Starbucks after Schultz

This activity is important because, as a manager, you must be able to identify your company’s core competency and select an appropriate business-level strategy to optimize its competitive value.

The goal of this exercise is to demonstrate your understanding of core competency and business-level strategies by applying these concepts to Starbucks’ recent experience in identifying and regaining its competitive advantage.

Read the case below and answer the questions that follow.

Case

Inspired by Italian coffee bars, Starbucks CEO Howard Schultz set out to provide a completely new consumer experience. The trademark of any Starbucks is its ambience—where music and comfortable chairs and sofas encourage customers to sit and enjoy their beverages and, more recently, food and (at some locations) even wine. Customers can use the complimentary wireless service or just visit with friends. The barista seems to speak a foreign language as she rattles off the offerings: Caffé Misto, Caramel Macchiato, Cinnamon Dolce Latte, Espresso Con Panna, or Mint Mocha Chip Frappuccino, among some 30 different coffee blends. Dazzled and enchanted, customers pay $4 or more for a venti-sized drink. Starbucks has been so successful in creating its ambience that customers keep coming back for more.

Starbucks’ core competency is to create a unique consumer experience the world over. Schultz’ strategic intent was to create a “third place,” between home and work, where people wanted to visit, ideally daily. Customers are paying for the unique experience and ambience, not just for the cup of coffee. The consumer experience that Starbucks created is a valuable, rare, and costly to imitate intangible resource. This allowed Starbucks to gain a competitive advantage. Since 2000, Starbucks’ revenues have grown almost 15-fold, from less than $2 billion to some $27 billion in 2017.

While core competencies are often built through learning from experience, they can atrophy through forgetting. This is what happened to Starbucks. Between 2004 and 2008, Starbucks expanded operations rapidly by doubling the number of stores from 8,500 to almost 17,000 stores (see Exhibit MC8.1). It also branched out into ice cream, desserts, sandwiches, books, music, and other retail merchandise, straying from its core business.

Trying to keep up with its explosive growth in both number of stores and product offerings, Starbucks began to forget what made it unique. It lost the appeal that made it special, and its unique culture got diluted. For example, baristas used to grind beans throughout the day whenever a new pot of coffee had to be brewed (which was at least every eight minutes). The grinding sounds and fresh coffee aroma were trademarks of Starbucks stores. Instead, to accommodate its fast growth, many baristas began to grind all of the day’s coffee beans early in the morning and store them for the rest of the day. New espresso machines, designed for efficiency, were so tall that they physically blocked interaction between baristas and customers. Although these and other operations changes allowed Starbucks to reduce costs and improve efficiency, they undercut Starbucks’ primary reason for success—that going to Starbucks was not simply a stop for caffeine; it was a sensory experience. The negative impact of cost-reduction measures was underscored when Starbucks lost a blind taste-test to fast food giant McDonald’s. Among six coffees tested, Starbucks came in last. Even run-of-the-mill supermarket coffees sold in huge cans were rated higher. Some customers don’t like Starbucks coffee and gave the chain the nickname “Charbucks”—because critics say that a lot of the coffee has an overly roasted quality, a dark and bitter taste.

To make matters worse, the global financial crisis (2008–2009) hit Starbucks hard. The first items consumers go without during recession are luxury items such as a $4 coffee at Starbucks (see revenue drop in Exhibit MC8.1).

Coming out of an eight-year retirement, Howard Schultz again took the reins as CEO in January 2008, attempting to re-create what had made Starbucks special. He immediately launched several strategic initiatives to turn the company around. Just a month after coming back, Schultz ordered more than 7,000 Starbucks stores across the United States to close for one day so that baristas could learn the perfect way to prepare coffee. The company lost over $6 million in revenue on that one day. This exacerbated investor jitters, but Schultz felt the importance of relearning how to create a unique Starbucks experience was key to bringing back its corporate culture.

In 2009, Starbucks introduced Via, its new instant coffee, a move that some worried might further dilute the brand. In 2010, Schultz rolled out new customer service guidelines: Baristas would no longer multitask, making multiple drinks at the same time, but would instead focus on no more than two drinks at a time, starting a second one while finishing the first. Schultz also focused on readjusting store managers’ goals. Before Schultz’ return, managers had been given a mandate to focus on sales growth. Schultz, however, knew that Starbucks’ main differentiator was its special customer experience. The CEO instructed managers to focus on what had made the Starbucks brand successful in the first place.

