Making business decisions: frameworks and approaches

¶ … Business Decisions

The employee is rightfully concerned. The cafe is faced with declining revenues even though there are no direct competitors. If a direct competitor enters the market, that could be the death knell for the cafe. To reassure the employee will require a plan for turning the cafe around. A key step in this process is to develop a marketing plan, to improve customer loyalty.

This component of the strategy will entail several steps. The first is to conduct environmental scanning. By understanding the competitive, economic and demographic characteristics of the town and neighborhood, new management will be better equipped to make strategic decisions with regards to the direction of the shop that will attract and retain customers. Environmental scanning can be done on the Internet, where information is available -- demographic data from the Census Bureau, information on the Starbucks website and annual report about our potential new competitor, and general information about the coffee shop and hospitality industries that can help management gain perspective on the current trends in the industry. The Five Forces model may help here (QuickMBA, 2007). There is a high threat of new entrants, relatively high supplier power, moderate buyer power, relatively low threat of substitution for the coffee portion of the business but high threat of substitution for the food part of the business and low intensity of rivalry. Customers have very low switching costs, especially if Starbucks opens down the street. The cost of setting up a new coffee shop is low, so there are low barriers to entry. Coffee is substituted with tea or energy drinks, a low threat, but there are innumerable ways for people to feed themselves. This makes the industry relatively unfavorable in which to operate.

This implies that the best of the three strategies is a differentiated strategy. The audience is fairly broad-based because the business depends on high volumes due to lack of pricing power at the shop level. Yet it will be difficult if not impossible to compete on a cost basis given the lack of economies of scale compared with McDonalds, Dunkin' Donuts and other major players in the coffee business. This points the shop in the direction of a differentiated strategy (Quick MBA, 2007). Sources of competitive advantage should be cultivated. Many of the issues facing the shop -- the lack of inventory systems, lack of payroll and accounting systems, lack of Wifi access in the shop -- if addressed would only match other coffee shops and therefore would not provide a source of competitive advantage. There are sources however. For example, the loss of grandfather's recipes provides an opportunity to gather recipe ideas online and modernize the menu. The same can be done with the coffee and tea offerings. While the old customers are unlikely to have an interest in change, new customers can be attracted by premium offerings. A website like Coffeegeek.com can provide insight into the industry, what technologies are driving the industry and what suppliers of beans and teas are out there. Starbucks is not at the cutting edge of the industry, so first mover advantages can be gained -- and sustained -- even if the mermaid moves in down the street.

A more basic version of this layout would help streamline back-end efficiency. Customers should order food and drink at the same point of contact, and pay for it at that point (a). Food and drink can be picked up at different counters (B and C). Cream, sugar etc. should be moved to D. Counter E. is relatively inaccessible given the nearby tables. With a window, this space should be converted to more seating.

The optimal bean purchase is derived in Exhibit a.I would not dream of doing business with this supplier. Their constraints inhibit my ability to earn profit and they inhibit my ability to follow my differentiated strategy. If you want to manage your supply chain properly, you must get rid of lousy suppliers that cost you money. Brazil Beans is out.

The customer's complaint about children is their own personal opinion. There is no ethic attached to it, and the customer's ethics are irrelevant to the business owner, who must focus on the ethics of his or her own decisions. There is no need to encourage open communication on the website -- no moral imperative for this exists. The comment can be retained or deleted as the owner of the site sees fit. e-Business should focus on marketing through social networks and a website; through identifying potential suppliers. We can't sell food and drink online so the site is mainly for promotional purposes. The cafe's main metrics will be page impressions, Facebook fans, Twitter followers. Reaching out to customers using social media can help to inform them about promotions and new products. Social media is also the modern-day equivalent of knowing all of your customers by name (though that would not hurt either) as it helps to foster a relationship allowing for improved retention. A portal is not of much value for the employees. At best, they can check the schedule online. We don't have that many people working at Broadway, an expensive back end system for staff we see everyday is poor value. I would not use kiosks in the cafe. I would focus on a Wifi network and let the customers bring in their own computers.

I do not need my website to be sticky. I do not sell food and coffee online. There is no evidence that food service is viable as an online retailer. I need my shop to be sticky. Morrison Cafe has the best metrics. The language is probably superfluous but there is a direct link between the surfing and the money. If this was an e-business I would want evidence linking my time, the cost of the website and the revenue of the website in order to compare with the investment of my time and money in the cafe itself. If it was demonstrated that the website was more profitable, I would pursue building a full slate of metrics, the most important of which are found in Exhibit B. Basically, I want to know how many people are visiting, what my conversion rate of visitors to customers is, and what each customer is spending. I want this data in aggregate, too, rather than for individual customers.

I would not build a collaboration. As Milton Friedman pointed out, the social responsibility of business is to make profits. That is the guidepost by which I shall operate. Only collaborations that directly benefit the business should be offered. A coffee tasting would be possible, but only after I fire Brazil Beans as supplier. I would be interested in testing new equipment, but the equipment would need to be donated. Corporate money should not be spend indulging my passion for coffee toys. The coffee tastings, however, would add value to the business in that they would attract customers and more importantly convince them to buy premium, higher margin beverages. This is directly congruent with the differentiated strategy. Such events would be promoted in store and on the website/social media.