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Globalization and Changing | Starbucks

Introduction

Current business environment is rapidly globalizing and changing, thus transforming competition and other market forces affecting strategic choices. The purpose of this paper is to analyze strategic processes associated with development, innovation and change at Starbucks, using relevant theoretical research and theories as well as practical examples and case studies, and to develop recommendations for the improvement of these strategic processes and development strategy.

Strategy can be defined as “the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations” (Johnson, Scholes & Whittington, 2008: 3). It is possible to outline four levels of strategies: operational strategy, business-level strategy (for a strategic business unit), corporate strategy and international strategy (Thompson and Martin, 2010: 7). In this research, international and corporate strategies of Starbucks will be considered.

The goal of this research is to consider the relationship between strategy, leadership, innovation and change at the chosen company, and to evaluate strategic processes with regard to their effectiveness and alignment. In addition to this, the level of employee commitment to Starbucks strategies will be evaluated in this research using theoretical frameworks. Accordingly, there are four sections in the main body of this research: literature review, analysis of strategic processes, assessment of commitment and recommendations.

Literature review contains the discussion of key sources used for theoretical and practical parts of this research. There are three directions of research useful for this paper: general strategic management sources, sources devoted to the analysis of organizational change, leadership and innovation with regard to strategy, and research of leadership, innovation and change at Starbucks.

The section devoted to the analysis of strategic processes includes the consideration of expansion and internationalization strategy of Starbucks, processes of product innovation and differentiation, and purchasing processes as well as supplier strategy. Analysis of these strategies is performed in accordance with several approaches and frameworks. Selection of Starbucks international strategy is evaluated using theoretical background by Johnson, Scholes and Whittington (2008). Analysis of process effectiveness and the effectiveness of innovation management at Starbucks is implemented using S-curve of innovation diffusion (Johnson, Scholes & Whittington, 2008: 331) and the strategic tool created by Adams, Bessant and Phelps (2006).

Assessment of commitment section contains two evaluations: leadership evaluation and evaluation of the effectiveness of CSR. The former procedure is implemented on the basis of approach to evaluating the effectiveness of leadership outlined by Hooijberg (2007) and the model of strategic leadership discussed by Yukl and Lepsinger (2004). CSR initiatives of Starbucks are assessed using the recommendations for CSR managers and analysis of CSR as a managerial process described by Hooley, Piercy & Nicoulaud (2008).
The recommendations for strategic development of Starbucks are developed using the findings of previous two sections, information on strategic dilemmas and stages of entrepreneurial growth (Johnson, Scholes & Whittington, 2008: 337) and principles of a strategy-focused organization outlined by Kaplan and Norton (2001). The recommendations are formulated in accordance with Starbucks leadership principles and corporate values. The findings of this research can be useful for managers operating in flexible business environment of the twenty-first century and for everyone interested in the relationship of strategy innovation, change and leadership in the modern business context.

1. Literature Review

It is possible to outline three key literature directions essential for this research: sources focused on the development of corporate strategy in general, research devoted to particular organizational aspects such as leadership, change and innovation in strategic contexts, and resources devoted to the analysis of innovation, change and overall strategic development of Starbucks. With regard to strategy level, corporate and international strategies will be considered for Starbucks, as the research is performed for the company as a whole, and not for particular departments of the company.

With regard to the first direction, notable sources are “Exploring corporate strategy: text & cases” by Johnson, Scholes & Whittington (2008) and “Strategic Management: Awareness and Change” by Thompson and Martin (2010). The first book contains theoretical information and practical analysis, and thus it is very useful for the analysis of fundamental concepts and for constructing the background for the research. According to Johnson, Scholes & Whittington (2008), international strategy is determined by the mode of entry, market selection, drivers of internationalization and sources of competitive advantage (Johnson, Scholes & Whittington, 2008: 294). Drivers of internationalization for Starbucks will be selected in accordance with the framework presented in this book. The framework provided in this book for selecting one of four key international strategies (simple export, complex export, multidomestic and global strategy) will also be applied for the purpose of current research.

