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Introduction of Starbucks Crisis & Strategic Planning for Business Resilience
Starbucks is an American coffeehouse chain that is headquartered in Seattle, Washington and currently, they have outlets all over the world including 32000 stories. For the past five years, Starbucks is facing major challenges regarding their business strategies, stock value and supply chain management etc. Along with that Covid-19 pandemic creates a huge crisis in their business. This study is based on the crisis and issues in the past five years including the crisis of Covid-19. In the later part of this study, there are discussions about the strategic planning of new business structures to handle those crises including favourable organisation leadership strategies and innovation and change management strategies and evaluation of emerging models, strategies and their impact on relation management, strategic direction and implementation in the global context are also the part of the discussion.
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Story of the crisis of Starbucks
Crisis and its causes that Starbucks is currently facing
Internal Risk
Starbucks is one of the strongest warning restaurant and coffeehouse chain industries in the world and according to the data of 2016; the sale revenue of the company is growing impressively after stagnating at $55-$60 per share. A continuous increase in the price of products by Starbucks leverages the loyalty of customers and decreases the elasticity among consumers. Between 2014-2016, there are price hikes of the products of Starbucks four times to protect the operating margin of the company due to the hike in wages and coffee prices (Forbes.com, 2016). The serious concern that Starbucks is facing now is the loss of customer segments due to their continuous increment in product prices. As the elevating price of products is created due to the higher cost of labour and raw material, it is claimed that an upsurge in the minimum federal wage will consequently affect the profit margin of the organisation that is already thin, especially in the stores that are licensed.
Figure: Stock price of Starbucks in December 2015- December 2016
(Source: Forbes.com, 2016)
Along with that, Starbucks is currently dealing with the financial crises in the challenging economic environment of the world and it is also forcing them to close many of their outlets globally. There are multiple coffee shops situated globally that are capable to stand out for generating consumers along with Starbucks. Their leading competitors are McDonald's, Nestle and Dunkin Donuts in the US and UK brands like Caffè Nero and Costa Coffee in the UK, the two primary markets for Starbucks (Forbes.com, 2016). Starbucks must know their potential competitors and its current business strategy. Starbucks does not sell or distribute its products via supermarkets because it is concerned about the quality and waste of products due to the use of plastic. This is also a major reason for sell decrement in Starbucks' products. In addition, the strategy of rigorous expansion by Starbucks can disturb the brand image of the organisation. It is normal to have a heavy tendency for corporations to increase their outlet locations and product outputs but it can also damage the product quality and brand image severely due to the lack of focus on these two aspects. Starbucks is required to stick with its successful ideals and values that made them thrive over the past decades (Bonaparte, 2020). Starbucks has no policy of franchising and it can be a reason for concern for the business of the organisation. Franchising would authorise the business to extend many fresh stores with negligible risk and make significant earnings whole business but doing so can decrease their profit margin, as a part of the revenue will go to the costs of research and development.
Market Risk
Market risk is the capacity to suffer losses, of an investor due to elements and aspects that affect the quality of the entire statement of finance of the organisation in which they are involved. Market risk is a systemic risk that cannot be dismissed by diversification (Kumaresan, 2019). The causes of market risk include political upheaval, recessions, terrorist attacks, price shifts and natural disasters. In the 2018 annual report of Starbucks, it is mentioned that because of the threat of rising prices of commodities e.g. dairy products, vegan products, green coffee etc. their operational results are getting affected directly and they anticipated that prices of commodities, especially coffee, can also impact their operating results in future (Starbucks. com,2022). Along with that, the current issue of Covid -19 and the supply chain disruption of the organisation add to the market risk of Starbucks (City, 2021).
Strategic planning of the new business structure
Organisational leadership and its strategies in a global context
Organisational leadership is a management approach that is people-oriented and this leadership helps to motivate employees and they are very likely to become more efficient and productive (Tikson, 2018). It is an action and result-based strategy to empower the workers of an organisation to focus on a common goal and work towards achieving that goal. Starbucks should have an organizational leadership approach where the supervisors, leaders and managers emphasize support for their subordinates for ensuring the growth of the organisation along with individual growth (Ibrahim and Daniel, 2019). The employees should receive options of stocks of the organisation along with the entire benefits of healthcare, proper training and healthy workplace relationship and environment to grow their motivation and become efficient and productive employees.
