DEPARTMENT OF MANAGEMENT

Group Assignment
CA 02
Subject Details
Subject Organization Theory
Subject Code MGT 2303

Student Details
Student Name Student Number Signature
1 D.A.T.Ransika 7062 Tharushi
2 H.M.Dinsara 6925 Dinsara
3 K.M Lakkana 7015 Mithila
4 G.M.U.M Kulasinhe 7005 Umesha
5 K.A.D.C.N.Kumarapeli 7070 Chathuni
6 P.W.D.R.Fernando 7100 Dulakshi
7 A,G,P,I,Sewwandi 7111 Ishara
8 D.L.M.Sewwandi 7099 Malithi
9 H.N.Sewwandi 7041 Nipuni
Group No. 15
Word count 5700

Due date / Time 17th July 2022

Individual Declaration
We (Group) certify that the content of the above assignment is one of our original work and not copied
from any of the published or internet-based documents. Without references We have not used any of the
other person’s original work or ideas. So, the report or the work We have done is free of plagiarism.

Group leader’s Tharushi Date 13th July 2022

Signature
 Table of Contents

1 Introduction about Starbucks .............................................................................................. 1

2 Structure of the Starbucks................................................................................................... 1

3 Challenges that Starbucks faced during its life cycle stages .............................................. 3

3.1 Entrepreneurial (Birth) Stage ...................................................................................... 3

3.1.1 Challenges that Starbucks faced during its entrepreneurial stage ........................ 4

3.2 Collectivity (Growth) Stage ........................................................................................ 5

3.2.1 Challenges that Starbucks faced during its collectivity stage .............................. 5

3.3 Formalization (Maturity) Stage ................................................................................... 6

3.3.1 Challenges that Starbucks faced during its formalization stage .......................... 7

3.4 Elaboration (decline) stage .......................................................................................... 8

3.4.1 Challenges faced by Starbucks in its elaboration stage ....................................... 9

4 The solutions that the Starbucks taken to face the challenges .......................................... 10

4.1 Solutions that Starbucks taken to face the challenges in entrepreneurial stage ........ 10

4.2 Solutions that Starbucks taken to face the challenges in collectivity stage .............. 11

4.3 Solutions that Starbucks taken to face the challenges in Formalization stage .......... 12

4.4 Solutions that Starbucks taken to face the challenges in elaboration stage .............. 13

5 References ........................................................................................................................ 14

6 Contribution Chart ............................................................................................................ 15

List of Figures

Figure 1: Starbuck's Logo .......................................................................................................... 1

Figure 2: Matrix Structure of Starbuck's company .................................................................... 2
Figure 3: Picture of organization lifecycle................................................................................. 3

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 1 Introduction about Starbucks

Starbucks is an international speciality coffee company in the

world. Beginning in 1971, Starbucks was a roaster and retailer of
whole bean and ground coffee, tea, and spices with a single store
in Seattle's Pike Place Market. Today, privileged to connect with
millions of customers every day with exceptional products and
more than 29,000 retail stores in nearly 80 countries and Starbucks
has grown to 238, 000 employees all around the world. The current Figure 1: Starbuck's Logo
CEO of Starbucks is Mr. Kevin Johnson. The major objective of
Starbucks is to maintain its standing as one of the most recognized and respected brands in the
world.

In the past, Starbucks's products were limited only to coffee when it starts business in the year
1971. After the first store was established in Malaysia in 1998 offered a variety of products
such as coffee beans, tea, chocolate, Frappuccino, snacks, pastries, cakes, sandwiches, tumbles,
etc. However, today Starbucks has many varieties of coffee experiences (Starbucks, 2020).

2 Structure of the Starbucks

Starbucks is a good example of a company whose management structure has evolved to match
its present business needs. Founded in Seattle in 1971, Starbucks rose to become the world's
most renowned and fastest-growing business. At the start of the 21st Century, Starbucks had
approximately 9,000 s outlets worldwide. That is the result of a proper, flexible structure.
Starbucks Coffee is a company that capitalizes on its corporate structure to enhance its business
agenda in global areas. Being the largest chain of coffeehouses in the world, Starbucks enjoys
a competitive advantage in the industry partially through the aptness of its management
structure. Starbucks utilizes a matrix organizational structure that combines several functional
and product-based divisions. This means there are multiple overlapping divisions and reporting
structures within the overall organization, which makes sense considering its sheer size and
global presence (Sobiya, n.d.).

