Financial Performance Management: Analysis of Starbucks

This assessment analyzes the financial performance of Starbucks for two years periods which is 2016 and 2017. The assessment considers the usefulness of Balanced Scorecard in the management of the business and how the same can help to improve the overall performance of the business. The impacts of total quality management on the performance of the business and usefulness of Benchmarking as a tool for comparing the performance of the business with other close competitors are also discussed.

Running head: FINANCIAL PERFORMANCE MANAGEMENT
Financial Performance Management
Name of the Student:
Name of the University:
Author’s Note

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Table of Contents
Introduction......................................................................................................................................2
Balanced Scorecard Approach.........................................................................................................2
Total Quality Management..............................................................................................................8
Benchmarking................................................................................................................................10
Conclusion.....................................................................................................................................12
Reference.......................................................................................................................................13
Appendix........................................................................................................................................16

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Introduction
The main purpose of this assessment is to analyze the financial performance of Starbucks
for two years periods which is 2016 and 2017. The assessment considers the business of
Starbucks is an American coffee company which has presence globally with stores in excess of
28,000 with a majority of stores in the US. The assessment also identifies the usefulness of
Balanced Scorecard in the management of the business and how the same can help to improve
the overall performance of the business. The four perspectives of the balance scorecard is
explained in relation to the business of starbucks. The assessment also considers the impacts of
total quality management on the performance of the business. The assessment also considers the
usefulness of Benchmarking as a tool for comparing the performance of the business with other
close competitors.
Balanced Scorecard Approach
Balanced Scorecard can be defined as a tool which is used to effectively measure the
performance of the business and formulate strategies for the purpose of meeting the performance
objectives of the business (Hoque, 2014). There are four aspects which needs to be considered by
the business in a Balanced Scorecard Approach such Financial perspective, customer
perspectives, internal perspectives and learning and growth perspective.
In the last few years the profitability and growth of Starbucks has decreased significantly
and therefore the management is planning to incorporate a Balance scorecard approach to
improve the overall performance of the business. In case of many companies, adopting the
balanced scorecard approach has significantly help the organization in improving and maintain
the performance of the business (Keyes, 2016). The management of Starbucks can effectively

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plan regarding their strategies in such a way that the performance objectives of the business is
the primary focus of the organization. The advantages of balanced scorecard which can be
identified with respect to the business of Starbucks are listed below in details:
 Provides a Clear Picture: The balance scorecard approach provides clear set of
objectives and strategies which is to be undertaken by the management for meeting the
goals of the business (Hansen & Schaltegger, 2016). In addition to this, Balanced
Scorecard allows the business to effectively monitor the finances and performance of the
business.
 Monitors Performance: The management of Starbucks will be able to monitor the
performance of the business as well as the employees with the help of a balanced
Scorecard. An example can be given of the sales team of the Starbucks can keep records
for sales which is achieved by each sales personnel (Reefke & Trocchi, 2013). This keeps
the performance of the business under check and also increases the overall efficiency of
the business.
 Considers the different aspects of Business: The management of Starbucks considers
the aspect of customer satisfaction and customer loyalty to be of highest importance to
the business for which Balanced Scorecard can improve the performance of the business
significantly.
The disadvantages which are associated with Balanced Scorecard incorporation in the
business of Starbucks are listed below:
 Expensive and time Consuming: The process of implementing balance scorecard
approach in the business of Starbucks is an expensive process and requires a lot of

