Howard Schultz's leadership strategy and Starbucks' global expansion

Howard Schultz

Case Analysis - Howard Schultz Starbucks

Coffee Company

CASE ANALYSIS-HOWARD SCHULTZ STARBUCKS COFFEE COMPANY

Case Analysis - Howard Schultz Starbucks Coffee Company

Company Overview

Starbucks Corporation is the first organization to specialize in marketing and retailing of specialty coffee in the world. Established in 1985, Starbuck operates in more than 50 countries, and the company sells varieties of coffee and tea beverages through the company trademark. In addition to the Starbucks trademark, the company portfolio also includes Starbucks VIA, Seattle Best Coffee and Tazo Tea. The vision of Starbucks Corporation is to become one of the most recognized respected brands in the world, and the company has tried to achieve this goal by expanding outside the United States. Between 2007 and 2011, the company has been able to increase its net revenue by more than 24%. At the end of 2007 fiscal year, the company recorded the net revenue totaled $9.4 billion. However, by the end of the 2011 fiscal year, Starbucks recorded $11.7 billion in net revenue. The success of the Starbucks lies with the strategy that Howards Shultz run the company and makes the Starbucks to become one of the best companies that specializes in coffee and tea beverages. (Starbuck Corporation, 2011).

Objective of this report is to provide a case analysis of Howard Schultz Starbucks Coffee Company.

Situation Analysis

The most important factors that shaped the perspective of Schultz towards fledgling specialty coffee market was his visit to Milan when the initial owners of Starbuck Corporation sent him to Italy to attend the international housewares show. Jerry Balwin, Zev Siegel and Gordon Bowker formed Starbucks in 1971. The company specialized in the production of Coffee, Spice and Tea. The belief of the founders was to make the company as the one already emerged in San Francisco Bay Area. The company was named Starbucks to honor Starbuck, a coffee-loving mate. They also believed that the name evoked romance of the high sea of early coffee traders. By early 1980, the company had expanded and having four Starbucks locations in Seattle and could boast of being a profitable company since the company had opened its door. By 1981, Howard Schultz was the vice-president and general manager of Hammarplast Company. However, Schultz was fascinated to Starbucks because of the way the company was placing a large order and decided to pay a visit to the company. Schultz was fascinated by the company operation and tried to convince the company owners to hire him and become part of the company management. It took Schultz nearly a year to convince the Starbucks owners to make him part of the company management. Finally, Starbucks hired Shultz in 1982 and made him a director of marketing and operations. However, Schultz's biggest idea came when the company sent him to Italy to attend the international housewares show in Milan. At Italy, Schultz visited an espresso bar and was fascinated by the vibrant style of the Italian coffee bars. At espresso bar, it was common for Italian Opera to be playing in the background making people to enjoy themselves. Schultz was particularly struck to know that there were approximately 1,5000 coffee bars in Milan and 200,000 coffee bars in Italy, and all the coffee bars were recording stream of customers. Schultz remained in Milan for a week to learn as much as he could about Italian passion for coffee drinks. To be sure of the quality of Italian coffee, Schultz ordered a caffe latte. Having tasted the drink, Schultz concluded that the drink was a perfect drink. Schultz decided to bring the experience that he acquired from the coffee drinks in Milan and integrate it into Starbucks business strategy.

Schultz visit to Milan produced a revelation that Starbucks was completely missing the strategy of producing the quality coffee. Typically, Starbuck needed to redesign its business strategy and integrate coffee beverages in its business operations. Starbucks needed to serve the fresh-brewed coffee, cappuccino and espresso in its stores to enjoy stream of customers. Based on Shultz experience in Milan, Shultz decided that Starbucks should be a store where people should meet friends and exchange visit. Schultz experience in Italy also reveal that Starbuck needed to integrate Italian coffee-bar culture in the Starbuck business strategy and the system will make the company to differentiate itself from the competitors.

