TITTLE:
INFLUENCE OF THE BALANCED SCORCARD SYSTEM ON THE STARBUCKS´S STRATEGY,
NOVEMBER 20TH, 2013.
I. INTRUDUCTION
Coffee, initially only consumed
by the upper class of society, was perceived as a luxury and only consumed
within special coffee bars hidden in the shadows of western society, the first
organization which brought coffee outside of shadows and into the limelight was
Starbucks during the later twentieth century. Even now, the company has evolved
to be a household name and transformed the commodity of coffee from a luxury
into an upscale culture phenomenon.
More than a decade ago, Robert S.
Kaplan and David P. Norton introduced the Balanced Scorecard, a revolutionary
performance measurement system that allowed organizations to quantify
intangible assets such as people, information, and customer relationships.
Then, in The Strategy-Focused Organization, Kaplan and Norton showed how organizations achieved
breakthrough performance with a management system that put the Balanced
Scorecard into action.
The current research provides an
analysis of how Starbucks´ strategy is influenced by the Robert S. Kaplan and
David P. Norton strategy approach.
II. STARBUCKS´PROFILE
The current mission statement of
Starbucks is “To inspire and nurture the
human spirit by one person, one cup and one neighborhood at a time”.
The first Starbucks store was
opened in Seattle on March 30th 1971 by three partners and the name
of the store originated from the novel Moby Dick. The firm believes in
supplying and serving the best coffee possible by using the highest standards
of quality while adhering to ethical trading and responsible growing practices
at the same time.
The turnaround for Starbucks
started with the restructuring of management where the former chief executive
Howard Schultz took back the role and set the company´s focus on core markets
and utilizing technological breakthrough to introduce Starbucks coffee in an
instant form. Starbucks went back to its roots by focusing on customers
services hat was neglected during rapid expansion. All these decisions helped
to contribute to the sales flourishing and “profit rising” to high levels once
again.
The first location outside North America
was in Japan in 1990. The global expansion continued into Latin American, Asian
and European markets which resulted in Starbucks presently being the largest coffee
company in the world with over 17,651 stores in 60 countries.
III. METHODOLOGY
Starbucks strategy can be
analyzed according to the balanced scorecard.
Financial metrics have been the
main scorecard of success for hundreds of years. But by themselves they don’t
measure the complete health of a business. Financials measure what has
already happened—the past. That works fine when things don’t change much. But
someone has said that with today’s accelerating pace, running a company using
financial data alone is like driving down the highway using only the rearview
mirror.
If you hold a manager accountable
only for financial measures, you may increase profits in the short term, but
you’re probably going to hurt the company in the long run. The focus of most
public companies is necessarily short-term—i.e., making more money today. It is
not uncommon to hear CEOs of public companies complain about the pressure to
make poor short-term decisions in order to meet the public’s need for quarterly
dividends or increasing earnings. In order to meet these constraints, some may
lay off employees or cut research, training, or advertising, all of which
impair the long-term success of the company.
The Balanced Scorecard translates a company's vision and strategy
into a coherent set of performance measures. The four perspectives of the
scorecard--financial measures, customer knowledge, internal business processes,
and learning and growth--offer a balance between short-term and long-term
objectives, between outcomes desired and performance drivers of those outcomes,
and between hard objective measures and softer, more subjective measures. In
practicality, this means expanding management’s view beyond the financial
metrics and adding other metrics to balance out the equation.
The balanced scorecard suggests that
we view the organization from four perspectives, and to develop metrics,
collect data and analyze it relative to each of these perspectives:
The learning and Growth Perspective
This perspective includes
employee training and corporate cultural attitudes related to both individual
and corporate self-improvement. In a knowledge-worker organization, people --
the only repository of knowledge -- are the main resource. In the current climate
of rapid technological change, it is becoming necessary for knowledge workers
to be in a continuous learning mode. Metrics can be put into place to guide
managers in focusing training funds where they can help the most. In any case,
learning and growth constitute the essential foundation for success of any
knowledge-worker organization.
