Influence which the Macro Environment on an Organization and its Business Strategies

LO1: Analyze the Impact and Influence which the macro environment have on an Organization and its Business Strategies.

Impact and Influence of macro environment and changing customer preference

Introduction

There are many internal and external forces which influence operations of organization. The balance among these forces assures the organizational ability to maintain a successful relationship among customers and organization. Successful organizations always pay great attention towards adapting changes in environment forces which affect business health (Kotler, et al., 2008).

There are six major forces which are included in macro environment:

Demographics

Demographic includes physical attributes of the targeted population for example gender, occupation, sex, age, ethnicity, growth rate. All of these characteristics of the population affect the business strategies.

Economic

Economic conditions of any area caste a great impact on the business strategies and overall success of the business. When any economy faces recession or interest rates go higher the purchasing power of the population decreases, they spend less money and it ultimately cause a change in organization success. On the other hand, boost in economy cause uplift in overall spending of the people.

Political

Strategic business decisions of the organizations are directly influenced by the government agencies and pressure groups. Because, the political forces can limit the operations of the organizations.

Ecological

Ecological forces include all the natural resources which the direct inputs for the business activities and their shortages are cause a great impact on the business activities of the organization.

Socio-Cultural

Social and cultural forces consist of norms of the society and values which are directly affecting people’s decision making power. Socio-cultural characteristics of the environment influence the ability of the organization to obtain its input materials and recourses for the production of the goods and their prompt delivery.

Technology

Technology has direct impact on the development of any business because technological reforms introduce new ways and methods for running the business activities for example electronic media, internet, smart technology and robotics etc. caused a dramatic change in the business activities.

SWOT Analysis

SWOT analysis takes information from environmental analysis and breaks it down in to internal factors(strength and weakness) and external factors(opportunities and threats). Upon completion SWOT analysis assist the formulation of marketing strategy of the entity to enable the business to benefit from strength or opportunity or overcome weakness or threat faced by the business to achieve the objective, vision and mission of the business(Schnaars, 1998).

When we apply SWOT analysis to Starbucks current scenario, we can identify following strength, weakness, opportunity and threat.

  1. Strength- Starbucks coffee brand is its strength and is a brand having strong customer loyalty. Coffee industry is expected to grow 0.9% per annum or US$ 51 billion in next three years.
  2. Weakness- Health issues associated with two products which never incline customers for repeat purchase is a cause of concern. Star bucks have closed down 150 stores due to down performance is another concern for the management. Limited menu leaves fewer options for customers to select is another weak area.
  3. Opportunities- There are certain underpenetrated markets hence these are the markets with good growth potential. Star bucks can explore those market and can enjoy early entrance benefit from these markets as well. As there are limited menu options offered to customers expansion in menu is another area of opportunity for Starbucks.
  4. Threats- Health issues associated with products is a threat which can result is loss of goodwill and even litigation due to effect on health of any customer. Falling stock price may mean loss of investor confidence in the company and is an area of concern for business.

Thus, unexplored markets and expansion of menu options provide opportunities for further growth and expansion to the business. Health issues with products need to be investigated and issue must be resolved or if health issue cannot be resolved related product should be discontinued to avoid bad repute or litigation in future.

 

PESTEL Analysis

ThePESTEL analysis is the mnemonic which reminds the strategic management to take such decisions which can group macro environment factors to make sure that management can look upon all the sources of general opportunity and risks. used in strategicmanagement to group macro-environment factors to helpstrategists look for sources of general opportunity andrisks(Witcher & Chau, 2010). PESTEL analysis enables any business to seek for the best opportunities and to avoid risks at maximum possible level.

Political Factor

Political factors have deep impact on the strategic management decisions, as any organization working in specific country will be directly affected by the government policies, government reforms,governmentinterventions and all the activities which are involved with political lobby(Issa, et al., 2010).

Starbucks can make modifications in the ingredients of the Frappuccino which are less risky for health and have a good impact on the target market’s mindset. There is an indication in the market that there will be a quick recovery for the coffee industry by maintain the 0.9% resilience growth rate in coming three years.Which is a good signal for the Starbucks by generating approximately $51 billion.

Economic Factors

Economic factors like inflation rate, interest rates, unemployment rate, ratio of skilled to unskilled workforce in the area under study, exchange rates, balance of trade and economic cycle determine the stage of maturity of any economy, aggregate demand and investment opportunities available in the economy of region under study(Hickey, 2010).

