Starbucks Evolving Into A Dynamic Global Organization

1. What was Howard Shultzs original strategic vision for Starbucks? Is his 2010
vision for Starbucks different from the one he had in the 1980s? How many
times has his strategic vision changed? Is his present strategic vision likely to
undergo further evolution? After evaluation of the case, it can be said that
Shultzs first strategic vision for Starbucks began during his trip to Milan, Italy in
1983. It is during this trip that Shultz came to the conclusion that the Starbucks
store in Seattle completely missed the point. For him, going to Starbucks should
feel like a treat for their customers and every time should be an experience. For
this to be possible, Starbucks should do more than selling coffee beans, they
should also serve fresh coffee in their stores, this, Shultz believed, would help
recreate the Italian coffee bar culture in the United States, his original vision.
This vision is represented throughout the opening of his own company, Il
Giornale in 1986. In 1987, his vision continues to expand.
At this point in time, Shultz acquires Starbucks, and the combination of the two
companies creates Starbucks Corporation. Once he has become CEO and
president, Shultz shares his vision with the staff; he aspires that Starbucks will
become a national company with values and guiding principles that the
employees could be proud of. Shultz also seeks for Starbucks to become the
most respected brand name in coffee, and that this brand name will be admired
for its corporate responsibility. During this same year, Starbucks continues to see
some changes within the company, mostly through expansion outside of the
Pacific Northwest, with a total opening of 15 new stores by 1988, 30, in 1990, 32
in 1991 and 53 in 1992, without the use of franchising. Between 1992 and 1993,
Starbucks tried the Starbucks everywhere strategy in order to minimize
delivery and manufacturing costs, which proved to be ineffective.
From the beginning of 1995 until present day, Starbucks also launched a longterm strategic campaign for product line growth; this includes the many
alliances, acquisitions and licenses that Starbucks formed. Another example of
the product line growth within the company can be seen through the change of
menu in 2008, in an attempt to diversify their products to reach more
consumers. It should also be noted that all of the partnerships that were formed
from the 1980s to the 1990s were updated, either through remodeling, change,
or discontinuation, proving the evolution of the companys strategic visions
throughout the years. Finally, in 2010, following the aggressive growth strategy
of Donald, Shultz returns to his position as CEO and continues to make some
changes.
During Donalds growth strategy, Shultz felt that Starbucks was becoming less
passionate about their customer relationships and the customer experience
therefore he came up with a major restructuring and revitalization initiative. This
was to be accomplished through several main points; strengthening the core,
elevating the guest experience, investments and growth, expansion in Asia, India
and Vietnam. All of these strategies were put in place in order to recast
Starbucks into the company it envisioned it should be. Therefore, it can be seen

