MANAGEMENT CONTROL

SYSTEMS

[STARBUCKS CASE]

NAME : MARIA JUANITA FRANSISCA

NIM : 023121289
CASE STARBUCKS SPM MAKE UP TEST
QUESTIONS
1. Explain the history of Starbucks. Comments on the uniqueness of
Starbucks.
2. (a) What is the strategy of Starbucks?
(b) How is the competition? Analyzes and give suggestion using SWOT
and BCG.
3. Who are the competitors of Starbucks? How is the competition?
4. Explain the quality strategy. Are there any components of Baldridge user?
Explain with your argumentation.
5. Explain the nature of control systems at Starbucks using illustration at
Starbucks.
6. How is the position of controller at corporate and branch at Starbucks?
Analyze and give suggestion.
7. What is C.A.F.E. Practices? Explain.
8. To make a coffee we need water. What kind of sustainability activities at
Starbucks?
9. Describe the responsibility centers at Starbucks using the organization
structures.
10. What kind of organizational structure that is match for Starbucks?
Why?
ANSWERS
1. Brief History
When the first store opened in Seattle, Washington. Jerry Baldwin, Zev Siegl
and Gordon Bowker got the idea from Alfred Peet (of Peet's Coffee fame).
The store initially sold just coffee beans and coffee making equipment rather
than the drinks they have become so famous. After about 10 years, Howard
Schultz was hired as Director of Retail Operations and came to the
conclusion that they should be selling drinks rather than just beans and
machines. He couldn't convince the owners, so he went his own way to start
the Il Giornale chain of coffee bars in 1986.

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The next year, Baldwin and the others sold Starbucks to Schultz who then
renamed his Il Giornale locations to Starbucks and quickly started to expand.
After conquering Seattle, the chain spreads across the United States and
then internationally. The first location outside of North America was in Tokyo
and they still have a sizable presence in Japan today. Over the course of its
history, Starbucks has bought or acquired companies like Peet's and
Seattle's Best Coffee, and took over many locations of Coffee People and
Diedrich Coffee stores. In the 1990s, Starbucks was offering stock options to
employees and went public. Today, Starbucks has expanded to more than
17,000 stores in 55 countries around the world. Their biggest presence is
still in the United States, with 11,000 locations. Now, we can find a
Starbucks in such diverse nations as Chile, Romania, Bahrain and Bulgaria.
The most recent expansion was to Budapest in June of 2010.
Uniqueness
Koehn (2001) does however, in the chapter on Starbucks, differentiate her
approach to why Starbucks has become the brand they are today from
Michelli (2007) and Bedbury (2002). She argue that Starbucks gained
considerable success and set industry standards by introducing a whole new
concept at the right time in the American context. Furthermore, she links
Starbucks success to socio-economic reasons, both changes in income and
lifestyles; hence changes in consumerism. The 1980s spurred economic
growth resulting in higher disposable incomes which made consumers
demand luxury goods and since Starbucks was perceived as an affordable
luxury; Starbucks became more or less an overnight success. Koehn (2001)
follows Starbucks and their success but lacks to explain, having set the
industry standard, why and how the brand in the end of the day
differentiates itself from their competitors.
The brand as explained by Koehn (2001) does not consist of something that
the rising amount of other competitors does not also posses. These include

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qualities such as a clean relaxing place for conversation and/or business

where premium coffee is served, and hence demarcates the brand to be
about social interaction, belonging and identity etc. and hence also how the
brand leads to a sustained competitive advantage (Barney, 1991). Like
Koehn (2001) and Luttinger and Dicum (2006), Pendergrast (2001)
acknowledges how revolutionizing Starbucks has been to the specialty coffee
industry. Starbucks was also revolutionising to the extent that they changed
the coffee culture.
2. (a) Starbucks 5-year profit growth strategy (since Dec 2014)
(1) Coffee and Tea Leadership
Starbucks Investor Day is being hosted on the eve of the grand
opening of the first-of-its-kind Starbucks Reserve

Roastery and

Tasting Room. Building on Starbucks 43-year tea heritage and its

acquisition of Teavana two years ago, Starbucks is reinventing the
$109 billion global tea category, just as it did the coffee category
more than 40 years ago. Teavana will continue to expand and to bring
its super-premium loose leaf teas, handcrafted beverages and
exclusive food offerings to carefully targeted markets both in the U.S.
and abroad.
(2)

