Starbucks Case Study

Starbucks in 2004 crusade for Global Dominance Strategic Management STRA 703 Assignment Prepargond by Sherif Hendi (M1100758) Presented to Dr. Gamal Shehata Questions Q. no(prenominal) 1 What be the key elements of Starbucks strategy as of 2004? (What is the throw in concept, the customer offerings and differentiators? The enlargement strategy? The financial strategy? The force play circumspection and social responsibilities? Conduct a five forces analysis? ) Q. No. 02 What was the authentic strategical heap and objectives and how did they evolve? What is your opinion of Starbucks mission statement?What grade would you drop Howard Schultz for his job as the CEO Starbucks and wherefore? Q. No. 3 What is your assessment of Starbucks financial performance during eld 1998-2003? (Growth rates, profitability, control of major hail categories, financing, hard roe, and P/E ratio? ) Q. No. 04 What were the key recognizes faced by Starbucks in 2004? Q. No. 05 What recommendation s would you make to Howard Schultz to wield the companion growth and abet strong financial performance in the days ahead? Q. no. 1 What ar the key elements of Starbucks strategy as of 2004? ANS Key Elements of Starbucks StrategyStarbucks adopted a lot of innovative strategies throughout its journey from 1971 to 2004. These strategies in brief are as follows- * The restaurant/ salt away concept * The offering of Innovative product line * Differentiation from competition * National and international magnification * Distri preciselyion channels (Pepsi partnership/online barge in/Dreyer partnership) * Efficient Financial circumspection (Centralized Information Systems) * Capitalizing on enhancing the with child(p) deal element * Engaging in social responsibility programs (CARE). Competitive Advantages or Differentiators Their differentiating elements are as follows- They were the pioneers to reveal espresso bar nous in USA * Mail order sales * Word of mouth merchandising * Employee motivation strategies to attain improved employee commitment * Convenient distri thation channels * Introducing chemical free finishing process. Q. No. 02 What grade would you buy the farm Howard Schultz for the job he has done as CEO of Starbucks? Be hustling to assert your answer based on how well (or not so well) he has performed the five tasks of strategic tensenesssingsing discussed in Chapter 2. ANS Howard Shultz gets a grade of 95% in his Strategic Management approach.In my opinion Howard Shultz just didnt do perfect in the area of trade as he did not spend adequate budgets on advertising and product innovation. Last solely not the to the lowest degree(prenominal) is that he did not attempt to study the environs properly trance entering into snotty-nosedlyfound geographic areas e. g. he unde lineined a warehousing down street in shekels which was not a good creative thinker due to cold weather conditions. Other than that, he made a enormous tas k of performing alone the five tasks of Strategic Management Q. No. 3 What was Howard Schultzs archetype strategic fancy for Starbucks? Is his present strategic day-dream for Starbucks different from the one he had in the mid-eighties?How m each times has his strategic peck changed? Is his present strategic vision likely to undergo pass on evolution? ANS Howard Shultz original Strategic Vision To establish Starbucks as the intimately recognized and value smear in the world. Strategic Objectives * They wanted to lay down 15,000 stores by the year-end 2005. * They aimed to provide a persistent lam purlieu and treat each other with consider and dignity. * They believed in taking on conversion as an inwrought component in the way they do lineage. * To apply the highest standards of excellence to the purchasing, roasting and clean delivery of coffee. To develop loyal and satisfied customers either of the time. * To contri savee positively to their communities and en vironment, and recognize that profitability is inwrought to future success of melodic line. How did they evolve? At the earlier stages they promised themselves that they will not leave even a single stone unturned to make Starbucks the just about recognized and esteem shuffle in the world. Therefore, they purview that this could only be possible if they will develop these strategic objectives because these are basis to earn the heed and fame for every transaction. Q. No. 3What is your assessment of Starbucks financial performance during years 1998-2003? (Growth rates, profitability, control of major make up categories, financing, roe, and P/E ratio? ) Growth Rate Years 1998 1999 2000 2001 2002 2003 Growth rate 0 0. 2889 0. 29095 0. 2164 0. 2415 0. 2391 positivity Years 1998 1999 2000 2001 2002 2003 Operating profit margin 8. 34 9. 29 9. 4 10. 57 9. 6183 10. 42 ROE Years 1998 1999 2000 2001 2002 2003 Return on equity 8. 6 1. 58 8. 23 13. 1 18. 35 12 Price Per Earning Share Years 1998 1999 2000 2001 2002 2003Price Per Earning Share 0. 19 0. 27 0. 24 0. 46 0. 54 0. 67 Control of Major Cost Categories In this portion we lay down analyzed that how Starbucks controlled its fixed cost. If we conversation about the locations, it was very expensive to purchase land and then develop it as a store, so to overcome this problem Starbucks started leasing the land for presbyopic margin periods.In our opinion, it was a quit impressive attain to cut down its fixed cost. Secondly they observed that to get the license was too costly for them, so they made contracts with the partners who had license with them. Financing For the financing, Starbucks alternatively of taking loans preferred raising the equity. It was a better idea to incur capital because they did not reach to pay any short term and long term interests against the borrowings. Q. No. 04 What were the key bribes faced by Starbucks in 2004? Every partnership faces major challenges, even companies that are as successful as Starbucks.Although they nominate an outstanding reputation, deliver won many awards like evanesce parent open retail store award and most ethical go with award