Ultimately, Starbucks is controlled by a board of directors and the overarching functional

hierarchy, which is one of three main elements that make up Starbucks’ overall structure. The
other two are product-based divisions and geographic divisions. The functional structure
feature of Starbucks Coffee's organizational structure involves grouping based on business
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function. Product-based divisions address product lines in the firm's organizational structure.
Each division head is given a high degree of flexibility in adjusting strategies and policies to
suit specific market conditions. Teams are most notable at the lowest organizational levels,
particularly the Starbucks cafes (Dudovskiy, 2017).

Figure 2: Matrix Structure of Starbucks' company

The current pattern of Starbucks' organizational structure is expected to be subjected to changes

to a certain extent by the new CEO Kevin Johnson, as business analysts note that Johnson is
not afraid to make big changes. Specifically, as it is illustrated in the Figure above, comprising
35 senior vice presidents and 12 executive vice presidents, Starbucks' organizational structure
is highly hierarchical. Kevin Johnson may attempt to reduce de-layering initiatives within the
organizational structure in order to make the coffee retailer more flexible to be able to faster
adopt changes in the global marketplace.

Starbucks has reformed its organizational structure over time. By 2007, the company was
expanding rapidly, such that it shifted focus away from customers toward strategic global
expansion. However, Starbucks experienced a significant decline in sales in 2007. This decline
was worsened because of the lack of focus on customer experience. When Howard Schultz
resumed the CEO position in 2008, he changed Starbucks Coffee's organizational structure to
bring back focus on customer experience. New regional divisions were created, and teams at
Starbucks cafes were given better training. Thus, the current organizational structure of
Starbucks is a result of this reform to improve customer experience and the firm's financial
performance.

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 3 Challenges that Starbucks faced during its life cycle stages

The organizational life cycle is a theoretical model that an organization goes through
experience as they grow and mature. The organizational life cycle is an important model
because it helps to identify requirements, opportunities, and threats both inside and outside the
business firm. The organization's life cycle proposes four phases in the organization’s
existence: birth, growth, maturity, and decline.

Figure 3: Picture of organization lifecycle

3.1 Entrepreneurial (Birth) Stage

The first stage of the growth cycle is the stage of creativity, which involves the birth of the
organization. Here, entrepreneurs develop skills to innovate and introduce new products to
new market niches. It is the first stage of the product life cycle after starting any organization.
The introduction phase is similar to commercialization, or the final phase of the new product
development process. Marketing costs at this stage are usually higher than at other stages.
Communication (promotion) is needed to create awareness of the product and motivate
consumers to try it, and placement options and supply chains are needed to get the product
to consumers. Profits are often low during the introduction phase due to the research and
development costs and marketing costs required to launch the product. The length of the
induction phase varies depending on the organization's performance. An organization's
objectives in the introduction phase often include Educating potential customers about its
value and benefits, and educating and getting potential customers to try the product or
service. Product pricing strategies at the introduction stage may vary depending on product

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type, competing products, existing offerings relative to the added value the product provides
to customers, and the cost of developing and manufacturing the product. Organizations need
customers. Therefore, it is at this stage that an organization decides the ways to retain its
customers for a long time and the future activities of the organization.

3.1.1 Challenges that Starbucks faced during its entrepreneurial stage

Starbucks' first foray into Chicago was more troubling than management had anticipated. Many
challenges have to be faced to achieve. The following can be mentioned.

As the first challenge, the Chicago store opened on October 27, 1987, and the same day the
stock market crashed. Three more stores opened in Chicago in the six months that followed,
but customer numbers were significantly lower than expected. It was also a challenging time
for them. For example, in the first downtown store, which opened to the street rather than the
lobby of the building it was located in, customers were reluctant to venture out into the wind
and cold to get a cup of coffee during the winter months. Store margins were problematic for
several reasons. Getting fresh coffee from the Seattle warehouse to the Chicago stores is
expensive. Both rent and wage rates are higher in Chicago than in Seattle. It was also a very
challenging time for Starbucks until 1990 when its Chicago stores were losing money.
Ordinances against the conversion of stores to restaurant-related uses in certain major urban
neighbourhoods made their entry into San Francisco more difficult for the establishment.