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time. In addition to this, in order apply the tool correctly a lot of time is required
which is not appropriate from the business point of view.
 Requires data mining: The process of balance scorecard requires data mining and
the work of the managers becomes tedious in nature (Martello, Watson & Fischer,
2016). The tool may have a negative impact on the performance of the managers due
to time consuming process and the follow ups which are required to be taken in this
process.
 Extensive labor training: The tool of Balance scorecard requires extensive training
for the employee in order to properly handle the tool. The extensive training further
increases the costs of the business and therefore is not considered to be an attractive
option for most of the companies.
The main KPIs which can be identified for the business of Starbucks is related to the
quality of services which is provided by Starbucks and also the customer satisfaction level. The
management has created a brand vale and brand loyalty following such KPIs over the years
which has help the business to become more profitable.
The Balance Scorecard of a business mainly consists of four different perspectives on the
basis of which the management needs to formulate strategies and control the activities of the
business. The four perspectives of the balance scorecard with a view point of Starbucks is listed
below in details:
 Financial Perspective: The balance scorecard considers the financial perspective for
measuring and achieving the financial goals of the business. The general financial measures
which are considered are net profit and return on investment of the business. Financial

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perspectives basically are indicators of the past efforts of the business and are not a sign for
the future and they are important indicators for making comparisons. In the case of
Starbucks, the net profit of the business has fallen significantly which is due to the increase
in the costs of the business but the return on investment has improved which suggest that the
business is in its right tracks.
 Customer Perspective: This perspective mainly focuses the target market and its respective
segments which are identified by the managers of the business. The target market of the
business is identified and strategies are formulated for ensuring a standard performance of
the business. The major indicators which are considered under this perspective are customer
satisfaction, customer retention and market share of the target market of the business. In the
case of Starbucks, the main focus of the organization is on customer satisfaction and
retention of the premiums clients of the business. The business has built a strong brand name
for itself in the market and also across various regions.
 Internal Business Process Perspective: This perspective mainly deals with the internal
policies which are incorporated by businesses. A balance scorecard approach verifies
whether the policies are consistent with the value proposition if Starbucks and whether the
same can meet the expectations of the society and shareholders. The management of
Starbucks need to formulate appropriate performance standards which would be included in
the internal processes of the business. The decisions regarding production and also selection
of the raw materials falls under the purview of internal business process perspective.
 Learning and Growth Perspective: The learning and growth perspectives in a business refers
to the research and development programs which are undertaken by the management of a
business. The key measures which are included under this head is related to the level of

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employee’s satisfaction in the business and the level of retention of Starbucks. In addition to
this, the management of Starbucks is continuously engaged in development of the business
from the technological front and further enhance the customers experience and quality of
services.
A balance scorecard of the business of Starbucks is developed and shown below considering
some key measures in all four perspective.
Customer Perspectives
Objectives Measures Targets
Customer
Retention
Retention rate 90%
Customer
Satisfaction
Satisfied
Ratings
Very
Satisfied

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Financial Perspectives
Objectives Measures Targets
Increase firm
Value
EPS Rise by 3%
Profitability Net Profits Rise by
20%
Internal Business Process Perspectives
Objectives Measures Targets
Productivity Net earnings
per employees
Greater than
costs per
employee
Quality Quality Index Very High
The above shows balance scorecard for Starbucks showing different perspectives of the
balance scorecard and the targets which can be set by the business of Starbucks.
Learning and Growth Perspectives
Objectives Measures Targets
Innovation Development High
Employee
retention
Turnover
estimates
Very low

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Total Quality Management
In today’s business organizations, Total Quality Management (TQM) is considered as one of the
major aspects for their success. TQM is considered as a systematic approach based on the
principles that every staff of a business should be committed to maintain high standards and
quality of work in every aspect of business operations (Sallis, 2014). Starbucks is the leading
coffee retailer in today’s market. Despite of the presence of many threats in the coffee retail
market, Starbucks has the most effective strategies for quality control of their products and
services. The following discussion shows the major aspects of the TQM of Starbucks.
Customer feedback is considered as a major aspect in TQM as the companies are needed
to consider the feedback of the customers to maintain their product quality. The management of
Starbucks uses random check-ins from the area managers where they consider checking the
baristas and talking to the customers to gain feedback (Ross, 2017). They put utmost attention to
these collected feedback from the customers as it helps the management in identifying the areas
where the company is lacking to provide effective services to the customers. After that, they
develop strategies for these loopholes.
Quality control is considered as another major aspect in the process of the TQM of
Starbucks. When compared to the other coffee retailers, Starbucks is and always will be superior
in the quality of their products. The company chooses exceptional coffee beans that are superior
in quality, flavor and complexities; and all these cannot come from simple roasting (Hummel &
Malorny, 2015). After that, Starbucks places the coffee beans in high altitude that creates density
in order to turn them into great flavor. In addition, Starbucks also uses JUST IN TIME system in
their production facility with the aim to ensure the highest quality of their coffees. Most

