case study(management information system )
answer the case study
MIS 201/ISY 102
CASE STUDY II
Starbucks is the world’s largest specialty coffee
retailer, with over 1,700 coffee shops in 55 countries.
For years, Starbucks grew throughout the United
States and internationally, opening franchises at an
impressive rate. From 2002 to 2007 alone, the
company tripled the number of stores it operated
worldwide. Starbucks offers a unique experience: high-
end specialty coffees and beverages, friendly and
knowledgeable servers, and customer friendly coffee
shops. This was a winning formula for many years and
enabled Starbucks to charge premium prices.
During the economic downturn beginning in 2008,
profits plunged. Customers complained that the
company had lost its hip, local feel and had become
more like a fast-food chain. Many coffee drinkers went
in search of cheaper alternatives from McDonald’s and
Dunkin’ Donuts for their coffee fixes. Starbucks stock
lost over 50 percent of its value by the end of 2008.
Major changes were in order.
Starbucks seized the opportunity to overhaul its
business by using several different strategies
simultaneously. First, the company has revamped its
in-store technology and sought to integrate its
business processes with wireless technology and the
mobile digital platform. Also, rather than copy the
practices of competitors, Starbucks pursued a more
aggressive product differentiation strategy, intended
to emphasize the high quality of their drinks and
efficient and helpful customer service. At the same
time, however, Starbucks also focused on becoming
‘lean’, like many of their competitors, eliminating
inefficiency wherever possible.
When Starbucks set out to improve its customer
experience, it found that more than a third of its
customers are active users of smartphones. The
company set out to implement several features and
improvements that would appeal to this segment of its
customer base. First, Starbucks implemented a
technology that allows customers to pay using a
smartphone app. The app is integrated with the
Starbucks Card system, which allows regular customers
to pay with a pre-paid and rechargeable card at any
Starbucks branch. When customers make a purchase
using the app, a cashier scans a bar code displayed on
the phone, and the resulting sale is charged to the
customer’s Starbucks Card account. Customers report
that paying using this app, available for all major
smartphone operating systems, is much faster than
traditional forms of payment. In its first 15 months of
use, the Starbucks mobile payment system processed
42 million transactions.
Many of Starbucks’ most loyal customers regularly
spend time using the free Wi-Fi wireless network
offered in each store. A majority of these customers
also use mobile devices to connect to the in-store Wi-
Fi networks. Recognizing this, Starbucks launched what
it calls the “Starbucks Digital Network,” a portal
designed specifically for mobile devices as opposed to
traditional Web browsers. The site is optimized for all
major smartphone operating systems (iOS, Android,
and BlackBerry), and responds to the multi-touch
capability of devices like the iPad.
The Starbucks Digital Network site was developed in
partnership with Yahoo and functions as a content
portal. Starbucks customers using the site will receive
free Wall Street Journal access, select free iTunes
downloads, and a wide variety of other content. The
site will integrate with Foursquare, a location-based
social networking site for mobile devices. This
arrangement will allow users to check in and receive
award points using Starbucks’ site. Because Starbucks
has the most Foursquare check-ins of any company to
date, this feature has been popular with customers.
Rather than serve ads on the site, Starbucks has opted
to offer the site free of advertising, hoping that striking
deals with content providers will make it a profitable
venture. Even if the Starbucks Digital Network is not
highly profitable, analysts suggest that the site is an
effective way for Starbucks to improve its relationship
with its most valuable customers and a creative use of
the mobile digital platform to enhance customer
satisfaction.
In addition to revamping their business to better serve
the needs of their mobile users, Starbucks has made a
concerted effort to become more efficient, reduce
waste, and use the time saved to provide better
customer service. Starbucks set out to streamline the
business processes used in each of its stores so that
baristas do not need to bend down to scoop coffee,
cutting down on idle time while waiting for coffee to
drain, and finding ways to reduce the amount of time
each employee spends making a drink. Starbucks
created a 10 person “lean team” whose job is to travel
the country visiting franchises and coaching them in
lean techniques made famous by automaker Toyota’s
production system.
Store labor costs Starbucks about $2.5 billion,
amounting to 24 percent of its annual revenue. If
Starbucks is able to reduce the time each employee
spends making a drink, the company can make more
drinks with the same number of workers or with fewer
workers. Alternatively, Starbucks could use this time
savings to give baristas more time to interact with
customers and hopefully improve the Starbucks
experience.
Wireless technology enhanced Starbucks’ business
process simplification effort. Starbucks district
managers use the in-store wireless networks to run
store operations and to connect to the company’s
private corporate network and systems. Starbucks
district managers were equipped with Wi-Fi enabled
laptops for this purpose. Before the in-store wireless
networks were implemented, a district manager who
oversaw around 10 stores had to visit each store,
review its operations, develop a list of items on which
to follow up, and then drive to a Starbucks regional
office to file reports and send e-mail.
Instead of running the business from cubicles in
regional headquarters, Starbucks district managers can
do most of their work sitting at a table in one of the
stores they oversee. The time saved from going back
and forth to regional offices can be used to observe
how employees are serving customers and their
training. Implementing Wi-Fi technology enabled
Starbucks to increase the in-store presence of district
managers by 25 percent without adding any extra
managers.
In 2008 and 2009, the weakened economy forced
Starbucks to close 900 stores, renegotiate some rents,
cut prices on some of their big ticket items, and begin
offering price-reduced specials, such as a breakfast
sandwich and a drink for $3.95. Cost reductions from
procedural changes made it possible for Starbucks to
offer these lower prices.
Major fast food chains already used these techniques.
While some baristas have resisted the changes, and
analysts were skeptical that the changes would take
hold, Starbucks attributes much of its recent uptick in
profits to its efforts to go lean.
Starbucks CEO Howard Schultz said that “the majority
of cost reductions we’ve achieved come from a new
way of operating and serving our customers,” and also
added that the time and money saved was also
allowing the company to improve its customer
engagement. By 2011, Starbucks had returned to
profitability and continuing growth, with plans to open
500 new stores, in large part because of the success of
each these changes.
Sources: “Starbucks Corporation,” The New York Times,
January 26, 2012; Mark Raby, “Starbucks Mobile Payments
Hit 42 Million,” Mark Raby, “Starbucks Mobile Payments Hit
42 Million,” SlashGear, April 9, 2012; Trefis Team, “Starbucks
Brews Up Smartphone Payment Platform,” Forbes, February
7, 2011; http://
blogs.forbes.com/greatspeculations/2011/02/17/starbucks-
brewsup-smartphone-payment-platform/; Ryan Kim,
“Starbucks’ New Portal Designed with Mobile in Mind,”
Businessweek, September 2, 2010; Starbucks Form 10-K for
Fiscal Year ended October 2, 2011; Julie Jargon, “Latest
Starbucks Buzzword: ‘Lean’ Japanese
Techniques,” The Wall Street Journal, August 4, 2009.
CASE STUDY QUESTIONS
This is a group case study (4 members max). due date is 10/4/2021
1- Analyze Starbucks using the competitive forces and value chain models.
2- What is Starbucks’ business strategy? Assess the role played by technology in this business strategy.
3- How much has technology helped Starbucks compete? Explain your answer