Starbucks is a well-known leader in the coffee drink industry, having faced various changes, challenges, and opportunities that have shaped its current position. In this analysis, we will examine Starbucks’ organizational environment, explore alternative business strategies, evaluate decision-making quality, and propose potential recommendations for improvement.
According to the Collins Dictionary of Business, SWOT analysis is a framework used by corporate planners to identify the internal strengths (S) and weaknesses (W) of a firm, as well as the external opportunities (O) and threats (T) it faces. This analysis is essential in formulating the firm’s competitive strategy, marketing strategy in individual product markets, and overall business strategy (Collins Dictionary of Business, 2006). By understanding this general definition of SWOT analysis, we can now examine the internal and external factors that contribute to it.
The strengths and weaknesses are internal factors that business leaders should consider during SWOT analysis. It is important to maximize our strengths and address our weaknesses by gathering feedback from customers and employees. Additionally, it is crucial to identify the resources and processes that are effective or require improvement. Strengths and weaknesses pertain to internal aspects of a business where leadership can directly influence through action. On the other hand, SWOT analysis also examines external factors referred to as opportunities and threats.
Opportunities can be viewed as investment areas that allow us to leverage our company’s strengths. It is essential for leadership to possess the necessary knowledge to identify threats by analyzing competitors and industry trends in order to maintain a competitive edge. These opportunities and threats typically arise externally through data research, which provides valuable information indicating areas of concern for one’s business. This data can be acquired through surveys conducted among employees and consumers or through third-party evaluations that compare business practices with those of competitors.
By studying Shah, Hawk, and Thompson’s case on Starbucks, it becomes evident that Howard Schultz, the founder of Starbucks, is committed to recognizing the strengths and weaknesses of his organization to utilize the strengths and enhance the company’s performance by transforming weaknesses into strengths. Throughout the case study, one aspect that greatly impressed me is Starbucks’ leadership’s aptitude for staying ahead of the competition in terms of employee treatment. As mentioned in the reading, Starbucks provides part-time employees with benefits such as health insurance and stock purchase opportunities.
This is relatively unheard of in the employment industry, but is a major strength that gives Starbucks an advantage. This strength allows Starbucks to have a stronger workforce with a lower turnover rate, which is crucial for businesses with many part-time workers. Another great strength of Starbucks is its commitment to perfecting and delivering the ultimate coffee experience. Although this is indeed one of the company’s strengths, it can also be considered a weakness during the company’s early stages.
In the 1980’s, Howard Schultz presented innovative coffee drink ideas to Starbucks’ founders, Jerry Baldwin and Gordon Bowker. However, Baldwin and Bowker were closed-minded and preferred to focus on maintaining Starbucks’ reputation as a producer, roaster, and brewer of high-quality coffee. Unfortunately, their narrow vision caused them to miss out on significant opportunities during that decade. Despite Schultz’s fresh concepts after his trip to Milan in 1983, Baldwin and Bowker were hesitant to take any risks as their existing business was successful without any modifications.
After assuming control of Starbucks, Howard Schultz successfully implemented his vision for the company, which he believed would greatly enhance profitability. Schultz recognized an untapped opportunity within the coffee bar industry in the United States and transformed a previous weakness of the company into a notable strength. His innovative mindset acted as a catalyst, propelling Starbucks into the mainstream. Identifying opportunities for Starbucks is one of Schultz’ greatest talents.
Among the opportunities the company encountered, expanding into new markets was arguably one of the biggest. In addition to the opportunities already mentioned regarding employee benefits and dedication to customers, expansion could be achieved through opening stores in new locations and introducing new products to consumers. Schultz and leadership saw any opportunity as a way to maximize their strength in providing excellent coffee to a larger number of consumers. Starbucks successfully seized this opportunity by venturing beyond their original territory in the Pacific Northwest.
According to the International Encyclopedia of Hospitality Management (2005), market penetration has been a key factor in Starbucks’ success in the Pacific Northwest. The strategy of market penetration involves increasing sales of existing products or services within existing markets. Starbucks utilizes this strategy to encourage customers to make more purchases each visit. By implementing market penetration, Starbucks aims to generate more business and divert customers away from competitors.
The expansion of Starbucks faced challenges in the stores opened in Chicago. Many consumers did not like dark-roasted coffee, and during winter months, customers were reluctant to go out in the wind and cold to get a cup of coffee (Shah, Hawk, & Thompson, 2006, pg. C-476). Being someone from the Midwest, I know that winter months can be challenging for several companies as people tend to stay home more because of bad weather. However, this was only a temporary weakness for Starbucks until the business started to thrive.
Expanding into new regions not only strengthened the company but also reduced the threat of competition that they had not faced before. The success of Starbucks in reaching a larger consumer base through expansion also introduced new threats to the organization. Competition from other organizations, such as Dunkin Donuts, emerged as a result of this expansion. According to Shah, Hawk, and Thompson (2006, C-494), Starbucks’ success prompted ambitious rivals to increase their expansion plans.
Starbucks boosted its competition, resulting in heightened competition as rivals improved. Starbucks’ growth was remarkable for several years. My colleagues often likened Starbucks to Walgreen’s or CVS because it was always conveniently located nearby. However, growth is finite. According to Marcus in our text, “at first, there is a surge in growth as consumers flock to a market once a product demonstrates success. However, the saturation point of prospective buyers is eventually reached, causing growth to stabilize” (2011, pg. 42).
The threat of a business slowdown was not felt by Starbucks until 2008 when they realized that they were not profitable in all locations. As a result, they had to start shutting down operations in some places. Starbucks continued to expand into new markets and locations, but their growth rate decreased as they closed more operations in 2008 than they opened. Unfortunately, this is a threat that many businesses may encounter throughout their lifespan.
Through the utilization of SWOT analysis, it becomes evident that Starbucks holds a position of business leadership as its leadership effectively exploits opportunities by maximizing its strengths. Howard Schultz drives alternative strategies that enhance the company’s weaknesses, thereby reducing potential losses from competition. Schultz’s visionary thinking propels Starbucks into the future, placing him in a commanding position within the company.
References:
SWOT analysis. (2006). In Collins Dictionary of Business. Retrieved from http://www.credoreference.com/entry/collinsbus/swot_analysis
Marcus, A. A. (2011). Management Strategy: Achieving Sustained Competitive Advantage 2nd ed. New York: McGraw-Hill Irwin.
Shah, A., Hawk, T., & Thompson, A. (2006). Starbucks’ Global Quest in 2006: Is the Best Yet to Come?. Retrieved from: http://vizedhtmlcontent.next.ecollege.com/pub/content/d4f60ce0-7506-4a67-b040-9a031affbc80/Starbucks2006.02.15.12.mjn.pdf
Market penetration. (2005). In International Encyclopedia of Hospitality Management. Retrieved from http://www.credoreference.com/entry/esthospitality/market_penetration