Approaches of innovation and change management
Creating a unique and innovative work culture is a very smart approach towards the innovation and change management of Starbucks. For adopting the upcoming transformations and major acquisitions, a corporation should enhance its corporate culture. Executives of Starbucks Corporation should create an organisational culture that incorporates values of entrepreneurship, empowerment, service and quality of the corporation. This will create a positive attitude among stakeholders and increase the stock market prices of the organisation. For achieving a competitive advantage along with new strategy implementation, Starbucks should focus on establishing an emotional connection with its consumers (Mansaray, 2019). Creating an overwhelming and charming in-store environment in every outlet and introducing new menus with vegan speciality and options for customizable beverages can facilitate the uplifting of positive experiences for the customers while purchasing the food items and beverages.
Strategies, Models & their impact on relation management, strategic direction & implementation
Models related to global strategies are Global connectivity, technological upheavals, Porter's five forces and SWOT analysis. These favourable models help to improve the business in the global market.
Global connectivity is an important aspect of expanding the business as it provides effective connectivity with different stakeholders. This model connects with different stakeholders using different technologies that connect to different stakeholders using different channels. The effective channels related to global business strategies are internet access and a web-based connection (Tallman et al. 2018). The stakeholders connected to the business through the internet are consumers, distributors, suppliers, industrial designers, logistic providers, employees and service providers.
This model provides better connectivity with the consumer and provides the best relation shi\ip with the consumers, suppliers and important stakeholders. It helps in analysing the business with value creation, capture and transfer in geographical aspects. The business strategies build effective business strategies and create huge competition in the market. It also helps in establishing an effective network with the inside stakeholders and outside stakeholders.
Second is technologies related to the business are innovative technologies that relate to online delivery and supply management. It provides effective technologies for building global business strategies. The technologies include new materials, digitization, genetics technology, microprocessing, the “Internet of things”, big data, social user experience and cloud computing (Akcam, 2022). Technologies like new material 3D automation are important technologies that give effective approaches to consumers for meeting their needs in an effective time. These major aspects meet the need of consumers as micro procession helps in analysing small parts and fulfilling the basic needs of the consumers in a short period. The Internet of things is the latest technology that builds supply chain management in a cost-effective process. Big data is used for analyzing the consumer experience and helps in providing effective service according to the need or demands of the consumers. Social media or social users are providing the need for new products and help in advertising new products. The next technology is cloud computing which helps in storing important data related to business, which includes assets, consumer feedback and records of consumers. This helps in analysing the data as well as getting scary details regarding the business. These technologies help in building global business effectively by filling the needs of consumers. This model will help in effectively enhancing the business and generating competition in the market.
Porter’s five forces
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Porters five forces
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factors
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Impact
|
|
The threat of new entrants
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Barriers for entering
commutative experience
government policies
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High
|
|
Bargaining power of buyers
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Number of consumers
Difference between competitors
Ability to substitute
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Medium
|
|
Bargaining power of suppliers
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Number of suppliers with their size
The uniqueness of the products
Local companies for substitution
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Medium
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|
The threat of substitute products
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Several substitute products.
Buyers' propensity for substitution
The price performance of the substitute
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High
|
|
Rivalry among the competitors
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Number of competitors
Brand loyalty
Quality difference
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Low
|
Table 1: Porter's five forces
(Source: self-developed)
Analysis
The threat of new entrants is high as a huge number of small companies or stores are providing effective service with a good range of products and in an effective price range, which is a threat to the organisation. This is a huge challenge for Starbucks as the reputational of the organisation is in danger it needs to improve its strategies. The government policies are business insurance, registration with “HMRC (HM Revenue and Customs)”, safety certificates regarding gas and electricity, food hygiene certificates and right staff hiring (Highspeedtraining.co.uk, 2022). These require a huge amount of time and money and these must be renewed on a yearly or half-yearly basis. The bargaining power of the consumer is medium as there are a huge number of competitors but the quality of different cafes varies and this can make the consumers loyal to develop an effective business. The number of consumers is in a good quantity though they have a huge range for a substitute the quality of the food with various varieties may not be available. The bargaining power of suppliers is medium as there are many competitors but the ratio and the size of the business are effective for Starbucks. The uniqueness of the product provides effective support to the business. The competitors in the market are in huge numbers but the variety of tea and coffee is very less as compared to Starbucks, which provides an effective number of products with quality product supply. The competitors of Starbucks are “Mcdonald's, Costa, Dunkin Brands Group” and other small cafes are effective competitors. The huge brands are the tough competitors that provide effective growth in sustainability and various consumer satisfaction processes.
