Starbucks Case Study

ABSTRACT Webster in his article The Changing role of Marketing in The Corporate World, enthuses that for increasingly higher number of businesses, customer relationships are the key strategic resource. He observes how organizations are changing from a hierarchical pyramid like structure to a more flexible wheel shaped structure. Strategic alliances are the need of the hour as they help a business prioritize resource allocation and develop core competencies. Further, he suggests that marketing can no longer be the responsibility of selected few; rather it is an umbrella function that everyone at each level is responsible for. In the report that follows, Starbucks is examined in the light of the Webster's article. The report begins by looking at the Starbucks strategy and going forward, analyses how each of the components of its strategy (structure, people, systems and culture) are aligned to customer relationships. Its many partnerships and alliances are discussed that eventually leads to the conclusion that Starbucks is a customer centric, network organisation.

INTRODUCTION

"You get more than the finest coffee when you visit a StarbucksÐ'--you get great people, first-rate music and a comfortable and upbeat meeting place," says Howard Schultz, Starbucks chairman. "We establish the value of buying a product at Starbucks by our uncompromising quality and by building a personal relationship with each of our customers. Starbucks is rekindling America's love affair with coffee, bringing romance and fresh flavor back to the brew."1

Starbucks' guiding principle is to develop enthusiastically satisfied customers all the time.2 It is not only creating the ultimate coffee beverage, but also providing excellent service that ensures customers leave the store completely satisfied and eager to return - maybe next time with friends or family.3 Starbucks believes in bonding emotionally with the customer and forming long lasting relationships. It prides itself in being the premier purveyor of finest coffee in the world,4 but they refuse to rest just at that. The goal is to provide for all customers a "third place" environment - a place of relaxation that is away from home and work.5

"If a car manufacturer offers air conditioning as standard to a segment of the market that has not had it before, you can guarantee everybody in 12 months will have imitated and be offering it. It is virtually impossible to copy a culture or a customer experience. These are points of differentiation that are almost impossible to imitate." Stuart McCullough, Lexus Director Ð'- Europe, Lexus Cars6

Starbuck's strategy is to grow organically and at the same time, to stick to the essence of its brand. The company intends to provide the "Starbucks Experience" to everyone on earth at some point during this century.7 It has worked tirelessly to make their product an uplifting part of people's daily lives. 8

According to Aaker there are four key organizational components that explain how an organization can successfuly implement its strategy. These are structure, systems, people and culture.9

The following sections outline how Starbucks' strategy is aligned to continually deliver increasing value to the customer.

STRUCTURE

Organisational structure defines lines of authority and communication and specifies the mechanism by which organisational tasks and programs are accomplished. It involves decision regarding centralisation, decentralisation or a middle path, borderless organisation and strategic alliances. 10

LINES OF AUTHORITY/RESPONSIBILITY/COMMUNICATION

Webster mentions how in the 1980s the concept of the strategic business unit gained widespread favour and corporate managements pushed operating decisions and P&L responsibility, out of the operating business unit.11 SBUs allow for more efficient management and greater customer service.12

Starbucks is organized into a number of business units. 13

Ð'* The Company's North American retail business sells coffee beverages, whole bean coffees and related hardware and equipment through Company-operated retail stores in the United States and Canada.

Ð'* The Company's international retail business consists of entities that own and operate retail stores abroad.

Ð'* These two retail segments are managed by different presidents within the Company and are measured and evaluated separately by senior management.

Ð'* The Company operates through several other business units, each of which is managed and evaluated independently. These other business units are organized around the strategic relationships that govern the distribution of products to the customer.

Ð'* For each targeted Geographic region, Starbucks selects a large city to serve as a "hub"; teams of professionals under a zonal vice Ð'-president, are located in hub cities to support the goal of opening many stores in the hub, and proceeding then to the surrounding areas.

Ð'* The company has its own in-house team of architects and designers to ensure that each store would convey the right image and character. The company does centralized buying and develops standard contracts.

By organising itself into strategic business units, Starbucks has been better able to channelize its resources, indentify opportunities, establish weaknesses, and have a clearer vision.

VERTICAL INTEGRATION

In describing various types of relationships and alliances, Webster visualises a continuum from pure transactions at one end to fully integrated hierarchical (vertically integrated) firms at the other end. 14

In Starbucks case, vertical integration has been another key success factor as Starbucks Corporation has integrated backwards in opening coffee roasting plants, and forward in controlling the distribution of its many products.15

Though vertically integrated to some extent, yet it scores by positioning itself strategically in the value chain.16 Webster observes that often in business, one comes across the concept of transaction costs, or the make-or-buy decision. Transaction Cost Theory stipulates that you should keep the things in-house that constitute your core-competencies, and outsource those that do not.17 In the case of Starbucks, the core-competencies is quality coffee which sells at premium prices. To them, it is vital to own the components and have the people that create this quality.18

Though