etc, and even give back to their community, they are still facing challenges like any other confederation. Following are the most obvious challenges that Starbucks is dealing with- * Schultz was overflowing with the ideas for the company, early on he noticed that first-time customers sometimes felt sickish in the stores because of their lack of cognition about fine coffees and because store employe es sometimes came across as a little arrogant or superior to coffee beginner. Howard Schultz when came back from Italy shared his ideas for modifying the format of Starbucks store with Baldwin and Gordon Bowker. just kind of of winning approval for trying out some of his ideas, Schultz encountered strong resistance but later a year Schultz succeeded in winning the approval from Baldwin and Bowker. * After sometime Baldwin and Bowker again went against the ideas of Schultz so he became so frustrated and left Starbucks in late 1985 to open his own separate Espresso Bars in high-traffic down town locations. Schultz acquired Starbucks in 1987 and later the 20 months of acquiring, some employees felt unappreciated that there was a feeling of prior worry had abandoned them. So, Schultz decided to make create a parvenu kind of mutual respect between employees and heed. * Starbucks lost its money when it expanded market to stops because in Chicago that was the first downtown store subject on to the street rather than into the lobby of the create where it was set(p) in the winter months, customers were hesitant to go out in the wind and cold to acquire a cup of coffee.It was expensive to supply fresh coffee to the Chicago stores from Seattle warehouse. * The challenge to Starbucks, in Schultz view, was how to attract, motivate, and reward store employees in a manner that would make Starbucks a company that tidy sum would want to educate for and that would fork out enthusiastic commitment and higher level of customer service. * A values and principles crisis arose at Starbucks in 1989 when customers offset requesting non fill in milk in making Cappuccinos and lattes (an espresso coffee with frothy steamed milk) So, Starbucks started selling twain(prenominal) fatty milk and nonfat milk Cappuccinos and lattes. They were facing the issue of Wi-Fi (wireless internet service) in 2002, the number of accesses was in the millions by T-Mobile internal research showed that the average connection last approximately 45 minutes So, in October 2003, Starbucks announce that they will expand Wi-Fi capability to additional locations and would reserve 2700 stores equipped with wireless Internet access by year end. * They were also facing challenges from their competitors.In 2003 there were an estimated 14000 specialty coffee outlets in the United States but they were not competent enough to exert pressure at Starbucks. Q. No. 05 What recommendations would you make to Howard Schultz to sustain the company growth and support strong financial performance in the years ahead? Recommendations After analyzing the consentient case study, we became commensurate to give few suggestions to Howard Schultz which post be handy to sustain the growth and support strong financial performance in the forthcoming years- * He should spend to a corkinger extent budgets on advertisement of products. He should bring innovations in his products because we saw in thi s case study that he was godly by espresso bars so he imitated the square theme of Italian espresso bars and the idea of Cimmerian roasted bean was an older one as well. * Before entering to any refreshful geographical region he should study the market environment of that particular region as we saw that at Chicago there was an issue of cold weather and his store was at down-town-street. Further to a colossaler extent(prenominal), the labor rates and rents of building were higher as well. * At the stores Starbucks technique to teach customers about how to make coffee was not a good idea ecause it does not support their vexation model. Therefore, it should be avoided in future. Above elaborated things were having expatiate about the strategies of Starbucks which drove it for the Global dominance till 2004. Starbucks is in fact the recognized and respected score in the world and if it fag overcome the shortcomings which we identified then nobody can create annoyanceation for it to be successful and there will be no point left as a mistake on its part. Reference www. starbucks. com incase Study Starbucks in 2004 whimsical for Global Dominance written by Arthur A. Thompson, Amit J. Shah and Thomas F. Hawk.Starbucks role StudyConner A Intro to Business 3/26/2013 Case Study Consumer Behavior in the Coffee Industry Did you know one pay off alone reign an entire payment-processing market in just one year? You might have heard of this colossus company by the name Starbucks. Howard Schultz, CEO of Starbucks, had a significant role in the companys growth. Starbucks has steadily predominate the coffee market and has even extended to being a tertiary domicile for many of its consumers. Based in Seattle, Starbucks had significant competition when it opened its first store in the pike Place market in Seattle, yet still managed to become superior.Starbucks used new advertising maneuver and presented a unique lie with for its customers, all of which was a game changer in the business world. Starbucks was created when deuce-ace friends opened a small store to sell coffee beans and roast in 19711. Jerry Baldwin, Gordon Bowler and Zev Siegl opened their store in the heart of the unique open air market in downtown Seattle. determined just off the harbor, freeway place market was the optimal location and attracted many residents and tourists.After ten years of incredible growth, Jerry Baldwin pick outd Howard Schultz as head of focusing. When Schultz first started, he slowly learned the coffee fabrication and helped made subtle but significant changes. For example, Schultz noticed that first-time customers sometimes felt anxious in the stores2 so he developed customer-friendly sales skills and