Starbucks Company is one of the most significant firms that have a strong holding in the beverage industry in America. However, even with its tremendous success, there are still various challenges that it faces in its strategy implementation and internal organization that may hinder its growth in the future. Due to the threat of competition from new entrants, as well as ever-changing consumer trends towards more healthy diets, the company needs to adopt the McKinsey model in its organizational design to ensure it gains a competitive niche over other firms in the market. Thus, various strategies that should be implemented will be discussed in the current paper, including product diversification and market penetration. In addition, the firm should consider changing its management style to ensure productivity and boost employee morale.
The achievement of most organizations depends on the design and strategies that companies implement to gain a competitive edge in the market. A key model that many companies adopt is the McKinsey 7s model, which is used in the analysis of a firm’s organizational design. The model focuses on seven key elements that include structure, strategy, shared values, style, systems, staff, and skills. They are usually assessed to determine if they are adequately aligned and aid a company to achieve its objectives. The current report’s focus will be on the analysis of the McKinsey 7s model focusing on Starbucks Company. It will concentrate on the strengths and weaknesses of some of the McKinsey elements, indicate how such factors affect the planning strategy of Starbucks and determine the significance of government intervention on monopoly and perfect competition.
The establishment of Starbucks Coffee Company took place in 1971 in Seattle and has grown over the years to be a dominant multinational company that operates in over 30 countries and serves millions of customers per week. Thus, its success is attributable to its well-structured strategies, which have been helped the company capture a great share of the ever-expanding market and remain on its top. The company’s success is guided by its mission and vision statements, which enable it to focus on achieving its objectives.
Strengths and Weaknesses of the Elements of the McKinsey Model at Starbucks
Starbucks’ success is heavily reliant on the strategies that it implements. The primary strategies that it has focused on are establishing a human connection, the third-place experience, and the provision of quality experiences for its customers. The third-place experience is enhanced by the unique ambiance that the company provides to its clients to ensure customer retention. Such a third-place experience offers key strength in the company’s strategy to provide increased sales.
Additionally, market penetration is another key strategy that the company enforces to ensure it has a stronghold in the market. Through such activities, the company can maximize its revenues and improve its growth in the current market by opening more company-owned outlets in new markets. A key strength of the strategy depends on the company’s ability to license merchandise and franchise, in particular, countries such as the Dominican Republic. Market development is also an essential strength in the company’s strategy to improve its growth, as it works on a global reach to enter more countries. Another key advantage of Starbucks ‘ strategy is its ability in product development, which helps the company create new products to gain more revenue. For instance, after the company’s acquisition of the Coffee Connection, it began to offer Frappuccino in its cafes and introduced sodas in 2014.
However, even though there are strengths in the strategies that the company implements, weaknesses exist in them. In the quest to expand in the various market areas, Starbucks ‘ policy continues facing overcrowding and fierce competition. The expansion has led to overcrowding and clustering of its stores, and it leads to frustration and, to some extent, boredom among its customers. Additionally, the grouping of its stores leads to a situation, in which the company incurs even more costs in establishing and running two or more units, while in reality, the revenues from two stores are equivalent to one store’s returns. Its strategy to provide high-quality products incurs another weakness in the sense that the company’s pricing tends to be higher compared to its competitors in addition to incurring high operating costs.
Starbucks has a functional organizational structure, in which there is a grouping based on business functions. For instance, there is an HR department, marketing department, and finance department in which different levels of management are implemented. Such a form of a functional structure is advantageous in that the company can benefit from specialization, in which managers in their areas of expertise head different departments. It aids in quality work being performed and accomplished in lesser time when done by qualified individuals. Additionally, duplication of efforts is eliminated as each department deals with its tasks. The strength of such a structure is the fact that coordination can be quickly established, organizational efficiency can be increased, and it enhances the facilitation of training.
However, the functional structure of Starbucks faces various weaknesses, such as conflict of interest between departmental heads, who may want their demands to be met, such as financial resources leading to the occurrence of conflict. Starbucks is a company that is fast expanding and thus needs to modify its operations to meet changing conditions in the market. In such a case, its functional structure may impede the speed with which various changes are made. It is attributable to the fact that decisions made must follow the organizational structure up to the head of an individual department and then back to the person making a request. It slows the decision-making process and it may negatively affect the operations and even the sales of the business. Another weakness of such a structure is the fact that there may be ignorance of organizational objectives. Thus, different departments may work towards achieving their departmental goals at the expense of the whole organization’s objectives.
The management style adopted at Starbucks is Laissez-Faire where employees are given the freedom to make their informed decisions. As a result, Starbucks is a company that values its employees and follows its management style, since the company has faith in them to make decisions that will benefit the business. The key strengths of such a method empower the staff hence, increasing the level of motivation in the workplace. Therefore, it leads to the development of self-confidence in the employees, since they perform better by increasing the company’s output and boost the expansion of the enterprise. Moreover, the managers have time to check different areas for possible development. However, weaknesses in this style are in the fact that they may lack coordination because there may be less group productive and satisfied, and it becomes difficult to determine who is responsible for the performed work.
Within the McKinsey framework model, the team relates to the quality of people, the type of employees, their recruitment, and rewards. The key strengths of Starbuck’s staff relate to the quality customer service that is provided by the highly skilled staff, the low employee turnover, and flexible environment that the staff members enjoy. The company can rival competitors by having trained personnel that provide exceptional customer service hence, ensuring an increase in sales. However, similar to many other companies, Starbucks faces challenges in managing its staff considering the diversity of the workforce. Due to cultural diversity, individual barriers may arise that pose a threat to the success of the company.
