Strategic Plan Initiative sample essay
Starbucks is a fast growing coffee distributor around the globe. Starbucks is challenged to manage its business with strategic initiatives. This paper will discuss the relationship between strategic and financial planning efforts of the Seattle-based barista and initiatives outlined in the latest annual report. Also, how these initiatives affect the organization’s financial planning and what risks are associated with the initiatives will be reviewed. Understandably, in the highly competitive market of supplying customers with the best coffee products calls for calculated strategic and financial planning.
Strategic Vs. Financial Planning
Starbucks began as a lone coffee shop in Seattle, Washington; just 40 years later, Starbucks is now a leading competitor of coffee confections around the world (Starbucks, 2012). Because the ultimate goal is to be the best supplier of good coffee to coffee enthusiasts, having strategic and financial plans in place is crucial, since one is the basis for the other. Strategic planning is the guide for which all financial planning will follow suit. A “strategic plan defines, in very general terms, how the firm plans to make money in the future” (Titman, Keown, & Marin, 2011, p. 564). The strategic plan is the backdrop that drives and guides financial planning. “Financial planning is all about allocating finite resources — such as money, employees and equipment — over time, to reach the broad goals set out in strategic planning. To do so involves measuring current performance against past data and trends for the future” (Boone, 2013, para. 3). There are four key components to developing a financial plan which engages many different players.
The four steps are: collect historical financial data, identify trends, adjust projections, and revise estimates (Titman, Keown, & Marin, p. 564, 2011). But strategists cannot forget that financial planning can be divided into two components, short and long term planning. Long term planning is typically three to five years, whereas short term looks only one year ahead. Starbucks outlines both short and long strategic planning initiatives each year in annual reports and in turn gives the public and stakeholders the short and long term company initiatives. Starbucks Strategic Planning Initiatives and Financial Effects Starbucks has a number of creditors, investors, shareholders, and all around stakeholders that have a vested interest in viewing the success and vision of the company regularly. The latest annual report, 2011, speaks to these initiatives in great detail, outlining the successes and risks of chosen strategic path. According to the Starbucks Annual Report 2011, (2011), the company “reported the highest annual revenue ever: $11.7 billion” (Starbucks Corporation Fiscal Year 2011 Annual Report, 2012, p. 1).
Clearly, the Starbucks leaders and family are doing something right, and most assuredly, the strategic initiatives are working. One key initiative was to increase earnings per share and return millions to shareholders; not an easy task given the troubled economy in the United States. Starbucks “ended fiscal 2011 with record earnings per share of $1.62, up 31 percent from last year’s $1.24 per share. Through share repurchases and dividends, we returned approximately $945 million to shareholders, more than doubling the amount returned in fiscal 2010” (Starbucks Corporation Fiscal Year 2011 Annual Report, 2012, p. 3). According to Titman, Keown, & Marin (2011), one key principal of the valuation of investment opportunities is made available through cash flows (p. 333).
Looking at the cash flows data from 2010 to 2011, Starbucks decreased approximately $.1 billion cash flows from operations and increased capital expenditures by approximately $92 million (Starbucks Corporation Fiscal Year 2011 Annual Report, p. 21, 2012). Starbucks actively manages these as short-term investments. Another feather in the Starbucks cap is payment of cash dividends to shareholders. In 2011, $.13 per share totaling $390 million was paid (Starbucks Corporation Fiscal Year 2011 Annual Report, p. 21, 2012). Studies have shown that use of cash in this manner, paying cash dividends and share repurchases, has grown significantly from stating that “the proportion of firm earnings distributed through both approaches has grown from about 40% in the 1970s to near 80% by 2000” (Titman, Keown, & Marin, 2011, p. 537).
These Initiatives of this nature can affect the organization’s financial planning lending better cash revenues and fiscal statistics. More specifically, reducing the number of stocks increases the earnings per share. This was evident with the price per share increase of $.38 per share from 2010 to 2011, as noted above. However, companies cannot operate without caution; risks are associated with every financial planning endeavor and the initiative to pay out millions to shareholders is not without exception. Risks associated with the initiative. When conducting financial risk management, leadership and financial planners cognizant of market risks associated with the financial planning efforts and the long term effects of these short term goals. “Market risk is defined as the risk of losses due to changes in commodity prices, foreign currency exchange rates, equity security prices, and interest rates” (Starbucks Corporation Fiscal Year 2011 Annual Report, 2012, p. 37).
Companies today must closely monitor market trends and risks alike. Starbucks is no exception, and significantly due to its dealings overseas and across varied currency rates and cultures. Although, market risks are not key player when discussing cash dividends and share repurchases. The main risk here is the long term impact of the payout strategy. It is commonly believed that just increasing earnings per share does not necessarily mean company success. “Companies shouldn’t confuse the value created by returning cash to shareholders with the value created by actual operational improvements; moreover, a company’s fixation on buybacks might come at the cost of investments in its long-term health” (Dobbs & Rehm, 2005, para. 1, 3). Management must understand the pitfalls of creative financing and keep the benefits to shareholders as a key focus and paramount for longevity.
The Starbucks Corporation is committed to profiteering with short term investments and long term focus to remain competitive. Starbucks understands the relationship between strategic and financial planning and many initiatives are outlined in every annual report. In particular, the financial planning was clearly defined by a number of incentives, and the incentive to utilize cash flows to return a substantial allocation to shareholders and reduce shares through share buybacks created success story for the company. The coffee market is not without major competitors, however, the strategic vision, financial planning, and monitoring of financial risks allows Starbucks to not only stay afloat, but lead the coffee frontier.
Boone, B. (2013). What’s the difference between strategic and financial planning? Retrieved from http://money.howstuffworks.com/personal-finance/financial-planning/strategic-and-financial-planning.htm Dobbs, R. & Rehm, W. (2005, August). The value of share buybacks. McKinsey Quarterly. Retrieved from http://www.mckinseyquarterly.com/The_value_of_share_buybacks_1630 Starbucks Corporation Fiscal Year 2011 Annual Report. (2012). Retrieved from http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-irhome Titman, S., Keown, A.J., & Marin, J.D. (2011). Financial management: Principles and applications (11th ed.). Retrieved from University of Phoenix eBook Collection database.
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