This paper applies balanced scorecard (BSC) analysis to Starbucks, evaluating the company across the four standard BSC perspectives: financial, customer, business process, and learning and growth. It examines Starbucks' operating income growth, international expansion strategies, customer satisfaction and retention metrics, procurement and process efficiency, and employee training and retention programs. The paper shows how each BSC quadrant interacts with the others, and argues that Starbucks' long-term viability depends on maintaining quality, cultivating loyalty, and adapting its offerings to diverse global markets, particularly in China and India.
The paper demonstrates applied framework analysis: it introduces a theoretical model (the balanced scorecard), explains each component in general terms, and then maps specific company behaviors and metrics onto those components. This technique shows how management frameworks function as analytical lenses rather than checklists, and it illustrates the dialogue between quadrants — particularly between the financial perspective and the cultural/customer dimensions of international market strategy.
The paper opens with a definition and overview of the balanced scorecard framework, then moves sequentially through each of the four BSC perspectives as applied to Starbucks. Each section begins with a general description of that perspective's key metrics, drawn from BSC literature, before analyzing Starbucks-specific evidence. The conclusion of each section connects back to overall strategic concerns such as international expansion, brand integrity, and competitive differentiation. This parallel structure makes the paper easy to follow and demonstrates disciplined use of a multi-part analytical framework.
The balanced scorecard is a method of conveying value to an organization through the use of performance measurement tools. "The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system. The 'new' balanced scorecard transforms an organization's strategic plan from an attractive but passive document into the 'marching orders' for the organization on a daily basis" ("Balanced scorecard basics," 2014). It can be quantified according to a "four quadrant" perspective analysis whereby a business is analyzed holistically from a financial, customer, process, and learning and growth perspective. It was designed to circumvent the frequently "backward-looking" perspective of many modern organizations and to create a more forward-thinking approach.
"Traditional financial reporting systems provide an indication of how a firm has performed in the past, but offer little information about how it might perform in the future. For example, a firm might reduce its level of customer service in order to boost current earnings, but then future earnings might be negatively impacted due to reduced customer satisfaction" ("The balanced scorecard," 2014). For an organization to thrive in the modern global economy, it cannot always be fighting the last consumer war or resting on its laurels. It must engage in continual environmental scanning and always be on the lookout for new opportunities to improve itself, even if it is not actively struggling at present.
This paper applies balanced scorecard (BSC) analysis to Starbucks. Starbucks has long been lauded as a forward-thinking organization in the way it relates to its customers and views its profitability. It attempts to market itself as an ethical company, offering everything from Fair Trade coffee to consumers to full health benefits for part-time employees. However, as tastes have changed and customers have more options for specialty coffee, revenues have declined at times. Although Starbucks is currently on a financial upswing — benefiting from expansion in China and India — it cannot assume that this will continue indefinitely. The BSC thus seems uniquely suited to Starbucks' current organizational needs.
First and foremost, the financial perspective of the organization cannot be ignored. Even though the BSC is a somewhat cutting-edge, idiosyncratic view of firm profitability, an organization's financial bottom line is not beyond its framework of concerns. For a long time, after a period of unprecedented early prosperity, Starbucks' fortunes began to falter around 2005. Starbucks was able to correct this by retraining its baristas and closing unprofitable domestic stores while expanding abroad. It created a much-publicized initiative of closing all of its stores for a day of comprehensive barista retraining, announcing that "the retraining is part of Starbucks' plan to revive its brand and sales growth, which by one measure sank to an all-time low last quarter" (Allison, 2005). The financial perspective of the BSC encompasses but is not limited to "measures such as operating income, return on capital employed, and economic value added" ("The balanced scorecard," 2014).
Operating income is defined as "the amount of profit realized from a business's operations after taking out operating expenses — such as cost of goods sold (COGS) or wages — and depreciation" ("Operating income," 2014). Starbucks has shown impressive operating income growth in recent years. In 2013, the company reported record expansion in this area: "consolidated operating income grew 26% to $544 million," and it intended to continue this expansion at a similar pace ("Financial," 2013). Starbucks' growth in this area is particularly impressive given that it is a food-based business. Depreciation costs of food are always very high given that inventory is perishable and that customer tastes can be extremely fickle and seasonal.
