Introduction

The purpose of this report is to Strategically Analyze three companies of three different industries in order to develop a deeper understanding of Strategies in relation to different factors affecting both internally and externally, followed by companies and its importance.

The objective of the report is to study various concepts of a company’s strategies. These concepts would include Resource Based View, Value Chain Analysis, External Environment Analysis by PESTEL and Porter’s five forces Analysis. These readings will help to identify the crucial resources, its capabilities, its core competences, their performance driving forces and their generic as well as grand strategies. The analysis found created an understanding of the reasons of application of any strategy and their outcomes. Also how a well defined and efficiently executed strategy gives a company competitive advantage over the competitors in the industry.

The learning achieved from this report was that strategic management is an important aspect of any business plan that develops a relation between the company’s strategies and its vision and mission statements. Strategic approach was thus found of high relevance in order to sustain this dynamic market scenario to make a profitable venture.

Companies

Three Industries(companies) selected

• Food & Beverage: Starbucks Corporation.• Electronics: Apple Inc.• Academic Institution: Vanderbilt University.

Starbucks Corporation, an American company founded in 1971 in Seattle, WA, is a premier roaster, marketer and retailer of specialty coffee around world. Starbucks has about 182,000 employees across 19,767 company operated & licensed stores in 62 countries. Their product mix includes roasted and handcrafted high- quality/premium priced coffees, tea, a variety of fresh food items and other beverages. They also sell a variety of coffee and tea products and license their trademarks through other channels such as licensed stores, grocery and national foodservice bucks also markets its products mix with other brand names within its portfolio of companies, which include Teavana, Tazo, Seattle’s Best Coffee, Starbucks VIA, Starbucks Refreshers, Evolution Fresh, La Boulange and Verismo. Starbucks had total revenue of $14.89 billion as of 2013.

Strategy Evolution Of Concept And Definitions

IntroductionGreat strategies are worth nothing if they cannot be implemented (Okumus and Roper 1999). It can be extended to say that better to implement effectively a second grade strategy than to ruin a first class strategy by ineffective implementation. Less than 50% of formulated strategies get implemented (Mintzberg 1994; Miller 2002; Hambrick and Canella 1989). Every failure of implementation is a failure of formulation. The utility of any tool lies in its effective usage and so is the case with strategy. Strategy is the instrument through which a firm attempts to exploit opportunities available in the

business environment. The performance of a firm is a function of how effective it is in converting a plan into action and executing it. Thus implementation is the key to performance, given an appropriate strategy. In literature, implementation has been defined as “the process by which strategies and policies are put into action through the development of programs, budgets and procedures” (Wheelan and Hunger pp15). This involves the design or adjustment of the organization through which the administration of the enterprise occurs. This includes changes to existing roles of people, their reporting relationships, their evaluation and control mechanisms and the actual flow of data and information through the communication channels which support the enterprise (Chandler 1962; Hrebiniak and Joyce 2005).

EvolutionThe field of Strategic management has grown in the last thirty five years developing into a discipline in its own right. Borrowing extensively from Economics and Social sciences, it is still fragmented by the presence of number of distinct schools of thought, diversity in underlying theoretical dimensions and lack of disciplined methodology. The fragmentation is due to high degree of task uncertainty and lack of coordination in research —a result of lack of uniformity and focus between the strategy field, its base disciplines and practitioners (Elfring and Voelberda 2001 pp 11).

Strategy as a field of enquiry developed from a practical need to understand reasons for success and failure among organizations. This led to a focus on overall performance and on the top management. The works of Chandler (1962) and Andrews (1971) created a view that strategy is made at the top and executed at the bottom, further reinforcing the fields focus on the top management while implementation was seen as secondary (Floyd and Woolridge 1996)