Day Part and Store Format Diversification

Starbucks food

program

continues

to

resonate

strongly

with

consumers across all day parts, and to drive both traffic and ticket
growth in the U.S. and around the world. The company expects
continued top and bottom-line growth in its food platform as it
elevates and expands its offering of savory, locally relevant food
offerings around the world. Beside, the expansion of Starbucks
Evenings, Starbucks Reserve only stores, micro and express store
formats, new drive-thrus and mobile trucks are just a few of the
innovations customers will see beginning in 2015.
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(3)

Mobile Commerce Momentum and Innovation Continues with the

(4)
(5)

Launch of Mobile Order & Pay

Global and Channel Expansion
Financial and Operating Performance through the Lens of Humanity
As Starbucks accelerates the growth across its business and around
the world it will continue to balance industry-leading performance
with its core mission and values.

Starbucks key strategies:

Product differentiation offering differentiators such as premium product
mix, locations, coffee beverages reputation and supreme customer
service that translated to building a premium valued brand which is

costly to imitate for competitors.

Strategic alliance and making smart acquisitions. Starbucks didnt
follow franchising model and operated company oriented stores and

joint ventures in international markets.

Starbucks has made some key acquisitions such as Teavana (Tea
products), Bay Breads (premium bread products), Evolution Fresh

(fresh juice products) etc. to use the product diversification strategy.

Starbucks acquisition strategy that has been horizontal, product and

market extensions acquisitions.

Starbucks international strategies of expanding into key developed
and emerging markets to geographically diversify, and it has been
highly successful with operation spanning 60 countries. All these
strategies

have

derived

considerable

competitive

advantage

Starbucks over its competitors.

(b) Competitiveness using SWOT and BCG analysis.
Starbucks SWOT analysis
INTERNAL
Strength

Strong

market

position

Weakness
and

Expensive products
Self-cannibalization through
4

for

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global brand recognition.

Products of the highest quality.
Location and aesthetic appeal of

overcrowding
overdependence in the united states

its stores.
Human resource management.

market
Negative large corporation image
American/European coffee culture

Goodwill among consumers due

clash with that of other countries

to social responsibly initiatives.

Diverse product mix.
Use of technology and mobile
outlets.
Customer base loyalty.
EXTERNAL
Opportunities
Expanding product mix and
offerings.
Expansion into emerging
markets.
Expansion of retail operations.
Technological advances.
New distribution channels.
Brand extension.

Threats
Increased competition.
Price volatility in the global coffee
market.
Developed countries market
saturation.
Developed countries economy.

Changing

consumer

tastes

and

lifestyle choices.

Starbucks BCG analysis

HIGH

MEDIUM

LOW

Backward, Forward, or Horizontal Integration

Market Penetration
Market Penetration
Market Development
Market Development
Product Development
Product Development
Divestiture

MEDIUM

LOW

STARS

QUESTION MARKS

II
STARBUCKS

Product Development
Diversification
Retrenchment
Divestiture

Retrenchment
Divestiture
Liquidation

CASH COWS

DOGS

III

IV
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Using the Boston Consulting Group (BCG) matrix, Starbucks were

identified in STAR division. This division represents the Starbucks longrun opportunities for the growth and profitability. While, this division is in
high relative market share and industry growth rate and subsequently
they

received

substantial

investment.

Starbucks

positions

were

considered high since it recorded $ 14,866.8 million sales in 2013 and $

16,447.8 million sales in 2014. Moreover, the industry sales growth rate
between year 2013 and 2014 is 6%. The divisions are forward,
backward,

and

horizontal

integration,

market

penetration,

market

development and product development are will be considered.

3. Starbucks is not the only coffee shop on the market, others like Dunkin
Donuts, McDonalds, and Panera Bread have an identical item with similar
tastes and effect as the Starbucks brew, yet they have been able to
charge a premium for their blends by luring in customers with the aroma
of an inflated lifestyle. There are other homogenous coffee shops in the
market, but their loyal customers believe that the superior quality, taste,
and aroma cannot be found from any other coffee brewing entity. At one
point, their customers were more interested in the pretense that holding
a Starbucks cup represented, but due to the current economic conditions,
their customers have began second thinking how they are affected by the
extravagant price of the black gold they have been sipping.
Operating in a monopolistic competitive society has caused the Starbucks
effect to crumble. The organization has been able to maintain customers
in the short run that were more interested in their details rather than
price.

