January 10th, 2018
Formulating business strategy – External environment and internal environment analysis
Assessing an entity’s internal environment helps identify the strengths and weaknesses of the entity. These are important in assessing how best an organization can capture the opportunity and prevent against threats presented by the external environment. The internal and external environments of Starbucks are considered here through a SWOT (strengths, weaknesses, opportunities and threats) analysis.
Internal Environment (Strengths and Weaknesses)
Starbucks strengths are wide ranging. Firstly, its core strength is its sound human resource strategy that identifies its employees as partners (Mosley 2007). By its high-regard of its employees, Starbucks layoff process, when it wanted to achieve operational efficiencies in 2009, was devoid of labor disputes (Allison 2009). A second, Starbucks strength is its corporate management. With the return of its founder Howard Schultz into the CEO position, Starbucks management has refocused to its core business ideology that has ensured its success over the years (Starbucks Corporation 2009). Thirdly, Starbucks has a strong relationship with its suppliers having entrenched the fair trade and ethical sourcing practices (Starbucks Corporation 2009). Such a relationship ensures that the entity gets a constant supply of high-quality coffee beans that ensure the quality of its coffee in the stores remains exemplary. With constant research and development on its brewing processes, a high quality of coffee offered at the stores is also ensured (Starbucks Corporation 2009). Further, by being among the leading brands globally, Starbucks brand’s popularity allows it to establish new products. The brand was for instance ranked as the most engaged brand in 2009 (Wetpaint & Altimeter 2009). Finally, Starbucks strength arises from its location in high-traffic areas that ensures constant patronage by large customer numbers (Starbucks Corporation 2009).
Despite these strengths, Starbucks also faces a number of weaknesses. First, its most recent weakness has been overexpansion leading to saturation of the U.S market and adulteration of the customer experience, as documented in a 2008 article in the Economist. Secondly, some of its business practices such as non-allowance of smoking in its stores alienate a section of its clientele. Thirdly, Starbucks water-usage practices have made it subject to loss of reputation with climate-conscious clientele (Leroux 2008). Having a previous manager return to lead the company also exposes the entity’s leadership-transition frameworks as being weak. Such could affect the entity’s performance after the current holder vacates office.
To maintain a competitive advantage, companies need to capture opportunities provided by the external environment. For Starbucks, such opportunities include expansion to foreign markets, brand extensions and diversification of products to offer healthier alternatives. Expansion to foreign markets would for instance reduce the entities concentration on the U.S market and shield it from country-specific macroeconomic shocks. Through social media marketing, the entity can also promote some of its brands to increase their market share.
The external environment also presents threats that the entity needs to be concerned about, in implementing initiatives to capture opportunities. Threats in Starbucks environment include increasing coffee prices, competition from existing players and new entrants, consumer preferences for healthier alternatives to coffee, farmers switching to production of more-profitable crops, and government policies that do not favor the company. Such threats could affect the entity’s performance in the long term.
Starbuck’s Strategy (Porter’s Generic Strategies)
Porter’s generic strategies are advanced according to a firm’s position in a particular industry. Based on the entity’s position, it can have either a cost-advantage or a differentiation strength (Porter 1980). When such strengths are targeted to either a large market or a narrow market they result into three strategies – cost leadership, differentiation and focus (Porter 1980). Cost leadership strategy implies one is a low cost provider in a particular industry for a given product quality (Porter 1980). Differentiation strategy implies development of unique product features thus allowing the charging of higher prices (Porter 1980). Focus strategy involves targeting a small market where one can either apply cost advantage or differentiation strategy (Porter 1980). Based on such analysis, Starbucks strategy falls under the differentiation category since its product uniqueness allows it to charge a premium price, while it is not aligned to a small market base. Go to part 4 here.