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
WhenSchultz took over the position of CEO of Starbucks for a secondstint, he marked his return with organizational restructuring. Heclosed over 800 newly opened stores and about 6700 employees werelaid off. This was in response to declining sales in the new storesthat had led the firm into loss making ways. The losses were causedby the new outlets cannibalizing on the markets of alreadyestablished stores and also by the 2008 economic crisis which led toa decrease in aggregate demand. With the world economy hurting, majorfirms recorded slumps in sales and growth. The move to restructurethe firm and downsize was informed by the need to cut costs in a hardeconomic environment which is recommended by experts. Experts alsowarn that such massive layoffs lead to knowledge drain as experiencedemployees get to go home with their knowledge and skills which theyhave gained on the jobs. Firms also lose largely because they investin training such employees but not reap the full benefits of theirinvestments. Furthermore, for a firm that claims to handle itsemployees as partners and as a key resource, the layoffs did notconsider how the layoffs would affect them individually. For theretained employees, morale most likely went down as the job securitywas shaken. It is however, not clear what initiatives the firm put inplace to address this dip in morale or even compensate the employees.How employers handle such sensitive issues affects theirattractiveness in the labor market and
Themove to refocus the firm. He scaled down the expansion strategyinitiated by the predecessor and created a new position of executivecreative officer as well as redefining roles and responsibilities ofsome executive staff. This is a key aspect of leadership. Schultz wasable to change the organizational direction from one of increasingoutlets defined by higher sales to create profit to one aimed atcreating value for customers by enhancing the Starbucks experience.Shultz believed that consumption of coffee at any of the firm`sstores should not be framed as a transaction but rather an experienceworth having daily same was as at home, school or work. This has beenthe core strategy adapted by the firm since inception and refocusingon that creates a good basis for growth.
Issuesfacing the firm 2012 onwards
Greatercompetition from new entrants and established players. The coffee,tea and cocoa markets are increasing becoming saturated globally. Established players such as Tim Hortons, Nestle and McDonalds aregrowing their market share day by day with the sole purposes ofbeating Starbucks as the leader in coffee and tea retail sales.McDonalds has a better product offering in that it offers foods atits location same as Tim Hortons. This means that the organizationmight have to look to introducing foods at its stores to ward ofcompetition and drive in more human traffic in its stores.
Healthconcerns over the amount of sugar contained in some of its products.Sugar, when taken in large amounts, has been identified byresearchers as one of the causes of several health problems. It isbeing blamed on decreased immunity, diabetes, obesity among others.This has forced a significant amount of consumers to stay away fromcoffee. Attempts to reduce the amount of sugar in some beverages havenot been convincing enough for some consumers. This has placed thefirm in a difficult position as sugar is a key ingredient in majorproducts. Sugar alternatives though costly, may not offer the samegreat taste that consumers have come to expect from Starbucksproducts.
Climatechange has led to fluctuations in the prices of supplies alsoquestioned the firm`s policy on environmental stewardship. As a firmthat uses plastic to a great extent in packaging its products, whichis one of the world`s greatest pollutant, has led to some expertsquestioning the firms policy n the environment. Calls have been madeto reduce the use of plastics and a search for alternative packaging.The firm’s effort has been increasing efforts in recycling ofplastic and increased sponsorship of environmental conservationactivities. However, continued use of plastics is likely to depictthe firm negatively in the market. Pursuit of alternative materialcould prove costly to the firm.
Anotherchallenge facing Starbucks is rapid changes in the real estate andinfrastructures. For the longest time, Starbucks has relied onstrategically locating its stores in the best located buildings withhigh human traffic and near and close to major transport lines wherethere is high traffic. Unfortunately, newer buildings and newrailways lines are being developed daily. This alters the traffic inold route and buildings and in effect denying Starbucks access to themarket. In response, the firm ash to keep on relocating to be nearerto the market which is expensive.
Investin its suppliers through irrigation based and greenhouse basedfarming systems to address the challenges of climate change.
Thefirm should embark on diversifying its product range in its stores toinclude food to compete effectively with other players.
Thefirm should be responsive to changes in the infrastructure and realestate to be strategically located closer to the market.
Thefirm should invest in research to develop more sustainable and lesscostly packaging for its products
Costcutting. the firm has employed arrange of strategies to cut costssuch as centralized sourcing of its raw materials
Consistentquality has ensured that the firm can diversify its distributionchannels such as through United Airlines and still meet customerexpectations. this has been achieved through proper training of allStarbucks coffee handlers both at the firm-owned stores and in thelicensed stores.
