I.

Current Situation

A. Current Performance

The Company is now aimed at becoming a major player in international market

and the situations worldwide also seems to be in favor of the Starbuck's business. The

company sets its goals to changing people's lives all around world. The present

scenario shows that the company is near to achieve its targets as its current situation in

the international market and better performance by its ventures throughout the world.

Starbucks have presently doing its business successfully in countries like Australia,

Bahrain, Canada, Hong Kong, Israel, Japan, Kuwait, Lebanon, Malaysia, New Zealand,

Oman, Peoples Republic of China, Philippines, Qatar, Saudi Arabia, Singapore, South

Korea, Switzerland, Taiwan, Thailand, United Arab Emirates, Egypt, United Kingdom

and the United States.

Starbucks has attracted the attention of many major companies around the world

as it has done an eye catching performance in the recent years and the conditions has

helped a lot to achieve its goals to become a major global player. Nowadays, many of

the major global companies are interested in working with Starbucks in joint ventures

which brings in good news for the company with a hope of further spreading its roots

strongly in the world market, strengthening the aim of the company to become a leading

coffee retailer in the world, which further strengthens the mission to become one of the

leading specialty coffee retailers in the world.

However, the net revenues increased 3 percent to 2.5 billion for the fourth

quarter of 2008, compared to 2.4 billion for the fourth quarter of 2007. For the 13-week

period ended September 28, 2008, Starbucks reported net income of 5.4 million, which
included 105.1 million of restructuring charges and other transformation strategy costs.

Net income was $158.5 million for the same period a year ago. The company actions

announced in July of 2008 to close approximately 600 company-operated stores in the

U.S. and 61 company-operated stores in Australia, and reduce approximately 1,000

open and filled positions within its leadership structure and non-store organization.

B. Strategic Posture

Mission: to inspire and nurture the human spirit – one person, one cup and one

neighborhood at a time.

Here are the principles of how they live that every day:

OUR COFFEE

It has always been, and will always be, about quality. We’re passionate about

ethically sourcing the finest coffee beans, roasting them with great care and improving

the lives of people who grow them. We care deeply about all of this; our work is never

done.

OUR PARTNERS

We’re called partners, because it’s not just a job, it’s our passion. Together, we

embrace diversity to create a place where each of us can be ourselves. We always treat

each other with respect and dignity. And we hold each other to that standard.

OUR CUSTOMERS

When we are fully engaged, we connect with, laugh with and uplift the lives of our

customers – even if just for a few moments. Sure, it starts with the promise of a

perfectly made beverage, but our work goes far beyond that. It’s really about human

connection.
OUR STORES

When our customers feel this sense of belonging, our stores become a haven, a

break from the worries outside, a place where you can meet with friends. It’s about

enjoyment at the speed of life – sometimes slow and savoured, sometimes faster.

Always full of humanity.

OUR NEIGHBORHOOD

Every store is part of a community, and we take our responsibility to be good

neighbors seriously. We want to be invited in wherever we do business. We can be a

force for positive action – bringing together our partners, customers and the community

to contribute every day. Now we see that our responsibility – and our potential for good

– is even larger. The world is looking to Starbucks to set the new standard, yet again.

We will lead.

OUR SHAREHOLDERS

We know that as we deliver in each of these areas, we enjoy the kind of success

that rewards our shareholders. We are fully accountable to get each of these elements

right so that Starbucks – and everyone it touches – can endure and thrive.

Vision

Starbucks Coffee does not readily present its vision statement. However a careful

reading of the company’s website reveals that its vision statement is “to establish

Starbucks as the premier purveyor of the finest coffee in the world while maintaining our

uncompromising principles while we grow.”

Strategies
 • Maximize market penetration

• Provide a relaxing social atmosphere

• Offer high-quality products

• Encourages a great working environment

• Achieve profitability

Goals and Objectives

Starbucks has developed a mission statement that includes cultural development,

innovation, high performance and accountability as elements of the company’s values.

The corporate mission statement defines the company’s goals.

II. Corporate Governance

Board of Directors

HOWARD SCHULTZ, 62, is the founder of Starbucks Corporation and serves as

our chairman and chief executive officer. Mr. Schultz has served as chairman of the

board of directors since our inception in 1985, and in January 2008, he reassumed the

role of president and chief executive officer. He served as president until March 2015.

From June 2000 to February 2005, Mr. Schultz also held the title of chief global

strategist. From November 1985 to June 2000, he served as chairman of the board and

chief executive officer. From November 1985 to June 1994, Mr. Schultz also served as

president. From January 1986 to July 1987, Mr. Schultz was the chairman of the board,

chief executive officer and president of Il Giornale Coffee Company, a predecessor to

the Company. From September 1982 to December 1985, Mr. Schultz was the director

of retail operations and marketing for Starbucks Coffee Company, a predecessor to the
Company. Mr. Schultz previously served on the Board of Directors of Groupon, Inc.

through April of 2012.

WILLIAM W. BRADLEY, 72, has been a Starbucks director since June 2003.

Since 2000, Senator Bradley has been a Managing Director of Allen & Company LLC,

an investment banking firm. From 2001 until 2004, he acted as Chief Outside Advisor to

McKinsey & Company’s non-profit practice. In 2000, Senator Bradley was a candidate

for the Democratic nomination for President of the United States. He served as a Senior

Advisor and Vice Chairman of the International Council of JP Morgan & Co. from 1997

through 1999. During that time, Senator Bradley also worked as an essayist for CBS

Evening News, and as a Visiting Professor at Stanford University, the University of

Notre Dame and the University of Maryland. Senator Bradley served in the U.S. Senate

from 1979 until 1997, representing the State of New Jersey. Prior to serving in the U.S.

Senate, he was an Olympic gold medalist in 1964, and from 1967 through 1977 he

played professional basketball for the New York Knicks, during which time they won two

world championships. Senator Bradley previously served on the Boards of Directors of

Seagate Technology, Willis Group Holdings Limited and QuinStreet, Inc.

MARY N. DILLON, 54, has been a Starbucks director since January 2016. Since

July 2013, Ms. Dillon has served as Chief Executive Officer and a member of the Board

of Directors of Ulta Salon, Cosmetics & Fragrance, Inc., a beauty products retailer. Prior

to joining Ulta, she served as President and Chief Executive Officer and a member of

the board of directors of United States Cellular Corporation, a provider of wireless

telecommunications services, beginning in June 2010. Prior to joining U.S. Cellular, Ms.

Dillon served as Global Chief Marketing Officer and Executive Vice President of
McDonald’s Corporation from 2005 to 2010, where she led the company’s worldwide

marketing efforts and global brand strategy. Prior to joining McDonald’s, Ms. Dillon held

several positions of increasing responsibility at PepsiCo Corporation, including as

President of the Quaker Foods division from 2004 to 2005 and as Vice President of

Marketing for Gatorade and Quaker Foods from 2002 to 2004. Ms. Dillon previously

served as a director of Target Corporation from 2007 to 2013.

ROBERT M. GATES, 72, has been a Starbucks director since May 2012.

Secretary Gates served in numerous roles in the Executive Branch of the U.S.

government for nearly half a century, culminating as Secretary of Defense from

December 2006 to June 2011. In October 2013, Secretary Gates was elected to the

National Executive Board of the Boy Scouts of America. In May 2014, he was named its

National President for a two-year term. In September 2011, Secretary Gates was

named Chancellor of the College of William & Mary. From August 2002 to December

2006, he served as president of Texas A&M University. Secretary Gates has previously

been a member of the Board of Directors of several companies, including Brinker

International, Inc., NACCO Industries, Inc., Parker Drilling Company and the Board of

Independent Trustees of the Fidelity Funds.

MELLODY HOBSON, 46, has been a Starbucks director since February 2005.

Ms. Hobson has served as the President and a Director of Ariel Investments, LLC, a

Chicago-based investment management firm since 2000, and as the Chairman since

2006 and a Trustee since 1993 of the mutual funds it manages. She previously served

as Senior Vice President and Director of Marketing at Ariel Capital Management, Inc.

from 1994 to 2000, and as Vice President of Marketing at Ariel Capital Management,
Inc. from 1991 to 1994. Ms. Hobson works with a variety of civic and professional

institutions, including serving as a Board Member of the Chicago Public Education Fund

and as Chairman of After School Matters, which provides Chicago teens with high

quality out-of-school time programs. Ms. Hobson also serves on the Boards of Directors

of The Estee Lauder Companies, Inc. and DreamWorks Animation SKG, Inc., where

she is Chairman of the Board. Additionally, she is on the Board of Governors of the

Investment Company Institute. Ms. Hobson served on the Board of Directors of

Groupon, Inc. through May 20, 2014.

KEVIN R. JOHNSON, 55, has served as our president and chief operating officer

since March 2015 and has been a Starbucks director since March 2009. Mr. Johnson

served as Chief Executive Officer of Juniper Networks, Inc., a leading provider of high-

performance networking products and services, from September 2008 to December

2013. He also served on the Board of Directors of Juniper Networks from September

2008 through February 2014. Prior to joining Juniper Networks, Mr. Johnson served as

President, Platforms and Services Division for Microsoft Corporation, a worldwide

provider of software, services and solutions. Mr. Johnson was a member of Microsoft’s

Senior Leadership Team and held a number of senior executive positions over the

course of his 16 years at Microsoft. Prior to joining Microsoft in 1992, Mr. Johnson

worked in International Business Machine Corp.’s systems integration and consulting

business. He also serves on the Board of Directors of Auction.com, LLC.

OLDEN LEE, 73, has been a Starbucks director since June 2003. Mr. Lee also

served as our interim executive vice president, Partner Resources from April 2009 to

March 2010. Mr. Lee previously worked with PepsiCo, Inc., a global food, snack and
beverage company, for 28 years in a variety of positions, including serving as Senior

Vice President of human resources of its Taco Bell division and Senior Vice President

and Chief Personnel Officer of its KFC division. Mr. Lee retired from PepsiCo in 1998.

Since 1998, Mr. Lee has served as Principal of Lee Management Consulting, a

management consulting firm he founded. Mr. Lee previously served on the Board of

Directors of TLC Vision Corporation. He currently serves on the National Board of

Advisors of Eller College of Management at the University of Arizona.

JOSHUA COOPER RAMO, 47, has been a Starbucks director since May 2011.

Since July 2015, Mr. Cooper Ramo has served as Co-Chief Executive Officer and Vice

Chairman of Kissinger Associates, a strategic advisory firm where he has served as

Vice Chairman since 2011 and been employed since 2005. He was previously the

Managing Partner and a senior advisor for the Office of John L. Thornton, a corporate

advisory specialist and an advisor to Goldman Sachs, from 2003 to 2005. Mr. Cooper

Ramo spent his early career as a journalist, most recently with TIME magazine, from

1996 to 2003 serving as Senior Editor and Foreign Editor. He is a leading China scholar

and has written several papers on China’s development that have been distributed in

China and abroad. In 2008, Mr. Cooper Ramo served as China Analyst for NBC during

the Summer Olympics in Beijing. He is the author of the New York Times best-selling

book, The Age of the Unthinkable. Mr. Cooper Ramo has been a term member of the

Council on Foreign Relations, Asia 21 Leaders Program, World Economic Forum’s

Young Global Leaders and Global Leaders for Tomorrow, and co-founder of the U.S. -

China Young Leaders Forum. He also serves on the Board of Directors and Audit

Committee of FedEx Corporation.

 JAMES G. SHENNAN, JR. , 74, has been a Starbucks director since March

1990. Mr. Shennan served as a General Partner of Trinity Ventures, a venture capital

organization, from September 1989 to July 2005, when he became General Partner

Emeritus. Prior to joining Trinity Ventures, he served as the Chief Executive of Addison

Consultants, Inc., an international marketing services firm, and two of its predecessor

companies. Mr. Shennan previously served on the Board of Directors of P.F. Chang’s

China Bistro, Inc. until July of 2012.

CLARA SHIH, 34, has been a Starbucks director since December 2011. Ms. Shih

is Chief Executive Officer and a Board Member of Hearsay Social, Inc., an enterprise

software company serving Fortune 500 brands that she co-founded in August 2009.

