Module 7 Assignment 2: LASA 2—Capstone Strategic Audit

STARBUCKS SWOT ANALYSIS AND STRATEGIC SCORECARD

MODULE 6 - ASSIGNMENT 2

Kenawa E. Jigba

B6028 BLO Solutions to Organizational Challenges: A Capstone Experience

Argosy University

Instructor:  Dr. Andrea Banto

Due: August 7, 2013

Starbucks SWOT Analysis and Strategic Scorecard

SWOT ANALYSIS

STRENGTHS · The organizations vision is to be a catalyst of change. · Brand recognition and customer loyalty · Diverse product portfolio catering to all tastes and ages, including non-coffee beverages and food items · Excellent customer service and the value of the Starbucks experience · Licensing relationship with top-brands such as Pepsi-Cola and Kraft that minimize costs and leverage the strategic advantages of those companies · Strong employee relationships · Economies of scale providing superior distribution networks and supplier power · Primly-located retail stores · Positive image attributed to social responsibility

WEAKNESSES · Saturation of the market diminishes long-term growth prospects · No monetary switching costs for customers · Negative large corporation image · Pay 23% more for coffee than market prices · Potential limitations of international expansion due to cultural clashes with American coffee experiences

OPPORTUNITIES · Appealing to students and creating inviting drink sensations that would motivate a special visit and acceptance of a higher price. · There is great support politically for the company to venture in new markets. In all the countries that the company is targeting, there has been good will and support from such countries. · Have the ability to reduce premiums paid for coffee · Room for international expansion (75% of revenues came from the United States in fiscal 2007 and international same-store sales growth is strong) · Room to compete on multiple fronts including quality and price · Increase licensing relationships to further utilize brand strength to capture profits at little cost to the company · There has also been great support from the traditional investors as well as the new ones. All the stakeholders have shown great support for the company so far. Support from the media has made the company to make a great leap. · Communities in the new markets have received the company very well and have supported the company greatly.

THREATS · External forces such as unstable governments especially in some parts of Africa have posed considerable threat to the growth and expansion of the company (Kurtz, 2009). · There have been other challenges such as poor understanding; lack of interest and attitudinal issues especially from the local communities among the target groups has posed threats to the expansion of the company (Tasker, 1997). · In some parts especially in the new markets, there has been a challenge in accessing the targeted groups due to poor infrastructure. · Increasing coffee and diary prices · Intense competition in the specialty coffee beverage business · Unfavorable economic conditions that lower the demand for expensive beverages · Community resistance to store expansion · The possibility that the demand for specialty coffee is a fad · Further diversification of fast food restaurants that cuts into market share

Starbucks SWOT Analysis and Strategic Scorecard

The proposed scorecard strategic objectives are shown attached (last page; Appendix 1) and are based on my SWOT analysis. Kaplan & Norton Balanced Scorecard show that the perspectives would interact with each other, with learning and growth improving both internal business process and customer satisfaction for example. Then, in turn, the improved business process and customer satisfaction would impact and improve the financial perspective. These relationships are shown below as Exhibit 1.1 (Buggey, 2007).

Two strengths and opportunities discussed in my SWOT analysis are appealing to students and creating inviting drink sensations that would motivate a special visit and acceptance of a higher price. I have proposed two objectives. First, that Starbucks aggressively create new distinctive recipes, such as the Chip Coffee, that establish Starbucks as the drink innovator in the industry. Currently other brands create “knock offs” of Starbucks drinks. I propose that Starbucks continue to create drinks that create “knock off” envy. The initiative is to create an email and tweet campaign among Starbucks card users (most loyal customers) to suggest new flavor sensations. Give awards for most creative, most non-coffee like and so forth. The measure would be number of introductions with the goal being at least two major innovations a year.

The second strategic objective in learning and growth would be to offer “study friendly” drinks for the student population. This would entail offering free “extra shots” with an exam schedule and more advertising the week before midterms and finals on campus. The measure will be to share with the student drink market and the goal is 20% or more.