Although its earlier attempt to diversify away from its core business in the mid-2000s failed, under Schultz, Starbucks was able to successfully introduce food items. Attempting to drive more store traffic in other than the morning hours where customers need their daily caffeine shot, the chain has added baked goods, sandwiches, and other food items to its menu. To get more customers into its stores in the late afternoon and early evening—traditionally its slowest time—Starbucks stores now offer items such as vegetables, flatbread pizza, plates of cheese, and desserts. It even introduced alcoholic beverages such as wine and beer, available after 4 p.m., as part of an “Evenings” program.

Starbucks also continues its efforts to find new levels of luxury offerings catering to higher end customers within its existing customer base. Online and in stores it produces limited-run exclusive batches of varietal coffees for home use, at high price points. Some stores also offer individually brewed cups of the same higher-priced roasts. Since 2014 Starbucks has created something called a Starbucks Reserve Roastery and Tasting Room. The first of super high-end stores appeared in Starbucks’ home, in Seattle, with more planned domestically and around the world.

Most of these initiatives continue. It has retooled its Evenings program of alcohol, for example, and in 2017 announced such offerings would be scaled back to continue only at its Roastery locations. Otherwise its ambitions continue. Starbucks’ goal is to double its revenues from food over the next few years and to be seen as an evening food-and-wine destination. To symbolize its transition from a traditional coffeehouse, Starbucks dropped the word coffee from its logo.

Schultz also pushed the adoption of new technology to engage with customers more intimately and effectively. Starbucks now uses social media platforms Facebook and Twitter to communicate with customers more or less in real time. Its highly successful Starbucks loyalty program has over 12 million regular users. Some 27 percent of all transactions in U.S. stores are now made using mobile devices. The Starbucks app allows customers to order and pay for drinks and food ahead of time, so that they can bypass standing in line and just need to pick up their order.

Finally, as the U.S. market appears to be saturated with some 12,000 stores, Schultz believes that Starbucks has a great growth opportunity by opening more cafés overseas. Starbucks is planning to have more than 3,000 stores in China by 2019, up from 1,500 in 2015. Starbucks also plans to double its number of cafés elsewhere in Asia to more than 4,000 in the next few years.

As the creator of Starbucks, however, Schultz enjoyed a degree of freedom that an ordinary CEO would not have had. Howard Schultz is to Starbucks much like Steve Jobs was to Apple. Schultz has the reputation and power of personality to implement a change that reduces operational effectiveness in favor of delighting customers. Schultz was able to orchestrate a successful turnaround, and with it Starbucks was able to gain and sustain a competitive advantage. Exhibit MC8.2 shows that Starbucks outperformed the wider stock market by a huge margin.

1.The success of Starbucks lies in its ability to create for the customer a unique experience or “third place” between home and work. This unique experience is also known as Starbucks’

A. patch dependence

B. core competency

C. tangible resources

D. value chain

E. resource heterogeneity

2.Between 2004 and 2008, Starbucks expanded operations rapidly and attempted to diversity from its core business. These efforts diluted its core culture, resulting in competitive parity because the customer experience that was its core competency was no longer

A. tangible

B. rare

C. valuable

D. organized to capture value

E. imitable

3. Starbucks’ adoption of social media and an app that focuses on customer satisfaction suggests that competitive advantage is more likely to spring from ___________ resources than from __________ resources.

A.equivalent; substitutable

B.intangible; tangible

C. costly; reputational

D. visible; rare

E. tangible; intangible

4.One of Howard Schultz’s strategic initiatives after retaining the reins of Starbucks in 2008 was to shut the company’s 7,000 stores for one day so baristas could relearn what makes the Starbucks brand unique. This initiative reflects a focus on which type of strategy?

A. Differentiation

B. cost leadership

C. blue ocean

D. industry effect

E. strategic tradeoff

(1) What do we mean by revenue recognition? What does GAAP say about proper revenue recognition?

(2) Why is the audit of revenue recognition riskier for a new company?

(3) What are some justifications for not using confirmations of accounts receivable on a particular audit?