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importantly, it needs to be mentioned that Starbucks complies with all the required quality
standards in their various business operations; such as ISO19001, ISO9000 and others. The
implemented TQM system of Starbucks helps the company in reducing errors from every coffee
(Bon & Mustafa, 2013).
The selection of the suppliers is regarded as another major dimension of the TQM of
Starbucks as the aim of the company is to maintain quality of their products and services with the
selection of effective suppliers. One major initiative of Starbucks in case of their suppliers is to
provide them proper training in certain areas like the cultivation of cocoa, post harvest
processing and others. At the same time, Starbucks helps their suppliers by providing training in
the areas of customer research with the aim to provide them with high quality services (Oakland,
2014).
Continuous improvement can be regarded as another major aspect in the TQM of
Starbucks. Under this process, the company takes into consideration four major aspects; they are
knowledge gap, standard gaps, delivery gap and communication gap. Under the process of
knowledge gap, Starbucks attempts to reduce the gap between the perception of customers and
standards. After that, the company also takes into consideration reducing the gap between the
perception of the store and the customers. Moreover, the TQM of Starbucks also helps the
company in reducing the delivery gap between store service standards and actual service
standards (Gharakhani et al., 2013).
Providing education and training to the employee is another major aspect in the TQM of
Starbucks. The aim of the company is to increase the quality of their products as well as services
by providing training to their employees for improving both hard skills and soft skills. Under

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hard skills, Starbucks provides training in certain areas like mix drinks, cash machine, card
machine and cleanliness maintenance. Under the aspects of soft skills, the company provides
training to their employees for keeping the customers connected, to make the customers smile
and others. All these practices help Starbucks in maintaining their service quality.
Benchmarking
Benchmarking is considered as another major tool that the business organizations can use
with the aim to increase the overall quality of their products and services. Benchmarking can be
regarded as the process to discover the best practices for the companies with the aim to achieve
their goals and objectives (Becker, Kugeler & Rosemann, 2013). The main advantage of
benchmarking is that it helps the companies in bringing external factors in the equation. In case
of Starbucks, the company needs to consider three types of benchmarking; they are Internal
benchmarking, External benchmarking and Best Practice benchmarking.
Internal Benchmarking: Under the process of external benchmarking, Starbucks has some
specific option to choose from. In the first place, the company can consider customers
satisfaction for the purpose of benchmarking their business operations. Under this process,
Starbucks can benchmark their business against the highest customer satisfaction with the lowest
customer satisfaction (Rolstadås, 2013). For the business operations of Starbucks, customer
satisfaction plays an integral part as the satisfied customers have the tendency to visit the stores
again. Thus, it can be considered as a major aspect for the internal benchmarking of Starbucks.
After that, Starbucks also has the option to consider the profitability of their business as another
major metrics for benchmarking process. Under this process, the company is needed to compare
their high profitability against the low profitability so that they can improve the overall business