When a business is making a profit in the short run, they will

eventually reach equilibrium in the long run because their demand will
eventually decrease, as we have seen in the recent times. Due to this, in
the long run, this monopolistically competitive firm will result in a zero

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economic profit. Because Starbucks has profited on their brand loyalty,

they know that some loyal customers will never depart despite the
towering prices.
With the recent news of Starbucks closing six hundred store, it is evident
that they have been running in a marginally inefficient business model.
Most monopolistically competitive firms are marginally inefficient because
production average total cost is not at the lowest point. In this event, in
the long run, the marginal cost is simply less than the price of the good.
This translates to the price of the Starbucks beverage to me marked up
over the cost of production. The cost of producing for Starbucks may not
be the most cost-effective, but it is less than the price charged for their
gourmet brews. This could also explain why the price of Starbucks coffee
is so high; their production costs are high and must that cost onto the
customers to increase their revenue and decrease expenses.
Monopolistically competitive firms, like Starbucks are driven by mass
advertising and the establishment of brand names and logos. Starbucks
ambiance and products are marketed by the elevated, intellectual
connotations. There are many coffee shops on the market that also offer
tasty aromatic coffees, but the advertising and atmosphere of the
Starbucks shops draws customers in.

People are spending more on

Starbucks brews because of the logo and status attached to them.

Because coffee many times is virtually identical, advertisers and
producers narrow in on what the consumer wants and allow their
products to portray those ideals.

To differentiate between like coffees,

consumers must sample all types and determine what suits their tastes
and lifestyles. Yet, there are too many coffee options on the market and
consumers do not have the time or the funds to sample various brands.
Advertisers are aware of this and therefore embark on targeted ad

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campaigns

[STARBUCKS CASE]

to attract more

consumers.

Starbucks

attracts

their

customers over their competitors by their ad campaigns and serene

atmosphere of success.
4. To ensure high quality of the coffee, Starbucks has additionally found it
necessary to have high quality in all the activities in the supply chain as
well (Schultz & Yang, 1997). Therefore, the selection of coffee farmers,
the sourcing of the beans and the roasting process are integrated
activities in Starbucks, named C.A.F.E Practices. Starbucks has built their
own roasting plants and the coffee stores are company owned. Howard
Schultz argues that quality control is essential when you are dealing with
a product like coffee as it is imperative to the final coffee product that
the beans are fresh and that they are roasted and brewed the right way,
and that this quality control will be reduced if the activities are
outsourced (Schultz & Yang, 1997). Furthermore, he finds it difficult to
keep the company culture intact if the stores are franchised. Then it
would be difficult to make sure that the Starbucks service level is the
same in every store and thereby that the customer has the quality
experience they are to expect. Starbucks seems very determined on not
to compromise with the quality control.
Even though it may have the greatest significance for internal matters
that Starbucks value the control of their supply chain, it can still be
argued to take part in creating an image of the company which above all
wish to express quality, and that the product is premium made with care.
Thus, this quality approach distinguishes Starbucks from the mass
produced coffee products where a low price can be argued to be one very
decisive factor in the decision making. However, avoiding influence from
external suppliers signals financial superiority and independence resulting
in an image of Starbucks being a large and corporate company. Thus,

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Starbucks cannot get away from the fact that they are a large
corporation which distances them from the small feeling values they try
to express.
5. Starbucks have poor marketing strategy on advertising. They prefer to
build the brand by promoting the drinks cup-by-cup with customers. In
this way, the advertisement ends until they drink the coffee, while some
groups of people willing to support the advertisement for timing just to
taste the drink for free. The chances to attract valuable customers are
very low. Therefore, it also affects gross profit of Starbucks, the study
does not show drastic increased between year 2004 and 2005. The
percentages of the profit increased from 58% in year 2004 to 59% in
year 2005. This would because of lack of marketing strategy in
advertising. The company spent total of $87.7 million on advertising in
fiscal 2005, up from $49.6 million in fiscal 2003. It show Starbucks does
not emphasize on funding the money into advertisement.
Strategic Management Starbucks coffees price much expensive than
other market competitor product, it is because Starbucks purchased
only high quality coffee beans, This will increase the quality of the
product as well as the price of the product. As Starbucks have many
competitors, this will be an advantage of the competitors. People are
also nowadays looking forward for cheap products. Even though
Starbucks has its own customer who spends their money to get the
quality coffee, it still has to look for the other people who are running
to the next store.
Starbucks does not emphasize in distributing their products to
supermarkets. They are very concern on quality of the coffee; if the
coffees were packaged into plastic bags the mixing of the beans will
not be as accurate. It will cause the taste of the coffee will be different
and the coffee beans would not be fresh as grinded beans. In addition,

