Week 3 Assignment – Strategy Development Business & Finance homework help

Week 3 Assignment – Strategy Development Business & Finance homework help

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Overview

The purpose of this project is for you to apply management principles to create management plans that include strategy formulation, business analyses, industry trends, and organizational characterization. Deliverables one through four focus on preparing you for the final capstone project. You will apply skills, experience, and knowledge that you have gained through the completion of prerequisite courses throughout each deliverable.
The intent of the Capstone project is for you to use the same case/company throughout the course. Select one out of the three recommended cases listed below. Each case is located in the Cases to Accompany Contemporary Strategy Analysis [PDF] section of the textbook.
The recommended cases are:
  • Case 8 BP: Organizational Structure and Management Systems.
  • Case 10: Chipotle Mexican Grill, Inc.: Disrupting the Fast‐food Business.
  • Case 13: Tesla Motors: Disrupting the Auto Industry.
You may also use the Internet or Strayer Learning Resource Center to research articles on your chosen case or company.
Based on the case, you will perform an industry analysis and develop a strategy for the CEO of your chosen company to help shape the company’s future.

Instructions

Write a 3-5 page paper in which you:
  1. Define strategy and examine how the definition of strategy fits your chosen company and its situation. Support your response.
  2. Summarize the main strategies that your chosen company’s management took leading up to this company’s recent development.
  3. Identify your chosen company’s industry and determine its main competitors. Next, select two to three strategies that the competitors use, and analyze whether or not the selected strategies are successful. Support your response.
  4. Perform an industry analysis for the CEO of your chosen company in order for him or her to develop strategy for the company. Next, evaluate the company’s current standing in this industry by taking into account the company’s resources and capabilities.
  5. Propose at least three performance goals for the company for the next one- and five-year period respectively. Provide a rationale for your response.
  6. Use at least three quality references. Note: Wikipedia and other similar websites do not qualify as academic resources.

Cases to
aCCompany

Contemporary
strategy
analysis

ninth edition

Copyright © 2016 John Wiley & Sons, Inc.

Case 1 Tough Mudder Inc.:
The Business of Mud
Runs

Tough Mudder Inc. is a Brooklyn-based company that hosts endurance obstacle
events—a rapidly growing sport also known as “mud runs.” During 2015, about
600,000 participants will each pay between $180 and $260 to tackle a 10- to 12-mile
Tough Mudder course featuring 15 to 20 challenging obstacles. The obstacles include
wading through a dumpster filled with ice (the “Arctic Enema”), crawling through
a series of pipes part-filled with mud (“Boa Constrictor”), and dashing through live
wires carrying up to 10,000 volts (“Electroshock Therapy”). The 2015 schedule com-
prises 46 two-day Tough Mudder events (a separate run on each day) in the US,
Canada, the UK, Ireland, Germany, and Australia. Tough Mudder’s website describes
the experience as follows:

Tough Mudder events are team-based obstacle course challenges designed to test
your all around strength, stamina and mental grit, while encouraging teamwork
and camaraderie. With the most innovative courses and obstacles, over two million
inspiring participants worldwide to date, and more than $8.7 million raised for the
Wounded Warrior Project by US participants, Tough Mudder is the premier adven-
ture challenge series in the world. But Tough Mudder is more than an event; it’s a
way of thinking. By running a Tough Mudder challenge, you’ll unlock a true sense
of accomplishment, have a great time and discover a camaraderie with your fellow
participants that’s experienced all too rarely these days.1

Tough Mudder was founded in 2010 by former British school pals Will Dean
and Guy Livingston. While a Harvard MBA student, Dean entered Harvard Business
School’s annual business plan competition using Tough Guy, a UK obstacle race
based upon British Special Forces training, as the basis for his plan.2 On graduat-
ing from Harvard, Dean and Livingstone launched their first Tough Mudder event.
On May 21, 2010 at Bear Creek ski resort, Pennsylvania 4,500 participants battled
through a grueling 10-mile course.