Starbucks have stores in various countries across the globe which are at different economic maturity levels displaying different demand patterns.Starbucks should consider following factors:

  1. Type of economic system in country of operation.
  2. Government policies in area under study.
  3. Exchange rate and stability of currency.
  4. Infrastructure facilities.
  5. Labor cost and types of labor skill available in region.
  6. Tax laws of the region under study.

Social Factors

Socio cultural factors of any region are an important indicator of consumer buying habits and sales forecast of the region under analysis. Changing balance of age of the population, demographics and other social factors have an impact on business demand. Shared belief, values and culture have an impact on appropriate marketing strategy.

Social factors Star Bucks should consider are:

  1. Demographics and skill level of population.
  2. Class structure, hierarchy and power structure in society.
  3. Education level of population under study.
  4. Culture, shared values and beliefs of population.
  5. Attitudes and leisure interest.

Technological factors

Technological developments change the pattern and method of doing business in an environment as certain methods become outdated and replaced by new channels and methods. Technology also effects on suitable marketing channel to be used to attract customers in a target market. Technology affects different types of industry in a different manner and extent. Starbucks should analyze technological developments of the region under study, impact of technology on product offering, cost structure and value chain analysis.

Stakeholder analysis

This analysis helps in identification of various stakeholders, identification of expectation of various stakeholders and prioritization of stakeholders according to their interest and ability to have an influence on the business (Crosby, 1991).

Companies are open system as they take input from society and generates output that affect the society hence it is vital for companies to be socially responsible and take care of varying needs of various types of stakeholders. Stakeholder analysis tool guides the company in prioritization of various stakeholders’ groups and their needs or wants, in particular situations.

Starbucks operates in different cultures across the globe with different values, beliefs and interest of stakeholders with varying powers to influence. Star bucks should prioritize stakeholder in given situation by analyzing the interest and ability to influence of stakeholders.

Conclusion

SWOT analysis suggests the good opportunities for the Starbucks business strategic decisions with 0.9% expected growth.  This analysis also suggest the weakness of the Starbucks scenario in case of health issues related to the targeted population, but this threat can be minimized with adapting a good strategy to cope up with this issue by introducing healthier menu. PESTEL analysis also suggests good opportunities for the Starbuck by adapting the results of the analysis. Stake holder analysis suggests that because Starbucks is covering very diverse demographic characteristic across the world, it should actively prioritize its stakeholders.

 

LO2: Assess an Organization’s internal environment and capabilities.

Internal environment and strategic capabilities analysis

McKinsey 7S Model

The model was formulated to analyze any given business scenario to devise strategy accordingly. The model talks of 7s which are defined below as following:

  1. Strategy: Action a company plans in respect of change in environment.
  2. Structure: Basis of specialization and coordination influenced by strategy, size and diversity of the organization.
  3. Systems: Formal and informal system that support the strategy and structure.
  4. Style/Culture: Shared values, beliefs and norms displayed over time.
  5. Staff: The people employed by the organization.
  6. Skills: The distinctive competency.
  7. Shared values: Guiding concepts and fundamental areas around which business is built.

Star Bucks should evaluate its business around 7S Model to analyze, understand and control the impact of 7s on the business. Effective organization achieves a balance between these seven factors.

Star bucks should analyze and formulate a strategy in line with above mentioned seven structure and geographical presence of the business needs to be evaluated as recently 150 stores were shut down across various regions. System and culture values must be taken in to account by the company. Staff skills and shared values must be accounted for devising suitable strategy.

Value chain analysis

In value chain analysis it is important to understand and pay attention to the needs of the customers. On the other hand, customer values also have a significant role in defining a product specially a new product. The main reason for the failure of a new product launched by any organization is lack of understanding about the needs of the customers and this is the most common cause of product failure faced by the organizations. That’s the main reason in value chain analysis the main concern is about evaluating the customers’ needs and values related to their behavior, culture or social environment. When design teams of organizations define a poor product, which does not match with the needs of the customers then definitely they get stuck in redefining the products and invest their time and energy in product modification activities. This will cause hinderance in project success (Wilson, 1993).