that the vision of the company has not undergone many changes since the
beginning; Shultz always envisioned that Starbucks will become the number one
brand associated with coffee and a place with corporate values that the
employees could be proud of. However, throughout the companys expansion, it
can also be said that the vision has grown larger, but the core values have
remained the same.
2. Which corporate, entry timing options and diversification strategy does
Starbucks follow? It can be deducted that the overall direction of the company is
expressed through their mission statement to inspire and nurture the human
spirit one person, one cup, and one neighborhood at the time. The strategies
that have been employed further support this goal. Starbucks used a growth
strategy in order to reach their expansion goals, increase sales and market share
and increase the firms overall value. Internally, the growth increased the firms
sales, their production capacity, workforce and their geographic coverage. This
internal growth was achieved through vertical integration, expanding the
companys activities, within the same industry. It was also achieved through
diversification, by offering more product choice to its customers in order to
appeal to a larger base. External growth was also done through the acquisitions
and formation of strategic alliances, such as the one with PepsiCo for a
diversification and increase in market share.
We also believe that Starbucks performed the following types of integrations:
forward vertical integration, which was done through their retail stores. Not only
do they produce the coffee with their own roasted coffee beans, but they then
proceed to sell that coffee directly to the end user, the consumer in their retail
stores. Forward vertical integration is also performed through their licensing
agreements, such as with Kraft Foods, Inc. in order to market and distribute
Starbucks coffee beans within the grocery channel in the US. In this case, Kraft is
responsible for the marketing and distribution for the product. Backward vertical
integration can be seen through the direct purchasing agreements made with
their coffee growers, roasting plants and warehouses. This is done in order to
ensure that they will have a secure supply of coffee beans at a pre-arranged
price.
Horizontal integration is also evident throughout the companys actions, through
the acquisitions, partnerships and joint ventures made with other companies,
such as that with Ethos Water in order to further diversify their line of products
and with Tazo Tea in 1999. Diversification is also apparent through the making of
such products such as CDs, to promote the music played throughout their retail
stores, accessories, such as their mugs, and coffee machines. It should however
be noted that their diversification strategy continues to rely mostly on related
products. The only truly unrelated diversification is demonstrated through the
production of CDs and the Apple application. In order to classify their entry
timing options, we believe that Starbucks is a leader offensive company, seeing
as they were the first to enter into the market, offering a new product and
service. It can be noted that their main objective was to be the only company
providing their customers with a great product combined with a strong customer

connection. This can also be seen in their pricing strategies, seeing as their
prices have gradually increased over time.
3. Which one of the 5 generic competitive strategies most closely approximates
the competitive approach that Starbucks is employing?
Throughout the case, it is evident that Shultz aims for Starbucks to offer
something attractively different to their customers from any other company. This
is achieved through employing a broad differentiation strategy, by offering a
wide range of products that appeal to an extensive spectrum of consumers. They
also diversified their offerings to incorporate the sale of products outside of their
retail stores through their partnerships with Tazo Tea and PepsiCo (to name a
few). Their customer base is extensive due to their constant quality and service
within the stores, which promotes the purchases of other Starbucks products
outside of these stores. After reviewing the history of the company, it can also be
said that Starbucks promotes constant innovation in order to stay ahead of any
imitative competitors. All along, a strong concentration is put on the quality of
the product, starting from the quality of the coffee beans and roasting
procedures used by the company.
This is a promise made to the customers that only the best coffee will be used for
their products and can be seen through their mission statement our coffee has
always been and will always be about quality. Were passionate about ethically
sourcing the finest coffee beans, roasting them with great care and improving
the lives of people who grow them. We care deeply about all of this, our work is
never done, proving their constant innovation. Their differentiation can also be
proven through their pricing strategy, which remains high in order to cover the
extra costs of their differentiating features; high quality coffee, an attractive
work environment for their employees, and larger retail stores with exceptional,
and environmentally friendly design.
4. What are the key policies, practices, business principles, and procedures that
underlie how Howard Schultz and Starbucks management have implemented
and executed the companys strategy? As noted earlier, Schultz had a vision of
Starbucks becoming the strongest brand related to coffee, with a large focus on
expansion. In order to achieve this vision, Schultz executed 6 main guiding
principles around which the companys strategy is formulated: i. Provide a
great work environment and treat each other with respect and dignity : Schultz
understood that in order to be successful, his store employees need to be
knowledgeable about the companys products, pay attention to details in
preparing the companys espresso drinks, eagerly communicate the companys
passion for coffee and possess skills and personality to deliver consistent,
pleasing customer service. The employee base pay determined by the pay scales
prevailing in the geographic area where an employee worked and the persons
job, skills, experience and job performance. Starbucks was featured on the 100
Best Companies to Work For according to Fortune magazine thanks to the
camaraderie among workers, health insurance even for part-timers. ii. Embrace
diversity as an essential component in the way we do business

