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In management organizational structure of every organization, the board of directors is the highest governing body or authority. The directors in corporations are either elected or appointed by shareholders. They are not necessarily stockholders or employees of the company. They are involved in determining and implementing the company policies. They should also protect the interests of major stakeholders of the organization for instance by ensuring shareholders get good returns on their investment. The directors are also involved in the recruitment and approving of the right compensation strategy for the chief executive officer. They also discourage or recommend acquisitions and mergers at the same time approving the corporation's financial statements. In majority of organizations, directors are employees in upper management or will be stakeholders in the organization or independent from the organization but are hired due to their exceptional business abilities (“Directors Roles within a Corporation,” 2011).
The boards of directors are also involved in reviewing the company's leadership and in the positioning of the company's products and services to suit the needs of their customers. It is also their responsibility to acquire sufficient funds for the operations of the organization. It is the boards' responsibility to provide for fiscal accountability, to approve all budgets, and to advise accordingly before a company adopts any new strategies. They should also monitor how the company's products and services are fairing in the market in relation to those of other competitors.
The directors are the center in corporate government and must ensure that management serves the long-term interest of stakeholders. The directors are generally responsible for all the corporations' actions including, declaring dividends, setting company policy and electing and appointing officials' on behalf of the company. In the business worlds today, the responsibilities of directors are very important, as stakeholders are now more vocal since they are aware of their rights. Researchers have referred directors as the brain and soul of the organization. They are also involved in evaluating the strategic decisions of a company (Kennon, 2011).
The directors in Star bucks must understand that that pricing of brands has taken a center stage in today's world where economic boundaries have been abolished and even the most established brands like Star bucks have to deal with competition from private labels. Companies must adopt new strategies to maintain their brand identity in a world of external shocks for instance, recession etc. Star bucks as a brand should avoid consistency and adapt to changing marketing environment. The directors failed when Star bucks made decisions not to advertise even though their key competitors were aggressively advertising. They also emphasized on some routine procedures aimed at creating excitement among the baristas while their competitors where involved in streamlining procedures to reduce their costs (Larson, 2009).
From 2008 Star bucks has felt the impact of the global recession forcing the coffee giant to close some of its stores. The directors should have used price campaigns to attract customer in the Australian market. Due to many fundamental changes in the macro environment, the directors of Star bucks should not stay true to their strategic brand vision but must continually adapt to regain competitive advantage in their key markets. To ensure they recapture their glory in the Australian market, the directors should be focused on continuous innovation of their brands and should regularly reinforce their brand vision. It is evident from the case study that poor management decisions especially on expansion and concentration policies contributed to the brands failure in the Australian market.
The responsibility of directors in the strategy was to assess the business environment in terms of threats and opportunities. They used the wrong marketing strategies to expand to the Australian market and that is why they failed, losing business to smaller competitors. They were also involved in assessing Star bucks resources and capabilities required to achieve the company's goals and objectives. They also developed Star bucks decision making and management structure. The directors in Star bucks failed to balance the demands from both internal and external forces in the allocation of resources to meet the company's objectives in the Australian market. The directors did not understand the existence of many street cafes in Australia undermined the Star bucks experience as each had already carved a niche for itself (“Directors Roles within a Corporation,” 2011).
The directors in Star bucks should have used vertical and backward integration using economies of scale to evade the unpredictable coffee industry. They should also have started new business units for their new products using decentralization for the products group structure. To survive the financial crisis the company should have reduced costs, as these would have resulted to reduced prices. The revitalization strategy proposed by Shultz was excellent only it interfered with short-term profits. The directors should have proposed the use of debt financing as this would have given them some financial leverage at the same time improving profits (Larson, 2009).
The directors supported an international strategy that led to low local responsiveness and price considerations. They ignored the threat Star bucks were facing from locally established coffee houses in the countries they expanded. They also lacked the managerial expertise needed to deal with cultural differences and so failed in identifyingÂ Â differences in customer preferences across geographic boundaries (Barnat, 2005). The director should have sought to achieve local responsiveness and global efficiency. The directors should have combined corporate social responsibility and aggressive marketing strategies. It would have been advisable if the directors reflected upon the company's strengths and weaknesses, opportunities and threats using those of other benchmarked companies in the Australian market. It is very clear that the best of strategies usually fail if a company does not have leaders with good capabilities at different levels of the organization (Hsieh & Yik, 2005).