This case was prepared by Robert M. Grant. ©2015 Robert M. Grant.

Really tough. But really fun. When I got back to the office on Monday morning, I looked at
my colleagues and thought: “And what did you do over the weekend?”

—Tough Mudder parTicipanT

Copyright © 2016 John Wiley & Sons, Inc.

436 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS

The Market for Endurance Sports

The origins of endurance sports can be traced to the introduction of the modern
marathon race in 1896, the triathlon in the 1920s, orienteering in the 1930s, and the
first Ironman triathlon in 1974. In recent years, a number of new endurance sports
have appeared, including:

● adventure races—off-road, triathlon-based events which typically include
trekking/orienteering, mountain biking, and paddling;

● obstacle mud runs—cross-country running events with a variety of challeng-
ing obstacles;

● novelty events—fun events such as 5K races in which competitors are
doused in paint (Color Run), running with real bulls (Great Bull Run), and
food fights (Tomato Royale).

Tough Mudder used several strategic variables to map the market and position
the different products (Figure 1).

Obstacle mud runs were initiated in the UK in 1987 with the annual Tough Guy
race organized by ex-British soldier Billy Wilson (which provided the inspiration for
Tough Mudder). In the US, Warrior Dash launched in July 2009, followed by Tough
Mudder and Spartan Races in May 2010. A flood of new entries followed. During
2011–2013, new entrants included: Mud Mingle, Play Dirty Adventure Runs, Dirty
Girl, Mudslayers, Gritty Goddess Runs, Alpha Warrior, Big Nasty Mud Run, Survival
Race, Udder Mud Run, Fugitive Mud Run, Hot and Dirty Mud Run, and many more.
During 2013, there were 3.4 million participants in US obstacle mud runs paying
a total of $290.1 million.3 By comparison, triathlons attracted about two million
participants in 2013. In 2013, close to 350 organizations offered obstacle mud runs.
The surging popularity of mud runs pointed to the desire of the young (and not so
young) to turn away from video screens and virtual experiences and test their physi-
cal and mental limits in the Great Outdoors.

Figure 1 The market for endurance sports

Source: Adapted from a presentation by Nick Horbaczewski to Strategic Planning Innovation Summit, New York,
December 2013.

Tough Mudder

Color Run

Tough Mudder

Spartan Races

Warrior Dash

Ironman

Marathons

Color Run

Marathons
Ironman

Warrior Dash

Spartan Races

Collaborative Unconventional

TraditionalCompetitive

Low risk High risk Activity-led
event

Brand-led
event

Copyright © 2016 John Wiley & Sons, Inc.

CASE 1 TOuGh MuddER INC.: ThE BuSINESS Of Mud RuNS 437

The psychology of mud runs (and other endurance sports) is complex. The
satisfaction participants derive from overcoming their perceived physical and men-
tal limits combines with identification with warrior role models and the nourishing
of camaraderie. The New York Times referred to the “Walter Mitty weekend-warrior
complex,” noting that, while the events draw endurance athletes and military veter-
ans, “the muddiest, most avid, most agro participants hail from Wall Street.”4 A psy-
chologist pointed to the potential for “misattributed arousal”: the tendency among
couples participating in endurance events to attribute increased blood pressure,
heart rate, and sensory alertness to their emotional relationship with their partner.
Bottom line: “Want your boyfriend or girlfriend to feel intense feelings of love and
desire for you? Put yourselves through a grueling, 12-mile obstacle course!”5

During 2013–2015, the mud run industry experienced a shake-out as many
weaker organizers were unable to attract sufficient participants to cover their costs.
At the same time new entry continued—new obstacle race series were launched by
BattleFrog in the US and Swedish-based Nexthand’s “Toughest” obstacle races in
Scandinavia and the UK. By 2015, the industry leaders were Tough Mudder, Spartan
Races, and Warrior Dash (Table 1).