produced brochures that made it easy for customers to learn about fine coffees2 Schultz had the vision of making Starbucks a coffee lounge versus a bar after being elysian by eastern traditions.Even though he did not agree with the new direction, Baldwin allowed Schultz to open one espresso bar and in 2 years, Schultz was able to buy out Baldwin and equity owners with the help of gradeors in 19921. Howard Schultz initially saw the world condition of consumer behavior early on when he realized Starbucks began to be a social gathering mecca for race instead of just an espresso stand. When Schultz first noticed the seismic change in consumer behavior, he adopted a free-Wi-Fi service and mobile payment service and noticed that Starbucks began to attract deal as if it was a deuce-ace floor for coffee enthusiasts.Although he jokes about not acquiring rent from consumers, it allowed Starbucks to create an online- dumbfound in their tertiary home which was unique to the coffee scene in the United States. With scheduled deliveries and privatized ad networking, Starbucks was maximizing its kale and allowing an experience for coffee enthusiasts that did not make them feel locked-into paying. This turn in consumer behavior was in result to the cultural need for a place between home and work. As social beings, humans grow for an excuse to hang out and socialize or participate in a community environment.This amaze experience that Starbucks supplied need to be fine-tuned like any business externalize. Like any business, Starbucks had challenges, such as their management of spending. In an interview entitled Business Brilliant, Schultz said that too much was focused on the customer instead of the infrastructure. To improve this, Schultz developed a unique experience in the store with the diametric pastry-drinks and released free Wi-Fi for customers. In addition to free-Wi-Fi, mobile payments allowed consumers to avoid lines and continue their private work in the confines of the lounge. curtly Starbucks was thriving and announce that the opening of 150 new stores in five years significantly exceeded the 1987 business means objective of 1253. Like every company, Starbucks faced unique issue s in their business which slowed down growth initially which in effect slowed down growth in the long run. Schultz attributed the biggest hold-back in the long run to not drapeing in the supply chain, engineering or manufacturing. Although Starbucks was marketing their franchise thoroughgoingly well, they did not invest ahead of the growth curve and the infrastructures became under-par.In the Business Brilliant, Schultz candidly admitted that Starbucks solely accelerate growth of the company. Moreover, Schultz said the issue was that Starbucks call for competency well beyond the size of the company and take the kind of capability they didnt have. Since their infrastructures efficiency in the short run was hindered by technological limitations coupled with access to capital, the entire store chains needed to be closed in(p) down. Schultz delimitate the event as a need to redesign their scope and retrain their employees.Starbucks was losing grip on the customers and their committal because the experience of Starbucks was losing its unique features. All of these internal and external issues that Starbucks was facing were all connected with values and company symbol according to Schultz. Schultz was so specific with the Starbucks experience that when he smelt burning cheese in a store he decided to ask the workers and they told him So what, remuneration are up concisely after this, Schultz decided to close down and retrain all stores and employees. He sent out a press release admitting that Starbucks was misrepresenting itself.Although no one had accused or criticized Starbucks prior to his declaration, it was a em foolhardyened ply which negatively impacted the financial strength of the Company. However, the action proved loyal to the consumer and enhanced grease loyalty for Starbuck-addicts. This root issue of falsifying in the Starbucks experience and the company vision was so significant to Schultz that he needed rework his company from t he ground up. This road block of conserving the core businesses and force for relevant innovation made Schultz tweak and adjust the Starbucks experience constantly but efficaciously.While Schultz attributes the root issue for Starbucks to be company image and adapting core values, could it be possible that the vision and image were not mightily portrayed because of unwise financial backing? Schultz does admit the supporting issues contributed to the core issue of misrepresentation of company image and values, but he does not see the two issues in separate environments. Schultz assigns the core issue to misrepresentation and the surface symptoms to be funding. However, more funding or a different funding plan with more focus in infrastructure would have changed the outcome.The core issue was funding and the symptoms of the core issues were misrepresentation because of pick allotment. While their short term fixed costs of infrastructure and labor were solved, their reserved a nd recurring allocation towards the upgrades of their infrastructure lacked significantly. If properly funded before and seen ahead of the curve, their growth could have been anticipated. This is evident through the need to close down down and retrain employees. Its clear that the total fixed and multivariate costs exceeded their revenue initially.Like all companies, there was a start-up curve but when the curve was dealt with, resourcefulness allocation was not the focus. The best plan of action ideally would start with addressing resource allocation. Starbucks was able to stay in business and have huge growth so its clear the management was able to properly allocate their average variable costs and fixed costs for the most part. Nevertheless, it would have been best if the costs were optimized and revenue was set deflection for changes in infrastructure. Funding should have been directed at things which would