Factors of Competitive Advantage in a Managerial Environment

3609 words (14 pages) Business Assignment

20th Apr 2020 Business Assignment Reference this

Tags: Business AssignmentsSWOTFood and DrinkStarbucksManagementBusiness

Disclaimer: This work has been submitted by a student. This is not an example of the work produced by our Business Assignment Writing Service. You can view samples of our professional work here.

Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of BusinessTeacher.org.

The purpose of this essay is to evaluate, analyse and describe the many factors of competitive advantages and assess the benefits and presumptions this holds in a managerial environment. Competitive advantage introduces the concept of the value chain, which is a general framework for thinking strategically and logically about activities involved in any business and assessing relative cost and roles in differentiation (Porter, 2008). The evidence suggests that by a firm can influence competitive outcomes and set the competitor on the course of change. In the second part, industry examples are analysed to strengthen the claims made in the literature review. The leading focus is on examples, which includes a brief review of the business and its competitors. This is then followed by thorough analysis of the business, using evidence from the literature review. A conclusive paragraph is included to sum up arguments suggested, which is then followed by recommendations and references. This essay is determined on the identification of the competitive nature that had evolved within a corporate environment, which includes an in-depth judgement of the strategic management of the organisation. This will deepen into additional relevant competitive advantages and will be sustained within current radicalisation in management.

A framework tool used to analyse the competitive analysis would be porters 5 forces. It is an essential tool for understanding the competitive structure of an industry. The tool is effective for identifying the competitors of a company as well as understanding how they can reduce their ability to generate profit (Michaux, Cadiat and Probert, 2015). The factors that contribute with the five forces include threat of substitutes, threat of new entrants, bargaining power of suppliers, bargaining power of buyers and rivalry among existing firms as key components which are all generally considered to control the essence of competition within the corporation and contribute to the magnitude of the profits determined by the company.

Michael Porter is an economist as well as a researcher. Throughout Michaels career at a Harvard School, he has brought many economic theories and strategy concepts on the most difficult problems that corporations are facing, economies, and also including market competition and the company’s strategy, economic development and political competition (Isc.hbs.edu, 2019).

The advantages of porters five forces include the simplicity of it, which is considered to be a strength of the five forces model as it is very easy to use and provides an understandable way of marker forces analysis (Kare-Silver,1998, p.46). This means the model continues to be the scope of business strategy. In both practices and education, there is emphasis on the model and how it is the most known and used from competitive strategies. Moreover, another advantage of this model would be that it looks at organisations and industries through various aspects which are included in the model’s five forces. This means, it is a methodical approach for analysing the current situation of a business and plan strategy (Oliva, 2002).

However, there are a few disadvantages for the model. For example, Faulkner and Campbell (2003, p. 249) criticise static character of the Five Forces model claiming that industry structures are constantly changing because of competition between firms and strategies adapted by companies within the industry. Static character of the model is also pointed out by Lynch (2000, p. 131). He mentions that forces are constantly amending, and the moves could be more rapid than the model explain.

Competitive advantage introduces the concept of the value chain. This is described as a general framework for strategically thinking about activities involved in businesses and assessing relative cost and roles in differentiation. The difference between value that is, what buyers are willing to pay for a productor service, and the cost of performing the activities involved in creating it. According to porter a competitive advantage can only exist when a company is available to offer either between two different methods (cost advantage) or they can simply offer something that can exceed the competing product. In cost leadership, many of these firms would set out becoming low-cost producers, which means the sources of cost advantage vary and depend on the structure of the industry. However, a low-cost producer would need to find and utilise all the sources of cost advantage, if a firm can achieve this, then it would be above average in its industry and can command prices at the industry average.

A constructive factor within this framework model would be that it helps to determine an industries competitive position in the market. This strategy can help to find many different cooperation, techniques and partnership and new opportunities that help to determine a better form of competitive awareness. For example, high end department store Selfridges are joint with competitors Harrods on their market share, Both Harrods and Selfridges have announced impressive double-digit sales growth and grown their combined share of the UK department stores market by 40 percent over the last five years (Retail, Retail and Retail, 2019). This explains that the framework provides informative penetration due to its ability to increase profit and growth.

