Competing Organizations In The Same Industry

“There is no one best way to create strategy, nor is there one best form of organization. Quite different forms work well in particular contexts. It is believed that exploring a fuller variety systematically will create a deeper and more useful appreciation of the strategy process”. (Mintzberg et al, 2003). There is no single generally established definition of strategy. A range of manager and writer use strategy in a diverse way. For instance, some consist of goals and objectives as part of strategy while others make firm differences between them. However, Mintzberg define strategy as a pattern or plan which integrates organizations major goals (which articulate what is to be attain and when results are to be consummate), policies (which are system or guiding principle that state the confines within which act should take place) and action sequences into a cohesive whole. Furthermore, Strategy” is a word which originates from classical Greek “strategios” which means a plan to defeat the enemy. The term strategy however is abstract and is probably secret of success’ profit’ plan etc.

In addition, in this assignment we are going to produce a team work outcome on two competitive companies named Starbucs Coffee and Costa coffee in the UK basically about their corporate strategies, strategic decision, strategic business policies, global strategies, concept and also their performance.

More to the point, the first Starbucks was open by Gordon Bowker, Zev Siegl and Jerry Baldwin during 1971 in Seattle’s Pike Place Market. The maritime name seems suitable for a store that imports the world’s premium coffees to the cold thirsty people of Seattle. Corporation formed in 1985 and went in public in 1992. In 1982 CEO Howard Schulz joined in Starbucks as Director of Retail operations and marketing. Its logo is mermaid. The total assets of Starbucks are $5.3billion as of March 2009. Starbucks successfully entered the European market in May, 1998 through its acquisition of 65 Seattle coffee company stores in the United Kingdom. The design and atmosphere of Starbucks stores are specially designed to cosy and intimate. http://www.fundinguniverse.com/company-histories/Starbucks-Corporation-Company-History.html

On the other side of Costa history, during 1971 Costa was founded by Italian brothers Sergio and Bruno Costa and it is now in the UK’s popular coffee shop brand with over 400 stores in the uk. http://www.costa.co.uk/coffee/costa_story.aspx

Strategic management:

According to Johnson and Scholes (1997), strategic management concerned with taking decision about major issues that facing the organization and also concerned with ensuring that the strategy is put into effect. Strategic management has three main elements: Strategic analysis, strategic choice, strategy implementation. Strategic analysis identifies about organization’s strategic position, resources, and competencies can these provide special advantage to the company. What about people and groups associated with the organization managers, shareholders, owners, unions and others, who are stakeholders in the organization aspire to, and how do these affect what is expected for the future development of the organization. Costa, which is part of Whitbread and has 965 outlets in the UK. The strategy of Whitbread’s is to value for our shareholders on the basis of focusing investment and growing in expanding sectors of the hospitality industry, primarily in the UK but also in selected overseas markets. Costa is got in store baristas who are coached in the art of coffee making at the company’s Costa Coffee College in London. Every line manager in Costa whether they are based in the support center, corporate sales or stores, works with a training framework designed for the role that they are in; as a result it is always be encouraged to develop themselves and skill as well. During recruitment Costa ensure right person for the company and also Costa is right for that candidate as well. Costa believes that quality of coffee is mainly depending on the making people qualified. http://www.costa.co.uk/coffee/the_coffee.aspx

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On the other hand, Starbucks treat their staff as partners with respect and dignity and hold each other to that standard. In the case of customer Starbucks Company said that, “we are fully engaged with, laugh with and uplift the lives of our customers even just for a few moments. In no doubt, it starts with the promise of perfectly made beverage but our work goes far beyond that”. Starbucks reward their shareholders for their success and achievement of the business.

Competitive Analysis of Starbucks and Costa:

Porter 5 forces analysis of Starbucks and Costa:

Bargaining power of Customer and consumers: In the coffee industry customer has high bargaining power with no cost and risk, so they can easily switch their brand. In that case, Starbucks doing a slightly different customer service from its competitors. Starbucks really care about their customer buy ensuring third place concept for their every client. Starbucks know that customers look for not only quality coffee but also a relaxing environment where they can enjoy their time away from work and home. In contrary, Costa also keeps their customer by providing greater services and quality.