Growing the Company, Building the Brand

Tough Mudder’s strategic priority was to establish leadership within an increasingly
crowded market. How to position Tough Mudder in relation both to other endur-
ance sports and to other obstacle runs was the critical strategic issue for CEO Will
Dean. Dean believed that compared to traditional endurance sports—such as mara-
thons and triathlons—the key attributes of obstacle course races were that they pre-
sented significant personal risk, of injury, hypothermia, or extreme exhaustion; they
could be collaborative rather than competitive events; and they were more engaging
by allowing a variety of experiences and challenges.

However, combining the various attributes of the mud run experience—
exhaustion, camaraderie, fun, and fear—was challenging in terms of product design.
In trading off individual achievement against collaboration, Dean emphasized
the collaborative dimension—Tough Mudder would be untimed and team-based;

TABLe 1 Tough Mudder’s leading competitors

Spartan races Warrior Dash

Founding Started by Joe De Sena in 2010
Expanded overseas through

franchising

Red Frog Events LLC launched Great Urban
Race in 2007, Warrior Dash in 2009, and
Firefly Music Festival in 2012

2015 events US: 108 mostly 1-day events
Overseas: 76 events in 26 countries

US: 27 1-day events
Canada: 1 event
(No overseas events after 2014)

The product 3 types of race: Sprint (3 miles,
15 obstacles), Super (8 miles, 20
obstacles), Beast (12 miles, 25
obstacles)

3- to 4-mile race with 12 obstacles
followed by post-race party (beer, bbq,
live music)

Sponsors Reebok, Clif Bar, Paleo Ranch Jerky,
Bodybuilding.com, PursuitRx

Shock Top Brewing, Vibram, Anytime
Fitness, Gold Bond, Rockin’ Refuel

Copyright © 2016 John Wiley & Sons, Inc.

438 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS

the individual challenge would be to complete the course. A more complex chal-
lenge was the need for Tough Mudder to present itself as formidable (“Probably
the Toughest Event on the Planet”) while attracting a wide range of participants.
Making it a team-based event and giving participants the option to bypass individual
obstacles helped reconcile these conflicting objectives. Appealing to military-style
principles of esprit de corps (“No Mudder left behind”) also helped reconcile this
dilemma. This combination of personal challenge and team-based collaboration also
encouraged participation from business enterprises and other organizations seeking
to build trust, morale, and motivation among teams of employees.

The principle of collaboration was not only within teams but extended across all
participants. Before each Tough Mudder event, the participants gather at the start
line to recite the Tough Mudder pledge:

● I understand that Tough Mudder is not a race but a challenge.

● I put teamwork and camaraderie before my course time.

● I do not whine—kids whine.

● I help my fellow Mudders complete the course.

● And I overcome all my fears.

As psychologist Melanie Tannenbaum observes: “this pledge is setting a very
powerful descriptive norm … a very powerful determinant of our behavior … More
than anything else, though, there’s a little part of our brains that hasn’t quite left the
‘Peer Pressure’ halls of high school. We want to fit in, and we want to do what oth-
ers are doing.”6

The spirit of unity and collaboration provides a central element of Tough Mudder’s
marketing strategy. Tough Mudder has relied almost exclusively on Facebook for
building its profile, encouraging participation, and building community among its
participants. Its Facebook ads target specific locations, demographics, and “likes”
such as ice hockey and other physical sports. Tough Mudder also makes heavy use
of “sponsored stories,” which appear on users’ Facebook “news feeds” when their
friends “Like” Tough Mudder. Most important, Facebook is the ideal media for Tough
Mudder to exploit its greatest appeal to participants: the ability for them to proclaim
their courage, endurance, and fighting spirit. As the New York magazine observes:
“the experience is perfect for bragging about on social media, and from the outset
Tough Mudder has marketed to the boastful.”7 By March 2015, Tough Mudder had
four million Facebook “likes.”

Establishing leadership within the obstacle mud run market was a key strate-
gic goal for the company. The tendency for the market to coalesce around a few
leading firms would be reinforced by the ability of the market leader to set indus-
try standards—to establish norms of the key attributes of an authentic mud run.
Hence, Dean envisaged Tough Mudder playing a similar role as the World Triathlon
Corporation and its Ironman brand in triathlon racing.