The degree to which current business intelligence initiatives can support company’s sustainable competitive advantage has yet to be investigated in depth. The scarcity of academic research has prompted calls for rigorous and empirical studies examining business intelligence success and its relationship on sustainability of the organisations. In this research, the focus is on the factors effecting the successful business intelligence deployment that will lead to sustainable competitive advantage of the competing firms (Emeraldinsight.com, 2019). In order to keep up with today’s competitive world, and in some cases to “survive” many companies are scanning their environment, keeping a close eye on their competition and attempting to understand their customers. Companies cannot afford to stand still, even if they are leaders in the industry. They are gathering and using information to make educated decisions (Liautaud &Hammond, 2001; Shin,2003).

The VRIO framework is the tool used to analyse a firm’s resources and capabilities to distinguish if they can be a source of competitive advantage. The tool was originally developed by Barney, J. B. (1991). In his Book ‘Firm Resources and Sustained Competitive Advantage’, the author identified four attributes that firm’s resources must possess in order to become a sustained competitive advantage. According to him, these resources must be valuable, rare, imperfectly imitable and non-substitutable(Jurevicius, 2019).

For instance, by having a VRIO framework in place has made sure Google can take a completely distinctive approach capital management and make some decisions using large amounts of data. The data that had been used to determine this had included many surveys, evaluations, and manager nominations. Google has also taken part in interviews with the company’s highest as well as the lowest-rated managers. Doing this determines what qualifies as a great manager.

STARBUCKS

Starbucks is an American company founded in Seattle, Washington, serving products including coffee such as latte’s, cappuccinos and espressos. The large worldwide chain also serves cold beverages, snacks and bottled drinks. In May 1998, Starbucks successfully entered the European market through its acquisition of 65 Seattle Coffee Company stores in the UK. The two companies shared a common culture, focussing on a great commitment to customised coffee, similar company values and a mutual respect for people and the environment. Starbucks Coffee Company. (2018).

Key performance indicators for Starbucks include market shares, employee training hours and revenue growth. Starbucks generates 74% of sales from selling beverages, 20% from food sales, 3% from single serve coffees and another 3% for equipment. Training should include on the job training, computer training and induction training, Starbucks have had an increase in revenue this past year, which is attractive to shareholders (prezi.com, 2019). Starbucks has 733.3 million shares outstanding, these are of stock that are held by investors. This us important to know for finding potential value of the company, and high figures indicate Starbucks is a widely held stock(Bussing-Burks, 2009).

Starbucks, as the leading coffee market, has a market share of 39.8 percent. Both coffee chains controlled more than half of the market in the United States (Statista, 2019). The company have formed numerous relationships with various partners, customers, businesses and non-profit organizations that would help them in achieving a positive change. Each of these relationships have proven to be useful as they each bring sets of diverse skills and expertise to the table. By fostering these relationships, Starbucks has been able to come up with many innovative ideas that help promote ideas of ethical sourcing, community involvement and more(Eventige.com, 2018). Even though customers may be paying extra for regular cups of coffee at Starbucks, when customers relate to the brand, they are willing to pay extra for their products and services, including the customer service they provide. From getting to know the baristas to getting a coffee on the go with friends, the experience will always make it worth paying that little bit extra at Starbucks. Starbucks are well known for their premium coffee beans and amazing coffee that they serve; therefore, customer value is extremely important to help to keep a healthy reputation for Starbucks.

For a number of years, the coffee industry has come a very long way, in terms of variety of products and also their competitive rivalry. However, many years ago, Starbucks had to go against and compete against small and local retailers, the industry has now grown quickly, and Starbucks are competing against organisations of numerous sizes and exposures.
These competitors, serving specialty coffee, are differentiated from Starbucks in many ways and they each have their own beneficial points. Furthermore, Starbucks might face rivalry from two large multinational companies, Dunkin Donuts and McDonald’s. however, both companies have been around many years in the fast food industry, they have recently entered the specialty coffee sector. The most common rival in this chain has to be McDonald’s which has evolved into the world’s largest restaurant chain having over 200,000 restaurants worldwide. In the United States, the fast food giant has over 14,000 restaurants. The key point that has led to successful expansion of McDonald’s is quality standards they have achieved as well as to their quick service and low prices (Adamy, McDonald’s Takes on Starbucks, 2008).