Power of Supplier: Both companies have got a strong relation with their supplier.

Rivalry among competing sellers: The competition in between Costa and Starbucks. Its simply proven that Starbucks doing business over Costa by providing variety of flavors and the quality. Furthermore, Starbucks offers a differentiated environment by carrying many newspapers, magazines, free Wi-Fi internet for customers. Perhaps at the same time as Starbucks might lose some of the market due to Costa’s lower prices but in the long run Starbucs of course regain its highest profit.

Threat of new entrants: The threat of new entrants is high for both companies. For example, now a days vending machines offering coffee like cappuccino, and also hot chocolate etc with cheaper price.

Threat of substitute: During summer and a very warm region like Middle East coffee might not be the first choice of beverages for customer. So, in case of substitution Starbucks got some threat from its other competitors like smoothies, fruit juice company, Pepsi etc.and Costa a very little. Nevertheless, Starbucks has in its range a cold line of drinks the frappuccino, as a complement for their products and can still be competitive. On the other hand, Costa offer a very few cold beverages which creates threat for company also less competitive with Starbucks.

Starbucks and its competitors Financial Performance over last few years:

Starbucks is a world leading coffee brand. In the European continent its performance is much more superior than Costa coffee. However, some of the following reasons Starbucks have got a downward change in its revenues:

Customer downgrades to cheaper beverages

Customer making coffee at home

Customer visits Starbucks store a very few now a days.

Lots of small coffee companies seeing a slow decline, however they are benefitted from customer loyalty to a local brand even in a downturn. For example in home country Costa coffee operates its business quiet successfully than Starbucks.

Figure: Starbucks and its competitor’s revenue changes

Data source: www.starbucks.com

McKinsey 7s Model analysis in between two companies Starbucks and Costa:

The McKilsey 7s framework illustrates the structure, management and strategy of an organization are complex network of interdependent elements within an organization, each of them is collectively and individually important. The illustration depicts a wheel, describing that the seven factors incorporating the overall framework in concert and no single component is more important than others.

Although Starbucks and Costa coffee run same industry, and the purpose of both of them are intended to extend their coffee business worldwide, their style of development is not in the exactly same way. By analysis with McKinsey 7s model, we can see how each element of 7s operates in Starbucks and Costa. Data Source: http://www.glowa.ca/Starbucks_7s_Method.pdf

Structure:

Starbucks structure is relatively flat basically store and corporate organization is tall with four levels of management above store management.

In contrast, in store position of Costa is a slightly different from Starbucks and that is

Store Manager

Assistant Manager

Team Members Team Members Team Members

However they position a customer assistant, to reduce the job quantities of assistant manager, more helpful to the store, to retain the loyal customers.

Data source: http://www.costa.co.uk/coffee/costa_story.aspx

System: The information system in Starbucks company which already represents the leader of coffee business, they got the most advanced business technologically operation system, to fulfill the objectives. Their Corporate headquarter exercises controls over individual sites, TQM is specifically built into their processes and company also uses a big amount of IT system.

Figure: Use of IT at Starbucks

Data source: http://www.fundinguniverse.com/company-histories/Starbucks-Corporation-Company-History.html

In contrary, Costa use Transaction Processing System

The Costa Coffee Transaction processing system that means it is basically using Office Automation System. Costa coffee shop are more concentrated on office system operation, the quality of staff, the knowledgement of team members, they convinced that only they can select the right people, all the business would go well, which is more important for achieving success in the competitive environment.

Style:

The basic management style of Starbucks is Laissez -Faire, managers observes that members of the group working well on their own. In addition, the management inspires through reviews and raises, work duties are assigned by shift supervisors, allow staff to use initiative and empower to make decisions. However, Costa coffee involves employee engagement, introduce of motivational scheme, and specify on brand management style with formal networks for functional and personnel development. Costa builds senior management level as a typical management style for developing its brand and assisting new managers get up to speed and facilitating new unit openings. Implementing its knowledge management programmers in Costa coffee as its own management style so as to improve its business operations.

