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Running head: FINAL PROJECT




                                  Final Project

                                Victoria Telford

                               Kaplan University

                         Management Policy and Strategy

                                    MT460

                              Professor Leerburger

                                 Aug 07, 2010
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                                           Final Project

       Executive Summary

       Starbucks is one of the biggest coffee chains in the world. There is really no where in the

world you can go that you cannot find a Starbucks shop. But all of this fame forces the company

to maintain their superb brand reputation by constantly staying on top of the competition and

always being the top innovators in the coffee shop business. “Since Starbucks has been and

continues to expand so fast, they need to maintain the same aspect throughout the world. If the

standards are not the same Starbucks jeopardizes their excellent reputation.” (Radford University

[RU], 2009) People have come to expect certain things from the Starbucks organization and the

company must assure them that while they are constantly expanding and launching new

products, their values and product quality will always stay the same. Starbucks has come out

with three areas of focus: ethical sourcing, environmental stewardship and community

involvement. (Starbucks, 2009) While this sounds very couth, the organization is not focusing on

the important things that are going to keep the Starbucks name number one for the next 20 or

more years. Their focus needs to look more like this: the quality of their product, the customer

experience and ethical sourcing.

       Company Background

       Starbucks Coffee is a corporation which opened in 1971 in Seattle, WA. Howard Shultz

is the head of the company and with his excellent marketing strategies, has made Starbucks a

household name. (Starbucks, 2009) The store sells regularly brewed coffee, espresso based hot

and cold drinks, coffee beans and a variety of food products that are not usually found in coffee

houses like salads. The stores also sell products like coffee mugs and accessories and coffee

beans to brew at home. Certain Starbucks products can be found in grocery stores like their
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ground coffee and ice cream. They had huge success in the 1990’s and Shultz decided that he

was going build a Starbucks a day. It is the largest coffee house chain in the world and has

17,133 stores in 49 countries with 11,068 in the U.S. alone.

       The strategic planning model that is closest to the one Starbuck’s uses is the scenario

planning model. “This approach might be used in conjunction with other models to ensure

planners truly undertake strategic thinking. The model may be useful, particularly in identifying

strategic issues and goals.” (McNamara, 2008) For the most part the organization’s strategic

planning has been excellent but in 2008, due to the uncertainty of the economy and dwindling

sales worldwide, Starbucks announced “it was closing 600 underperforming company-owned

stores and cutting U.S. expansion plans…” (Wikipedia, 2010) Twenty nine days after this

announcement, Starbucks announced that they would be cutting 1000 non-retail jobs. “These

closings and layoffs effectively ended the company’s period of growth and expansion that began

in the mid 1990’s.” (Wikipedia) Six moths later Starbucks announced that it would be closing

another 300 stores and that the CEO, Howard Shultz was volunteering for a pay cut.

       Mission and Vision Statement

       “So ever since we opened our first store in 1971, we dedicated ourselves to earning the

trust and respect of our customers, partners and neighbors. How? By being responsible and doing

things that are good for the planet and each other.

              Community- As good neighbors we get involved with local efforts to bring

               people together and create positive change whenever we can.

              Environment- We’re finding ways to minimize our environmental footprint,

               tackle climate change, and inspire others to do the same.
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              Ethical Sourcing- We’re committed to buying and serving the highest-quality,

               responsibly grown, ethically traded coffee to help create a better future for

               farmers.

              Wellness- Our dedication to wellness means supporting policies and efforts to

               improve the health of our communities in addition to offering balanced food and

               beverage options to our customers.

              Diversity- By welcoming a diversity of people and ideas to our business, we

               create more opportunities for learning and success that benefit customers, partners

               (employees) and suppliers.

       The mission and vision statement definitely coincides with Starbuck’s three areas of

focus: ethical sourcing, environmental stewardship, and community involvement. The statement

is mainly focused on being environmentally responsible and being active in the community. It is

a little too short and does not really mention the guarantee of a quality product that people come

to expect when going to a Starbuck’s. The overall impression of the vision and mission statement

is that a bunch of hippies wrote it for a bunch of hippies.

       Starbucks internal management team includes its board of directors. There are currently 9

members of the board and they all meet the requirements of Starbucks ethics and integrity.

Starbucks also strives for diversity so there is “one Latino, two African Americans (one female),

and one other female serves on the board.” (Khattab, Aziz, & Naguib, 2008) Howard Shultz

(CEO) is the chairman of the board. The board of directors has three committees that are in

charge of three different areas-Audit and Compliance, Compensation and Management

development, and Nominating and Corporate Governance. The employees as well as
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shareholders can give feedback and recommendations through the “business conduct helpline”

and the audit line.” (Khattab et al.)

       In 2006, Starbucks formed the Policy Government Council to “oversee and approve

governance tools at the global enterprise level.” (Khattab et al., 2008) On the council there are

different company heads that make sure that Starbucks ethical policies are being followed on all

levels. (Starbucks, 2009)

       Regardless of the emphasis Starbucks has put on “doing ethical business always”; they

have been in hot water over labor practices in foreign countries. In the mid 1990’s, Starbucks

was accused of basically running a sweat shop Guatemala. They were publicly scrutinized over

this and came up with a plan of action to change their image. In February of 1998, at a

shareholders meeting, Starbucks released a plan of action called Framework for Action for

Improving the Lives of People who Grow, Harvest and Process Coffee. “This framework for

action represents the company’s progress report to date on adopting and implementing its code of

conduct and describes its future plans”……”Starbucks describes four major areas in which it is

trying to improve the lives of coffee workers and their families.” (USLEAP [USLEAP], 1998)

       Starbucks also prides itself in being one of the best places to work for in the United

States. They take the recruitment of their new employees very seriously. They seek people who

are dependable and who can work in a team environment. The company also takes its customer

service training very seriously, forking our over $30 million. “It is said that they spend more on

employees than on advertising.” (Khattab et al., 2008) Starbucks also likes to call their

employees “partners” to improve morale. According to surveys, 82 percent of the Starbucks

employees rate being “very satisfied” and 15 percent “satisfied” with their jobs. (Khattab et al.)
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       While Starbucks is said to be one of the top employers to work for, within the last two

years there have been several issues surrounding their union support. In January 2009, several

employees went on strike after the filing of at least eleven labor violation charges with the

National Labor Relations Board. Some of the accusations against the company were that

employees were wrongfully fired or reprimanded for being a part of the union, “store managers

prohibited discussions of organizing efforts at work”(Demko, 2009) Starbucks adamantly denied

these accusations and immediately responded to the request that an employee’s job be reinstated

after he was fired for his union activities . Starbucks not only re-hired him but also paid him

approximately $2000 in back pay.

       SWOT Analysis

       Strengths- Starbucks is an extremely successful organization earning over $600 million

and made revenue of over $500 million in 2004. (Marketing Teacher [MT], 2008-2009)

Starbucks is also known for its employment practices. Workers make more than minimum wage

and are also offered excellent benefits, making it one of the most desirable places to work in the

United States. (Vault.com, 2009) Starbucks has also become a household name and even people

who do not like coffee, enjoy Starbucks drinks.

       Weaknesses- Starbucks mainly focuses on its U.S. stores and many think that they need

to start focusing on their foreign market more. Another weakness is that all most Starbucks stores

really offer their customers’ is coffee and small pastries, so if a competitor were to come in and

offer gourmet coffee as well as breakfast and or/lunch, the company could start to fail and may

even eventually go out of business. Stores like McDonalds and Dunkin Donuts are already

starting the process. Starbucks has 13,500 stores world wide and has taken measures to increase

the speed in which people receive their coffee. So of course they are starting to look like a fast
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food coffee chain with the exception of the $4.50 it costs to purchase one of these gourmet

drinks.(Pearce & Robinson, 2009, 2-1) Starbucks is already starting to see a decline in its

consumers. In 2008, Starbucks closed 5 percent of its stores due in part to the current economic

situation as well as its failure to “accelerate international growth.” (Allison, 2008)

       Opportunities- Starbucks has bought a lot of companies in the last couple of years that

include: Seattle’s Best, XM Café, and the very popular Tazo Tea. Also, you can now buy

Starbucks products both in and out of their stores. Major grocery stores sell their Frappacinos by

the bottle as well as many other popular products. (Starbucks, 2009) The company also has the

opportunity to make its global market grow as they are well recognized in foreign countries and

the market for coffee is growing in these countries. (MT, 2008-2009) One other thing Starbucks

could do would be to offer more food in their stores. They have recently introduced 5 new

breakfast items and now offer lunch and dinner menus at a few locations. (Vault.com, 2009)

       Threats- There are many competitors in the coffee market now so Starbucks must

continue to develop new ideas and products. With the current economic situation, prices are

going sky high on everything, so the company has been forced to pay higher prices for coffee

and milk products. (MT, 2008-2009) Also, with the economy the way it is, the stock prices are

going down and this threatens the company with store closures.

       Starbucks is very competitive when it comes to the taste and quality of their coffee. But

when it comes to prices, they are at the bottom of the totem pole. Instead of focusing on little

things like soul and culture, Starbucks needs to make an effort to be more competitive with their

prices. A small regular coffee is over $2.00. (Starbucks, 2009) No one is going to care about

Starbuck’s culture when they can get the same exact thing at Dunkin Donuts for $.99 plus a free

donut! (Dunkin Donuts [DD], 2010) They need to think big when it comes to quality but not
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when it comes to price. Starbucks has introduced “single origin beans called Black Apron

Exclusives” (Pearce & Robinson, 2009, 2-3) that sell for $28 per pound. With the current state

of the economy, people are paying more attention to the price they pay for things and there

cannot be too many people in the market for coffee that expensive.

