Starbucks Strategic Management

The Strategic Management provide an indepth knowledge of the process for developing and enacting business plans to reach a long-term goal that takes into account the internal variables and external factors in the business environment. It encompasses an integrated, future oriented

managerial perspective that is outwardly focused, forward thinking and performance based.

Strategic managers identify long-range targets, scan their operating environment, evaluate their

organization structures and resources, match these to the challenges they face, identify

stakeholders and build alliances, prioritize and plan actions and make adjustments to fulfill

performance objectives over time. This module will provide detailed explanation on how the

balancing of strategic management’s outward, inward and forward looking functions would be

used to develop a vision and strategies to move forward. The five key facets of strategic

management namely, goal setting, strategy analysis, strategy formation, strategy

implementation, and strategy monitoring will be introduced in stages. These are the integral

elements that, when applied together, would distinguish strategic management from less

comprehensive approaches, such as operational management or long-term planning.

In 1971 Starbucks opened operations in Seattle’s Pike Place Markets with the future aim of

providing coffee to a number of restaurants and surrounding bars. With the recruitment of

Howard Schultz who led the marketing and retail efforts of Starbucks.

* In 1982, the company took a change in direction through the views of Schultz, who after

visiting Italy tried to adapt the same principles in order to a strong bar culture. Schultz then

utilized Starbucks ability to provide quality coffee beans and opened up a new store called Il

Giornale, which brewed coffee from these particular beans.

* In 1987, Giornale had decided to take over the assets of Starbucks and also, further changed

its name to Starbucks Corporation. By the end of the year, Starbucks had increased the number

of stores to 17 and furthered its location span by entering Chicago and Vancouver.

* In 1990, the company took further steps forward with expansion of the Seattle headquarters

and an increase in resources with the opening of a new roasting plant. Relationships and other

ventures also took off during the early nineties as the company looked to development

organizations to further its progress.

*In 1995, the company really established its name with the opening of the 676th store as well

as increasing the products in store with the addition of compact discs a result of a previously

popular experiment with ‘in-house’ music.

* In 1996, the company kept on stretching its reach by entering into the market of Japan,

Singapore and Hawaii. This was achieved through joint ventures including the one formed with

Sazaby Inc., which pushed through the development of coffee houses in Japan.

In 1971 Starbucks opened operations in Seattle’s Pike Place Markets with the future aim of

providing coffee to a number of restaurants and surrounding bars. With the recruitment of

Howard Schultz who led the marketing and retail efforts of Starbucks.

• In 1982, the company took a change in direction through the views of Schultz, who

after visiting Italy tried to adapt the same principles in order to a strong bar culture.

Schultz then utilized Starbucks ability to provide quality coffee beans and opened up a

new store called Il Giornale, which brewed coffee from these particular beans.

• In 1987, Giornale had decided to take over the assets of Starbucks and also, further

changed its name to Starbucks Corporation. By the end of the year, Starbucks had

increased the number of stores to 17 and furthered its location span by entering Chicago

and Vancouver.

* In 1990, the company took further steps forward with expansion of the Seattle headquarters

and an increase in resources with the opening of a new roasting plant. Relationships and other

ventures also took off during the early nineties as the company looked to development

organizations to further its progress.

*In 1995, the company really established its name with the opening of the 676th store as well

as increasing the products in store with the addition of compact discs a result of a previously

popular experiment with ‘in-house’ music.

* In 1996, the company kept on stretching its reach by entering into the market of Japan,

Singapore and Hawaii. This was achieved through joint ventures including the one formed with

Sazaby Inc., which pushed through the development of coffee houses in Japan.

Current situation

The current international situation for Starbucks seems to be an emerging part of their business

and the reorganization of this is proved by their aim to become a leading global company

through making a difference in people’s lives all around the world. This goal is quite close to

being achieved as proved the Starbucks current locations in international markets and the

successfulness of these ventures. The current countries in which Starbucks are located in are:

Australia, Bahrain, Canada, Hong Kong, Israel, Japan, Kuwait, Lebanon, Malaysia, New

Zealand, Oman, Peoples Republic of China, Philippines, Qatar, Saudi Arabia, Singapore, South

Korea, Switzerland, Taiwan, Thailand, United Arab Emirates, Egypt, United Kingdom, and the

United States.