Strengths

Some of the many strengths of Starbucks would be that theyhave a very well-established brand name that is associated with high quality specialty coffee especially in the United Kingdom and worldwide and as such it has a higher advantage over its fewer known rivals.Starbucks also has numerous numbers of locations in the market as well as a good number in the international one as well. This allows them to introduce new products quickly across a large-scale ensuring exposure to many customers and preventing new entrants from gaining market share. Starbucks have a greater advantage compared to many other companies, since they do their best to help the environment, which makes customers happier. Since many customers suggested to Starbucks, they would like to recycle cups, they then went on to trial a new approach with waste services to separate cups from the rest of their waste so they can be recycled and be more environmentally aware.

Another advantage that Starbucks have put in place for customers for the environment is by rewarding customers who bring in a reusable cup with a 25p discount on any drink that is purchased. Starbucks have made their stores a ‘Third Place’ for customers by providing a place to go besides work and offering comfortable chairs, cosy atmosphere and free Wi-Fi Internet has been a successful as this can bring in many business owners or students that want a quiet place to work. Starbucks has also changed the conception of coffee being a luxury item, it has turned into a daily ritual for many customers. The methods have been fruit bearing as it has led to the increase and maintenance of coffee prices at a higher level that would have originally been possible, therefore increasing net profits.

Weaknesses

Although many benefits have come from these changes, people still may consider Starbucks coffee to be a luxurious item, there is an increasing opinion from customers that Starbucks charges too high a price, customers may choose other alternatives for their coffee such as Costa or McDonalds. Another weakness of Starbucks is lack of variety in recipes whereas competitors offer a variety of flavours and tastes in coffee products. For example, costa coffee offer ristrettos, light coffee and macchiatos, products Starbucks may not have to offer.

Starbucks as a brand, is also heavily dependent on coffee, therefore people may not want to come in store for a sandwich or any foods. This relates to the issue of variety but that could be improved by methods such as customer engagements and following feedback.

Starbucks is in a fast-growing sector and therefore collaboration with brands could boost opportunities for future business expansions. By purchasing other companies such as Seattle’s Best and Tazo Tea, Starbucks can also implement a different brand name to explore the market in a different forte. Starbucks also should cater specialty goods such as bottled Frappuccino’s and more to other companies. Starbucks also has the opportunity to expand its product offerings to take on food and beverage retailers like McDonald’s and Burger King as the consumer segment which these retailers target growing leading to business opportunities for Starbucks to take advantage of.

However, there are some disadvantages of being in such a steadily growing sector. The biggest and most consequential threat to Starbucks is a serious competition. Several companies such as costa coffee and Krispy Kreme are implementing coffee products that will compete those of Starbucks whereas companies that have already established such as McDonald’s and Dunkin donuts that already have the infrastructure are focusing on great quality coffee to add to their menus. Another potential threat is that coffee is not a genuine need and is basically just a want and people may eventually grow out of it. Starbucks has experienced an example snapshot of how quick trends occur and equally as quick to disappear. Social media has a vital impact on what sells and what doesn’t. The Unicorn Frappe was a phenomenon that many users were keen on getting their hands on. Although the taste wasn’t that different to one of the regular drinks on the menu, the appearance was the main seller. With its bright colour and reference to a mythical creature, the sale increase was far from a myth. This is an example of using the appearance as a marketing strategy. It was very popular on Instagram due to the look. However, the Instagram culture’s influence is short lived and therefore its heavy reliance on social media. If this happens businesses that rely only on the coffee industry and don’t have interests in other regions may eventually run out of business. The company faces threats from the rising prices of coffee beans and is subject to supply risks related to fluctuations in the prices of this.

Opportunities

While Starbucks could still have more branches across the globe, many of them are located within the US only. There are many of regions where profitably branching out is a must, including India and Central Europe.

Starbucks products would be admitted in supermarkets across the world, something which has already newly begun. Selling own branded products in stores other than their own is be a better way to maximise the value of their massive reputation. They also have other opportunities to team up with other companies and co-brand with another big company in order to gain extra recognition.

