Howard Schultz has hired you as a strategic management consultant and asked you to prepare a 2-3 page report ( 750-1000 words) for him covering the following issues:
A critique of his actions since re-assuming the position of Starbuck`s CEO in January 2008
Identification of the strategic issues and problems confronting the company as of mid-2012
Recommendations as to what he should do to make sure that Starbucks
1.critique of actions
Schultz`sreturn in 2008 was highlighted by the creation of a new posts ofchief creative officer and the redefining of roles andresponsibilities of some senior executives.  This amounts tomodification of Starbuck`s organizational structure in response tointernal and external environment changes. This is a positive movethat is recommended by management who experts who reckon thatorganizations must be predictable in their quality product offering,values and the brand but at the same time be flexible enough torespond to market internal and external changes that can affect theiroperations. Schultz`s actions are indicative of good leadership. Agood leader must be brave enough to make such hard-hitting decisionswhen need arises. Redefining some roles and responsibilities of theexecutive team was in accordance with the new direction that the firmwas taking. This meant that the new direction would be well addressedby the executives as recognized as the official organizationalposition and not just the ideas of the CEO.
TheCEO`s actions are also likely to have negative effects on theorganization. One of them is the fact that the creation of a new postwhich also happens to be highly ranked within the organizationalstructure is likely to cause coordination and harmony issues amongthe firm`s top executives. In fact, some senior executives might feelthat the new position takes away some of their powers. as such, thenew creative officer can be a victim of sabotage in the sense thatthe senior executives might feel undermined by the appointment of a new executive officer. Management experts recommend that suchactions are likely to breed destructive competition among employees.
Thenewly appointed creative officer was not sourced internally. thismove is ignored existing employees of the firm by choosing to recruitwithout despite the fact that the appointed executive formerly heldan executive position in the firm. This is likely therefore todemoralize employees who were looking forward to promotionopportunities within the firm. to avert such a situation, the CEO canhighlight the experience, expertise and skills of the individualsappointed to that position to portray him or her as the best personsuited for that particular position.
Theidea to have the firm expand to China is well informed. This isbecause China is emerging as the world leading market courtesy fo thesheer size of the population. Additionally, there is a growing middleclass population estimated at over 300 000 million which is largerthan then entire American population.
2.strategic issues & problems facing the firm
climaticchange. Changes in the global climatic patterns who have affectedorganizations in great ways. agricultural based organizations arelargely affected as climate changes has led to a fall in agriculturalproduction, fall in produce quality, high incidences of plat diseasesand pest attacks, shortage of raw materials and even fluctuations inprices. The organizations thus needs to empower farmers who producecoffee to cushion them against such adverse effects of climate withthe larger intention of protecting the business of Starbucks and alsoits shareholders.
Rapidexpansion could be a source of problems for the firm. This is inregard to expansion into foreign markets that have a differentculture and difference perception to coffee consumption.
Growingcompetition. the entrance of new small sized coffee retailing playersin the market is affecting Starbucks market share. Although the firmhas embraced acquisition as a way of handling competition andpursuing growth, not all competitors can be bought out. Such firmsare also protected by the government through the fair competitionlaws.
Entranceof established fast food retailers into the coffee market shouldcause Starbucks some worry. McDonalds, arguably one of the best knownbrands in the fast food market, is gaining popularity as a coffeevendor. The firm has introduced line of coffee beverages within itswide network of outlets in the US and in foreign markets such asEurope and China. Another player that is making headways in theGlobal market Canadian-based Tim Hortons. All these popular brandshave the resources, brand equity and distribution networks to competewith Starbucks on equal footing.
Publichealth awareness. A growing concern that is affecting players in thefood and beverage industry all over the world is growing healthawareness among consumers. A larger percentage of people is concernedand aware of the effects of the food and beverages that they consumeon their wellbeing. One of the issues highlighted is the effect ofsugar on the body and the sugar content in beverages such as coffee,coffee variants, ice-cream among others. Sugar is a major ingredientin majority of Starbucks` products. This means that for the firm toremain competitive and relevant in the market, it needs to developmore healthy products.
Thefirm should always seek to fill sensitive positions internally toguarantee support for such positions and individuals appointed tosuch positions. This will reduce employee hostility and negativecompetition.
Thefirm should introduce a better and more diversified line of healthyof beverages to target the health-conscious consumers. Furthermore,developing and marketing healthy products falls within the firm`sethical obligation and its commitment as a responsible corporatecitizen.
Thefirm should increase its presence in China. Other players such asMcDonalds and Tim Hortons are eagerly exploring the expansive Chinesemarkets.
What are the key policies, practices, business principles, and procedures that underlie how Howard Schultz and Starbucks` management have implemented and executed the company`s evolving strategy? Have they been successful? Why or why not?
Thethird place concept. This concept adapted by the firm seeks toposition Starbucks stores as the third place where consumers canspend their time apart from the workplace/school and home. This hasbeen incorporated in the design, ambience and arrangement at thevarious stores. In fact, offering free wifi to consumers entices themto spend their time much longer at the stores and even take a sendcup of coffee. The arrangement at the store such as near thefireplace creates a fell good ambience. The arrangements alsoencourage meetings and interaction creating a good `expresso bar"climate as originally witnessed by Schultz in his first visit toItaly.
Brandingthrough locations. The firm has chosen strategic locations for allits stores to capitalize on high human traffic and ambience. Thestores are also uniquely designed in an environmentally consciousmanner utilizing locally available materials. This ensures thatconsumers can identify with the warmth and appreciation of the localenvironment that Starbucks brings and create a connection withconsumers.