have produced stability in the long run.This would have lowered th eir total costs and properly funded their infrastructures for the long run and short run. Schultz should have looked at the management immediately after buying out the company and properly removed people with skills that would be able to guide Starbucks through significant growth. Investment in infrastructure to avoid long-term costs would have saved Starbucks from funding issues at later times. In addition to optimizing their infrastructure for the long run, Starbucks needed to invest more in manufacturing and supply chain for the success in the long run.For example, Starbucks should have initially al placed more funding towards small upgrades in their infrastructure such as ovens versus microwaves to avoid unpleasant scents in the customers experience. This also connects to Schultzs emphasis on hiring employees and affiliates based on similar values. If the decision to hire those employees would have initially been more focused on similar values in addition to management skills, the variable costs to upgrade the infrastructure in the long run would have been lower because the management would have been more motivated to deal with the issue before the CEO had to see the symptoms.Finally, the management of Starbucks needed to choose their employees more wisely from the start. If Schultz would have chosen his employees based on the likeness of their values and the company vision, little issues such as smell in the customers experience would have been dealt with more expeditiously. This connects to optimizing their infrastructure but focuses on the employees instead of the technology. Its important to treat both with separate solutions because Schultz reminded us that the employees can only work with the assets they are provided with.This small change in the focus of the start-up of the company could benefit the image of Starbucks very efficiently and in a cost-productive way. Schultz jokes about not getting rent from Starbucks admirers yet he also notes that the potential to plug into the social media of the internet and create the environment was more beneficial than the issue of customers hanging out inside the store. The evolving Starbucks experience caused consumers to have incredible scar loyalty over alternatives such as Petes Coffee and Tea and Tullies.Yet the quick and agile rejoinder of technology was exactly what Starbucks needed to put it ahead of the growth curve in social media bit its competitors struggled behind. Schultzs solutions were effective in the short run but he still realized his long run potential was extra by resource allocation. The problem with Starbucks and consumers was not the geological fault in strike for coffee consumers but it was resource allocation and initial planning. Howard Schultzs plan of action was headed in the regenerate direction apart from the minor mix-up between the surface symptoms and the core issue.In addition to new work practices, Schultz integrated new management and had to let go many of the people he knew were special to the companionship of the short-term. This new resource allocation towards what Schultz called the backside of the company, allowed the company to finally resolve its funding and allocation issues. The new plan of action consisted of hiring new employees and investing in infrastructure to anticipate growth and new forms of technology the poor management habits of the past from would not hinder Starbucks in the future.Similar to my suggested plan of action, Schultzs initiative consisted of new employees, new technology and investing in the short term. If Schultzs would have put more funding towards infrastructure to bring stability in the long run, he would have been able to manage the shift in consumer behavior and maintain profit without the need to close down the stores for retraining. The issue for Starbucks is not losing customers but how to accurately represent the companys values. Moreover, if the employees were chosen decen tly and the infrastructure was properly optimized, Schultz plan would have worked perfectly.All in all, every company in any industry is going to face challenges and have limited resources to meet them in an efficient manner. Howard Schultz used the resources he had to best manage Starbucks and handled the big issues he had efficiently and creatively. The future of Starbucks all depends on its management and commitment to adhering to the company vision and values. After experiencing the 2000-2008 period, one can see that the values will inevitably shift with changes in management. 4 The future of Starbucks is highly dependent on how long Howard Schultz continues to be an active part of the company and in shaping its vision. If affiliates and employees are chosen intelligently and have values matched properly with the companys mission, Starbuckss vision should be passed down in effect through each generation of new management. Nevertheless, the rise and fall of competitors in a mark et is requisite and time will tell if Starbucks will eventually be surpassed by a competitor. Starbucks will be a primary educational focus for many business programs.It is one of the best managed franchises in taradiddle and will remain one of the most successful for a long period of time. Like any business, Schultz received criticism for utmost(prenominal) replys yet these responses excelled the growth of the company. Much like my suggestions, Schultz acted quickly and made extreme changes which were crucial to repairing the infrastructure. Unlike most companies, Starbuckss major focus is promoting the company image and values instead of putting profits first. Works Cited I. Schiff, Lewis. Starbucks CEO Howard Schultz Coming to NYC. Inc. com. INC, 18 Mar. 2011. Web. 25 Mar. 2013. II. Starbucks connection accounting. recital of Starbucks participation FundingUniverse. Funding Universe, n. d. Web. 25 Mar. 2013. III. McGraw Hill. Starbucks Corporation. Starbucks Case Study . MHHE. com, n. d. Web. 25 Mar. 2013. 