Starbucks need to review all its process activities analyze and question the value that each step in its process adds value to final product and service offered to valuable customers. Starbucks vendors who provide raw material, inhouse process performed by Star bucks all become part of the value chain until the final product is delivered to the customer. Each step and process in this value chain has a cost, provides value and can be the differentiating factor leading to better customer satisfaction and higher market share.

Star Bucks need to evaluate every step which is part of the value chain its cost and the value it adds to final product enabling Star Bucks to achieve customer satisfaction. Value chain analysis must be conducted and linked with SWOT,PEST and stakeholder analysis.

VRIO Framework

VRIO framework evaluates capabilities and all the resources possessed by the company to recognize the main source that creates competitive advantage for the organization. VRIO framework was developed by Barney, J. B. in 1991.Barney, J. B. identify four characteristics of the organization’s resources which assure organizations sustained competitive advantage. This study was conducted under the name of ‘Firm Resources and Sustained Competitive Advantage’. The four characteristics are value, rarity, imitability and non-substitutable. Initially author developed he tool with the name of VRIN but later in one of his study named “Looking Inside for Competitive Advantage”, he introduced VRIO framework. Which was basically the improved version of VRIN framework. A resource and capability owned by the organization having all above four attributed definitely bring sustained competitive advantage (Jurevicius, 2013).

Star Bucks need to evaluate that whether its existing products are valuable, rare, costly to copy and organization of the business to capture the value. Coffee being main product of business may be having these characteristics which can help business to gain long term competitive advantage.

VRIN Framework

This framework also establish that business can gain competitive advantage if its products are valuable, rare, imitable and non substitutable. In order to gain competitive advantage Starbucks, need to work on developing these four factors in its products to gain long term competitive advantage(Talaja, 2012).

Starbucks two products never get repeat orders due to health issues in those products while coffee has brand loyal customers and good sales revenue. Coffee product seems to be valuable, rare, imitable and non substitutable. Starbucks should work on increasing its menu options and enter into those unpenetrated markets where it can maintain a competitive value chain.

Organization’s Growth strategies, Capabilities and skills

According to Arnold C.H. (2003), when any business is directly concerned and evaluated by the management then there are not so many policies which are very certain and positively affect the growth of the business. Here in case of Starbucks there are also few things that can be considered like it should introduce new menu which is less risky to the health and health conscious target population also feel comfortable to repeatedly adapt that menu.

Market penetration

Market penetration is the activity of enhancing the market share of the existing product or encouraging a new product launch through different strategies for example, bundling, publicity through different sources, by lowering prices of the product or by volume discounts. For determining the market share we can easily get the accurate results because market share is the proportion of total potential sales that a company is already obtaining from a specific area(Applebaum, 1996).

It includes an increase in marketing efforts by introducing current product which is already being offered by the company in new marketplace, in the case of Starbucks coffee is the main current product. Company should also work on maintaining share price by penetrating inmarkets which are less penetrated by the company. Company has the plan to maintain 1% downgrade in stock prices in international stock exchange market while this process, management should keep this target in consideration.

Market development

It’s a strategic factor which is adopted by any company to make developments in the existing market instead of looking for a new market for its products or services. The company try to target those customers who are not included in the existing consumers list of the company and it tries to launch its existing product to a new segment of the customers for the purposes of increase in sales.

Market development includes making entry into new markets with already offered products or services. But in the case of Starbucks, which closed down 150 stores worldwide due to decreased in their performance. Market development doesn’t apply on Starbucks because it already reducing the number of stores in the world.

Product Development

This strategy includes the procedure in which some new innovations are form in existing consumers with the help of testing through distribution. When a company’s revenue goes in a straight line, it never goes up then there is a need to have a look on improvement of the products or create a new product because customers ‘needs, and values are changing with time.

This factor includes increasing product line or services in their existing product line or services. Here, after conducting analysis of the current situation of Starbucks, it will be a good decision for the company to add new thins in the menu which are more towards healthier range, so that people who are conscious about their health risks get attract to the new menu and start buying food.

Increase in chronic metabolic disease in USA caused a significant burden upon social and economic condition and this trend is significant in last thirty years data. Adult population of the USA is showing very alarming scenario because more than two third of them are overweight and considered obese and obesity is considerable in adult women which is almost 9.9%(Vreman, et al., 2017).

