Introduction
Since its inception in 1987, Starbucks Company has grown to become one of the leading providers of coffee around the globe. Among the countries that the service provider operates, is the United States, Japan, and Australia. The company attributes its growth to the introduction of Howard Schultz, who speared headed most of its programs and ensured that consumers received beverages that matched their expectations.
In the quest to focus on potential clients of the company, Shultz ensured that the company employees were well treated. As such, the services that consumers received became exceptional, a factor that saw the growth and progress of the company. Conversely, in 2008, the company sales declined and initiated the closure of a number of its stores. Importantly, the decline in sales transpired when the management changed from Shultz to Jim Donald, who took up the role of the company CEO. The return of Shultz to the CEO position saw a rise in the revenues of the company. It is within this context that the paper assesses the strategy and internal initiatives undertaken by Starbucks Company to return to profitable growth.
Background
Pertinent Information from the Case
Organizational Overview
Starbuck Company has grown from a small enterprise to a global organization. The growth of the company has been steady since 1987, when Shultz, took over its operations. Principally, the initiatives introduced by Shultz were instrumental in improving the overall development and growth of the company. These initiatives, which centered on client satisfaction and fair treatment of employees, emanated from the love and passion that Shultz had towards the coffee industry.
According to Gamble, Thompson, and Peteraf (2012), the love that Shultz had in the field of coffee is evident from the resilience that he demonstrated even after the initial managers of Starbuck turned down his offer. After his return from Italy with skills and strategies geared towards propelling the company to new heights, the company management turned down his offer, a factor that led to the establishment of his new Espresso Company, which succeeded. However, in the aftermath of his success in the Espresso Company, Shultz took over Starbucks and initiated strategies that propelled the company to its international position.
When the management changed hands and Jim Donald replaced Shultz, the company experienced challenges that affected its profitability. The challenge saw the closure of non-performing stores, an aspect that Shultz also undertook when he returned and took over from Donald. In the explanation of Thompson and Shah (2010), Starbuck closed down stores that were not performing as they acted as liabilities detrimental to the growth as the company struggled to return to profitability.
The focus of Shultz, which centered on effective implementation of the internal environment of the company, led to a successful return to profitability. Among the major internal initiatives, which Shultz undertook in the company, including a focus on employee motivation and consumer satisfaction. Training, recruitment of skilled employees, and motivation were the cornerstones that guided the operations of the company.
By ensuring that employees received fair treatment from the company, Shultz achieved the enthusiasm of employees that is core in consumer satisfaction. Empowering and permitting employees to take up stocks in the company was another momentous internal initiative that Schultz undertook. Gamble, Thompson, and Peteraf (2012), explain that by allowing employees to own company stock, they worked with motivation and felt that they were part of the organization. It is imperative to explain that achievement of the return to profitability materialized because of the participation, which involved several internal and external players. Internal and external players involved in the company’s growth and return to profitability after the decline in sales were very instrumental.
Key Players
During its return to profitability, the company utilized the services of internal and external players, who executed an important role in the successful delivery of its operations. Employees, suppliers, and shareholders comprised some of the internal players, who had an important role in ensuring that the company restored its consumer base and market share. On the other hand, the governments where the company undertook its operations were among the major players in the external marketing environment.
It is paramount to state that in the absence of their involvement, the success enjoyed by Starbuck Company that become evident after Shultz took over from Donald, could not be achievable. In the perspective of Thompson and Shah (2010), Shultz focused on easing the efficiency of service delivery through the involvement of internal players such as employees and suppliers. Fundamentally, efficiency and successful delivery of services, which leads to consumer satisfaction, is the main objective of every organization.
Internal Players
Internal players, who played an integral role in Starbuck Company, include employees, suppliers, and shareholders. These players saw the company’s return to profitability and helped it restore declining sales. Shultz engaged in operations that helped the company tap the optimum potential of employees and other internal players. To optimize employee and supplier potential fully, the company under the leadership of Shultz, engaged in initiatives that motivated the employees.
Notably, employees are the main assets of any organization, and focusing on them is one of the initial steps that catalyze success. Motivated employees deliver high-end services, whereas demoralized employees deliver services that dissatisfy consumers (Thompson & Shah, 2010). Additionally, shareholders facilitated the effective execution of services in the company by providing financial and ideological support. On the other hand, suppliers ensured that they engaged in a timely supply of raw materials to the company. By converting the employees to shareholders and giving them part of the stock, Starbuck Company was indeed ensuring that the owners were participants in service delivery.