1 Funding Universe, Starbucks Corporate History 2 McGraw Hill, Starbucks Case Study, Starbucks Corporate History 3 McGraw Hill, Starbucks Case Study, Starbucks Corporate History 4 Funding Universe, Starbucks Corporation HistoryStarbucks Case StudyStarbucks in 2004 Driving for Global Dominance Strategic Management STRA 703 Assignment Prepared by Sherif Hendi (M1100758) Presented to Dr. Gamal Shehata Questions Q. NO. 1 What are the key elements of Starbucks strategy as of 2004? (What is the store concept, the customer offerings and differentiators? The expansion strategy? The financial strategy? The power management and social responsibilities? Conduct a five forces analysis? ) Q. No. 02 What was the original strategic vision and objectives and how did they evolve? What is your opinion of Starbucks mission statement?What grade would you give Howard Schultz for his job as the CEO Starbucks and wherefore? Q. No. 3 What is your assessment of Starb ucks financial performance during years 1998-2003? (Growth rates, profitability, control of major cost categories, financing, ROE, and P/E ratio? ) Q. No. 04 What were the key issues faced by Starbucks in 2004? Q. No. 05 What recommendations would you make to Howard Schultz to sustain the company growth and support strong financial performance in the years ahead? Q. NO. 1 What are the key elements of Starbucks strategy as of 2004? ANS Key Elements of Starbucks StrategyStarbucks adopted a lot of innovative strategies throughout its journey from 1971 to 2004. These strategies in brief are as follows- * The restaurant/store concept * The offering of Innovative product line * Differentiation from competition * National and international expansion * Distribution channels (Pepsi partnership/online store/Dreyer partnership) * Efficient Financial management (Centralized Information Systems) * Capitalizing on enhancing the people element * Engaging in social responsibility programs (CARE). C ompetitive Advantages or Differentiators Their differentiating elements are as follows- They were the pioneers to confine espresso bar idea in USA * Mail order sales * Word of mouth marketing * Employee motivation strategies to attain improved employee commitment * Convenient distribution channels * Introducing chemical free kitchen-gardening process. Q. No. 02 What grade would you give Howard Schultz for the job he has done as CEO of Starbucks? Be nimble to support your answer based on how well (or not so well) he has performed the five tasks of strategic management discussed in Chapter 2. ANS Howard Shultz gets a grade of 95% in his Strategic Management approach.In my opinion Howard Shultz just didnt do perfect in the area of marketing as he did not spend adequate budgets on advertising and product innovation. Last but not the least is that he did not attempt to study the environment properly while entering into new geographical areas e. g. he opened a store down street in Chic ago which was not a good idea due to cold weather conditions. Other than that, he made a great task of performing all the five tasks of Strategic Management Q. No. 3 What was Howard Schultzs original strategic vision for Starbucks? Is his present strategic vision for Starbucks different from the one he had in the eighties?How many times has his strategic vision changed? Is his present strategic vision likely to undergo progress evolution? ANS Howard Shultz original Strategic Vision To establish Starbucks as the most recognized and respected crack in the world. Strategic Objectives * They wanted to have 15,000 stores by the year-end 2005. * They aimed to provide a great work environment and treat each other with respect and dignity. * They believed in taking on diversity as an essential component in the way they do business. * To apply the highest standards of excellence to the purchasing, roasting and fresh delivery of coffee. To develop loyal and satisfied customers all of the time. * To contribute positively to their communities and environment, and recognize that profitability is essential to future success of business. How did they evolve? At the earlier stages they promised themselves that they will not leave even a single stone unturned to make Starbucks the most recognized and respected brand in the world. Therefore, they judgement that this could only be possible if they will develop these strategic objectives because these are basis to earn the respect and fame for any business. Q. No. 3What is your assessment of Starbucks financial performance during years 1998-2003? (Growth rates, profitability, control of major cost categories, financing, ROE, and P/E ratio? ) Growth Rate Years 1998 1999 2000 2001 2002 2003 Growth rate 0 0. 2889 0. 29095 0. 2164 0. 2415 0. 2391 favourableness Years 1998 1999 2000 2001 2002 2003 Operating profit margin 8. 34 9. 2 9 9. 4 10. 57 9. 6183 10. 42 ROE Years 1998 1999 2000 2001 2002 2003 Return on equity 8. 6 1. 58 8. 23 13. 1 18. 35 12 Price Per Earning Share Years 1998 1999 2000 2001 2002 2003Price Per Earning Share 0. 19 0. 27 0. 24 0. 46 0. 54 0. 67 Control of Major Cost Categories In this portion we have analyzed that how Starbucks controlled its fixed cost. If we run out about the locations, it was very expensive to purchase land and then develop it as a store, so to overcome this problem Starbucks started leasing the land for long term periods.In our opinion, it was a quit impressive move to cut down its fixed cost. Secondly they observed that to get the license was too costly for them, so th ey made contracts with the partners who had license with them. Financing For the financing, Starbucks instead of taking loans preferred raising the equity. It was a better idea to generate capital because they did not have to pay any short term and long term interests against the borrowings. Q. No. 04 What were the key issues faced by Starbucks in 2004? Every company faces major challenges, even companies that are as successful as Starbucks.Although they have an outstanding reputation, have won many awards like crest sustainable retail store award and most ethical company award etc, and