffee has reduced the
wastage of company and gained them a positive reputation.
As per Internal environmental, Starbucks has to maintain coffee roasting factories and
various distribution centers in the US and other countries as well. Due to their global supply
chains, the Starbucks gained a comparative advantage over its customers. The company has
information technology systems in various countries along with administrative utilities as
well. They provided unique facilitates in their stores due to their point-to-sales procedure and
online payment methods (Lemus, von Feigenblatt, Orta and Rivero 2015). The internal
environment of Starbucks includes:

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 Strengths: Starbucks has several strengths such as reputed brand image, high quality
of products, strong social cultural, and implementation of modern technology,
positive online status and applicability in different markets (Rajasekaran 2015).
 Weaknesses: The corporations are also facing various weaknesses as compared to its
competitors such as high prices of products, high popularity in specific groups and tax
evasion scandal, which reduced the reputation of the company.
 Opportunities: The Company has a high opportunity of economic growth in China and
India. In the United Kingdom, there has been relaxation in the process of accruing
coffee license. Introduction of drive through allow the enterprise to attract new
potential customers.
 Threats: The depression in the economy can cause a decrease in demand. There has
been significantly high competition from other brands such as McDonald's and Costa
Coffee; Costa coffee has gained the first spot as a coffee house in the UK. The
decrease in customers due to healthy lifestyle choice of reducing caffeine intake
(Jayachandran, Kalaignanam and Eilert 2013).
3. Shareholders or Stakeholders Interest
The shareholders mean a person, corporation or group who own a share in a company, also
known as its owners. The stakeholders are the peoples interested in the performance of an
enterprise such as suppliers, customers, employees, bondholders or others. According to
Freeman, Wicks, and Parmar (2004), all shareholders are also the stakeholders of a firm but
all stakeholders are not shareholders. A company has certain responsibilities towards various
stakeholders, other than shareholders. Starbucks has adopted Freeman’s Stakeholders Theory
as an essential part of corporate social responsibility (CSR) policy of the company. In the
modern world, the corporate social responsibility is an essential part of enterprises corporate
strategy.
Recently in the United Kingdom, there was a tax evasion controversy which includes various
large corporations such as Starbucks, a Facebook, and Google. These corporations were
finding loopholes to avoid paying their taxes. Due to this controversy, Starbucks has pledged
to pay $10 million in taxes for two years, in order to gain their trust back in their customers
(Barford and Holt 2013).

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According to Munilla and Miles (2005), as per Freeman’s Stakeholders Theory, Starbucks
establishes such CSR techniques and introduced various programs, which assist in future
sustainable growth (Figure 4). Starbucks is required to establish stakeholder’s theory
approach because the company has a reputation of not just a profit making organisation,
instead, they focus on giving back to the society. This strategy allows Starbucks to contribute
their part to society’s growth. As per the research of Thompson (2017), Freedman’s
stakeholder’s theory helps Starbucks to gain strong brand reputation and positive corporate
image in the community, which is the reason for their success. Following are the six main
stakeholders of the company:
1. Employees: The employees of Starbucks include baristas, partners, and other back
office department staff. The company prioritise the interest of their employees and
put constant efforts to enhance their relationship. They provide high salary rate,
security in a job and the positive working environment in their workplace. The
minimum wages provided by Starbucks are higher than legally mandated rates. As
per their stakeholder’s theory, they are also known for proving scholarships to
employees which include paying 56 percent of their tuition fees, based on Arizona
State University. But the company can still improve their employee’s relationship. In
New Zealand, the youth employees of Starbucks gets lower wages and this decision
is often criticized by the public.
2. Customers: The customers are considered as top stakeholders in Starbucks. Their
main objective is to provide high-quality products with superior service. As per the
standardisations theory principles, they focus on providing more than a coffee house
experience to their customers, instead, they provide a social place to meet and
interact with groups. For example, the baristas keep a friendly and sincere
relationship with the customers while interacting with them. They also provide free
Wi-Fi to help their customers getting their work done.
3. Suppliers: The wholesale supply companies and coffee farmers are the primary
suppliers of the organisation. Their CSR focus on maintaining a positive relationship
with suppliers by correctly compensating them for their goods. The farmers help the
company in increasing their revenue by enhancing their coffee yields. The company’s
CSR programs include a supplier diversity program in which suppliers from different
countries are added to the supply chain of the organisation. The CAFÉ program

