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Strategic Management

Assignment #1: You have conducted the external and internal analysis of Starbucks around the mid of 1990s (based on the case of Starbucks), what strategies would you recommend to Starbucks then? How would you assess Starbucks realized strategies from mid-1990s to 2007 (based on the case of Trouble Brews at Starbucks)

Mid of 1990s Starbucks SWOT synthesis is below with possible strategies.

To evaluate these strategies, I choose five criterions: the fitness with SWOT synthesis, the consistency of Starbuckss missions, the harmony at different levels, the feasibility and whether it enhances competitive advantages. In terms of SO strategies, market

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growth strategy both in New York and Asia Pacific is consistent with Starbucks rapid growth goal, and is also feasible under its leadership advantage. It could then bring the first mover advantage and maintain their dominance. However, too rapid growth rate will cause financial crisis and management problems. Brand extend strategy is conform to the opportunity of more venture chances. It could help Starbucks enlarge customer base in an easy way. However, it is inconsistent with the mission at initial stage: only focus on specialty coffee, and it would lead to brand dilution. Therefore, a concentric extend strategy that avoid over diversified profile is more suitable. Regarding to the pressure on finance, licensing and franchising could be approval. However, it may conflict with the goal of maintaining high quality experience. It is difficult to achieve perfectly harmony between headquarters and subsidiaries, thus it has low feasibility. Considering ST strategies, differentiation is a feasible way to avoid direct competition on price. By well utilizing its resources, differentiation can become sustainable competitive advantage. Clustering location is unique but consistent with its mission in real estate, and can gain synergy growth. Concerning about WT strategies, although it is inconsistent with Starbucks growth objective, it is a feasible way to improve Starbuckss efficiency by allocating resources more effective. Although it will not enhance the competitiveness of Starbucks, it could release the pressure on financing as well.

Generally, Mild expansion strategy could be undertaken with licensing and franchising under united merchandising. According to growth matrix, market development is important when entering a new market, like Asia Pacific, while product development should be valued in old market as New York. Meanwhile, Starbucks should focus on its high-end and professional coffee service, and insist its experience principle by fully leveraging its resources. Related ventures on coffee line and clustering location strategy are encouraged as well. Therefore, I recommend Starbucks not to partner with McDonald, but insist its own strategic position. Otherwise, Starbuckss brand image will be eroded by McDonalds fast food culture. And there is another concern that key information know-how leakage of making

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coffee may benefit McDonald.

Mid-1900s to 2007 Starbucks began to enter new phase of development since mid-1990s, mainly pursuing continuous growing and claiming its leadership in this category. It focused on a series of strategies to expand the business model. Instead of only providing specialty coffee, Starbucks accepted the suggestion that providing what customers wants, and this strategy generated more considerably revenue than before. After expanding beyond its traditional roots, it started to partner with other companies, such as Pepsi, to broaden customer base. In the meantime, to achieve the goal of fast expansion, Starbucks applied sophisticated location model that based on a matrix of regional demographic profile with an analysis of the best way to leverage infrastructure. Starbucks also uniquely insisted clustering the retail store to achieve growth synergy and increase accessibility. Later on, drive-through service and licensing were applied for grabbing new market. Besides, Starbucks valued connecting with customers, thus added music, book and movies to product mix to offer a better coffee experience. In 1995, Starbucks began its expansion outside the North America. And in 2004, it doubled its pace of expansion.

Although Starbucks realized strategies have commons with my recommendation, such as licensing, locating nearby and doing partnership, they are not fully consistent. For example, drive-in service was conflicting with the goal of being a third place and excessive sideline product would distract the business focus. Also, aggressive expansion was very risky. These inconsistencies rose mainly because Starbucks preferred aggressive development while I pursued stable growth. In fact, Starbucks did make some strategic mistakes that lead to the commoditization of this brand. Double pace of expansion made Starbuck sacrifice real estate, unique store location formula and customers perception of company. And sightless expansion in the South and in Southern California leaded to an unexpected loss due to the downturn economy. Meanwhile, its drive-through windows and in-store food was pushing Starbucks to

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fast-food industry. Customers could not enjoy the coffee experience due to the automated coffee machine and decreasing number of comfy chairs. In the meantime, declines in the quality of Starbucks experience created opportunities for regular coffee makers to enter the specialty coffee markets, and Starbucks had to face increasingly fierce competition. In 2007, after Starbucks two quarters of flat growth, it faced the first ever decline in the fourth quarter. The share price was $18, while previous year was $35. This failure also confirmed the strategies were in wrong direction. (793)

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Assignment #2: Please reflect on your Capstone simulation experience and articulate how to apply balanced scorecard to strategy implementation?