Employeerewards and benefits. From the very beginning, Schultz has treatedemployees as an important part of the firm. The move to providehealth cover to temporary employees and enable employees to acquireshares of the firm has resulted into more commitment and loyalty tothe firm and brand.
Strategicalliances with stores, marketing firms, manufacturing firms anddistributors ensures that the firm can access a larger market,capitalize on the resources and expertise of partners at anaffordable price to serve its clients.
Verticalintegration of the firm ensures that the firm has addressed the powerof suppliers. For coffee and tea farmers, the firm has bindedsuppliers to long term contracts and offers incentives to improvequality and ensure consistent supply. This has given the firm immensecontrol of quality and the value chain process. Horizontalintegration has also seen the firm absorb its competitors and throughlicensing, it has ventured into new markets.
Employeetraining. This has been critical in ensuring a consistent and uniqueStarbucks experience at its various stores. By providing employeeswith the necessary skills and inducting them into the Starbucks` wayof doing things, they can deliver better what is expected of them.
Properleadership through Schultz. Since Schultz took over Starbucks, he hasguided the firm to great growth. Changes in leadership of theorganization have not yielded such results. It took thereintroduction of the man as CEO in 2008 to return the firm intoproduct making ways although the reign of the former CEO coincidedwith the global financial crisis.
Consistentstrategic direction. The firm has maintained for long that coffeeconsumption should be an experience. The firm has strategicallypositioned itself in the market as the provider of such experiencethrough an enhanced Starbucks experience that perceives the variousstores as the third place for people to hang out after home andworkplace or school.
Thefirm has been very successful in the market in creating a consistentimage that provides a high quality coffee and tea brand and theirvariants. The products are coupled with an exceptional experience noreplicated elsewhere. Furthermore, the firm has managed to create aunique organizational culture that unites the people and contributestowards quality products and services.
How has Starbuck`s strategy evolved as the strategic vision has changed over time?
5. Initially, Starbucks emerged in the market as a premium coffee beansretailer targeting tourists in Seattle. The store would sourcepremium roasted beans from recognized roasters and train consumers onthe best way to grind and brew coffee. This is very different fromwhat the firm offers today. Today the firm offers a wide range ofbeverages and specialty coffees to a global market. The firm changedthis initial approach by stocking coffee making equipments sourcedfrom different manufacturers. Another change in strategy came withthe arrival of Howard Schultz who introduced the idea of brewingcoffee and selling in the stores. He had learned this idea while on abusiness trip to in Italy where he had observed that espresso barswere very popular and doing well. They were characterized by a senseof camaraderie and community. He thus sought to recreate the sameenvironment in the US. This concept was introduced in the originalStarbucks but the founders felt uncomfortable with the idea onlytaking it up for trial but not full implementation. Schultz foundedanother firm that utilized the idea of espresso bars successfully andlater acquired Starbucks to replicate the espresso bar idea. Theleader saw that the future of the coffee retail business lay inenhancing the coffee consumption experience. Schultz thus embarked ona vision guided by the need to create a unique experience in coffeeconsumption through consistent quality in well designed locationswhere the ambience, smells and store itself enhanced the experienced.This has been the greatest brand of Starbucks the coffee experienceand the camaraderie environment that the stores offer. This wasdifferent from the idea of just great tasting coffee that otherplayers were offering.
inmoving with times, the firm has not restricted itself to the coffeeconsumption experience tied to its various stores. It has introducedproducts that meet the same high quality standards but can beconsumed away from the stores. This has been achieved by introducingprepacked ready to drink coffee drinks supplied in regularsupermarkets and chain stores. The firm has also liaised withestablished retailers in other markets to distribute its products.Nonetheless, the Starbucks experience remains true at the firm-ownedstores where ambience, smells, arrangement and music all gel tocreate the identity of a Starbucks store.
Starbuckshas for the longest time positioned itself as a retailer ofexperience rather than just coffee. However, this has not deterredthe firm from exploring other retail channels and products. Theoriginal vision saw the gelling of the cup of coffee with the store.This included providing the right ambience, colors, the right musicand even the right customer service. However, the firm hasdiversified into teas, cocas, ice-cream and other readymade packeddrinks that can be consumed away from hotels. Alliance with iTuneshas seen the firm shift from beverages to coffee. All these changesare indicative of the fact that Starbucks is not shy to change itsstrategic direction and vision from just a coffee based retailerpositioned as an experience retailer to a broad based beveragesretailer. This can also be confirmed by recent indications as of July2014 that the firm intends to venture into the wine industry.