Early-mover advantage combined with rapid growth (Figure 2) gave Tough
Mudder market leadership in North America. However, staying ahead of the compe-
tition required delivering an experience that people would want to come back for,
time and time again. This involved three major activities at Tough Mudder:

● Meticulous attention to customer feedback was achieved through customer
surveys, on-site observations (including employee participation in mud runs),

Copyright © 2016 John Wiley & Sons, Inc.

CASE 1 TOuGh MuddER INC.: ThE BuSINESS Of Mud RuNS 439

and close attention to social media. Tough Mudder continually sought clues
as to how it might make improvements that would allow it to match the
energy, determination, and gung-ho spirit of the participants.

● Continuous development of obstacles and course design involved generat-
ing ideas for new obstacles while on retreats, developing and testing pro-
totypes at the Brooklyn HQ, and learning from participant experiences.
Tough Mudder continually increased its investment in product development
with new and improved obstacles announced each year. In January 2015,
Tough Mudder announced that “its entire obstacle menu has been revamped”
including “ten exhilarating new obstacles,” “2.0 versions” of its classic chal-
lenges, and off-course “Mudder Village” obstacles for participants and specta-
tors to experience.

● Efforts to extend brand leadership focused heavily on social media and maxi-
mizing traffic to Tough Mudder’s website, but also included extensive out-
reach to the online and print media.

Partnering

Partnering with other organizations has been a central feature of Tough Mudder’s
growth. Its partnerships have been important for building market momentum, pro-
viding resources and capabilities that Tough Mudder lacked, and generating addi-
tional sources of revenue.

Since its inaugural run in 2010, Tough Mudder has been an official sponsor of the
Wounded Warriors Project, a charity that offers support to wounded veterans. The
relationship reinforces Tough Mudder’s military associations and helps legitimize
Tough Mudder’s image of toughness, resilience, and bravery. Military connections
were further reinforced by sponsorship from the US Army Reserve, which viewed
Tough Mudder events as an opportunity for promotion and recruitment.

Figure 2 Tough Mudder: Growth 2010–2015

Note: Participant numbers are case writer’s estimates. Data for 2015 are projections.

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014 2015

No. of events Participants (tens of thousands)

Copyright © 2016 John Wiley & Sons, Inc.

440 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS

Commercial sponsors include Under Armour, Shock Top beer, General Mills’
Wheaties brand, Radisson hotels, Cellucor nutrition products, MET-Rx food supple-
ments, and Oberto Beef Jerky.

Expanding the Product Range

Reconciling aspirations for toughness and difficulty with breadth of participation
and market appeal, encouraged Tough Mudder to introduce several new products
between 2011 and 2015:

● World’s Toughest Mudder was introduced in 2011 to reinforce the brand’s
reputation for toughness. The annual run featured individuals and teams
competing to complete the greatest number of course laps during a 24-hour
period. The Financial Times described the event: “Le Mans on foot, through
a Somme-like landscape with Marquis de Sade-inspired flourishes.”8

● Mudderella is a “5–7 mile obstacle course, designed by women for women.
The event is all about working together, having fun, and owning your
strong!”9 Nine Mudderella events were planned for 2015.

● Urban Mudder a 5- to 6-mile city-based obstacles course debuted on
Randall’s Island New York City on July 25, 2015. Participants were required
“to scale brick walls, hurtle between platforms and fling themselves into giant
air bags” and perform “Mission Impossible-like contortions to avoid break-
ing a beam in a field of lasers.” The event was designed to be a “festival-like
party with DJs and street performers, food trucks and a beer garden.”10

● Fruit Shoot Mini Mudder is a mile-long adventure course for children aged
7 to 12 years old. Like Mudderella, it accompanies the main Tough Mudder
events in order to create family involvement. According to Product Director
Daniella Sloane, “We’ve created a bunch of obstacles that will work whether
you’re short or whether you’re tall. If you’re at least 42 inches you’re going to
have a good time and you’re going to have to work with your fellow team-
mates to make it through.” The obstacles were developed through children’s
focus groups and test events.

