Does the External Environment Determine the Success or Failure of an Organization?

Table of Content

The company’s external environment comprises forces and factors that are external to the organization and influence its performance. This environment can be categorized into two components: specific environment and general environment. The specific environment encompasses distinctive factors that have a direct effect on goal attainment and managerial decisions, including suppliers, customers, pressure groups, and competitors.

Starbucks, a well-known company specializing in coffee and food, has emerged as a dominant player in the coffee market during the 1980s. It is currently the leading seller of coffee in North America. Operating since 1971, Starbucks initially started its business operations in Seattle and has rapidly expanded to operate 2200 stores. The general environment encompasses various factors that can impact a company, including the political or legal environment, economic environment, sociocultural environment, technological environment, and demographic environment.

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According to Schultz (1997), the founders of Starbucks were taught the method of darkly roasting Arabica beans by Alfred Peet, who introduced this technique to the United States. In addition, Starbucks provided a pleasant and inviting social environment and offered high-quality products, while also creating a positive work environment for its employees. When analyzing the company’s performance, it is crucial to consider the legal-political environment, which encompasses the business’s interactions with coffee producing nations and the frameworks it operates within.

The review should encompass public policies and political aspects concerning private enterprises, state and local government control, and regulation. The coffee shop’s operating costs are influenced by government subsidies or taxes. In July 2002, a conflict between the United States and Iraq led to heightened tensions between the Middle East and the United States. As relations deteriorated between Israel and the United States, Arab individuals launched a boycott against American goods and services that had an impact on U.S. companies such as Starbucks, Coca-Cola, and Burger King.

Starbucks faced significant financial difficulties due to the implementation of certain policies. In 2003, the company saw a 30% decrease in sales performance. Additionally, rumors circulated about Starbucks donating to the Jewish community during the Palestinian crisis, which resulted in security threats and closure of six stores. These challenges, along with an unfavorable business environment in Israel, contributed to Starbucks’ failure in the country. Furthermore, changes in import laws had a substantial impact on Starbucks’ operations. Coffee bean imports were required to meet a minimum price requirement as part of the Fair Trade policy.

Starbucks is encountering challenges in operating its business due to the rising cost of imported coffee beans. Consequently, they have been compelled to raise the selling price of their Starbucks coffees by 15%. Since 2001, Starbucks has been confronted with two class action lawsuits. The initial lawsuit involves Carr versus Starbucks, while the second case is Starbucks versus Shields. Starbucks was accused of violating hour and wage laws in California. To avoid lengthy legal proceedings, Starbucks chose to settle the claims. Unfortunately, these lawsuits have adversely impacted the company’s reputation.

Starbucks experienced a decrease in public trust due to the economic situation, which establishes the necessary rules for business operations. In Hong Kong, the economy operates under free private enterprise systems. When considering entering new markets, Starbucks needs to assess the long-term viability of its strategies. This assessment involves examining different factors like economic growth and stability (including employment rates and government policies regarding fiscal and monetary affairs) as they directly impact food and beverage demand. Additionally, competition also significantly shapes the coffee market.

The cost and purchasing levels of a coffee shop operation can be influenced by inflation, deflation, and changes in disposable income. Starbucks experienced successful sales expansion through an expansion plan and saw its net income rise from $1.3 billion in 1998 to $1.7 billion in 1999. With the goal of significant company growth over the next three years, Starbucks plans to introduce beverages in the summer of 2010. However, as of March 30th, the company’s profits have decreased by 28% compared to their projections for store openings in the United States, which included 400 licensed units.

In 2008, Starbucks experienced a significant decrease in profit by 43%, amounting to 425 units. In addition, they made the decision to close down 100 underperforming stores. The following three years are expected to witness sluggish economic growth. To combat this situation, Starbucks has decided on an annual opening of 400 new stores, resulting in a total of 21,500 stores by the end of 2011. Moreover, their strategy includes expanding into foreign markets and capturing a market share of 40% to improve company performance and increase profits. It is important to note that inflation also plays a crucial role in influencing the company’s performance as highlighted by Lisa (2008), with the inflation rate rising only by 5% in 2009.

Starbucks addressed the increasing demand for healthier products in order to attract customers. The company launched a new breakfast line in Southern California, offering chilled food and unique baked items. CEO Howard Schultz mentioned that the sandwiches might be as tasty as their signature coffee. From 2008 to 2009, Starbucks experienced a revenue growth from $2.3 billion to $2.5 billion. Inflation can affect the buying power of coffee. The sociological environment encompasses different lifestyles.

The behavior of workers and consumers is typically influenced by it. In the case of a foreign company, several aspects need to be considered. The values and social protection of workers, such as the mandatory provident fund, will impact employee management, internal operations, and the choice of staff. Additionally, social values related to Chinese customs and demographic data will also influence the preferred type of coffee to be sold. Consumer preferences may also shift from coffee to other beverages. Lastly, there are certain principles that can impact the business environment, including Starbucks’ commitment to purchasing, selling, and using recyclable products.

In some Starbucks stores, cardboard or milk jugs are recycled, but commercial recycling services can be hard to find in certain countries. If a store is located in a community without recycling services, Starbucks may not offer comprehensive or any recycling options. Waste collection and recycling in malls is usually handled by the landlords because shared spaces are lacking. However, Starbucks is committed to making recycling more convenient for customers. In the U.S., the company is collaborating with major authorities to increase front-of-house recycling opportunities.

Starbucks has taken measures to reduce the environmental impact of their cups by creating recyclable options and promoting the use of reusable cups. In fact, customers who bring their own tumblers and mugs receive a 10-cent discount as a reward. Furthermore, customers who choose to have their coffee at the store are encouraged to utilize reusable mugs, which helps protect forests and decreases the company’s ecological footprint. Many patrons perceive these initiatives from Starbucks as environmentally friendly. However, it is important to note that there may be variations in how corporate-owned and independently-owned coffee shops approach this issue due to the preferences of customers seeking unique coffee shop experiences.

According to Nicole (2006), different types of ownership result in different coffee shop cultures. One such culture is observed in a group of patrons known as Campers, who enjoy spending longer periods of time in the coffee shop. To these Campers, the coffee shop is akin to a living room. Starbucks also recognizes two characteristics of these Campers: they engage in individual activities and often isolate themselves from others. Coffee lovers who fall into this category can be seen using their personal notebook computers, discussing projects with partners, and reading newspapers or books.

Increasing the number of coffee lovers who enjoy the Starbucks environment can lead to higher revenues for the company. The technological environment of Starbucks involves various systems and knowledge to enhance operational efficiencies. Favorable policies aimed at developing high technology can impact the coffee machines used in the coffee shop. By improving worker’s skills and the technology infrastructure, Starbucks can enhance operational efficiency. The company continuously seeks ways to provide customers with a better coffee experience.

With the advancement in technology, Starbucks introduced the Starbucks Card, which has significantly improved customer service efficiency and provided the opportunity to decrease waiting time and enhance convenience for customers. Additionally, Wi-Fi and other information technology tools have proved beneficial. An essential aspect is the proficient utilization of technology by employees to operate coffee machines accurately and efficiently. This technology has facilitated employee planning and organization for Starbucks. The company also utilizes the internet for advertising and promoting their products. Advanced technology has the potential to enhance Starbucks’ competitive environment.

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Does the External Environment Determine the Success or Failure of an Organization?. (2016, Dec 23). Retrieved from

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