       Keeping the quality that customers come to expect is vital for the long term survival of

Starbucks. Regardless of the price, people are still leaving their cheap homemade coffee at home

and coming into Starbucks stores and spending money. This means that the quality of the coffee

is crucial to keeping doors open. They can achieve this by not discontinuing popular products

like their Caramel Macchiato or their Tazo Tea. Another way to achieve this is to constantly

come out with new products like their new VIA Ready Brew Coffee which is the first instant

coffee the company has made and has already hit the $100 million sales mark in just ten months.

(Starbucks, 2010)

       Continuing to expand is another long term objective that Starbucks must focus on.

Starbucks has always had a “Being Everywhere Approach.” Despite the fact that Starbucks

expansion strategy is widely criticized by economists everywhere, it has really worked out for

them in the long run. In some larger cities in the U.S. Starbucks stores are so close to each other

that they are actually in the same building. “The being everywhere approach has become an

advantage to the part of the company due to the fact that grouped storefronts have acted as a

billboard, which eventually helped the company to save cost or money for advertisements.”

(Thinking Made Easy [TME], 2010)

       There are some concerns that Starbucks administration has that are totally irrelevant. First

of all they are concerned that the new espresso machines that were brought in are “blocking the

visual sight line the customer previously had to watch the drink being made and for the intimate
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experience with the barista.” (Pearce & Robinson, 2009, 3-1) This is obviously not something

that is preventing loyal customers from coming back. The next concern is getting rid of La

Moroccan machines and replacing them with faster and more efficient ones in order to provide

faster service. The claim is that it “removes much of the romance and theatre that was in play

with the La Moroccan machines” (Pearce & Robinson, 3-1) Customers most likely did not notice

the change he is talking about but noticed that they did not have to stand in line for as long as

they usually do.

       Other concerns are that Starbucks is starting to lose its personality and soul. They are

making efforts to incorporate more culture by introducing new drinks that originate from

different parts of the world. While it is always good to think outside of the box and try to be

original in the products you are selling, Starbucks sales have not gone down since

2008,(Starbucks, 2009) so the company is definitely doing something right.

       Starbucks Administration needs to re-think their main concerns for the company and

make changes that would actually relate to everyday people, because those are the people who

usually stand in line daily for their beloved cup of Joe. Many of the convenience changes (like

drive through windows) have been well received by its customers but all this talk about

implementing culture probably will not attract the average person. People love their Starbucks

coffee, they love receiving their gift cards as presents and they love the fact that Starbucks is an

American success story that will probably keep going for many years to come.
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                                           References

Allison, M. (2008, July 2). Starbucks Closing 5 Percent of U.S. Stores.... Retrieved 08/08/2010,

       from http://seattletimes.nwsource.com

Demko, P. (2009, January 9). Starbucks union-busting complaints brewing. The Minnesota

       Independent, Retrieved 08/08/2010, from

       http://minnesotaindependent.com/22360/starbucks-union-busting-complaints-brewing

Dunkin Donuts (2010). Menu. Retrieved 08/08/2010, from http://www.dunkindonuts.com

Khattab, T., Aziz, E., & Naguib, B. (2008). Strategic Analysis of Starbucks. Retrieved

       08/08/2010, from http://www.scribd.com/doc/9913996/Starbucks

Marketing Teacher (2008-2009). SWOT Analysis Starbucks. Retrieved 08/08/2010, from

       http://www.marketingteacher.com

McNamara, C. (2008). Strategic Planning Models. Retrieved 08/08/2010, from http://www.

       thetachi.org/resources/strategicplan/strategicplanmodels.asp

Pearce, & Robinson, (2009). Strategic Management (11th ed.). Boston: The McGraw-Hill

       Companies.

Radford University (2009). Executive Summary. Retrieved 08/07/2010, from

       http://www.radford.edu/cabplanl/academic_course_work_files/Starbucks%20executive%

       20Summary%20-%20presenters.pdf

Starbucks (2009). Company Overview. Retrieved 08/07/2010, from http://www.starbucks.com

Starbucks (2009, April 22). Starbucks Shared Planet Executive Summary and Scorecard.

       Retrieved 08/07/2010, from http://www.starbucks.com

Starbucks (2010, August 3rd). Starbucks Via Ready Brew. Retrieved 08/07/2010, from

       www.starbucks.com
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Thinking Made Easy (2010, June 22). Strategic Business Analysis: Starbucks in 2004. Retrieved

       08/09/2010, from http://ivythesis.typepad.com/term_paper_topics/starbucks

USLEAP (1998, March). Starbucks Analysis, 1998. Retrieved 08/08/2010, from

       http://usleap.org/starbucks-analysis-1998

Vault.com (2009). Starbucks Corporation. Retrieved 08/08/2010, from

       http://www.vault.com/companies

Wikipedia (2010). Starbucks. Retrieved 08/07/2010, from

       http://en.wikipedia.org/wiki/Starbucks/

				
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