Johnson, Scholes & Whittington (2008) in the chapter related to innovation analyze the stages of entrepreneurial growth: start-up, growth, maturity and exit. Starbucks is in the maturity stage, and at this time it should focus on intrapreneurship (Johnson, Scholes & Whittington, 2008: 342), i.e. generate new ventures within the company. There exist three fundamental innovation dilemmas which Starbucks should solve before developing a business strategy: market pull versus technology push, product versus process innovation, technological model of innovation versus business model of innovation. Recommendations for important strategic directions and innovations at Starbucks will be made using the information from this chapter, and S-curve of the innovation diffusion (Johnson, Scholes & Whittington, 2008: 331) will be used to adjust these recommendations to existing situation.

The book by Thompson and Martin (2010) is also a fundamental resource, devoted to development and implementation of strategy and strategic change. This resource is important for theoretical background for strategy analysis and for development of alternative strategies. In particular, the authors provide a very effective scheme showing both internal and external factors affecting the development and implementation of a new strategy (Thompson & Martin, 2010: 632). This scheme will be used for analyzing the effectiveness of new strategies implementation at Starbucks.

It is also possible to include the book by Kaplan and Norton (2001) called “The strategy-focused organization: how balanced scorecard companies thrive in the new business environment” in the first direction of literature. The authors have analyzed the experience of more than 20 organizations using balanced scorecard approach to build their strategy, and have outlined five key principles for strategy-focused organizations (Kaplan & Norton, 2001: 62). The authors also present examples of building strategy maps, synergy creation examples and change mobilization due to executive leadership. The principles of a strategy-focused organization – translating the strategy into operations terms, aligning the organization to the strategy, integrating strategy into everyday job of every employee, making strategy continual and mobilizing change using executive leadership – will be used for formulating recommendations for strategic development of Starbucks.

The fourth book focused on the development of general corporate strategy is “Marketing strategy and competitive positioning” by Hooley, Piercy & Nicoulaud (2008). The focus of this book is on strategic marketing, and specific areas covered in this book are competitive positioning, environmental analysis, relationship marketing and competitive advantages. Particularly important concepts outlined in this book are CSR as managerial process. Hooley, Piercy & Nicoulaud (2008) formulate three key aspects of CSR for managers: identification of intersection points between the company and the society, choosing which social issues should be addressed, and creating a CSR agenda (Hooley, Piercy & Nicoulaud, 2008: 524). The authors also provide a system for distinguishing between responsive and strategic CSR, which will be used to evaluate CSR approach of Starbucks (Hooley, Piercy & Nicoulaud, 2008: 534).

Regarding the second direction of literature devoted to analysis of change, leadership and innovation in strategic contexts, two valuable books were selected for the purpose of this research. Key theories and approaches for analyzing change management of Starbucks and the state of its leadership in this research are associated with the book “Being there even when you are not: leading through strategy, structures and systems” by Hooijberg (2007). This important resource focuses on organizational leadership and the relationships between strategic processes (systems) and strategic leadership.

The authors also core collective leadership practices needed for successful change management: engagement across boundaries, learning using integrated understanding of the organization, shifting focus from internal operations to continual scanning of external environment, and bringing own best qualities to the organization (Hooijberg, 2007: 35). The authors describe the approach to evaluating the effectiveness of leadership which is focused on refining leadership initiatives, checking the outcomes of the initiatives, determine whether both tangible and learning benefits to the organization are created by strategic initiatives, and determining the relationship between improvement of executive behaviors and organizational outcomes.

The second book which is important for evaluating practical aspects of leadership and determining the extent to which people are engaged in corporate strategy and contribute to it is “Flexible Leadership: Creating Value by Balancing Multiple Challenges and Choices” by Yukl and Lepsinger (2004). This book represents a comprehensive model of leadership utilizing the most important theories of leadership of the second half of 20th century. There are three key components in this leadership model: reliability and efficiency, adaptation and innovation, and HRM (human relations and human resources). The authors discuss examples of effective leadership and formulate the behaviors allowing to reach positive results for each of the components.