However, when Shultz returned to the United States, he met a stiff resistance from Starbucks owners when he revealed his idea to modify format of Starbucks. The owners argued that Starbuck was not a restaurant or a bar; rather, Starbuck was a coffee retailer. It took Shultz a year to convince the Starbucks owners to try an espresso bar. To try the espresso bar venture, Starbuck converted one of the company retail stores to espresso bar location. However, the first day Starbuck tested the espresso bar, Starbuck recorded the visit of 400 customers, and within two months of starting the espresso bar, Starbuck recorded the visit of 800 customers a day. While the company was recording success in the espresso bar, Baldwin, one of the co-founder of Starbuck was not comfortable because of his believe that espresso bar would divert Starbuck from its core business. One day, Baldwin adamantly franked with Shultz that he did not want to be part of Shultz business idea because Starbuck was not traditionally a restaurant business. With constant resistance that Shultz received from Baldwin, Shultz left the company in 1985.

After Shultz left the company, Shultz formed his own company, which was named II Giornale. Schultz was able to raise $1.65 million from 30 investors to expand his company. Within six-month of starting his own company, Shultz was serving more than 1000 customers and the company was able to open the second store. In 1987, II Giornale opened another store in British Columbia. By mid-1987, the company was able to record a sale of $1.5 million annually. (Auch-Roy, 2004). While Shultz was recording a business success in his newly formed company, Starbucks owners were planning to sell out their company, which gave Shultz the opportunity to acquire Starbuck in 1987.

Starbuck's Competitive Advantages

Starbuck competitive advantages lie on the Porter's generic theory of competitive advantages. Porter (1996) argues that product differentiation, cost leadership (lower cost), and cost focus have been the strategies that business could employ to achieve competitive advantages. Starbuck was able differentiate its product by offering high quality coffee. The company introduces the VIA coffee, which is a new instant coffee having straddling differentiation. The company has also been able to establish low cost leadership by providing low cost coffee at convenient location. The company is also able to differentiate itself by offering in-store gift and brewing utensils. Based on the differentiation strategy and cost leadership that the company employs, Starbuck has grown to record net revenue of $11.7 billion at the end of the 2011 fiscal year. Starbucks has also been able to record financial growth in the last 5 years. The data in Table 1 and Fig 1 reveal that Starbucks has been able to increase its net revenue and operating income in the last 5 years.

Table 1: Starbucks Financial Performances between 2007 and 2011

2011

2010

2009

2008

2007

Net Revenues ($Billion)

$11.7

$10.7

$9.8

$10.4

$9.4

Operating Income ($Million)

$1,728

$1,419

$894

$843

$1,054

Operating Margin (%)

14.8%

13.5%

9.2%

8.1%

11.2%

Earnings per Diluted Share

$1.62

$1.24

$0.80

$0.71

$0.87

Source: Starbuck Corporation (2011).

Fig 1: Starbucks Financial Performances between 2006 and 2012

However, to enhance a strong position in the market, Starbucks needs to focus on strong global brand. Starbucks should increase more acquisition and the company should expand its locations to others countries in Latin America.

Role to ascribe to Starbucks and Howard Schultz

In the contemporary business environment, Information technology (IT) has become a strategic weapon that business employs to achieve competitive advantages. Starbucks and Howard Schultz needs to build an online social networking for customers and prospective customers to interact. The strategy will assist the company to understand the value of their products and the weakness of the products. Through this strategy, the company will be able to identify its weakness from customer opinion and this will assist the company to improve on the product. Porter (1996) argues that technology could assist a company to build a competitive advantage. Shultz needs to integrate IT in the company value chain to enhance the company global competitive market advantage.

Conclusion

The report provides the case analysis of Howard Schultz Starbucks Coffee Company. The report reveals that Schultz possesses both transformational leadership and entrepreneurship skills. Schultz uses the experience that he learns from Milan espresso bar and integrates it into Starbucks business strategy, which makes the company to become one of the most successful beverage companies in the world.