Starbucks then gained the ability to sell beverages and pastries to customers at stand-up
counters. But they could not provide seating in stores that were previously used for general
retail. Besides, it was a big challenge for them to meet their capital requirements. When
Starbucks later entered continental Europe, it had to contend with established coffee cultures,
sometimes anti-American sentiment, and Italy's 121,000 espresso bars. It is their ultimate
challenge.

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3.2 Collectivity (Growth) Stage

This is the growth stage of the organization, and the organization is going to develop goals,
and directions as well as establish departments and assign jobs. That is, the Collective stage is
the stage in which the organization moves after the leadership is established and the employee
base increases. At this stage, as departments are established, employees begin to focus on more
relevant and specialized tasks. Also, as hierarchies are established, top-level managers have
more power. During this stage, organizations have to face various challenges and Starbucks
also had to face various challenges.

3.2.1 Challenges that Starbucks faced during its collectivity stage

One of the main challenges was that the cultural values within the countries are different from
country to country. Since Starbucks was an American company, many of its products were
presented to suit the country's culture. But with the growth of the company, when entering the
global market, the cultural values of some countries are very different from the American
culture. Therefore, it was quite challenging for Starbucks to present the products in a way that
suits the cultures of those countries. For example, when Starbucks entered the markets of Japan
and China, the food and beverages in those countries were very different from American food
and beverages. Global growth is another challenge. For example, Starbucks has been expanding
aggressively into Asian countries such as China, but sales are not meeting expectations.
Chinese culture is primarily a tea-drinking culture and Starbucks see this as an untapped
opportunity. In addition, in Saudi Arabia, Starbucks faced a different kind of challenge
regarding its logo. That is, they have received complaints from the people of Saudi Arabia that
the logo on their products was pornographic. Due to this cultural clash, it was quite a challenge
for Starbucks to win the hearts of the locals.

Another challenge was that the costs started to increase gradually. As the cost increases with
the expansion of its market share, the price of the products has to be increased in order to make
a profit. But the challenge was that if the price is increased like that, the sales may decrease.

Also, competition posed a significant challenge to Starbucks. As the number of coffee

consumers increases, so does the number of coffee providers. Competitors then try to increase
their market share using different strategies. For example, McDonalds was a challenge to
Starbucks because it was offering low-priced coffee to the market. Second, because Dunkin
Donuts also sells different varieties of coffee, it also had a challenging effect on Starbucks'
sales.

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3.3 Formalization (Maturity) Stage

This stage involves the creation, installation and use of rules, procedures and control systems.
When the organizations establish a department in the growth stage, formalization should
implement rules, regulations and procedures. Because companies are not able to run their
activities without formal rules, and regulations. The company should be aware of what is the
department? , How many employees should be hired under the particular department? Each of
the employees whom / how to report their work? How do they perform the job? How many
leaves are available for each of the employees? These kinds of things should be introduced in
this stage. In order to introduce those things, there should implement proper rules and
regulations in an organization. Also, in this formalization stage, communication is less frequent
and more formal. Companies use vertical communication systems or horizontal
communication systems. If the company follow a vertical communication system, the top-level
manager does not come to the lower-level employees. The top-level managers give the
instruction to middle-level managers and middle-level managers give those instructions to
lower-level employees. So, there is a very limited, restriction on communication in a formal
way. Also, if the company follow a horizontal communication system, there are very few rules
with a relaxed hierarchy. Managers can directly communicate with other managers.

At the maturity stage, top managers deal with issues such as strategy and planning and leave
the operations to the middle-level managers. The top-level managers act as authorized persons
and they will communicate formally. When top managers identified issues, will give
responsibility to middle-level managers to sort out the issues and maintain the operation
activities. Also at this stage, organizations seem bureaucratized due to too much of rules,
regulations, and highly specialized tasks. Innovation may be restricted because people who
come from the bottom level, aren't getting the chance to expose their skills. As well, the
organization seem too large and complex to be managed through formal programs.

Many companies enter different geographical markets or international markets as a strategy to

get new users in this stage. Also, can defend its market position and expand into new territories
using its brand recognition. In the maturity stage, the company’s revenue is steady and
predictable. Many organizations at this stage have a strong cash position and grow through
acquisition or spin-offs of other product lines. Modifying the product, such as changing its
packaging, size, colours, or quality can also extend the product maturity stage (George, 2012).

