Driving Innovation and Growth at Starbucks: From Howard Schultz to Kevin Johnson Success
Case Code: BSTR526
Case Length: 11 Pages
Period: 2008 - 2018
Pub Date: 2018
Teaching Note: Available
Organization : Starbucks
Countries : US; Global
Themes: Growth Strategy/Business Model Innovation/Blue Ocen Strategy
Abstract Case Intro 1 Case Intro 2 Excerpts
Starbucks' Business Model
Starbucks’ business model was set in motion in 1987 when Schultz set up Starbucks Corporation. The coffee chain leveraged its resources to create competitive capabilities and core competencies to formulate its business model. Unlike other American restaurant chains, Starbucks had accepted the standard retail business model from the very beginning of its business operation, where the retail locations of the company generated the majority of its net revenue.
Starbucks had segmented its market by geography and demography by locating its stores in areas where it could find young urban adults with relatively high incomes (See Exhibit III). It established its business with a more resilient and less price-sensitive customer base, who perceived these coffee beverages as an affordable luxury. The competitive high pricing strategy of the company separated it from the pack and demonstrated its premium image. Right from customer service to employee benefits, Starbucks’ business model focused on people....
Schultz: The Architect of Innovation
Schultz steered Starbucks to become a strong performing global coffee chain. When he again took charge as Starbucks’ CEO in 2008, he found that the company’s rapid expansion had distracted it from making its stores an inviting place with innovative products. One of the key priorities of his seven-point transformation agenda to revive the company was to “create innovative growth platforms worthy of our coffee.” In order to innovate and recreate the experience of the Italian coffee bar culture at Starbucks stores, Schultz brought in changes in the in-store design and ensured that the stores evolved into relevant customer destinations. He invested heavily in staff training programs, making the training fun and innovative. Schultz worked out strategies to attract, motivate, and reward store employees in a manner that would create a favorable work culture and would result in the high performance of the company...
Starbucks' Business Model Innovation
Innovation was at the heart of Starbucks’ business model. During the economic recession of the late-2000s, Starbucks managed to survive and even thrive in business by modifying its operational policies and systems to address new regulations and other developments. Instead of introducing a new business model during the company’s sluggish period of growth, Starbucks incorporated new innovation to the brand by following its own organizational strategy...
Despite Starbucks’ longstanding efforts at spreading innovations throughout the business model, the coffee chain became a victim of its own innovation, industry experts observed. After taking over charge as CEO of the company, Johnson faced a tough time as Starbucks posted its slowest comparable-sales growth in the US since the global recession. Launching of food had long been a challenge for Starbucks and the coffee chain had overhauled its food menu several times to keep up the growing demand of customers...
The Road Ahead
Starbucks had a massive growth plan, supported by its business model innovation. According to the coffee chain’s projections, approximately 12,000 new stores would be added globally, taking the total to 37,000 stores by 2021...
Exhibit I:Starbucks’s IPO Valuation (2008-2016) Exhibit II: Starbucks’ Key Financials Exhibit III: Market Segmentation of Starbucks Exhibit IV: Starbucks’ Company-operated and Licensed Store Status (Fiscal Year 2016) Exhibit V: Structure of Core Value Propositions of Five Franchise Chains
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