Management

As CEO of Tough Mudder, Will Dean focuses upon key priorities. “There are only
two things a leader should worry about,” he told Inc. magazine, “strategy and culture
… We aspire to become a household brand name, so mapping out a long-term strat-
egy is crucial. I speak with Cristina DeVito, our chief strategy officer, every day, and
I meet with the entire five-person strategy team once a week … We go on retreats
every quarter to a house in the Catskill Mountains … There’s no phone coverage,
and the internet connection is slow … We started the retreats to get everyone think-
ing about the future.”11

At the core of Tough Mudder’s strategy is its sense of identity, which is rein-
forced through the culture of the company: “Since Day 1, we’ve had a clear brand
and mission: to create life-changing experiences. That clear focus means that every
employee is aligned on the same vision and knows what they’re working toward.”12
“We know who we are and what we stand for,” he added. To sustain the culture,

Copyright © 2016 John Wiley & Sons, Inc.

CASE 1 TOuGh MuddER INC.: ThE BuSINESS Of Mud RuNS 441

Tough Mudder has established a list of core values to guide the actions and behavior
of the management team.

An additional key responsibility of Dean’s is hiring: Tough Mudder grew from
eight employees at the end of 2010 to around 250 by the end of 2014. His obser-
vation that “a business is only as good as the people who build it” is reflected in
meticulous talent seeking aimed at hiring executives who combine professional
achievement with the pursuit of adventure and share Dean’s passion and values.

Tough Mudder in 2015

In 2015, Tough Mudder was reckoned to hold a narrow lead over Spartan Races in
terms of revenue and numbers of participants—a result of astute strategic position-
ing, effective brand building, careful product design, meticulous operational plan-
ning, and obsessive focus on the customer experience. However, sustaining the
company’s growth and market leadership in the endurance sports sector would be
an ongoing challenge as the market began to mature. While the consolidation of the
industry around the three leading players would assist the stability and reputation
of obstacle mud runs as an endurance sport, competition among the leading players
was becoming increasingly intense as the market leaders became ever-more sophis-
ticated in course design, marketing, and operations management—and increasingly
adept at imitating one another’s innovations.

Market positioning became a key issue for Tough Mudder: was the firm’s attempt
to reconcile toughness with breadth of participation sustainable or would the market
segment between the organizers of extreme events (such as Tough Guy in the UK
and BattleFrog Races in the US) and those offering events more oriented toward fun
and recreation (Mud Factor, Zombie Mud Run)?

Finally, there was the long-run future of the industry as a whole: would obstacle
courses establish themselves as a continuing sport or were they a passing fad?

1. http://toughmudder.com/about/, accessed July 20, 2015.
2. An acrimonious legal dispute between Will Dean and

Tough Guy Challenge founder Billy Wilson over the
alleged theft of trade secrets was resolved by Dean pay-
ing $725,000 to Wilson in an out-of-court settlement.

3. “Obstacle Race World: The State of the Mud Run
Business ( June 2014)”, http://www.obstacleusa.com/
obstacle-race-world-the-state-of-the-mud-run-business-
details-the-size-and-reach-of-the-ocr-market-as-the-
sports-first-ever-industry-report/, accessed July 20, 2015.

4. “Forging a Bond in Mud and Guts,” New York Times
(December 7, 2012).

5. M. Tannenbaum, “The Making of a Tough Mudder”
( January 15, 2015), http://blogs.scientificamerican.com/
psysociety/2015/01/15/mud-running/, accessed July 20,
2015.

6. Ibid.

7. “Tough Mudder: There are riches in this mud pit,” New
York Magazine (September 29, 2013), http://nymag.
com/news/business/boom-brands/tough-mudder-
2013-10, accessed July 20, 2015.