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the organization did not show a proper guideline to mix the coffee to
customer. Therefore, the packaging coffee in supermarket did not have
same taste as coffee which mixed in the Starbucks. Customers
satisfaction on the coffee will badly affect and as well as demand of the
Starbucks coffee.
6. In Corporation, the position who responsible about control in Company is
CFO. Meanwhile in Starbucks store, the controller responsibility holded by
Starbucks Store Manager Position. Their responsibility include manage,
control and develop the success of Starbucks, particularly

time

managing and coaching their team, making people decisions e.g

development

and

recruitment,

ensuring

customer

satisfaction

and

product quality. Also, their responsibility provide a unique coffee

experience to all of our customers by providing a prompt service, quality
beverages and products and maintaining a clean and comfortable
environment. Manage the financial performance along with health and
safety and security issues.
7. C.A.F.E. (Coffee and Farmer Equity) Practices is verified coffee industries
set of sustainability standards which include in one of Starbucks ethical
sourcing

responsibility

with Conservation

programs.

International (CI),

Developed
C.A.F.E.

in

Practices

collaboration
has

helped

Starbucks create a long-term supply of high-quality coffee and positively

impact the lives and livelihoods of coffee farmers and their communities.
C.A.F.E. Practices includes guidelines in four
key areas: quality, economic accountability
and transparency, social responsibility and
environmental leadership. Taken together,
the standards help farmers grow coffee in a
way thats better for both people and the
planet. These include four key areas:
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Social Responsibility

Economic Accountability and

Transparency
Measures evaluated by third-party Economic
transparency

is

verifiers help protect the rights of required. Suppliers must submit

workers and ensure safe, fair and evidence
humane

working

conditions.

and

payments

made

living throughout the coffee supply

Compliance

minimum-wage

of

with chain

requirements

to

demonstrate

how

and much of the price that company

prohibition of child and forced labor is pays for green coffee gets to
mandatory.
the farmer.
Environmental Leadership
Quality
Measures evaluated by third-party All coffee must meet companys
verifiers help manage waste, protect standards for high quality.
water quality, conserve water and
energy,

preserve

biodiversity

and

reduce agrochemical use.

8.

In Starbucks, there are three kinds of sustainability responsibility

activities,

which

include

(1)

responsibility

in

environment,

(2)

responsibility in community, and (3) responsibility in ethical sourcing.

Related to water sustainability, it is included on responsibility in
environment activities. Water sustainability in Starbucks is being done by
building more energy-efficient stores and facilities, conserving the use of
water in Starbucks business operations.
In 2008 Starbucks set a goal to reduce water consumption by 25% in
company-operated stores by 2015. Since then, they identified a number
of opportunities to use this precious resource more wisely and have
spent the last few years testing, validating and implementing these
solutions. To date, Starbucks already cut water consumption by over
23%. This water savings have come through several measures, including
installing efficient fixtures; monitoring consumption to identify spikes in
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water usage and targeting leak repairs; and upgrading the water
filtration systems in our stores.
Starbucks work on water also extends into water consumption, protection
and access to clean drinking water in coffee-growing communities.
Through C.A.F.E. Practices, Starbucks help seven its coffee farmer
support centers around the world to increase their yield and quality while
still reducing water used for coffee processing, protecting rivers and
streams and ensuring workers have access to clean drinking water.
Company also working with non-profit organizations to help improve
livelihoods and quality of life in many coffee growing regions by investing
in programs addressing critical community needs such as water access,
sanitation and hygiene.
9. Responsibility center in Starbucks:
Revenue Centre: Starbucks Store, both Companys store and Joint

Ventures Store
Cost Centre: Product Research and Development Department
Profit Centre: Support Centre: Administrative Support and Customer
Service Department
Everything Company do there is to support our retail store partners and
in turn, make an impact on the communities Company serve.

10. Starbucks has decentralized authority because they created decision-

making for each manager. There are also lots of stores around the world
and each store has different from the authority, managers, and
customers. So Starbucks will be an organization and its employees to
behave in a flexible way even as the organization grows and becomes
taller. This is the way managers are so interested in empowering
employees: if they work good, they can get good position, and establish
cross-functional teams. They are used to improve communication
between the employee group who is responsible for the product and the

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group who provides the specific functional skill. For example Starbucks
cross-functional teams could be someone from one department being
responsible to work with an identified person in making to sell the
product: each department within Starbucks will know the details of
business activities in the other departments. In order to support all these
Starbucks characteristic, the best organizational structure for Company is
Matrix

Structure.

The

matrix

structure allows for the

benefits
functional

and

divisional structures to
exist in one organization.

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