Starbucks is a leader in the coffee drink industry, as many are well aware of. However, the company has gone through different changes, challenges, and opportunities that have led the company to where it is today. Through SWOT analysis, we will take a deep dive into Starbucks’ organizational environment, look at alternative business strategies to consider, assess the quality of decision making, and provide possible recommendations for improvement.
Collins Dictionary of Business defines SWOT analysis as “a framework for identifying the internal strengths (S) and weaknesses (W) of a firm, and the external opportunities (O) open to it and the threats (T) it faces, which can be used by corporate planners in formulating the firm’s competitive strategy and marketing strategy in individual product markets and its overall business strategy” (2006). Through knowing the general definition of SWOT analysis, we can begin to break down the pieces of SWOT analysis by the internal and external factors.
Internal factors are the strengths and weaknesses. Business leaders must be mindful during SWOT to maximize our strengths and improve our weaknesses through surveys of our customers and employees. We can also identify the resources and processes that work or need improvement. Once again, strengths and weaknesses focus solely on the internal factors of one’s business, those areas leadership can directly impact by action. On the other hand, SWOT also focuses on external factors known as opportunities and threats.
Opportunities can be seen as areas of investment that we can capitalize on strengths within our company. Leadership must be knowledgeable to identify threats from analyzing competitors and industry trends to stay ahead of the game. These opportunities and threats arise outside the company through data research that delivers information to show these different areas of concerns for one’s business. This data can be obtained through employee and consumer surveys or through third parties that review business practices against those of one’s competitors.
Through reading Shah, Hawk, and Thompson’s case on Starbucks, one can see that Starbucks’ founder, Howard Schultz, is dedicated to identifying his organizations strengths and weaknesses so that he can capitalize on those strengths and improve his company’s performance through building weaknesses into strengths. A strength that has stuck out to me throughout reading the case study is Starbucks’ leadership’s ability to be ahead of competition when it comes to how they treat their employees. As noted in the reading, Starbucks offers part-time employees benefits such as health insurance and stock purchase options.
This is relatively unheard of in the employment industry, but is a major strength Starbucks has working in its favor. By having this strength, Starbucks is able to maintain a stronger workforce with a lower turnover rate of employees, keys to businesses that have a large number of part-time workers. Another of Starbucks’ great strengths is its dedication to perfecting and delivering the perfect coffee experience. While this is true to be one of the company’s strengths, it can also be seen as a weakness of the company during the early stages of the company.
Howard Schultz had pitched ideas to Jerry Baldwin and Gordon Bowker, originators of Starbucks in the 1980’s, regarding coffee drinks; however, Baldwin and Bowker were narrow minded in their vision to keep Starbucks on being a maker, roaster, and brewer of fine coffee that they let big opportunities escape during the 1980’s. The ideas Schultz had after returning from his trip to Milan in 1983 were different and innovative, but by all accounts, Baldwin and Bowker did not want to take a chance on something as their current business was working without needing any changes or additions.
After Howard Schultz took over Starbucks, he was able to move forward with his vision of what he believed would make the company extremely profitable. Schultz was able to identify an opportunity in the coffee bar industry that had been untapped in the United States and turn what was once a weakness of the company into one of the company’s strength. His innovative thinking was a catalyst that helped deliver Starbucks to the mainstream. One of Schultz’ greatest abilities are to identify opportunities for Starbucks.
Of those opportunities, expansion into new markets can arguably be one of the largest opportunities the company faced, in addition to those opportunities already mentioned regarding employee benefits and dedication to their customers. Expansion can be seen in multiple ways through opening stores in new locations and delivering new products to consumers. Any opportunity was seen by Schultz and leadership to maximize their strength of delivering outstanding coffee through reaching more consumers. This opportunity was realized by Starbucks through expanding outside their home territory in the Pacific Northwest.
Market penetration played a large part in why Starbucks has been so successful in the Pacific Northwest. From the International Encyclopedia of Hospitality Management, we find market penetration as a strategy that “seeks to increase sales of existing products or service to existing markets” (2005). Starbucks sees opportunities to increase sales to get its customers to purchase more each time they come in. Through market penetration, Starbucks strives to promote additional sales to its customer base in an effort to drive more business into its operations and away from their competitors.
Expansion was not seamless. Troubles were felt in the stores opened in Chicago in that many consumers “did not take to dark-roasted coffee” and “in winter months, customers were hesitant to go out in the wind and cold to acquire a cup of coffee” (Shah, Hawk, & Thompson, 2006, pg. C-476). As someone that lives in the Midwest, winter months can present a challenge to a number of companies in that many leave home less due to inclement weather conditions. This opportunity for Starbucks was a momentary weakness until business began to take off.
Not only did the endeavor to expand into new regions strengthen the company, but it also lessened a company threat of competition that they had previously not competed with. While expansion was a key piece to Starbucks’ success in reaching a much larger consumer base, it also brought about a whole new world of threats to the organization. From expansion, we can see that threats came from other organizations through competition with competitors such as Dunkin Donuts. As stated by Shah, Hawk, and Thompson in our text, “Starbucks’ success was prompting a number of ambitious rivals to scale up their expansion plans” (2006, C-494).
Starbucks struck its competition, which in turn increased the threat of competition through competitors improving. Starbucks’ growth was impressive for a number of years. Colleagues of mine often discussed how Starbucks was similar to Walgreen’s or CVS, because it was always right around the corner. However, growth is not everlasting. Marcus states in our text that “initially, there is rapid growth as buyers rush to a market once a product proves successful. The penetration of the potential buyers, however, is eventually reached, causing rapid growth to level off” (2011, pg. 42).
The threat of a business slowdown was not truly felt by Starbucks until 2008. At this time, Starbucks realized that they were not truly profitable in all locations. Thus, they were forced to begin shutting down operations in some locations. Continued expansion into new markets and locations occurred for Starbucks; however, the rate of growth decreased as they begun closing more operations in 2008 than they were opening. Unfortunately, this is a threat that many operations will meet during the life of a business.
Through SWOT analysis, we can see that Starbucks is a business leader through the way that leadership is able to capitalize on opportunities through maximizing their strengths. Alternative strategies are taken and driven by Howard Schultz that improves company weaknesses to mitigate anticipated losses from competition. Schultz continues to lead Starbucks into the future with outside the box thinking that vaulted him into the lead of this company.
SWOT analysis. (2006). In Collins Dictionary of Business. Retrieved from http://www. credoreference. om/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