From June 2006 to June 2009, she served as Product Management Director,

AppExchange of salesforce.com, inc., an enterprise software company. From 2004 to

2006, she served as Associate, Strategy and Business Operations for Google, Inc.

Previously, Ms. Shih was a software engineer at Microsoft Corporation. Ms. Shih, the

creator of the first business application on Facebook, is the author of The Facebook

Era, a marketing textbook at Harvard Business School. In 2011, she was named one of

Businessweek’s Top Young Entrepreneurs, one of Fortune’s Most Powerful Women

Entrepreneurs and one of CNN Money’s “40 under 40: Ones to Watch.”

JAVIER G. TERUEL, 65, has been a Starbucks director since September 2005.

Mr. Teruel served as Vice Chairman of Colgate-Palmolive Company, a consumer

products company, from July 2004 to April 2007, when he retired. Prior to being

appointed Vice Chairman, Mr. Teruel served as Colgate-Palmolive’s Executive Vice

President responsible for Asia, Central Europe, Africa and Hill’s Pet Nutrition. After
joining Colgate in Mexico in 1971, Mr. Teruel served as Vice President of Body Care in

Global Business Development in New York and President and General Manager of

Colgate-Mexico. He also served as President of Colgate-Europe, and as Chief Growth

Officer responsible for the company’s growth functions. Mr. Teruel currently serves as a

Partner of Spectron Desarrollo, SC, an impact investment and consulting firm and as

Chairman of Alta Growth Capital, a private equity firm. He previously served on the

Boards of Directors of The Pepsi Bottling Group, Inc. and Corporaciòn Geo S.A.B. de

C.V. He currently serves on the Boards of Directors of J.C. Penney Company, Inc. and

Nielsen Holdings plc.

MYRON E. ULLMAN, III, 69, has been a Starbucks director since January 2003.

Since August 2015, Mr. Ullman has served as Executive Chairman of J.C. Penney

Company, Inc., a chain of retail department stores. From April 2013 to August 2015, Mr.

Ullman served as Chief Executive Officer and a member of the Board of Directors of

J.C. Penney Company, Inc. Mr. Ullman had previously served as Executive Chairman of

J.C. Penney Company, Inc., from November 2011 to January 2012, and as the

Chairman of the Board of Directors and Chief Executive Officer from December 2004 to

November 2011. Mr. Ullman served as Directeur General, Group Managing Director of

LVMH Möet Hennessy Louis Vuitton, a luxury goods manufacturer and retailer, from

July 1999 to January 2002. From January 1995 to June 1999, he served as Chairman

and Chief Executive Officer of DFS Group Limited, a retailer of luxury branded

merchandise. From 1992 to 1995, Mr. Ullman served as Chairman and Chief Executive

Officer of R.H. Macy & Co., Inc. Mr. Ullman previously served on the Boards of

Directors for Ralph Lauren Corporation, Taubman Centers, Saks, Inc. and Pzena
Investment Management, Inc. He served as the Chairman of the Federal Reserve Bank

of Dallas through the end of 2014.

CRAIG E. WEATHERUP, 70, has been a Starbucks director since February

1999. Mr. Weatherup worked for PepsiCo, Inc. for 24 years and served as Chief

Executive Officer of its worldwide Pepsi-Cola business and President of PepsiCo, Inc.,

retiring in 1999. He also led the initial public offering of The Pepsi Bottling Group, Inc.,

where he served as Chairman and Chief Executive Officer from March 1999 to January

2003. Mr. Weatherup also serves on the Board of Directors of Macy’s, Inc.

III. EXTERNAL ENVIRONMENT: Opportunities and Threats

A. Natural Physical Environment: Sustainability issues

In every Starbucks location, all the details are carefully planned, like the weather

conditions, the customer preferences and behaviors. These details helped the company

choose the location of its stores. So whether their outlets are literally facing each other

or not, the company is willing to open these outlets as long as these criteria are studied

and planned.

B. Societal Environment

The specialty coffee industry competition is, however, not price-based unlike the

other industries. In this particular industry, consumption of coffee is not dependent on

the price of the product or commodity but on the differentiation between each product

and several value adding variables such as the quality of customer services, brand,

brand recognition or image of the company. Hence, the specialty coffee industry is not

sensitive to price adjustments or movements.

Political influences

Tariffs and International Trade regulations:

Countries belong to trading blocks such as APEC, G20 and most importantly CAIRNS GROUP for

agriculture, where the main aim is to reduce the effects of tariffs. However Global companies such as

Starbucks are still affected because it operates across borders and is in over 50 countries therefore

high tariffs might mean that Starbucks reputation and ability for sourcing the best coffee beans;

which involves importing from different countries could be compromised, subsequently affecting its

global sales and competitiveness.

Government stability:

Political stability of countries is an important issue that firms need to consider because other

indicators may point to a country as being investor friendly, however that could rapidly change when

there is elections or political instability (e.g. Egypt). This could lead to massive disruption in a firm’s

operations and strategy or in a worst case scenario where Starbucks was forced to completely pull

out of Israel because of such issues thus negatively affecting its strategy for expansion.

Political influence is unfavorable in this case and presents a threat to Starbucks.

Economical Influences

Exchange Rates:

The falling dollar rates compared to other currencies (Bloomberg.com) which was caused partly by

weaker monetary policy will affect imports. Most of Starbucks’ vital supplies such as coffee beans,

sugar and milk will be affected because they are imported, thus incurring higher cost due to weak
dollar. This raises a question as to whether the company will pass the extra cost to consumer and

risk making its coffee even more expensive.

Income Distribution:

After the economic crises of 2007 that led to job losses, unemployment figures rose (to 2.5 million in

Britain 2010 – Office for National Statistics). This affected income disparity which became unequal.

Hence people that were previously able to afford Starbucks’ expensive specialty coffee now saw it

as a luxury thus leading to low sales in some locations. This in effect affects the company’s

expansion plan. In this case Economic Influences has an unfavorable impact.

Social Influences

Changing Tastes:

The changing taste in America indicates that people are consuming more specialty coffee which

amounted to about $1.3 billion in imports (Restaurant Hospitality). This influences Starbucks

because it provides an opportunity to exploit this market and gain higher market share in the coffee

market.

In India and China however, tea is still mainly preferred, so Starbucks might have to alter its strategy

there. This will not be too difficult taking into account the trend of ‘Americanization’ and its success

across developing countries so far.

Health consciousness:

Government’s push toward healthy eating in western countries due to concerns regarding obesity

might influence companies such as Starbucks to update its menu in terms of introducing new lines

and healthy alternatives to be sold together with coffee.

This in other words means that Social Influences is favorable and can provide an opportunity for

Starbucks.

Technological Influences

Wave of Technological trends:

Technological advancements have never been so fast, hence firms need to consistently follow the

trends and exploit any opportunities that may result and implement any change required. For

example, Starbucks have embraced the new phone payments system that was introduced recently

which helps cut long queues at peak times.

Social network memberships is growing by the millions e.g. facebook has over 500 million users and

users have an average of 130 friends, additionally, time spent on the site is over 700 billion minutes

a month (facebook.com). Exploiting this trend offers companies such as Starbucks a platform to

relate and share ideas with customers. It has already used social networking sites such as facebook

(with over 19 million “friends”) and a forum which it runs, to communicate and engage with

customers and communities (Economist.com). Technology has a favorable impact for Starbucks.

Environmental Influences

Environmental pressure groups:

Non-Governmental Organizations and pressure groups possess incredible ability to coerce

businesses into changing their practices. They could influence businesses through lobbying and

boycotts. Such measures usually impact the intangible assets of a firm which usually involves

tarnishing a company’s brand name. Starbucks however works with the “Fair-Trade movement”
(Economist.com) and the accreditation that comes with such alliance massively improved Starbucks’

image, hence Environmental influences is favorable for Starbucks.

Legal Influences

Not all countries welcome big firms because they like to protect their indigenous firms from unfair

competition and takeover. Legal issues such as Monopoly and national protectionist laws will affect

Starbucks because of its size and its plan of expansion. E.g. countries like India guard against such

practices with a legislation that bars external companies from owning more than 51% in a merger.

The more this happens in other countries, the more Starbucks expansion plan is restricted. Thus

legal influences are unfavorable for Starbucks.

Threat of New Entrants

The entry of new players in an industry can bring the competition into new, higher

levels. New entrants, most especially large ones, bring new capacity, the desire to gain

market share and often substantial resources that could cause a shake-up or a

rearrangement of the current competitive positions of companies within the industry. In

order to protect the players’/companies’ positions in the industry, they have to set up

high barriers for new entrants. These barriers include economies of scale, product

differentiation, capital requirements, cost disadvantages independent of size, access to

distribution channels and government policy (Porter 1998). Major players often force

new entrants to come in at a cost disadvantage by compelling the latter to spend or

invest large amounts of money on production, research and development, marketing,

distribution channels, financial resources and all aspects of the business.

The specialty coffee industry today is undoubtedly dominated by Starbucks,

having no equal or larger company in size that competes directly against the company.

However, the industry is open to all potential rivals, especially to large companies

engaged in the consumer products and retail chain business. For example, the new

entrants in the coffeehouse business today are McDonald’s and Dunkin’ Donuts and

Burger King, three large companies which are challenging Starbucks’ dominance

in the industry. These new entrants can equal Starbucks capabilities in the aspects of

distribution channels, marketing and other areas. They have the capacity to bring new

resources that can cause a shake-up in the industry, but not yet enough to topple

Starbucks from its current dominant position. With the three big companies’ entrance

into the specialty coffee retailing segment, Starbucks’ position is definitely shaken.

Despite the openness of the specialty coffee segment to new entrants, barriers to

the successful entry of new players appears to be tall. First, product differentiation in the

industry is high. Specialty coffees are so differentiated in appearance, presentation,

taste and even in image. Brand recognition is especially important for consumers, along

with excellent customer service and the overall ambience of the coffeehouse. These

barriers were successfully established by Starbucks long before McDonald’s or Dunkin’

Donuts decided to venture in this industry.

Favorable access to raw materials is also an important barrier in this industry.

Starbucks have exclusive access to quality coffee beans from several suppliers around

the world. The beans Starbucks bought from its suppliers follow the Fair Trade criteria
established in the industry. This characteristic is simply costly for Starbucks competitors

since they have to assure their customers that the coffee they serve is made from the

finest coffee beans similar to Starbucks’. On this aspect, cost disadvantage will be

experienced by the new entrants, such as McDonald’s and Dunkin’ Donuts.

However, at present, McDonald’s, Dunkin’ Donuts and other potential rivals are

still targeting the lower end of the market, leaving the high-end bracket who are still

attracted to Starbucks. However, these new entrants are now shaking up the industry,

pressuring Starbucks to cut its price to maintain its rate of investment as the

coffeehouse chain’s market share is now being eaten up by the rivals.

Threat of Substitute Products

Substitute products, as explained by Porter (1998), are those products that come

from other industries and can pose as a trade-off for products in the underlying industry.

In the specialty coffee industry, substitute products can be those non-alcoholic

beverages such as tea, soft drinks, fruit juices and energy drinks and other caffeinated

drinks. These are sources of substitute products which the consumers can purchase in

place of coffee. However, the only true direct substitute for specialty coffee is the basic

coffee, but the basic coffee is considered to be a substantially lower quality than

specialty and as such does not present threat to specialty coffee.

On the other hand, whilst there are several potential substitutes, a cup of

specialty coffee is still what consumers prefer to purchase. Product differentiation and

brand image plays an important role in this industry. The specialty coffee products are

different in many aspects from the substitutes. Coffeehouses offer not only a cup of

coffee but the experience of sipping the specialty coffee on a luxurious ambience, such
as what Starbucks is offering. Soft drinks companies and non-alcoholic beverage

producers are on a mass marketing, selling their products in retail stores, supermarkets

and department stores. Coffeehouses, on the other hand, offer an exclusive place for its

consumers to enjoy their coffee. Hence, the threat of substitute products is not

significant or is not considered a major force in the specialty coffee business.

