Business strategies face enormous risks. The risks come from different sources and impact on the strategies differently. Starbucks chosen strategy for enhancing value will certainly face several risks. Starbucks strategy for increasing value is investing in extensive international supply chain. Supply chains are fraught with many risks and the bigger the supply chains the more the risks. In these regard, extensive international supply chains are likely to face more risk than small, local or regional supply chains. To understand and plan for the risk Starbucks exploration of extensive international supply chain faces a risk analysis must be conducted.
Selection of Alternative
The primary role of a business organization is to provide value to stakeholders. Such value includes profits for the investors or shareholders, employment opportunities for workers, and products or services for their customers. The business environment is always dynamic, and thus organizations consistently seek alternative ways of enhancing the value they deliver to their stakeholders. It is amidst such dynamism that Starbucks is seeking ways to improve its value delivery to its stakeholders. Already various value-enhancing alternatives have been identified and analyzed, and the current analysis will focus on the risk analysis of the best alternative.
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Potential Growth Opportunity and Strengths Leading To Growth
In the initial analysis, various alternatives emerged as the potential avenues for Starbucks to enhance its value. The alternatives include extensive international supply chains, pursuing global growth, pausing acquisitions, and financial considerations. These alternatives were chosen because they are not entirely new to Starbucks since it has consistently used them to expand its operation. The company already has global supply chains allowing it to source coffee from South America, African, Asia, and Pacific regions. It also has over 300000 stores around the world and has aggressively acquired many retailers across the globe.
In evaluating these four alternatives for the best alternative for Starbuck's current situation, a SWOT analysis of the alternatives was conducted, followed by a decision matrix analysis. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats (Sarsby, 2016). It is an analysis method used to evaluate aspects of a business, a decision, an activity, etc. In this case, it was used to evaluate the four aspects of the Starbucks value improvement alternatives. SWOT analysis was chosen because its four elements of analysis are effective at providing a business an overview of its internal and external environment business and thus facilitate strategic decision making (Sarsby, 2016).
Strengths are internal to the organization. They include the things the organization does well, the unique resources that the organization has at its disposal, and the other ability the organization is believed to possess. Weaknesses are also internal and include areas that the organization can improve on, areas of shortages such as resource shortages compared to competitors, and other shortcomings as perceived by others (Sarsby, 2016). Opportunities and threats are external to the organization. The opportunities encompass all available opportunities that the organization can exploit, things it can take advantage of, and how it can turn its strength into opportunities. Last, threats include harm, the actives of competitors, and dangers that arise due to the firm's weaknesses.
SWOT Analysis
| Strengths | Weaknesses |
|
Starbucks maintains a high level of ethics, quality products, and profitability Treats employees very well and has constantly appeared on the list of one of the best Fortune Top 100 corporates to Work in Extensive International Supply Chain Steady growth and expansion locally and internationally |
Unfavorably high price points for its products Lacks stratified products unique to itself |
| Opportunities | Threats |
|
Starbucks still a substantial unconquered market globally There is room for introducing new products, and it allows room for further growth and profitability. |
The coffeehouse niche has fierce competition from rivals both locally and internationally. For instance, global outfits such as Dunkin' Donuts and McDonald's offer almost the same products as Starbucks, though at cheaper prices. Starbucks' market niche is a very specific market of beverages. In case the consumers opt for other sources of beverages such as caffeinated pills, the corporation risks losing out because the market is too specific. |
Decision Matrix
A decision matrix is an appropriate tool the can support the SWOT analysis in determining the best alternative for enhancing Starbucks' value. A decision matrix is an appropriate tool because it facilitates systematic analysis and rating the strength of alternatives. It evaluates a large number of decision factors by establishing the significance of each factor (Axelrod, 2009).
Table 1: The Decision Matrix for Starbucks Internal Growth
|
Factors |
Cost |
Market Share |
Profits |
Ease |
Score |
| Acquisitions | 3 | 2 | 1 | 3 | 9 |
| Global growth of store | 2 | 2 | 2 | 2 | 8 |
| Extensive international supply chains | 2 | 1 | 3 | 1 | 7 |
Table 1 above is the decision matrix for Starbucks weighing the best alternative. The goal is to determine which alternative costs the corporation the least. Out of the three, the cheapest is the extensive international supply chains. If Starbucks can focus on the supply chains and ensure that they operate seamlessly, there is a chance for greater growth with less cost, more profits, a chance for a bigger market share, and an easier option than the other two alternatives.