Another benchmark in this area is store sales growth. In-store sales are a critical component of Starbucks' business model, although the company has been expanding into supermarket sales — particularly internationally, with its beans and instant coffee, Via. In 2013, "global comparable store sales grew 6%, driven by a 4% increase in traffic…marking the 13th consecutive quarter of global comp growth greater than 5%" ("Financial," 2013). Although Starbucks' business model may be shifting to emphasize different areas of the business, the ambiance of its stores remains a critical part of its marketing and image. While stores can take on a very diverse character depending on where they are located in the world, the idea that Starbucks offers a home away from home to consumers is a cornerstone of its positive image.
A final financial benchmark is overall revenue growth, which has been in the 10%–12% range in recent years ("Financial," 2013). Starbucks' expansion in the developing world has been a driving factor. Avoiding market saturation, closing unprofitable stores while opening locations in desirable markets such as China and India, and continuing to make the company relevant while facing cutthroat competition and pressure to lower prices are all challenges to maintaining operating growth.
With all of these influences, international expansion — rather than domestic profitability alone — must be the focus. Starbucks has acknowledged that closing unprofitable and redundant domestic locations while focusing on demand in Japan, China, India, and other developing markets has been critical to maintaining profitability. However, each revenue model must be slightly tailored to each country. Starbucks has developed an effective strategy of partnering with local companies in regions where it is expanding in order to gain a sense of local regulatory requirements and consumer tastes. Part of this multicultural strategy involves offering green tea in China and Japan and more vegetarian, savory options in India. In terms of pricing, Starbucks has found in India that "smaller and cheaper beverages [are] the fastest way to win local coffee drinkers from established rivals. The world's largest coffee chain will need options that are priced as much as 33% lower than its U.S. offerings to succeed in the Indian market" (Sharma, 2012). In contrast, in China, where Starbucks markets itself as an aspirational brand for the emerging middle class, a higher price point actually increases its attractiveness. "Thus, Starbucks has established itself as an aspiration brand and is able to charge premium prices" (Wang, 2012). Focusing on international profits and assessing different price points is therefore a critical component of increasing overall profitability.
Even the financial perspective is infused with cultural considerations, such as the extent to which a given market will bear specific prices. One key insight of the BSC is its acknowledgment that all four quadrants exist in dialogue with one another. Too often, only the financial perspective is emphasized or viewed in isolation. "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" ("Balanced scorecard basics," 2014).
According to the balanced scorecard, "customer satisfaction, customer retention, and market share in target segments" are all critical components of this element of corporate success ("The balanced scorecard," 2014). For Starbucks, the customer perspective is particularly integral to its business model. Fundamentally, Starbucks is a service-driven organization. Customers pay for the experience of the stores — their smell, ambiance, quality, and convenience — and the experience of having their drinks crafted by baristas. This is very different from a conventional canned coffee such as Folger's or Maxwell House, which focuses on providing customer value through low prices. Because service is a critical cornerstone of Starbucks, tracking customer satisfaction is essential.
Starbucks began by striving to offer the European café experience to America — and then to the world. Today, despite its emphasis on fair trade and ethical treatment of workers, Starbucks has been criticized for driving neighborhood coffee shops out of business. As a result of the risk of alienating its core customers, Starbucks must be especially mindful of its image and customer satisfaction. On price alone, customers will not choose Starbucks because it is sold at a higher price point than competitors such as Dunkin' Donuts and McDonald's. In fact, many competitors have specifically marketed themselves as the anti-Starbucks, emphasizing their lower prices and straightforward menu vocabulary.
However, Starbucks has an extremely loyal following because its customers enjoy the product and believe they are supporting a socially responsible company. It also has a reputation for offering a consistently high-quality product, whether the coffee is purchased in an airport, a strip mall, or a free-standing store. Starbucks is not ultra-gourmet coffee, but it stresses its uniqueness via specialty seasonal drinks — such as the pumpkin spice latte and white chocolate bark — and positions itself as a cut above Dunkin' Donuts.