Verticalintegration. this has allowed the firm to form strong partnershipswith coffee growers to ensure high quality of coffee beans. Byrunning and operating the roasting processes also ensure the firm cancontrol quality and variants of its coffees.
Strategicalliances and licensing. strategic alliances with players in themarket such as Kraft Foods, PepsiCo and Unilever allows the firm toexpand its product offering and keeping costs low. this way the firmenjoys the expertise, competence and skills of other firms in certainmarkets without necessary investing heavily in those markets. Thiskeeps costs low and profits high. Alliances with distributors such asCostco and other firms especially in foreign countries allows thefirm to access to an already established distribution network andincrease market share and explore new markets.
Properpeople management practices. The firm values its employees. This isevident in the way that the CEO has handled his employees from dayone when he took over Starbucks from its founders. This hasintensified employee engagement and empowerment, reduced employeeturnover, increased firms attractiveness in the labor market and ledto greater employee satisfaction. All these have contributed towardsthe creation of a strong brand, cost reduction and higher profits.
Employeesas partners. By enabling employees to own shares of the firm, itstrategically converts them from just employees making money for thefirm’s investors to employee-proprietors. A sense of ownershipelicits greater commitment and loyalty. This also converts employeesinto marketing tools for the firm through word of mouth.
Strongleadership. Schultz has functioned as the firm`s inspirationalleader. From initiating the concept of brewing coffee and selling atthe stores as opposed to consumers making the coffee at home, the manas he emerged as a strategic thinker and leader. he has recruited ateam of other senior managers who have moved the firm in a positivedirection indicted by its growth and profitability of the years.
Skilledand experienced employees. From the very beginning, Schultz sought tohire and recruit experienced managers to run the organization. It isworth to note that Schultz informed the board that questionedcontinued loss making of the firm that the firm will only beprofitable once it recruits a skilled management team to run newoutlets and the organization as a whole.
Awide product range also ensures that consumers have a wide variety tochoose from. It also eases distribution and makes Starbucks productseasily accessible as readymade or home made.
Training.proper training of all employees through the in-house training centerensures that all employees have the needed skill set to match therequirements of the firm. Additionally, training of baristas fromfirm-owned stores and those from licensed operators has ensured thatthe product is consistent from one store to the other. This plays akey role in meeting customer expectations and satisfaction.
Allthese values, practices and principles that the firm has employedhave been the epicenter of the firm`s success. The practices arecomplementary to one another and ensure that Starbucks is ahead ofcompetition. A key aspect that makes the firm successful is how ithandles its employees. It recognizes its workforce as the greateststrength in what it has to offer. Apart from selling coffee and itsproducts, friendship and camaraderie are also offered at Starbucksstores which not only creates rapport between employees and clientsbut also advances the third place concept. employee training, whetherthe local store barista or United Airlines employees responsible forpreparing Starbucks Coffee on United Airlines flights, has beenresponsible for creating a consistent product. This promisesconsumers that a Starbucks consumed while on business travel orholiday in Australia is of the same standard as the coffee at thelocal store back in the US. Such hands on control on quality sevident from sourcing coffee beans, from roasting coffee beans andbrewing of coffee.
Whatis your evaluation of Starbuck`s social responsibility strategy? Isit sincere or just something the company does and talks about tocreate a good public image?
Starbuck`ssocial responsibility strategy is hinged on four main conceptsnamely: ethically sourcing all its products community involvementand corporate citizenship environmental stewardship and charitablecontributions.
Onethically sourcing all its products, Starbucks activities arelaudable. The idea that the firm calls for suppliers to deliverethically produced goods as raw materials and those with minimaldeviation from the normal as possible appeals to consumers but notnecessarily to the producers. However, one interesting that the firmhas failed to address in its pursuit of high profits is its costreduction measures that seek to lower the cost of raw materials. Thefirm thus commits suppliers to binding contracts on fixed pricesirrespective of prevailing market prices. This is very unethical inconsideration of the fact that the firm seeks to source its suppliesin bulk and in the process push for discounts as high as 30%. Thishas the potential to leave farmers especially in less developedcountries that supply coffee, tea and cocoa forever impoverished. Thefirm should consider paying an acceptable price to farmers for theirproduce but not push for discounts. If the firm is making hugeprofits, it should not be at the expense of farmers` profits.
Starbucksclaims to be highly involved in community activities. However, muchof the company`s community involvement is geared towards marketingand public relations rather than a genuine calling to support localcommunities. This is evident from the fact the firm is involved inlarge national events as opposed to local communities that those whoneighbor individual stores can associate with. Given the firm`s national presence, it cannot clearly pinpoint to its local communitybut rather the entire American market. As such the firm does notengage neighboring communities on merits of hosting its business butrather on being its closest market.
Starbuckscontinues to use plastic containers in packing majority of itsproducts. Plastic, though a cheaper alternative to other materials isused widely. However, the long term cost in regards to theenvironment is very high. Studies have revealed that plastics posethe greatest threat to marine life even larger than climate change.Manufacturers who rely on plastic materials to package their productsare partly to blame for this. Although the firm has made attempts torecycle much of this plastic, it is not satisfactory.
Forcharitable contributions, the Starbucks Foundation has made numerouscommendable donations to various charity organizations. However,compared to the millions that the firm makes in profit, it should bedoing more. All in all, it has been said that organizations beingsocially responsible pr ethical is an oxymoron. This should notdiscourage the firm from investing in communities.