Risks
The best alternative based on the SWOT analysis and the decision matrix outcomes is pursuing extensive international supply chains. This risk analysis explores the risk associated with pursuing this alternative. Starbucks' global supply chains' risk includes challenging famer relationships and sustainability, price fluctuations, business partners’ challenges, and macroeconomic and geopolitical issues (Nguyen, & Sarker, 2018).
A risk is a situation resulting in exposure to danger. It is a combination of factors of exposures and their impacts whose occurrence is like to result in harm or loss. It entails a probability or dangers of inure, loss or a range of negative consequences. Risk arises because of internal and external vulnerabilities of a business or strategy. To determine the probability of a risk and the likely level of loss or damage, risk analysis is essential. Risk analysis determines the significance of risk by comprising the combination of likelihood or frequency occurrence of several hazards the magnitude of loss that would result from these hazards.
To conduct a risk analysis requires the use of an appropriate tool. For the analysis of the risk the Starbucks extensive international supply chains face, this process will use a risk analysis matrix. First, several risks will be identified and they will be subsequently analyzed using the risk analysis matrix.
Risk Identification
Global supply chains face various challenges. Some to the challenges are industry specific while some challenges affect all industries. The risk facing Starbucks international supply chain fall in four broad categories; Farmer relationships and sustainability challenges, Commodity prices, Business partners and Microeconomics and geopolitical issues.
Farmer relationships and sustainability challenges
Starbucks sources its inputs from around the world. The inputs are primarily sourced from the developing world, where agricultural production is the principal economic activity. The company is heavily reliant on the farmers and other suppliers' stability, who face challenges of their own. For instance, farmers in the developing world have limited resources, experience capacity controls and regulatory constraints. As a result, Starbucks is at risk of coffee shortages and high prices. Starbuck' relations with its suppliers (farmers) have also been negatively affected by human rights activism, environmentalism, and labor challenges. The activism negatively impacts the company's ability to deliver value. The risk arising for farmers and sustainability challenges include; limited sources, capacity controls, regulation restraints, activism on labor issues and environmentalism. The effects of these risks include high price of coffee, limited supply, price volatility, shortages, and reputational challenges due to activism.
Commodity prices
Coffee, the primary input for Starbucks, usually experiences volatile prices. The two other essential inputs, diesel fuel, and dairy products are also subject to price volatilities based on the supplier's ability to supply. The fluctuation of prices of these three commodities limits Starbucks' ability to provide consistent prices for its customers. Of the three commodities, coffee prices are the most volatile due to regional states' policies, weather, exchange rate fluctuations, natural disasters, and crop diseases. The risk associate with commodity prices include high price volatility, arising from fluctuations in supply that usually arise from crop diseases, weather and natural disaster that affect coffee production., and region policies. Exchange rate fluctuations also affect price volatility and erode cash flow for facilitating international transactions.
Business partners
Starbucks has numerous vertical integrations with numerous partners along with its supply chain. The partners include farmers, roasters, manufacturers, logistic companies, and retail licensees. Then the ability of these partners to deliver impacts on Starbucks services, product, and efficiency. These partners' power to deliver frequently gets interrupted by trade restrictions, shipping challenges, trade restrictions, poor standards, natural disasters, etc. The disruptions results in losses, a decline in profits and revenues, unnecessary litigation, and a bad reputation. The risk arising due to business partners include disruption of third party vendor services, and service quality, shipping risk, inability to meet standards, and trade restrictions. Disruptions result in loss of supplies or products, profits and revenues. It also damages reputation. Licensee managed outlets risks like failure to deliver on Starbucks customer experience and erosion of brand reputation.