Data source: http://ru.linkedin.com/in/natalyafilkina and

http://www.whitbread.co.uk/our_people.cfm?id=senior_management_development

Shared value:

Starbucks emphasizes its shared value on offering the great environment for its customers and treating them with respect and dignity, developing enthusiastically satisfied customers, applying the highest quality standards for products. What’s more, the company cares about community and miscellaneous environment, donation to them as a mission. Of course, Starbucks identify that the spirit to future success is profitability. So, that it has no choice to live in a vacuum, which means has to be a part of the world, must plan for a better future in coffee world. It indicates respecting staff, contributing to communities, and planning for lifted sustainability, and progressive economic, social, and environmental working conditions for farmers. By comparison, Costa stresses its shared value on broadening its market to obtain significant profitable segments on its own, uses both its company and mainstream coffee label to pursue an integrated marketing, which directly related to its name. Execution of company’s branding and positioning perfectly as the shared value of Costa coffee as a whole, which is enabling to Costa leading brewing industry in the UK for years. Furthermore, by mixing the dedication of Costa company to quality of service and formula for success.

Data source: http://www.fundinguniverse.com/company-histories/Starbucks-Corporation-Company-History.html

Strategy:

The most significant Starbucks’s strategy is to launch its brand to be the greatest distinguished and esteemed around the world by raising its market share in present markets and to open stores in new markets to become the leading coffee retailer and to reach more customers by establishing a strategy to work with third parties such as inside a lot of bookstores, some hotels and some airlines. These causes Starbucks operate more than 6,400 of their own retail stores worldwide as similar as Costa Coffee now operates 893 outlets in the United Kingdom as of May 2009 and operates franchises in some bookstores, banks, superstores, some hotels, some train stations and in some workplaces. Also, in some countries such as China, India, Spain and so on but this strategy is not the most important for Costa.

On the other hand, the most important of Costa’s strategy that concentrating on their core competencies as the professional coffee maker with an emphasis on it’s professionally trained baristas who hand-make every cup of coffee to make its customers attractive otherwise, Starbucks has the different point that to extend its brand by adding a variety of consumer lifestyle products such as salads, sandwiches, music and books to their product offerings in the previous years cause Starbucks has been losing market share so Starbucks should be improve its issues by reinforcing the core of its company culture, customer service and product differentiations again.

SKILL

Starbucks skills include “people skills” and also the ability of drink preparation. All Starbucks partners get training to learn about products, coffee brewing methods, techniques of sales and also customer service. Employee’s skills in coffee shop as Starbucks and Costa are quite similar that are highly customer focus on retail operations, so staffs being friendly and knowledgeable are important for both coffee companies in order to claim an advantage over their competitors. For the coffee experience, Costa ranks it as the primary skill for its employees to make and serve a perfect cup of coffee.

STAFF

The staff policy for Starbucks and Costa look alike as Gordon Lyle, Human Resource director of the United Kingdom at Starbucks, compensation and benefits is one of the most important roles in the company. Starbucks pays baristas above the minimum wage and offers a broad pay spectrum for store managers (Personeltoday.com) and also trained employees is significant as ‘Partner’ resources incorporates learning and development, talent management and compensation and benefits as same as with Costa that the Whitbread’s human resource team is focusing on reward, employment policy, training and management development. It also oversees brand standards and internal communications. ‘Team members’ are paid above the minimum wage and there is a broad pay spectrum for store managers. As a result, the current level of Costa’s staff turnover is about 73 percent and Starbucks’ turnover rates are impressively low for the sector at 15%, compared with a median average of 30% within the coffee industry.

BCG matrix analysis of Starbucks and Costa coffee

The BCG matrix is a chart that had been created by Bruce Henderson for the Boston consulting Group in 1968 to help corporations with analyzing their business units or product.

Data source: http://www.bcg.com/about_bcg/history/history_1968.aspx

According to The BCG Growth Share Matrix, Starbucks and Costa coffee both company are fall under Cash cow which represents low growth, high share business or products. Starbucks and Costa coffee growth rate is high but it is for within short time. Both of them are in cash cow. Because Starbucks has got 16,862 world wide stores in 49 countries as of March 2009. It again proves that Starbucks has got a very wider market share in compare with its competitors Costa.

Figure: Starbucks numbers of store world wide.