The balanced scorecard translate companys intangible vision and strategy to four measurements, which allows us to track financial results while simultaneously monitoring progress in internal business process, customer and learning and growth (Kaplan& Norton, 2007). There are four processes to manage strategy by using balanced scorecard. First is translating vision and strategy. After we discussed and achieved consensus, we clarified our vision into easily understood statementproviding premium products with satisfying features in a high quality and chose broad differentiation strategy. So we valued high-end segment by providing products almost in ideal position to achieve the goal of dominance in this segment, while still kept presence in other segments. In terms of communicating and linking, we insisted board participation every round, for it enhanced the coordination of strategy and our understanding of long-term strategic goal. In business planning process, we identified the critical divers and had an agreement on resource allocation priority. For example, we applied TQM to reduce R&D cycle time instead of reducing material cost. Also we chose to invest mass in promotion to increase our customer awareness and accessibility instead of improving automation. Finally, the balanced scorecard provided feedback constantly, which allowed continually strategic learning. The causal relationship between performance drivers and objectives in balanced scorecard allowed us to evaluate the validity of strategy and the quality of implementation. For instant, by reviewing balanced scorecard, we found we got very low score in employee productivity in early rounds. It made us realize the failure of strategy in improving employee efficiency, so we invested considerably in six sigma and Quality Function Development effect. In later rounds, the productivity index illustrated that our employees were better trained and worked more efficiently, as well as showed in balanced scorecard.

However, we still had some failures in leveraging balance scorecard. Because early

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investment on customer awareness is neither effective nor enough, we got zero score from Round 1 to Round 4. So we kept doing trials to find the optimal configuration of promotion budgets to reach 5 score in balance scorecard. However, when we could effectively invest in promotion, it was too late to climb to full score, especially for differentiators focusing on high end. We should have fully invested on promotion and tried to achieve 100% as soon as possible. In addition, during our executing our strategy, we were several times in the dilemma that whether we should upgrade automation level. Improving in automation could broaden the contribution margin but would sacrifice the design cycle time related with customer buying criteria. As a major player in high-end segment, we made efforts to deliver the latest products and get a higher customer buying criteria score, so we gave up improving automation. Consequently, this decision made us sacrifice too much profit to pay the labor cost, and also led to the situation that we had the biggest market share, but earn relatively small profits. (479)

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Assignment #3: Is it possible for a firm to achieve sustainable competitive advantages in the Capstone industry? Is it possible for any firm in the Capstone industry to adopt the blue Ocean strategy?

Sustainable competitive advantage will be achieved when a company is forced to make trade-offs and has a strategic fit among all activities (Porter, 1996). Firstly, trade-offs means a company has to choose its strategy between operational effectiveness and strategic positioning. In the simulation, our company chose to establish a strategic position as broad differentiation, and so did Chester, while Digby preferred pursuing operational effectiveness. Therefore, we differentiators focused on achieving high sales by investing mass in R&D and promotion to improve the product, awareness and accessibility, while cost leader made efforts to lower cost by improving the automation and decreasing the depreciation and interest. Take the two most profitable companies as examples. In Round 7, Chester owned $200,413 of sales, in contrast to Digbys $175,033 of sales, but Digbys cost was much lower than Chester in variable cost. Therefore they both achieved competitive advantage by completely different strategy in our industry.

On the other hand, competitive advantage cannot be sustainable without developing the fit among all activities to lock out imitation by creating a value chain with strongest link. I think the ultimate success of Chester in our industry also depended on this principle that they aligns all activities with their differentiation strategy as an integrated system. They invested mass in R&D to improve MTBF in performance segment, which made product more competitive

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but shared higher material cost. To guarantee the R&D cycle time first pursue, they invested little in automation in performance segment, despite of bearing higher labor cost. Meanwhile, they fully invested promotion in several continuous rounds. Such consistent activities had already ensured their competitive advantage cumulated and finally achieved sustainable. Nevertheless, because it was hard to achieve second-order and third-order fit (activity are reinforcing and optimization of efforts respectively) in Capstone simulation, their strategy still could be imitated to some degree. Therefore, by making trade-offs in competing and achieving fit among activities, a firm could enjoy sustainable competitive advantages. But due to limitation in Capstone, the sustainable competitive advantage cannot lasts for a very long time.