The involvement of internal players not only increased the sales of the company but also improved the quality of services delivered to clients. Motivated employees deliver the right services on time in the correct state as demanded by the clients. Also, motivated employees advance the right raw materials to the suppliers, who then deliver them at the correct time in their precise quantities and qualities. Changes initiated by the management emanated from the employees, who after owning the organization, involved themselves in activities that would increase the company’s market share and consumer base.
According to Gamble, Thompson, and Peteraf (2012), exceptional delivery of services in Starbucks differentiated it from other competing firms in the market. The statement from Gamble, Thompson, and Peteraf substantiates the essence of involving internal players in the achievement of growth and success in companies such as Starbucks.
External players
Besides, the internal players, who had a momentous role in helping the company, return to profitability the government was among the major external players, which influenced the company’s operations. Importantly, the role played by the government espoused the provision of a favorable working environment as well as a stable political and economic environment. Notably, the economic downturn witnessed in various countries was among the factors that led to a decline in the revenues of Starbucks Company. When states experienced economic challenges, the performance of the company declined.
It is, therefore, imperative to elucidate that the role of the government is external and influential to the operations of companies such as Starbucks. In the assertion of Thompson and Shah (2010), consumer demand is an outcome of the prevailing conditions presented to them by state regulations. Therefore, during challenging moments of the company, the state had presented an increased cost of living, which resulted in an economic downturn.
Consequently, besides the provision of good economic and political conditions, the states also facilitate successful operations by minimizing taxes and regulations that government organizations such as Starbucks. Fundamentally, when companies enjoy minimal taxation and regulations, their operations flourish. From the perspective of Gamble, Thompson, and Peteraf (2012), Japan and China proved to be the best markets for operations of Starbuck Company as they demonstrated growing economies and stable political conditions.
The perspective compounds the relevance of government as an external player, which influences the operations of companies like Starbucks. To help Starbucks Company grow and succeed in returning and achieving its profitability level, the state has to institute policies that support the growth of companies. The absence of the regulations in places where Starbucks operated would have inhibited the successful delivery of its services.
Summary
Starbucks has grown from a small enterprise to an international company that operates in countries such as the United States, Australia, and Japan. The growth of the company took place because of the participation of internal and external players, who helped propel the company, regain its former performance following the advent of declining sales. The decline in sales was a result of inappropriate focus that demoralized employees and challenging economic times in various parts of the world where the company undertook its operations.
Furthermore, the company experienced challenges associated with changing consumer demands, a scenario that required consistent research on market dynamics. However, with the employment of the right strategy utilized by internal and external players involved in the organization, the company started enjoying growing revenues and profits. According to Thompson and Shah (2010), the involvement of employees and other stakeholders in the company led to its success. As such, it is evident that internal initiatives of the company would not materialize in the absence of participation from internal and external players.
Analysis
Strategic Issues Facing the Company
Overview
Starbucks Company has a long history of providing high-end services to its clients globally. The services offered to consumers follow a standardized format that matches their demands and the prevailing market conditions. With its smart managers and employees, who possess requisite skills, the company has been among the leaders in the service industry. Importantly, the operating market of the company has factors that influence its operations externally or internally.
While internal factors comprise those that the company can change, external factors are those that the company cannot influence. These factors are very important in the development of a good strategy, which ensures that the company enjoys a sustained profit after gaining its market in the beverage industry. Thompson and Shah (2010) elucidate that like other companies, Starbucks is vulnerable to the influences advanced by internal and external factors and situations. Therefore, to implement its strategy and return to profitability, the company had to consider the influence advanced by internal and external factors.
Strategic Issues Facing the Organization
Fundamentally, Starbucks is vulnerable to factors that affect the marketing environment. These factors comprise external and internal factors. The factors affect the strategy that the company has developed in its attempt to sustain profitability. Imperatively, the strategy that the company employed in its quest to achieve economic growth and development in the aftermath of declining sales and revenues was successful because it blended well with the issues that dominated the marketing environment. It is important to explain that the issues fall in the category of strategic issues as they affect the strategy that organizations utilize in the achievement of their economic success (Thompson & Shah, 2010).
As a result, organizations such as Starbucks need to align their strategy in a manner that matches the issues that dictate the operating environment. The need to align the strategy with the issues transpires because the issues affect the operations of the company. Furthermore, failure to align the strategy can lead to a decline in revenues, a factor that is detrimental in sustaining profitability.
External Environment
Concisely, the external environment espouses factors that are beyond the company’s control. Political, economic, social, demographic, and environmental factors are some of the externalities that affect the overall performance of the organization. In the context of Starbucks Company, the influence of the externalities transpired when consumers minimized their purchases because of economic challenges.