even give back to their community, they are still facing challenges like any other company. Following are the most obvious challenges that Starbucks is dealing with- * Schultz was overflowing with the ideas for the company, early on he noticed that first-time customers sometimes felt uneasy in the stores because of their lack of knowledge about fine coffees and because store employees sometimes came across as a little arrogant or superior to coffee beginner. Howard Schultz when came back from Italy shared his ideas for modifying the format of Starbucks store with Baldwin and Gordon Bowker. that instead of winning approval for trying out some of his ideas, Schultz encountered strong resistance but after a year Schultz succeeded in winning the approval from Baldwin and Bowker. * After sometime Baldwin and Bowker again went against the ideas of Schultz so he became so frustrated and left Starbucks in late 1985 to open his own separate Espresso Bars in high-traffic down town locations. Schultz acquired Starbucks in 1987 and after the 20 months of acquiring, some employees felt unappreciated that there was a feeling of prior management had abandoned them. So, Schultz decided to make building a new family relationship of mutual respect between employees and management. * Starbucks lost its money when it expanded market to Chicago because in Chicago that was the first downtown stor e opened on to the street rather than into the lobby of the building where it was located in the winter months, customers were hesitant to go out in the wind and cold to acquire a cup of coffee.It was expensive to supply fresh coffee to the Chicago stores from Seattle warehouse. * The challenge to Starbucks, in Schultz view, was how to attract, motivate, and reward store employees in a manner that would make Starbucks a company that people would want to work for and that would generate enthusiastic commitment and higher level of customer service. * A values and principles crisis arose at Starbucks in 1989 when customers offset requesting nonfat milk in making Cappuccinos and lattes (an espresso coffee with frothy steamed milk) So, Starbucks started selling both fat milk and nonfat milk Cappuccinos and lattes. They were facing the issue of Wi-Fi (wireless internet service) in 2002, the number of accesses was in the millions by T-Mobile internal research showed that the average conne ction last approximately 45 minutes So, in October 2003, Starbucks announced that they will expand Wi-Fi capability to additional locations and would have 2700 stores equipped with wireless Internet access by year end. * They were also facing challenges from their competitors.In 2003 there were an estimated 14000 specialty coffee outlets in the United States but they were not competent enough to exert pressure at Starbucks. Q. No. 05 What recommendations would you make to Howard Schultz to sustain the company growth and support strong financial performance in the years ahead? Recommendations After analyzing the whole case study, we became able to give few suggestions to Howard Schultz which can be handy to sustain the growth and support strong financial performance in the forthcoming years- * He should spend more budgets on advertisement of products. He should bring innovations in his products because we saw in this case study that he was inspired by espresso bars so he imitated the whole theme of Italian espresso bars and the idea of blue roasted bean was an older one as well. * Before entering to any new geographical region he should study the market environment of that particular region as we saw that at Chicago there was an issue of cold weather and his store was at down-town-street. Furthermore, the labor rates and rents of building were higher as well. * At the stores Starbucks technique to teach customers about how to make coffee was not a good idea ecause it does not support their business model. Therefore, it should be avoided in future. Above elaborated things were having inside information about the strategies of Starbucks which drove it for the Global dominance till 2004. Starbucks is in fact the recognized and respected brand in the world and if it can overcome the shortcomings which we identified then nobody can create bother for it to be successful and there will be no point left as a mistake on its part. Reference www. starbucks. com Case Stud y Starbucks in 2004 Driving for Global Dominance written by Arthur A. Thompson, Amit J. Shah and Thomas F. Hawk.Starbucks Case StudyConner A Intro to Business 3/26/2013 Case Study Consumer Behavior in the Coffee Industry Did you know one franchise alone dominated an entire payment-processing market in just one year? You might have heard of this elephantine company by the name Starbucks. Howard Schultz, CEO of Starbucks, had a significant role in the companys growth. Starbucks has steadily dominated the coffee market and has even extended to being a 3rd home for many of its consumers. Based in Seattle, Starbucks had significant competition when it opened its first store in the Pike Place market in Seattle, yet still managed to become superior.Starbucks used new advertising tactical maneuver and presented a unique experience for its customers, all of which was a game changer in the business world. Starbucks was created when ternary friends opened a small store to sell coffee beans and roast in 19711. Jerry Baldwin, Gordon Bowler and Zev Siegl opened their store in the heart of the unique open air market in downtown Seattle. fixed just off the harbor, Pike place market was the optimal location and attracted many residents and tourists.After ten years of incredible growth, Jerry Baldwin hired Howard Schultz as head of management. When Schultz first started, he slowly learned the coffee industry and helped made subtle but significant changes. For example, Schultz noticed that first-time customers sometimes felt uneasy in the stores2 so he developed customer-friendly sales skills and produced brochures that made it easy for customers to learn about fine coffees2 Schultz had the vision