How the 4S Affect the Planning of Starbucks
The strategy will have an impact on the planning of the goals and objectives that Starbucks may wish to achieve in performing its activities. To develop an effective strategy, the company will have to lay focus on its vision and mission statement, its core values, goals, and objectives, and brand or reputation. Strategizing on the goals and objectives will influence the company’s planning regarding the timeline, responsibilities, and resources that it has to consider. Developing an effective strategy will force the company to implement an effective plan to assess its strengths, weaknesses, opportunities, and threats (SWOT analysis). Thus, the company will have to plan its resources regarding tangible, intangible, and human resources that it may need to implement the strategies successfully.
The structure of Starbucks Company can affect its planning regarding goals or objectives it may want to achieve in the long-term. It is attributable to the fact that the company’s functional structure may hinder or slow down any strategies that are to be implemented, since different departments may have to liaise so that to come to a collective agreement (Meyer 2015). For instance, the human resource may have a need to hire additional staff in a certain area but it will have to seek approval from the financial department to understand if it can accommodate the staff in its budget. Given that, most of the main departments are usually based at the main headquarter. Consequently, the chain of communication and command may hinder some activities from taking place hence, interfering with any plans that may be underway.
According to the leadership style, Laissez-Faire has several effects on the planning of the organization. One effect is that it emanates positive results because it provides the employees with powers to make their decisions. Highly skilled employees are involved, thereby making a good judgment in the organization’s decisions without any supervision. The result is the proper execution of the organization’s planning process in ensuring the efficient delivery of services to its customers through the formulation of practical decisions by the employees. The leadership style also has a positive effect on the planning of the organization because it enables the employees to gain leadership roles easily by being able to take a management position when necessary to formulate decisions. The result is that the planning of the organization is successfully implemented with the presence of well-motivated employees who can quickly formulate crucial decisions that aid in the growth of the organization.
The planning of the organization is affected by the availability of a diverse workforce in the staff that encourages the growth of the organization by enabling it to achieve its goals. The diverse workforce is highly skilled in various sectors supporting the proper running of the organization. The staff’s needs are also met, including the provision of an excellent working environment and prompt payments, which enable the employees to perform diligently encouraging the growth of the organization. Government intervention is essential in promoting competition to make markets more competitive and foster better performance. The administration incorporates policies to encourage competition between firms in the market to improve the performance standards of the companies.
Government intervention is critical in monopolistic markets because it can safeguard the interests of consumers by preventing the setting of excess prices, hindering the rise of monopoly power, and yardstick regulation. In the case of controlling prices, the government protects consumer welfare by introducing price capping methods. Monopolies set prices above the required standards, and the government can control it through the formation of regulatory bodies. The authorities limit price increasing by placing the amount, which the sellers need to consider in corresponding to the real situation with prices. The regulatory bodies can set high levels by which the sellers need to reduce costs if the sellers are selling the products to consumers at very high prices. Incentives can be provided to vendors to reduce costs.
In hindering the rise of monopoly power, the government protects the welfare of customers by influencing a firm that is becoming too dominant and exploiting its selling authority. It can be done, for example, by incorporating trade practices that are unfair, such as setting higher prices. In yardstick regulation, government intervention plays a significant role in the monopolistic market by safeguarding customer welfare by enforcing the reduction of prices. It employs a rate of return from regulation where it examines the size of a firm and estimates the practical profit level it can make. If it is making higher levels of profit compared to its defined size, a price reduction may be enforced in the firm.
Intervention by the government in monopolistic market structures is essential in ensuring the provision of service quality. When a firm obtains a monopoly over the manufacture of an individual product, it may possess little motivation to provide service of good quality. The government can establish a regulatory body that ascertains that the firm attains minimum standards of service. The regulation body can also measure performance levels of the firm and reward the firm if it provides products of good quality.
Therefore, Starbucks is a significant competitor in the market, which has a solid customer base. However, with new entrants into the market, Starbucks has to adopt more efficient strategies to ensure that it will remain competitive and save its market share. For instance, it should strategize on expanding its presence in the global market in areas such as Africa to spread out its profit base and ensure its economic stability. Its principal market, the United States, has become saturated hence, limiting its expansion and growth. Thus, the company should take advantage of other emerging markets and venture into them as these are perspective areas for more profits. Additionally, the company should focus on the diversification of its product base and develop innovative economic pricing. Under its international strategy, the company should concentrate on transferring its core competencies and capabilities from one country to another ensuring it builds profit drivers in diverse countries as it continues its global expansion. To provide high performance, Starbucks should focus on developing useful tools of organizational management as well as on improving employee motivation in the workplace. By ensuring that its organizational structure and management style are well-planned, the company will be able to achieve a greater competitive edge.
In brief, Starbucks is an active company, which has opportunities for more significant growth, if the right strategies are implemented. Given the competition faced in the market, the company can focus on its core strengths and weaknesses and establish ways to improve in various areas. Additionally, taking advantage of the opportunities that are available will ensure that it maintains its stand in the market. By adopting the 7S of the McKinsey model, the company can be better equipped with strategies that can enable it to achieve continued growth and success in the market.