Schultz puts a strong emphasis on his employees and believes in offering the
same opportunities to each of them; this is supported through extensive training
for everyone. Every barista/partner hired receives at least 24 hours training in
their first 2 to 4 weeks, which includes classes on coffee history, drink
preparation, coffee knowledge, customer service and retail skills and of course,
Brewing the perfect cup . This diversity can also be seen in the line of
production variation, by offering a wide selection of products to their customers
from coffee to CDs and coffee machines. iii. Apply the highest standards of
excellence to the purchasing, roasting and fresh delivery of our coffee
The coffee-purchasing group working with Starbucks personnel tested new
varieties and blends of green coffee beans from different sources (70 tropical
countries producing coffee). Starbucks continues to source from different
country, which reduces the risk related to weather or eco/political conditions.
Starbucks bought coffee using fixed price and price-to-be-fixed purchase
commitments, depending on market conditions to secure an adequate supply of
quality green coffee. iv. Develop enthusiastically satisfied customers all of the
time This is achieved with an emphasis on the quality of service required by
each partner in the training process seeing as the quality of the coffee at the
center of the Starbucks concept.
Customer satisfaction is always viewed as a main concern through all the policies
set by Starbucks v. Contribute positively to our communities and our
environment This can be seen through the purchasing strategy of Starbucks, in
which they ensure that the prices being paid for green coffee beans are high
enough to ensure the small farmers are able to cover their production costs and
provide for their families. They also work directly with these small coffee
growers, local coffee-growing cooperatives and other types of coffee suppliers to
promote coffee cultivation methods that protected biodiversity and that are
environmentally sustainable.
For instance, Starbucks partnered up with Conservative Internationals Center For
Environmental Leadership to develop specific guidelines (CAFE Practices)
covering 4 areas: product quality, price received by farmers/growers, safe and
humane working conditions and environmentally responsible cultivation process.
vi. Recognize that profitability is essential to our future success Profitability
remains the aim of any company, and it is also the case for Starbucks.
Fortunately, it was seen in the case that the revenues have gone up by 6.6 billion
over the first 6 months of 2011 with an operating income of 985 million in the
first half of 2011.
5. What values does Starbucks have? How well do they connect to the strategy
and to the manner of which the company conducts its business? The exhibit 6
outlines Starbucks main values as following: Cornerstone value: build a
company with soul and never stop pursuing the perfect cup of coffee by buying
the best beans and roasting them to perfection Starbucks Core Values:
Coffee: Quality

Partner: Its not just about work, its passion, respect and dignity Store: Sense of
belonging, full of humanity
Customer: human connection, promise of a
Neighborhood: Every store is part of a community

perfectly

made

beverage

Shareholders: Our success rewards the shareholders

Throughout the case, we raised different development strategies, all interrelated
with the core values: Market expansion strategy: Since the acquisition of
Starbucks, Schultzs first intention has always been to expand Starbucks global
footprint. By expanding internationally he creates connections all over the world.
Store expansion strategy: With regard to location, individual sites are selected in
the most highly visible places possible, and centralized cities. Throughout the
Starbucks everywhere strategy Schultz developed a real community and raised
this notion of neighborhood bringing together customers and employees
sharing the same passion for coffee.
International expansion: Starbucks is looking for partners having strong
retail/restaurant experience, values and corporate culture compatible with
Starbucks, committed to good customer service, strong financial resources and
demonstrated brand-building skills Strategy to expand product offerings and
enter new market segments Great place to work: Schultz developed a special
training program for all store employees aimed at reigniting their emotional
attachment to customers, and focusing their attention on the details of delivering
superior customer service and pleasing customers (Instituting health care
coverage for all employees, Stock option for employers, Purchase plan for
employees) Starbucks coffee purchasing: Each coffee producer is carefully
chosen (country, agricultural conditions, varieties, sources) in order to meet
Starbucks exacting standards of quality and flavour.
Starbuck also pays attention to the pricing and purchasing arrangement and
makes sure that farmer and coffee growers are treat fairly. Starbuck corporate
social responsibility strategy: The way to build a great, enduring company is to
strike a balance between profitability and a social conscience. Through this
strategy, Schultz intents to contributes positively to the communities in which
Starbuck has stores and conducts its business in a way that earn the trust and
respect of customers, partners, shareholders
6. Preform a SWOT analysis for Starbucks
Strengths
Weaknesses
Opportunities
Threats
Partner Recognition Program 18 different awards and programs Donalds
management and aggressive growth strategy