Current performance

Overall, the aim of becoming a worldwide global brand seems to be working in favor of the

company and is helping it to attract the attention of many major companies who would like to

share a partnership. This is all positive news for the company because it provides a strong basis

for future development of international markets, which further strengthens the mission to

become one of the leading specialty coffee retailers in the world.However, the net revenues

increased 3 percent to $2.5 billion for the fourth quarter of 2008, compared to $2.4 billion for

the fourth quarter of 2007. For the 13-week period ended September 28, 2008, Starbucks

reported net income of $5.4 million, which included $105.1 million of restructuring charges

and other transformation strategy costs. Net income was $158.5 million for the same period a

year ago. The company actions announced in July of 2008 to close approximately 600

company-operated stores in the U.S. and 61 company-operated stores in Australia, and reduce

approximately 1,000 open and filled positions within its leadership structure and non-store

organization.

Strategic posture

1- mission

“To inspire and nurture the human spirit- one person, one cup, and one neighborhood at a

time”

“The mission of Starbucks is to establish Starbucks as the premier purveyor of the finest coffee

in the world while maintaining our uncompromising principles while we grow”.

None of this success would have been possible without a set of goals that the company aimed

to achieve and a set of principles, which governed the decision making process. The six

principles of Starbucks are stated as:

1-Provide a great work environment and treat each other with

respect and dignity.

2-Embrace diversity as an essential component in the way we

do business.

3-Apply the highest standards of excellence to the purchasing.

4-Roasting and fresh delivery of our coffee.

5-Develop enthusiastically satisfied customers all of the time.

6-Contribute positively to our communities and our environment, and recognize that

profitability is essential to our future success.

Application of these principles can be used as a guideline for all employees from managers to

workers to aim to achieve the company’s goals, while maintaining a certain type of

standard. However, the net revenues increased 3 percent to $2.5 billion for the fourth quarter

of 2008, compared to $2.4 billion for the fourth quarter of 2007. For the 13-week period ended

September 28, 2008, Starbucks reported net income of $5.4 million, which included $105.1

million of restructuring charges and other transformation strategy costs. Net income was

$158.5 million for the same period a year ago. The company actions announced in July of 2008

to close approximately 600 company-operated stores in the U.S. and 61 company-operated

stores in Australia, and reduce approximately 1,000 open and filled positions within its

leadership structure and non-store organization. This mission statement along with the set of

guidelines provides a focus for employees as they make strategic decisions. It not only supports

the employees, but supports the customers as well, making a note that they should be satisfied

all of the time. The mission shows alignment with the vision by stating how the company plans

to reach the broad goals set by the vision statement. Another supporting sentence in the mission

statement is that the “company applies the highest standards of excellence to the purchasing,

roasting and fresh delivery of its coffee.” This statement supports the idea thatStarbucks uses

the best available resources to give it a recognized and respected name.

Objectives & Strategies:

Here are the following objectives ofStarbucks:

Our Coffee

It has always been, and will always be, about quality. We’re passionate about ethically sourcing

the finest coffee beans, roasting them with great care, and improving the lives of people who

grow them. We care deeply about all of this; our work is never done.

Our Partners

We’re called partners, because it’s not just a job, it’s our passion. Together, we embrace

diversity to create a place where each of us can be ourselves. We always treat each other with

respect and dignity. And we hold each other to that standard.

Our Customers

When we are fully engaged, we connect with, laugh with, and uplift the lives of our customers

– even if just for a few moments. Sure, it starts with the promise of a perfectly made

beverage, but our work goes far beyond that. It’s really about human connection.

Our Stores

When our customers feel this sense of belonging, our stores become a haven, a break from the

worries outside, a place where you can meet with friends. It’s about enjoyment at the speed of

life-sometimes slow and savored, sometimes faster. Always full of humanity.

Our Neighborhood

Every store is part of a community, and we take our responsibility to be good neighbors

seriously. We want to be invited in wherever we do business. We can be a force for positive

action- bringing together our partners, customers, and the community to contribute every day.

Now we see that our responsibility-and our potential for good-is even larger. The world is

looking to Starbucks to set the new standard, yet again. We will lead.

Our Shareholders

We know that as we deliver in each of these areas, we enjoy the kind of success that rewards

our shareholders. We are fully accountable to get each of these elements right so that Starbucks

-and everyone it touches-can endure and thrive.

From all what mentioned above that Starbucks is aiming to success through quality of product,

diversify in business and place, to satisfy customers and shareholders, through pleasant and

nice existence nearly to everyone.

Financial Analysis

The general financial performance for Starbucks in 2008 was declining from the previous years

dramatically. The following analysis will show this fact.

Investment Returns % Company Industry

Return On equity 12.6 25.8

Return On Assets 5.6 13.2

Both the ROE and ROA are lower than the industry’s average, which means that the company

is not using both the equity and their assets properly to increase their revenue.