SWOT
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Strength
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Weakness
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Most market share
High profitability due to huge consumers
Effective management of consumer service
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High pricing
Low diversity
Low franchise in foreign lands
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Opportunity
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Threat
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Partnership with small brands for expansion
Enhance the marketing and expansion in a foreign land after the crisis.
Variety of food products and a good network for expansion
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Maintaining sustainability
Government taxation
Foreign government policies
|
Table 2: SWOT analysis of Starbucks
(Source: Self-developed)
Analysis
Starbucks has a huge number of stakeholders in the market and provides quality products to consumers. This increases the profitability of the organisation by providing effective service to the consumers (Liu et al. 2022). The weakness of Starbucks is that it provides huge pricing of the products. It has low diversity in a foreign land with less number of franchises. This needs to be improved for the development of the organisation. The opportunities for Starbucks are having a joint venture for the development of the organisation as Starbucks is huge brands the other brands will feel safe for a business venture with Starbucks. The threats regarding government policies are the taxation process and attending to sustainability for the overall development of the nation (Nguyen, 2020). Starbucks must maintain sustainability as well as follow governmental policies regarding taxation.
Strategic leadership style and its impact on strategy
Transformational leadership style is the most important leadership style for the global management process. This leadership style helps in the management of the employees and external factors with the help of management meeting future needs. This leadership helps in improving the management of the organisation progressively. It helps in improving the strategies in the effective performance of regarding overseas, generating self-awareness, and humility develops sensitivity for cultural diversity and generates curiosity for foreign culture diversity. It motivates the employees, encourages them to build effective new ideas for the development of the employees, and manages capital with effective business strategies (Abu-Rumman, 2021). It also helps in encouraging the employees to effectively solve problems as well as provides self-awareness among the employees.
Values and ethics of leadership style
Transformational leadership style provides openness to new thinking and innovative ideas that provide effective development of new techniques for the expansion of Starbucks. It helps in broadening the mindset through effective experience in a foreign land, also helps in understanding the mindset of the people, and helps in understanding the views of people (Asbari et al. 2020). This helps in analysing the mindset of the employees by better providing effective support for the openness of the employees.
Limitations and benefits of each style
Limitations of the transformational leadership style are it prioritises long-term over short-term objectives. This increases the potential for burnout and takes a huge time for decision-making (Tafvelin et al. 2019). This leadership style requires continuous communication among the employees. The benefits of the transformational leadership style are it motivates the employees, maintains integrity in the workplace, and defines a clear vision and goals for the employees and other stakeholders. This will help Starbucks to improve the management skill of the employees and expand the business in a foreign land. This leadership style encourages professional development and increases the loyalty of the employees towards the organisation.
Conclusion
Starbucks is one of the leading brands in the food service industry and facing issues regarding the global management of a business. The crisis has had a huge impact on the business that has led to the downfall of business strategies in global expansion. The sales of the business were highly affected and this has led to a decrease in the revenue of the organisation. The internal risk was also been noticed in the year 2014 - 2016. Employees and other stakeholders also recognised the issues. The issue was regarding raw materials and the minimum wages of the employees. The market risk was also analysed by the covid and the rise in the price of the commodities regarding the need for food preparation. This crisis faced by Starbucks needs to be fulfilled by the strategic management process. This is can be removed by properly analysing the leadership skills and effective models for the development of global business. The models and leadership style are the key elements for the development of Starbucks' management system. The leadership style that must be adopted for the expansion of the business globally is the transformational leadership style. This leadership style helps in better management of the global business at Starbucks.