On the other hand, only in the UK Costa coffee operates 893 outlets as of May 2009. It also has branches in China, Pakistan, India, Egypt, Oman, Germany, Jordan, Poland, Bulgaria, Hungary and some other country

Competitive Strategies practices:

Value creation:

Value creation is the way to maximize the profitability of a company. Basically, a firm’s value creation is measured by the difference between its cost of production and the value that consumers perceive in its products (Hill, C. W.L, 2008, page, 363)

Differences between Starbucks Value Creations and Costa Value Creation:

Starbucks Value Creation

Costa Value Creation

Costa Beverages ProductStarbucks coffee is making their product with ensuring higher quality according to the customer’s demand like light, regular beverages that means they are practicing more customization of products. For example, extra shot of coffee, syrup, cream on top of the coffee etc.

Starbucks is making the product more attractive through different product variation, tastes, line extension etc. For example, Ice blended Frappuccinos.

Starbucks apply differentiation strategy

Costa coffee establishing their product value by making superior design like take away cup, quality product, and selling a relatively low price cup of coffee.

Costa applies low cost strategy.

Espresso, Doppio EspressoCaffe Latte

In addition, the rivalry between these two companies is very much reflected in their sales, promotions and new product launch. These activities are creating value for their customers.

For example, Costa, which is owned by the UK’s Whitbread group, has agreed a contract with a local partner and is also, working with Devyani International, a drink and food group that also looks after Pizza Hut and KFC outlets in India. The first store will open in Connaught Place, Delhi, and will be able to seat 60 people. As well as its more traditional menu items, Costa will also offer food specially tailored to suit the Indian market, with sandwich fillings such as chicken tikka or cottage cheese tikka. http://news.bbc.co.uk/1/hi/business/4179696.stm

Similarly, Coffee chain Starbucks has reaped a sales boost from a new low-calorie version of its Frappuccino iced drinks. The company said revenues in cafes open at least a year climbed 10% in the four weeks to 25 July, while total sales rose 27% on the year to $409m (£220m). The increase reflects the impact of the new Frappuccino, introduced in June. Starbucks is the latest in a long line of food companies to offer reduced-calorie versions of established consumer favorites.

Data source: http://news.bbc.co.uk/1/hi/business/3936217.stm

From the employee’s value creation perspective, it is clear that both of these company care about their employees and they are very keen to value them. Since Starbucks began with a single store in 1971, its overriding philosophy has been this: “Leave no one behind.” With that in mind, new employees get 24 hours of in-store training, steeping themselves in information about coffee and how to meet, greet and serve customers. Full health-care benefits (medical, dental, vision and alternative services) are offered to all employees, including part-timers who work at least 240 hours per calendar quarter. The EAP is available to all employees. Employees share in the company’s growth via “Bean Stock” (stock options) of up to 14 percent of their gross pay, and a stock-investment plan allows them to buy shares of Starbucks common stock at a discount (85 percent of fair market value) through payroll deductions. The company also matches employees’ contributions to their “Future Roast” 401(k) plans, adding from 25 to 150 percent of the first 4 percent of pay, depending on length of service. As a result of such measures, Starbucks employees have an 82 percent job-satisfaction rate, according to a Hewitt Associates Starbucks Partner View Survey.

Data source http://www.workforce.com/section/02/feature/23/52/96/

Similarly Costa have some employee benefit such as pension, healthcare, charity giving, bonus etc. these are definitely creating values for the employees employee training about making coffees, customer service and it provides career opportunities to their employees.

Turnaround Strategies:

Turnaround is an sudden or an unexpected change, esp. one that results in a more favorable situation. It is the process of completing or the time needed to complete a task, esp. one involving receiving something, processing it, and sending it out again.