Important articles used in this research which can be associated with the second group of sources are “Innovation management measurement” by Adams , Bessant and Phelps (2006) and “Creation and implementation of the innovation strategy in the enterprise” by Lendel and Varmus (2011). Adams , Bessant and Phelps (2006) have created a framework for measuring innovation management within an organization basing on a disaggregation of several theoretical works. The authors have identified seven categories for measuring innovation management: management of inputs, knowledge management, organizational structure and culture, innovation strategy, portfolio management, commercialization and project management (Adams, Bessant and Phelps, 2006: 21). The authors have also associated a variety of organizational factors and characteristics with each of these categories, thus creating a balanced framework which can be used to evaluate the innovation activity of an organization. Although this instrument might be more effective for a manager with access to detailed insider information, it is also appropriate for the purpose of this paper. This tool will be incorporated in the research along with the S-surve of innovation diffusion provided by Johnson, Scholes & Whittington (2008).

The paper by Lendel and Varmus (2011) is devoted to creation and implementation of innovative strategies, and contains a model of effective implementation of corporate innovative strategy. The authors also provide recommendations for successful implementation of innovative strategy, outline critical factors important for this process, and cover potentially problematic areas for managers dealing with implementation of innovative strategies. These findings will be used to generate recommendations for Starbucks innovative strategy.

The third direction of research related to Starbucks and its innovative approaches is represented mostly by research papers and journal articles. The sources actively used for this research are “Case study: Starbucks – adding value to brand equity through an innovative brand image” by Perera et al. (2009), “Starbucks: an expanded portfolio drives growth” by Senatore and Yang (2011), “Transformative innovation for growth” by Diong and Cho (2008), “The Starbucks experience” by Michelli (2007) and overview of changes in Starbucks structure called “Starbucks announces new leadership structure to accelerate global growth” published by Business Wire (2011). A very useful resource for studying the company’s managerial and leadership principles is the book called “It’s not about the coffee: leadership principles from a life at Starbucks” by Behar (2007).

Diong and Cho (2008) analyze different goals and benefits of innovations common for top companies such as Google, Apple, Starbucks, Toyota, Honda, etc. The authors outline the advantages of innovative products and processes, and analyze the path to innovation and sources of innovation. Although this paper lacks structured approach, the analysis performed by the authors is highly useful for the consideration of Starbucks innovative strategy.

According to Perera et al (2009), Starbucks managed to achieve its success by combining cultural, social, corporate and economic scenarios of innovation and development. The company is pursuing its internationalization strategy, which helped to increase stock performance and to strengthen the image of Starbucks as an innovative brand. Perera et al. (2009) have proved that innovative processes and products allow the company to add value to its brand. It is also determined in Starbucks case study that innovation has become a critical factor for Starbucks international development and brand image, and innovative activities of the company initiated in the period of internationalization have been the core of the company’s success.

The results of this study are combined with analysis of recent Starbucks development and perspectives performed by Senatore and Yang (2011). Product differentiation, better customer experience and higher operating profitability are the major factors currently involved in the transformation of Starbucks. The company is becoming more brand focused and less retail-centric, as it fosters innovation and research, and adheres to a new leadership structure. Changes of leadership principles at Starbucks are considered in more detail in Business Wire (2011). New three-region organizational structure of Starbucks and perspectives of each region are discussed in this article. Finally, 10 principles of Starbucks approach to leadership and examples provided by Behar (2007) were important for evaluating the engagement and contribution of people with regard to Starbucks strategies.