Diversification

This strategic growth factor includes adding new products in new market. Such technique is very risky, because when market is new a definite research is needed to study the food liking behavior of target customers towards the new product. Diversification happens when company introduces such new products which have no previous market interaction with other products which are already exists in company’s product line(Rumelt, 1982).That’s why this strategy is a riskier strategy for the Starbucks who already closing its underperformed stores in other markets. In case of Starbucks in this case study such strategy is not a good option because the problem is already identified that people are being more health conscious and they need such ingredients in their food which are good for health and cause no risk to health.

LO3: Evaluate and apply the outcomes of an analysis using Porter’s Five Forces Model to give a market sector.

Evaluation of Competitive forces by applying Porters Five Forces Model

Competitive forces faced by Star Bucks can be understood through application of Porters five forces of competition which are as follows:

  1. Competitive Rivalry-This refers to the competition faced by a company in the market i.e. number of competitors, their market share, quality of products and services offered by competitors. Star Bucks should evaluate in the markets it operates the competition faced from market rivals. This will enable Star Bucks to understand customer buying habits, customer needs and wants. Star Bucks can then use understanding of customer preference to build value chain and achieve competitive advantage.
  2. Bargaining power of vendors- This refers to market position, demand and supply dynamics of raw material used for manufacturing of final products. Star Bucks should evaluate bargaining power of customers and the procurement part of its value chain. This analysis will help Star Bucks to formulate appropriate buying strategy i.e. building of new vendors, bulk purchase or purchase from selected vendors declared as business partners.
  3. Bargaining power of customers-This force interprets bargaining position of customers in the market and is related to supply and demand mechanism in the market plus VRIO/VRIN analysis of the products, services offered by the company under study. This force is also interlinked with competitive rivalry in the market. Starbucks should evaluate bargaining power of customers and brand loyalty of customers in the market it operates. This will help Star Bucks to formulate appropriate targeted marketing strategy.
  4. Threat of substitute- This means alternate methods available in the market used by customers to fill the same need or want. This will affect the bargaining power of the company under study and will decide appropriate marketing strategy that will be effective. Starbucks should identify threat of substitutes in markets it operates and population it targets as potential customers. This will then be useful for formulation of pricing and marketing strategy.
  5. Threat of New Entry-This is the threat that companies with similar products and quality will enter in to market to share market size and have an adverse impact on company sales. This is dependent on scale of investment required to enter in the market as a competitor. Star Bucks should evaluate this threat in the markets it operates. It will help identify distinguishing factors most valued by customers which can be further worked on to attain long term competitive advantage.

Based on identification and study of above market forces Star Bucks can tailor its marketing strategy exactly as per the characteristic of the markets in which it operates. Above analysis can also help identify gaps in its value chain and enable Star Bucks to improve its value chain and work on strengthening its competitive advantage. This analysis will help in division of strategies to ensure long term competitive advantage (Greenspan, 2018).

LO4: Apply models, theories and concepts to assist with the understanding and interpretation of strategic directions available to an organization.

Strategic management Plan for Starbucks

Based on above explained analysis and current scenario of Star Bucks where it is unable to achieve target growth rate and fall in share price Star Bucks needs to conduct a detailed review to identify required adjustments in its strategic management to achieve target growth rate.

As applying various models, we have discussed and analyzed Star Bucks situation in detail above, based on analysis we are formulating strategic plan for Starbucks. Porter developed a matrix to explain generic strategies on which most of the entities fall on which are as follows:

Cost Leadership

This means competing on base of price offered to customers by offering discounts and promotional schemes. In such sector there are narrow margins and differentiating factor is the price of the product.

Differentiation-

This means competition on base of a distinguishing factor that results in competitive advantage. This sort of strategy is suitable in markets where customers are brand loyal and are not willing to switch brand due to price difference.

Cost Focus

This is the strategy to lead on cost basis in small niche market segment. The target is a limited population with particular buying pattern and buying habit.

Differentiation Focus

This is the strategy to lead on basis of differentiation in a particular niche market. There is a targeted population which is the aim of such strategy.

The appropriate strategy depends on customer loyalty, buying habits, preference and purchasing power of targeted audience. Star Bucks operate in a number of international markets with varying patterns and trends. Hence dependent on market to market it can adopt a different marketing and pricing strategy. Star Bucks can adopt differentiation strategy for coffee and cost leadership strategy for sandwich and Frappuccino it can adopt cost leadership strategy. Star Bucks can also offer meals packages to its customers. Star Bucks should aim to develop new markets and penetrate in to existing markets.

