Team A will describe the relationship between strategic and financial planning. The will describe a strategic planning initiative for Starbucks and identify an initiative discuss within the organization’s annual report. They will also, describe how the initiative affects Starbucks financial planning, affect costs, and affect sales. Last, Team A will describe the risks associating with the initiative and financial effects that Starbucks may endure. Strategic & Financial Planning According to Olsen and Eadie (1982, p. ) strategic planning is define as a disciplining effort to produce fundamental decisions and actions that shape and guide what an organization (or other entity) is, what is does, and why it does it. Strategic planning is the “why” that drives Starbucks as a successful corporation. Financial planning is analyzing the investment and financing choices open to the company, projecting the future consequences of current decisions, deciding which alternatives to carry out. As well as measuring subsequent performance against the goals set out in the financial plan (Brealey, Myers, & Marcus, 2003).
Strategic planning helps an organization define where it is going so it can succeed. Once they know the “why” it is easier to figure out the “how” by outlining the requirements to get there, including where to place financial resources, how to forecast human resource needs, and where to place investments, otherwise known as financial planning. Financial planning is about allocating limited resources as in equipment, employees, and money over time, to reach the goals that were set within the strategic plan. Doing so includes measuring current performance against past data and trends for the future (Boone, 2009).
Identifying Initiative The strategic planning that was described in Starbucks annual report was eventually having a global demographic base. Team a states from their Ethics and Compliance Paper that Starbucks financial performance for the 2009 year held steady from previous years. The corporation’s financial goal is to continue global expansion of its retail and licensing store base, to introduce relevant products in all its channels and to develop new channels of distribution (Schultz, 2009). Starbucks financial goals is to make their corporation exceed financially and to expand globally.
Starbucks also wants to take over their distribution, instead of paying a contractor to distribute their products. All of these goals will affect their cost of revenue and affect sales by using more capital towards building and aggressively expanding overseas. Starbucks global coffee market and the U. S. market have instantly seen 4 billion dollars in coffee retail sales annually. Globally instant coffee represents 40% of coffee sales, which is 21 billion annually with combining both markets (Starbucks coffee company, 2010). When expanding there is always, a risk involved.
Starbucks has been boycotting by anti-war protesters in Lebanon and criticized by New Zealand advocates seeking higher coffee prices for farmers. Facing with the possibility of terrorist attacks, the company closed their expansion out of Israel. Although Starbucks does not break out its sales from its international operations, revenues for “all other business units,” which includes overseas sales, were $482. 7 million for fiscal 2002, up 31 percent from $369. 1 million the previous year. The company envisions a future with 25,000 stores, 10,000 of them in North America.
Overseas, it projects 1,500 stores in Latin America, 6,000 in the Asia-Pacific region and a combined 7,500 in Europe, the Middle East, and Africa (Organic Consumers Association, 2003). Starbucks strategic plan is becoming a multi-conglomerate globally like McDonalds Corporation. Their target is expanding at least 1,500 stores in Mainland China by 2015, up from only 220 stores as of Oct. 3, and plans to grow in Brazil, Russia, and India. In addition, Starbucks hopes to encourage customers to buy food and beverages at more times of the day by expanding its menu items (Daily Finance, 2010).
In order to cut overhead costs Starbucks merged with other retail locations, such as Costco, Target, Omni hotel, and resorts, and online at amazon. com. Even though Starbucks expands globally one of the major risks because of the recession, was increasing coffee prices. Starbucks faces many other challenges, such as lower wages with employees, and frustrated store managers. Coffee is the main source of why they call it Starbucks. The major focus is the quality of improving their coffee and customer service instead of raising their prices on coffee.
Conclusion In this paper, team A describes the relationship between strategic and financial planning. They have described the strategic planning initiative for Starbucks and identify an initiative that is stated in the Starbucks annual report. The team has shown how the initiative affects the organizations financial planning, costs, and sales. The team outlines risks associating with the initiative and financial effects they may encounter. The expansion of any business whether it is locally or globally will have a considerable effect on the costs and sales.
Some of the explained risks involve losing customers, due to fewer options, which results in losing sales, which will eventually affect cost. When sales are down companies tend to lower prices to bring in new customers. Basically, Starbucks focus on expansion is full of risk and taking chances. But, they wouldn’t have a muti-billion dollar corporation if they didn’t take risk. Starbucks strategic and financial plan should be a blueprint of success for other corporations to follow. Team A finds that Starbucks mirror of success is risky but also profitable for having a successful entrepreneurship in the future.