Ch. 4 Macro and Industry Dynamics

Ch. 4 focuses on the external environment in which a company builds its strategy. A company must be able to adapt to changes in the external environment such as changes in regulation, technology, the economy, social and political views, and competitor behavior, as well as understand how these changes will affect customer demand.


Important to shaping strategy is understanding competitors' actions, and not just reacting to what competitors are doing, but proactively trying to predict competitors' behavior. Among the corporations competing for Starbucks' coveted market share and superior coffee sales are Dunkin' Donuts, McDonald's, and Panera Bread. McDonald's, for example, recently launched McCafe, now offering specialty coffees and beverages that are cheaper and convenient to grab through the drive-thru with the rest of the order. 

Another cause of concern for Starbucks in the past has been the economy. As mentioned in an earlier entry, Starbucks hit a financial rough patch in 2008, reflected by a stock price at half of its previous value and other performance measures. An article in NPR at the time wrote, "The culprits behind Starbucks' woes are overexpansion, a weak economy and lots of competition." As discussed in a previous blog entry, the effects of the external business environment (as well as some internal ineffective decision making) and the resulting hit to Starbucks' operations challenged CEO Howard Shultz to make decision to close 900 stores. Since then, however, Starbucks has been able to expand and become financially healthier and positioned for entering new international markets. 

One more example of how Starbucks has adjusted to an ever-changing external environment has been how it has reacted (and planned for) changes in the sociocultural environment. In the United States, for example, where the nation is suffering from an obesity epidemic, food service businesses have noticed demand for healthier item menus and better access to nutritional information. Available on the Starbucks website is a timeline of how Starbucks has developed its product offerings to "accommodate [customer] nutrition and taste preferences," incorporating more wholesome ingredients and limits on calories in products. They also provide nutrition information on their website.