2. Analysis of strategic processes

2.1. Overview of strategic development

Starbucks is an international coffee chain, with more than 17,000 locations in more than 50 countries. 74% of these stores are located in the US, 7% in Canada, and about 4% of stores are located in the UK (About Starbucks, 2012). The company is headquartered in Seattle, where the first store was opened in 1971. In 1987, the chain has grown and expanded outside Seattle (About Starbucks, 2012). Well-developed mission and approach, successful acquisitions and strong corporate values led the company to market leadership. Starbucks has also been known as one of the most people-centered and most innovative companies. Competitive advantage of Starbucks has been created not only by products and industry innovation, but also by the unique customer experience and company reputation as a very convenient place for socializing (Thompson & Martin, 2010: 632).

As a result of the combination of these strategic factors, the market in the US was quickly saturating, and the company entered international market in 1996, when the first locations in Tokyo, Japan were opened (About Starbucks, 2012). Later on, Starbucks entered Philippines, Singapore and Hawaii. During the next decade, the company’s locations opened in more than 50 countries (About Starbucks, 2012). Overall, it is possible to outline the following strategic processes which have conditioned the success of Starbucks: well-balanced expansion strategy, diverse and innovative product line, and effective purchasing strategy (Diong and Cho, 2008: 9).

2.2. Expansion and internationalization strategy

According to Johnson, Scholes and Whittington (2008), international strategy is shaped by both internal and external sources: drivers of internationalization, mode of entry, market selection and sources of competitive advantage (Johnson, Scholes and Whittington, 2008: 294). The most powerful force in this model are internationalization drivers, which therefore impact corporate internationalization strategy. These drivers include market drivers (transferable marketing, global customers and similar customer needs), government drivers, cost drivers (logistics, economy of scale and country-specific differences) and competitive drivers (Johnson, Scholes and Whittington, 2008: 299).

In the US, Starbucks expansion was performed on clustering basis: the company opened a location in a center of a selected geographical region and saturated the market in strategically optimal locations. Starbucks’ entry to international market was based on licensing, joint ventures and wholly owned subsidiaries (Senatore and Yang, 2011: 64). Company specialists analyzed market conditions within a given country, then selected appropriate local partner (most often, a market leader) and performed test marketing. Starbucks expansion started with Asian Pacific markets, further moving to core English-speaking countries such as the UK, Canada and Australia, and developing markets like Russia and China (About Starbucks, 2012). Europe and Latin America were targeted almost at the same time.
The company also adopted a customized approach to marketing, positioning and product differentiation at every country. In Japan, Starbucks focused on the trend of admiring US products and offered purely “American” line of products (Senatore and Yang, 2011: 66). In France, the company targeted young people and most focused on dynamic brand image and innovative products. In China, Starbucks focused on the middle class, which successfully integrated Starbucks beverages as part of their new lifestyle. In Italy, Starbucks’ competitive advantage was the cozy atmosphere, and the adoption of local trend to serve food with coffee (Senatore and Yang, 2011: 66). In the UK, Starbucks managed to achieve acceptance by acquiring a market leader, Seattle Coffee Chain (Senatore and Yang, 2011: 65).

It is possible to determine that Starbucks uses all three types of market drivers and all types of competitive drivers. It also utilizes all types of cost drivers, focusing on country-specific differences everywhere, and using economies of scale and optimized logistics where possible. There are four types of internationalization strategies: simple export, complex export, multidomestic and global strategy. The degrees of coordination and configuration of activities for these strategies are shown on Fig. 1.

Figure 1. Key international strategies (Johnson, Scholes and Whittington, 2008: 305)
Judging on the relationships with suppliers, internationalization strategy and core approaches, Starbucks’ strategy can be characterized as complex export. Indeed, most activities and innovations of Starbucks are focused on US stores, and core product line is virtually the same for all Starbucks stores (Thompson & Martin, 2010: 620). The suppliers and production line are the same for different international departments, while branding and advertising are different, as well as approach to local integration. Organizational structure of Starbucks which existed until July 2011 also matched this strategy, as it had four levels of management arranged in accordance with functions within the organization (Supply Chain and Coffee, Financial, Partner Resources and Legal) (Corporate Governance, 2012). However, this strategy does not allow to optimize costs and use the advantages of internationalization to the fullest. Therefore, it is recommended for Starbucks to adopt a global strategy and to pay more attention to global customers (CPG group at Starbucks).