The emergence of corporate planning in the 1970s further heightened the disconnect between formulation and implementation, as operating decisions were made as if plans did not exist. Key insight was that plans were ineffective and line managers needed to be involved in the process (Floyd and Woolridge 2000).The development of analytical tools like BCG, PIMS further reinforced the notion that strategy was an exclusive top management function. The development of the strategic management paradigm delineated the formulation and implementation components of strategy, identified roles for all mangers except the lowest operating level in the formulation process. Implementation was design of standards, measures, incentives, rewards, penalties, and controls (Floyd and Woolridge 1996). Managers were thought to be more as obstacles. It was Mintzberg and Waters (1985) whose view that strategy is a pattern in a stream of decisions, that expanded the role of other than the top management in strategy making since strategies could be emergent. Burgelman (1983) integrated both the top down and bottom up view of strategy by introducing the concept of autonomous development of strategy in addition to the normal intended strategy, reinforcing the observations of Bower(1970) who stated that the top management had little control on what projects get pushed for approval.Despite these studies; till the 1990’s strategy formulation and implementation were seen as separate items, with a distinct focus on strategizing (achieving the fit between the environment and the plan) while effective implementation of it was taken as granted.

Content research dominated. The works of Mintzberg (1978) Miller and Frieson (1980), Pettigrew (1985) brought into focus the gaps between formulation and implementation. This brought into prominence the research stream concentrating on study of change. This also challenged the paradigm of explicit formulation and implementation, as strategies could now be emergent, unrealized. It also strengthened the tiny but growing band of process researchers who were looking at the role of power, culture as shapers of strategy outcomes. Research on strategy implementation, though neglected, was taken by few researchers in form of development of frameworks (Hrebiniak and Joyce 2005; Bourgeois and Brodwin 1984; Skivington and Daft 1991; Miller 1997; Okumus 2001; Joyce and Hrebiniak 2005) and in the form of evaluation of individual factors affecting the implementation process like- the interests of middle managers (Guth and Macmillan 1986) or the usage of implementation tactics (Nutt 1987).The present context for strategic management has been described as hypercompetitive (D’aveni 1994) which ensures that sustained advantage is transitory. Under these circumstances, strategy and form of organization need to be continuously assessed for appropriateness. Thus fast paced change makes strategy dynamic in character. Learning has become a key attribute along with organizing of knowledge resources. Under such circumstances, strategy formulation and implementation are viewed as intertwined sub processes in the strategy process.

RESOURCE BASED VIEW

Resource Based ViewHuman Resource Financial Technical

CapabilitiesCore Competencies

Competitive AdvantageSuperior Performance

Starbucks Corporation:

After an evaluation of external market and the making of industry-level decisions, internal Strengths and weaknesses need to be considered. The firm’s distinctive competences are built from tangible and intangible assets, and organizational capabilities.The tangible assets are most easy to identify as they include financial resources, raw materials, production facilities and real estate. Starbucks purchases only the highest quality of coffee beans from ideal coffee-producing climates. Throughout the promotionof equitable relationships with farmers, workers and communities as well as protection ofthe environment, the firm has improved its marketing ability and upgraded its supply chain that turns basic resource to an advantage for meeting customer expectations of quality roasted coffee. This move secures the company·s supply-level. Furthermore it makes Starbuck·s price and quality more competitive (Differentiation strategy) in the newmarkets and worldwide coffee industry (gsb.stanford.edu).

Starbucks· unique strategy of key locations helps it to attract foreigners. This promotesStarbucks· brand image and raises prominence. This makes foreigners familiar with theservice, quality and products that Starbucks is offering. The intangible resources are the brand name, reputation, knowledge, experience, etc. The basic ideas for Starbucks creation were taken from Italian coffee shops, where Mr. Schultz (Starbucks· CEO) learnt about the Italian culture of coffee drinking, which had not existed in the US before. This knowledge and the experience gained throughout the decades in the US market provided Starbucks with the unique know-how, which raises competitiveness in international markets.

The Starbucks brand has elements of uniqueness and differentiation that are essential tocreate positive associations in the minds of the consumers (Perera et al, 2009). This levelof brand inimitability and quality is vital for international buyers. Starbucks brand name is recognizable in most countries around the world; this makes customers pay a higher price for the brand name. Starbucks has joined the big league of no-name logo, which could assist it in expansion into the countries which not only have different languages butdifferent writings e.g. Arabic (Guardian.co.uk). Starbucks being one of the companies to have the lowest rate for employee turnover also has a high employee satisfaction quota. This makes international recruitment much easier as they are seen as attractive to work for (Money.cnn.com). Starbucks has a reputation for being a good socially responsible firm. It is eco-friendly, and encourages customers to use recyclable cups. It has incorporated green designs in its stores and helped farmers reduce carbon emissions. All these build up its brand image throughout the world and increases customer loyalty around the globe (Starbucks.com).