Problem 2: (Revised 6.3) Magazine Advertising: In a study of revenue from advertising, data were collected for 41 magazines list as follows. The variables observed are number of pages of advertising and advertising revenue. The names of the magazines are listed as:

(use sas）

Adv Revenue

25 50

15 49.7

20 34

17 30.7

23 27

17 26.3

14 24.6

22 16.9

12 16.7

15 14.6

8 13.8

7 13.2

9 13.1

12 10.6

1 8.8

6 8.7

12 8.5

9 8.3

7 8.2

9 8.2

7 7.3

1 7

77 6.6

13 6.2

5 5.8

7 5.1

13 4.1

4 3.9

6 3.9

3 3.5

6 3.3

4 3

3 2.5

3 2.3

5 2.3

4 1.8

4 1.5

3 1.3

3 1.3

4 1

2 0.3

1. Fit a linear regression equation relating advertising revenue to advertising pages. Verify that the fit is poor.
2. Choose an appropriate transformation of the data and fit the model to the transformed data. Evaluate the fit.
3. You should not be surprised by the presence of a large number of outliers because the magazines are highly heterogeneous and it is unrealistic to expect a single relationship to connect all of them. Find outliers and high leverage points. Delete the outliers and obtain an acceptable regression equation that relates advertising revenue to advertising pages.
4. For the deleted data, check the homogeneity of the variance. Choose an appropriate transformation of the data and fit the model to the transformed data. Evaluate the fit.

The Hill Company reported the following results:

1.What is the company's debt ratio for Year 1? Convert your final answer to a percentage, round to one decimal place and enter without the "%" sign (e.g. a final answer of 0.105678 would be entered as 10.6).

2. What is the company's gross profit ratio for Year 3? Convert your final answer to a percentage, round to one decimal place and enter without the "%" sign (e.g. a final answer of 0.105678 would be entered as 10.6).

3.What is the company's net profit ratio for Year 2? Convert your final answer to a percentage, round to one decimal place and enter without the "%" sign (e.g. a final answer of 0.105678 would be entered as 10.6).

4. What is the company's return on investment ratio for Year 1? Convert your final answer to a percentage, round to one decimal place and enter without the "%" sign (e.g. a final answer of 0.105678 would be entered as 10.6)

5. Based on the three years of data, the company's return on investment ratio has

A. improved
B. worsened.
C. stayed the same.

3. Your company wishes to determine which inventory items generate the most revenue. How could you use QuickBooks to develop this information?

4. At year-end, you wish to confirm the quantity on hand for each inventory item. How would you use QuickBooks to determine the quantity and value of the ending inventory?

5. Your company wishes to view the profitability of each inventory item. How could you use QuickBooks to develop this information?

The National Association of Realtors estimates that 23% of all homes purchased in 2004 were considered investment properties. If a sample of 800 homes sold in 2004 is obtained what is the probability that at most 175 homes are going to be used as investment property? Round to four decimal places, if necessary.

Please answers the below True/False and Multiple choice questions from Business Law. (Please provide a brief explanation to answers if possible)

Chapter: Securities Law

1.             The first state law regulating the sale of securities was referred to in the book as the Kansas ______ law:

                a.            state securities

                b.             green stock

                c.             red flag

                d.            blue sky

2.             Which of the following best describes the so-called Howey test?

                a.             the investment of money

b. a common enterprise

                c.             with an expectation of profits

                d.            not generated through the efforts of the investors

                e.             all of the above are part of the Howey test

3.   The first version of a prospectus is called a red herring. True/False

4.   The Securities Exchange Act of 1934 required CEOs of large companies with publicly traded stock to personally certify that financial reports filed with the SEC are accurate. True/False

5.   The SEC does not rule on the merits of securities offering, (that is, the likelihood of success of the proposed business). True/False

6.   A no-load mutual fund differs from a load fund in that the no-load fund does not charge an annual expense fee to its members. True/False

7. Rule 10b-5 deals with the issue of securities fraud. True/False

8. A limited partnership interest should be considered a security under the Supreme Court's Howey test. True/False

I am given the following problem and solution. Can someone just explain where the BOLD values in part B are coming from? ($60,000,000, $80,000,000, $200,000,000)

1. [Relative Value Concepts Using Multiples] The WestTek privately held venture is considering the sale of the venture to an outside buyer. WestTek has net sales = $21.2 million, EBITDA = $11.1 million, net income = $2.9 million, and interest-bearing debt = $12 million. Three publicly-traded comparable firms or competitors in the industry have the following net sales, EBITDA, net income, equity value or market capitalization (stock price times number of shares of common stock outstanding), and interest-bearing debt information:

A. Calculate the enterprise value to net sales ratios for each of the three competitors (EastTek, SouthTek, and NorthTek), as well as the average ratio for the competitors.