Threats

The threats that Starbucks face would have to include the competition from all of the cheaper alternatives. McDonalds and dunkin donuts are two multinational companies alongside Starbucks that directly compete with many of the products that Starbucks sell. Whilst they both do not offer the identical products or pride themselves entirely on coffee, they do offer similar products for almost half of the price.

Starbucks’ success can be attributed to the popularity of coffees, teas and snacks in today’s society. If consumers were to shift away from these products, it would leave Starbucks struggling to stay surviving. They are very keen on encountering the effects of rises in coffee, tea, and dairy product prices.

Conclusion

To conclude, I think Starbucks have many different rivals and competition, which means they must rebrand and come up with new ideas or they will eventually lose out on many customers. As coffee is not a necessity, customers may grow out of it and switch to cheaper and cost affordable options. They will need to attract customers via social media in order to bring in and advertise new ideas and options for people to try. They would need to think outside of the box in order to gain an even better reputation.

Recommendations

Recommendations in this field of categories would need to be considered to reduce and minimise expenses and costs with providing greater flexibility on products and range of the Starbucks brand and corporation. Additionally, changing the cost of products may lead to many new customers, as customers may be choosing other alternatives. Starbucks will need to come up with unique branding ideas in order to stand out from other competition and be ahead of them, this could be by implementing new ideas such as new food or snacks into their range. The last recommendation I would have for Starbucks would be to Collaborate to market their products and services to customers and bring new customers in, mainly on social media.

References

  • Bussing-Burks, M. (2009). Starbucks. Santa Barbara, Calif.: Greenwood Press.
  • ClearPoint Strategy. (2019). Explaining The VRIO Framework (With A Real-Life Example). [online] Available at: https://www.clearpointstrategy.com/vrio-framework/ [Accessed 15 May 2019].
  • Emeraldinsight.com. (2019). Sustaining Competitive Advantage Via Business Intelligence, Knowledge Management, and System Dynamics | Sustaining Competitive Advantage Via Business Intelligence, Knowledge Management, and System Dynamics. [online] Available at: https://www.emeraldinsight.com/doi/abs/10.1108/S1069-09642015000022B008 [Accessed 15 May 2019].
  • Eventige.com. (2018). How Starbucks Makes Relationships Central to Content. [online] Available at: https://eventige.com/how-starbucks-makes-relationshipscentral-to-content/.
  • Isc.hbs.edu. (2019). Biography – Institute For Strategy And Competitiveness – Harvard Business School. [online] Available at: https://www.isc.hbs.edu/about-michael-porter/biography/Pages/default.aspx [Accessed 19 May 2019].
  • Jurevicius, O. (2019). Is the VRIO Framework a Key to Competitive Advantage?. [online] Strategic Management Insight. Available at: https://www.strategicmanagementinsight.com/tools/vrio.html [Accessed 15 May 2019].
  • Michaux, S., Cadiat, A. and Probert, C. (2015). Porter’s Five Forces. Namur: 50Minutes.com.
  • Mindtools.com. (2019). Porter’s Five Forces – Understanding Competitive Forces to Maximize Profitability. [online] Available at: https://www.mindtools.com/pages/article/newTMC_08.htm [Accessed 11 May 2019].
  • Noble, B. (2019). The Aesthetic Economy of Fashion: Markets and Value in Clothing and Modelling|Paperback. [online] Barnes & Noble. Available at: https://www.barnesandnoble.com/w/aesthetic-economy-of-fashion-joanne-entwistle/1102795478 [Accessed 15 May 2019].
  • Porter, M. (2008). Competitive advantage. New York: Free Press.
  • prezi.com. (2019). Key Performance. [online] Available at: https://prezi.com/pieo9si8sxhd/key-performance/ [Accessed 17 May 2019].
  • Starbucks Coffee Company. (2018). Company Information. [online] Available at: https://www.starbucks.co.uk/about-us/company-information
  • Statista. (2019). Market share of major U.S. coffee chains, 2016 | Statistic. [online] Available at: https://www.statista.com/statistics/250166/market-share-of-major-us-coffee-shops/ [Accessed 19 May 2019].

Cite This Work

To export a reference to this article please select a referencing stye below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Related Services

View all

DMCA / Removal Request

If you are the original writer of this assignment and no longer wish to have your work published on the UKDiss.com website then please: