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									               College of Business Assessment Assignments
      MBA 1.3 (Strategy Formulation), MBA 4.1 (Environment Shaping), and
                       MBA 5.1 (Organizational Success)


MBA 1.3 Strategy Formulation (MBA 290):

Read the attached article “Expanding the Coffee Experience”. Suppose you are hired by
Starbucks as a strategy consultant to design the company’s strategic plan for its growth in
the Japanese market. Please prepare an outline of your strategic plan (3-4 pages) for the
Board of Directors that should include the following:
1. a brief explanation of the theoretical frameworks upon which your strategic plan is
    based;
2. major elements of your strategic plan;
3. a brief feasibility analysis of your strategic plan.

The Case for MBA 1.3 - Expanding the coffee experience
Beverage Industry; New York; Oct 2002; Sarah Theodore;

Starbucks keeps sales brewing with new products, innovation and global expansion

In major markets, the logo of the Starbucks siren seems to peek out from street corners in
every neighborhood not to mention airports, hotels and grocery kiosks.

So it might come as a surprise to learn that Starbucks won't have stores in all 50 states for
another 18 to 24 months, and that the company even feels it's still in the early stages of its
growth.

Skeptics might talk about market saturation, but Starbucks' international expansion,
product and technology innovations, and its strategic partnerships are just some of the
reasons the company is serving up venti-size sales predications, and thinks it will
continue to do so for some time.

Last year, the company had more than $2.6 billion in sales. It has approximately 5,800
locations - 4,500 in North America and 1,300 abroad and says it is on target to reach
10,000 stores by 2005. Sales predictions are just as heady - year-to-date earnings are up
more than 22 percent compared with last year, and company executives have gone on
record with goals of 25 percent revenue growth per year through 2005.

The company is expanding outside of its coffeehouses, as well, with the help of a number
of strategic partnerships. Pepsi-Cola Co., for example, produces and distributes ready-to-
drink bottled Frappuccino, and Kraft Foods is responsible for distributing Starbucks
coffees through grocery outlets.

"We occupy a position in which Starbucks, despite its success in North America, only has
approximately 7 percent market share of coffee consumption in North America," says



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Starbucks Chairman and Chief Global Strategist Howard Schultz. "We believe very
strongly that these are the early days for the growth and development of the company
domestically, and clearly we're in the infant stage of opening stores and building our
business on a global stage."

When they first started out, Schultz and his team coined the term "the third place," with
Starbucks representing the place for consumers between home and work. And while the
company has expanded in several other directions since then, "the third place" remains
the core of the business philosophy.

"At the root of all of this is we've got a place people can go. It's really a sense of
community," says Howard Behar, president of North American operations. "They can get
what they want the way they want it. That's what's really made it."

To those who say Starbucks is reaching a saturation point in the United States and that its
many closely placed locations cannibalize one another, Behar responds, "We do
cannibalize our own stores, you bet we do. But we'd rather do it ourselves than have
somebody else do it. We're still growing our stores and our average sales are still good
and healthy.

"We keep working on how to find new products that we can bring new customers in with
and old customers coming back. As long as we keep doing that, we can continue to grow
our business."

Pouring on the innovation

Some of the new products and services Behar refers to include this summer's introduction
of Creme Frappuccino (the company's first non-coffee blended drink), the Starbucks Card,
online ordering, and high-speed Internet access.

Ideas for new beverages take their inspiration from a number of sources, including flavor
and culinary trends. Starbucks employs trained chefs who work alongside its food
scientists to develop new products.

"I like to think of Starbucks as being fairly forward," says Vice President of Beverage
Michelle Gass. "We like to be a little bit untraditional, so we look at a lot of trends."

Lifestyle and fashion can also work their way into new product concepts. Creme
Frappuccino, which rolled this summer in Vanilla and Coconut flavors, was a take-off on
both today's comfort food trend and the fashion industry's recent leaning toward the color
white. Similarly, the timing was right for the introduction of new Mocha Coconut
Frappuccino, with a trend toward anything tropical in both flavors and fashion.

Creme Frappuccino was also important to the long-term development of the Frappuccino
brand because it represented a way to reach out to non-coffee drinkers.




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"One of the things we realized was that the Frappuccino business doesn't have to be
limited to people who like coffee," says Gass. "There are many consumers out there who
would like to have a little afternoon treat, but who may not like coffee for whatever
reason.

"Our first priority is always to maintain our coffee position. But there are many products
that you can serve, both with coffee and without. So this felt OK to us. It felt right."

Starbucks is known for its characteristic dark roast coffee, but accommodating differing
tastes have long been part of the business. In 1998, the company introduced Milder
Dimensions, a line of lighter, milder-tasting coffees. It acquired Tazo LLC a Portland,
Ore. based specialty tea company, in 1999, adding Tazo hot and iced teas to the line-up,
as well as Tazo Chai Tea Latte, and Tazo Ice Blended Teas. The newest Ice Blended Tea,
Tazo Citrus, was introduced this summer, using green tea for the first time.

Strategic alliances
The development of several strategic relationships has allowed Starbucks to grow its
business outside its coffeehouses as well as inside. In 1996 it teamed up with Pepsi-Cola
Co. to create a bottled version of its Frappuccino blended drinks. This year the North
American Coffee Partnership, as the team is called, rolled out new Starbucks DoubleShot
espresso drinks.

The partnership leverages Pepsi's production and distribution strengths to get the drinks
into grocery, mass merchandise and convenience store channels.

"The company was looking for, and continues to look for, ways to grow our business in
logical areas," says Hank Suerth, senior vice president of business alliances. "The
opportunity to have a ready-to-drink coffee-based beverage was a logical extension of our
product lines, and allowed us to expand our brand name outside of the [Starbucks] retail
store environment." Praise for the partnership comes from both sides. "Pepsi brings a
tremendous distribution strength and outstanding consumer packaged goods marketing
expertise," says Pepsi's Keith Reimer, general manager of the North American Coffee
Partnership. "Combine that with Starbucks coffee expertise and the fact that they have a
tremendous brand that has a strong consumer following, and you have the makings for a
great partnership."

Bottled Frappuccino, in Hazelnut, Mocha, Vanilla, Coffee, Caramel and Mocha Lite
flavors, has been a hit with consumers, but it holds a unique and often lonely - position as
one of the few successful ready-to-drink coffees with national distribution.

"It really starts with a great brand and a great product," says Reimer, explaining the
product's success. "Starbucks is the specialty coffee pioneer and they've been the
innovator in that arena of the coffee business. That is the key to our success."

But, he adds, he'd love to see some strong competition from other brands. "We've seen a
number of players come in and exit this business, but we view the ready-to-drink coffee



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business as a very viable, long-term, growing category. We certainly welcome the
competition because we think all of us will be able to build awareness to the consuming
public that ready-to-drink and cold coffees are great-tasting products."

Sales of bottled Frappuccino during the past year were up 7.5 percent, with almost 90
percent market share in grocery, drug and mass merchandise outlets, according to
Information Resources Inc., Chicago. In its first several months on the market,
DoubleShot gained a 4.3 share of market.

With the rollout of DoubleShot, the coffee partnership went after a slightly younger
consumer base and dipped into the popular energy drink category. It also allowed the
group to make a ready-to-drink offering for the morning daypart.

"We knew all along that we didn't want [the NACP] to be a one-product venture," says
Suerth. "That's never been the vision of it."

"We position our two products, bottled Frappuccino and Starbucks DoubleShot, in what
we call a dual-- brand strategy campaign," Reimer explains. "It allows us to compare and
contrast these two products because they are serving two different dayparts and also a
slightly different consumer group. DoubleShot is a bit more of an intense coffee
experience to get you going, whereas Frappuccino is more of a soothing Starbucks
experience in a bottle; a little more of an afternoon treat or a reward."

In 1998, Starbucks also joined forces with Kraft Foods to distribute its coffees in grocery,
drug and mass merchandise outlets.

"We looked at a variety of options, including working with brokerage firms to distribute
the product for us and doing it on our own," says Suerth. "But we could more effectively
take care of our customers by working through a corporation that was already set up to do
this and understands to the third decimal point how to work with our grocery customers."

According to IRI, Kraft-distributed Starbucks ground coffee grew 18.5 percent through
grocery, drug store and mass merchandise outlets during the past year. It has a 7.1 percent
share of category sales. Whole bean coffee grew 9.3 percent and holds a 21.6 percent
share of market.

The company took a non-beverage turn in 1995 when it developed an ice cream
partnership with Dryers Grand Ice Cream to create a line of premium ice creams and low-
fat Frappuccino bars using Starbucks coffee extract.

"It might be a niche," says Suerth, "but by definition, we are essentially in a variety of
niches, segments within segments."

Staying connected




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It's not just the drinks that draw consumers to Starbucks, so the company has spent just as
much time developing new technology to enhance the overall experience. The average
Starbucks consumer is in a store five times a month; heavy users as many as 18 times a
month. Many of the company's efforts go toward making the visits as convenient as
possible.

The Starbuck's Card was originally introduced as a gift card, but the company found
many of its customers were keeping the cards for themselves and using them in a debit
fashion as an alternative to cash.

To date, about 5 million of the Starbucks Cards have been activated.

"It's far exceeded our expectations in terms of contributions to the business and
resonation with customers," says Anne Saunders, vice president of Starbucks Interactive.

"We have one-to-one relationships with our customers at the store level, but we don't tend
to know them at the corporate level," she says, explaining the benefits that have stemmed
from the card. "The card allows us to identify the customer, and if they chose, it allows us
to attach preferences to a particular card, which will lead to innovations in ordering and
paying, and making our services more convenient.

"We found that this simple mechanism was able to have a lot of uses, some of which
were strategic in improving operations or driving incremental customer loyalty."

The card lets the company track buying patterns and note changes in buying behavior
when new products are introduced. If a customer chooses to provide personal information,
it also offers a platform for the company to develop reward programs as well.

To make the card even more appealing, the company recently added a reloading option
that allows customers to add more money using a credit card, and if a card is registered
with Starbucks through its Web site and is then lost or stolen, the company will replace it.

"Those are things we're doing to make it not just a fancy gift certificate, but a useful,
convenient payment tool for customers," says Saunders.

Late this summer, Starbucks announced it has made high-speed Internet access available
in 1,200 stores across the United States.

Making use of T-Mobile's HotSpot service, which can be used with laptops and Pocket
PCs, Starbucks provides access at speeds 50 times faster than most people have in their
homes.

"One of the things people told us was 'It would be great to be able to stay connected
while I'm in your stores'," says Saunders. "To us that doesn't mean being an Internet cafe.
We don't want to set up a ton of computers and let people come in and use them. That




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changes the environment. It does mean offering a service that people can use with their
own devices and letting them stay connected."

And for the ultimate in convenience, the company is testing Starbucks Express, an online
ordering system, in some of its stores. The prepaid Express concept allows customers to
place an order through the Internet, or by landline or cell phone, and pick it up in a store
minutes later - no standing in line or waiting. Saunders says the concept drew out of the
Starbucks Card as another way to speed transactions and add convenience.

"It's about giving customers more choice," she says.

Japan and beyond

Starbucks took its first leap outside of North America in 1996 when it entered Japan.
Today it does business in 30 international markets, and just this summer opened its first
stores in Mexico and Greece.

"The good news for us is that we have found since 1996 that there is a strong level of
awareness of the Starbucks brand and what we do, and we've been embraced in ways that
we just didn't plan on, to the point that every country we've opened since 1996 has either
met or exceeded expectations," says Schultz, who transitioned from chairman and chief
executive officer to head up the company's global expansion in 2000.

It might have seemed logical to make the company's first international market one in
which there was a strong base of coffee drinkers, but Starbucks chose Japan for just the
opposite reason. The nascent coffee market in Asia gave the company first mover
advantage and the opportunity to create a new perception of coffee, as it had in the
United States.

"The decision was made to go to Asia first because we felt that the maturity of the coffee
market in Europe was very strong and was not going to change much over the years,"
says Schultz. “The Asian market was in its developmental stage and we had an
opportunity to position Starbucks as a leader in a new industry, and in a sense, educate a
market about the quality of coffee, the experience, and the idea of Starbucks becoming
the third place between home and work in those countries."

Starbucks had a no smoking policy that went against the grain in Asia, and it was told
that the Japanese preferred not to eat or drink in public. But Schultz says the decision to
stick with no smoking in stores proved to be a beneficial one as young people, especially
young women, liked the policy.

And as far as drinking coffee in public - "Because of the high awareness of the brand and
the Japanese market being so brand driven, thousands of people now carry Starbucks
cups every day, in most cases with the logo pointed out as proud consumers," says
Schultz.




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The idea of the "third place" is important enough to the Starbucks experience that, to date,
it has chosen to not introduce its ready-to-drink products or distribute any of its other
products outside its own stores in international markets.

"We want to achieve a critical mass of stores in a new country before we would introduce
products outside of our stores," says Schultz. "We don't want to be known first as a
bottled beverage company, we want the retail stores to define the experience. Having said
that, I believe that both Japan and the U.K. are approaching the level of critical mass
where we can begin to think about that. I suspect at some point in the future we'll talk
about that."

The value of the brand

Top of mind in all of Starbucks ventures is stewardship of its brand, which has been
ranked as one of the most valuable global brands in brand studies.

"We have to rely on our people to embrace the Starbucks culture and the Starbucks way
of doing business," says Schultz. "We have invested very heavily in people in every
country where we have opened stores, and we recognize more than ever before that our
business is not in Seattle anymore, it's a global business, and we have to be in the field
working and supporting our people."

It's a philosophy that extends to its production and distribution partnerships, and all the
way to the street-corner store level.

"When we were a lot younger, we looked at the great organizations of the world and we
said, 'we want to be one of those, we'd like to be recognized for something'," says Behar.

"We're in the coffee business, but really we're in the people business serving coffee. And
the only way that we will achieve that goal is by serving our customers well and giving
them the kind of attention and the kind of service and products that they can't get
anywhere else. That's a hard thing to do. Every day we fail at that. And every day we
succeed at that."




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Questions for MBA 4.1 (MBA 290):

Suppose you are hired as a consultant by eBay, Inc. Below is some information given to
you about eBay (adapted from Idea Group Inc., case IT5693, 2004).

In 1997, Piere Omindyar, online auction house eBay's founder, drove into Silicon Valley
without a business plan, laptop, presentation or even a functional website. However, his
concept of a worldwide flea market was so attractive that Benchmark Capital could not
resist. In early 2002, eBay, one of the few Internet businesses that has been profitable
during the economic slowdown of 2000/2001, had total sales approaching $1 billion;
however, CEO Meg Whitman has promised to increase revenues by more than three
times to $3 billion by 2005. A question for eBay was how to continue to increase
revenues in an increasingly competitive market. Expansion was limited outside of new
geographic territories, and every market participant was striving for a piece of the
industry. The main question to be resolved was how to differentiate eBay from its
competition and achieve a competitive advantage within both a short and long-term time
frame.

EBay's Chairman title was more of a figurehead for the founder Pierre Omindyar. Since
1998, the CEO of the Company has been Meg Whitman, who was solely responsible for
the success and failure of the company from a strategic standpoint. Bob Kagle of
Benchmark Capital was instrumental in developing and modeling the senior staff of
eBay. Mr. Kagel personally brought in Meg Whitman and the COO, Brain Swette, to run
the company. These two senior managers were the first two in the cornerstone of the
executive chain at eBay. The first challenge they faced was to decide on a potential
merger with rival Onsale, another auction website. However, they opted that the best
strategic option was not to merge, but rather prepare for an IPO of the company, which
was completed in late 1998. Ms. Whitman was instrumental in transforming eBay into
the company it became. Her management style could be categorized as hands-on, but
with an excellent executive chain to balance the decision-making and in invite
suggestions from her rank in file. In 2002, Maynard Webb was President of eBay
Technologies. Rajiv Dutta, Senior VP and CFO, was responsible for the financial aspect
of eBay. William Cobb, Senior VP of Global Marketing was responsible for the
marketing of the eBay brand name worldwide. This management team, together with
Ms. Whitman and Mr. Swette, has the structure and experience in both the cyber and
content market to succeed.

A key decision by Ms. Whitman was the implementation of eBay stores. This strategy
differentiated eBay from the competition because the service, the first for online auction
markets, allowed corporations to sell excess items through eBay to customers fro outlet
prices. Ms. Whitman believed in strategic focus an allowed for her employees to be a
part of the innovation process. An innovated thought from the employee pool was the
potential eBay credit card through Visa.

You, as the hired consultant, know that you need more information to address the issues
of profitability, differentiation, and competitive advantages for eBay. You draft the


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following questions. Describe the information you need to collect in order to answer the
following questions.

