Strategic Management of Intellectual Capital

Grown in over fifty three countries world wide, coffee has become the second most traded commodity globally. Consumed at roughly 500 billion cups it earns about sixty billion dollars annually. It is grown in over fifty three countries world wide, and has also become the second most popular drink next to water. Taken everyday by most of the world’s population, the demand for coffee is growing bigger. Each year coffee shops comprise the biggest portion of the growing restaurant business with a 7% increase per annum. At this rate it is no wonder that the market is saturated with coffee franchises.

Like any other industry the coffee industry is diverse in nature, catering to people from different walks of life. Coffee enthusiasts range from those who take it as is, unadulterated, while there are those who seek various flavors and brews. In line with this manufacturers have come up with specialty or gourmet coffee. With a continuous demand present the number of coffee store franchises continues to grow.

One of the leading stores for such is Starbucks, with stores in 50 states of the United States and 39 countries outside of it.

In 1992 and 1993 Starbucks developed a three year geographic expansion plan taking into consideration the demographic location of each store that was to be put up. For each targeted region, Starbucks selected a large city to serve as a “hub”; teams of professionals were located in hub cities to support the goal of opening 20 or more stores in the hub in the first two years. Once stores blanketed the hub, then additional stores were opened in smaller, surrounding “spoke” areas in the region (Thompson & Strickland,1999) . Zone vice-presidents who had extensive training in operations and management were then created to oversee the expansion process. They aimed for a top-notch workforce, making sure that they hired people with a passion for coffee also keeping in mind diversity. Each partner/barista received extensive training in various fields from the history of coffee to brewing the perfect cup.  One of the main focuses was to ingrain the company’s values, principles, and culture and to impart their knowledge about coffee and their passion.

Strategic Focus

Customer relations have played a vital role in maximizing Starbucks’ customer capital. In 1998 about 5 million people per week were patronizing Starbucks stores (Thompson ; Strickland, 1999) management made sure that partners/baristas took note of and even memorized the favorite drinks of customers. This gives customers a sense of importance, increasing customer satisfaction and helping to build the image of the company to the public.

In addition, portraying the right image has been a vital part of developing the brand, a vision of which according to Starbucks Chairman Schultz (Thompson ; Strickland, 1999) is

“an authentic coffee experience that conveyed the artistry of espresso making, a place to think and imagine, a spot where people could gather and talk over a great cup of coffee, a comforting refuge that provided a sense of community, a third place for people to congregate beyond work or the home, a place that welcomed people and rewarded them for coming, and a layout that could accommodate both fast service and quiet moments.”

They have gone into extensive research for store designs, art, color, logos and the different processes of brewing coffee. The main idea was to make everything matter; making sure that everything signaled the best of everything

Though the company has spent very little on advertising they have been able to build their brand relying on word of mouth and the appeal of their stores. They have however, not confined themselves to their four walls, they have long since ventured into producing ready to drink bottled beverages, ice cream, coffee beans and coffee grounds that are available in supermarkets and stores. Aside from this they have also turned their eyes to the entertainment industry in the recent years selecting the best music, books and films which are available for purchase in all of their stores. Starbucks has formed many global alliances with large companies in the process of expanding their business. Barnes ; Nobles, Kraft Foods Inc., Dryer’s Grand Ice Cream, Pepsi Cola North America and Nordstorms are only a few among the big companies that this coffee giant has had joint ventures with (Starbucks, 2007).  They also offer a mail order catalog that is distributed six times a year to cater even to those who cannot constantly visit their stores, or for special holidays. No doubt that Starbucks has gained positive brand equity, keeping up to the expectations of consumers and its business partners as well.

Such success as this comes from their marketing policy. They have been able to project Starbucks as a place for the whole community, where parents, children and teenagers can all relax and enjoy their products in a good environment. Products are as diverse as their clientele, offering a wide range of brews, teas and caffeine free beverages.  This company  stands by its mission statement’s six guiding principles which are: Providing a great work environment and treating each other with respect and dignity, embracing diversity as an essential component in the way they do business, applying the highest standards of excellence to the purchasing, roasting and fresh delivery of their coffee, developing enthusiastically satisfied customers all of the time, contributing positively to communities and the environment and recognizing that profitability is essential to their future success (Starbucks, 2007).

Operational Focus

Apparently, Starbucks works from its vision, mission and values and transforms these into a clear business strategy. Determining and defining the key strategic objectives that are vital to the survival, success and growth of the organisation is imperative. Seeking to build a company with soul and the ingraining of such values within the company’s employees has brought about an organizational culture that leaves the experience constant for customers. . Having the same environment, customer service and products in every store allows the customer to know what to expect. Keeping the customers at the heart of the services and products they provide has helped them target the exact needs and moreover, give excellent service. Moreover, this strategy they have employed has allowed them to keep the customer or consumers right at the heart of their business. In a sense, it fits perfectly with human nature and capitalism. By constantly upholding customer quality service, Starbuck’s has been able to break through the walls of an alienating lifestyle we all have become accustomed to. In the end, the consumer relates to each experience as being personal since his or her needs appear to be what the company directly addresses. In the end, the customer finds that the next door coffee shop is more than a company but relates to it as a second home, a refuge from the modern day rat race we constantly find ourselves in. Hence a constant enjoyable experience for the customers is created, which keeps them craving and coming back for more. Despite its aggressive expansion, Starbucks has been able to maintain its customer quality service, not only because of its core values that is instilled in all employees, but also because of the competitive wages and generous benefits that they have to offer. According to Bontis and Serenko (2007) employee capabilities depend on their training and development as well as job satisfaction levels. Job satisfaction in turn is affected by training and development, pay satisfaction, supervisor satisfaction, and job insecurity.