Buyer’s Bargaining Power

Customers are a powerful force in an industry. They can pressure the companies

to cut down their prices, demand better services from the company and can pit one

company against another (Porter 1998). In other words, customers can influence the

rise and fall of rate of profits in a particular industry. According to Porter, buyers or a

buyer group become powerful if:

• They are concentrated or purchases in large volumes.

• The products they purchase in an industry are undifferentiated or standard.

• The products they purchase form a component of their own products or a

significant fraction of its cost.

• They are of low income levels which create incentive to lower their purchase

costs.

• The industry’s products are unimportant to the buyers’ quality of services or

products.

• The buyer does not benefit from the product.

• They pose a credible threat of integrating backward to make the industry’s

product.
 These powers can be acquired by the consumers if they act as a group.

However, in the specialty coffee industry, the largest fraction of buyers is the individual

consumers, and they do not act in unison (Larson 2008). In the specialty coffee

industry, individual consumers compose the largest purchasers of the product and these

buyers tend to be less concerned with the price of the product (Larson 2008). This

decreases their bargaining power further. Product differentiation in this industry is so

high that consumers tend to look more for the quality of services and the image of the

brand than the price of the product or where did the product’s raw materials come from,

or what is the price of the raw materials, etc. hence, the bargaining power of the buyers

are low.

Bargaining Power of Suppliers

Similar with the buyers, suppliers can also exert influence on the players in an

industry. Suppliers can gain bargaining power and can be potential threat to industry

players in terms of industry profits. They have the ability to increase or decrease the

quality of products in a particular industry (Porter 1998). Michael Porter also outlined the

major sources of bargaining power of suppliers. The author said a supplier group is

powerful if:

• It is dominated by a few companies and is more concentrated than the industry

it sells to.

• Its product is unique or at least differentiated, or if it has built up switching costs.

• It is not obliged to contend with other products for sale to the industry.

• It poses a credible threat of integrating forward into the industry’s businesses.

• The industry is not an important customer for the supplier group.

 Again, similar to the buyers’ situation, the bargaining power of suppliers can only

be increased if they act in unison and they are highly concentrated. However, in the

specialty coffee industry, suppliers generally have less bargaining power due to the

number of coffee farms and plantations spread across several continents, namely Latin

America, the Pacific Rim and East Africa. Whilst there is only one variety of coffee

needed for the industry, Arabica, there are however practically thousands of plantations

and individual coffee growers growing this particular type of coffee bean, giving the

coffeehouse companies more choices to replace existing suppliers should the latter

demand higher prices for their coffee beans. Hence, the suppliers are diverse and

spread and the industry players exert more influence and get a larger share of the

profits of the industry over the suppliers.

To sum up the five forces analysis, it can be concluded that the specialty coffee

industry today is generally attractive and highly competitive. Despite the monopoly of

Starbucks in the past two decades, a number of small, individual and family-

owned coffeehouses have sprouted. The buyers and suppliers have less bargaining

power and the threat of substitute products is insignificant. Thus, the rate of profit in the

industry is highly concentrated upon the major industry players, particularly to

Starbucks. However, with the entry of new players such as fast-food chain giants

McDonald’s and Dunkin’

Donuts, Starbucks’ dominance in the specialty coffee industry is being

threatened.

Summary of External Factors

Opportunities

Starbucks does have opportunities available for growth and investment. One

opportunity for Starbucks is continued expansion in the global market, rather than in the

domestic market. Because of the economic slowdown and the increase in competition in

the United States, it is unlikely to expand or regain their dominance over the market

share that they once had. One of the only ways that they will be able to continue to see

a growth in sales is to look to foreign markets.

The international market is also showing a good promise for Starbucks. The

economies of the emerging markets are growing at a rapid pace. The company can

capitalize on this growth by aggressively expanding into these countries. Using its

fundamental strategies indicated in the previous sections and the recommendations at

the end of this paper, the firm can increase its revenue and profit by penetrating into the

emerging markets.

Threats

The entry of two large companies and their fast rise in the specialty coffee

presents the most credible threat to Starbucks’ dominance. McDonald’s and Dunkin’

Donuts are formidable opponents to Starbucks. These two companies have the

capability to match the Starbucks’ distribution channels and marketing activities. The

two fast-food chains can equal Starbucks in terms of financial resources. Starbucks still

faces the same old criticisms about its overpriced coffee. Hence, its image is being

threatened, especially now that the economy is not getting better.

Starbuck’s competitors are taking advantage of the current economic state to

position themselves as lower-cost alternatives to expensive, boutique coffee. Although

hard to believe, McDonald’s premium coffee is one of Starbucks leading competitors.

McDonald’s launched its own premium coffee about 3 years ago and added specialty

coffee drinks to more than 800 of its U.S. stores (Associated Press, 2009). The

company offered its premium coffee for about $0.50 cheaper than similar Starbucks

offerings. Besides the lower price McDonalds sustained popularity of its coffee by its

quick service. Don Thompson, president of McDonald’s USA, remains confident, saying

“We want to move from beverages as an accompaniment to being a 7 beverage

destination” (Associated Press, 2009). These factors help give McDonald’s premium

coffee the edge in the coffee market compare to Starbucks, and give them the potential

to become the world’s largest chain of coffee houses.

IV. INTERNAL ENVIRONMENT: Strengths and Weaknesses

A. CORPORATE STRUCTURE

Starbucks Coffee Company is the largest coffeehouse chain in the world. The

firm’s industry leadership is partly attributed to the appropriateness of its organizational

structure. A company’s organizational structure influences management and leadership,

communication, change, and other variables critical to business success. Starbucks has

evolved to have an organizational structure that matches current business needs. This

organizational structure is unique to Starbucks, although it can be characterized based

on a conventional typology of organizational structures. Starbucks succeeds because its

organizational structure grows with the business, enabling the company to optimize

processes and the quality of its goods and services.

An organizational structure is explained as the how the activities such as

coordination, task allocation and supervision are administered towards the achievement
of the aim of the organization. The organizational structure of Starbucks is decentralized

in nature. The basic principle of the structure is that the company provides decision

making power to each manager. Starbucks has large number of physical stores that are

located all over the world thus a large number of employees are also there. Each store

has its own manager, authority and a set of customers so each store can have its own

set of rules and regulations. This provides a greater flexibility and freedom to the

employees that encourage them to work more efficiently. Starbucks supports the

concept of innovation so the employees can present their ideas to the higher authorities

also. If the idea gets approved then there are better chances of the growth of that

employee. The idea of freedom is very effective as it brings about a lot of changes in the

products and working of the organization.

ADVANTAGES

• The decentralized structure of the organization is efficient as it saves time,

money and it has improved the communication process of the company as well.

• The decision making procedure has highly improved and thus it has reduced the

waiting time or the time lag in taking any decision about the company.

• The mangers of the store remain closer to the customers and according to Bill

Gates the executives who stay closer to their customers can respond faster to

the changing customer demands and can take decisions at a faster rate.

DISADVANTAGES

• The decentralized structure creates an atmosphere of uncertainty that leads to a

chaotic situation in the company.

 • Decision making is very quick but this is a disadvantage because the decision

maker thinks about the future of that store only and its effect on other stores is

neglected.

• Each manager has power in the hands so no manager wants to listen to the

other’s point of view. This act of dominating the other authorities creates

imbalance in the organization and affects the overall growth of the company.

Features of Starbucks Coffee’s Organizational Structure

Starbucks has a matrix organizational structure, which is a hybrid mixture of

different features from the basic types of organizational structure. The following are the

main features of Starbucks Coffee’s organizational structure:

• Functional structure

• Geographic divisions

• Product-based divisions

• Teams

Functional Structure. The functional structure feature of Starbucks Coffee’s

organizational structure refers to grouping based on business function. For example, the

company has an HR department, a finance department and a marketing department.

These departments are most pronounced at the top levels of Starbucks Coffee’s

organizational structure, such as at the corporate headquarters. This feature relates

with hierarchy in the organizational structure of Starbucks. For instance, the corporate

HR department implements policies applicable to all Starbucks cafés. The functional

structure feature of the firm’s organizational structure facilitates top-down monitoring

and control, with the CEO at the top.

Geographic Divisions. Starbucks Coffee’s organizational structure also involves

geographic divisions. At present, the company has three regional divisions for the global

market: (a) China and Asia-Pacific, (b) Americas, and (c) Europe, Middle East, Russia

and Africa. Also, in the U.S. market, Starbucks Coffee’s organizational structure

involves further geographic divisions: (a) Western, (b) Northwest, (c) Southeast, and (d)

Northeast. Each geographic division has a senior vice president. In this way, each

Starbucks manager reports to two superiors: the geographic head and the functional

head. This feature of Starbucks Coffee’s organizational structure supports closer

managerial support for geographic needs. Each division head is given a high degree of

flexibility in adjusting strategies and policies to suit specific market conditions.

Product-based Divisions. Starbucks also uses product-based divisions in its

organizational structure. These divisions address product lines. For example, Starbucks

has a division for coffee and related products, another division for baked goods, and

another division for merchandise like mugs. This feature of the firm’s organizational

structure enables focus on certain product lines. In this way, Starbucks effectively

develops and innovates its products with support from its organizational structure.

Teams. Teams are used in different parts of Starbucks Coffee’s organizational

structure. However, teams are most notable at the lowest organizational levels,

particularly the Starbucks cafés. In each café, the firm has teams organized to deliver

goods and service to customers. This feature of Starbucks Coffee’s organizational

structure enables the company to provide effective and efficient service to consumers.

Organizational Design
 While some coffee shops are run independently as small businesses, others,

such as those belonging to the Starbucks Corporation chain, are part of a vast network

of cozy coffee houses. The structure of the Starbucks Company differs greatly from the

corporate structure of mom and pop coffee shops that dot the corners of small towns.

This difference is due, at least in part, to the complications associated with creating and

maintaining such as sizable brand.

Basic Structure

The structure of the Starbucks Corporation is not an uncommon one. Starbucks

executives oversee the company from its headquarters in its place of origin. Around the

country, district managers oversee regional groupings of stores. These district

managers report directly to the Starbucks Corporation. At each store, a store manager

acts as the chief. Under this store manager are a collection of shift supervisors who act

as managers on duty when the store manager is out. Below the shift supervisors are the

rest of the employees, referred to as baristas.

Licensed Stores

Starbucks does not operate under a franchise system; however, they do license

storefronts. Licensed stores are common in grocery stores, bookstores or any other site

where the Starbucks is not a stand-alone building. These licensed stores are still

controlled by Starbucks Corporation and must adhere to the same stringent guidelines.

All items sold at licensed stores, including foods, must be approved by Starbucks

corporate offices. Starbucks maintains this control in an attempt to protect the company

name and ensure that it remains one that is associated with quality.
Policies and Practices

The Board is responsible for organizing its functions and conducting its business

in the manner it deems most effective and efficient, consistent with its duties of good

faith and due care. To meet that responsibility, the Board has adopted a set of flexible

policies to guide its governance practices in the future. These practices, set forth below,

will be regularly re-evaluated by the Nominating and Corporate Governance Committee

in light of changing circumstances in order to continue serving the best interests of

shareholders. Accordingly, the summary of current practices is not a fixed policy or

resolution by the Board, but merely a statement of current practices that is subject to

continuing assessment and change.

Determination of Independence of Non-Employee Directors

No relationship between any non-employee director and the Company should be

of a nature that could compromise the independence or judgment of any Board member

in governing the affairs of the Company. The determination of what constitutes

independence for a non-employee director in any individual situation shall be made by

the Board in light of the totality of the facts and circumstances relating to such situation

and in compliance with the requirements of the applicable listing standards and other

applicable rules and regulations.

Committees

The present Board Committees are the Audit and Compliance Committee, the

Compensation and Management Development Committee and the Nominating and

Corporate Governance Committee. All members of all committees shall be non-

employee directors of the Company and meet the independence requirements

applicable to membership on each committee of the market, applicable law, and the

applicable rules and regulations of the Securities and Exchange Commission (including,

with respect to audit committee membership, Section 10A(m)(3) of the Securities

Exchange Act of 1934 (the “Exchange Act”)), in each case as may be in effect from time

to time. The Board considers its current committee structure to be appropriate but the

number and scope of committees may be revised as appropriate to meet changing

conditions and needs.