1. What are eBay's long-term benefits or welfare?

2. What are the characteristics of internal environment that have significant impacts on
   eBay's long-term welfare?

3. What are the characteristics of external environment that have significant impacts on
   eBay's long-term welfare?

4. What are the human and material asset lists for eBay?

5. Suppose the above questions reveal that the most serious industry threat is the many
   fraudulent goods sold via online auctions. What will you suggest to eBay in order to
   respond to the threat by utilizing its resources?




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MBA 5.1 (MBA 290):

You have been asked to write an organizational analysis and proposal for BAYWATCH
OFFICE SERVICES, a company that provides temporary office services. You have done
some surveys and needs analysis for this organization in the past and they now want you
to develop a program of planned change to address their issues and concerns. You have a
good working relationship with the company and feel comfortable laying out a clear plan
of action for them. You have no worries that they will take the plan and implement it
themselves or hire someone else to enact your plan.

They have asked that your proposal do the following:
   1) Clearly define what problems and issues the company faces and what are the
      underlying causes of the problems
   2) Discuss the principles and theories of change which can be used to help them,
      particularly the theories of organizational behavior, organizational structure, and
      technological innovation which might apply
   3) Define a solution strategy
   4) Define an implementation strategy with priorities and a time table.
   5) Leave the organization with a way to assess their progress and continue to
      improve on their own

BAYWATCH TEMPORARY SERVICES, which started out providing mostly
secretarial services when it started 30 years ago, now provides professional IT services to
organizations on a contract basis. Services range from data entry to sophisticated IT
designs and implementations. Personnel may be assigned to a job for a few days or for
months and even years in some cases. Each employee is assigned to an area supervisor
who has control over clients in a geographic area and decides where each person will
work. Employees, once assigned, show up at the client’s business and pretty much
function as if they were an employee of the client organization, but have to provide daily
reports to their BAYWATCH supervisor. Complaints are often made that supervisors
evaluate the work and time commitments of employees while having little knowledge of
the position requirements.

There is a wide range of knowledge, skills, and abilities amongst the employees with
educational levels ranging from H.S. diploma with some technical training, through
master’s degrees. BAYWATCH has several employees (both men and women) who
have held high-level jobs but for personal reasons have decided to work for
BAYWATCH rather than continue to pursue the normal career track in a firm.

The organization has excessively high turnover, even considering that the turnover in
temporary employment is generally high. Most disturbing, is the fact that they are
consistently losing their best personnel. While it is expected that some will be hired
away or start their own consulting firms, many have gone to work for competitors.

Employee surveys indicate that employees feel that their supervisors have little
understanding of the technical aspects of the jobs, since they supervise employees with



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all types of background and training. They complain that they are wrongly classified into
pay categories when assigned to jobs and that the most skilled employees are likely to be
given the most difficult assignments at the same rate of pay as some of the easier
assignments. Exit interviews indicate that employees feel that they quickly get labeled as
having a certain skill and then they are routinely assigned to that same type of job over
and over. One employee said, “never do the impossible, or all you will get is impossible
jobs.” Others maintained that they would get stuck doing the same mundane assignments
over and over because the supervisor never knew what they were capable of doing. It is
not uncommon for one employee to hate their assignment, while another, equally capable
employee is upset that they were overlooked for the assignment.
Complaints have been made that the company positions itself as “family friendly” and
even has recruiting information aimed for women on the “mommy track”. In fact, 75%
of employees are single and under 35 and want a temp setting because they like
adventure and variety in their life and deeply resent the labeling.

One of the most surprising things that the company learned, was that their assumption
that employees wanted to stay at the same company job contract after job contract, and be
a short distance from their home was in error. Many of the employees reported that they
liked to come into a company, do the job and move on to something different. Since
many of the more skilled employees worked from home, geographic location was less of
an issue than they thought.

When BAYWATCH first tried to deal with the high-turnover and dissatisfaction, they did
so by holding more meetings and trying to provide greater contact with supervisors.
They learned that this is precisely what many of their employees left their permanent jobs
to avoid.

The surveys also indicated that employees were appalled that a company that provides
high tech IT services has such archaic processes in place. Employees file hard copy of
time sheets and are required to account for time on sheets, there is no centralization of job
assignments and no data base for skills and interests of the employees.

BAYWATCH knows it is in trouble and is anxiously awaiting your proposal.




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