Global strategy relies on highly coordinated yet geographically dispersed activities, and the most appropriate organizational structures for this strategy are matrix and network structures. It is recommended to focus on regional advantages of all countries, and to introduce specialization so that different operations could be performed in optimal locations. In July 2011, Starbucks changed its organizational structure to three regional divisions: Americas, China and Asia Pacific and EMEA (Business Wire, 2011). This is a shift to network structure, and the company is clearly targeted at global strategy.

2.3. Evaluation of innovation management

According to Adams, Bessant and Phelps (2006), it is possible to identify seven measures of innovation management: management of inputs, knowledge management, organizational structure and culture, innovation strategy, portfolio management, commercialization and project management. Inputs management can be measured using the effectiveness of R&D, scope of innovative activities of the company, relative percentage of innovators within the company and resources associated with innovation (Adams, Bessant and Phelps, 2006: 28). With regard to knowledge measurement, it is possible to identify such areas for benchmarking as idea generation, knowledge repository and information flows (Adams, Bessant and Phelps, 2006: 32). Innovation strategy is a large concept, and the authors have analyzed a variety of approaches to evaluating innovation strategy. Four key factors can be determined for strategy evaluation: risk-taking, strategic leadership, persistent commitment to innovation and proactive approach (Adams, Bessant and Phelps, 2006: 35).

Organizational structure can be evaluated in accordance with selected strategy and market situation; key factors determining organizational culture are strong values, trust, job satisfaction, group work and group autonomy (Lendel and Varmus, 2011: 820). Portfolio management can be evaluated basing on the allocation of resources, brand equity and financial measures (revenue/assets ratio, margins, stock value, etc). Project management analysis of innovation management relates to such factors as communications, synergy and collaboration with suppliers (Lendel and Varmus, 2011: 821). Finally, commercialization deals with the effectiveness of introduction of products and services, and market impact of the company (Adams, Bessant and Phelps, 2006: 45).

Management of inputs at Starbucks can be evaluated as highly successful because market leadership of the company is based largely on the “know how” of all coffee production chain. There have been several high-risk innovations which reached success such as freeze-dry technology for producing instant drinks and specific roasting technologies. Innovative activities of Starbucks range from process optimization and exploration of cost-effective operations to technological innovations (new coffee machines) and cutting-edge research freezing technologies and smell removal technologies. R&D expenses of Starbucks constituted $7 million in 2009, $9 million in 2010 and $15 million in 2011, which constitutes 1.59%, 0.71% and 0.98% of their net incomes during these years (FY11 Annual Report, 2012: 49). At the same time, the relation of net income to revenues of Starbucks during these years constituted 0.045, 0.119 and 0.130 accordingly (FY11 Annual Report, 2012: 49). It is possible to conclude that the company’s innovations are effective and they allow to improve revenues and to optimize costs. Starbucks reached the maturity stage according to the S-curve of innovation diffusion (Johnson, Scholes & Whittington, 2008: 331), which means that innovations are vitally important for the company’s development.

Two areas of knowledge management are particularly strong at Starbucks: management of information flows and idea generation. IT infrastructure of Starbucks unites all departments, and such features as point-of-sale system and CRM are based on these information flows (Diong and Cho, 2008: 9). Supplier relationships and logistics are also working effectively due to these information flows; the company is improving its financial and accounting IT system (FY11 Annual Report, 2012: 63). Furthermore, Starbucks is an innovator in mobile payment systems: mobile app and scanner allow to make payments in a few clicks. With regard to idea generation, Starbucks managed to crowdsource this idea at their website called mystarbucksidea.com. Here customers can add own ideas and vote for others’ ideas (Perera et al., 2009: 179). As a result, Starbucks managed to get effective customer feedback and to create a powerful source of new ideas. It is not known whether the company has a knowledge repository, but it is highly likely that top managers are generating and sharing ideas using appropriate software. Thus, Starbucks innovative management is effective with regard to knowledge management.