The leadership in Star bucks is guided by the corporate culture that ensures growth does not in any way dilute the company culture and they were focused on establishing a Star bucks experience during their rapid expansion phase. Star bucks should have used leadership as their starting point of their expansion strategies. When we have mismatched capabilities, inadequate execution and poor asset configuration, the company's strategic objectives are always undermined. In the case of Star bucks experience they failed to understand the leadership capacity required by new strategies. The marketing director of Star bucks had the responsibility of undertaking a market segment analysis in the Australian market to define clearly customer and market needs. He should have conducted a competitive analysis to know whether their brand had any competitive advantage in the market. He failed to understand how the global recession affected disposable incomes hence influencing purchase patterns of consumers in the Australian market who preferred quality to quantity offered by Star bucks (“Is your product powerfully positioned?” 2008).
Many analysts failed to understand how a global brand like Star bucks failed in Australia, a country with a growing coffee culture. The market director should have done a market research before entry into the Australian market to understand the marketing and cultural dynamics in the market. This would have enabled Star bucks to build a brand that suited the needs of the local community. What every marketing director including Star bucks should understand is without clear differentiation of a product or service, the company's brands become commodities that are vulnerable to other marketers offering similar brands at lower prices. Starbucks marketing director failed to understand that higher prices meant differentiating the company's brands to provide more perceived value in relation to competitors. They did not have a strong sales team to communicate the unique ness of their brands in the market. Though they had an established reputation for the provision of quality services, they failed in penetrating the Australian market (Lee, 2007).
For star bucks to become a dominant player in the market they will need to focus more on exploring new markets rather than just improving and launching new products in their existing markets. The directors of Star bucks must research in to the tea specialty drinks market. With the recent market trends, tea drinks will be very popular due to their perceived value and health benefits. Consumer preferences will change over time and we are likely to see a shift from coffee to other beverages. Nevertheless, Star bucks remain the market leader in gourmet coffee.
Starbucks always uses three modes of entry in international markets namely; wholly owned subsidiaries, joint ventures and licensing agreements. The reason Star bucks decided to venture in to Australia was due to the saturation of the coffee market in the US. They also knew Australia had a strong coffee culture and the growth in the coffee business was booming. There are many strategies that were implemented wrongly and this led to their failure in the Australian market. Importantly Star bucks did not take time to understand the needs of their target markets. No market research was undertaken prior to the entry in Australian market to understand the local customs and culture of the people in Australia. What Schultz and his team forgot was there was already a thriving coffee culture already in existence in Australia.
Schultz and his team had no experience of operating in price sensitive markets. They failed to understand that corporate strategies of iconic brands like Star bucks are developed with a strategic element encompassing innovation and diversification. They failed in implementing cost cutting and efficiency strategies. Nevertheless, they should have considered mergers as an option as through mergers, most companies grow in size, market share value and profits. The success of Star bucks in the American market was mainly attributed to their selling of coffee culture and its establishment of the coffee café as asocial hub. Schultz and his team also failed in introducing menus to suit the tastes of the Australian people a strategy that their competitors Mc Donald's have used to succeed in foreign markets. It was a wrong move to establish 84 branches in close proximity within a short period in a country already enjoying a thriving coffee culture (Roll, 2011).
As some strategic experts put it, Star bucks failure was caused by failure to understand the Australian market well. Their success in other foreign markets like Japan was attributed to their establishment of a European coffee culture in markets than had no existing traditions. They under estimated the rich, fantastic and sophisticated coffee culture already present in the Australian market (Why Starbucks Failed in Australia,” 2008).
