Question

1. The Cases:

Starbucks Global Quest in 2006: Is the Best Yet to Come?

Since 1987, Starbucks had transformed itself from a modest 9-store operation in the Pacific Northwest into a powerhouse multinational enterprise with 10,241 store locations, including some 2,900+ stores in 30 foreign countries. During Starbucks early years when coffee was a 50-cent morning habit at local diners and fast food establishments, skeptics had ridiculed the notion of $3 coffee as a yuppie fad. But the popularity of Starbucks’ Italian-style coffees, espresso beverages, teas, pastries and confections had made Starbucks one of the great retailing stories of recent history and the world’s biggest specialty coffee chain. In 2003, Starbucks made the Fortune 500, prompting CEO Howard Schultz to remark, “It would be arrogant to sit here and say that 10 years ago we thought we would be on the Fortune 500. But we dreamed from day one and we dreamed big.”

Starbucks reported revenues in fiscal 2005 of $ 6.4 billion, up 205% from $2.1 billion in fiscal 2000; after-tax profits in 2005 were $494.5 million, an increase of 423% from fiscal 2000 net earnings of $94.6 million.

Having positioned Starbucks as the dominant retailer, roaster, and brand of specialty coffees and coffee drinks in North America and spawned the creation of the specialty coffee industry, management’s long-term objective was now to establish Starbucks as the most recognized and respected brand in the world. In 2005, new stores were being opened at the rate of roughly 32 per week and management expected to have 15,000 Starbucks stores open worldwide going into 2006. Believing that the scope of Starbucks long-term opportunity had been underestimated, Schultz had recently increased the targeted number of stores from 25,000 to 30,000 worldwide by 2013, at least half of which were to be outside the United States. He noted that Starbucks only had an overall 7% share of the coffee drinking market in the United States and perhaps a 1% share internationally. According to Schultz, “85that still leaves lots of room for growth. Internationally, we are still in our infancy.” Although coffee consumption worldwide was standing, coffee was still the second most consumed beverage in the world, trailing only water.

In fiscal 2006, Starbucks planned to open 1,800 net new stores globally. Top management believed that it could grow revenues by about 20 percent annually and net earnings by 20-25 percent annually for the next 3 to 5 years. Howard Schultz and CEO Jim Donald viewed China as a huge market opportunity, along with Brazil, India, and Russia. To sustain the company’s growth and make Starbucks one of the world’s preeminent global brands, Howard Schultz believed that the company had to challenge the status quo, be innovative, take risks, and adapt its vision of who it was, what it did, and where it was headed. If the challenge of executing the company’s strategy was met successfully, in all likelihood the company’s best years lay on the strategic road ahead.

Questions

Part I: Multiple Choice Questions. Having read the above case, now please answer the following Multiple Choice Questions. You need to write justification of your answer briefly.

1. What are the key elements of Starbucks’ strategy as of 2006? And what does it reflect?

a. Expand the number of Starbucks stores domestically and this reflects the clear mission, vision and strategy

b. Continue the drive to make Starbucks a global brand by opening stores in an increasing number of foreign locations which reflects corporate level plan and the process of its strategy

c. Multiple store formats/designs that are attractive, visible, and appealing and this reflects the management process

d. All of the above are applicable

Jus

2. Starbucks management viewed each store as a billboard for the company and as a contributor to building the company’s brand and image. Each detail was inspected to improve the mood and ambience of the store, to make sure everything signaled “best-of-class” and reflected the personality of the community and the neighborhood. The thesis was “everything mattered.” The company went to great lengths to make sure the store fixtures, the merchandise displays, the colors, the artwork, the banners, the music, and the aromas all blended to create a consistent, inviting, stimulating environment that evoked the romance of coffee, that signaled the company’s passion for coffee, and that rewarded customers with ceremony, stories, and surprise. This reflects:

a. business level and functional level strategies

b. corporate level strategies

c. mission and vision

d. standing plans

Justi

3. Which of the following is true about Starbucks?

a. A big emphasis on store ambience the idea was to heighten the “third place” Starbucks experience for customers.