The company also has a proactive approach and manages to address HRM issues, thus creating a unique atmosphere in the company. Risk-taking of Starbucks is at the middle level because the company now implements its innovations after detailed market research and many risky locations are being closed (Michelli, 2007: 35). Top managers exhibit commitment to innovation and strategic leadership in the company is quite high (this issue will be addressed in more detail in the next section). Thus, innovation strategy of Starbucks can also be evaluated as successful, beside risk-taking strategy.

The change of organizational structure has made Starbucks more flexible (Business Wire, 2011): new network structure will allow to shift the focus from US-based business to the global arena. The company has a potential for global market growth; there is a need for larger economies of scale and stronger brand integration, and there is a global consumer products group (FY11 Annual Report, 2012: 2). Thus, Starbucks needs to move from complex export to global strategy.

With regard to corporate culture, Starbucks is an excellent performer. The company has a unique set of values, treats employees as partners and invests into their education and benefits (Perera et al., 2009: 182). Job satisfaction at Starbucks is 82%, which is very high, compared to average 50% satisfaction rate and 74% satisfaction rate for “top 100 employers to work for” (Michelli, 2007: 9). Innovation in Starbucks is largely concentrated on managerial level, and there is room for improvement in this sphere.

Portfolio management will be evaluated using company’s financial ratios during the last 3 years: revenue to sales relation, gross profit margin, EBIT margin and stock value. Gross income margin was 55.76% in 2009, 58.36% in 2010 and 57.70% in 2011 (Summary for Starbucks Corporation, 2012). EBIT margin constituted 6.13% in 2009, 13.73% in 2010 and 15.76% in 2011 (Summary for Starbucks Corporation, 2012). The dynamics of EBIT margin shows that innovations have improved cost effectiveness of Starbucks business. Revenue to assets ratio was 1.75 in 2009, 1.68 in 2010 and 1.60 in 2011 (Summary for Starbucks Corporation, 2012), which means that the company’s assets are growing faster than revenue. Starbucks should use its assets more effectively and align its expansion with market demand and conditions. Finally, stock value has increased significantly from $9.08 in 2009, to $21.79 in 2010 and $32.70 in 2011 (Summary for Starbucks Corporation, 2012). The growth is continuing, and on January 29, 2012, the price of Starbucks stock was equal to $48.15. Such dynamics shows that innovative strategy of Starbucks has been highly effective with regard to portfolio management.

With regard to project management, Starbucks innovations are largely based on communications, and this factor adds to innovative strengths of the company. Starbucks’ relationships with suppliers are also a notable innovation achievement. It is possible to name several innovations here: supplier social responsibility program, ethical sourcing program, Fair Trade certified coffee programs, promotion of healthy and effective coffee cultivation methods, protection of biodiversity, protection of suppliers through fixed-price contracts and financial incentives for farmers (Michelli, 2007: 56). Product synergy, however, was effective for Starbucks coffee products, but currently as Starbucks is planning to add snacks, cold beverages and instant coffee, a certain lack of synergy is witnessed (Thompson & Martin, 2010: 521). The company should rather introduce a separate brand under Starbucks name rather than market such diverse set of products using established brand image.

Commercialization has been often successful for Starbucks, but there were specific products which diverged from the original concept (Perera et al., 2009: 181). Researchers also suggest that Starbucks instant coffee products will devalue its primary association with quality original coffee (Senatore and Yang, 2011: 67). Market impact of the company has also been notable: starting with a relief to suppliers due to on CAFE program ending with expanded market for coffee in the regions where Starbucks is present, and the improvement of overall business activity (Michelli, 2007: 68).

Overall, Starbucks can be evaluated as a highly effective innovator: it has achieved high results for all measures and factors related to management of inputs, knowledge management, organizational culture, innovation strategy and portfolio management. Innovations are vital for the company because it is at the maturity stage of the S-curve of innovation diffusion for the majority of their products. Such variables as organizational structure, project management and commercialization, however, need more attention, because for each of these spheres potential weaknesses of Starbucks were identified. The effectiveness of innovative management at Starbucks can be further improved if the company focuses more on developing a global strategy, establishes a specific brand for products unrelated to main business and reaches synergy in their product and service line.