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3.3.1 Challenges that Starbucks faced during its formalization stage

Starbucks Company is currently in the formalization/maturity stage. At this stage, Starbucks

could be able to change people’s behaviour and lifestyle by providing an excellent coffee
experience for their customers. The following is an analysis of the challenges faced by
Starbucks in its maturity stage in the local and global business environments.

There are differences in the operation of its stores in different countries and Starbucks had to
face various challenges that may arise there. Their main challenges are related to economic,
social, and technological factors. One of the main challenges faced by Starbucks is increasing
global competition. For example, there was a proliferation of speciality coffee retailers and
other established companies dealing with food and beverages that entered the market (Nancy
F. Koehn, 2014). At beginning of the maturity stage, the current largest competitors of
Starbucks are Dunkin Donuts, McCafe, Tim Horton's, McDonald's and Peet's Coffee. Those
companies are very large and moved into the international market. Another challenge is the
low price of competitors. Due to the increase in coffee consumers, there is also a growth in
coffee suppliers. Hence, these competitors are making their strategic advantages and their
coffee is gaining popularity over the coffee offered by Starbucks. For example, McDonald’s
markets its coffee at a lower price which may prove a formidable challenge for Starbucks. The
other challenge Starbucks is facing is increasing the prices of coffee beans. It is because
Starbucks has a high level of dependence on its suppliers. The reason behind that is coffee bean
suppliers can only be contracted from specific regions favourable for coffee production in terms
of climate (Foodnews, n.d.).

The economic challenge faced by Starbucks is the weakness of operating in price-sensitive

markets. In fact, the price of the coffee bean rose by almost 200% between 2009 and 2011. For
this reason, Starbucks had to increase the prices of its coffee in 2010, a decision for which it
suffered a decrease in profits (Roby, 2011). It seems that the Brazilian and Indian markets will
provide a large market for Starbucks coffee in future. But it appears that the economic
conditions in each country can constitute a challenge for Starbucks coffee.

Political factors can impact business negatively and positively. A company must consider the
political situation in the policies and regulations of the government to maintain a stable
business environment. Concerning the political challenges of Starbucks, Starbucks has had to
deal with political unrest in some of its host countries. One of the most examples of these is in

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Russia, where the company had to shut down 130 stores due to the prevailing conflict between
Russia and Ukraine (Jacob Bogage, 2022).

Many organizations adopt various methods to stay competitive in the market, and one of the
challenges that arose is the need to incorporate technological advantages. For example, some
of these perks are the free wireless internet, a Starbucks Digital Network that allows access to
iTunes, Wall Street Journal other online services that require a fee. However, the obvious
challenge is the additional operational costs that arise due to the addition of these services.

Another challenge that Starbucks faced, was when the Starbucks Company moved to Italy, the
biggest challenge was the Italians consume most of their coffee from their homes. This may
prove a problematic situation for any coffee house because they are not taking coffee outside
their houses. When Starbucks stores are taking on markets in foreign countries, the primary
challenge concerning demographics is the attempt to penetrate areas where another brand is
already established. For example, Dunkin Donuts is estimated to have over 9,630 restaurants
in the United States. Another challenge that Starbucks faces is trying to engage in cross-border
collaboration. Starbucks takes great care in determining what companies it will partner with
when going into a new market. That is a very big challenge, when they joint ventures, and
licensing.

3.4 Elaboration (decline) stage

The elaboration stage is a pre-design development stage and the final stage of the organizational
life cycle. It includes various investigations and helps to create the scope of the project and
clarity all the requirements. A temporarily declined pattern occurs. Initiative for collaboration
and the team's work. Facing the challenges and working together.

The fourth stage is the elaboration stage where a certain company's product starts to turn down
and reach its diffusion point Starbucks reported its diffusion points. In the elaboration stage,
there is flexibility in the rules and regulations. Also, the organization remove the strictness of
work procedures. Employees have some freedom and satisfaction in their work and formal
systems may be replaced or simplified. Throughout the organization, managers develop skills
for confronting problems and working together. During this stage, managers and staff may find
themselves confronted by the day-to-day rigours of work. Additionally, managers and staff
learn to work within the organization's bureaucracy. Therefore, bureaucracy is very high in
this stage. There are kind of temporary decline where the company need to adopt some new
changes and a new system.