Ansoff Growth Matrix lays down four dimensions of growth of revenue which can be described as following (Richardson & Dennis, 2003):

  1. Market penetration-In this strategy objective is to increase sales of existing product in existing markets through aggressive marketing strategies. This strategy works in unsaturated markets with growth potential available. Star Bucks should identify markets where it can go for penetration strategy.
  2. Market development-This is the strategy in which company introduce existing products in to new markets. This strategy works where there are markets with potential not explored and penetrated just. The objective is to make early entrance in the new market to enjoy the benefit.
  3. Product development-This refers to launching new products in existing market. This can be like offering more choices on menu to customers for selection. This strategy is good for markets with growth potential.
  4. Diversification-The objective is to spread risk through launching new products in new markets with objective to increase share of the market.

As explained, there are certain underpenetrated markets for which Star Bucks can use market penetration strategy. Such measure can boost sales of the company in underpenetrated markets.

As Star Bucks has limited menu it can work on product development to offer its customers greater choice. Star Bucks can also work on development of new markets in which it can gain early entrance benefit. Star Bucks can enter in to entirely different market with different products to spread and diversify its risk.

Bowman strategy clock is used to pace a product at any place in a chart with two dimensions that is price and perceived value for the product. Company might sale low value at low price, high value at high price or place itself at different dimensions of price value charts.

Star Bucks can place Frappuccino and sandwich at low value low price and coffee at high price high value in product price value chart. Company for its new products can also devise correct marketing strategy that can boost sales revenue.

Proposed plan for business

Tangible and Tactical Priorities

Strategic objectives defined by the organization to achieve its mission must provide metrics against which actual performance can be measured to analyse that whether the organization is moving towards achievement of its strategic objectives. Objectives need to be SMART (specific, measurable, achievable, realistic and time bound). Strategic success depends on formulation of well thought strategy which is achievable and measurable against performance indicators. Starbucks can devise objectives for entering in to specified markets, launch healthy products, price its products on competitive basis but all objectives must clearly state performance indicators against which actual performance will be measured(Adviser business review, 2018).

Strategic Objectives

As currently Star Bucks is falling short of growth targets and have faced a dip in value of its share slightly plus food hygiene conscious customers not willing to buy two products with health issues is a tricky situation to handle. Star Bucks has limited menu and hence there is potential for product development strategies plus new markets can be explored through market development strategies.

As customers are becoming more health conscious investment to launch healthy low calories foods can attract higher sales revenue. Starbucks aim to improve revenue and growth in the markets it serves. Company can also consider selling low value product at low price to cost conscious customers. Differentiation through new products and new markets can also be sought as a marketing strategy and business development strategy which will serve for business as risk reducing factor as it is spread over more than one type of business.

Star bucks can also consider horizontal or vertical growth strategies to be followed. Inventory management, just in time and inventory techniques can help in reduction of cost involved in managing inventory of the business.

Global expansion and reach to new markets can also be a suitable revenue growth strategy. Star bucks can issue loyalty card to regular customers who can then be offered discount on any purchase through loyalty cards which can result in increase in sales demand and achievement of growth target. Starbucks need to break down its strategy according to different markets it serves as per the consumer habits in those markets. Starbucks have brand lovely customer and cost-conscious customers at the same time each with distinct needs that needs to be served differently.

Tactical Actions

Tactical actions are day to day operations of the business which focuses on the manner business conduct and manages its day to day tasks i.e. how business conducts its operations, how business measures its performance and how performance is monitored.

Star Bucks needs to identify reason of health issues in its products, manage the quality of its products, work on reducing cost of doing business, price its products competitively, improve customer support service, launch customer feedback questionnaires to improve performance reduce its stock levels and manage its day to day operations more effectively (Gerber, 2016).

Conclusion

Companies in retail sector have to serve various customers with distinguished needs through distinguished marketing and pricing methodology. Company must be flexible and adaptive to customer preference need and want in order to stay competitive and ahead of its competitors.

In modern business environment rapid technological advancements is affecting the method of doing business and Star Bucks should stay aligned and modify its existing practices accordingly. Customers should be offered right to order online with delivery at selected place as most of such sectors are supporting their customers.Market development, product development, penetration and differentiation studies strategies can be accepted.

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