Turnaround strategy is the implementation of a set of actions required to save an organization from business failure and return it to operational normality and financial solvency. Turnaround management usually requires strong leadership and can include corporate restructuring and redundancies, an investigation of the root causes of failure, and long-term programs to revitalize the organization. Recognize a need for a turnaround in 1982 Howard Schulz joined Starbucks Coffee Company as director of operations and marketing. At that time Starbucks had only four stores. In August 1987, Schultz purchased Starbucks Coffee Company. In 1992, under his leadership, Starbucks was the first specialty coffee company to become a public company. The growth of Starbucks has been amazing: from 17 stores in 1987, to more than 16,000 worldwide today. Schultz outlined a series of initiatives to help transform Starbucks. These initiatives were largely governed by the principle – ‘getting back to the essence of what drove Starbucks past success’. Starbucks unveiled plans to start offering limited free wireless Internet service. The partnership with T-Mobile – which only offered a paid subscription service – ended with switching over to AT&T Inc.

Commenting on the recent reorganization efforts Schultz said, “We realize that we are operating in an intensely challenging environment, one in which our customers and (employees) have extremely high expectations of Starbucks. In January 2008, Starbucks announced that it will stop selling warm breakfast sandwiches. The reason: the egg, cheese, bacon and ham competed with the coffee aroma in stores. Perhaps to re-ignite the emotional attachment with customers and restoring the connections customers have with Starbucks coffee, brand, people and stores. A three-hour training session for all employees on making espresso was also scheduled. In 2008, Starbucks will open hundreds fewer U.S. stores than initially planned and will close about 100 poorly performing domestic stores. It will ramp up its expansion overseas to increase the profitability of Starbucks outside the U.S, even redeploying a portion of the capital originally earmarked for U.S. store growth to the international business. Also, in February 2008, Schultz announced 600 job cuts (about one-third who worked at the company’s Seattle headquarters in the US) in an e-mail to Starbucks’ more than 170,000 employees, calling it a difficult decision aimed at sharpening the company’s focus on customers. Some analysts felt the move was to remove bureaucracy and lower costs.

On the other hand, turnaround strategy of Costa which is part of Whitbread, said different scenario. They believes there is still room to grow and, despite acknowledging the recession has had an impact on sales, it reported same-store sales were up 2.6% in the 13 weeks to 28 May.

Clive Bentley, property director at Costa, says they are one of the most acquisitive retailers and they still plan to expand with hopes for 100 this financial year.

Global Strategies:

There are two burning issues for companies or managers around the world these are:

Whether to globalize

How to globalize

Companies are also seeking to globalize by integrating their worldwide strategy. That’s why they categorize following four key strategic decisions for global aspects:

A) Product

B) Market

C) Mode of entry

D) Speed

On the basis of product and market aspects companies are deciding which product should serve which market according to the customer demand. For example, In Asia most of the people prefer tea. That’s why Starbucks offer tea in that region as their highest quality. In Europe customer prefer strong coffee, so in here Starbucks offer different variety of coffee like espresso, estima etc. and in America Starbucks provide gourmet coffee on the basis of their consumer demand. In the case of global market operation Starbucks has got a variety of products in compare with Costa.

For example,

Starbucks Beverages

Americano

MachhiatoCaffe AmericanoCappuccino

Ristretto

Caffe LatteCaramel MacchiatoCaffe Mocha

Cappucciono

Eggnog LatteCaramel Brulee Latte

Mocha

Toffee nut LatteGingerbread Latte

Espresso con pannaSingle Espresso, Doppio Espresso

Syrup Flavored LatteEspresso Macchiato

Espresso TruffleWhite Chocolate Mocha

Cinnamon Dolce Latte

Starbucks Mode of entry strategy is much more superior to Costa coffee. In china Starbucks doing Joint venture with partnership of President Coffee, in Indonesia its doing licensing with partnership of PT.MitraA, in the UK lots of store are wholly owned and franchised. On the other hand, Costa also doing Franchise as its world wide entry operation and it operates 893 outlets in the UK as of May 2009.

In contrary in the case of speed of entry strategy Costa coffee is doing better than Starbucs. During 2005, as part of its international expansion Costa coffee launched its branch in New Delhi, India and it also plans to enter the wholesale coffee business in India and aims to start open 300 outlets through its franchise by 2007. It is the first international coffee who first enter the worlds second largest population holding country India where Starbucks not yet. In that case Costa enjoyed the first mover advantages by creating its brand image, having no international competitor except local competitor and as a result Costa has got the highest market share in India. Now Costa has got branches in Bulgaria, China, Egypt, Oman, Poland, Jordan Greece, Hungary, India and some other countries

New products, store concepts and marketing strategy of Starbucks and Costa coffee:

Starbucks joined with PepsiCo to stamp the Starbucks Brand on bottled Frappuccino and its double shot espresso drink. Starbucks ice cream marketed in a join venture with Dreyers is now the leading brand of coffee ice cream.