Profit margins % Company Industry

Gross Margin 16 27

Pre-Tax Margin 4.4 13.2

Net Profit Margin 3.03 8.5

Starbucks margins are lower also that the industry’s average,

especially in 2008 where the net profit margin reduced to 3.03 from 6.3 in 2007.

Financial Condition Company Industry

Debt / Quity Ratio 0.4 0.46

Current Ratio 0.8 1

Quick Ratio 0.48 0.7

Starbucks generally manages their debs and liabilities wisely, and this considers a financial

strength for the company.

Year 2008 2007 2006 2005

sales 10383000 9411497 7786942 6369300

Net income 315500 672638 564259 494467

Corporate governance

Board of directors

As part of Starbucks mission they are committed to maintain their uncompromising principles

while they grow. In this regard, their Board of Directors has adopted governance principles and

committee charters to lead Starbucks governance practices. Currently, the board has 9

directors, a substantial majority of whom meet all of the independence requirements of

NASDAQ® and the U.S. Securities and Exchange Commission. Of the nine members of

Starbucks board, one is Latino, two are African American (one of which is female), and one

other female also serves on the board. Starbucks president and CEO Howard Schultz chair the

board.

In Starbucks there are well-defined criteria for the selection of new board members, foremost

being a clear demonstration of their own personal integrity and ethics. Board diversity is

sought in terms of members’ personal and professional backgrounds, gender, race, ethnicity or

other differentiating characteristics, enabling a wider range of opinions and perspectives to be

considered. This criterias of selection affected the company in a very good way that gave it the

opportunity to succeed in the international market. That the diversified background, education,

culture and gender in the board was one of the greatest Starbucks strong points.

There are three committees of the board are comprised of independent directors and have

specific charters: Audit and Compliance,Compensation and Management Development and

Nominating and Corporate Governance. In November 2007, the board amended the

company’s bylaws to include majority voting to allow shareholders to play a more meaningful

role in the election of directors. Director nominees must receive more “for” than “against”

votes to be elected in an uncontested election. Additionally, the term of a nominee who does

not receive a majority of the votes cast will end on the earliest of either: (1) 90 days after the

date election results are certified; (2) the date the director resigns; or (3) the date the board of

directors fills the position. This change demonstrates Starbucks ongoing commitment to strong

corporate governance practices.

Shareholders and partners (employees) can provide recommendations and feedback to the

board through the Business Conduct Helpline and the Audit line. In addition, written

correspondence can be sent to the board, an individual director or to any of Starbucks

independent board committees.

Committee charters, governance principles, director nominations policy (including criteria for

board membership) and profiles on each board member are available in the corporate

governance section of Starbucks.com.

Starbucks formed a Policy Governance Council in fiscal 2006 to oversee and approve

governance tools at the global enterprise level, and to ensure they are well-defined, consistent

with each other, current, stored for easy retrieval, and effectively communicated to partners.

The Council is comprised of company leaders who represent multiple business units and

functions, and is supported by Starbucks Policy Office and staff.Starbucks stakeholders include

partners (employees), customers, suppliers, farmers, shareholders, governments, community

members, environmental groups, activists and many others. The company engaged them to be

able to understand their concerns and gain their input on topics of mutual importance.

External Environment:

Opportunities and Threats

Starbucks international operation was one of the major aspects of their success. , in the mid

1990s, with the market reaching saturation, Starbucks could no longer depend on the U.S.

market for growth. To maintain its growth rates and to boost revenues, Starbucks had to

venture abroad. Starbucks international presence is now in more than 25 countries and the

United States of America. This presence is formed in three modes in entry that are Joint

venture, licensing and wholly owned

subsidiaries. This became a burden on the mother company in a later stage. That those types of

entry moods need a lot of training, supervising, management assistance and technology transfer

for the partner. This is along with inability to engage in global strategic coordination. However,

the success of Starbucks is not only to its aggressive expansion but also to its product

innovation. Starbucks came out with new products to attract customers on different periods.

Also diversification was one of the factors that Starbucks started to apply even on a small

initiated base. That along with serving coffee, Starbucks also sold merchandise. In 1995, it

started selling CDs of its famous in-house music program. It also entered into alliances with

various players such as Canadian Airlines, United Air Lines, Starwood Hotels, and Barnes &

Noble, Inc., to serve Starbucks coffee.

Michael Porter’s five forces

Michael Porter defines five forces impacting a firm’s competitiveness- threat of substitutes,

threat of new entrants in the industry, bargaining power of suppliers, bargaining power of

customers, and the intensity of competition within the industry. A firm’s strategic decisions to

respond to these five forces are a source of risk also.