It was also wrong to position Star bucks as the “third place” in Australia as majority of people in the country were already used to baristas and steaming espresso machines for decades. Shultz and his team should have used innovation to redefine their core values in line with changing tastes of consumers. It is through innovation that iconic brands like star bucks adapt to the changing needs of consumers and this ensures they maintain their competitive edge. Starbucks should have some commitment to its brand vision to ensure during harsh economic times strategies such as adding value prepositions and cost cutting are implemented. Brand vision ensures the company does notÂ Â drift away from its core promises but in most cases dilute the core brand identity. Although many as an emblem of globalization have regarded star bucks, they have failed in adjusting to local cultures in the foreign markets they operate. Schultz and his team just imposed the Italian coffee culture in Australia assuming it would be a success the same way it did in the American market (Mercer, 2008).
Starbucks failed to copy its competitors in the use of franchising model, they leased and fit out their own stores and this meant more debt for the company. The biggest problem with Star bucks is that they stuck to their original business model that un fortunately did not succeed in all the markets they ventured including Australia. World wide, Star bucks were considered a symbol of commercialization and Americanization and its existence everywhere led to the fall of its premium image. (Palmer, 2008).
Schultz and his team should have paid some attention to product optimization and ensure their products adopted well in the local markets. They should have diversified to related products to increase their product range and to overcome their dependency on coffee. Shultz and his team should have positioned Star bucks as a cost leader as this would help the coffee giant to secure its dominance in the market and to keep off any new comers.Â After curtailing the outlets that were making losses, they should have continued venturing in to new markets. This would help them reduce their losses at the same time gaining some competitive edge on other markets (Berry et al, 2006).
They should also have tried opening of new outlets with new products in the existing markets.Â Although this strategy is, time consuming and expensive it can be quite profitable in the end. They chose to own their stores and they missed grass root market intelligence. Franchising also would have shifted the financial risk to individuals instead of the company and it would have led to the opening of new stores at a less risk for Star bucks. They would also incur less in research and development as the franchisees would provide them with knowledge of the local market in terms of psychographics, demographics etc (Sainsbury & Edwards, 2008).
Star bucks should also acquire related businesses as they would ultimately gain a greater market share, defeat competition and salvage its brand image. The management of the company should have used Geert Hofstede's popular cultural dimensions to develop uniquely tailored Human Resource Management Strategies. These dimensions are power distance, uncertainty avoidance, individualism, and masculinity. By tailoring their HRM strategies to suit different cultures, Star bucks would enhance the success of their brands. The Star bucks coffee culture was quite different from the Australian coffee culture in many ways. Starbucks offers mass made coffee with wacky flavorings and this did not impress the Australians.Â Key cities like Sydney and Melbourne have a strong Italian coffee culture characterized by street cafes where old men sit and chat with espressos and young people prefer socializing with caffeine fix. Australia has a very strong Mediterranean coffee drinking culture while Star buck has a European coffee drinking culture. The Australian coffee aficionados have a very well developed tastes and this to a greater extend contributed to the fall of Starbucks' antipodean empire (Kembell et al, 2008).
Starbucks should implement a new marketing strategy a part from using alliances and relying on brand awareness, their strong reputation and word of mouth from satisfied customers. Though the word of mouth is very valuable, the company should be more aggressive and should use diversification strategies to reinstate the company's dominance. They should provide an economic package to cater for harsh economic times and stop solely focusing on high-end pricing. This would increase their profitsÂ Â and maintain their market share even in the worsening financial recession. This however should only be used as a short-term strategy to ensure the company survives harsh economic times (Larson, 2009).
To date, Schultz and his team can use social networking sites to market their brands.Â A good example is face book that actually gives the company opportunities to built strong global brands. Starbucks can also increase its presence by sponsoring events through TV or the internet. Currently, the future of Star bucks in Australia may not look promising. However, there is still hope if Schultz and his team are willing to restructure their strategies of international operations. They also must invest in market research to understand clearly the Australian culture. With the introduction of a new food platform and the willingness to venture in the health and wellness trend, Star bucks can still improve its standing in the market. The directors of Star buck made major decisions that resulted in the watering of the Star bucks experience and this led to the commoditization of their brands. Nevertheless, If theÂ Â new marketing strategies are implemented the company will continue its dominance in the coffee specialty industry (Helman and Peng, 2010).