Expansion / new stores in US, China, Europe with licensed stores

Wide variations in municipal recycling capabilities that could prevent Starbucks
to implement their recycling stores
Clear and communicated mission statement
Starbucks Everywhere strategy
Further development of new products
Increased competition developing of similar concepts
Price-to-be-fixed contracts
Limited Children s Menu
More strategic partnerships /alliances/acquisitions
Another Economic Crisis
CAFE partnership and member of Fairtrade International
High pricing
Increase in coffee consumption- growth in the market
Devaluation of stock
Starbucks Farmer Support Centers
Reliance on the US market
Increased market price for coffee and dairy products
Starbucks Corporate Social Responsibility:
Ethically sourcing all of its products
Community involvement and corporate citizenship
Environmental stewardship
Charitable contributions
High operational costs
Change in customers taste
Visionary leader
Motivated staff thanks to the ideal workplace conditions
7. What recommendations would you make to Howard Schultz to sustain the
companys growth and support continued strong financial performance in the

years ahead? Starbucks emphasizes thoroughly on the operation-side of its

business, making sure that the customer experience is at the best that it can be.
However in order for their international expansion to be successful, efforts on
marketing should be encouraged. This marketing would assist Starbucks to
further understand the market conditions and customer preferences of the
markets they plan on entering and increase the brand recognition in these
countries. In the United States, their marketing was mostly based on word-ofmouth and educating their customers (excluding their counter advertising for
Mc Caf). Social media could be used as a source of advertising to maintain a
close relationship with its customers.
Starbucks should also continue its international expansion; their geographical
distribution is not very even considering the amount of retail stores in the US,
therefore our second recommendation is to penetrate new markets such as
China where there is a strong interest in the product. Thirdly, we believe that
Starbucks should return to one of their primary values; creating a strong
connection with the customer. This value is one of Starbucks strongest
differentiating qualities and therefore making a stronger effort with this can
create a stronger customer loyalty. This customer connection risks to reduce due
to the speed of expansion and therefore extensive training should be done in all
of the stores for it to become a constant standard, no matter which store or
location is in question.
Lastly, we believe that Starbucks should do a big advertising campaign on their
Verismo machines with their respective pods. This will decrease their competition
with Nespresso and could make them the first choice for at home coffee
machines. This could be successful due to the well-known quality of Starbucks
coffee and products, and a stronger advertising approach will make more people
aware of this possibility. Also, the fact that Starbucks has more selling points
than Nespresso can make customers more willing to buy their coffee prods from
their retail stores, rather than looking for a Nespresso store.

Starbucks Case
1.

What was Howard Schultzs original strategic vision for Starbucks? How many times has his strategic vision
changed or evolved into something different? Is his strategic vision for Starbucks in 2011-2012 likely to
undergo further evolution?

Howard Schultzs original vision for Starbucks was to become a national company with strong value and
principles that employees would be proud of working with Starbucks. In early 1990s, senior executives team
came up with a clear mission statement that has never changed.
The strategic vision has never changed but expands few more objective missions. After Schultz return as
Starbucks CEO, he took several actions that push Starbucks to the new level of differentiation and innovation.
Schultz had three main themes: strengthen the core, elevate the experience, and invest and grow. He also had
an effort on cost and efficiency campaign that worked well from Q1 2009 to Q2 2012. Schultz had plan to open
thousands of new store in China over time. Although the Japan is its biggest foreign market, Starbucks
believes that China and other Asia countries have the most significant growth opportunity for the company.