The company is facing a real threat of substitution from many other companies that producing

the same product that is satisfying the same need. This is in its domestic market and even in the

international market specially Europe and Middle East.

Also Starbucks is facing a real problem of rival competition due to its uncompetitive price all

over the world and even in its domestic market.

Also the taste of Coffee had been judged by customers as an artificial taste especially in Japan.

Suppliers bargaining power is really represent a threat for Starbucks. That they decided to deal

with a 51% women or minority owned suppliers. Also they are not dealing with suppliers who

don’t follow the same environmental ethics that are for Starbucks. This may lead them

to lose a good opportunity or deal with a supplier that they will not deal with him. Also dealing

with small suppliers instead of dealing with limited number of big power full suppliers is not

giving them real good deals for facilities and prices.

Societal Environment

Economics

Economic factors are an important aspects that concern the nature and direction of the

economy in which a firm operates Starbucks also faced criticism from Non Governmental

Organizations

(NGOs) that urged the company to acquire certified coffee beans,ensuring that those coffee

beans were grown and marketed under certain economic and social conditions. Furthermore,

Starbucks faced problems due to economic recession in countries such as Switzerland,

Germany, and Japan in the early 2000s, where it experienced declining sales and revenues.

Moreover, a real expectation of huge recession during the next year due to the worldwide

financial crisis may affect the company’s results badly.

Technological

Starbucks is continuously searching for ways to better a customers’experience. With the

introduction of the Starbucks Card for example,

the Company has created the opportunity to improve customer service, shorten lines and make

a customer’s visit at Starbucks quicker and more convenient. Most if not all Starbucks location

has WI-FI for consumer needs.

Political/Legal

Increasing tensions between the United States and the rest of the world, the business

environment, especially in the Middle East and Southeast Asia, was becoming increasingly

volatile. After U.S. declaration of war on Iraq in early 2003 matters became worse for the

company. This created serious problems for Starbucks. In July 2002, Arab students called for a

boycott of American goods and services, due to the alleged close relationship between the

United States and Israel. The boycott targeted U.S. companies including Starbucks, Burger

King, Coca-Cola and Estee Lauder 2-In addition to these incidents, Starbucks topped the list of

companies to be boycotted due to Schultz’s alleged closeness to the Jewish community. Till

now in the Arab countries & Middle East a lot of rumors that Starbucks is sponsoring the

Jewish community against Palestinian

crises. Due to increasing security threats, Starbucks closed down its six stores in Israel.

Starbucks had two class action suits pending since 2001. The lawsuits entitled Carr vs.

Starbucks and Sheilds vs. Starbucks are challenging the status of Starbucks California store

managers and assistant managers as exempt employees under California wage and hour laws.

Starbuck’s is denying all liabilities in these cases, however; the company has agreed to the

settlement in order to take care of all of the plaintiffs’ claims without having to get involved in

any protracted

litigation.

Starbucks only imports all their coffee beans, so possible threats could include a change in

import laws. A change in the status quo as far as imports go could greatly affect numerous

areas of production for the company. For example, if it costs more to import or the process is

made more difficult the result could ultimately be a change in price, which would affect the

level of consumption for Starbucks coffees.

Social/Cultural

Environmental Mission Statement

(Starbucks is committed to a role of environmental leadership in all facets of our business)

As a result of Starbucks closely following their objectives, the company

has installed a list of principles that further outline the company’s willingness to make sure that

its affect on the environment is as positive as possible. These principles are stated as:

1-Understanding of environmental issues.

2-Sharing information with our partners.

3-Developing innovative and flexible solutions to bring about change.

4-Striving to buy, sell and use environmentally friendly products.

5-Recognizing that fiscal responsibility is essential to our environmental future.

6-Instilling environmental responsibility as a corporate value.

7-Measuring and monitoring our progress for each project, and encouraging all partners to

share in our mission.

Those can only be seen as a positive for the image of the company and shows that they are

willing to utilize their resources in order to more than satisfy requirements.

Task Environment

Not only this but also, Starbucks organizing activities such as neighborhood clean-ups and

walk-a-thons. Many examples are available on the web site of the company.

Policies that also have been implemented are the buying policies, which only allow the

company to purchase from those other businesses (suppliers) who follow the same

environmental strategy as Starbucks.

This may push the company to lose an opportunity of good deal, because the supplier doesn’t

follow the company environmental policiesFinally, to integrate these policies to new

employees, Starbucks has employed the services of a few partners which congregate together

to create a “Green Team,” which installs the environmental views into trainees as well as

coming up with inventive ways of helping the environment.