The Nominating and Corporate Governance Committee is responsible for

reviewing and recommending to the Board, at least annually, the assignment of

directors to various committees. The Nominating and Corporate Governance Committee

will also recommend to the Board from time to time changes in committee assignments

to ensure diversity of Board member experience and to vary the exposure of the

members to the affairs of the Company. No committee member shall serve as chair of a

committee for more than two four-year terms.

The duties and responsibilities of the Board Committees are set forth in their

respective charters.

Board Membership Criteria

The Nominating and Corporate Governance Committee is responsible for,

among other things, reviewing the appropriate skills and characteristics required of

directors in the context of prevailing business conditions and for making

recommendations to the Board regarding the size and composition of the Board. The

objective is a Board that brings to the Company a variety of perspectives and skills

derived from high quality business and professional experience.

Majority Voting

The Company has adopted majority voting procedures for the election of

directors in uncontested elections. In an uncontested election, nominees must receive

more “for” than “against” votes to be elected. The term of any director who does not

receive a majority of votes cast in an election held under the majority voting standard

will terminate on the earliest to occur of (i) 90 days after the date election results are

certified; (ii) the date the director resigns; or (iii) the date the Board fills the position.

Procedure for Selecting New Director Candidates

The Board is responsible for recommending the candidates to stand for election

at the annual meeting of shareholders. The Board has delegated the screening and

nomination process to the Nominating and Corporate Governance Committee. The

Nominating and Corporate Governance Committee is expected to work closely with the

chairman of the Board in determining the qualifications desired in new Board members

and to select or recommend candidates to the full Board, including any candidate

recommended by the Board to stand for election at the annual meeting of shareholders.

Extending the Invitation to a Potential New Director to Join the Board

Upon concurrence of the members of the Board, invitations to join the Board will

generally be extended on behalf of the Board by the chairman of the Board and the

chair of the Nominating and Corporate Governance Committee.

Board Member Orientation and Continuing Education

An orientation process is in place to acquaint new directors with the business,

history, current circumstances, key issues and top managers of the Company.
 Directors are also encouraged to participate in external continuing education

programs, as they or the Board determine is desirable or appropriate from time to time.

Selection of Agenda Items for Board Meetings

The chairman of the Board, together with appropriate members of management,

shall develop the agenda for each Board meeting. The agenda is circulated in advance

to the lead independent director and Board members may suggest additional or

alternative items for consideration.

Board Materials Distributed in Advance

As much information and data as practical relating to the meeting agenda items

and the Company’s financial performance shall be sent to Board members sufficiently in

advance of meetings to permit the directors to review the materials.

Executive Sessions of Independent Directors

Each Board meeting agenda will include time for an executive session with only

independent directors present.

Role of Lead Independent Director

Upon the recommendation of the Nominating and Corporate Governance

Committee, the independent members of the Board shall select a lead independent

director for a term of two years. The lead independent director shall serve in that

capacity for not more than two consecutive two-year terms or until such person’s

successor shall have been duly selected by the independent members of the Board.

The duties of the lead independent director shall include but not be limited to, (1)

presiding at the scheduled executive sessions of independent directors as well as

presiding at all meetings of the Board at which the chairman of the Board is not present,
(2) serving as a liaison between the independent directors and the chairman of the

Board, (3) approving the scheduling of Board meetings as well as the agenda and

materials for each meeting and executive session of the independent directors, (4)

approving and coordinating the retention of advisors and consultants to the Board, and

(5) such other responsibilities as the independent directors may designate from time to

time. The lead independent director and the chairman of the Board shall each have the

authority to call meetings of the independent directors.

Qualifications of Lead Independent Director

In order to serve as lead independent director, a director must meet the

independence standards of the applicable market. Additionally, a director must (1) be

available to work closely with and act as an advisor to the chairman of the Board and

the president and chief executive officer, (2) be available to effectively discuss with

other directors concerns about the Company or the Board and relay those concerns,

where appropriate, to the chairman of the Board, the president and chief executive

officer or other members of the Board, (3) ensure the effectiveness of the Board of

Directors and that it maintains its independence from management, and (4) be familiar

with corporate governance best practices.

Board Access to Senior Management

All Board members have access to senior management, with the expectation that

such contact will be minimally disruptive to the business operations of the Company.

The chairman of the Board is encouraged to invite senior managers who can provide

additional insight into business matters being discussed and those with high future
potential who should be given personal exposure to members of the Board to the

meetings.

Board Compensation Review

Biennially, the Nominating and Corporate Governance Committee of the Board

will review the compensation of the non-employee directors and committee members in

relation to other comparable companies. Any changes in non-employee director or

committee member compensation will be recommended by the Nominating and

Corporate Governance Committee and approved by the Board.

Stock Ownership

While the Board believes that it is important that each non-employee director

owns shares of the Company’s stock, the Board also believes the stock ownership

requirement should not adversely affect the Board’s ability to attract diverse candidates.

Accordingly, each non-employee director is required to hold at least $480,000 in the

Company’s common stock as follows:

• Non-employee directors originally appointed or elected to the Board after June 5,

2012 shall have four years from the date of such appointment or election to hold

at least $480,000 in the Company’s common stock. Shares acquired prior to

election or appointment count toward meeting the requirement.

• Non-employee directors who were originally elected or appointed to the Board

prior to January 1, 2011 shall have until December 1, 2014 to hold $480,000 in

the Company’s common stock. These directors remain obligated under the

former requirement to hold at least $240,000 of the Company’s common stock

within four years from of their original appointment or election to the Board.
 • Non-employee directors who were originally appointed or elected to the Board

after January 1, 2011 and prior to June 5, 2012 shall have five years from the

date of such appointment or election to hold at least $480,000 in the Company’s

common stock. These directors remain obligated under the former requirement to

hold at least $240,000 of the Company’s common stock within four years from

their original appointment or election.

Once the deadline to hold a certain minimum amount of stock has passed, the

non-employee director must continue to hold the minimum amount of stock required as

long as the director serves on the Board.

Recovery of Incentive Compensation

Pursuant to the Company’s Recovery of Incentive Compensation Policy, the

Company may seek reimbursement with respect to incentive compensation paid or

awarded to executive officers (as designated by the Board) where such payment or

award was predicated upon the achievement of financial results, which financial results

were the product of fraudulent activity or that were subsequently the subject of a

material negative restatement.

Assessing the Board’s Performance

The Board, with the assistance of the Nominating and Corporate Governance

Committee, will conduct an annual evaluation of its overall effectiveness and the

effectiveness of each of its committees, including the performance of the Board’s and of

each committee’s governance responsibilities.

Directors Who Change Their Job Responsibilities

 A Board member who ceases to be actively employed in his or her principal

business or profession, or experiences other changed circumstances, in each case that

could diminish his or her effectiveness as a Board member, is expected to offer his or

her resignation in writing to the chairman of the Board, with a copy to the Company’s

general counsel. The Nominating and Corporate Governance Committee shall consider

such changed circumstances in evaluating the appropriate mix of skills and experience

necessary for the Board to perform its duties effectively and shall make a

recommendation to the Board, which will decide the action, if any, to be taken with

respect to the resignation.

Outside Board Members Serving on Additional Boards

Board members who are full-time employees of a publicly traded company may

serve on no more than one publicly-traded company’s board in addition to the

Company’s Board and his or her own company board (when applicable). Non-employee

directors who are not full-time employees of a publicly traded company may serve on no

more than three publicly-traded companies’ boards in addition to the Company’s board.

Board members wishing to join the board of another publicly traded company

shall first notify the chair of the Nominating and Corporate Governance Committee, the

chairman of the Board, and the general counsel prior to joining the board. The chair of

the Nominating and Corporate Governance Committee and general counsel shall

review the proposed board membership to ensure compliance with applicable laws and

policies. Potential conflicts of interest, if any, shall be referred to the chair of the Audit

and Compliance Committee for review.

Term Limits
 There are no term limits for service on the Board of Directors. The absence of

term limits allows the Company to retain Board members who have been able to

develop, over a period of time, increasing insight into the Company and its operations

and, therefore, provide an increasing contribution to the Board as a whole.

Resignation, Retirement or Intent not to Stand for Reelection.

If a Board member wishes to resign, retire or not to stand for reelection at the

end of his or her current term, the Board member shall notify the chairman of the Board

in writing, with a copy to the Company’s general counsel. The Nominating and

Corporate Governance Committee shall evaluate such resignations and shall make a

recommendation to the Board, which will decide the action, if any, to be taken with

respect to the resignation.

Mandatory Retirement

A Board member must retire immediately before the Company’s annual meeting

of shareholders during the calendar year in which he or she attains age 75. No Board

member may be nominated to a new term if he or she would be age 75 or older at the

end of the calendar year in which the election is held. On the recommendation of the

Nominating and Corporate Governance Committee, the Board may waive these

requirements on an annual basis as to any Board member if it deems such waiver to be

in the best interests of the Company.

Selection of the Chairman of the Board

The Board appoints the chairman of the Board in the manner and based on the

criteria that it deems appropriate and in the best interests of the Company given the
circumstances at the time of such appointment. The executive chairman is the chairman

of the Board.

Evaluation of Executive Chairman and the President and Chief Executive Officer

Each year the chair of the Nominating and Corporate Governance Committee

and the chair of the Compensation and Management Development Committee (based

upon discussions with the independent directors of the Board) will conduct a formal

evaluation of the performance of the executive chairman and the president and /chief

executive officer based on appropriate quantitative and qualitative criteria, and meet

with such officers to share the findings of such review. The Board believes that the

compensation packages for the executive chairman and the president and chief

executive officer should reflect a strong pay-for-performance objective by aligning their

compensation with the achievement of both short-term and long-term financial

objectives that build shareholder value. The independent members of the Board

approve the compensation packages of the executive chairman and the president and

chief executive officer.

Succession Planning

The chair of the Compensation and Management Development Committee,

together with the chairman of the Board and the president and chief executive officer,

will annually review succession planning with the Board, and provide the Board with a

recommendation as to succession in the event of each senior officer’s termination of

employment with the Company for any reason (including death or disability).

Board Interaction with Institutional Investors, the Media and Customers

 The Board believes that the responsibility lies with management for

communications and relationships on behalf of the Company with institutional investors,

the media, and customers. Therefore, the Board may participate occasionally in such

interaction, but will generally do so only at the request of or with the prior knowledge of

management.

Board Attendance at Annual Shareholder Meetings

The Company’s policy requires the attendance of all directors at the Annual

Meeting of Shareholders, except for absences due to causes beyond the reasonable

control of the director.

B. CORPORATE CULTURE

Starbucks Coffee Company’s organizational culture is one of the most distinct

characteristics of the firm. A company’s organizational culture widely influences

employees and business performance. In Starbucks Coffee’s case, the company’s

organizational culture permeates all aspects of its business. However, Starbucks cafés

are where the company’s organizational culture is most easily observable. The way café

employees work with each other and how they interact with customers are indicators of

Starbucks Coffee’s organizational culture. The warm and friendly ambiance in these

cafés is part of the company’s distinction from competitors. Starbucks has an

organizational culture that relates with the company’s strategies for successful brand

development and global expansion.

Features of Starbucks Coffee’s Organizational Culture

 Starbucks Coffee’s organizational culture has a number of key characteristics.

The combination of these characteristics is unique to the firm. The company describes

its organizational culture as a culture of belonging, inclusion and diversity. In this regard,

the main features of Starbucks’ organizational culture are:

• Servant Leadership (“employees first”)

• Relationship-driven approach

• Collaboration and communication

• Openness

• Inclusion and diversity

Servant Leadership. Starbucks has a servant leadership approach, which significantly

characterizes the company’s organizational culture. In this approach, leaders, managers

and supervisors emphasize support for subordinates to ensure that everyone grows in

the company. This feature of Starbucks’ organizational culture translates to the

employees-first approach. The company highlights the importance of caring for

employees.