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strategies for the purpose of increasing the company profits. In this context, it needs to be
mentioned that these benchmarking metrics help the companies in improving their internal
business performance after taking into consideration the quality of products and services (Laguna
& Marklund, 2013).
External Benchmarking: It needs to be mentioned that there are certain renowned companies
operating in the same industry of Starbucks and one of them is Dunkin Donuts. For this reason,
Dunkin Donuts can be considered as the company for the purpose of the benchmarking of
Starbucks (Chang, 2016). It can be observed that Starbucks operates under the large owner-
operated model that puts major implications on the aspects like revenue streams, cost structure
and capital spending of Starbucks. The profitability of Starbucks largely depends in the price of
coffee beans as cost of goods sold is prominent in the expenditure structure of the company. At
the same time, it can be seen that the business model of Dunkin Donuts is franchise and rental
income based. This aspect allows them to highly operate in the overseas market.
It can also be seen that Starbucks has been able in developing more premium brand than
Dunkin Donuts as Starbucks provides their customers with more extensive menu along with
highly customized product. In addition, Starbucks also provides their customers with quiet and
comfortable environment with some of the other facilities like free internet access, free listening
to music and others (Maheshwari & Janssen, 2014). Thus, in this aspect, it can be said that
Starbucks has superiority than Dunkin Donuts in this aspect.
Best Practice: In the recent years, Starbucks has introduced some major sustainability initiatives
for making their business operations more sustainable and environment friendly; such as
sustainable coffee, greener retail and creating opportunities for community for strengthening the

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communities (starbucks.com, 2018). The company has set certain sustainability targets for this
business like to hire and honor 25000 military spouses and veteran by 2025, to embrace and
employ 100,000 people by the year 2025, to welcome and employ 10,000 refuges globally by the
year 2022 and others. These can be considered as the best practices for the company
(starbucks.com, 2018).
Conclusion
Thus, from the above analysis of the financial performance of the business of Starbucks
Corporation, the business is performing well. However, the management needs to improve the
performance of the business and follow an aggressive sales strategy for the purpose of improving
the profitability of the business. The analysis also shows that the balance scorecard total quality
management and benchmarking approach can significantly help the business in improving the
financial and overall performance of the business. The business therefore must adopt the tools
for the purpose of improving the overall performance of the business.

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management and organizational performance. American Journal of Industrial
Engineering, 1(3), 46-50.
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Hoque, Z. (2014). 20 years of studies on the balanced scorecard: trends, accomplishments, gaps
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Hummel, T., & Malorny, C. (2015). Total Quality Management (TQM). Handbuch QM-
Methoden. Die richtigen Methode auswählen und erfolgreich umsetzen, 3, 1-48.
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crowdsourcing. Government Information Quarterly, 31, S84-S92.
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Reefke, H., & Trocchi, M. (2013). Balanced scorecard for sustainable supply chains: design and
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Appendix
Profitability Ratios
Particulars 2017 2016
$ m $ m
Total Revenue 22386.8 21315.9
Cost of Sales 9038.2 8511.1
Net Profit 2884.9 2818.9
Total Assets 14,365.60 14,312.50
Total equity 5,457.00 5,890.70
Gross Profit 4,134.70 4,171.90
Gross Profit Margin 18.47% 19.57%
Net Profit Margin 12.89% 13.22%
Return on Assets 0.201 0.197
Return on Equity 0.529 0.479
Gearing Ratios
Particulars 2017 2016
$ m $ m
Total Assets 14365.6 14312.5
Total equity 5457 5890.7
Total Liabilities 8908.6 8421.8
Debt-to-Equity Ratio 1.633 1.430
Debt Ratio 0.620 0.588
Equity Ratio 0.380 0.412
Efficiency Ratio
Particulars 2017 2016
$ m $ m
Inventory 1,364.00 1,378.50
Trade Receivables 870.4 768.8
Cost of Sales 9038.2 8511.1

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Sales Revenue 22386.8 21315.9
Inventory Turnover Ratio 6.626 6.174
Receivables Turnover Ratio 25.720 27.726
Liquidity Ratio
Particulars 2017 2016
$ m $ m
Current Assets 5,283.40
4,757.9
0
Current Liabilities 4,220.70
4,546.8
0
Inventory 1364 1378.5
Current Ratio 1.252 1.046
Quick ratio 0.929 0.743