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(Coffee and Farmer Equity); allow the enterprise to maintain a transparent
relationship to ensure that everyone is getting paid correctly.
4. Environment: The CAFÉ program allows the company to use the biodegradable
product for serving their coffee and other products. The company has announced that
from 2015, 99 percent of their coffee beans come from ethical sources only.
Currently, the company’s 90 percent of supply consist of CAFÉ certifies farms only.
These enormous figures prove the company’s commitment towards protecting the
environment.
5. Shareholders: Shareholders are an important part of every company; they invest their
capital to become a part of the organisation. The company’s performance
significantly affects their shareholder’s growth. The worldwide expansion of
Starbucks has diversified their shareholders. In 2007 the company suffers a
significant loss, but after that, the financial position of Starbucks is considerably
sound, which is beneficial for its shareholders. The other CSR responsibilities
towards shareholders include maintaining transparency in business decisions,
providing full disclosure and necessary information to the shareholders.
6. Governments: Starbucks is an international company with stress located in more than
62 countries. Therefore, the company required complying with rules and regulation
of various countries.in general, Starbucks did not have any problem relating to
complying with regulations, except for the tax evasion charges imposed upon the
company in the United Kingdom. The company uses various locations situated in
Europe to avoid paying taxes to the government. Thus, the CSR policies of the
company towards government have some room for improvement, which can also be
beneficial for Starbucks reputation.
As per the overall Corporate Social Responsibility status, Starbucks is fulfilling various
interests of different stakeholders such as suppliers, customers, and shareholders. According
to Bruhn-Hansen (2012), the company does need to improve their policies towards minimum
wages of employees in New Zealand and start providing better wages to employees. In case
of the environment, the company is doing good work, but they can improve their CAFÉ
program by the introduction of various other methods of protecting the environment. As per
the government regulation, the company should avoid illegal evasion of tax and start paying
proper tax in the United Kingdom. Their decision of paying 10 million as a tax for two years
does benefit the reputation of the company.

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Conclusion
From the above report, it can be concluded that Starbucks strategy focuses on becoming the
customer’s number one choice of coffee house worldwide. The company focuses on
enhancing their profits and benefiting the society as well. Starbucks provides high-quality
products and also provide a social environment to their consumers. The enterprise is
expanding its business in new markets such as China, India and other European countries.
The organisation implements modern technology in their processes which benefit the
customers by reducing their waiting times and improving the overall experience. As per the
book of Schultz (2012), they are also introducing new products in stores other than coffee,
such as doughnuts and sandwiches, to increase the number of customers. After 2008, the
social media marketing of Starbucks is also significantly strong, since the company is the
highest followed coffee brand on all social media sites.
This strategy significantly improved the financial position of the company since their
downfall in 2008. According to Burkitt (2012), the company is opening new stores but their
opening costs are reducing as compared to other coffee house corporations. New markets
such as China and India provide new opportunities to the company for enhancing their
operation in Asia-Pacific regions. Although, the Costa coffee in the United Kingdom has
gained number one position of the coffee house, due to the tax evasion controversy of
Starbucks.
As per their Corporate Social Responsibilities, Starbucks has internally implemented this
strategy to benefit several shareholders of the organisation. The company uses the
biodegradable product and ensure that their coffee beans are produced from ethical sources
only. The CAFÉ program assists farmers in increasing their production and providing other
services. As per customers, employees, and shareholders, the company focus on maintaining
a positive relationship. They believe that positive relationships with baristas eventually lead
to brand loyalty of customers. While Starbucks has properly implemented CSR policy in their
business strategy but there is room for improvement, such as increasing the minimum wage
of young workers in New Zealand (Hamann et al. 2014). As per government regulation, the
tax evasion controversy has reduced the reputation of the company. Thus, the company
should improve their CSR policy and properly pay their taxes to maintain transparency in the
business.

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Appendix
Figure 1: Starbucks Stores Growth
(Source: Bhardwaj 2013)
Figure 2: Starbucks Compared to its Competitors
(Source: Ychart 2012)

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Figure 3: Starbucks Financial Growth
(Source: Cardenal 2016)
Figure 4: Starbucks CSR Policy
(Source: Really Good Companies 2017)