Relationship-driven Approach. Starbucks also has an organizational culture that

supports warm and friendly relationships. For instance, at Starbucks cafés, baristas

exhibit warm friendly bonds with each other. This feature of the company’s

organizational culture extends to customers, who are also treated with warmth. Through

emphasis on relationships, Starbucks develops the coffee culture that drives consumer

demand for the company’s specialty coffee products.

Collaboration and Communication. The organizational culture of Starbucks

encourages collaborative efforts through effective communication. At the cafés, baristas

clearly communicate with each other to fulfill orders. Also, they collaborate as teams to

make the order fulfillment process efficient. Thus, Starbucks’ organizational culture

supports efficiency in business processes, which contributes to quality of service,

customer experience, and business cost-effectiveness.

Openness. Openness is another major characteristic of Starbucks Coffee’s

organizational culture. Initially, employees had a culture of fear to speak up to their

superiors. A culture of openness developed. Through this feature of its organizational

culture, Starbucks empowers employees and facilitates innovation.

Inclusion and Diversity. Starbucks has an anti-discrimination policy that shapes its

organizational culture. This policy prohibits any form of discrimination based on gender,

race, ethnicity, sexual orientation, religion, age, cultural backgrounds, life experiences,

thoughts and ideas. Through this feature of the organizational culture, Starbucks

facilitates sharing and rapport among employees, as well as innovation based on

diverse ideas. This aspect of the company’s organizational culture also makes

customers feel welcome at Starbucks cafés.

Starbucks’ culture is powerful because it is tightly linked to the company’s

distinctive capabilities. The feel of Starbucks stores isn’t created merely by the layout

and the décor — it exists because the people behind the counter understand how their

work fits into a common purpose, and recognize how to accomplish great things

together without needing to follow a script.

Partners

From the individual who makes your decaf cappuccino to the person to whom

you hand your money and exchange a smile, all Starbucks workers are partners in the
company. While Starbucks workers also have more specific titles, including barista and

shift supervisor, the Starbucks corporation has long referred to their workers as

"partners." This term is intended to make clear how integral Starbucks employees, no

matter how low on the chain, are to the company's success.

Responsibility

Social responsibility is a keystone principle at the Starbucks Coffee Company.

Starbucks aims to work ethically with all of its suppliers, offering the providers of their

fine Arabica coffees fair value for the beans they work so hard to grow. The company

also practices environmental friendliness, choosing eco-friendly options whenever

possible. For example, instead of throwing away spent coffee grounds during the

summer season, these grounds are left out for green-thumbed customers who want to

use them in their gardens as a source of acid for the soil.

A Summary of “The Starbucks Experience”

Starbucks has become a top global brand by adhering to the following five key

principles:

• “Make it your own” – Customize the experience.

• “Everything matters” – Focus on every aspect of the job. Never ever lose your

focus on your customer’s experience and point of view.

• “Surprise and delight” – Do the unexpected to make buying a cup of coffee

enjoyable.

• “Embrace resistance” – Learn from your mistakes.

• “Leave your mark” – Do your job so that your customers remember you.

The Partner Ethos

 Two aspects of Starbucks’ corporate culture are central to its success:

• Employees are partners – Starbucks calls its employees “partners” and

encourages them to become involved in the company, and to contribute ideas

about building the business and improving the product.

• Leaders transmit the culture – Managers are responsible for relaying Starbucks’

culture directly to employees.

• Partners receive extensive training in the company’s products and service

standards, including how to greet customers and shape their stores’ atmosphere.

Starbucks spends more on worker training than on advertising – and the expense

pays off in terms of employee retention and customer satisfaction.

1. Principle One: “Make It Your Own”

Starbucks founder Howard Schultz is often quoted as saying that he is not in a

coffee business, but in a people business that serves coffee. Starbucks distributes a

company pamphlet called the Green Apron Book, which emphasizes these five

principles:

• “Be welcoming” – One barista said she keeps note cards on her customers

including information about the drinks they like, their families and even the

names of their pets.

• “Be genuine” – Partners must be active listeners and good observers. Noticing

that a new customer looked as though she was about to cry, a barista offered her

a toffee nut latte, “Because who doesn’t like that?” The next day she received a

thank you note and flowers from the customer, who said the barista’s kindness

was literally a lifesaver.

 • “Be considerate” – On the corporate level, this means instituting environmentally

friendly policies such as using wind energy, reducing carbon dioxide emissions

and contributing to clean water projects globally. Partners join community

projects, such as tree planting.

• “Be knowledgeable” – Partners learn about coffee through tastings, internal

publications and classes. The store gives each one a pound of coffee every week

to ensure that they use the product they sell. Some partners become “Coffee

Masters” by completing a three-month program of special training and testing.

• “Be involved” – When the staff at one store realized that they had many deaf

customers, they decided to take lessons in Sign Language. At other stores,

employees have suggested redesigns that improve the work flow.

2. Principle Two: “Everything Matters”

Retail businesses rise or fall on the details. Therefore, Starbucks focuses on

every aspect of its business, including image, employee concerns, product quality,

customer experiences and the company’s reputation.

In 1991, Starbucks created an in-house architecture group to design its stores.

This unit oversees lighting, furniture, fixtures, artwork, music, aromas, colors, the menu

boards and the shapes of the counters. The company has different designs to suit

different locations, depending on traffic patterns and other requirements: Some are

sleek and modern, while others match the local architecture. Starbucks uses store

design to build its brand. One enthusiastic customer claims, “Starbucks could very well

operate without even selling coffee. They could charge an entrance fee and offer
nothing else but a room and mellow Bob Marley music softly playing in the background,

and people would still come.”

Cleanliness is a large part of the customer experience, and all Starbucks stores

post cleanliness checklists and follow certain cleaning routines. At least one worker

must come out from behind the counter every 10 minutes to check the environment, a

requirement that one barista said she particularly liked: “It gives us a chance…to make

sure everything is clean and orderly, and we become more involved with our

customers.”

Clean restrooms are particularly important to Starbucks; said one customer,

where public restrooms are rare: “Trust me, no matter what the music, the flavor of the

day or the wireless availability, Starbucks’ success is all thanks to the free and clean

toilets.”

Starbucks pays attention to packaging. When the company noticed that

customers often asked for double cups so they could carry their coffee without burning

their fingers, it spent two years developing an environmentally friendly cup sleeve out of

recycled paper. The company also introduced a takeout cup that uses recycled

materials.

Furthermore, Starbucks discovered a way to package coffee so it still tastes fresh

for up to six weeks. This both reduced waste and enabled the company to ship its

coffee around the world.

3. Principle Three: “Surprise and Delight”

 People love surprises. Psychologists note that predictability provides security and

safety, but the unexpected reduces boredom. People in today’s culture have developed

an appetite for the exceptional and the spectacular. Many companies try to avoid

surprising their customers, but Starbucks uses surprises to build customer and

employee loyalty.

Since Starbucks ice cream is sold only in supermarkets, being able to get it for

free at Starbucks stores was a novel treat. Starbucks has given away books by poets

who live in coffee-producing areas. In some places, Starbucks stores post signs noting

which products are kosher, while in others it displays the work of local artists –

depending on what the community responds to and needs.

4. Principle Four: “Embrace Resistance”

You can’t please everyone. Starbucks copes with criticism and problems by

addressing mistakes and working to prevent them from happening again. It takes

responsibility for lapses in quality control and makes changes when necessary. The

company worked closely with some of its critics to develop coffee-buying guidelines that

call for good working conditions for farmers and that minimize pollution. Because it buys

so much coffee, Starbucks has become a global force and must concern itself with

conditions in the developing countries that produce coffee.

Because they are on the front lines, Starbucks store managers are the first to

hear most criticism. For example, the first Starbucks store in Beijing, China, was the

target of significant public opposition. Within a few months, government officials wanted

to revoke its lease. After a series of meetings, the manager altered the store
configuration to allow more people to sit down to drink their coffee, rather than ordering

drinks to go.

5. Principle Five: “Leave Your Mark”

To carry out its stated principles of social responsibility and community

involvement, Starbucks requires managers to have transparent dealings with vendors,

open communication with partners and high standards for product providers. Corporate

policies mandate environmentalism, volunteerism, and philanthropy. The company’s

mission statement says it will be an innovative change agent and that it will develop

flexible solutions to problems. It acknowledges the importance of meeting its fiscal

responsibilities and treating its employees well.

As a socially responsible company, Starbucks uses a triple bottom line: Its

annual report measures social and environmental impact as well as financial results.

The senior vice president of corporate social responsibility works with the board and the

company’s foundation to find ways to contribute to the communities where its stores are

located.

Meanwhile, Starbucks’ philanthropic activities contribute to its low turnover rate.

Studies have found that employee morale is three times higher in companies that have

a high level of community involvement. Employees who work together on charitable

projects build team spirit, and deepen their connections to their communities, to each

other and to Starbucks.

Corporate Resources

1. Marketing
 In this competitive era, business corporations tend to be globalised in order to

maintain their competitive strength. However, every market has their own culture and

policy which has become barriers for the multinational enterprises (MNEs) when they

are entering overseas markets. Therefore, Company must carry out a specific marketing

strategic for each different market in order to successfully penetrate into a market.

Starbucks have been successfully operating at overseas and it can be one of

sustainable corporations in the world, as Starbucks got an award and recognition of

“Global 100 Most Sustainable Corporations in the World” at 2010 and also got the “No 1

Best coffee” award and recognition at 2009.

Marketing Mix

Product-mix - is one of the factors made Starbucks become more competitive

against its competitor, such as brewed coffee, hot chocolate, espresso and teas.

Moreover, Starbucks provide the blended beverages in order to target non-coffee

drinker. Starbucks also serves oatmeal, juice, ready-to-eat pastries, salads and

sandwiches, muffins, and cakes to satisfy more customer needs.

Starbucks product can be categorises into either standardize or differentiate.

Besides that, Starbucks always implement their product with standardization, but some

other countries of Starbucks are slightly not standardizing the product due to other

reasons or factors.

For instance, Starbucks used cream milks in India instead of skim milk. India

residents will prefer more cream added in their coffee, but not skim milk. It is because

dieting is not popular at there. If the beverages have skim milk, they will feel like

deceived. In additional, they also prefer put spices like ginger or black clove in their tea
or coffee. National fruit of India is mango, so that, mango is one of flavours that Indians

like. Starbucks has improved upon the menu for discerning Indians palate.

In order to fulfill the customer’s requirement and satisfaction, Starbucks has

created some special product with different flavor and taste to suit different type of

consumers. For examples:

In China, resident usually like to drink tea, it is their transitional and consider as a

huge Chinese tea drinks market. As Starbucks had been actively to expanding in China,

therefore, it is using a differentiated strategy to create a new product line “Chinese Tea”

as flavor, such as Mudan White Tea, Oriental Oolong Tea, Jinxuan Tea, Biluochun

Green Tea to match the local customers. Furthermore, Starbucks also provide their own

“zongzi” during the Dragon Boat Festival and “moon cakes” during the Mid-Autumn

Festival.

Besides that, Japan director of corporate and marketing Norio Adachi said that

"The food wasn’t good–the items were too big and the texture was dry". Therefore, the

company tried to focus on Japanese tastes and deliberate on news recipes. Starbucks

are seasonal offerings such as Sakura Steamer (steamed milk with syrup, invoking the

Japanese name for the cherry blossoms currently in season) and a Roasted Green Tea

Latte. Moreover, name of Starbucks instant coffee “Via Ready Brew” also changes to

“Via Coffee Essence”.

Malaysia is one of the Muslim country, Starbucks get the certified ‘Halal’ by

Jabatan Kemajuan Islam Malaysia (JAKIM) to expand Muslim markets. All beverages

and food served in Malaysia are safe for Muslim consumption. Muslim aversion to pork

so that religion is also one of the reasons which affect the product created or developed.
 Price-Mix - the value of product is relying on price and quality. To distinguish

Starbucks from other competitors 'premium price' is one of the main factor. Therefore,

price of Starbucks are slightly higher than competitor. Customer are willing to spend the

budget for their service and products, because Starbucks provide the high quality

products, comfortable environment, unique tastes and conveniences for customer to

'take a break' in their busy life.

