Strategic analysis report

Contents
Executive Summary.....................................................................................................................................4
Introduction.................................................................................................................................................4
Background to the firm................................................................................................................................4
Internal factors affecting the firm................................................................................................................4
Organisational culture.............................................................................................................................4
Leadership...........................................................................................................................................5
External factor affecting the firm.................................................................................................................5
Intense competition................................................................................................................................5
The rising price of coffee beans...........................................................................................................6
The major challenge facing the firm............................................................................................................6
A proposed approach to tackling the challenge..........................................................................................6
Conclusion & recommendation...................................................................................................................7
References...................................................................................................................................................8
Executive Summary
This report provides an analysis of the internal and external factor affecting Starbucks
performance. The two internal factors i.e., leadership and organisational culture, have affected
the financial and non-financial performance. Likewise, the rising price of coffee beans and
intense competition is affecting the firm's performance. The analysis of internal and external
factors shows that Starbucks has been facing various types of issues and these issues have hurt
the performance of the company. The report finds that challenge such as higher wages,
increasing-price of product and coffee beans must be handled by Starbucks to stay competitive in
the market. The report also proposes some approaches to overcome challenges.

Introduction
This report aims to provide a strategic analysis of a firm operating in the globe. From the list of
many firms, Starbucks is selected. The report identifies two internal and two external factors
affecting Starbucks competitiveness. The report also provides an overview of the major
challenge faced by Starbucks. The report concludes by proposing an approach for tackling the
challenge.

Background to the firm

Starbucks is the largest specialty coffee company in the world, offering world-class coffee to its
customers. It was founded by Gordon Bowker & jerry Baldwin in 1971 and is headquartered in
Seatle, USA. It is spread over 30,000 locations in 70 countries[ CITATION sta20 \l 1033 ]. Starbucks
business includes Ethos Water, Starbucks Coffee, Teavana, La Boulange and Torrefazione Italia.
Major products include coffee beverages, baked goods, tea and smoothies.
Internal factors affecting the firm
Internal factors are those factors which are within the control of an organisation. Organisational
culture, corporate governance, leadership, human resource management and financial
management are the internal factor affecting the business. Based on the analysis of Starbucks,
organisational culture and leadership are the major factors affecting Starbucks performance.
Organisational culture
Organisational culture includes an organisation's standards, values and principles that drive
behaviour. This impacts how people and organisations engage with each other, clients and
stakeholders[ CITATION Mic181 \l 1033 ]. It also influences employee dedication to the company.
Starbucks organisational culture was built under Howard Schultz's philosophy. In the domestic
and foreign market, he has effectively conveyed corporate culture across all workers. However,
employees at the store do not feel relaxed working long hours and are often discriminated against
on the grounds of ethnicity. An employee feels negatively motivated in the workplace. Low
organisational culture has also been cultivated by lack of efficient communication between
management and store workers. There are a large number of workers does not like the
discrimination set within top management and front line employee in terms of training and other
facilities. If such problem continues for a longer time, it can impact Starbuck’s brand image.

Leadership
Leadership is the practice of inspiring a person to accomplish a common goal and motivating
them[ CITATION Kem15 \l 1033 ]. The most common styles of leadership style the company
employs are democratic, transformational, servant and coaching leadership styles. Leadership
can be shown in terms of a leader's skill and position. Howard Schultz had created the Starbucks
leadership style. Since the organisation is one of the leading organisations adopting a servant
leadership style, the integration of leadership style presents a tremendous challenge. The
company relies primarily on the training and development of top management but does not offer
sufficient training to store staff. The leadership style may have been a concern if it had made
more focused attempts on thorough recruitment and workforce growth at all levels. Moreover,
leadership has failed at the introduction of new innovative products and change management.
More, transformative leadership approach is needed for the company.

External factor affecting the firm

External factors refer to those factors which are beyond the control of the organisation. There
are different types of external factors such as technological advance, social forces, legal forces
and environmental forces affecting business. Intense competition and rising coffee beans &
dairy products are the two critical external factors affecting Starbucks.
Intense competition
In the industry, the rivalry is ferocious. Intense competition will pressurise the profit levels of
Starbucks, which means that the business has to build strategies that allow it to achieve a
competitive edge in the new coffee market[ CITATION Mbi08 \l 1033 ]. Specialty coffee shops and
quick-service restaurants are the biggest rivals. It faces direct competition from the national and
foreign market for large and small coffee drinking products. McDonald, Costa, Dunkin's Donut,
Café and Tim Hortons are the main Starbucks competitors. Even if they serve niche coffee, all of
these rivals are distinguished from Starbucks in one or more respects and each has its strengths.