Blue oceans refer to the industry or unknown market that is not existed today, and the philosophy of blue ocean strategy is to create demand instead of fought over competitors (Kim & Mauborgne, 2004). There are two ways to create demand. One is to give rise completely new industries, such as Apple personal computer. The other is created from a red ocean when a company alters the boundaries of an existing industry, which is more common. Meanwhile, blue ocean strategy breaks the value and cost trade-offs, and lasts long benefits due to the barriers to imitate. However, in the Capstone simulation, it is impossible to execute blue ocean strategy to large extent. The simulation has set the five segment and the ideal position of the product in each segment. The customers could only accept the products in the dashed circles. Companies cannot create uncontested marketplace while they can only grab more market share from other competitors by improving their values or decreasing their costs. (497)

Assignment #4: Should teams make significant investment in human resources in the Capstone simulation?

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Human resource is a vital factor in the increasing fierce competition. Investment in HR will increase productivity index and reduce the turnover rate, which will subsequently reduce the labor demand and therefore reduce labor cost. Determining whether we should invest significantly in human resource, we could compare total investment in HR with the cost saving of labor cost. The spreadsheet of related data R1 Needed complement Complement Turnover rate New employees Recruiting spend Training hours Productivi ty index Recruiting cost Training cost Direct labor cost 652 652 10.00% 65 $0 0 100% $65 $0 $34,426 R2 687 687 9.30% 58 $1,000 40 100.00% $117 $550 $37,779 R3 1020 1020 8.50% 416 1,500 50 102.30% $1,039 $1,020 $56,019 R4 893 893 7.90% 71 $1,500 50 106.10% $177 $893 $55,598 R5 664 664 7.90% 53 $2,000 50 109.70% $158 $664 $38,150 R6 513 513 8.30% 42 $1,500 40 112.00% $106 $410 $29,210 R7 496 496 7.90% 39 2,500 50 115.50% $136 $496 $29,886 R8 448 448 7.80% 35 $2,500 50 118.60% $123 $448 43,629

Firstly, calculating the total investment in HR. As learnt in HRM, productivity could be improved by compensates and further education (Ivancevish, 2010). We offer additional payment per person recruiting for new talent workers, and we also need to train workers with $20 per training hour. Therefore the recruitment spend will be (recruitment spent+1,000)*new employees+ training hours*20 * complement. Namely, Total cost of HR investment= (5,000+1,000)*new employees+ training hours*20 * complement= recruit cost+ training cost

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In terms of cost saving, labor cost will be reduced due to increase of productivity. Needed complement *(1-productivity index) is the number of workers we do not hire this year. And labor cost per person is total labor cost / needed complement. Therefore, Cost saving = needed complement *(1-productivity index)*total labor cost/ need complement=total labor cost* (1-productivity index) The results of calculation R1 Cost saving Total investment Gain or loss $0 $65 ($65) R2 $0 $667 ($667) R3 $1,288 $2,059 ($771) R4 $3,391 $1,070 $2,321 R5 $3,701 $822 $2,879 R6 $3,505 $516 $2,989 R7 $4,632 $632 $4,000 R8 $5,174 $571 $4,603

According to figure 2, the first three rounds suffered loss due to the initial investment and lag of effects. But since Round 4, our company enjoyed considerable gains because of the significant investment in HR. Thus, we may conclude that significant investment in HR to improve the productivity will bring benefits in long term. (399)

Assignment #5: Please read the case GreenWood Resources and write up an

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essay about do well by doing good? To enter Chinese market, Green Wood Inc. prepared two projects, Luxi and Dongji, but cannot decide to choose which one. Therefore, their difference would be analyzed from economic, social and environmental aspects.