However, Starbucks in Japan have drop the selling price from 230 yen to 190

yen as well as shrunk the size of pastries, this is because coffee industry in Japan have

a deflation prices and very competitive in market, and also it is a big challenge for

Starbucks to keep the consumer loyal for this situation, so that Starbucks reduce the

product price to attract back more customer. As this reason, Starbucks are using the

“competitor pricing strategic, to achieve lower costs than other competitor in market

while maintaining the product quality.

Regarding the Starbucks at India, Starbucks bought the raw material from the

local Indian farmers in order to save the costs and keep the quality of product, and the

most important things is to reduce the transport fee or delivery fee. If Starbucks

Company bought the raw material from host country and transports it into India, the

delivery fee is the main reasons that causing the cost to increase, as this reason the

product selling price at Starbucks in India can be cheaper.

Besides that, Starbucks in Malaysia are created a new flavour product, called

“Frappuccino”, it only offer at happy hour (5pm to 7pm) on weekdays and available from

April until May 2011, during that time customer can enjoy the half price offer to own it.

Based on this case, Starbucks are using “penetration pricing” strategic, in order to
capture market share price for a new product are set below average cost in special

time. However, Starbucks also come out another new product, called “VIA Ready

Brew”, and this product launched by a difference pricing strategic. Instant coffee product

in Malaysia market is not truly with "premium style" compare to Nescafe's Gold Blend.

Therefore, Starbucks used a “skimming pricing strategy” for settle this product. For

example, 20 sachets with 20g each of Nescafe's Gold Blend is selling RM 12.95,

compare with Starbucks is offering 3 sachets is RM8 and 12 sachets is RM28. Average

price Nescafe's Gold Blend is RM 1.54 and Starbucks VIA is around RM 2.33 till RM

2.66, obviously it is higher than other competitors.

3.3 Promotion

Promotion is via marketing activities such as encouraging the action of buyer to

purchase the product in order to achieve its target market sale. The advertisement cost

of Starbucks is slightly lower than other competitor such as McDonald, Subway, KFC

and etc.

According to the chart, Starbucks market share is position on the sixth and has

the least spending on the media advertisement. However, Starbucks customers have a
strong loyalty. They have their own way to build up strong relationship with customers,

such as through the internet, Starbucks Cards, Social network and so on.

The Usage of Information Technology (IT) plays an important role in a strategy of

promotion via website, included Starbucks Gossip, My Starbucks Idea, Starbucks

Newsroom, Starbucks Melody and Starbucks home page in each country, a lot of new

products will be displayed on these kinds of websites rather than television. Customers

will get to know the new products and would try to own it. Starbucks can easily collect

the consumers’ responses via the website; it is the biggest marketing sources for

Starbucks. For example, the new product instant coffee “VIA Ready Brew” promotes in

Malaysia is through the Social networks whereas in US is using free sample and taste

test.

In comparison, the language of website used in US and other country is

absolutely different, with a similar culture background it can be using the same

language to perform in the website, such as US and UK are using the same style and

layout of website to perform it. However, countries with different language and

background will always prefer to use their own mother tongue language to perform it in

the website, such as China which uses Chinese as the main language in the front

webpage.

Technological infrastructure of the county is one of the reasons to influence the

promotion towards the consumer. For example, promotions in India focus on the two

under testing locations through direct mail for promotional coupons, billboard advertising

on the roads, and delivery services to big companies and business centres by offering
sales brochures. Starbucks is giving back to the community via sponsor scholarship for

the local students and this can enhance the company in earning more positive images.

Starbucks Japan launched the value promotions at the same day when customer

can use 100 yen to have a second cup after purchase a coffee beverage in January

until end of April. It is a successful promotion; therefore, Starbucks tried to extend the

death line from April to August.

Starbucks Cards is one of the promotions used in Starbucks. Starbucks Cards

had presented the customer brand loyalty and a lot of promotion. Starbucks can

promote their products and free advertisement via a card. Moreover, Starbucks also

provide a card to MNEs sales, they can use these kinds of cards to a gift their client or

reward their employee. In Malaysia, when customer are purchased 8 packets of 250g

whole bean coffee or 12-pack VIA® Ready Brew, they can get the a complimentary

250g whole bean coffee or a 12-pack VIA® Ready Brew, it can bring new customers.

Promotion-Mix - Starbucks store can be obviously found in any surrounding

crowd in high-traffic and highly visible locations, such as suburban retail canters and

downtown, airport terminals, and office building. Starbucks are provided a good

environment for customers to enjoy their reading, listening to music, free WIFI and

meeting. Furthermore, Starbucks also concern about the services in their coffee shops.

Starbucks Chief Executive Howard Schultz believe that baristas can provide a

Starbucks experience for their customers, therefore, they are focus on their staffs

training in order to provide more higher quality services. As demand grew, Starbucks

enable to keep their competitive position through manage the grown crowd and traffic

and provide a good services in the stores.

 Regarding to the strategies of entry mode, Starbucks through selects a people

who are local business leader to become partners is also one of the global expansion

strategies. However, Starbucks are often implementing three entry mode strategies,

which are licensing, joint ventures and wholly-owned subsidiaries, the following table 1

shown some of the example of the entry mode used at different countries.

For the aspect of store’s layout and design, Starbucks are mention that

“Sustainable design and build methodologies are part of our DNA”. Therefore,

Starbucks are tactfully cooperating with their partner and adapt the local market make it

more “localization”. For instance, one of the Starbucks outlets in Hong Kong are used

"Bing Sutt" retro design and in Singapore are used reclaimed “Railroad Sleepers”

concepts to design. However, Starbucks outlet in Japan is provided a smaller serving

with offer more seats than others countries, and in Spain it has outside terraces as well.

Moreover, one of the outlets in Hangchow, Starbucks are increase 180 square feet

garden in outside shop and provide almost hundreds of seats for tourist.

In addition, in Malaysia, Berjaya Corporation is the only one company that had

Starbucks’s license. Starbucks launch the new product “VIA Ready Brew” directly

through the retail shops only whereas trains and flights and is one of the channels. For

example, VIA was launched with Easy Jet in UK, and in US launched with Airline flights.

When the product is achieving the growth stage, Starbucks can refer upon case and try

to partnering with other distribution channel to launch their instant coffee.

2. Financial

COMMON SIZE STATEMENTS

 A helpful starting point for a financial analysis is a set of common size financial

statements. A common size income statement expresses all income statement items as

a percentage of sales, whereas a common size balance sheet expresses all balance

sheet items as a percentage of total assets. These statements allow us to develop a

preliminary understanding of trends in revenue mix, cost structure, and asset holdings,

along with how a business is funded.

In the common size income statement, we see that revenue from company-

owned stores declined year over year as a percentage of total revenue, not surprising

given the rapid growth occurring in the CPG segment. Importantly, this change in

revenue mix is useful to the interpretation of the ratio analysis to follow. We also see

that net earnings as a percentage of sales (Starbucks’ net profit margin) rose in 2011

and fell slightly in 2012. In the common sizebalance sheet, we see that inventories rose

as a percentage of total assets, especially in 2011, perhaps another manifestation of the

growing emphasis on packaged goods. So, the common size statements begin to reveal

the parity between Starbucks’ operating strategy and its financial results, but with a little

extra work we can learn much more. An analysis of key financial ratios will allow us to

observe more clearly how the company’s operating strategy is reflected in its financial

results. It also will tell us whether Starbucks’ effectiveness in creating shareholder

returns has improved or deteriorated over time.

Financial Ratios - The company tends to rely heavily on operating leases, which

represent Starbucks' off-balance sheet obligations. Also, an analysis of the company's

financial effectiveness must take into account Starbucks' financial leverage, since the

company has a substantial amount of debt on its balance sheet.

 • Fixed-Charge Coverage Ratio

Checking the financial health of Starbucks is an important step in ratio analysis.

The company has over $2.9 billion of debt sitting on its books, and it must have

sufficient funds available to cover its contractual obligations payments. Besides banks'

debt, Starbucks is also a party to numerous operating leases; the company does not

own its operating premises, but rather rents them. As of Sept. 28, 2014, Starbucks has

operating leases for about $5 billion, underscoring the importance of including rent

expenses in the assessment of the company's financial health. Leases are similar to

regular debt except that U.S. generally accepted accounting principles (GAAP) do not

require capitalizing them.

The fixed-charge coverage ratio looks at the company's ability to cover its fixed

charges, such as interest and lease payments, with its earnings. As of Sept. 28, 2014,

based on the annual rent expense of $974.2 million, interest expense of $64.1 million

and earnings before interest and taxes (EBIT) of $3,081.1 million, Starbucks' fixed

coverage ratio was 3.9. While there is no standard for this ratio, the higher fixed-charge

coverage ratio is, the more cushion Starbucks will have to cover its fixed charges. In

comparison, McDonald's Corporation has almost the same fixed-charge coverage ratio

of 3.95 as of Dec. 31, 2014.

• Debt/Equity Ratio

Another important ratio to assess a company's financial health is its debt/equity

ratio (D/E ratio), which shows the company's degree of leverage and risk. While most

analysts consider only book value of debt in their calculation of this ratio, some financial

professionals also lump operating leases and minority interest into this calculation. As of
Sept. 28, 2014, Starbucks' D/E ratio without operating leases stands at 38.8%, while the

company's D/E ratio with operating leases is 133%.

• Operating Margin Ratio

As with any other business, Starbucks must generate profit margins and returns

that are relatively higher than those of its competitors. Also, looking at Starbucks'

profitability ratios over time provides a gauge of how the company is doing in terms of

being cost efficient and generating returns that exceed the company's cost of capital.

Operating margin is one of the most important margin ratios for Starbucks. It

provides more comparability against competitors whose reliance on borrowing to

finance operations varies. Also, operating margin is indicative of the company's

effectiveness from the standpoint of creditors and equity shareholders. As of June 28,

2015, Starbucks' operating margin stands at 18.9%, which is much higher when

compared to the operating margin of 5% for the restaurant and bars industry.

• Net Margin Ratio

Net margin is another crucial metric for Starbucks, as it shows the company's

effectiveness in covering operating costs, financing and tax expenses. Unlike the

operating margin, the net margin shows Starbucks' financial effectiveness from the

perspective of its common equity shareholders only. As of June 28, 2015, Starbucks'

net margin was 14.6%, which is significantly higher than the industry's average of 3.2%.

• Return on Equity

Looking at Starbucks' return on equity (ROE) is another important step, as it

reveals how much income the company has generated with funds provided by its equity

shareholders. Firms with strong economic moats typically have higher ROE compared
to rivals. As of June 28, 2015, Starbucks' ROE stands at 49.3%, which is significantly

higher than its competitors' average return of 10.7%.

• Return on Invested Capital

Examining only the ROE may mislead investors; high ROEs can be achieved

with a high degree of leverage. For this reason, analysts typically look into another

metric called return on invested capital (ROIC), which is calculated as after-tax

operating income divided by invested capital. Invested capital represents total equity,

debt and capital lease obligation. Consistently high ROIC in excess of 15% is indicative

of a strong economic moat. As of June 28, 2015, Starbucks has an ROIC of 32.35%.

One short-coming of this ratio, though, is that it does not take into account any

off-balance sheet financing Starbucks has, such as operating leases. One way around

this issue is to capitalize and include operating leases in the calculation of the ROIC

ratio.

3. Research and Development

Starbucks have a dedicated R&D group of approximately 70 partners

[employees]. That said, Starbucks approach to food and beverage development is a

truly cross-functional and collaborative process, which draws on hundreds of partners

throughout the company to guide product innovation.

R&D operates out of Starbucks headquarters in Seattle. In addition to our

corporate headquarters, we have Centers of Innovation Excellence around the world.

For example, our facility in China supports the Asian region of the world and also

specializes in global tea botanicals for the entire company. Since needs at Starbucks
are global as well as regional, this decentralized structure allows to deliver locally

relevant products everywhere customers are enjoying the Starbucks experience.

At Starbucks, it is not purposefully set out to be “innovative.” Rather, it aspire to

be a company of people that share a common passion to create the ultimate coffee

experience. The customers mus be the the best judge of what that experience should

be and so we are continually responding to their desires and ideas.