Microeconomics and geopolitical issues
Starbucks depends on various regions around the world. Some regions provide markets while others are home to suppliers. Geopolitical challenges and microeconomic challenges in these regions influence Starbucks operations. Different challenges in different regions call for different approaches to supply chain management with region-specific interventions and practices. The risks here include varying political regimes regulatory environment, maritime traffic and disruptions, economic shocks that erode consumers’ purchasing power, and regional weather disruption to coffee production,
Risk Analysis Matrix
A risk assessment matrix is an effective tool for assessing risks. It helps compare the probability of risks happening and the impact they will have on the business. The tools is essential because it enables a business prioritize the most serves risks, plan to make the risks and their impacts, have a real-time evaluation of then risks within its business environment,
| Severity | Consequences | ||||||||||
| Disruptions of supply chain | Price fluctuations | Commodity shortages | Reputational risk | Regulation restrains | Loss of products, revenues and profits | Foreign exchange fluctuations | Quality of services from third party vendors | Shipping risks | Economic Shocks | ||
| High | High | High | |||||||||
| Medium | Medium | Medium | Medium | ||||||||
| Low | Low | Low | |||||||||
Risk Matrix
| 10 | 20 | 30 | 40 | 50 | 60 | 70 | 80 | 90 | 100 |
| 9 | 18 | 27 | 36 | 45 | 54 | 63 | 72 | 81 | 90 |
| 8 | 16 | 24 | 32 | 40 | 48 | 56 | 64 | 72 | 80 |
| 7 | 14 | 21 | 28 | 35 | 42 | 59 | 56 | 63 | 70 |
| 6 | `12 | 18 | 24 | 30 | 36 | 42 | 48 | 54 | 60 |
| 5 | 10 | 15 | 20 | 25 | 30 | 35 | 40 | 45 | 50 |
| 4 | 8 | 12 | 16 | 20 | 24 | 28 | 32 | 36 | 40 |
| 3 | 6 | 9 | 12 | 15 | 18 | 21 | 24 | 27 | 30 |
| 2 | 4 | 6 | 8 | 10 | 12 | 14 | 16 | 18 | 20 |
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
Managing and dealing with the risks
In order to ensure smooth operations and continuous value creation, Starbucks needs a strategy for risk mitigation.
Farmer relationships and sustainability challenges
Already, the company has invested in various measures to improve its relations wither farmers. Many changing factors worldwide, including competition, climate change, and economic developments, influence coffee supply and demand, and this Starbuck will continue to experienced challenges sourcing high-quality coffee. However, incentivizing farmers through a system that reward high performance can enable the company to encourage its proffered suppliers to increase their production and supply.
Commodity prices
Having been in operation for decades and traded in a commodity like coffee, dairy, and diesel, the company understands their price volatility and causes. Starbucks can deal with these challenges by sources its inputs from more locations around the world. The company should also consider sourcing the inputs from within the nations where it has established t shops, such as China, where it has one of its largest numbers of outlets outside the US. Such arrangement will reduce the impacts of different policies in different countries and foreign exchange fluctuations etc.
Business partners
To handle business partners' challenges, Starbucks needs to invest in proper data management, development of supplier relations, and capacity building. The coffee giant can issue incentives that quality services from partners and vigilance to enhance quality and efficiency. It should be willing to cut off business partnerships that are unproductive and forge a new one.
Macroeconomic issues and geopolitics
Starbucks should enlist supplier in the nations where it does business as its main suppliers to shield itself to economic and political shocks in the nations that and regions that are the main suppliers of coffee bean and other commodities. The company should also focus on building a strong relationship with farmers in different regions to protect itself against overreliance on coffer suppliers from Latin America.
Financial risks and challenges
In order to execute change and improvements in its supply chain to make it resilient and reliable, Starbucks will require funding. Unfortunately the companies the company’s financial health is poor and offers nothing that can attract investors. Although the companies projects indicate that it will perform better in the first quarter of 2021 than it did in the last quarter of 2020, the improvement may still not be enough to attract investors and lenders (Yahoo Finance, 2020). In this regard, the company will turn inside for opportunities to downsize, cut down expenditure in some areas and direct the fund to supply chain management
References
Axelrod, A. (2009). Risk Decision Matrix - Strategies That Win. Sterling
Nguyen, G.N.T., & Sarker, T. (2018) Sustainable coffee supply chain management: a case study in Buon Me Thuot City, Daklak, Vietnam. Int J Corporate Soc Responsibility 3:1 https://doi.org/10.1186/s40991-017-0024-x
Sarsby, A. (2016). SWOT Analysis . Spectaris Limited
Yahoo Finance (2020). Company Analysis of Starbucks Corporation. Yahoo Finace. www.finance.yahoo.com/starbucks/