Customer satisfaction is thus a critical measure of Starbucks' success, particularly since satisfaction has been a somewhat fragile metric in recent years. Satisfaction scores have been tumbling despite efforts to retain baristas and ensure that drinks are served fresh — both areas of recurring customer complaint. Prices have increased, and the perception of customer uniqueness is not as strong as it once was. A recent survey of major fast food coffee chains found that although McDonald's ranked last in the sector, Dunkin' Donuts has become a formidable rival. "The overall average for the sector was 80, and both Dunkin' and Starbucks hit that average. Dunkin' won out in cost — which was no real surprise — while Starbucks won the quality fight. The move to 80 was good news for Starbucks, which had fallen behind in 2012, when it dropped down to 76 — four points below the sector average" (Marder, 2013). This is particularly concerning because Dunkin' Donuts has introduced many beverages that closely imitate Starbucks offerings.
Customer satisfaction ratings can be obtained by soliciting direct feedback through the company's website, social media platforms such as Facebook and Twitter, or qualitative research such as focus groups. An interrelated metric is customer retention. For a food-based company, this metric is especially critical: coffee is not a product that people buy only occasionally. High-volume consumers are very important, and generating return traffic is essential. Satisfaction scores alone are insufficient; customers must also be voting with their feet.
Internationally, Starbucks strives to create a coffee habit even in countries that do not traditionally have coffee-drinking cultures. The objective is not necessarily to convert all of tea-drinking Japan and China to coffee, but rather to cultivate a café-going culture while fostering interest based on attractive coffee options suited to local tastes. When Starbucks initially expanded to Japan — the first country it entered in the Far East — it was very popular at first, before revenues began to decline as novelty wore off. Undaunted, Starbucks engaged in substantial repositioning within the Japanese coffee market and was ultimately able to secure a more durable niche.
Starbucks has also implemented a customer rewards program internationally to incentivize return visits. "Membership rewards have been commonplace for some time, but Starbucks has mastered the system. The company created a loyalty rewards system where its customers gain rewards on all their purchases within the family of Starbucks products. Members earn 'stars' on everything from coffee drinks to accessories, from grocery store purchases to purchases at Teavana" (Matherson, 2012). These loyalty cards also provide an excellent means of measuring customer retention and repeat traffic, as well as identifying which beverages are most popular among the company's most loyal patrons. For example, Starbucks has found particular interest in its specialty seasonal products. "Throughout the year Starbucks releases a number of seasonal favorites…the pumpkin spice latte, peppermint mocha and gingerbread latte have become the company's seasonal staples alongside accompanying food offerings" (Matherson, 2012). Loyal consumers will specifically seek out Starbucks for these beverages, providing a clear value-added that competitors cannot easily replicate.
A final customer-related metric is the extent to which Starbucks is generating traffic and retention among key demographic segments. Attracting younger customers is always a priority, to ensure the customer base does not age out of the product. For a premium-priced food company like Starbucks, attracting consumers of a certain level of affluence is also desirable, as less price-sensitive customers are less likely to be deterred by economic downturns. "By greatly expanding the size of its product portfolio, the company has become a market leader in coffee, juices, sandwiches, snacks and sodas, effectively making Starbucks an all-day option for its customers" (Matherson, 2012).
On a broader international scale, attracting the emerging middle class of the developing world is critical to Starbucks' long-term survival. It cannot afford to concede China or Japan to rivals such as Dunkin' Donuts. China's emerging middle class is particularly attractive, given its focus on consumerism and its aspiration toward Western lifestyles. As much as Starbucks markets its American quality in China, it has also engaged in careful environmental scanning of the demographic to ensure that its product pleases local tastes and does not rely on a transient novelty factor. "Many [Chinese] go to Starbucks not just for a cup of Frappuccino, but also for the Starbucks Experience that makes them feel cool and trendy" (Wang, 2012).
Always verify citation format against your institution’s current style guide requirements.