This naturally compels the maangement to improve products, services and

technologies. It also drivesto t the same to think on entirely new levels – “new-to-

company” and even “new-to-world” products, services and technologies. The most

genuine way to keep current and future customers happy is by innovating. That is why

innovation is so important to Starbucks.

Most importantly, at Starbucks, they have an insatiable appetite for new

knowledge, especially when it comes to improving our ability to innovate new products.

If there is a way they can improve our results, they want to know about it. As a key

leader responsible for much of the product innovation, being on top of industry

benchmarks helps the management to stay ahead of the innovation performance curve.

4. Operations and Logistics

Starbucks area of expertise in coffee business is rising very

strongly. Throughout the past 20 years they has not been a single years, in spite of war

and decline, in which area of expertise in coffee deal have not developed. Starbucks

identify its staff for a lot of its achievement. This is payable frequently to continuation of

a huge and confirmed work atmosphere for all staff. The business does not have an

official organizational structure, sot workers are accepted by the organization to make
decision not including a management recommendation. Additionally, management

hopes and place following the decision of the workers and permit the workers to think as

a part of the industry. In adding up to creature the seller of the premium coffee and

capable only the maximum quality goods, Starbucks highlight firm principles, supply

strategy to improve worker confidence. This is to guarantee sustained consumer

approval. In addition, diversity has turn into precedence to given that a pleasing

environment to all customers. Starbucks carry on to stand by a severe, slow

development strategy in which they place out to control a marketplace before stirring on

to enlarge, therefore history has exposed this policy to make Starbucks successfully,

assembly them one the greatest rising company worldwide.

Starbucks Coffee has been recognized in the global marketplace as one of the

highest increasing product. The goals of the organization are to create an exclusive and

competitive product in the marketplace. The inbound logistics for Starbucks define to

select the optimum superiority of coffee beans, by the business selected coffee

purchaser from coffee manufacturer are in Latin America, Asia and Africa. Starbucks,

the green or unroasted beans are obtained honestly from the farmhouse by the

Starbucks purchaser. These are ecstatic to the storeroom place following which the

beans are roast and pack up. The business does not outsource its procurement to

guarantee high superiority principles right from the top of collection of coffee beans.

Starbucks policy is to target their consumer and place themselves as a third

position in the existence of its customers. To give confidence to this thought, Starbucks

position are provide with contented places and offer outlets for electronic gear, and a

layer no smoking plan guarantee that all consumers are in healthy environment. Every
Starbucks outlets have consumer feedback cards obtainable at the condiment situation.

The feedback cards help out Starbucks organization to be in touch with their consumer.

The cards provide a chance for their customers and want to know the comment of the

customer and as well provide idea for the new product. Starbucks has a warranty report

place in their outlets and promise their consumer that they can get their coffee

according to their tests and preference. In Starbucks they sets rule that if the coffee are

not satisfied their customers they will make another one to satisfied them

Factors that influence by Starbucks decision to be outsource, is that Starbucks is

there to help out customers to do the work of entertain and satisfying their passion

toward coffee. But in organize to facilitate customers get the work done; the business

itself has to obtain definite work should be completed. Functioning at Starbucks is

dissimilar from any other work which produces real moment of relationship with their

consumers.

The main performance objective of Starbucks is the supply chain. To optimize

these behavior Starbucks administer them in various habits which highlight their

promise to principled coffee source and fair buy and sell at worldwide duties. Starbucks

create relation with cultivators & distributors and contract straight with farmers. It

provides high cost to guarantee that unfortunately coffee makers have sufficient funds

to cover up their manufacturing expenses and their family requirements. It utilizes fixed

cost buying promise to border its contact price fluctuations and buy prospect bond to

offer price defense. Furthermore, to increase business hazard connected to the climate

and the biased and cost-effective problem, Starbucks supply bean from numerous

geographic district. The organization of the advertising plays a vital role in increasing
the consciousness of the fair buy and sell deals, different scheme that help out

rationalize Starbucks first-class cost.

Decision logic map for outsourcing of products and service

There are few risks involved in the process of making the decision in operations

management are:

In conditions of a product & design conclusion, which influence most of the

modified and evolution policy? They are the ones which recognize the price of

procedure and as well the superiority of the existing goods or facilities. In this view, the

organization must be capable to build up product design method in unity with the

modified and development in the marketplace to maintain marketability and market

share of the company venture. In Starbucks the industry venture buy and cook higher

superiority in entire coffee beans as well as sell these to their customers with improve

Italian technique espresso coffee drink as well as other coffee related manufactured
goods that are sell indirectly inside their outlets and branches. Additionally, Starbucks

offers a coffee bean goods and deal with the added retail businesses.

Second risk would be selection of location. The researcher said that the market

position depends on the environment of the industry and it is renowned nearly all critical

characteristic for business venture accomplishment. The operations managers’ choice

influences expenditure similar to the operation managing expenses transport charge

and rental fee as well human resource inside the district. In this Starbucks, the

operations manager is capable to believe suitable and profitable position for the

company venture. Therefore, the position issue is measured to be the significant cause

why customer select precise coffee store. Many of the Starbucks coffeehouse is

situated in malls and individual’s region that are close to the profitable center and

district. The position of the Starbucks are capable to build the industry venture and

develop into as the first position which is preference for dissimilar customers while they

recognize that coffee block are an vital set to unwind from demanding daily life.

Third is the layout design. The collections of the correct methods while building

the conclusion on appropriate layouts and procedure influence organization decision to

judge precise knowledge, this type of policy with appropriate outlets. Such is part of the

strategy of Starbucks as they are able to consider technologically advance layout

design. The organization of Starbucks has started their online policy by allowing for WI-

FI facilitates branches and outlets.

Starbucks have been capable to contract with their effort, revolutionize and

product which fluctuate diagonally the division of the industry venture and marketplace.

In Starbucks fast consumers devotion is element of their operations management

conclusion. While offering and fulfill the consumer’s requirements in the market place,

Starbucks capable to increase loyal customers who purchase their goods yet at

maximum charges. In situation of Human resources management (HRM), Starbucks

has been capable to believe comprise well-organized administration of cultural variety.

While, they are allowing for worldwide marketplace, the organization see to it so as to

they are capable to get used to with the employees culture. Starbucks also capable to

use four feature of organization style which believes alternative outlook, authority, and

pattern transfer and as well their societal rules. Moreover, the organization of Starbucks

offers managerial in permit their workers to be provoked and be ethically developed in

calculating their tasks. Furthermore, it improves their capability to develop into more

flexible, original and inspired principal to have workers with self-assurance and self-

fulfillment. The position of the Starbucks are capable to build the industry venture and

develop into as the first position which is preference for dissimilar customers while they

recognize that coffee block are an vital set to unwind from demanding daily life. The

Starbucks offer exhaustive training and instruction for their workers. Throughout the

human resource management use as a division of the operation administration policy in

Starbucks, the business has been capable to incessantly assemble their industry

objective. The Starbucks Coffee channel work under the industry venture logo and signs

as every store offer large variety of particular manufactured goods offer targeting

decision-making, professional and even undergraduate. Starbucks Coffee presents

exclusive blend of coffee goods which roast into perfections. Starbucks policy is to

target their consumer and place themselves as a third position in the existence of its

customers. To give confidence to this thought, Starbucks position are provide with
contented places and offer outlets for electronic gear, and a layer no smoking plan

guarantee that all consumers are in healthy environment. Capability and capacity

procedure of Starbucks is its planned process management throughout change in

covering, special recommends such as free sample and suitable outlets and given that

the newest tendency in the coffee marketplace to assemble altering requirements and

anxiety of their customers. Starbucks Coffee is capable to competitively continue in

company cookery especially to middle-class to A category division of the populace.

Starbucks Coffee extremely measured the activity pay attention to its recess

marketplace, importance the principles of superiority and cost-effective purchase

performance. The operations manager of the Starbucks consent a variety of people in

this marketplace section to desire generously from the provisions broad variety of coffee

goods.

5. Human Resource Management

Human resource management (HRM), or the process of finding , developing and

keeping the right people to form a qualified work force, is one of the most difficult and

important of all management tasks. On the other hand, activities undertaken to attract,

develop and maintain an effective workforce within an organization. As the world well-

known company STARBUCKS which have their amazing individual HRM in their theory.

With the development of society, the individual HRM theory has been bring a lot of

benefit for company development.

A worldwide company with its culture of 5 be’s:

 Be Welcoming

 Be Knowledgable
  Be Considerate

 Be Genuine

 Be Involved

Starbucks is known to have the best management team and staffs because

Starbucks number one mission statement is “provide a great work environment and

treat each other with respect and dignity.”

Recruiting is the process of developing a pool of qualified job applicants.

Starbucks recruitment could be divided into two sections which are Support Centre and

Retail. At our support center, Starbucks market support center, career opportunities

span a wide range of functions and departments. Departments include: finance,

information technology, supply chain, marketing, PR, human resources. On the other

hand, for the retailing, Store Managers and assistant Store Managers oversee the day-

to-day operations of each Starbucks location. Store management positions offer a great

career experience for professionals with previous experience in retail management, or

for baristas who desire increased responsibility.

Selection is the process of gathering information about job applicants to decide

who should be offered a job. Starbucks will be thinking highly of applicants’ quality.

During the selection, to test the applicants questions would be asked concerning to their

liking of drinking coffee or not. Here Starbucks will to find people who match their values

of liking coffee.

Compensation is the financial and non-financial rewards that organization reward

employees in exchange for their work. In Starbucks, Partners that work full time or part

time (20 hours or more per week) may participate in a variety of programs.
 Depending on job and personal situation, a partner’s total pay package may

include:

 Competitive pay

 Insurance : medical, life

 Bonuses

 Paid Time Off

 Retirement Saving Plan

 Stock Option And Discounted Stock Purchase Plan

 Emergency Financial Aid

 A Free Pound Of Coffee Each Week

For company's success employees are vital. They are public face of company

and their hands passes through every single dollar of sales. Howard Schultz thinks that

employees can break or make a company. If an employee has a positive interaction

with customer, definitely customer will be come back. Vice versa, customer is gone. It's

important for Starbucks to hire and recruit the right person, train well, motivate and

retain them. Therefore, the company should give satisfying jobs, appropriate work

schedules, a positive work environment and fair compensation and benefits. To gain

competitive advantage these activities are essential of Starbucks's strategy to deploy

human resources. Human resource management (HRM)is the process an organization

takes actions to attract, develop, and retain quality employees.

According to Ms. Peñafiel, they treat their customers and their employees as

their partners. They treat them fairly because partners give good services to customers.
They need to take good care of them for the customers to come back. There will just be

a rotation within the business and the partners. They build partners according to their

strengths. If the partners have opportunities, they talk to them individually so they will

know what they will need to improve as well as there will be a good relationship to the

whole organization. She also said that they are in the coffee industry. There's a big

difference compared to others. They offer not only coffees but also pastries. It

compliments so that if they hear Starbucks, the customers will not only say that they are

only dealing with coffees. Also, every month there are promos offered. They have of

what they call Starbucks Standard. They have trainings and they apply the Starbucks

culture. If we say Starbucks, it have big difference to others. Customers say that they

have good services. They value our customers to be known for good services. When

there are "pasaway", they sit down and talk about the things they need to change.

There will be a timeline given to the partners. It will be effective within 1 month. If there

is something wrong, they immediately stop it. They have standards in handling people.

They appreciate them through saying "Good job!" so that in the end, their boosts will be

enhance. They also give rewards like "Best Organization" to encourage them to do

good things within the organization.

For her, she did not consider herself as a leader. She’s just only leading the

shifts. She’s an approachable Manager-on-Duty. If we say a leader, they are in the

highest position and need to be followed and I'm not like that. All must be fair. In their

company, they have their vision. As a coffee industry, everything is according to

standards. If there are problems, they immediately take actions.

 They have rules and booklets that will be given if there is a new partner. It is

strictly a Partner-Manager relationship. There will be a boundary between them. It is not

accepted if you developed a deeper relationship. She also said that they meet with

other branches. When they have insufficient goods, they borrow to the other stores.