3. Assessment of commitment

Basing on the model of Yukl and Lepsinger (2004), it is possible to identify three components of leadership: reliability and efficiency, adaptation and innovation, and HRM. To evaluate Starbucks leadership according to this model, it is necessary to explore different dimensions of leadership at Starbucks. Michelli (2007) outlines five key principles of Starbucks corporate leadership: make it your own (project managers inspire partners to create a unique customer experience), everything matters (attention to details), surprise and delight (culture of going beyond expectations), embrace resistance (gathering feedback and establishing relationships with partners and customers even in critical situations) and leave your mark (all partners and managers are involved into making a community impact).

Howard Behar, long-term senior executive of Starbucks, joined the company in 1996 after witnessing the commitment and leadership of Howard Schultz. Three Starbucks employees were killed during a criminal incident, and Mr. Schultz showed extreme empathy and compassion as he took the responsibility to visit the families of the killed employees and to share their grief (Stallard, 2011). Behar made a huge contribution into the culture of Starbucks. He outlined 10 principles of personal leadership at Starbucks: know who you are, know why you are here, think independently, build trust, listen for the truth, be accountable, take action, face challenge, practice leadership and dare to dream (Behar, 2007).

Starbucks is a strongly CSR-led company (Responsibility, 2012): its CSR program includes community efforts, environmental initiatives, ethical sourcing programs, wellness policies, diversity programs and student opportunity initiatives. Using CSR model provided by Hooley, Piercy & Nicoulaud (2008), it is possible to determine that Starbucks engages both in responsive and strategic CSR, as it adds a social dimension to each of its value propositions (ethical sourcing and community involvement).

Figure 2. CSR dimensions (Hooley, Piercy & Nicoulaud, 2008: 534)
CSR activities of Starbucks create a specific competitive advantage associated with brand reputation and social dimension of their products, and foster leadership and commitment of Starbucks workforce.

According to Starbucks Reviews (2012), 79% of employees currently approve their CEO, Howard Schultz. Although the rating of the company is only 3.5 (Starbucks Reviews, 2012), which means “satisfied” according to Glassdoor scale, many employees mention leadership and great CEO as advantages of their employment. As a result of recent survey, Starbucks was number 34 among the 50 best companies to work in 2012 (Starbucks Reviews, 2012). The company has also stayed in the list of 100 best companies to work for since 2008 and earned additional rewards such as “Worlds Most Ethical Companies” and “Best Places to Work for LGBT Equality” (Starbucks Reviews, 2012). There are also numerous awards for Starbucks as best employer for its international locations.

The results shown by customer and employee surveys allow to conclude the following: with regard to reliability and efficiency, Starbucks is one of top performers; adaptation is deeply incorporated into Starbucks’ values both on corporate and on personal level, and innovation management is also at high level within the company (this fact was described in the previous sections). Finally, HRM effectiveness can be evaluated using the data of Fortune research. Starbucks is rated 73 there, showing a 3% improvement in rating in 2011 compared to the results of 2010 (100 Best Companies to Work For, 2012). Among attractive HRM factors at Starbucks most employees mention full health insurance benefits and stock awards, let alone free coffee during work hours. It is notable that in 2011 investors insisted on cutting benefits for part-time employees, but Mr. Schultz insisted on making the benefits a priority (FY11 Annual Report, 2012). Voluntary turnover is only 12%, with 80% being average turnover in the retail industry (100 Best Companies to Work For, 2012).

Among other notable features of Starbucks HRM approach is the relation of the number of applicants (7,596,117) to job openings (540), which is about 14 applicants per job opening. The company offers good opportunities for work-life balance, such as telecommuting, job sharing and compressed workweek. Although many employees complain that job can become stressful and there are certain teambuilding issues (Starbucks Reviews, 2012), the majority of them mention Starbucks as one of the greatest companies to work for. Thus, HRM element of the Yukl and Lepsinger model is also effectively integrated into Starbucks strategic leadership model.

