As I mentioned in a previous post, Business Strategy: Soft-drinks Industry Analysis, I’m taking the fifth course, called Business Strategy, of Strategic Leadership and Management Specialization from the University of Illinois on Coursera. This course is taught by Deepak Somaya, Professor of Business Administration.
This is a four-module course, one module per week, and at the end of each module, we have an assessment: to write a case study analysis about a given topic. In the first week, I had to write a hypothetical memo to the CEO of Uber, suggesting a new mission statement. In the second week, I had to write a hypothetical memo to Warren Buffet to suggest to increase or decrease the investments on Coca-Cola Company. Now, in the third week, I had to answer two questions about the internal competitive advantage of Starbucks.
These assignments demand a couple of hours to get it done, due to the amount of information and analysis that is needed. However, it gives you amazing insights while analyzing real cases and practicing what you just learned.
Write a memo to the Starbucks CEO with an internal analysis of the competitive advantage of Starbucks. Include a brief activity analysis (based on either a value chain or value network approach) and/or a resources and capabilities analysis to clearly highlight two key issues for the CEO:
- What main internal features/ strengths (sets of activities or resources/capabilities) is Starbucks’ competitive advantage built on?
- What barriers to imitation (or replication) exist that will ensure that Starbucks’ competitive advantage will be sustained in the long run?
To: Kevin Johnson
From: Daniel Salvagni
Subject: Starbucks Competitive Advantage Analysis
The purpose of this memo is to analyze the main sets of activities, resources, and capabilities that give Starbucks a competitive advantage. In a second moment, evaluate the actions Starbucks takes to avoid imitation and replication aiming for sustained competitive advantage.
Starbucks’ main product is the experience of drinking a good quality coffee in a place where the customer hangs out with friends and family. It’s a coffee shop, also know now as the third place, apart from home and work. It started in 1987 with one coffee shop in Seattle, emerged from the U.S. west-coast Italian-style dark roasting tradition, to grow to 24.000 shops in 2014.
Quality coffee production depends on different factors, from growing the brewing, such as the variety, the region where it’s grown, how it’s roasted, grounded and packed, and blended and served. Starbucks covers every single step from this value chain. Starbucks controls the quality from the coffee beans at the farmer level, how they dry the coffee and the logistics until it gets to the coffee shops. It also guarantees that almost 100% percent of the coffee is ethics-sourced.
At the other end, Starbucks ensures that its human-capital resources are well-trained and well-paid, rewarded and have the chance to grow within the company. This is confirmed when comparing the turnover rate of baristas from Starbucks to its competitors.
Nevertheless, the sources of competitive advantage we find in Starbucks can be explained by its own history, small events in cultural behavior that introduced coffee as an affordable luxury, strategic choices and, well, a bit of chance.
Starbucks history is unique and can be traced back to a tradition, which means that the coffee served in a coffee shop is a result of an intrinsic knowledge that started in the early stages and it’s spread all over the company. Besides, Starbucks was able since the beginning to produce quality coffee and, over the years, enhanced its process and made it scalable worldwide. Besides, a mix of chance, changes in cultural behavior of coffee consumption, and managerial foresight that saw, for example, in the tv show Friends, this trend happening, allowed the company to grow exponentially.
Moreover, Starbucks has technological resources to ensure that the roaster machines will roast the coffee precisely as required. It has the know-how to repeatedly produce and serve the best coffee. Besides, it enjoys a product reputation and brand loyalty in its relationship with the consumers.
In summary, Starbucks has a competitive advantage in the capability to add value while creating an experience for the consumers in the coffee shops. Besides, he know-how to offer quality coffee on a worldwide scale isn’t commonly available to other firms.
By having a unique history, Starbucks also has a tacit knowledge within the firm about all their processes, which gives the firm an outstanding barrier for imitation or replication. It’s not clear, from outside, from where the company performances come from since the beginning, the starting point. Besides that, its complexes process of combined activities to ensure quality in a value chain are, in theory, inimitable. Finally, the human-capital management ensures that the company doesn’t lose talented workers to the competition. All these factors combined allow Starbucks to have a long-lasting sustained competitive advantage.
Although the firm has all the attributes to keep on going for a sustained competitive advantage, durability and relevance might be a threat for the future. How can Starbucks keep coffee as relevant as it’s nowadays? It might not depend only on the firms’ actions, but also, again, on whether or not this cultural behavior may change. Besides, how long can Starbucks keep the activities and resources aligned and combined to deliver the best product? Again, it might not depend exclusively on the firm’s actions. Local regulations might change for farmers adding barriers in the supply chain of the firm.
Nevertheless, Starbucks will have the necessary knowledge to overcome the threats of durability and relevance and when faced.