Another evident example that justifies the influence that external factors had on the operations of the company is the shift in consumer preferences that reduced its sales. The changes took place because of technological advancements. According to Thompson and Shah (2010), Starbucks needs to continue assessing market dynamics so that it sustains the provision of services that consumers expect. Therefore, by placing consumers at the forefront during service delivery, the company succeeded in implementing its return to profit strategy.
Fundamentally, the organization continues being subject to the external environment and the influences that the externalities advance. Since the factors are beyond the control or influence of the company, the management has to institute a strategy that facilitates effective economic development irrespective of the challenges. By instituting the correct strategy, any emerging externalities that could affect the organization’s growth and the recently acquired profitability become manageable.
In explaining the influence that external conditions have on the operations of Starbucks Company, Gamble, Thompson, and Peteraf (2012) assert that the decline in sales of the company was partly initiated by the changing economic times and consumer preferences. Demographics, competition, and other externalities present in the marketing environment can inhibit the progress of the organization. Therefore, the management needs to ensure that they put the right strategy in place so that the externalities do not present a serious threat to the company’s progress and economic development.
Internal Situation
The internal situation of the company is another very important strategic issue that requires attention from the management. Remarkably, the revenues in the organization declined when the new CEO started focusing on other aspects of the organization and downplayed the relevance of internal factors that affect the company’s progress. Employees and suppliers are among the key players that influence the internal situation of an organization, therefore, by sidelining them, the new CEO demoralized them, and thus, the low revenues attributed to diminishing product quality. Conversely, when Shultz returned to the organization, the first strategy focused on the proper treatment of employees and product quality.
According to Thompson and Shah (2010), Shultz understood that employees are the greatest players, who influenced the overall performance of the company. The strategies employed by the management under the leadership of Shultz bore fruit when the revenues of the company started to rise.
It is important to outline that the internal situation of a company is a factor that develops its reputation and determines the scale of revenues that it enjoys in a particular market. Dissatisfied employees are likely to deliver low standard products to consumers. Delivery of substandard products leads to client dissatisfaction and diminishing revenues. As such, by ensuring that the employees received fair treatment from the company, Shultz sparked a desire to deliver the best among them. Another strategy that substantiates the relevance of internal situation is the motivation that employees have towards service delivery.
Gamble, Thompson, and Peteraf (2012) elucidate that when the management of Starbucks allowed employees to own company stock, it in turn motivated them to work hard and deliver the best. When employees owned company stock, they felt that the company was theirs, and as such, strived to deliver the best. It is crucial to state that by motivating employees, all internal operations of the organization become efficient and successful.
Strategic Fit
Strategic fit is another crucial issue that helped Starbucks Company return to profitability. The concept also dictates the sustainability of the growth that the company enjoys in the competitive market. In the case study, it is evident that the management of Starbucks Company understood the essence of strategic fit concept in their return to profitability strategy. When the management of Starbucks developed policies that emphasized on fair treatment of employees, the concept becomes an instrumental tool that propelled the company towards its present success.
Remarkably, when employees become empowered, they rally all their energies and resources towards the growth and success of a company, a factor that becomes practical in Starbuck’s company (Thompson & Shah, 2010). In essence, employee empowerment is core in the achievement of capabilities and resources required in the successful execution of the strategic fit concept.
Conclusion
While the strategy employed by Starbucks Company has yielded a range of advantages and facilitated the successful return to profitability, there is a need to do more if the company wants to sustain its present market share. Some of the strategies or recommendations that the company needs to undertake include consumer education, employee motivation, and closure of underperforming stores. Notably, consumer education involves demonstrations on how their favorite beverage is manufactured.
By demonstrating the processes that coffee undergoes during production to consumers, the company develops a connection with them. Additionally, the company needs to sustain and improve the initiatives that focus on employee motivation. The need to sustain and improve initiatives that focus on employee motivation takes effect because they are the major drivers of growth in the company. Poor treatment of employees leads to poor service delivery, whereas superb treatment results in excellent services and consumer satisfaction. The last recommendation concerns the closure of non-performing stores. The company needs to focus on stores that are profitable and close those that incur losses.
References
Gamble, J., Thompson, A., & Peteraf, M. (2012). Essentials of Strategic Management: The Quest for Competitive Advantage: Third Edition. New York: McGraw-Hill Higher Education.
Thompson, A., & Shah, A. (2010). Starbucks’ Strategy and Internal Initiatives to Return to Profitable Growth. New York: Routledge.