The key competitor is:

• Costa
Costa Coffee is the biggest rival of Starbucks vying for a non-alcoholic beverage. It makes
8.31% of Starbuck's sales[ CITATION 20ht \l 1033 ].
• McDonald’s
In the food manufacturing sector, McDonald's competes against Starbuck's. Compared with
Starbucks, it has 86,000 fewer employees[ CITATION htt20 \l 1033 ].
• Dunkin Donuts
It is Starbucks' third-biggest rival, selling numerous types of fast-food and non-alcoholic drinks
throughout the United States and Europe[ CITATION dun20 \l 1033 ].
The rising price of coffee beans
Coffee prices have risen by 20 % while global coffee demand is continuing to increase [ CITATION
Lan19 \l 1033 ]. While several factors are accountable for the price increases, one of the causes is
lower demand in Latin America. Climate change is raising the amount of unpredictable and
lengthy droughts that impact farmers in various areas of the world attempting to develop the
crops. Temperature variations increase the average number of coffee plant pathogens, thus
possibly killing essential pollinators. Intensive labour work and limited knowledge on farming of
coffee beans have led to a rise in the price of coffee beans[ CITATION Dem05 \l 1033 ]. With the
current context, the price of coffee is expected to increase making Starbucks coffee more
expensive.

The major challenge facing the firm

The principal challenge faced by Starbucks are:
i. The rising price of products: Increase in operational cost is pushing price pf Starbucks
coffee higher. Increase in the price of coffee was aimed at protecting the operating
margin. Between 2014 - 2016, the price of Starbucks product has risen by four times.
ii. Higher wage payment: Cost of worker is increasing rapidly over the years. Different
types of government legislation have raised the minimum wage level of employee.
Likewise, the provision of different types of intrinsic and extrinsic benefits to employee
has increased wages.
 iii. The increasing price of coffee beans: Different types of natural disaster in major coffee-
producing nations has risen the price of coffee beans. Likewise, the rise in demand for
coffee has also led to a surge in the price of coffee beans.
iv. Change management: Starbucks has failed at bringing new innovative products over the
year. It has relied solely on similar products. Moreover, the leadership approach used by
Starbucks has become outdated.

A proposed approach to tackling the challenge

It is ubiquitous for an organisation to face different types of challenges in business operation.
Over the year, Starbucks has come across various challenges. These challenges have directly or
indirectly affected the Starbucks operation. Implementation of the following approach can help
Starbucks tackle the challenge:
i. An increase in customer acquisition and optimal customer retention by offering different
types of reward program to an employee and offering a highly customised experience to
customers helps to increase the number of customers.
ii. An offering of different types of monetary and non-monetary benefits motivates an
employee to provide better customer service experience.
iii. By increasing hike in the price of bakery items and cold beverage by small margin helps
to retain customers
iv. Development of innovative products and change management will allow improving the
performance of Starbucks. Likewise, focus on improvement in management style also
helps to achieve change.

Conclusion & recommendation

The report has provided detailed insight into the strategic analysis of Starbucks. The report has
shown that leadership and organisational culture are a major internal factor affecting Starbuck’s
performance. On the same way, competition and the rising price of coffee beans are major
external factors affecting Starbucks. Likewise, a significant challenge faced by Starbucks are
change management, the rising price of coffee beans, increasing wages and the rising price of
products. These challenges affect the profitability and growth of Starbucks. A practical
implementation of the proposed approach would help Starbucks achieve success in the market. It
is encouraged for all the employee and management team of Starbucks to implement the
proposed strategies across all level of organisation successfully and always strive for achieving a
higher level of success at the organisation.
References
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Anon., n.d. https://www.mcdonalds.com/us/en-us.html. [Online]

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Bandoim, L., 2019. Forbes.com. [Online]

Available at: https://www.forbes.com/sites/lanabandoim/2019/11/27/here-is-why-coffee-prices-are-
going-up/#270ca07710b1
[Accessed 2020].

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Available at: https://www.dunkindonuts.com/en

Morcos, M., 2018. ORGANISATIONAL CULTURE: DEFINITIONS AND TRENDS.

Mulandi, M. E., 2008. Competitive strategies adopted by coffee roasters and packers in Kenya.
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