Identify and explain the two underlying assumptions of the RBV. Talk about these assumptions within the context of the industry that the case is set in. Does the company in the case possess unique resources?
One of the assumptions of RBV is the resources need to be heterogeneous. This implies that the resources, skills and capabilities that an organization has needs to be different with other organizations. This ensures that organizations use different strategies from one another. This then leads or allows an organization to develop competitive advantage. An organization with a varied source of resources can be a leader in its field by creating competitive advantage. For instance, Starbucks has a characteristic competencies employed in the management of their coffee shops. Starbucks focuses or tries to develop competitive advantage through enhancing the customer experience.
The second assumption of RBV deals with immobility. This refers to the resources that are not movable to other companies such intellectual property, knowledge or brand equity. Changes that show the implementation of immobile resources include redesigning the stores to have a contemporary feel with the removal of breakfast sandwiches. Additionally, Starbucks was involved in redesigning its logo by removing the word ‘coffee’, which was followed by increasing the status of the stylized mermaid. Starbucks brand is based on the quality of service they provide to their consumers.
Starbucks has unique resources that include free-Wi-Fi services, inventive products, artwork and well-trained employees. Furthermore, Starbucks has been able to engage in expansion of its stores both locally and internationally. In its internationalization process, Starbucks has adapted to the diverse cultures of the foreign countries and still managed to maintain its brand image.
List three of the five sources of cost advantages: economies of scale, economies of learning and process design.Does the company in the case leverage cost advantages? If so, discuss. If not, why not?
One of the sources of cost advantages is the economies of scale. Economies of scale allow large organizations to operate and expand faster than small organizations. An economy of scale happens when an increase in the amounts of inputs results to a decrease in the unit costs. Starbucks has ventured in opening international stores, which have different drinking cultures. Consequently, by ensuring that their level of service remains standard, their brand images allow it to enjoy the global economies of scale.
Economies of learning are another source of cost advantage. The modification of different organization processes may provide valuable information that allows an organization to change its operational activities. The organization is able to experience learning through employing new and intelligent technologies. Starbucks engaged in the retraining of its baristas in the art of making coffee. Starbucks also introduced a lean thinking team, which was tasked with improving employee productivity. This involved making changes such as placing the commonly ordered syrup flavors together to reduce the time that is used to prepare the drinks. This was aimed to increase the speed of customer service, which would translate to an increase in customer satisfaction.
Process design is another source of cost advantage. Processes are normally employed to reduce the quanity of inputs. However, the price of inputs determines the process design to use. At Starbucks, customers can be provided with customized coffee using of a line flow process, which allows all coffee to be prepared in chronological order. Starbucks provides a number of options to the customers using the line flow process.
Identify the four generic industry structures and specific strategic opportunity in each.Discuss the industry structure of the company in the case
The four generic industry structures include competitive advantage, focus strategy, cost leadership strategy and differentiation strategy. A strategic opportunity for competitive advantage mainly rests in providing quality products at relatively low prices. Starbucks has managed to gain competitive advantage by developing and providing high quality coffee at low prices.
Secondly, cost leadership is another industry structure that offers a strategic opportunity based on cost. Starbucks employed cost leadership by employing outsourcing. Additionally, Starbucks has been able to develop a manufacturing plant in certain areas such as South Carolina. This has helped reduce transportation costs. Thus, being able to save on costs they have been able to cut the cost on the consumers.
The differentiation strategy relates to the uniqueness in the product provided by the company. The strategic opportunity in the differentiation strategy deals mainly with employing creativity in the product design. Starbucks has a unique logo in the coffee cups. Furthermore, they have dropped the word coffee and enhanced the mermaid logo. Additionally, they have designed their stores to be hyper-local. The stores design incorporate communities stories. This is more to do with enhancing customer experience than focusing on aesthetics.
A focus strategy constitutes a company focus on a particular line of product. The strategic opportunity mainly deals with dealing with a small market area. For Starbucks, this strategy may be ineffective as it is a large organization both locally and internationally.
List the five forces in Porter’s model. Do a detailed five forces analysis
Porter’s five forces include bargaining power of buyers, threat from substitutes, bargaining power of suppliers, threat of new entrants, and rivalry among existing players.
Bargaining power of buyers
Buyers enjoy a relatively higher buying power. This is attributed to the fact that the coffee industry is saturated. Thus, buyers can shift from one coffee shop to another without having to incur high switching costs. Additionally, buyers can opt to make coffee in their homes rather than go to a coffee, shop. This gives them additional bargaining power.
Bargaining power of suppliers
The bargaining power of suppliers is low. The coffee industry is normally standardized, which means that different suppliers have to provide the recommended standardized products. Therefore, Starbucks can be able to switch suppliers without incurring costs. For instance, Starbucks can easily change the supplier if the quality of service provided is poor.
Threat of New Entrants
New entrants pose a very low threat to Starbucks. Starbucks has already established itself as a leader in the provision of quality coffee at low prices. Starbucks brand is widely recognized among consumers. Thus, a new entrant cannot use low prices as a form of competitive advantage as this would result to losses because of failure to break even.
Threat from Substitutes
Threat from substitutes are high and include products such as hot chocolate, tea and energy drinks. Consumers can opt to consume these drinks or brew them at home.
Rivalry among existing players
Competition is high with other industry players. Products offered in this industry are not complex. The main factor that sets Starbucks apart from its competitor is its brand identity, which is unique and occupies a larger market share. Failure to maintain its brand image may result to Starbucks reducing its market share.