It is possible to conclude that unique values, strategic innovation and effective CSR program incorporated into three dimensions of Yukl and Lepsinger model allow Starbucks to generate high level of employee commitment, increased job satisfaction, motivation and low turnover, thus also fostering unique customer experience and favorable work environment. These factors are highly important for overall strategic development of Starbucks, because people are the leading force of innovation and change in the organization.

Recommendations

Analysis of internationalization strategies has shown that Starbucks should adhere to global strategy. It is recommended to optimize the functions of every division and to rebalance logistics in order to use the advantages of global strategy to the fullest. There are global customers of Starbucks, and the company should pay more attention to the interests of these customers. It is also recommended to launch a more unified marketing campaign to create a complete vision of Starbucks marketing brand.

Starbucks should focus on international expansion and on decreasing the degree of activity concentration (i.e. give more autonomy to the divisions). It is also recommended to reach diversification not only in the product line, but in product pricing as well: different price categories will help to attract more customers to the company.

Analysis of Starbucks innovation management and product differentiation shows that this company can be named one of top innovators. However, two innovation factors need further improvement: project management and commercialization. The company should focus on building synergy between its products and ensure that its new initiatives do not conflict with existing brands. Starbucks should market its new products such as cold beverages, energetic drinks, Tazo tea and snacks, using brand line different from its main coffee products. Furthermore, the company should develop brand vision covering both product lines, and properly market them in order to avoid customer confusion.

With regard to innovation, Starbucks should search for a method of developing high-quality soluble powders with lower costs in order to improve the effectiveness of the production process. As the company is planning to sell sandwiches, it should also find a solution not to interfere with the famous Starbucks coffee aroma and either eliminate/minimize the smell, or redesign locations so that coffee part and “restaurant” part of the location would not interfere.

It is also recommended to explore new service areas for the company, for example, to deliver ready beverages and snacks to customer locations. Although this might partly differ from the original Starbucks socializing idea, this approach would perfectly fit into the strategy of new internationalized Starbucks selling a variety of products branded together.

Starbucks is known as one of most ethically and socially responsible companies: analysis of leadership shows that all elements of the leadership model are addressed and implemented by the company. However, there are many partner complaints associated with low base rate. One of the ways how Starbucks could address this problem is to sell special CSR coffee cups, the revenue from which would be directed to the CSR initiatives of Starbucks. Additional funds could be used to increase base payment for Starbucks hourly partners.

Overall, the analysis of Starbucks strategy has shown that the company actively integrates innovative capabilities, strategic leadership, strong corporate values and strategic change management in order to become a market leader and to increase its share of international market. The company is expanding into neighboring business segments and at the same time manages to preserve its values, responsibility and the “Starbucks soul”.

Conclusion

According to the results of the analysis of Starbucks strategies, leadership and innovative capability, this company deserves its high position in employee ratings and in the lists of top performing businesses. After strategy analysis, evaluation of innovation management and assessment of leadership and commitment, a tentative list of recommendations was generated for improving the company’s strategic development. Most of the recommendations related to the selection of internationalization strategy, branding and organizational structure, and specific leadership/HRM aspects.

It should be noted that Starbucks has evidently started new changes, which are perfectly aligned with the recommendations. The company has initiated a reorganization of structure, and the new structure clearly indicates at the change of global strategy. Starbucks branding efforts currently develop in the opposite direction compared to the recommendations, but there has been no official announcement of Starbucks branding for the future. Currently the company lacks synergy, but has a great resource of management and employee commitment created during years of effective leadership, which can be used to foster the new strategic direction chosen by Starbucks. The research has established strong relationship between strategic direction, innovation and change, and strategic leadership. Leadership and innovation are the key resources for change, which are effectively utilized by Starbucks.

 

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