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Starbucks reported its first-ever decline in 2008, which was caused by a financial meltdown
due to increased shares, which made it very cautious about opening new stores and eventually
ended up shutting down many of its branches and losing up to 28% of its profit. In addition to
market shares, consumers start to venture for cheaper drinks because while Starbucks' quality
is unquestionable, its price has always been higher than those offered by the normal competitive
coffee house in various countries, which caused Starbucks to shut down 600 branches that were
not making a profit. But Starbucks then started to recover when Howard D Schultz returned as
CEO of Starbucks after a gap of eight years, shifting its focus away from bureaucracy and back
to customers. But this is a temporary decline and Starbucks is still passing the maturity stage.

3.4.1 Challenges faced by Starbucks in its elaboration stage

The first challenge of the elaboration stage is organization decides “do or die” that stage. The
organization is forced to change or the lack of innovation and communication in this stage. For
the Starbucks Company, which is still passing the maturity stage, after reaching the elaboration
stage, it is a challenge to decide whether to end the company or to innovate.

Another challenge to be faced is, that management will force them to flatten, while also giving
development groups more decision-making freedom. In many cases management either has to
change their management style or leave the organization. The other challenge is that if the
organization intends to stand out in the market by innovating in the elaboration stage, it will
have to collect innovations for that. Another challenge is due to too much bureaucracy, multiple
units or departments are involved in decision making. This may delay the ability of an
organization to move quickly on important issues.

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 4 The solutions that Starbucks has taken to face the challenges

4.1 Solutions that Starbucks has taken to face the challenges in the entrepreneurial

stage

As a solution, the customer numbers were significantly lower than expected. Everyone is on
social media platforms, be it Facebook, Instagram, Snapchat, or anything else. So, the best
way to increase customers is to harness this power and make its presence felt on these
platforms. It optimized attendance by linking direct bookings and online order landing pages
in the bio or profile section. To keep the restaurant top of mind, consistently posted with high-
quality photos.

The best part about ‘Happy Hours’ was that it targeted at the time of the day when sales are
slow. Because of this, they drew customers to the restaurant during lean hours and increase
restaurant sales. This helped to build the reputation of the restaurant and increase the number
of consumers who visit the restaurant at other times. The second-best part is that it was a great
way to build relationships with existing customers. With ‘Happy Hours, it offered discounts on
foods and drinks to keep them coming back. This helped to build relationships with the
customers, which is a key strategy to increase revenue in the restaurant. The second-best
solution was that ‘Happy Hours’ helped with marketing and branding. In addition, this was
used as a marketing strategy to draw in new customers, who then return again and again
(nationwidecoffe : news, n.d.).

As a solution for poor customer attraction, they implemented a different kinds of marketing
strategies. Partnering with delivery services is a great approach to increasing sales in a
restaurant. This helped to streamline the ordering process, attract new customers, and satisfy
existing customers all from the comfort of their smartphones. Also can provide exclusive
delivery deals and discounts to customers to increase their loyalty and keep them coming back.
Most delivery services also have a loyalty program that rewards customers for their repeat
business. In some cases, provided delivery customers with free delivery on their first order.
This is a great way to get these customers into the restaurant and build a relationship with them
before they ever step foot in the door.

The cost of getting fresh coffee from the Seattle warehouse to the Chicago stores was high,
which caused store costs to increase. Which had been a roadblock to increasing store revenue.
Identified a way that reduced store costs while still providing awesome coffee: Used a smaller

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roasting and brewing system, which allowed to save money on brewing equipment and reduce
the amount of time coffee spends in the roasting and brewing process and the coffee also
remained fresh. This also allowed to use coffee right away, which saves money on storage
costs.

As a solution for meeting their capital requirements, since the company owns all of its business,
Starbucks had to raise new venture capital to meet the cost of expansion, primarily through the
sale of shares to "new or existing" investors. In 1988, the company raised 3.9 million, in 1990
venture capitalists raised another 13.5 million, and in 1991 another venture capital fund raised
15 million. Starbucks was able to raise the necessary funding despite losses of 330,000 in 1987,
764,000 in 1988, and 1.2 million in 1989. Losses were worried about Starbucks' board and
investors. Despite losses of 330,000 in 1987, 764,000 in 1988 and 1.2 million in 1989,
Starbucks managed to raise the necessary funds. The strategy required Starbucks to invest in
growing its gourmet coffee market share in major cities, where it could afford to lose money
until it became profitable. By 1990, Starbucks had 33 stores in San Francisco and Seattle. It
had expanded into a new market in Boise, Idaho, and was on target to open its first store in Los
Angeles in a few months. The company was on target to open its first store in New York City
in 1991, with more expansion plans in the works.

