Kayla Fuelscher 29098895 September 28th, 2015

Starbucks’ strategy is to grow through the quality of their product, employing talented partners

and product diversification. With these three factors in place Starbucks is able to create a memorable

experience for its customers. To execute this strategy, Starbucks imports its coffee from three different

parts of the world: Latin America, the Pacific Rim and East Africa. This allows the company to reach

more customers by providing a coffee palette for all. Starbucks is able to maintain their quality standards

through close relationships with its exporters, sampling of each shipment three times, their roasting and

blending process, and their method of vacuum sealing the coffee. Although challenging, Starbucks’ staff

have undergone extensive training which allows them to provide its customers with a service unlike its

competitors. They are armed with knowledge and expertise of the coffee industry and the products they

serve that they are able to answer any difficult question. Starbucks was able to diversify their product

through joint ventures with PepsiCo and Dreyers’ Ice Cream, as well as entering the grocery channel.

Hitt, Ireland and Hoskisson explain that “creating value for customers is the source of above-

average returns for a firm.” Starbucks is able to create value for its customers by way of providing them

with a memorable experience. The company utilizes its capabilities and core competencies effectively to

do so. Starbucks has many capabilities is different functional areas of the company. Firstly, they claim to

have the best transportation rates in the industry. This is paired with a very accurate forecasting process to

determine which store needs a shipment and when to maximize the efficiency of Starbucks’ supply chain.

Human resource department works effectively as the partners (employees) are motivated and empowered

by their work. Starbucks has a significantly lower barista turnover rate than the industry average which

can be attributed to higher wages, health insurance and an employee stock option plan. Starbucks has

expertly marketed their brand through being the first to brand coffee carts and by building partnerships.

They have innovatively merchandised their product with a mail order program called Encore.

Management has a great understanding of the business from the bottom up and is in touch with individual

stores and partners. Starbucks produces the same high quality product every time through its roasting and

blending technique and quality control methods.

 The capabilities discussed above must then be matched with Starbucks resources to establish core

competencies. Resources can be tangible or intangible. Starbucks’ tangible resources would be their

financial capabilities, high quality coffee, real estate, roasters and many more. Intangible resources would

be the knowledge and skill the baristas hold, effective organizational culture, brand name, the quality in

their products and so on.

For a capability to be a core competency it has to be valuable, rare, costly to imitate and

nonsubstitutable. Consider Starbucks’ high quality coffee; it is valuable to customers and it is rare as no

other company possess the same coffee. It would also be costly to imitate as Starbucks has completed

research to develop their coffee. The coffee is however substituatable by its competitors such as Second

Cup or A.L. Van Houtte. With this said, it can be concluded that Starbucks’ coffee is a core competency

than provides the company with a sustainable competitive advantage. Starbucks’ baristas, mail order

program Encore and roasting and blending process also meet these criteria and are therefore core

competencies.

Through discussing Starbucks’ resources, capabilities, and core competencies we can now

analyze the company’s value chain. Hitt et al. explains that a value chain consists of value chain activities

such as supply chain management, operations, distribution, marketing, and follow up service. In order for

these activities to create value for customers support functions such as finance, human resources and

management information systems are required. From exhibit 7, we see that Starbucks has enjoyed a

steady increase in net earnings from 1994-1996 and has projected that they will continue to rise. As

previously discussed the human resource department is efficient and effective. Starbucks has been

successfully managing its value chain activities. However, there is no indication from the case that

Starbucks provides any follow-up service which may be attributed to the fact that their product is usually

consumed immediately.

Starbucks should once again turn down McDonald’s. Starbucks has partnered with companies

which can serve Starbucks coffee in locations where Starbucks otherwise would not be able. These

partnerships were essential for Starbucks to expand their number of customers they can reach. Where
McDonald’s has stores, Starbucks can too. If the company chose to partner with McDonald’s it could

mean less customers walking into a Starbucks store. This could lead to a loss in revenues as there would

be fewer customers to purchase their snack items, coffee mugs and coffee beans. Starbucks must also

consider what partnering with a fast food franchise will do their brand and perception of their quality.