Value chain analysis

Starbucks Corporation:

Primary activities

Inbound logistics – Sourcing coffee from diverse coffee beans producers with whom they have great relationships and built up efficient supply chain management system.

Operations – They have operation in 60 countries with their stores being modeled on company operated stores and licensed stores.

Outbound logistics – Most of its product mix are sold in-store and some through large box retailers. Payment around source through point of sale, prepaid Starbucks Cards and mobile payments.

Marketing and Sales – Traditionally, investment in marketing activities have not be significant and relied mainly on the growing reputation of premium quality product mix and superior customer services to give the ‘Starbucks Experience’ to drive customers to their stores and products.

Service - Starbucks has a reputation for providing supreme level of customer services to their consumers.

Support activities

Firm Infrastructure. They have well designed, aesthetically pleasing stores. They have efficient level of finance, accounting and legal departments to support the firm’s infrastructure.

Human Resource Management – Great benefits, employee empowerment and amazing corporate culture makes Starbucks drive efficient management of human capital.

Technology development – Investments in innovative technologies like the well like mobile app.

Procurement – Starbucks procures its products from a diverse group of supplier and has fixed contracts with some of the suppliers.

External Factors

Starbucks Corporation:

PESTEL analysis

IMPACTS OF POLITICAL FACTORS ON STARBUCKSThe main political factor is about sourcing the raw materials. This has gathered a lot of the attention from politicians in the West and from the source countries. For this reason, the company wants to adhere to social and environmental norms. It is willing to follow the sourcing strategies. It gives importance to fair trade practices.Another impact is the need to follow the laws and regulations in the countries from where Starbucks buys the raw materials. Activism and increased political awareness in developing countries have made his essential.The regulatory pressures within the home market in the US are also a factor. Multinationals based in the US are now subject to greater scrutiny of the business processes. The company must monitor political stability within the country as well.Some other factors to consider are:• Tax policy• Employment laws

IMPACTS OF ECONOMIC FACTORS ON STARBUCKS

The ongoing global economic recession is the prime external economic driver for Starbucks.  As already mentioned, this factor dented the profitability of Starbucks. This has convinced buyers to shift to cheaper alternatives. As they did not quit buying coffee, Starbucks should seek an opportunity here.The company has to deal with rising labor and operational costs. The inflationary environment and falling profitability is causing a lot of stress.Some other economic factors which can affect Starbucks are:• Local currency Exchange Rates• Local economic environment in different Markets• Taxation level

IMPACTS OF SOCIO-CULTURAL FACTORS ON STARBUCKS

As already stated, Starbucks can offer cheaper products but it might have to sacrifice the quality. This is the main socio-cultural challenge that the start-up faces. It will expand consumer base to include the buyers from the lower and the middle-income tiers.The “green” and “ethical chic” consumers are also concerning. They fret about social and environmental costs of the brands. Starbucks has to be aware of this trend.The baby boomer generation is retiring. This means spending by older consumers will decrease. Now, Starbucks will have to tap the Gen X and the Millennials as customers.Other socio-cultural factors to focus on are:• Changing family patterns in USA and Europe• Consumer preferences• Changing work patterns• Changes in lifestyles of population• The level of education of the population in local Markets• Changing values among population

IMPACTS OF TECHNOLOGICAL FACTORS ON STARBUCKS

Starbucks is in a good position to enjoy benefits of the emerging mobile wave. Its partnership with Apple to bring app based discount coupons is helping it ride the mobile wave easily.

The company introduced Wi-Fi capabilities in its outlets already. Internet is important to the consumers. They can now surf the web and do work while sipping Starbucks coffee. This is an added value to the brand. It enhances the overall consumer experience.Starbucks is also enabling mobile payments. They are testing this in pilot locations in the US.Some other technological factors to keep in mind are:• Emergence of innovative technology• Biotechnological developments• Developments in agriculture

IMPACTS OF ENVIRONMENTAL FACTORS ON STARBUCKS

Many Starbucks business practices concern activists and international advocacy groups. Even the consumers have expressed issues. So, the company should take these into account to continue holding consumers’ trust.Some of the other environmental factors Starbucks should worry about are:• Environmental rules and regulations

• Environmental disasters in countries which produce coffee beans• Global warming and other environmental issues in a global level

IMPACTS OF LEGAL FACTORS ON STARBUCKS

Starbucks must ensure that it does not violate any laws and regulations in the home Market and countries from where they buy raw materials.It should also stay alert about introduction of caffeine production and consumption related policies and regulations by health authorities.Others factors that might affect the company are:• Introduction of stricter customs and Trade regulations• Licensing regulations related to the industry.

The PESTLE analysis above proves that Starbucks has a quite stable external environment. The key reason behind this might be because it operates in the Food and Beverages industry. This means consumers might reduce consumption partially but will not stop buying completely.So, as recession is the most important factor, Starbucks has to lower costs and increase the value. This way it can retain its consumer base and also gain consumer loyalty.

Porters Five Forces Analysis

Threat of New Entrants: Moderate

There is a moderate threat of new entrants into the industry as the barriers to entry are not high enough to discourage new competitors to enter the market.

The industry’s saturation is moderately high with a monopolistic competition structure.

For new entrants, the initial investment is not significant as they can lease stores, equipment etc. at a moderate level of investment.

At a localized level, small coffee shops can compete with the likes of Starbucks and Dunkin Brands because there are no switching costs for the consumers. Even thought it’s a competitive industry, the possibility of new entrants to be successful in the industry is moderate.

Threat of Substitutes: High

There are many reasonable substitute beverages to coffee, which are mainly tea, fruit juices, water, soda’s, energy drinks etc. Bars and Pubs with non/alcoholic beverages could also substitute for the social experience of Starbucks

Consumers could also make their own home produced coffee with household premium coffee makers at a fraction of the cost for buying from premium coffee retailers like Starbucks.

There are no switching costs for the consumers for switching to substitutes, which makes the threat high.

But its important to note that industry leaders like Starbucks are currently trying to counter this threat by selling coffee makers, premium coffee packs in grocery stores but this threat still puts pressure their the margins.

Bargaining Power of Buyers: Moderate to Low Pressure

o There are many different buyers in this industry and no single buyer can demand price concession.

o It offers vertically differentiated products with a diverse consumer base, which make relatively low volume purchases, which erodes the buyer’s power.

o Even though there are no switching costs with high availability of substitute products, industry leaders like Starbucks prices its product mix in relation to rivals stores with prevailing market price elasticity and competitive premium pricing.

o Consumers have a moderate sensitivity in premium coffee retailing as they pay a premium for higher quality products but are watchful of excessive premium in relation product quality.

Bargaining Power of Suppliers: Low to Moderate Pressure

The main inputs into the value chain of Starbucks is coffee beans and premium Arabica coffee grown in select regions which are standard inputs, which makes the cost of switching between substitute suppliers, moderately low. But this relatively easy entry into the market is usually countered by large incumbent brands identities like Starbucks who have achieved economies of scale by lowering cost, improved efficiency with a huge market share. There is a moderately high barrier for the new entrants as they differentiate themselves from Starbuck’s product quality, its prime real estate locations, and its store ecosystem ‘The incumbent firms like Starbucks have a larger scale and scope, yielding them a learning curve advantage and favorable access to raw material with the relationship they build with their suppliers. The expected retaliation from well-established companies for brand equity, resources, prime real estate locations and price competition are moderately high, which creates a moderate barrier to entry. to decrease, which will likely translate into lower market costs and higher. starbucks, with its size and scale, has the power to take advantage of its suppliers but it maintains a Fair trade certified coffee under its coffee and farmer equity (C.A.F.E) program, which gives its suppliers a fair partnership status, which yields them some moderately, low The suppliers in the industry also pose a low threat of competing against Starbucks by forward vertical integration, which lowers their power.

Starbucks also forms a highly important part of the suppliers business, due its size and scope, which make the power of the suppliers lower. Given these factors, suppliers pose a moderately low bargaining power.

Intensity of Competitive Rivalry: High to Moderate

The industry has a monopolistic competition, with Starbucks having the largest markets share and its closest competitors also having a significant market share, creating significant pressure on Starbucks.

Consumers do have any cost of switching to other competitors, which crates high intensity in rivalry.

But its important to note that Starbucks maintain some competitive advantage as it differentiates its products with premium products and services, which cause a moderate level of intensity in competition.

The industry is mature and growth rate has been moderately low which cause the intensity of competition among the companies to be moderately high due to all of them seeking to increase market shaper from established firms like Starbucks.

This industry does not have over capacity currently and all these factors contribute to the intensity among rivals to be moderately high.

Looking at the Porters five forces analysis, we can get an aggregate industry analysis that the strength of forces and the profitability in the retail coffee and snacks industry are Moderate.

Apple Inc.

Key value drivers

Industry Demand Determinants and Profitability Drivers:

The industry’s demand for premium coffee and snack products are mainly driven by a number of factors which include disposable income, per capita coffee consumption, attitudes towards health, world pricing of coffee and demographics. This industry is highly sensitive to the macroeconomic factors that affect the growth in household disposable. During the recession, the decline in household disposable income due to increased unemployment and stagnant wages, caused a downward pressure on the revenue and profitability margins in the industry. Another crucial factor for analyzing the demand in the industry is the per capita coffee consumption where the increase in coffee consumption increases the revenue of coffee & snack shops. The main driver of this consumption increase would be the increase disposable income, as the economy improves and consumers start to relax their budgets. This driver has a positive effect on market revenue. Per capita coffee consumption is expected to increase in 2014.

As coffee beans are the primary input in the value chain of the industry participants, the prevailing volatile prices of coffee beans determines market costs and profitability margins. The world price of coffee has risen sharply in recent years due to growing demand in other countries and the resulting supply shortages. During the five years to 2018, coffee bean prices are projected

to decrease, which will likely translate into lower market costs and towards health also play an important role in determining the demand in the industry.

There is an expected shift towards healthy eating and diet among the consumers in 2014, and this could be a potential threat to the industry as they become more aware of issues related to weight and obesity. There has been a proactive shift among the industry participants to tailor their menus towards more organic and healthy products mix.

Starbucks Key Strategies:

One of the key strategy that Starbucks followed since its inception is that of product differentiation offering differentiators such as premium product mix, locations, coffee beverages reputation and supreme customer service that translated to building a premium valued brand which is costly to imitate for competitors. Starbucks has also followed a shrewd strategy of strategic alliance and making smart acquisitions. Starbucks didn’t follow franchising model and operated company oriented stores and joint ventures in international markets. Starbucks has made some key acquisitions such as Teavana (Tea products), Bay Breads (premium bread products), Evolution Fresh (fresh juice products) etc. to use the product diversification strategy . Appendix 1 gives a whole list of joint ventures, strategic alliances and acquisitions of Starbucks. Starbucks acquisition strategy, as shown in their acquisition history in Appendix, has been horizontal, product and market extensions acquisitions. Another crucial strategy for Starbuck’s growth has been its international strategies of expanding into key developed and emerging markets to geographically diversify, and it has been highly successful with operation spanning 60 countries. All these strategies have derive considerable competitive advantage for Starbucks over its competitors.

Comparison

The major competitor of Starbucks is Dunkin brands (Appendix shows the market share). They together share approximately 60% market, but the strategies followed differ.

Starbucks corporation Dunkin Brands• They have a strategy of offering Premium • Dunkin Brands claims to offer the similar

products with higher price range to target the classes.

• They do not offer franchising options for expansion.

• They did not believe in marketing but started implementing such strategies when faced competition from Dunkin Brands.

premium product with lower prices.• They offer Franchises to enter into new

markets.• They use marketing strategies to increase

sales