8. “Tough Mudder,” Financial Times online edi-
tion ( January 18, 2013), http://www.ft.com/
cms/s/2/7a80e610-603d-11e2-b657-00144feab49a.
html#ixzz2nFzd1Xx4, accessed July 20, 2015.

9. http://mudderella.com/, accessed July 20, 2015.
10. http://urbanmudder.com/, accessed July 20, 2015.
11. “The Way I Work: Will Dean, Tough Mudder,” Inc.,

Magazine, http://www.inc.com/magazine/201302/issie-
lapowsky/the-way-i-work-will-dean-tough-mudder.html,
accessed July 20, 2015.

12. “On the Streets of SoHo. Will Dean, Tough Mudder,” http://
accordionpartners.com/wp-content/uploads/2013/02/
QA-Will-Dean.pdf, accessed July 20, 2015.

Notes

Copyright © 2016 John Wiley & Sons, Inc.

Howard Schultz, chairman and CEO of Starbucks Corporation, opened the com-
pany’s annual shareholders meeting in Seattle on March 18, 2015 with the following
words:

2014 was a remarkable year: record revenue, record profit, record stock price. But,
I must say, when I think about the year and what we’ve accomplished, what I’m
most proud of is our consistent ability to balance profitability and social impact.1

Schultz went on to elaborate some of Starbucks’ accomplishments in relation to
both financial and social performance and, in doing so, noted that a $10,000 invest-
ment in Starbucks’ stock at the time of its 1992 IPO would currently be worth almost
$2 million.

Starbucks’ rise from a single Seattle coffee store to a global chain of over 22,000
coffee shops employing almost 200,000 people and generating revenues that would
top $18 billion in 2015 was one of the wonders of American entrepreneurial capi-
talism. Its founder, Howard Schultz, was a legend among US business leaders, his
heroic status enhanced by the fact that, having built a hugely successful corporation
and relinquishing the CEO position in 2000, he returned in 2008 to restore Starbucks’
flagging performance. Within two years, profits and share price had set new records
(Table 1 and Figure 1).

For many observers, including the owners of the Milanese cafés that had pro-
vided the inspiration for Schultz, the Starbucks story was little short of miraculous.
America’s first coffeehouse had opened in Boston in 1676. How could brewing
a better cup of coffee in the 1980s produce a company with a market value of
$78 billion? Given the ubiquity of good coffee, could Starbucks possibly sustain its
success?

The Starbucks Story

Starbucks Coffee, Tea and Spice had been founded by college buddies Gerald
Baldwin and Gordon Bowker. In 1981, Howard Schultz, a coffee filter sales-
man, visited their store. The coffee he sampled was a revelation: “I realized
the coffee I had been drinking was swill.” Captivated by the business potential
that Starbucks offered, Schultz encouraged the founders to hire him as head of
marketing. Shortly afterwards, Schultz experienced a second revelation. On a

Case 2 Starbucks Corporation,
May 2015

This case was prepared by Robert M. Grant assisted by Gautham T. ©2015 Robert M. Grant.

Copyright © 2016 John Wiley & Sons, Inc.

CaSe 2 StarbuCkS Corporation, May 2015 443

TABLE 1 Starbucks Corporation: Financial data for 2007–2014 ($million)

12 months to end-September 2014 2013 2012 2011 2010 2009 2008 2007

Income Statement Items

Total net revenues of which 16,448 14,892 13,300 11,700 10,707 9,775 10,383 9,412