2.

Has Starbucks strategy evolved as the strategic vision has evolved?

Yes. Howard Schultz has his strategic vision evolved since II Giornale acquired Starbucks in 1987. Schultz told
the group his vision and executed his strategy plans to achieve the goal.

3.

Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the
competitive approach that Starbucks is employing?

Starbucks employed the focused differentiation strategy which emphasis on high-quality products and services
experience in all expansion stores. The strategy attracts customers who want the finely brewed coffee and
friendly barista services.

4.

What are the key policies, practices, business principles, and procedures that underlie how Howard
Schultz and Starbucks management have implemented and executed the companys evolving strategy?

Schultzs vision was focused on expansion with full control strategy during 1987 through 1995. Then, Starbucks
utilized both company-owned-and-operated and license store agreement nationwide and international. By
partnered with PepsiCo and Dreyers Grand Ice Cream in 1994~1995, Starbucks expanded their product lines to
cans or bottles coffee beverages and ice cream. In 1998, Starbucks licensed Kraft Food to market and
distribute Starbucks Coffee bean and ground Coffee to the grocery stores. The expansion strategy gave
Starbucks a glory two digits growth till 2008.

5.

What values does Starbucks have? How well do they connect to the present strategy and to the manner
in which the company conducts its business?

Starbucks senior executives brought in some key value and guiding principles into Starbucks culture in the
early years. The key value to build a company with soul was that the company would always purchase best
green beans and roasting them to perfection. Starbucks promises their customer that Starbucks would never
use artificial flavor chemicals in their beverages. Just say yes was the key principle of training program for
employees to satisfy every customer. All these values connected together while offering a cup of finely brewed
coffee with happiness ambience that growth to employees and shareholders.

6.

What is your evaluation of Starbucks social responsibility strategy? Is it sincere or just something the
company does and talks about to create a good public image?

Starbucks corporate social responsibility has four elements: ethically sourcing all of its products, community
involvement and corporate citizenship, environmental stewardship, and charitable contributions. Howard
Schultz implemented social responsibilities strategy varied over years since he became CEO in 1987. Starbucks
had 12th named to Corporate Responsibility Magazines list of 100 Best Corporate Citizens for 2010.

7.

What is your assessment of Starbucks financial performance during fiscal years 2007-2011?

Due to the economic recession in 2008 -2009, the growth rate was decreased to -5.86% in 2009, and the
operating profit margin drained to 3-4% in 2008-2009. Both growth rate and operating profit margin grow to
8%-10% in 2010-2011. The Starbucks stopped short-term borrowing for new opening stores after 2009 and froze
long-term debt level since 2007. The overall financial performance are getting better after revenue decreased
in 2009.

8.

Has Howard Schultz done a good job since his return as Starbucks CEO? Why or why not? What evidence
can you cite in support of your position?

Howard Schultz has done a great job. Schultz always focuses on best coffee experience that company can
provide to customers. His three strategic vision themes include, strengthen the core, elevate the experience,
and invest and grow. Those strategic visions saved the Starbucks stock drifted from $8 in 2007 and got it back
to $55 in 2012. The transaction rate was from average 9.8 transactions per labor hour in 2008 to 11.3
transactions per labor hour. The total net revenue were 13.7% growth in 2012.

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9.

What issues confront the company as of mid-2012? What should Starbucks management be worried about?
As of uncertain economic condition goes, management should worry about the possibility of an economic
downturn and lower demand power. Lower customer traffic and lower average price per transaction could
impact company revenue and profit performance. The low price competitors advertisement campaign that
Starbucks management should more careful of it.

10. What recommendations would you make to Howard Schultz to sustain the companys growth and support
continued strong financial performance in the years ahead?

Continuing open new stores in Asia market by open company-owned store and licensing store.

Communicate with both domestic and international delivery channels and retailers to distribute its products.