Kaplan and Norton emphasize
that 'learning' is more than 'training'; it also includes things like mentors
and tutors within the organization, as well as that ease of communication among
workers that allows them to readily get help on a problem when it is needed. It
also includes technological tools; what the Baldrige criteria call "high
performance work systems."
The Business Process Perspective
This perspective refers to
internal business processes. Metrics based on this perspective allow the
managers to know how well their business is running, and whether its products
and services conform to customer requirements (the mission). These metrics have
to be carefully designed by those who know these processes most intimately;
with our unique missions these are not something that can be developed by
outside consultants.
The Customer Perspective
Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.
In developing metrics for
satisfaction, customers should be analyzed in terms of kinds of customers and
the kinds of processes for which we are providing a product or service to those
customer groups.
The Financial Perspective
Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives. There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.
IV. ANALYSIS OF THE STARBUCKS´ STRATEGY
When Starbucks went public in 1992, it had only 165 stores
spread throughout Seattle and its neighboring states. Today, it has surpassed
its 10,000 goal and is planning on adding another 10,000 outlets worldwide.
What was the Starbucks strategy that enabled this initially West Coast yuppie
fad to become a global phenomenon, placing Starbucks at 338 on Fortune 500 List?
- Saturate the market.
The accepted business model at the time was to spread out the location of your chain
outlets so as not to cut the profits of one store from another. Typically,
stores would place their retail outlets in locations based on demographics,
traffic patterns, the location of competitors as well as the location of its
own stores. However, the Starbucks strategy went against the grain. Instead of
following the trend, CEO Howard
Schultz had a
different idea. He decided that the Starbucks strategy would be to blanket an
area completely.
Instead of worrying about stores
eating up each other’s business, the Starbucks strategy focused on heavily increasing
the foot traffic in one specific part of town. Not only would this cut down on
the company’s delivery and management times, but also it would shorten the
waiting lines for customers at each individual store and hopefully increase
overall traffic. Schultz knew that his Starbucks strategy was a risk, but it
was one he was willing to take.
In the end, the unique
Starbucks strategy paid off. Clustering its stores in one area helped Starbucks
quickly achieve market dominance. With over 20 million regular customers per
week, no other American retailer can claim a higher frequency of visiting
customers. Since the company went public, sales have risen roughly 20% each
year. Even when the rest of the economy seems to be in a slump, loyal patrons
keep returning to Starbucks for their regular cup of Joe.
What makes this Starbucks
strategy all the more amazing is the fact that the company spends less than 1%
of its annual revenues on advertising, versus the typical 10% of most other
retailers. Instead, the Starbucks strategy relies on word of mouth advertising.
They believe that by creating an intimate and welcoming environment in their
stores, as well as providing a great cup of coffee, patrons will not only keep
coming back for more, but will tell all their friends and family about it too.
Starbucks continues to keep its
customers happy and rely on non-traditional means of attracting new customers;
that is the Starbucks strategy. They are not worried about over-saturation “Those
who talk about saturation obviously don’t understand the business strategy.”
- Right market segmentation
The company has stayed with the
upper-scale of the coffee market, competing on comfort rather than convenience.
- Execution
The company continues to focus on
its original product bundle that includes good coffee, quality service, and a
nice environment to hang around.
- A superb leadership
Company founder Howard
Schultz, who continues to come up with innovative products to expand
the company’s product portfolio, leads Starbucks.
- China expansion
As is the case with the Japanese,
Chinese people live as extended families in small houses. This means that there
is a strong demand for Starbucks as a “third place.” Last year, Starbucks
opened 500 new stores in China, bringing the total to 1500.
- Partners
Starbucks offers the finest
coffees in the world, grown, prepared and served by the finest people. Their employees,
who they call partners, are at the heart of the Starbucks experience.
V. CONCLUSION
The result of this research shows
that the Starbucks strategy works according to the four balanced Scorecard perspectives.
Being the business process perspective and the customers perspective the most outstanding.
The influence of this approach
has helped Starbucks strategy to develop and bring the company internationally.
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