Summary of External factors TO

However, it was found that the success of Starbucks was due to its profitable domestic

operations. It was reported that most of Starbucks’ international operations were running into

losses. In May 2003, Starbucks’ Japanese operations reported a loss of $3.9 million (Japan

constituted the largest market for the company outside the United States), and the company

also performed badly in Europe and the Middle East. Analysis pointed out that Starbucks’

international operations were not as well planned as its U.S. operations. It was also observed

that the volatile international business environment made it difficult for the company to

effectively manage its international operations.

Internal Environment: Strengths and Weaknesses

Corporate Structure

Starbuck has no formal organization chart and does not work with hierarchy structure. It

consists of to main departments, functional department consists of marketing, supply chain,

operations, finance

and human resources, and cross functional teams, consisting of local store marketing and

marketing campaigns. The decision making process in Starbucks is bottom – up process, where

the employees are empowered even to take decisions without referring back to the

management. There is a conflict in the corporate structure where some employees are reporting

to two different divisions which in some cases causing confusion and over lapping.

Corporate culture

The Chairman of Starbucks, Schultz decided to treat employees as family, and called them

partners. Both full time and part time employees could benefit from training and health

insurance. Starbucks

paid some more salaries than competitors to gain highly qualified employees.

Starbucks relied on its baristas and other frontline staff to a great extent in creating the

‘Starbucks Experience’ which differentiated it from competitors.

Employees had option to stock chare according to their base salaries.

Also Starbucks had shared values with their employees who made them proud to work in such

successful company, and this created good culture. Schultz decided also to be open and honest

with his employees, and let them share in the decision making process. He gave extensive

training to employees especially barista employees to give careful attention to customers.

Environment was important to Starbucks. Using this concept Starbucks gave good attention to

their suppliers by helping them technically and financially as part of their corporate social

responsibility. Also it encouraged all partners to share in the company’s mission. Starbucks

has deep tacit knowledge, which is difficult to be imitated by competition.

Functional strategies

Marketing

The main marketing strategy and position for Starbucks is for customers to consider it as their

place after home and work, this will guarantee customers visiting the shops several times.

However it also

customizes its positioning for each store individually according to the specific location it is in.

Another important part of Starbucks’

positioning over competition is that they are environmentally friendly. Starbucks does not

generally offer promotional prices on its products. It has a reputation for having pricey drinks;

furthermore, Starbucks brand is too expensive. The company mainly depends on the brand for

their high revenues, which could be risky from competition. However it seems to be the market

leader when it comes to new products and ideas.

Starbucks has found more success advertising on a local level rather than to the nation as a

whole. The Company advertises a lot through print mediums, as Starbucks’ target market tends

to be educated people who do more reading than the average person. In 2005, Starbucks spent

$87.7 million on advertising, or 1.4% of revenues. Starbucks also market itself as

environmentally friendly and focus on its corporate social responsibility, one example is

buying Ethos-Water Company and they also plan to donate $ 10 million to help countries under

developed lacking clean water.

R&D

The R&D role in Starbucks is to make a R&D mix and mainly consists of the following

activities:

ıCoffee Science

ıNew Technology

ıEquipment Technology

ıProduct Development

ıMenu Development

ıCoffee Quality Assurance

ıSensory Science

The introduction of the Starbucks Card for example, Starbucks has created the opportunity to

improve customer service, shorten lines and make a customer’s visit at Starbucks quicker and

more convenien. Starbucks is continuously searching for ways to better a customers’

experience. The company spent 7.2 Million in 2008 for new technologies related to food and

equipment.

Operations and logistics

The main operation for Starbucks divided into local operation in USA and international

operation. Starbucks depended mainly on their employees to manage operation, that’s why they

focused on training employees as they are the main asset in the company. They are managing

all stores in USA, however, they are in the international operation sometimes manage their

store, or give licenses, or get into joint ventures with existing companies.

But they focus on their operation on the quality of their coffee Starbucks deals with

international small suppliers. Starbucks made good deals with their suppliers to supply coffee

with fixed prices rather than using the Fair Trade Coffee.

They mainly use non-smoking restrictions in their stores, however in some countries because

of culture conflicts they had to have either smoking rooms or smoke areas in the air. One of the

main advantages Starbucks has is the accumulative experience of their employees in operation,

this is due to the low turn over they have and their focus on employee satisfaction.

Human Resources

Starbucks paid considerable attention to the kind of people it recruited. So the company hired

people for qualities like adaptability, dependability and the ability to work in a team. Starbucks

was one of the few retail companies to