b. To try to keep the coffee aromas in the stores pure, smoking was banned and employees were asked to refrain from wearing perfumes or colognes

c. Prepared foods were kept covered so customers would smell coffee only

d. All of the above are true and applicable

J

4. Colorful banners and posters were used to keep the look of Starbucks stores fresh and in keeping with seasons and holidays. Company designers came up with artwork for commuter mugs and T-shirts in different cities that were in keeping with each city’s personality. If we were to look at the link with the theories of management, this would be in line with:

a. Scientific management

b. the theory of Bureaucracy

c. the Open Systems View

d. Management Science Theory

Justific------

5. Another strategy by Starbucks is to provide Internet access and digital entertainment. The objective was to heighten the “third place” Starbucks experience, attract customers into perhaps buying a second latte or espresso while they caught up on email, listened to digital music, put the finishing touches on a presentation, or accessed their corporate intranet. This reflects that Starbucks is also applying:

a. Dynamic Capabilities Theory

b. Theory X and Theory Y

c. Contingency Theory

d. The Gilbreths

Justi

6. Which of the following statements are true and why? Link it to topics you have covered

a. Starbucks is a company that definitely places a high strategic priority on building and strengthening the Starbucks brand name—and it uses every tactic it can to polish its image and extend its name by entering new market niches and geographic markets.

b. Howard Schultz has long made it clear that making Starbucks one of the top brand names worldwide is high on his strategic agenda.

c. Howard Schultz deserves a solid A or A– for his performance as CEO and Chairman.

d. All of the above are true

     

-----

7. Schultz has been in the forefront of arranging the company’s strategy implementation / execution effort. His notable achievements here include:

a. Building an organization capable of sustaining rapid growth while still preserving and enhancing the quality/image of Starbucks products.

b. Hiring key executives/building a strong top management team and making sure the company has the requisite support systems/corporate infrastructure

c. Leading the effort to design/redesign the company’s stores as well as instituting motivational incentives aimed a making Starbucks a great place to work

d. All of the above are applicable

     

8. Which of the following issues could face Starbucks as of 2005?

a. How to sustain the company’s rapid growth

b. Will the domestic market for stores soon become saturated (will the U.S. market support 15,000 retail stores—which is about double the number at the end of fiscal year 2005?)

c. Will the company need to open company-owned stores in foreign countries rather than continuing with the present strategy of licensing so many (which generates royalty revenues and perhaps some profits from supplying coffee to foreign licensees)?

d. All of the above issues are applicable

  

Ju

9. How can Starbucks establish motivational incentives aimed at making Starbucks a great place to work? All of the following can be considered EXCEPT:

a. Extend health-care benefits to part-time workers

b. Cooperating with the government

c. An attractive additional benefit program  

d. Functioning as cultural and spiritual leader

10. The following are considered as core values of Starbucks EXCEPT:

a. Making Starbucks a great place to work

b. Operating the business in an ethical and socially responsible manner

c. High technology

d. Dedication to product quality

Answer 1

Part 1 Answer: 1 b) Some of the key elements that Starbucks followed as of 2006 included estabilishing strong presence in the domestic market by building robust brand of speciality coffees and coffee drinks. Post its domestic stronghold, the company planned to increase its presence internationally. Starbucks, through its wide chain of stores outside North America became a global brand in speciality coffee industry.

Answer for us: c) It reflects the company's mission and vision to establish a strong foothold in each country by absorbing the local trends.

Answer for usti: a) A big emphasis on store ambience the idea was to heighten the “third place” Starbucks experience for customers.

1. Colorful banners and posters were used to keep the look of Starbucks stores fresh and in keeping with seasons and holidays. Company designers came up with artwork for commuter mugs and T-shirts in different cities that were in keeping with each city’s personality. If we were to look at the link with the theories of management, this would be in line with:

Answer: c) the Open Systems View wherein the environment influences

ific------

1. Another strategy by Starbucks is to provide Internet access and digital entertainment. The objective was to heighten the “third place” Starbucks experience, attract customers into perhaps buying a second latte or espresso while they caught up on email, listened to digital music, put the finishing touches on a presentation, or accessed their corporate intranet. This reflects that Starbucks is also applying:

Answer: c) Contingency Theory that explains interplay between dependent and independent variables that determines management strategy

sti

1. Which of the following statements are true and why?

Answer: a) Starbucks is a company that definitely places a high strategic priority on building and strengthening the Starbucks brand name—and it uses every tactic it can to polish its image and extend its name by entering new market niches and geographic markets. This can be guaged from the global reputation that Starbucks has positioned itself today in the speciality coffee industry.

1. Schultz has been in the forefront of arranging the company’s strategy implementation / execution effort. His notable achievements here include:

Answer: a) Building an organization capable of sustaining rapid growth while still preserving and enhancing the quality/image of Starbucks products.

1. Which of the following issues could face Starbucks as of 2005?

Answer: a) How to sustain the company’s rapid growth

u

1. How can Starbucks establish motivational incentives aimed at making Starbucks a great place to work? All of the following can be considered EXCEPT:

Answer: d) Functioning as cultural and spiritual leader

1. he following are considered as core values of Starbucks EXCEPT:

Answer: a) Making Starbucks a great place to work