In case of beverages size of cups Starbucks and Costa some times make customer too confused. Basically, the way they name the cup which is not proper English.

For instance,

Actual SizeStarbucksCostaSmallTallPrimoMediumGrandeMedioLargeVentiMassivoSource: Starbucks and Costa store, Liverpool Street Station, London.

All in all, Starbucks is now an inspiration top brand. Starbucks goal is to become one of the most recognize brands in the world by selling finest coffee and related products. Starbucks is culturing customer loyalty by providing customer with the unique “Starbucks Experience of a third place to gather customer outside of a home or work. Although, cramming so many stores close together caused one satirical publication to run this headline: “A New Starbucks Opens In the Restroom of Existing Starbucks”. Actually, Starbucks opening new stores in new and existing markets for increasing its market share (Kotler and Armstrong, 2009, page 68). Likewise Starbucks follows a localization strategy by tailoring its offerings in different countries. That means Starbucks consider differences among countries, which include culture, stage of economic and industrial development, stage of life cycle, media availability and legal restriction. With its standardized product name, logo and packaging Starbucks uses localization strategy. For instance, tae is offered in stores in the Far East, stronger coffees in Europe and gourmet coffees in the U.S. Besides, Starbucks also doing Fair-trade. Company ethically sourcing and roasting their coffee, contributing positively to sourcing and other communities, reducing environmental impacts, fairly traded with their employees for improve the way they live, charity work like collecting money for the child hospital, prices trust etc, and every swipe of Starbucks card £0.5p directly goes to the global fund which is work for the dying diseases affected people like AIDS. All of the above practices of Starbucks create a superior international global brand image, and also company good will. Similarly, competitor Costa also doing charity work far more different way than its competitors Satrbucks. During 2009/2010 Costa coffee are building, improving, and maintaining schools within five coffee growing communities in Costa Rica, Colombia, Ethiopia, Guatemala and Uganda. Where many of the kids have no education, clean water, sanitation, transport or food for school meal. This makes the company competitively advantageous with its competitors and global strong image.

References

Mintzberg, H. Lampel, J. Quinn, J.B.and Goshal, S.(2003), The Strategy Process,(4th Edition), Essex, Pearson Education Limited.

Johnson, G. and Scholes, K. (1997), Exploring Corporate Strategy, (4th edition), London, Prentice Hall Publication.

Hill, C. W.L, (2008), Global Business Today, (5th Edition), McGraw Hill International Publication, Boston.

Kotler,P and Armstrong, G( 2009), Principles of Marketing, (13th edition), New Jersey, Pearson Prentice Hall.

http://www.fundinguniverse.com/company-histories/Starbucks-Corporation-Company-History.html

http://www.costa.co.uk/coffee/costa_story.aspx

http://www.costa.co.uk/coffee/the_coffee.aspx

www.starbucks.com

http://www.dandad.org/inspiration/creativityworks/pdf/authentic.pdf

http://www.glowa.ca/Starbucks_7s_Method.pdf

http://www.costa.co.uk/coffee/costa_story.aspx

http://www.fundinguniverse.com/company-histories/Starbucks-Corporation-Company-History.html

http://ru.linkedin.com/in/natalyafilkina

http://www.whitbread.co.uk/our_people.cfm?id=senior_management_development

http://www.bcg.com/about_bcg/history/history_1968.aspx

http://news.bbc.co.uk/1/hi/business/4179696.stm

http://news.bbc.co.uk/1/hi/business/3936217.stm

ttp://www.workforce.com/section/02/feature/23/52/96/

A small observation on Starbucks and Costa store, Liverpool Street Station, London.

Md Saiful Azam, Starbucks Employee, Liverpool Street Station, London.

Md Kokhan, Costa Coffee Employee, Liverpool Street Station, London.