of making Starbucks a coffee lounge versus a bar after being inspired by eastern traditions.Even though he did not agree with the new direction, Baldwin allowed Schultz to open one espresso bar and in 2 years, Schultz was able to buy out Baldwin and equity owners with the help of i nvestors in 19921. Howard Schultz initially saw the power of consumer behavior early on when he realized Starbucks began to be a social gathering mecca for people instead of just an espresso stand. When Schultz first noticed the seismic change in consumer behavior, he adopted a free-Wi-Fi service and mobile payment service and noticed that Starbucks began to attract people as if it was a trio home for coffee enthusiasts.Although he jokes about not getting rent from consumers, it allowed Starbucks to create an online-experience in their 3rd home which was unique to the coffee scene in the United States. With scheduled deliveries and privatized ad networking, Starbucks was maximizing its profits and allowing an experience for coffee enthusiasts that did not make them feel locked-into paying. This shift in consumer behavior was in response to the cultural need for a place between home and work. As social beings, humans succeed for an excuse to hang out and socialize or participate in a community environment.This stupefying experience that Starbucks supplied needed to be fine-tuned like any business plan. Like any business, Starbucks had challenges, such as their management of spending. In an interview entitled Business Brilliant, Schultz said that too much was focused on the customer instead of the infrastructure. To improve this, Schultz developed a unique experience in the store with the opposite pastry-drinks and released free Wi-Fi for customers. In addition to free-Wi-Fi, mobile payments allowed consumers to avoid lines and continue their private work in the confines of the lounge.Soon Starbucks was thriving and announced that the opening of 150 new stores in five years significantly exceeded the 1987 business plans objective of 1253. Like every company, Starbucks faced unique issues in their business which slowed down growth initially which in effect slowed down growth in the long run. Schultz attributed the biggest hold-back in the long run to not inve sting in the supply chain, technology or manufacturing. Although Starbucks was marketing their franchise extremely well, they did not invest ahead of the growth curve and the infrastructures became under-par.In the Business Brilliant, Schultz candidly admitted that Starbucks solely speed growth of the company. Moreover, Schultz said the issue was that Starbucks needed competency well beyond the size of the company and needed the kind of capability they didnt have. Since their infrastructures efficiency in the short run was hindered by technological limitations coupled with access to capital, the entire store chains needed to be shut down. Schultz defined the event as a need to redesign their image and retrain their employees.Starbucks was losing grip on the customers and their loyalty because the experience of Starbucks was losing its unique features. All of these internal and external issues that Starbucks was facing were all connected with values and company image according to Schultz. Schultz was so specific with the Starbucks experience that when he smelt burning cheese in a store he decided to ask the workers and they told him So what, profits are up Soon after this, Schultz decided to close down and retrain all stores and employees. He sent out a press release admitting that Starbucks was misrepresenting itself.Although no one had accused or criticized Starbucks prior to his declaration, it was a bold move which negatively impacted the financial strength of the Company. However, the action proved loyal to the consumer and enhanced brand loyalty for Starbuck-addicts. This root issue of misrepresentation in the Starbucks experience and the company vision was so significant to Schultz that he needed rework his company from the ground up. This road block of conserving the core businesses and move for relevant innovation made Schultz tweak and adjust the Starbucks experience constantly but effectively.While Schultz attributes the root issue for Starbucks to be company image and adapting core values, could it be possible that the vision and image were not correctly portrayed because of unwise funding? Schultz does admit the funding issues contributed to the core issue of misrepresentation of company image and values, but he does not see the two issues in separate environments. Schultz assigns the core issue to misrepresentation and the surface symptoms to be funding. However, more funding or a different funding plan with more focus in infrastructure would have changed the outcome.The core issue was funding and the symptoms of the core issues were misrepresentation because of resource allocation. While their short term fixed costs of infrastructure and labor were solved, their reserved and recurring allocation towards the upgrades of their infrastructure lacked significantly. If properly funded before and seen ahead of the curve, their growth could have been anticipated. This is evident through the need to shut down and retrain emplo yees. Its clear that the total fixed and variable costs exceeded their revenue initially.Like all companies, there was a start-up curve but when the curve was dealt with, resource allocation was not the focus. The best plan of action ideally would start with addressing resource allocation. Starbucks was able to stay in business and have great growth so its clear the management was able to properly allocate their average variable costs and fixed costs for the most part. Nevertheless, it would have been best if the costs were optimized and revenue was set deflection for changes in infrastructure. Funding should have been directed at things which would have produced stability in the long run.This would have lowered their total costs and properly funded their infrastructures for the long run and short run. Schultz should have