4.2 Solutions that Starbucks has taken to face the challenges in the collectivity stage

When introducing Starbucks to other countries, cultural differences in each country were a
challenge for this. Starbucks continued to use product differentiation to enter the global market.
Indian people preferred tea over coffee. The Tata group has proposed that they will cater to
different products that will be available in Starbucks, a Tata Alliance outlet that will suit the
Indian tastes and preferences. Viennese coffee has also been introduced in France according to
their wishes. In Japan and China, new snacks were created and drinks undergo style
modification. Starbucks coffee jelly and green tea Frappuccino are a part of Starbucks' many
product line extensions. For each product mix, Starbucks has a different marketing strategy
depending on the country. When the Starbucks logo was introduced in Saudi Arabia, there were
complaints that it had an obscene scene, so they had to work to win the hearts of the local
residents. Instead of a topless mermaid, the logo was changed to one with a wavy kind of
crown. It is the culture of Saudi Arabians to keep men and women separate when in public.
That’s why Starbucks Company allocated those places to accommodate them. In this way, they
faced this challenge.

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Starbucks was also challenged that if the price of coffee increases, the sales will decrease.
Starbucks sells at luxury prices and people still buy it whether they can afford it or not. It was
because of its quality. No matter how much the price went up, they bought because the quality
was high. They think of it as an investment in quality. They have a strong customer base.
Therefore they were able to face this challenge successfully. The increase in the number of
coffee consumers also posed a challenge to Starbucks. The brand names MacDonald’s and
Dunking Donets were a challenge to Starbucks. But Starbucks is already widely spread in the
market. It has already established its brand in countries like China.

4.3 Solutions that Starbucks has taken to face the challenges in the Formalization

stage

When the increasing global competition of Starbucks, they competed to broaden its brand even
with the difficult economy. Coffee is one item that Starbucks must market in a variety of ways.
They demonstrated their capability by enhancing the service, adding speciality beverages, and
encouraging other beverages to complement coffee. Starbucks still sells meals in a number of
locations, but they also sell products and a variety of cuisine. Starbucks has improved its
corporate Strategy of improving the theme self of their quality, service and most of the
important consumers. This is one of the solutions that Starbucks has taken for global
competition. Starbucks has a very high-quality product and therefore, the price of Starbucks
cannot be moved because it is assumed that Starbucks is of higher quality. Hence, they
competed to broaden their brand even with the difficult economy.

Starbucks' product prices little bit high more than their competitors’ products price. Starbucks
argues that the price rise is due to growing labour and non-coffee commodity expenses, but
given how much their profit margins have already improved due to the much-reduced cost of
coffee, it seems improbable that this is the real cause of the price increase. In addition, just a
small portion of their beverages received the price increase, and it only applies to certain areas.
Furthermore, despite the structural change, Starbucks has constantly observed growth in its
rewards program. Because of this, Starbucks thinks that even while there may be some
customer loss as a result of price increases, it will be more than offset by ideal customer
retention and rising customer acquisitions.

According to Johnson, Starbucks has used a variety of strategies to ensure that it can purchase
coffee beans at a price that is "desirable." These include reserving pricing and purchasing
coffee in advance. The place to go for inexpensive coffee isn't Starbucks. It is marketing an

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experience rather than a product. Therefore, as a solution Starbucks increased its cost of coffee
in response to the rise in coffee bean prices, raising beverage prices by an average of 1%
nationwide. This was the company's first significant price increase in 18 months.

As a solution to the need for technical advantages, in 2008, Starbucks launched its My
Starbucks Idea initiative. The main objective of this network was to open communication with
customers willing to share their ideas. Also, as another solution, Starbucks provided free Wi-
Fi for their customers across its stores. As another solution is launched Green Apron service
which offered delivery service to customers using Mobile Order & Pay.

Since Starbucks has a different kinds of products such as juices, tea, food and snacks. Italian
people are tempted to purchase other products from Starbucks stores other than coffee.
Therefore, as a solution to this situation, Starbucks has launched different product experiences
in Italy. As a result, contributed to its $19 billion in sales last year.