References
Journals
Abu-Rumman, A., 2021. Transformational leadership and human capital within the disruptive business environment of academia. World Journal on Educational Technology: Current Issues, 13(2), pp.178-187. Doi: https://www.un-pub.eu/ojs/index.php/wjet/article/view/5652/7069
Akcam, B.K., 2022. The impact of technology on the Starbucks experience. Journal of Information Technology Teaching Cases, p.20438869221099305. Doi: https://doi.org/10.1177/20438869221099305
Asbari, M., Santoso, P.B. and Prasetya, A.B., 2020. Elitical and antidemocratic transformational leadership critics: is it still relevant?(A literature study). INTERNATIONAL JOURNAL OF SOCIAL, POLICY AND LAW, 1(1), pp.12-16. Doi: https://www.academia.edu/download/86048720/3.pdf
Bonaparte, Y.L., 2020. A Starbucks Blend: Race, Social Marketing and Corporate Social Responsibility. Doi: https://digitalcommons.kennesaw.edu/cgi/viewcontent.cgi?article=1440&context=ama_proceedings
City, Q., 2021. STARBUCKS CORPORATION. Doi: https://outwiths.com/uploads/user/kbf-jimenez/portfolio_attachments/case-study-starbucks-corporation-2009-kbf-jimenez-Outwiths-1628769806.pdf
Ibrahim, A.U. and Daniel, C.O., 2019. Impact of leadership on organisational performance. International Journal of Business, Management and Social Research, 6(2), pp.367-374. Doi: | https://doi.org/10.18801/ijbmsr.060219.39
Kumaresan, R., 2019. The Effects of Macroeconomics Factors towards the Starbucks Corporation. Doi: https://mpra.ub.uni-muenchen.de/97243/
Liu, X., Tang, Y. and Wang, Y., 2022, April. Consumer Satisfaction for Starbucks. In 2022 7th International Conference on Social Sciences and Economic Development (ICSSED 2022) (pp. 1475-1482). Atlantis Press. Doi: https://www.atlantis-press.com/article/125973685.pdf
Mansaray, H.E., 2019. The role of leadership style in organisational change management: a literature review. Journal of Human Resource Management, 7(1), pp.18-31. Doi: http://www.sciencepublishinggroup.com/j/jhrm
Nguyen, C., 2020. Sustainability marketing concept: Case Starbucks. Doi: https://www.theseus.fi/bitstream/handle/10024/355410/Chau_Nguyen.pdf?sequence=2
Tafvelin, S., Nielsen, K., von Thiele Schwarz, U. and Stenling, A., 2019. Leading well is a matter of resources: Leader vigour and peer support augments the relationship between transformational leadership and burnout. Work & Stress, 33(2), pp.156-172. Doi: https://www.tandfonline.com/doi/pdf/10.1080/02678373.2018.1513961
Tallman, S., Luo, Y. and Buckley, P.J., 2018. Business models in global competition. Global Strategy Journal, 8(4), pp.517-535. Doi: https://eprints.whiterose.ac.uk/116551/3/Bus%20Models%20GSJ%20Text.pdf;
Tikson, S.D.S., 2018. Human resource policies and work culture: A case of Starbucks. JBMI (Jurnal Bisnis, Manajemen, dan Informatika), 15(1), pp.1-12. Doi: https://doi.org/10.26487/jbmi.v15i1.1773
Websites
Forbes.com, 2016. Starbucks' Challenges And How It Can Overcome Them Available at: https://www.forbes.com/sites/greatspeculations/2016/12/05/starbucks-challenges-and-how-it-can-overcome-them/ [Accessed on: 23/12/2022]
Highspeedtraining.co.uk, 2022. How to start a café or coffee shop: Key steps | Startups.co.uk Available at: https://www.highspeedtraining.co.uk/hub/how-to-start-a-cafe-business/ [Accessed on 23/12/2022]
Starbucks.com, 2022. Our Company Available at: https://www.starbucks.com/about-us/ [Accessed on: 23/12/2022]