For the internal business process, I recommend three strategic initiatives. First, I believe Starbucks needs to stick to its “perfect” drink commitment to maintain its quality image and price point. This requires backing up the promise with rework and redemption coupons. Secondly, I believe that Starbucks must compete during the rush hour by offering a better drink but not at the expense of getting to work on time. During rush hour, the most experience baristas will serve at the window and being the shift is fully stocked. Finally, the third strategic objective will be to offer more access to Starbucks items at non-Starbucks locations. This will be achieved through partnerships with local event venues with the goal of having an event monthly and one event for every 30,000 of the population.

The customer perspective has two strategic initiatives in addition to add to the benefits that will accumulate from the strategic moves suggested in the learning and growth and internal business process perspectives. First, Starbucks will position themselves as the “affordable treat” in the downturn. What I am simply implying in this concept is that if you can afford a brown new car or go on vacation, or even get away, in this downturn economy, then it is eminent that you can also get away with Starbucks products for less than $5 and have a great time doing it. The second thing is that, Starbucks would start offering cell phone advertisements and tweet coupons to regular customers to try the new innovative drinks and get free coupons if any of their flavors are adopted. This would appeal to the technologically-advanced market segment.

Finally, the financial perspective should enjoy the benefits of the strategic initiative and objectives in the other three perspectives. To make sure the benefits cascade into financial results, I propose two measures that are classics. First, return on sales. Even though we offer targeted discounts, we have to maintain a certain margin to offer a reasonable return on equity to our owners. So, we have to maintain our average margins. We will do this by limiting discounts to those opportunities where we are creating new customers, or new “addictions” to high margin untried flavors. The goal is to create a new solid customer base that will continue and grow through the economic recovery. Secondly, the strategic objective is to create additional transactions without added “bricks and mortar” by offering Starbuck drinks at local venues. The measure is return on assets and should exceed cost of capital by a historical margin. Overall, the strategic objectives that are suggested create ideas that capitalize on strengths and support areas of weakness as noted in the SWOT analysis.

Starbucks Balanced Scorecard

The balanced scorecard requires that the organization be viewed from four main perspectives (Hefner, 2011). These perspectives include learning and growth, financial, internal business process and finally the customer perspective. The need to look at an organization from the four perspectives is to develop metrics, collection and interpretation of data relating it to all the four perspectives (Hefner, 2011).

Learning and Growth

Given this cause-and-effect relationship among the perspectives, I started with the learning and growth section. At this stage, there is need to focus at the employee training. Employees at Starbucks are trained with the objective that they are going to reach their full potential. Mediocrity and procrastination are avoided so that employees can realize what they are best at in a personal level and the potential the organization has (Hefner, 2011). The company therefore insists on timely and quality deliveries to its employees during the training period. The employees are made to understand that they do not need to package themselves to what they are not but rather they are given room to develop themselves to be what they want to be (Kurtz, 2009). Learning goes on even after the basic orientation. Employees are made to understand that learning is a lifetime process and the only way for the company to be a step ahead of their competitors is through having a human resource that is knowledgeable. Information is therefore an important tool in the business. It is for this reason that the company has created a culture of information sharing. Employees are encouraged to share information to improve them and as a result improve the organization as a whole.

Internal business

It refers to the internal business processes. Managers interested in this perspective use metrics to measure the performance of their business, whether the company services and products do conform to the customer’s requirements. Managers at the Starbucks Corporation (SBUX) make sure that they develop metrics within the organization that are meant to measure these processes.

Customer

Starbucks Corporation has realized the need to value their customers from the very start. It is for this reason that one of the core values of the company is service excellence. Customer satisfaction is paramount since this induces repeats and referrals and hence more profits. To measure customer satisfaction, Starbucks Corporation (SBUX) is keen on several indicators. These indicators include customer repeats and referrals. If a customer is not satisfied, he or she will find another supplier who will meet their needs. It is therefore important to consider such indicators since their occurrence may mean decline in profits in future even when the current financial status looks just fine (Kurtz, 2009).

Managers at the SBUX Company have therefore designed metrics for customer satisfaction whereby the customers are analyzed. In this regard, customers are analyzed as individuals, the kind of processes through which the company is providing a service or a product to those particular customers.

Financial

Funding data is a major priority at the SBUX Company. The data has to be timely and accurate. The SBUX has implemented a corporate data base making sure that more of the data processing is centralized and automated. From past experiences, SBUX realized that more emphasis on financials led to the unbalanced situation with regard to all the other perspectives. It is for this reason that SBUX decided to include additional related financial data. Good examples would be the risk assessment not forgetting the cost benefit data.