Starbucks has managed to differentiate itself from competitors by creating the unique value
proposition of becoming the “third place” for customers, after home and the workplace. They
made buying a cup of coffee an "affordable luxury" and an experience. That way, customers
could order customized drinks and enjoy drinks in a relaxed, upscale environment (Alkhaldi,
2015).

4.4 Solutions that Starbucks has taken to face the challenges in the elaboration stage

The American multinational chain of coffee shops and roasteries headquartered in Seattle,
Washington is known as Starbucks Corporation and is the world's largest chain of coffee shops.
No matter how widespread and mature a large-scale successful business is, there are some
internal problems. By successfully mitigating or resolving these internal conflicts and
problematic situations, one is able to avoid these situations and achieve further success and
expand one's business globally. A major challenge in the elaboration stage will be the "do or
die" decision i.e. whether to terminate or innovate once the company reaches the expansion
stage. In further investigation, it appears that the most successful decision is that innovation
can be achieved rather than terminating the company. However, by innovating the company
will naturally attract new customers, it is really hard to gain trust for a company. By innovating
a company can further develop that trust while also providing an opportunity to further develop
the company's business objectives and capital. So the best solution is not to terminate the
company but to innovate.

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Another challenge is forcing management to level out and giving development teams more
decision-making freedom. Running a business company is no small task. It is a heavy
responsibility. The success of the business depends on the behaviour of the management of the
company. Being a joint venture, Starbucks is more likely to have this problem. However, in
order for the business to be successful, this situation can be prevented by putting one person
who has management experience, new business ideas and skills into the leadership of their
management, instead of making management decisions collectively. Also, instead of giving
more freedom to the groups to make decisions regarding the development outlook, this
situation can be minimized by working with the leaders by reviewing the decisions of the
groups and getting good ideas from them.

If the organization intends to stand out in the market by innovating during the expansion phase,
it is also a challenge to have to add innovations for that. Therefore, this situation can be brought
about by paying special attention to the creation of innovations by paying attention to the
demand and wishes of the customers in the market by systematically spending the necessary
capital. Also, by adding entrepreneurs with new ideas, skills, experience, and dedication to the
company, it is possible to create a remarkable change in the business world by creating
innovations.

The involvement of multiple units or departments in decision-making is also a major challenge

due to excessive bureaucracy. Bureaucracy is a complex social phenomenon and its role in a
democratic system is unclear. Bureaucracy is characterized by inefficiency, incompetence, red
tape, manipulation, and concern only for their well-being. This situation also works to some
extent in Starbucks. This is a problem for business development. In this regard, it appears that
the businesses that existed under bureaucracy failed. The managers of the company have to
work to wipe out this situation in Starbucks, which is a mature successful business. It can take
the company further on the path to success.

5 References

Alkhaldi, M. (2015, 12 8). Retrieved from https://digital.hbs.edu/platform-rctom/submission/the-

value-creating-strategy-of-starbucks/

Dudovskiy, J. (2017, 4 17). Retrieved from https://research-methodology.net/starbucks-

organizational-structure-a-tall-and-divisional/

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Foodnews. (n.d.). Retrieved from https://www.foodnewsnews.cc/starbucks/challenges-faced-by-
starbucks-during-their-expansion-in-the-by/

George, S. (2012). Production lifecycle and SOWT analysis of Starbucks.

Jacob Bogage, A. G. (2022, May 23). washingtonpost. Retrieved from

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leading-in-sustainability/

6 Contribution Chart

Index No. Name What they did

D.A.T.Ransika 7062 Introduction of Starbucks and the Formalization
stage and its challenges
H.M.Dinsara 6925 Described collectivity stage and its challenges
K.M Lakkana 7015 Described entrepreneurial stage solutions
G.M.U.M Kulasinhe 7005 Described entrepreneurial stage and its
challenges
K.A.D.C.N.Kumarapeli 7070 Described Starbucks Company organization
structure
P.W.D.R.Fernando 7100 Described collectivity stage solutions
A,G,P,I,Sewwandi 7111 Described elaboration stage solutions
D.L.M.Sewwandi 7099 Described formalization stage solutions
H.N.Sewwandi 7041 Described elaboration stage and its challenges

15