—company-operated stores 12,978 11,793 10,534 9,632 8,964 8,180 8,772 7,998

—licensed stores 1,589 1,360 1,210 1,007
1,744 1,595 1,611 1,413

—CPG,a food service, other 1,881 1,739 1,555 1,061

Cost of sales 6,859 6,382 5,813 4,916 4,459 4,325 4,645 3,999

Store operating expenses 4,638 4,286 3,918 3,595 3,551 3,425 3,745 3,216

Other operating expenses 450 457 430 393 293 264 330 294

Depreciation and amortization 710 621 550 523 510 535 549 467

General and administrative expenses 991 938 801 636 570 453 456 489

Special chargesb — 2,784 — — 53 3,324 266.9 —

Total operating expenses 13,635 15,469 11,513 10,176 9,436 9,335 9,993 8,466

Operating income 3,081 (325.4) 1,997 1,729 1,419 562 504 1,054

Net earnings 2,068 8 1,384 1,246 946 391 315 673

Net cash from operations 608c 2,908 1,750 1,612 1,705 1,389 1,259 1,331

Capital expenditures (net) 1,161 1,411 974 1,019 441 446 985 1,080

Balance Sheet Items

Working capital (deficit) 690 94 1,990 1,719 977 455 (442) (459)

Total assets 10,752 11,516 8,219 7,360 6,386 5,577 5,673 5,344

Short-term borrowings — — — — — 713 713

Long-term debt 2,048 1,299 550 549 549 549 550 551

Shareholders’ equity 5,272 4,482 5,115 4,385 3,675 3,046 2,491 2,284

Notes:
aConsumer Products Group.
b The special charge in 2013 comprised a payment to Kraft Foods arising from litigation. Special charges in other years were restructuring
costs.

cOperating cash flow was reduced by the $2.8 billion payment made to Kraft.

trip to Italy, he discovered the joys of the Milanese coffee houses which offered
a combination of good coffee, ambiance, social interaction, and the artistry of
the barista. His ideas for recreating Starbucks to be a place where people would
come to share the experience of drinking great coffee rather than to buy coffee
beans failed to persuade the founders. Schultz left to open his own Italian-styled
coffee bar, Il Giornale. In 1987, he acquired the Starbucks chain of six stores,
merged it with his three Il Giornale bars, and adopted the Starbucks name for the
enlarged company.2

Copyright © 2016 John Wiley & Sons, Inc.

444 CaSeS to aCCoMpany ConteMporary StrateGy anaLySiS

Schultz’s original idea of replicating Italian coffee bars (where customers
mostly stand to drink coffee) was adapted to “the American equivalent of the
English pub, the German beer garden and the French café.”3 With the addition of
wi-fi, Starbucks’ stores became a place to work as well as to socialize. By 1992,
Starbucks, with 165 outlets, went public. With $27 million from the stock offering,
Schultz accelerated growth. Expansion followed a cluster pattern: opening mul-
tiple stores in a single metro area in order to increase local brand awareness and
to help customers make a Starbucks’ visit part of their daily routine. International
expansion began with Japan in 1996 and the UK in 1998. Starbucks relied mainly
on organic growth, but with occasional acquisitions: the UK-based Seattle Coffee
Company in 1998, Seattle’s Best Coffee and Torrefazione Italia in 2003, and Diedrich
Coffee in 2006.

The Starbucks Experience

Starbucks’ mission “to inspire and nurture the human spirit” required not just serv-
ing excellent coffee but also engaging customers at an emotional level. As Schultz
explained: “We’re not in the coffee business serving people, we are in the people
business serving coffee.”

Central to Starbucks’ strategy was Schultz’s concept of the “Starbucks
Experience,” which centered on the creation of a “third place”—somewhere other
than home and work where people could engage socially while enjoying the
shared experience of drinking good coffee. The Starbucks Experience combined
several elements:

FigurE 1 Starbucks’ share price ($), May 2005 to May 2015 (adjusted for splits)

50

60

40

30

20

10

0
2005 2007 2009 2011 2013 2015

Copyright © 2016 John Wiley & Sons, Inc.

CaSe 2 StarbuCkS Corporation, May 2015 445

● Coffee beans of a high, consistent quality and the careful management of
a chain of activities that resulted in their transformation into the best pos-
sible espresso coffee: “We’re passionate about ethically sourcing the finest
coffee beans, roasting them with great care, and improving the lives of the
people who grow them.”

● Employee involvement. Starbucks’ counter staff—the baristas—played a
central role in delivering the Starbucks Experience. Their role was not only
to brew and serve coffee but also to engage customers in the ambiance of
the Starbucks coffee shop. This

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