For Starbucks Corporation to succeed in achieving its objectives, it has come up with a strategy. The strategy is mapped in such a way that the company highlights the need to improve performance in the objectives that are found in the learning and growth perspective which forms the bottom row. Improved performance at this level has enabled the company to improve in its internal process objectives which form the second row up. Consequently, this has led the company to come up with desirable results to its customers and finance which forms the top row.

Starbucks Corporation has not only focused on its goals as an organization but has also created a 360 degree in the way its employees think. This has ensured that people do not just think in a particular way but they instead explore on their way. This has been possible through the sharing of information and the freedom that the employees are given to utilize the knowledge acquired in practice without the fear of making mistakes. This way, the company can be said to have made giant leaps over the last few decades while at the same time improving its employees at an equal rate.

References

Buggey, T. (2007, Summer). A Picture Is Worth.... Journal of Positive Behavior Interventions, 9(3), 151-158. Retrieved December 14, 2007, from Academic Search Premier database.

Buggey, T. (2007, Summer). Storyboard for Ivan's morning routine. Diagram. Journal of Positive Behavior Interventions, 9(3), 151. Retrieved August 6, 2013 from Academic Search Premier database

Hefner, L. (2011). Network Balanced Scorecard . White Plains, NY: New York

Kaplan, R. S., & Norton, D. P. (2007, Jul). Using the balanced scorecard as a strategic management system. Harvard Business Review, 85, 150-161. Retrieved from http://search.proquest.com/docview/227841808?accountid=34899

Kurtz, S. (2009). Balanced Scorecard Basics. New York: Cambridge University Press, New York

Starbucks Corporation (SBUX) (2010). Form 10-K. United States Securities and Exchange Commission, Washington D. C. Starbucks Corporation, Seattle Washington. Financial Content.http://markets.financialcontent.com/stocks/quote/filings/quarterly?Symbol=SBUX. Retrieved 11-05-11.

Sun, V. (2008). What is SWOT analysis. Englewood Cliffs, N. J.: Prentice Hall, Inc.

Tasker, F. (1997). SWOT analysis . Englewood Cliffs, N. J.: Prentice Hall, Inc.

Running head: STARBUCKS SWOT ANALYSIS AND STRATEGIC SCORECARD 1

STARBUCKS SWOT ANALYSIS AND STRATEGIC SCORECARD 13

	Appendix 1 : Starbucks Balance Scorecard Objectives	Measure	Target	Initiative
Financial
1	Profitable transactions	Return on sales	Return on sales will be 9% or higher	Limit discounts to special flavors and high transaction customers.
2	Leverage assets with non-store profits	Return on assets	Return on assets will exceed cost of capital by 5% or more	Event sales will increase transactions without increasing assets employed
Customer
1	Be the "affordable treat" in a down market	Percent increase in number of servings	5% increase in sales volume	Advertise the "affordable get-away": a Starbucks visit
2	Appeal to the technology savvy, educator buyer	Number of coupons redeemed from tweets and cell phones	15% redemption rate	Offer discounts on particular new flavors using tweet coupons and cell phone coupons
Internal Business Process
1	Perfect drink every time	Number of re-made drinks or redemption tickets distributed	Rework/redemption tickets are below 1% of drinks served	Offer redemption ticket or rework for any drink that is not perfect.
2	Quick drive through during rush mornings	Drive through orders completed in two minutes or less	95% of drink-only orders completed in two minutes	Put experienced baristas on drive-through during 6-9 am rush. Have all stations stocked prior to 6am.
3	Create access to Starbuck products at social, sporting and fun events	Number of non-store events offering Starbucks each month	One event for every 30,000 in the population per month	Create partnerships with event suppliers in area
Learning and Growth
1	Create new taste sensations -- be the drink innovator of the industry	Number of new drinks introduced each year	Two major innovations a year (or more)	Solicit customers for ideas; offer rewards for flavor suggestions
2	Offer trendy "study friendly" drinks for student	Share of market of student population	20% or more of student market	Advertise on campus the week before midterm and final exams. Offer free extra shots with final exam schedule.