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Group G

Summary

Case Discussion Week 8: Starbucks

11/05/13

Howard Schultz, ex-CEO of Starbucks, returned to the CEO seat again eight years after he had stepped down. The world's popular brand Starbucks was steadily increasing its profit and had seen promising growth before the economic crisis. However, now its leaders are left with a tough job to solve the business problems. Facing huge pressure from competition on all sides, Schultz decided to lead a turnaround of the company he had already built. Facing the recession, Howard Schultz was required to accomplish several tasks. Schultz realised that innovation was needed to get Starbucks out of its problems. The plan would be in need of financial support. However, Starbucks was suffering from the recession, therefore some measures had to be taken. But Starbucks insisted that the 300 million health care investment for its legal employees was worthwhile as Starbucks was a people-based company. This image took Starbucks decades to build up. For the inevitable layoffs to gain financial backup, Howard Schultz held a reunion with the employees and explained to them sincerely that it was a way to save the whole. Despite being an emotional guy, he was still wise in vision and strategy. Schultz used both traditional and new media to help Starbucks rebuild its image of among customers and better understand market trends so that Starbucks could better retrain its people in serving and providing satisfying products and services. The growth of the company is going to come from continuing to optimize the retail footprint, and by maintaining a sense of community so as to bring people together. The unique combination of assets that Starbucks has created, and its ability to bring products to the grocery channel should be central to plans for new sources of growth. In addition, the culture and values that define Starbucks give them the flexibility to render products to customers through many kinds of channels. They are aware of their duty and responsibility to get succession planning right the next time. Howard Schultz clearly knows where the crisis came from and what should be done to save the company. How is Starbucks performing? Is Starbucks in dire straits? As one of the most successful coffee stores in the world, Starbucks performs very well with sustainable growth in profits and stock price for almost 20 years. However, in the past few years, Starbucks' performance was declining due to the economic recession and its own mistaken strategies. At this time, Howard Schultz, Starbucks ex -CEO came back and took control of the company again. Even though the situation was worse than Schultz had thought, he still believed that Starbucks is not the first company that this has happened to. It was not too late to find the problems and take some effective measures. What are the sources of Starbucks declining performance? How far are Starbucks problems in February 2009 the inevitable consequences of the economic recession and to what extent are the other reasons for Starbucks declining performance? There are multiple sources of Starbucks declining performance: leadership failures, an excessive focus on growth and creating shareholder value, the recession, increased pressure from competition and social media attacks. The recession was a major reason for Starbucks decline, but Starbucks handling of the economic problems they faced only exacerbated the issue. Starbucks was not able to adequately respond to the changes caused by the recession, if it had done so then the damage the recession caused would have been less destructive. On its own the recession caused a seismic change in consumer behaviour, which made people more spendthrift. Starbuc ks did not adequately respond to this change by asserting the value of its products and services. This allowed McDonalds and Dunkin

Group G

Case Discussion Week 8: Starbucks

11/05/13

Donuts to sell premium coffee in competition with Starbucks. Starbucks did not know how to deal with this new competition at the low end of the market. In addition, competition also derived from high-end independents as well as an increasing support for local companies. The changes in consumer behaviour also meant that people drove to Starbucks for a coffee less frequently, as the cost of petrol increased in this economic climate. In addition to the recession, leadership failures were a major factor in Starbucks decline in performance too, as the leaders should have known more about the problems within their business and reacted to them. But because of the recent success, the upcoming problems were overseen. There was also an unproductive culture, which focused on growth and creating shareholder value. Social media attacked Starbucks as an easy target as well. This did no lasting damage but fighting it wasted resources and did the brand no good. In conclusion, the recession was a catalyst, which highlighted and exacerbated the existing problems within Starbucks. On its own the recession would have been damaging, but combined with these other problems and Starbucks attempted resolution of these problems, Starbucks performance declined. These problems would have led to a decline in Starbucks performance eventually so Starbucks decline was not an inevitable consequence of the recession, it was an inevitable consequence of its failing strategy. What is Schultzs strategy for restoring Starbucks financial performance? Do you agree with the measures that Schultz is taking? Schultz believes that a return to the culture and core values that define the company is what Starbucks needs now. He understood that the real assets of the company are their values, cultures, guiding principles and the trust they have in their people. He feels that having a strategy, which is a right mix of profitability, social conscience and benevolence can lead the company to a long term financial profit. The measures taken by him can be listed as given below: Pursuing absolute commitment to quality: Keeping this in mind he retrained his staff to devote their time to quality and customer service. This has also has strengthened the brand image and culture of the company. He also refused to turn it into a franchisee as he didnt want it to lose its quality and core beliefs. Reminding people of Starbucks character and values: He organised a conference in New Orleans for the managers so as to once again reinforce the core values of the company as he believes that at the end of the day Starbucks is a people based company. Enhancing Starbucks relationship with staff: He refused to cut costs the wrong way especially in terms of the health benefits offered for employees. Even when he had to lay-off people he did it in a respectable way so as to not lose the trust his people had in him. No Consumer faced cost cutting: 99% of the cost cut-downs taken by him werent consumerfacing, which led to rising customer satisfaction. Even in his international ventures he decided to understand customer perceptions and adapt to become successful. Taking advantage of social media: He managed to turn around a potential downfall to Starbucks advantage and now they are the number one brand on Facebook. Finding new sources of growth: In international ventures like the Chinese market he decided to understand customer perceptions and adapt to become successful. He also believes in the branding the company has and decided to sell VIA i.e. instant Starbucks coffee through multiple channels against popular opinion. It would seem the measures undertaken by Schultz are very relevant. He was smart enough to identify that Starbucks unique selling points had been forgotten. He has managed to bring the company back on track by bringing the company to understand their unique assets and capitalise on them.

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