looked at the management immediately after buying out the company and properly hired people with skills that would be able to guide Starbucks through significant growth. Investment in infrastructure to avoid long-term costs would have saved Starbucks from funding issues at later times. In addition to optimizing their infrastructure for the long run, Starbucks needed to invest more in manufacturing and supply chain for the success in the long run.For example, Starbucks should have initially allocated more funding towards small upgrades in their infrastructure such as ovens versus microwaves to avoid unpleasant scents in the customers experience. This also connects to Schultzs emphasis on hiring employees and affiliates based on similar values. If the decision to hire those employees would have initially been more focused on similar values in addition to management skills, the variable costs to upgrade the infrastructure in the long run would have been lower because the management would have been more motivated to deal with the issue before the CEO had to see the symptoms.Finally, the management of Starbucks needed to choose their employees mo re wisely from the start. If Schultz would have chosen his employees based on the law of similarity of their values and the company vision, little issues such as smell in the customers experience would have been dealt with more efficiently. This connects to optimizing their infrastructure but focuses on the employees instead of the technology. Its important to treat both with separate solutions because Schultz reminded us that the employees can only work with the assets they are provided with.This small change in the focus of the start-up of the company could benefit the image of Starbucks very efficiently and in a cost-productive way. Schultz jokes about not getting rent from Starbucks admirers yet he also notes that the potential to plug into the social media of the internet and create the environment was more beneficial than the issue of customers hanging out inside the store. The evolving Starbucks experience caused consumers to have incredible brand loyalty over alternatives su ch as Petes Coffee and Tea and Tullies.Yet the quick and agile response of technology was exactly what Starbucks needed to put it ahead of the growth curve in social media while its competitors struggled behind. Schultzs solutions were effective in the short run but he still realized his long run potential was limited by resource allocation. The problem with Starbucks and consumers was not the shift in quest for coffee consumers but it was resource allocation and initial planning. Howard Schultzs plan of action was headed in the right direction apart from the minor mix-up between the surface symptoms and the core issue.In addition to new work practices, Schultz integrated new management and had to let go many of the people he knew were limited to the knowledge of the short-term. This new resource allocation towards what Schultz called the backside of the company, allowed the company to finally resolve its funding and allocation issues. The new plan of action consisted of hiring new employees and investing in infrastructure to anticipate growth and new forms of technology the poor management habits of the past from would not hinder Starbucks in the future.Similar to my suggested plan of action, Schultzs initiative consisted of new employees, new technology and investing in the short term. If Schultzs would have put more funding towards infrastructure to bring stability in the long run, he would have been able to manage the shift in consumer behavior and maintain profit without the need to close down the stores for retraining. The issue for Starbucks is not losing customers but how to accurately represent the companys values. Moreover, if the employees were chosen correctly and the infrastructure was properly optimized, Schultz plan would have worked perfectly.All in all, every company in any industry is going to face challenges and have limited resources to meet them in an efficient manner. Howard Schultz used the resources he had to best manage Starbucks and handled the big issues he had efficiently and creatively. The future of Starbucks all depends on its management and commitment to adhering to the company vision and values. After experiencing the 2000-2008 period, one can see that the values will inevitably shift with changes in management. 4 The future of Starbucks is highly dependent on how long Howard Schultz continues to be an active part of the company and in shaping its vision. If affiliates and employees are chosen intelligently and have values matched properly with the companys mission, Starbuckss vision should be passed down effectively through each generation of new management. Nevertheless, the rise and fall of competitors in a market is indispensable and time will tell if Starbucks will eventually be surpassed by a competitor. Starbucks will be a primary educational focus for many business programs.It is one of the best managed franchises in explanation and will remain one of the most successful for a long period of ti me. Like any business, Schultz received criticism for extreme responses yet these responses excelled the growth of the company. Much like my suggestions, Schultz acted quickly and made extreme changes which were crucial to repairing the infrastructure. Unlike most companies, Starbuckss major focus is promoting the company image and values instead of putting profits first. Works Cited I. Schiff, Lewis. Starbucks CEO Howard Schultz Coming to NYC. Inc. com. INC, 18 Mar. 2011. Web. 25 Mar. 2013. II. Starbucks Corporation History. History of Starbucks Corporation FundingUniverse. Funding Universe, n. d. Web. 25 Mar. 2013. III. McGraw Hill. Starbucks Corporation. Starbucks Case Study. MHHE. com, n. d. Web. 25 Mar. 2013. 1 Funding Universe, Starbucks Corporate History 2 McGraw Hill, Starbucks Case Study, Starbucks Corporate History 3 McGraw Hill, Starbucks Case Study, Starbucks Corporate History 4 Funding Universe, Starbucks Corporation History