They bargain goods. When there is a problem with the employees, Ms. Peñafiel talks to

them privately. If the employee is in a lower position, they will not feel it. If they have

store outings, they are joining it. Even they are just an employee, they are treated in a

nice way. In partners, there are no barriers especially in education. They have two

positions here, the part-time and the full-time. If you're a 4-year grad, you're a part-time

employee. Education is not a barrier because when in the store, they will study just the

same standards. Body language is not allowed. As Starbucks' partners, they have rules

and regulations. In every orientation, it will be discuss. There is an open-door policy to

know exactly what the problem is and have an immediate action for that. It is open

anytime. There is a communication log book wherein the partners can write down all

their concerns. There is a newspaper distributed every Saturday to know all the new

rules and promos. It is only for the employees and not for the customers. There are also

a lot of rumors in the store. It is not allowed to have personal conversation when you are

in a duty. But if it will not affect the service, it is okay. They do have meeting when there

are promo especially during Christmas. They rent places and conduct the meeting

there. She also said that she is a reactive communicator. She takes action after the

happenings.

Ms. Peñafiel said that they give an award and saying good words to their

employees. By simply saying things that can appreciate them, that’s the things that can
motivate them. She also said that she idolize some other managers. She put herself on

them that someday she will be like one of them. As a role model, she can do what they

are doing for her to be inspired. There are also contests. There are also awards like

bags and tumblers. Partners are push to do good things and services. They have

employee of the month and new promoted partners. It will be publish all over the world.

She also said that she motivate herself everytime. In the shift, she must be ready all the

time. She also need to motivate others and set as a role model. Time management is

required.

Ms. Peñafiel conducts employee evaluation monthly. They inform them every

month to know their performance. She also consults to other managers or other

subordinates about the performance of their employees. Every quarter, there will be

bonus if the employees meet the required quota. It is also separate on the 13-month

pay.

Every store meeting there is a team building. It aims to create a teamwork. They

also conduct trainings and seminars. Training happens within the store if there is a

newly hired employee. There are also coffee seminars that are announce. She also give

verbal feedback to employees but privately. She said that no employee will be happy if

their manager will shout to them when they are on the work floor. They do it by sitting

down. They also gather ideas not only by management but also in partners. It will help

the organization. They do it not in survey but in personal asking. During Christmas,

there are lots of complains. There are Starbucks steps to resolve the problem. They first

analyze the problem then approach the customer. Then if it is a serious one, the
manager or the manager-on-duty will take it. If is just a small problem, partners can

resolve it.

Ms. Peñafiel said that she is aware of the employees’ unpleasant

behavior. She talk to them personally and said to not repeat it again. If there are

problem, she confront partners personally but not in a direct point. They first sit down

until they arrive to the direct point then they resolve the problem.

The manager said she enjoy working with those energetic people. She said that

it's enjoyable to work with them like they are greeting to the customers with a big smile.

There are silent workers in our company but later on, their communication skills will be

enhanced.

She said that if there is a project, they have timeline for it. Time management is

required. If there are lots of projects to do, she ask help to the other partners. They

maintain to pass the requirements ahead of time or before the deadline. They do the

project when there are no customers in the store. Christmas Day is a busy day so all of

them must set their minds and team. They have rules to deploy partners. They must

apply the rules and be consistent in order for them not to be late. During Noche Buena,

the closing hour is 10:30. All partners are required to work during this time. She also

monitor the fast moving so that there will be balance on stocks, smooth arrival of

supplies and minimize the space. She needs to meet the targets.

The manager said that if she is about to choose between manager and a leader,

she will choose the leader. Leader because she did not treat herself as a boss to them

but she considers herself as a partner to the whole organization. She said that her

weaknesses are that she is afraid of those customers that will complain. Each day, she
encounters different types of customers and she need to be ready. Her strengths are

that she has learned how to motivate partners. Back then, she was only focus on work.

And she has learned that it is not good. She also learned that she needs to share her

ideas to partners. She said that she is a manager for about 4 years and 7 years of being

a barista. She considers herself as a participative leader wherein she considers every

suggestions of a partner for the betterment of the company.

She said that they don't have conflicts. As much as possible, they’re making a

solution for it. It is difficult to work in a field when you have an enemy within the

organization. It can affect your work. It must be resolve within the store. As a Manager,

she needs to talk to them and solve the problem.

Employee Selection is essential as for hiring the right men. Effective selection is

evaluated by their skills and qualifications. Effective selection can only be done when

requirement meets the line. By picking best applicant for the job, the organization will

get good performance of employees. Moreover, there will be less truancy and employee

turnover problems in organization. By employing the right applicant, the company saves

money and time. During selection procedure, proper screening of candidates takes

place, testing for the entire potential candidate who applied for the given job.

In order to differentiate Starbucks from competitors, Starbucks uses their

employees for example baristas to create the 'Starbucks Experience'. "To have the right

people hiring the right people." was Starbucks' recruitment motto.

The aspects that Starbucks looks for in employees are like adaptability, reliability

and the capability of team working. Starbucks often specified the qualities that looked
for in employees upfront in its job positions, which allowed prospective employees to

evaluate themselves to a certain extent.

Training is essential for organizational development and success. With proper

training, an employee will be more efficient and productive.

There are 4 training basics:

1. Training is given to new applicant. It teaches them with basic organizational

knowledge. Such as, goals, rules and regulations, vision and etc.

2. The existing employees are retaught to gather their knowledge.

3. If any change technology, training is given to handle with those changes.

4. Trainings are given when employees get promoted to share the

responsibilities.

Putting in systems to recruit, hire, and train baristas and store managers to

accommodate with fast growth. In screening candidates for new positions, Starbucks'

vice president for human resources used some simple guidelines.

Every partner or barista hired for a retail job has to undergo intensive training

before working. The training class topics even include coffee history and customer

service. Their workshop motto is "Brewing the Perfect Cup." Basic Starbucks retail skills

are taught too. Barista are even taught to satisfy customer special requirements.

Everyone is trained and three guidelines for interpersonal skills: (1) Increase self-

esteem, (2) Always attentive and (3) Ask for assistance.

Trainees have to attend intensive classes. Their intensive training consists of

knowledge of store operations, procedures; supervising people. Qualification to be a

trainee must have experience or at least store managers. Part of their main objectives
was to enforce the company's values, principles, and even knowledge of Starbucks

history and coffee.

Before every retail Starbucks opens, they will start recruiting 8 to 10 weeks

before opening. An experience team will be sent to newly opened stores to train the

employees.

6. Information Technology

At Starbucks Technology, we power moments of connection for our customers

and partners (employees). By extending the Digital Flywheel we will build innovation

that drives our core business. Proudly investing in our talent is a key pillar of building

the future. Our mission: we are Talented Technologists, Delivering Today, Leading Into

the Future.

 Social Media

In June 2010, Starbucks was named the most popular social media brand,

according to a snapshot taken of its fans, followers and subscribers by Famecount, an

online statistics and analytics provider. Starbucks social media space includes

technology like its website and social media platforms, including Facebook, Twitter and

Foursquare. According to a February 2010 article in "AdAge," Starbucks was able to

use social technology to its advantage and bring customers back to its stores by giving

them an online space to submit ideas and provide feedback on the brand and their

experience with it.

 Mobile App

After a two-year pilot period, Starbucks launched a nationwide mobile payment

app in early 2011. The app is available for iPhone, Android and Blackberry, and,
according to a June 2011 article on "Mashable," it can be used at 9,000 Starbucks

locations. To use the free app, you simply add your Starbucks card number. From there,

you can use the app to make purchases, track your rewards and check your balance.

You can also find which Starbucks stores will accept mobile payments.

 Brewing

In 2008, the "Seattle Times" reported Starbucks' recent purchase of the Coffee

Equipment Co., a small company known for its single-cup coffee maker known as the

"Clover." The Clover uses precise technology and a calculated algorithm to brew coffee

within one degree Fahrenheit of its ideal temperature and produce the ideal flavor. It

also controls how long the grounds and water interact and the flow of water brewing.

Clover units are connected via Ethernet port so that the Starbucks network can manage

the diagnostics and details of each unit.

 Starbucks Digital Network

Starbucks can serve as makeshift office and meeting place thanks to the free,

unlimited Wi-Fi available in its stores. In October 2010, the company made a move to

expand its online offerings to customers with the Starbucks Digital Network. According

to Starbucks, the news, entertainment and lifestyle channel was available in 6,800

locations as of March 2011. The digital network is a partnership of Starbucks and

Yahoo, and delivers premium content from sites like "USA Today," "Wall Street

Journal," ESPN, Nick Jr. and more to laptops, tablets and smartphones. When you

connect to Starbucks' free Wi-Fi, you're greeted with the landing page for the digital

network that allows you to check in with Foursquare, log in to your Starbucks card and

more.
  Wireless charging

Wireless charging has been stuck in the mud for years. Mainstream acceptance

is always coming next year. But somehow, next year never arrives. A few high-end

phones support wireless charging, but for the most part, it's still a nonstarter.

That's why it's significant that Starbucks this week announced a plan to install

100,000 wireless chargers in more than 7,500 of its stores over the next three years.

That's more than 10 charging stations per store.

Never mind that the company is supporting only one of the competing standards

and therefore most smartphones won't be able to take advantage of its wireless

charging service. In fact, Starbucks is supporting a standard that isn't very popular

among smartphone makers: the Power Matters Alliance standard. Smartphone makers

tend to support the Wireless Power Consortium standard (better known as the Qi

standard).

The important thing is that Starbucks is going big and being very visible about

wireless charging. It will stimulate demand and drive conversations about the support of

standards.

 Indoor location beacons

At its recent Worldwide Developers Conference, Apple demonstrated a feature

that displays the icons associated with stores or locations on the lock screen when you

arrive at those locations -- even if you've never downloaded the store's app! Tapping on

the icon takes you to the Apple App Store to download the app if you don't have it, and

launches it if you do.

 Apple's poster child for this feature was Starbucks. The feature uses Apple's

iBeacon system, the micro-location technology I've written about in this space in the

past. It seems obvious to me that Starbucks is likely to add iBeacons to all of its stores,

making it possible for you to order a drink in advance and then auto-notify the barista

when you walk in the door. Your drink will be ready by the time you make it to the

register.

 The Internet of Things

You hear a lot about the Internet of Things, which refers to devices and sensors

that communicate with each other and with humans over the Internet. While the Internet

of Things is a somewhat distant promise for consumers, Starbucks is charging forward

with it aggressively. Many Starbucks stores have super high-tech Clover coffee

machines, which connect to the cloud to communicate the performance of the machines

-- and to track customer preferences. (The cloud-based service that organizes Clover

data is called CloverNet.)

Starbucks is also working on smart refrigerators that track the expiration dates of

milk and other items inside, smart thermometers, smart door locks and other devices in

stores where data on their current states can be uploaded.

All of his data is accessible and crunchable from headquarters.

 Mobile e-commerce

Starbucks is a giant in mobile e-commerce. The company's mobile

transactions exceeded $1 billion in 2013, according to one estimate. The company has

revealed that its mobile payment and loyalty app is used by 10 million people for an

average of 5 million weekly transactions.

  High-performance wireless data

Starbucks is working to be a leader in Wi-Fi hotspot performance. After offering

mediocre but vaguely sufficient AT&T Wi-Fi to customers for years, Starbucks is

bringing in Google to offer super high-speed access -- probably faster Wi-Fi than the

vast majority of its customers have access to anywhere.

Google claims that its offering is 10 times faster than the old AT&T Wi-Fi -- and

100 times faster in Google Fiber cities. Google Wi-Fi is expected to be installed in every

U.S. Starbucks store by the end of the year.

There are also credible rumors that Google is working on a Starbucks app

feature that will automatically log users in to the Starbucks Wi-Fi the second they walk

into the store.

Unlike so many retail scenarios, where Wi-Fi is supplied grudgingly or not at all,

Starbucks is trying to compete using much faster and easier Wi-Fi.

It's not coffee that defines Starbucks or sets it apart. Every two-bit restaurant, fast

food chain and gas station sells coffee. The defining feature of Starbucks as a business

is technology -- that's what makes Starbucks successful.