Starbucks Report

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Application of Strategy Dynamics:
Starbucks Corporation
Pascal Gambardella, Ph.D.
CSC
12708 Chilton Circle
Silver Spring MD, 20904
301-346-5398
pgambard@csc.com
Strategy Dynamics (Warren, 2008) provides a quantitative, resource-based approach to understanding a firm’s performance over time. This paper describes a strategy analysis of Starbucks Corporation using Strategy Dynamics. It demonstrates the usefulness of this approach in addressing business performance issues for a realworld company. The strategic architecture, a key artifact of the approach, is a model that captures the interactions of a firm’s tangible resources, management decisions, and external factors. Starbuck’s strategic architecture for its retail store business was developed using employee, store, and financial data from Starbuck’s annual report; and, other public information. The strategic architecture and related models were used to explore several issues that can influence Starbuck’s strategy: customers with less discretionary income, expanding too fast, impact of staff layoffs on the quality of service, getting and maintaining loyal customers, and rivalry with competitors.

Keywords: strategy dynamics, strategy, strategic architecture, Starbucks Part 1. Starbucks
“To inspire and nurture the human spirit— one person, one cup, and one neighborhood at a time.” Starbucks Mission, Starbucks website 1.1. Background and Scope
Starbucks is a public company that operates a chain of stores that sells high-quality coffee. Its typical company-owned store has a pleasant, coffee-house atmosphere replete with couches and Wi-Fi. Starbuck also licenses stores, not to individuals, but to other businesses. For example, in the US Starbucks licenses stores to Barnes and Noble booksellers. Some of these establishments provide similar Starbucks atmospheres; others just have a counter to sell coffee and pastries. Starbuck’s stores account for about 90% of Starbuck’s revenue.

This paper describes a strategy analysis of Starbucks using Strategy Dynamics (Warren, 2008). The scope of the analysis was Starbuck’s company-stores. The 2 results are illustrative. Data from Starbucks annual reports and other public sources were used in the analysis, however many assumptions needed to be made to fill in gaps in the information. So rather than provide detailed numbers that Starbucks can use to define their strategy, this report provides a useful approach that Starbucks, if using the approach, would need to fill in the necessary details to make the analysis more realistic.

1.2. Starbucks Issues
As illustrated below, Starbucks profit (net earnings) dropped significantly in 2008 and its rate of revenue increase began to slow.
Profit (M$)
Revenue (M$)
FIGURE 1-1
Starbucks Profit and Revenue
Starbucks lists the average sales growth increase each year in comparable stores, which are stores that have been opened 13 months or more. To better understand the meaning of this growth assume a store made one million dollars in 1997, then the following plot illustrates how much it would make per year over the years based on the percent growth reported by Starbucks. The percent became negative for the first time in 2008. 3

Comparable Store Revenue (M$)
FIGURE 1-2
Illustrative Example of Comparative Store Growth
From a profit, revenue, and comparative store view Starbuck’s business appears to be stalling. No one issue may be responsible for Starbuck’s current problems. Also there may be no simple cause and effect. For example, Starbucks may have benefited early in its history by word of mouth (positive feedback): the snowballing effect of potential customers becoming loyal customers after being told of the great...
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