Classic Standby Business Strategy Tools

Strategy and SWOT Analysis

Key Concepts in Business Strategy and SWOT Analysis

Creating a competitive business advantage is a complex endeavor. Various techniques have been developed to guide the self-analysis process practiced by business enterprises. Traditional strategic planning engages a company in both internal and external analysis. In order to conduct a strategic analysis that makes niche or unique opportunities salient, it is necessary to have a robust view of the competitive landscape. Alternately, a thorough analysis of operations and position requires a penetrating look at the internal capacity of the company. A SWOT analysis promotes a clear-eyed look at the external and internal dimensions of a business that have the potential to impinge on the development of an effective strategic plan for the company.

A SWOT analysis takes the participants through a systematic process of examining the strengths, weaknesses, opportunities, and threats that are aspects of a company's business. The internal components of the SWOT analysis are described in terms of strengths and weaknesses, while the external components of the SWOT analysis are categorically described as opportunities and threats. Each of the SWOT components is important to the ultimate development of a strategic plan. That said, if emphasis needs to be placed on any particular dimension, it would be the aspects of the analysis that hold the promise of greater differentiation. Business analysts look for ways to be effective in ways that are most valued by consumers or clients: whatever the value-add, differentiation takes place in the mind of the consumer or client. Differentiation is not something that a business creates; differentiation is the result of some action by the business that conditions the perception of the consumer or the client to value or favor a company in some particular way. Essentially, to achieve differentiation, the core competencies of a company must be valued by customers or clients more than the core competencies of other businesses.

Strategic thinking is as much about what a business ought not to do as it is about what a company should do. Consider that the greatest competitive advantage may come about once a business has decided what it will not do that the competitors do, and are likely to continue doing. This is the fundamental premise of Blue Ocean strategy: a SWOT analysis and strategic planning can reveal niche opportunities that are conceptually fresh and radically appealing to consumers. Ostensibly, a niche opportunity can be found or developed in any of the three strategic positions described by Porter. The key takeaway: Strategic positioning enables a company to develop offerings that are different from what competitors offer, or to create offerings are categorically similar to rivals' but that are distinctive and better in customer-centric ways.

Porter's competitive forces theory is a substantive approach to shaping competitive strategy. The five forces framework has the capacity to take strategic planning into new realms. Companies that have not engaged deeply in strategic planning may not have looked broadly enough to establish a state of readiness to address disruptive innovations, cultural trends, and economic shocks for which signaling occurred, assuming a company knew where to look. Variations -- extensions -- of Porter's five forces have been created as contemporary analysts have attempted to include other variables that they consider relevant to strategic planning. Spin offs from the basic five forces analysis can be useful if they help align the approach to the rapidly changing marketplace.

SWOT Analysis of Starbucks

Starbucks Coffee Company roasts, markets, and distributes specialty coffee and other products in a global market, earning revenue of roughly $13 billion with profits running to $1.5 billion. Approximately 150,000 employees engage in serving up the Starbucks Experience in 8,000 coffee stores operating in more than 60 countries. Starbucks, the premier coffeehouse brand in the world, has many competitors. In the retail coffee house market, Starbucks' competitors include: Green Mountain Coffee Roasters, Dunkin' Donuts Brands Group, Inc., Caribou Coffee Company, McDonald's Corporation, Pete's Coffee, and Costa Coffee. Starbucks has diversified its product lines, selling in grocery stores and big box member-based outlets, and their offering includes all manner of coffee accouterments and brewing equipment. These activities extends their competitor line up to grocery store coffee sellers, such as Folgers, Yuban, Nestle S.A, and the like.

SWOT Analysis: Strengths, Weaknesses, Opportunities, and Threats

Strengths

World's largest coffee house brand

The Third Place / The Starbucks Experience

Partner training and management system

No. 1 brand in coffee house segment

Sound financials

Eco-conscious building and recycling

Weaknesses

Product pricing (elasticity swings wildly; resistant to economic forces alone)

Negative publicity regarding Partners' low pay, curtailed benefits

CEO insensitivity to Barista's living wage needs

Coffee bean prices are major influence on profit

Opportunities

Continued international expansion

Continued increase in product offerings

Celebrity product placement and affiliation (Oprah's school for girls and tea)

Diversification of store types (upscale tea house, alcoholic beverages)

Extend supplier and vendor relationships

Threats

Impact of geopolitical factors and shocks on prices of supplies

Supply disruptions

Trademark infringements

Competition from fast food chains and local coffee houses

Saturation in developed markets

Competition from slow food and locavore movements

Porter's Five Forces

1. Jockeying for position and market share among the current competitors in the industry -- The Juan Valdez Cafe coffee company that went after Starbucks market share right on the street corners of Seattle, the birthplace of Starbucks Coffee Company, is no longer in that location. The seller of Columbian coffee continues to operate internationally and has stores in Washington, D.C. And Manhattan.

2. Threat of new entrants or new customers -- Starbucks has weathered several concerted attacks from competitors, most notably fast food chains, but the company continues to reinvent itself.

3. Bargaining power of customers -- When fast food chains began serving specialty coffee beverages, Starbucks lost some customers. Market segmentation would show that the migrating customers were predominantly price sensitive, while many of Starbucks customers have not demonstrated price sensitivity, even during the height of the fiscal crisis. The Starbucks offering is as much ambiance and status as it is brewed coffee, and it is this service differentiation that undermines even the most concerted efforts of competitors to draw Starbucks customers away.

4. Bargaining power of suppliers -- A wide array of suppliers partner with Starbucks to fulfill their hot and cold snacks and bistro meals. There have been difficulties with suppliers in the past. Starbucks has acquired companies to produce their baked goods, and it has partnered with other companies, engaging in exclusive arrangements to feature products in the stores such as acquired food partner La Boulange, the San Francisco chainlet of Parisian-style shops previously owned by Frenchman Pascal Rigo and specializing in pastry.

5. Threat of substitute products or services -- Starbucks has effectively neutralized this force when it created and established new beverage products, increasing the product line to include Tazo teas, all manner of hand built coffee beverage, healthful blended drinks, decadent European hot sipping chocolate, and -- now -- specialized Starbucks stores that serve alcoholic beverages.