Economic analysis: According to Exhibit 7, the initial investment in existing plantation assets of Luxi and Dongji were 296,376,843 RMB and 100, 208, 839 RMB respectively. Current

standing inventory probably was the existed volume that Green Wood could get when brought the land. It could be sold for RMB 296,565,711 and 100,298,995. Therefore, the initial expense could be offset as: Luxi: 296,376,843- 296,565,711=-185868 Dongji: 100,208,839-100, 298,955=90,156 In first year, Luxi should pay 632RMB/mu while Donji would pay 255 RMB/mu. The variable cost of Luxi was 477RMB/mu/year, while Dongji cost 132 RMB/mu/year. Therefore, with the expense in first year, Luxi totally cost 3971 RMB/mu in 7 years, and Dongji cost 1575 RMB/mu in 10 years. To calculate revenue, Luxi could earn 12.6*559 RMB/mu, and Dongji was 8.0*445 RMB/mu. Therefore, profit per year = (revenue-cost in one rotation)/rotation. Luxi: (7043.4-3971) *92037/ 7= 40412155 Dongji: (3560-1575)*202650/10= 40226025 Overall, although Dongji was more attractive in initial investment period, it would be soon offset because Luxi had 186130 RMB more profit than Dongji every year.

Social and environmental analysis: To compare social and environmental competitiveness of these two projects, an advanced diamond framework with government and opportunities could be use. In the dimension of firm strategy, structure and rivalry context, Green Wood planned to establish a wholly owned company and launched a seven-year rotation strategy.

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However, it was not harmonized between Green Wood and Luxi Forestry Bureau due to their fight of responsibility and the complexity of this project. Regarding to factor conditions, Luxi County not only had favorable natural conditions, such as fertile soil and gentle landscapes, but also established sophisticated irrigation networks. Also, maximum 190.000mu plantation could be acquired. Luxi Forestry Bureau also could provide lower cost labors and local relationships. In the aspect of local demand, Luxi had 2.2million m annual timber demand, which was far more than current market supply of 1 million m. And due to the increasingly high tariffs and high transportation, local buyers would gradually stop importing timber but find supply locally. In terms of the related and supporting industries dimension, there was a timber processing hub and wood market near Luxi, called Linyi. Linyi had 2600 mills and the largest 200 mills demand 15000 m of timber annually. And Forest Bureau asked Greenwood to establish a mill, which could not only become the supported industry but also take social responsibility to provide employment opportunities. From the government dimension, Luxi project could receive fully support with government by partnering with government agency. Meanwhile, Green Wood was in the opportunity that Luxi government had been making great effort in afforestation and sustainable economic development since 2002.

Considering Dongji in corporate and rivalry context dimension, Lideng, as the potential partner with Green Wood, was a private forestry development company with an annual capacity of 200,000mu. It had not only patented planting technique suited to the environment of northern China but also the sole right to propagate commercially superior plant materials. Nevertheless, Green Wood concerned about the reputational risks of this collaboration, for Lideng once provided service for two illegal companies. In terms of rivalry, Russia could be a strong competitor to Dongji for their proximity border. Regarding to factor conditions, although Donji was suitable for poplar cultivation due to its appropriate soil texture and access to river system, its environment was worse than Luxi. 57% of Donji was sandy, unfertile land, and the area was semi-arid and subject to windy weather all year. Therefore, the annual tree

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growth rate would be maximum 0.7m per mu, which lead to a 10-year rotation. However, compared to Luxi, Dongji could enjoy more benefits with Greenwoods help, suffering less deforestation and densification. Additionally, the available purchasing land was 82,644 mu currently, and additional 120,000mu land could also be acquired by Green Wood in future. Lideng could provide elite labors that had been formed into a professional poplar tree planting team. Local demand of Donji was 0.2 million m annually lower than Luxi. Export market was also hard to developed because of its inland location. In addition, there were 698 wood processing mills existed as its supporting industry, which was substantially fewer than Luxi. But government in Donji thought highly of tree plantation and tried to raise forest coverage up to 30%, which was also an opportunity.

In conclusion, Luxi did have more economic value and environmental advantage. However, corporate social responsibility is playing increasingly important role in achieving corporations competitive success (Porter & Kramer, 2006). It should be highly valued during Green Wood choosing these two projects. As its vision is to built a resource that lasts forever, Green Wood could further achieve CSR in Dongji project. (800)