      Enterprise value = equity value + interest-bearing debt

      Equity value = market capitalization (i.e., stock price times shares outstanding)

      EastTek: ($45,000,000 + $15,000,000)/$25,000,000 = 2.40

      SouthTek: ($60,000,000 + $20,000,000)/$37,500,000 = 2.13

      NorthTek: ($160,000,000 + $40,000,000)/$80,000,000 = 2.50

      Average: (2.40 + 2.13 + 2.50)/3 = 7.03/3 = 2.34

B) Calculate the enterprise value to EBITDA ratios for each of the three competitors, as well as the average ratio for the competitors.

      EastTek: $60,000,000/$12,500,000 = 4.80

      SouthTek: $80,000,000/$20,000,000 = 4.00

      NorthTek: $200,000,000/$37,500,000 = 5.33

      Average: (4.80 + 4.00 + 5.33)/3 = 14.13/3 = 4.71

Scenario: You are an information technology (IT) intern working for Health Network, Inc. (Health Network), a fictitious health services organization headquartered in Minneapolis, Minnesota. Health Network has over 600 employees throughout the organization and generates $500 million USD in annual revenue. The company has two additional locations in Portland, Oregon and Arlington, Virginia, which support a mix of corporate operations. Each corporate facility is located near a colocation data center, where production systems are located and managed by third-party data center hosting vendors.

Company Products Health Network has three main products: HNetExchange, HNetPay, and HNetConnect.

HNetExchange is the primary source of revenue for the company. The service handles secure electronic medical messages that originate from its customers, such as large hospitals, which are then routed to receiving customers such as clinics.

HNetPay is a Web portal used by many of the company’s HNetExchange customers to support the management of secure payments and billing. The HNetPay Web portal, hosted at Health Network production sites, accepts various forms of payments and interacts with credit-card processing organizations much like a Web commerce shopping cart.

HNetConnect is an online directory that lists doctors, clinics, and other medical facilities to allow Health Network customers to find the right type of care at the right locations. It contains doctors’ personal information, work addresses, medical certifications, and types of services that the doctors and clinics offer. Doctors are given credentials and are able to update the information in their profile. Health Network customers, which are the hospitals and clinics, connect to all three of the company’s products using HTTPS connections. Doctors and potential patients are able to make payments and update their profiles using Internet-accessible HTTPS Web sites.

Information Technology Infrastructure Overview

Health Network operates in three production data centers that provide high availability across the company’s products. The data centers host about 1,000 production servers, and Health Network maintains 650 corporate laptops and company-issued mobile devices for its employees. Threats Identified Upon review of the current risk management plan, the following threats were identified:

*) Loss of company data due to hardware being removed from production systems ? Loss of company information on lost or stolen company-owned assets, such as mobile devices and laptops

*) Loss of customers due to production outages caused by various events, such as natural disasters, change management, unstable software, and so on

*) Internet threats due to company products being accessible on the Internet

*) Insider threats

*) Changes in regulatory landscape that may impact operations Management Request

Senior management at Health Network has determined that the existing risk management plan for the organization is out of date and a new risk management plan must be developed. Because of the importance of risk management to the organization, senior management is committed to and supportive of the project to develop a new plan. You have been assigned to develop this new plan.

Additional threats other than those described previously may be discovered when re-evaluating the current threat landscape during the risk assessment phase.

The budget for this project has not been defined due to senior management’s desire to react to any and all material risks that are identified within the new plan. Given the company’s annual revenue, reasonable expectations can be determined.

Project Part 2 Task 3: Disaster Recovery Plan (DRP)

Your project on risk management, the BIA, and the BCP have been well received by senior management at Health Network. They now want you to develop a DRP in order to overcome any mishaps that might occur in the future. You may research and use National Institute of Standards and Technology (NIST) templates to develop a DRP plan for the company.

Evaluation Criteria and Rubrics (Ask these questions to yourself)

• Did I develop a DRP that could recover business operations while efforts are ongoing to restart pervious operations?
• Did I completely fill out the template found in their research?
• Did I completely understand the DRP constructs presented in class?
• Did I create a professional, well-developed report with proper grammar, spelling, and punctuation?