Infrastructure for Cultivating and Sharing Intellectual Capital

In its younger years Starbucks avoided debt by financing all new stores through its equity capital, but as it has grown bigger and strengthened its profitability they have moved toward legitimate financing and, yet have remained stable. By doing this, they have been able to lower their risk of loss during their critical years and have been able to take bolder steps as the company grew. One source has said Starbucks’ strategy was to go all-out in new markets, opening stores quickly and putting pressure on rival firms (cited in, 2005). In 2006 alone the company turned out about 7.786 billion U.S Dollars. By using resources that the company already had, venturing into new areas proved to have fewer risks. Take for example the production of jazz and blues CD’s which arose from the requests of customers who enjoyed the background music that the stores played. Due to their knowledge of the demand, they were able to bring a new source of income to the company. As said by Jim Donald, president and CEO of Starbucks, “Starbucks strong revenue and strong store sales this quarter clearly demonstrate the fundamental strength of our business. The record number of store openings during the period puts our aggressive 2007 store opening well within reach. We will continue to extend the Starbucks Experience by offering innovative beverage and food items, and by expanding our presence to be where our customers want us.” The financial structure of Starbucks in the first quarter of 2007, shows that the company has effectively increased sales in general and decreased their expenses. Cultivating their knowledge of consumers and trends over the years has allowed them to know where to make adjustments. Undoubtedly, Starbucks has been able to cultivate their knowledge and maximize their Intellectual Capital which is quickly becoming the most valuable weapon and sharpest asset of the corporate world (Roos and Roos ,1997). The chief source of having an advantage over competition is the knowledge of the organization; knowledge which must be nurtured in order to result in leverage. In order to sustain the company’s growth and make Starbucks a strong global brand, Its chairman Howard Schultz believed that the company had to challenge the status quo, be innovative, take risks, and alter its vision of who it was, what it did, and where it was headed (Starbucks, 2007). According to Kamoche (1991), this aspect of leadership is “visionary leadership” and includes four different types of vision: organization, future, personal, and strategic. Organizational vision involves having a complete picture of a system’s components as well as an understanding of their interrelationships. “Future vision is a comprehensive picture of how an organization will look at some point in the future, including how it will be positioned in its environment and how it will function internally” (Manasse, 1986, p. 157). Personal vision includes the leader’s personal aspirations for the organization and acts as the impetus for the leader’s actions that will link organizational and future vision. A leader’s vision needs to be shared by those who will be involved in its realization.

By hiring individuals at all levels who have the same passion or vision as they do, the company is able to ensure that there will be constant room for situated learning. Putting together individuals who share a common interest will no doubt bring about collaboration, brainstorming and innovations which will result in a community of practice. It is this kind of information that they then process and develop into knowledge. To be able to manage and develop intellectual capital is a dynamic process that creates a tension between assimilating new and exploiting old learning (Crossen el al., 1998) . Managing intellectual capital has been described as capturing individuals’ tacit knowledge and making it explicit in the organizational structure according to Lynn, (2000).


Te rise of the “new economy”, one principally driven by information and knowledge, is attributed to the increased prominence of intellectual capital (Petty & Guthrie, 2000). As intellectual capital becomes a growing asset the need to be able to monitor this asset has risen. It can be monitored through the same components that it is made up of. According to Petty & Guthrie (2000) intellectual capital comprises of:


Human capital – includes employee brainpower, competence, skills, experience and knowledge

Customer capital – includes relations and networks with partners, suppliers, distributors, and customers. It also includes the image of the organization in the market, its social identity, and brand equity

Structural capital – covers every intellectual capital that can be owned by the organization including routines, business processes, practices, databases, systems and intellectual property.


In the case of Starbucks, they have been successful in all three measures. By providing training, competitive salaries and good benefits to their employees they have acquired human capital. The rapport and good relations that their employees have with each customer reflects their customer capital; not to mention that they have been able to establish their brand world wide not just in the food industry but in the entertainment industry as well, giving them brand equity.  Finally, putting both of these together and taking into consideration the success and aggressive growth that the company has taken it is obvious that Starbucks’ structural capital is indeed more than successful.

Being this successful, other companies should be able to take a hint from this coffee giant and invest in their intellectual capitals. Building good relationships, both inside and outside of the company. Researchers have shown the relationship of investments in intellectual capital in relation to the company’s overall performance measured by its stock price. Nonetheless, the researchers believe that intellectual capital associates with concrete representation of the real value of a company.

Starbucks is an epitome of success brought about by its effective relationship marketing and branding efforts; a perfect example of nurturing knowledge. This is necessary with today’s cutthroat competition, with companies having broader geographic market scope and partnering with international suppliers. Therefore, it is important to understand that intellectual capital, just like money or equipment is worth cultivating and nurturing.

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Mouritsen, J. & Flagstad, K. 2004. Learning and intellectual capital. International Journal of Learning and Intellectual Capital, 4(1), 72 – 90.


Nermien, A.2000.Comprehensive Intellectual Capital Management: Step-by-Step.1st.Asia.John Wiley and Sons Inc


Petty, R. & Guthrie, J. (2000). Intellectual capital literature review: Measurement, reporting and management. 2, 155 – 176.


Pugash, M.J. All Business [online]. 2007. Available:[1 September 2007]


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Thompson, A. A.& Strickland, A.J. 1999.Strategic Management Concepts and Cases.11th Edition.New York. Mcgraw-hill.



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